Generates positive operating leverage, expands net interest margin
and produces solid growth in pre-tax pre-provision income
BIRMINGHAM, Ala.--(BUSINESS WIRE)--
Regions Financial Corporation (NYSE:RF) today announced earnings for the
third quarter ended September 30, 2017. The company reported net income
available to common shareholders from continuing operations of $296
million and earnings per diluted share from continuing operations of
$0.25. The company generated positive operating leverage with reported
pre-tax pre-provision income increasing 6 percent over the second
quarter 2017 and 5 percent over the third quarter 2016. Adjusted pre-tax
pre-provision income(1) increased 4 percent over the second
quarter 2017 and 12 percent over the third quarter 2016.
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"While the third quarter presented challenges from recent hurricanes, I
am immensely proud of how our teams responded to serve affected
customers and meet the needs of fellow Regions associates and our
surrounding communities," said Grayson Hall, Chairman, President and
CEO. "Throughout the impacted communities we serve, our associates
mobilized resources to quickly restore essential financial services in
hard-hit areas, and we continue to work with customers on
disaster-recovery needs."
Hall added, "With respect to our financial performance, Regions remains
focused on the fundamentals of serving our customers. While we have
benefited from rising interest rates, our performance also reflects
continued efforts to control expenses and improve efficiency. During the
quarter we generated positive operating leverage, expanded net interest
margin, and produced solid growth in pre-tax pre-provision income."
SUMMARY OF THIRD QUARTER 2017 RESULTS:
Third quarter 2017 results compared to second
quarter 2017:
-
Net interest income and other financing income on a fully taxable
equivalent basis increased 2 percent; the resulting net interest
margin was 3.36 percent, up 4 basis points.
-
Non-interest income decreased 2 percent, and 3 percent on an adjusted
basis(1).
-
Non-interest expense decreased 3 percent, and 2 percent on an adjusted
basis(1).
-
Average loans and leases totaled $79.6 billion, a decrease of less
than 1 percent.
-
Consumer lending balances increased $180 million on an average
basis.
-
Business lending balances decreased $705 million on an average
basis.
-
Average deposits totaled $96.9 billion, a decrease of less than 1
percent.
-
Hurricane-related charges include a net $13 million impact associated
with elevated non-interest expenses or waived fee income and estimated
loan losses of $40 million included in third quarter provision for
loan losses.
-
Allowance for loan and lease losses increased 1 basis point to 1.31
percent of total loans; the allowance for loan and lease losses
attributable to direct energy loans decreased from 6.9 percent to 6.1
percent.
-
Net charge-offs increased 4 basis points to 0.38 percent of average
loans; non-accrual loans, excluding loans held for sale, decreased 8
percent to 0.96 percent of loans outstanding.
Third quarter 2017 results compared to third
quarter 2016:
-
Net interest income and other financing income on a fully taxable
equivalent basis increased 8 percent; the resulting net interest
margin increased 30 basis points.
-
Non-interest income decreased 14 percent, and 7 percent on an adjusted
basis(1).
-
Non-interest expenses decreased 5 percent, and 4 percent on an
adjusted basis(1).
-
Average loans and leases decreased 2 percent.
-
Consumer lending balances increased 1 percent on an average basis.
-
Business lending balances decreased 4 percent on an average basis.
-
Average deposits decreased 1 percent.
-
Net charge-offs increased 12 basis points; non-accrual loans,
excluding loans held for sale, decreased 29 percent.
THIRD QUARTER 2017 FINANCIAL RESULTS:
Selected items impacting earnings:
Regions continues its ongoing efficiency initiatives as the company
refines its branch network while making prudent investments in new
technologies, delivery channels and other areas of growth. During the
third quarter, the company incurred $5 million of expenses associated
with announced branch consolidations and the transfer of land previously
held for future branch expansion to held for sale. These expenses were
partially offset by gains on the disposal of land previously transferred
to held for sale.
