Regions Financial Corporation (NYSE:RF) today announced earnings for the
first quarter of 2014. The company reported net income available to
common shareholders of $311 million, an increase of 42 percent over the
prior quarter. Earnings per diluted share were $0.22 and earnings per
diluted share from continuing operations were $0.21.
A solid start to 2014
In the first quarter, loans and deposits increased and the company’s
overall credit profile continued to strengthen. In addition, Regions
grew the number of quality households served, with increases in both
consumer and business customers.
“We are off to a solid start in 2014 and this quarter’s results
demonstrate that our focus on identifying and meeting more customer
needs is generating steady and sustainable growth,” said Grayson Hall,
chairman, president and CEO. “We believe a strong relationship banking
model is essential for sustainable revenue growth and we remain focused
on controlling expenses and achieving positive operating leverage.”
During the first quarter Regions completed the annual Comprehensive
Capital Analysis and Review process and received no objection to our
planned capital actions, which include increasing the quarterly dividend
to $0.05 per share and the repurchase of up to $350 million in common
shares. Our board is expected to consider these actions at its meeting
on April 24th. If approved, the dividend increase is expected to be
effective beginning with the quarterly dividend to be paid in July 2014.
Regions' ongoing and robust capital planning process is designed to
ensure the efficient use of capital while maintaining a long-term
approach to capital allocation and distribution. The company's top
priorities for capital deployment are reinvesting in the business
through organic loan growth, increasing the company's quarterly common
dividend and appropriately returning capital to shareholders through
share repurchases. Other considerations include the pursuit of strategic
opportunities consistent with the company's risk tolerance.
Loan and deposit growth continued
Total ending loans increased $1.1 billion from the prior quarter to $76
billion and total new and renewed loan production was up 2 percent year
over year as the company continued to acquire new customers and deepen
existing customer relationships. Importantly, loan growth occurred among
many product lines and generally across the company's geographic markets.
Business lending continued to expand, led by the company’s specialized
lending groups, asset based lending and middle market commercial
lending. Specifically, commercial and industrial loans increased $1.1
billion, or 4 percent. Line utilization increased 170 basis points and
commitments for new loans increased 2 percent. Notably, loans in the
investor real estate portfolio grew for the first time in over 4 years,
as balances increased $242 million in the quarter to $7 billion.
Consumer lending continued to experience positive trends in the indirect
auto portfolio, as loans increased 6 percent and production increased 4
percent compared to the prior quarter. These increases are primarily
attributable to a higher number of loans closed per dealer. However,
this growth was offset by declines in home equity and mortgage loans
driven by customer de-leveraging and lower demand for mortgage loans.
During the quarter, home equity and mortgage ending balances declined
1.3 percent and 0.2 percent, respectively. Regions achieved record high
new credit card sales during the first quarter with credit card sales up
14 percent; however, credit card balances experienced an expected
seasonal decline.
Deposit balances were $93 billion at the end of the quarter, an increase
of 1 percent over the previous quarter. The mix of deposits continued to
improve as low-cost deposits increased $1.4 billion, while higher cost
certificates of deposit declined $457 million. Low-cost deposits as a
percent of average deposits were 90 percent at the end of the quarter.
Deposit costs totaled 12 basis points in the first quarter and total
funding costs were 33 basis points.
Revenue impacted by seasonal factors
Net interest income on a fully taxable equivalent basis was $831
million, a decline of $15 million or 1.8 percent from the previous
quarter. The decline was driven primarily by fewer days in the quarter
and the impact of the low interest rate environment on loan yields.
However, the net interest margin remained steady with the fourth quarter
at 3.26 percent.
Non-interest revenue totaled $438 million, a decline of 17 percent from
the previous quarter, driven primarily by two notable transactions
related to leveraged lease terminations and the sale of investments in
low-income housing that increased fourth quarter non-interest revenue by
$56 million and were not repeated at the same magnitude in the first
quarter. Non-interest revenue was also impacted by lower service
charges, capital markets income and mortgage income. However, Wealth
Management revenue increased 6 percent from the prior quarter.