The company also incurred $10 million of impairment charges associated
with certain operating lease assets and $2 million of pension-related
settlement charges during the quarter. The pension settlement charges
are included in salaries and employee benefits, and the operating lease
impairment charges are recorded as a reduction in other non-interest
income.
In addition, Regions was negatively impacted during the quarter by
recent hurricanes across its footprint. The incremental provision for
estimated hurricane-related loan losses was $40 million. The estimated
impact on card & ATM fees and service charges was approximately $1
million, and the estimated impacts on occupancy and other real estate
owned expenses were approximately $5 million and $7 million,
respectively. These expenses relate to branch damage, hurricane
preparedness and other storm-related charges.
Total revenue
Comparison of third quarter 2017 to second quarter
2017
Total revenue on a fully taxable equivalent basis was $1.44 billion in
the third quarter, reflecting a $7 million increase over the second
quarter of 2017. On an adjusted basis(1), total revenue on a
fully taxable equivalent basis increased $4 million from the prior
quarter.
Net interest income and other financing income on a fully taxable
equivalent basis was $921 million, an increase of $17 million or 2
percent. The resulting net interest margin was 3.36 percent, an increase
of 4 basis points. Net interest margin and net interest income and other
financing income benefited from higher market interest rates and
favorable credit-related interest recoveries partially offset by lower
average loan balances. Further, one additional day in the quarter
resulted in an increase to net interest income and other financing
income of approximately $5 million but reduced net interest margin by
approximately 2 basis points.
Non-interest income totaled $515 million, a decrease of $10 million or 2
percent. On an adjusted basis(1), non-interest income
decreased $13 million or 3 percent primarily due to decreases in
mortgage and capital markets income, partially offset by an increase in
service charges. In addition, the company incurred $10 million of
impairment charges reducing the value of certain operating lease assets
during the quarter compared to $7 million in the second quarter.
Mortgage income decreased $8 million or 20 percent compared to the
second quarter. Despite a 9 percent decline in mortgage production,
sales revenue increased $1 million or 4 percent primarily due to
improved secondary marketing gains. However, this increase was offset by
a $9 million reduction in the valuation of residential mortgage
servicing rights. A lack of housing supply across the company's
footprint was a contributing factor to lower mortgage production.
Capital markets income decreased $3 million or 8 percent driven
primarily by lower merger and acquisition advisory services and loan
syndication income, partially offset by higher revenues associated with
debt underwriting. However, service charges increased $6 million or 4
percent aided by overall account growth.
The company expects growth in capital markets revenue accompanied by a
modest increase in mortgage, wealth management and card & ATM fees to
contribute to overall non-interest income growth in the fourth quarter.
Comparison of third quarter 2017 to third quarter
2016
Total revenue on a fully taxable equivalent basis decreased $19 million
or 1 percent compared to the third quarter of 2016. Adjusted(1)
total revenue on a fully taxable equivalent basis increased $27 million
or 2 percent.
Net interest income and other financing income on a fully taxable
equivalent basis increased $65 million or 8 percent compared to the
prior year. The resulting net interest margin increased 30 basis points.
Net interest margin and net interest income and other financing income
benefited from higher market interest rates, prudent deposit cost
management, favorable credit-related interest recoveries, and the impact
of balance sheet management strategies, partially offset by lower
average loan balances.
Non-interest income decreased 14 percent on a reported basis as the
prior year period included $47 million of insurance proceeds. Adjusted
non-interest income(1) decreased $38 million or 7 percent as
growth in service charges was offset by declines in mortgage, capital
markets, and card & ATM fees. In addition, other non-interest income
included operating lease impairment charges of $10 million incurred in
the current quarter. Service charges increased $9 million or 5 percent
aided by overall account growth. Compared to the third quarter of 2016,
customer checking accounts grew 1.2 percent, Now Banking accounts grew 5
percent, and mobile deposit revenues increased 29 percent. Mortgage
income decreased $14 million or 30 percent compared to the prior year as
sales revenues decreased $9 million or 24 percent consistent with lower
production volumes, partially offset by a $3 million or 14 percent
increase in mortgage servicing income. In addition, the valuation of
mortgage servicing rights decreased $8 million compared to the prior
year. Capital markets income decreased $7 million or 17 percent as
increased fees generated from the placement of permanent financing for
real estate customers and higher revenues associated with customer
derivatives were more than offset by reduced income from merger and
acquisition advisory services.