Asset quality improved as net charge-offs declined
Regions demonstrated continued asset quality improvement as the economic
environment improves. Net charge-offs declined to $82 million, a
decrease of 71 percent from the previous quarter. During the fourth
quarter, Regions incurred an additional $151 million of net charge-offs
related to the transfer of primarily accruing first lien residential
mortgages classified as troubled debt restructurings to held for sale.
Excluding the impact of this transfer in the fourth quarter, net
charge-offs were down 35 percent and represented 0.44 percent of average
loans(1), the lowest level since third quarter 2007. The
provision for loan losses was $2 million for the quarter compared to the
prior quarter provision of $79 million, of which $75 million was related
to the transfer of loans to held for sale. The resulting allowance for
loan and lease losses represented 1.67 percent of total loans
outstanding at the end of the quarter, down from 1.80 percent last
quarter. Non-performing loans (excluding loans held for sale) improved
$12 million, or 1 percent from the prior quarter. In addition, total
delinquencies declined 9 percent, another sign of improving asset
quality.
Prudent cost control drives adjusted non-interest expenses(1)
down 4 percent
Adjusted non-interest expenses(1) declined $37 million, or 4
percent from the prior quarter. As previously noted, Regions transferred
loans to held for sale in the fourth quarter. During the first quarter,
the sale was finalized and reflects $35 million lower expenses than
originally estimated. The benefit of the lower than estimated expenses
are excluded from adjusted non-interest expenses (1). Salary
and benefit expenses declined 2 percent from the prior quarter despite
the seasonal increase in payroll taxes which was offset by lower
employee benefits and headcount. Additionally, legal and professional
fees declined $11 million, or 24 percent from the prior quarter.
Strong capital and solid liquidity
Regions' capital position remains strong as the Tier 1 ratio was
estimated at 11.9* percent at quarter end. In addition, the
Tier 1 Common ratio(1) was estimated at 11.4*
percent, an increase of 20 basis points from last quarter and the Common
Equity Tier 1 Basel III ratio(1) was estimated at 10.8*
percent. Likewise, the company’s liquidity position remained solid as
the loan to deposit ratio at the end of the quarter was 81 percent.
Highlights
|
|
|
Quarter Ended
|
($ in millions, except per share data)
|
|
|
3/31/2014
|
|
|
12/31/2013
|
|
|
3/31/2013
|
Net Income
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
$
|
816
|
|
|
|
$
|
832
|
|
|
|
$
|
798
|
|
Non-interest income
|
|
|
438
|
|
|
|
526
|
|
|
|
501
|
|
Total revenue
|
|
|
1,254
|
|
|
|
1,358
|
|
|
|
1,299
|
|
Provision for loan losses
|
|
|
2
|
|
|
|
79
|
|
|
|
10
|
|
Non-interest expense
|
|
|
817
|
|
|
|
946
|
|
|
|
842
|
|
Income from continuing operations before income tax
|
|
|
435
|
|
|
|
333
|
|
|
|
447
|
|
Income tax expense
|
|
|
128
|
|
|
|
92
|
|
|
|
114
|
|
Income from continuing operations (A)
|
|
|
307
|
|
|
|
241
|
|
|
|
333
|
|
Income (loss) from discontinued operations, net of tax
|
|
|
12
|
|
|
|
(14
|
)
|
|
|
2
|
|
Net income
|
|
|
319
|
|
|
|
227
|
|
|
|
335
|
|
Preferred dividends (B)
|
|
|
8
|
|
|
|
8
|
|
|
|
8
|
|
Net income available to common shareholders
|
|
|
$
|
311
|
|
|
|
$
|
219
|
|
|
|
$
|
327
|
|
Income from continuing operations available to common
shareholders (A) – (B)
|
|
|
$
|
299
|
|
|
|
$
|
233
|
|
|
|
$
|
325
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS Summary
|
|
|
|
|
|
|
|
|
|
Earnings per common share
|
|
|