Non-interest expense
NM - Not Meaningful
Comparison of third quarter 2017 to second quarter
2017
Non-interest expense totaled $886 million in the third quarter, a
decrease of $23 million or 3 percent compared to the second quarter of
2017. On an adjusted basis(1), non-interest
expense totaled $880 million, a decrease of $19 million or 2 percent.
Total salaries and benefits decreased $14 million or 3 percent primarily
due to reduced pension settlement charges and lower health insurance
costs. Professional fees decreased $7 million or 25 percent, primarily
due to lower legal and consulting costs. Provision for unfunded credit
losses also decreased $5 million during the quarter. These declines were
partially offset by a $5 million increase in occupancy and a $7 million
increase in other real estate expenses, which is included in other
non-interest expense. These increases reflect hurricane-related branch
damage, hurricane preparedness and other storm-related charges.
The company's third quarter efficiency ratio was 61.7 percent on both a
reported and adjusted basis(1) reflecting a 190 and 150 basis
point improvement, respectively, compared to the second quarter. The
effective tax rate was 30.9 percent compared to 29.5 percent in the
second quarter.
Comparison of third quarter 2017 to third quarter
2016
Non-interest expense decreased $48 million or 5 percent from the third
quarter of 2016. On an adjusted basis(1), non-interest
expense decreased $32 million or 4 percent primarily due to lower
salaries and benefits, professional fees, other real estate expenses,
and a decline in provision for unfunded credit losses. These decreases
were partially offset by increases in occupancy, furniture and
equipment, and outside services expenses.
Total salaries and benefits decreased $3 million or 1 percent primarily
due to lower incentive and benefit expenses and a 1 percent reduction in
staffing levels. Professional fees decreased $8 million primarily due to
lower legal costs. Other real estate expenses, included in other
non-interest expenses, decreased $4 million reflecting continued
declines in the amount of other real estate owned. Provision for
unfunded credit losses decreased $16 million compared to the prior year.
These declines were partially offset by a $4 million increase in
occupancy expense primarily due to elevated hurricane-related expenses
in the current quarter and a $4 million increase in furniture and
equipment expense driven by increased depreciation related to the
completion of certain capital investment projects.
Loans and Leases
NM - Not meaningful.
Comparison of third quarter 2017 to second quarter
2017
Average loans and leases declined to $79.6 billion in the third quarter
as growth in the consumer lending portfolio was offset by declines in
the business lending portfolio. Total new and renewed loan production
decreased slightly compared to a strong second quarter, but remained
solid with a modest increase in business lending production offset by a
decline in consumer lending production.
Average balances in the consumer lending portfolio totaled $31.3 billion
in the third quarter reflecting an increase of $180 million. Growth
continues to be impacted by the company's decision to exit a third-party
arrangement within the indirect-vehicle portfolio. Average third-party
indirect-vehicle balances declined $205 million or 13 percent during the
quarter. Excluding the third-party indirect-vehicle portfolio, average
consumer balances increased $385 million.
Average residential first mortgage balances increased $171 million
during the third quarter but continue to be constrained by a lack of
housing supply. Home equity balances declined $134 million or 1 percent
as growth of $44 million in home equity loans was offset by a decline of
$178 million in home equity lines of credit. Further, average line
utilization decreased 68 basis points compared to the second quarter.
Average indirect-other consumer loans increased $257 million or 26
percent as the company continued to grow its point-of-sale portfolio.
Third quarter average balances benefited from the purchase of
approximately $138 million of unsecured consumer loans from a
point-of-sale third-party at the end of the second quarter. Consumer
credit card balances increased $36 million or 3 percent consistent with
an increase in active credit cards.
Average balances in the business lending portfolio totaled $48.3 billion
in the third quarter, a decrease of $705 million. The company
experienced elevated loan payoffs and pay downs during the quarter
resulting from significant liquidity in the market. Many large corporate
customers accessed the fixed-income market and used proceeds to pay down
or pay off bank debt. A number of investor real estate loans paid off
prior to maturity reflecting the impact of low capitalization rates. A
modest increase in mergers and acquisitions was also observed in the
commercial middle market space contributing to elevated loan payoffs.
In addition to excess liquidity in the market, declines continued in
select loan portfolios reflecting the company's deliberate risk
management decisions in certain industries and assets classes.
Specifically, average direct energy, multi-family investor real estate
loans, and medical office building loans declined. Average direct energy
loans decreased $52 million or 3 percent, average multi-family investor
real estate loans decreased $58 million or 4 percent, and average
medical office building loans decreased $24 million or 8 percent. The
decrease in investor real estate construction loans was also due in part
to ongoing efforts to better diversify production between construction
and term lending. Additionally, declines in average owner-occupied
commercial real estate loans reflect continued softness in demand and
increasing competition for middle market and small business loans.
The company continues to make progress in its efforts to further
diversify its loan portfolio and achieve more appropriate risk-adjusted
returns. These decisions reflect a prudent approach to creating a
balanced portfolio and position the company well for future loan growth.
Comparison of third quarter 2017 to third quarter
2016
Average loans and leases declined $1.7 billion or 2 percent compared to
the third quarter of 2016 as growth in the consumer lending portfolio
was more than offset by declines in the business lending portfolio;
however, total new and renewed loan production increased 9 percent.
Average balances in the consumer lending portfolio increased $207
million. Average residential first mortgage balances increased $559
million or 4 percent despite the impact from an affordable housing
residential mortgage loan sale in the fourth quarter of 2016. Average
indirect-other consumer loans increased $479 million or 61 percent as
the company continued to successfully execute its point-of-sale lending
initiatives. Average consumer credit card balances increased $90 million
or 8 percent as active credit cards increased 7 percent. In addition,
average other consumer loans increased $64 million or 6 percent
primarily due to growth in unsecured loans generated through the branch
network and improved online lending capabilities. These increases were
partially offset by declines in indirect-vehicle and home equity
balances. Average third-party indirect-vehicle balances decreased $597
million or 30 percent reflecting the company's decision to exit a
third-party arrangement, and total home equity balances decreased $434
million or 4 percent as growth in home equity loans continues to be
offset by declines in home equity lines of credit.
Average balances in the business lending portfolio decreased $1.9
billion or 4 percent primarily due to elevated loan payoffs and pay
downs as well as declines in direct energy, multi-family, and medical
office building portfolios. Average direct energy loans decreased $344
million or 15 percent, average multi-family investor real estate loans
decreased $423 million or 21 percent, and average medical office
building loans decreased $90 million or 25 percent. In addition,
declines in owner-occupied commercial real estate loans reflect the
competitive market and continued softness in loan demand from middle
market and small business customers.
Deposits
Comparison of third quarter 2017 to second quarter
2017
Total average deposit balances were $96.9 billion in the third quarter,
a decrease of $626 million or less than 1 percent from the second
quarter of 2017. Average low-cost deposits decreased $550 million and
represented 93 percent of total average deposits. Deposit costs remained
low at 17 basis points, and total funding costs were 37 basis points in
the third quarter.
Average deposits in the Consumer segment decreased $153 million while
average Corporate segment deposits increased $23 million. Average
deposits in the Wealth Management segment declined $276 million or 3
percent as a result of ongoing strategic reductions of certain
collateralized deposits. Average deposits in the Other segment decreased
$220 million or 7 percent driven primarily by declines in average retail
brokered sweep deposits.