$
|
0.22
|
|
|
|
$
|
0.16
|
|
|
|
$
|
0.23
|
|
Income (loss) per share from discontinued operations
|
|
|
0.01
|
|
|
|
(0.01
|
)
|
|
|
—
|
|
Earnings per common share from continuing operations
|
|
|
$
|
0.21
|
|
|
|
$
|
0.17
|
|
|
|
$
|
0.23
|
|
|
|
|
|
|
|
|
|
|
|
Key Ratios
|
|
|
|
|
|
|
|
|
|
Net interest margin (FTE) from continuing operations~
|
|
|
3.26
|
%
|
|
|
3.26
|
%
|
|
|
3.13
|
%
|
Tier 1 capital*
|
|
|
11.9
|
%
|
|
|
11.7
|
%
|
|
|
12.4
|
%
|
Tier 1 common risk-based ratio (non-GAAP)*(1)
|
|
|
11.4
|
%
|
|
|
11.2
|
%
|
|
|
11.2
|
%
|
Basel III common equity Tier 1 ratio (non-GAAP)*(1)
|
|
|
10.8
|
%
|
|
|
10.6
|
%
|
|
|
9.1
|
%
|
Tangible common stockholders’ equity to tangible assets(non-GAAP)(1)
|
|
|
9.53
|
%
|
|
|
9.24
|
%
|
|
|
8.98
|
%
|
Tangible common book value per share (non-GAAP)(1)
|
|
|
$
|
7.81
|
|
|
|
$
|
7.54
|
|
|
|
$
|
7.29
|
|
Allowance for loan losses as a percentage of loans, net of unearned
income
|
|
|
1.67
|
%
|
|
|
1.80
|
%
|
|
|
2.37
|
%
|
Net charge-offs as a percentage of average net loans~
|
|
|
0.44
|
%
|
|
|
1.46
|
%
|
|
|
0.99
|
%
|
Adjusted net charge-offs as a percentage of average loans
(non-GAAP)~ (1)
|
|
|
0.44
|
%
|
|
|
0.67
|
%
|
|
|
0.99
|
%
|
Non-accrual loans, excluding loans held for sale, as a percentage of
loans
|
|
|
1.41
|
%
|
|
|
1.45
|
%
|
|
|
2.15
|
%
|
Non-performing assets as a percentage of loans, foreclosed
properties and non-performing loans held for sale
|
|
|
1.63
|
%
|
|
|
1.74
|
%
|
|
|
2.41
|
%
|
Non-performing assets (including 90+ past due) as a percentage of
loans, foreclosed properties and non-performing loans held for sale(2)
|
|
|
1.97
|
%
|
|
|
2.08
|
%
|
|
|
2.88
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*Tier 1 Common and Tier 1 Capital ratios for the current quarter are
estimated
|
~Annualized
|
(1) Non-GAAP, refer to pages 8, 12, and 16-18 of the financial
supplement to this earnings release
|
(2) Guaranteed residential first mortgages were excluded from the
90+ past due amounts, refer to pages 11 and 14 of the financial
supplement to this earnings release
|
About Regions Financial Corporation
Regions Financial Corporation (NYSE:RF), with $118 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 in 16 states across the South, Midwest and Texas, and
through its subsidiary, Regions Bank, operates approximately 1,700
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
reduction of economic growth.
-
Possible changes in trade, monetary and fiscal policies of, and other
activities undertaken by, governments, agencies, central banks and
similar organizations.
-
The effects of a possible downgrade in the U.S. government’s sovereign
credit rating or outlook.
-
Possible changes in market interest rates.
-
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.
-
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.
-
Our ability to develop and gain acceptance from current and
prospective customers for new products and services in a timely manner.
-
Changes in laws and regulations affecting our businesses, including
changes in the enforcement and interpretation of such laws and
regulations by applicable governmental and self-regulatory agencies.
-
Our ability to obtain regulatory approval (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 issue or redeem
preferred stock or other regulatory capital instruments.
-
Our ability to comply with applicable capital and liquidity
requirements (including the finalized Basel III capital standards),
including our ability to generate capital internally or raise capital
on favorable terms.
-
The costs and other 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 is a party.