Comparison of third quarter 2017 to third quarter
2016
Total average deposit balances decreased $1.1 billion or 1 percent from
the prior year, including a $555 million decrease in average low-cost
deposits. Average deposits in the Consumer segment increased $1.8
billion or 3 percent, while average Corporate segment deposits decreased
$686 million or 2 percent. Average deposits in the Wealth Management
segment declined $1.4 billion or 13 percent, and average deposits in the
Other segment declined $807 million or 21 percent. The decline in Wealth
Management segment deposits relates to ongoing strategic reductions of
certain collateralized deposits. The decline in Other segment deposits
was driven 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.
Asset quality
Comparison of third quarter 2017 to second quarter
2017
Excluding the impact of recent hurricanes, the company reported
improvement across most credit metrics; non-performing, criticized and
troubled debt restructured loans all declined. Total non-accrual loans,
excluding loans held for sale, decreased 8 percent to 0.96 percent of
loans outstanding. Business services criticized and total troubled debt
restructured loans decreased 10 percent and 8 percent, respectively.
These declines were primarily driven by improvement in commercial loans.
While non-performing, criticized and troubled debt restructured loans
declined, uncertainty regarding potential hurricane-related losses drove
the allowance for loan and lease losses up 1 basis point to 1.31 percent
of total loans outstanding. During the third quarter, the loan loss
provision included an incremental $40 million based on loss estimates
associated with the hurricanes.
Net charge-offs totaled $76 million or 0.38 percent of average loans
during the third quarter compared to $68 million or 0.34 percent of
average loans in the previous quarter. The current quarter increase in
net charge-offs was primarily driven by two large energy credits.
Charge-offs related to the company's direct energy portfolio totaled $28
million in the quarter. The allowance for loan and lease losses
associated with the direct energy loan portfolio decreased to 6.1
percent compared to 6.9 percent in the previous quarter. Total direct
energy loans ended the quarter at $1.9 billion or 2.4 percent of total
loans outstanding.
The allowance for loan losses as a percentage of total non-accrual loans
was approximately 137 percent at quarter end. Excluding direct energy,
the allowance for loan losses, as a percent of non-accrual loans, or the
adjusted coverage ratio(1), was 180 percent. Given the
current phase of the credit cycle, volatility in certain credit metrics
can be expected, especially related to large-dollar commercial credits,
fluctuating commodity prices, and further analysis of hurricane
exposures.
Comparison of third quarter 2017 to third quarter
2016
Net charge-offs increased 12 basis points compared to the third quarter
of 2016 and represented 0.38 percent of average loans compared to 0.26
percent in the prior year. The allowance for loan and lease losses as a
percent of total loans decreased 8 basis points.
Total non-accrual loans, excluding loans held for sale, decreased 29
percent to 0.96 percent of loans outstanding, and total business lending
criticized loans decreased 21 percent.
Capital and liquidity
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 12.1
percent and 11.3 percent, respectively, at quarter-end under the
phase-in provisions. In addition, the Common Equity Tier 1 ratio(1)(2)
was estimated at 11.2 percent on a fully phased-in basis.
During the third quarter, the company repurchased $500 million or 34.6
million shares of common stock and declared $105 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 81 percent,
and as of quarter-end, the company remained fully compliant with the
liquidity coverage ratio rule.
Conference Call
A replay of the earnings call will be available beginning Tuesday,
October 24, 2017, at 2 p.m. ET through Friday, November 24, 2017. To
listen by telephone, please dial 1-855-859-2056, and use access code
88474738. 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, unemployment rates and potential
reductions of economic growth, which may adversely affect our lending
and other businesses and our financial results and conditions.
-
Possible changes in trade, monetary and fiscal policies of, and other
activities undertaken by, governments, agencies, central banks and
similar organizations, which could have a material adverse effect on
our earnings.
-
The effects of a possible downgrade in the U.S. government's sovereign
credit rating or outlook, which could result in risks to us and
general economic conditions that we are not able to predict.
-
Possible changes in market interest rates or capital markets could
adversely affect our revenue and expense, the value of assets and
obligations, and the availability and cost of capital and liquidity.
-
Any impairment of our goodwill or other intangibles, or any adjustment
of valuation allowances on our deferred tax assets due to adverse
changes in the economic environment, declining operations of the
reporting unit, or other factors.
-
Possible changes in the creditworthiness of customers and the possible
impairment of the collectability of loans and leases, including
operating leases.
-
Changes in the speed of loan prepayments, loan origination and sale
volumes, charge-offs, loan loss provisions or actual loan losses where
our allowance for loan losses may not be adequate to cover our
eventual losses.
-
Possible acceleration of prepayments on mortgage-backed securities due
to low interest rates, and the related acceleration of premium
amortization on those securities.
-
Our ability to effectively compete with other financial services
companies, some of whom possess greater financial resources than we do
and are subject to different regulatory standards than we are.
-
Loss of customer checking and savings account deposits as customers
pursue other, higher-yield investments, which could increase our
funding costs.
-
Our inability to develop and gain acceptance from current and
prospective customers for new products and services in a timely manner
could have a negative impact on our revenue.
-
The effects of any developments, changes or actions relating to any
litigation or regulatory proceedings brought against us or any of our
subsidiaries.
-
Changes in laws and regulations affecting our businesses, such as the
Dodd-Frank Act and other legislation and regulations relating to bank
products and services, as well as changes in the enforcement and
interpretation of such laws and regulations by applicable governmental
and self-regulatory agencies, which could require us to change certain
business practices, increase compliance risk, reduce our revenue,
impose additional costs on us, or otherwise negatively affect our
businesses.
-
Our ability to obtain a regulatory non-objection (as part of the CCAR
process or otherwise) to take certain capital actions, including
paying dividends and any plans to increase common stock dividends,
repurchase common stock under current or future programs, or redeem
preferred stock or other regulatory capital instruments, may impact
our ability to return capital to stockholders and market perceptions
of us.
-
Our ability to comply with stress testing and capital planning
requirements (as part of the CCAR process or otherwise) may continue
to require a significant investment of our managerial resources due to
the importance and intensity of such tests and requirements.
-
Our ability to comply with applicable capital and liquidity
requirements (including, among other things, the Basel III capital
standards and the LCR rule), including our ability to generate capital
internally or raise capital on favorable terms, and if we fail to meet
requirements, our financial condition could be negatively impacted.
-
The Basel III framework calls for additional risk-based capital
surcharges for globally systemically important banks. Although we are
not subject to such surcharges, it is possible that in the future we
may become subject to similar surcharges.
-
The costs, including possibly incurring fines, penalties, or other
negative effects (including reputational harm) of any adverse
judicial, administrative, or arbitral rulings or proceedings,
regulatory enforcement actions, or other legal actions to which we or
any of our subsidiaries are a party, and which may adversely affect
our results.
-
Our ability to manage fluctuations in the value of assets and
liabilities and off-balance sheet exposure so as to maintain
sufficient capital and liquidity to support our business.
-
Our ability to execute on our strategic and operational plans,
including our ability to fully realize the financial and non-financial
benefits relating to our strategic initiatives.
-
The success of our marketing efforts in attracting and retaining
customers.
-
Possible changes in consumer and business spending and saving habits
and the related effect on our ability to increase assets and to
attract deposits, which could adversely affect our net income.
-
Our ability to recruit and retain talented and experienced personnel
to assist in the development, management and operation of our products
and services may be affected by changes in laws and regulations in
effect from time to time.
-
Fraud or misconduct by our customers, employees or business partners.
-
Any inaccurate or incomplete information provided to us by our
customers or counterparties.
-
The risks and uncertainties related to our acquisition and integration
of other companies.
-
Inability of our framework to manage risks associated with our
business such as credit risk and operational risk, including
third-party vendors and other service providers, which could, among
other things, result in a breach of operating or security systems as a
result of a cyber attack or similar act.
-
The inability of our internal disclosure controls and procedures to
prevent, detect or mitigate any material errors or fraudulent acts.
-
The effects of geopolitical instability, including wars, conflicts and
terrorist attacks and the potential impact, directly or indirectly, on
our businesses.
-
The effects of man-made and natural disasters, including fires,
floods, droughts, tornadoes, hurricanes, and environmental damage,
which may negatively affect our operations and/or our loan portfolios
and increase our cost of conducting business.
-
Changes in commodity market prices and conditions could adversely
affect the cash flows of our borrowers operating in industries that
are impacted by changes in commodity prices (including businesses
indirectly impacted by commodities prices such as businesses that
transport commodities or manufacture equipment used in the production
of commodities), which could impair their ability to service any loans
outstanding to them and/or reduce demand for loans in those industries.
-
Our inability to keep pace with technological changes could result in
losing business to competitors.
-
Our ability to identify and address cyber-security risks such as data
security breaches, "denial of service" attacks, malware, "hacking" and
identity theft, a failure of which could disrupt our business and
result in the disclosure of and/or misuse or misappropriation of
confidential or proprietary information; disruption or damage to our
systems; increased costs; losses; or adverse effects to our reputation.
-
Our ability to realize our adjusted efficiency ratio target as part of
our expense management initiatives.
-
Significant disruption of, or loss of public confidence in, the
Internet and services and devices used to access the Internet could
affect the ability of our customers to access their accounts and
conduct banking transactions.
-
Possible downgrades in our credit ratings or outlook could increase
the costs of funding from capital markets.
-
The effects of problems encountered by other financial institutions
that adversely affect us or the banking industry generally could
require us to change certain business practices, reduce our revenue,
impose additional costs on us, or otherwise negatively affect our
businesses.
-
The effects of the failure of any component of our business
infrastructure provided by a third party could disrupt our businesses;
result in the disclosure of and/or misuse of confidential information
or proprietary information; increase our costs; negatively affect our
reputation; and cause losses.
-
Our ability to receive dividends from our subsidiaries could affect
our liquidity and ability to pay dividends to stockholders.
-
Changes in accounting policies or procedures as may be required by the
FASB or other regulatory agencies could materially affect how we
report our financial results.
-
Other risks identified from time to time in reports that we file with
the SEC.
-
The effects of any damage to our reputation resulting from
developments related to any of the items identified above.
The foregoing list of factors is not exhaustive. For discussion of these
and other factors that may cause actual results to differ from
expectations, look under the captions "Forward-Looking Statements" and
"Risk Factors" of Regions' Annual Report on Form 10-K for the year ended
December 31, 2016, as filed with the SEC.
The words "anticipates," "intends," "plans," "seeks," "believes,"
"estimates," "expects," "targets," "projects," "outlook," "forecast,"
"will," "may," "could," "should," "can," and similar expressions often
signify forward-looking statements. You should not place undue reliance
on any forward-looking statements, which speak only as of the date made.
We assume no obligation to update or revise any forward-looking
statements that are made from time to time.
Regions' Investor Relations contact is Dana Nolan at (205) 264-7040;
Regions' Media contact is Evelyn Mitchell at (205) 264-4551.
Use of non-GAAP financial measures
Management uses pre-tax pre-provision income (non-GAAP) and adjusted
pre-tax pre-provision income (non-GAAP), as well as the adjusted
efficiency ratio (non-GAAP) and the adjusted fee income ratio (non-GAAP)
to monitor performance and believes these measures provide meaningful
information to investors. Non-interest expense (GAAP) is presented
excluding certain adjustments to arrive at adjusted non-interest expense
(non-GAAP), which is the numerator for the efficiency ratio.
Non-interest income (GAAP) is presented excluding certain adjustments to
arrive at adjusted non-interest income (non-GAAP), which is the
numerator for the fee income ratio. Adjusted non-interest income
(non-GAAP) and adjusted non-interest expense (non-GAAP) are used to
determine adjusted pre-tax pre-provision income (non-GAAP). Net interest
income and other financing income on a taxable-equivalent basis and
non-interest income are added together to arrive at total revenue on a
taxable-equivalent basis. Adjustments are made to arrive at adjusted
total revenue on a taxable-equivalent basis (non-GAAP), which is the
denominator for the fee income and efficiency ratios. Regions believes
that the exclusion of these adjustments provides a meaningful base for
period-to-period comparisons, which management believes will assist
investors in analyzing the operating results of the Company and
predicting future performance. These non-GAAP financial measures are
also used by management to assess the performance of Regions' business.
It is possible that the activities related to the adjustments may recur;
however, management does not consider the activities related to the
adjustments to be indications of ongoing operations. Regions believes
that presentation of these non-GAAP financial measures will permit
investors to assess the performance of the Company on the same basis as
that applied by management.
The Company's allowance for loan losses as a percentage of non-accrual
loans, or coverage ratio is an important credit metric to many
investors. Much of the Company's energy exposure is collateralized and
therefore requires a lower specific allowance. Adjusting the Company's
total allowance for loan losses to exclude the portion attributable to
energy and excluding non-accrual energy loans produces an adjusted
coverage ratio that management believes could be meaningful to investors.
Tangible common stockholders' equity ratios have become a focus of some
investors and management believes they may assist investors in analyzing
the capital position of the Company absent the effects of intangible
assets and preferred stock. Analysts and banking regulators have
assessed Regions' capital adequacy using the tangible common
stockholders' equity measure. Because tangible common stockholders'
equity is not formally defined by GAAP or prescribed in any amount by
federal banking regulations it is currently considered to be a non-GAAP
financial measure and other entities may calculate it differently than
Regions' disclosed calculations. Since analysts and banking regulators
may assess Regions' capital adequacy using tangible common stockholders'
equity, management believes that it is useful to provide investors the
ability to assess Regions' capital adequacy on this same basis.
The calculation of the fully phased-in pro-forma "Common equity Tier 1"
(CET1) is based on Regions' understanding of the Final Basel III
requirements. For Regions, the Basel III framework became effective on a
phased-in approach starting in 2015 with full implementation beginning
in 2019. The calculation includes estimated pro-forma amounts for the
ratio on a fully phased-in basis. Regions' current understanding of the
final framework includes certain assumptions, including the Company's
interpretation of the requirements, and informal feedback received
through the regulatory process. Regions' understanding of the framework
is evolving and will likely change as analysis and discussions with
regulators continue. Because Regions is not currently subject to the
fully-phased in capital rules, this pro-forma measure is considered to
be a non-GAAP financial measure, and other entities may calculate it
differently from Regions' disclosed calculation.
A company's regulatory capital is often expressed as a percentage of
risk-weighted assets. Under the risk-based capital framework, a
company's balance sheet assets and credit equivalent amounts of
off-balance sheet items are assigned to broad risk categories. The
aggregated dollar amount in each category is then multiplied by the
prescribed risk-weighted percentage. The resulting weighted values from
each of the categories are added together and this sum is the
risk-weighted assets total that, as adjusted, comprises the denominator
of certain risk-based capital ratios. CET1 capital is then divided by
this denominator (risk-weighted assets) to determine the CET1 capital
ratio. The amounts disclosed as risk-weighted assets are calculated
consistent with banking regulatory requirements on a fully phased-in
basis.
Non-GAAP financial measures have inherent limitations, are not required
to be uniformly applied and are not audited. Although these non-GAAP
financial measures are frequently used by stakeholders in the evaluation
of a company, they have limitations as analytical tools, and should not
be considered in isolation, or as a substitute for analyses of results
as reported under GAAP. In particular, a measure of earnings that
excludes selected items does not represent the amount that effectively
accrues directly to stockholders.
Management and the Board of Directors utilize non-GAAP measures as
follows:
-
Preparation of Regions' operating budgets
-
Monthly financial performance reporting
-
Monthly close-out reporting of consolidated results (management only)
-
Presentation to investors of company performance
View source version on businesswire.com: http://www.businesswire.com/news/home/20171024005280/en/
Regions Financial Corporation
Media Contact:
Evelyn Mitchell,
205-264-4551
or
Investor Relations Contact:
Dana Nolan,
205-264-7040
Source: Regions Financial Corporation
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