-
Any adverse change to our ability to collect interchange fees in a
profitable manner, whether such change is the result of regulation,
legislation or other governmental action.
-
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.
-
Possible changes in consumer and business spending and saving habits
and the related effect on our ability to increase assets and to
attract deposits.
-
Any inaccurate or incomplete information provided to us by our
customers or counterparties.
-
Inability of our framework to manage risks associated with our
business, including operational risk and credit risk.
-
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.
-
The effects of man-made and natural disasters, including fires,
floods, droughts, tornadoes, hurricanes and environmental damage.
-
Our ability to keep pace with technological changes.
-
Our ability to identify and address cyber-security risks such as data
security breaches, “denial of service” attacks, “hacking” and identity
theft.
-
Possible downgrades in our credit ratings or outlook.
-
The effects of problems encountered by other financial institutions
that adversely affect us or the banking industry generally.
-
The effects of the failure of any component of our business
infrastructure which is provided by a third party.
-
Our ability to receive dividends from our subsidiaries.
-
Changes in accounting policies or procedures as may be required by the
Financial Accounting Standards Board or other regulatory agencies.
-
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, 2013, 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 List Underwood at (205) 801-0265;
Regions’ Media contact is Evelyn Mitchell at (205) 264-4551.
Use of non-GAAP financial measures
Regions believes that the presentation of pre-tax, pre-provision
income (PPI) and the exclusion of certain items from PPI 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 applied by management.
During the fourth quarter of 2013, Regions transferred certain
primarily accruing restructured residential first mortgage loans to
loans held for sale and marked the loans down to fair value through net
charge offs upon transfer to held for sale. Management believes that
excluding the incremental increase to net charge-offs from the affected
net charge-off ratios will assist investors in analyzing the company's
credit quality performance as well as provide a better basis from which
to predict future performance.
Regions' 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. The
computation of the adjusted efficiency ratio includes certain
adjustments to non-interest expense (GAAP) to arrive at adjusted
non-interest expense (non-GAAP), which is the numerator for the adjusted
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 adjusted fee income ratio.
Net interest income on a taxable-equivalent basis and non-interest
income are added together to arrive at total revenue (GAAP). Adjustments
are made to arrive at adjusted total revenue (non-GAAP), which is the
denominator for the adjusted fee income and adjusted 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. Traditionally, the Federal
Reserve and other banking regulatory bodies have assessed a bank’s
capital adequacy based on Tier 1 capital, the calculation of which is
codified in federal banking regulations. In connection with the
company’s Comprehensive Capital Analysis and Review process, these
regulators supplement their assessment of the capital adequacy of a bank
based on a variation of Tier 1 capital, known as Tier 1 common equity.
While not prescribed in amount by federal banking regulations, under
Basel I, analysts and banking regulators have assessed Regions’ capital
adequacy using the tangible common stockholders’ equity and/or the Tier
1 common equity measure. Because tangible common stockholders’ equity
and Tier 1 common equity are not formally defined by GAAP or prescribed
in amount by the federal banking regulations, under Basel I, these
measures are currently considered to be non-GAAP financial measures and
other entities may calculate them differently than Regions’ disclosed
calculations. Since analysts and banking regulators may assess Regions’
capital adequacy using tangible common stockholders’ equity and Tier 1
common equity, management believes that it is useful to provide
investors the ability to assess Regions’ capital adequacy on these same
bases.
Tier 1 common equity 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 one of four broad risk
categories. The aggregated dollar amount in each category is then
multiplied by the risk-weighted category. The resulting weighted values
from each of the four 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. Tier 1 capital is then divided by
this denominator (risk-weighted assets) to determine the Tier 1 capital
ratio. Adjustments are made to Tier 1 capital to arrive at Tier 1 common
equity. Tier 1 common equity is also divided by the risk-weighted assets
to determine the Tier 1 common equity ratio. The amounts disclosed as
risk-weighted assets are calculated consistent with banking regulatory
requirements.
In December 2010, the Basel Committee on Banking Supervision (the
“Basel Committee”) released its final framework for Basel III, which
will strengthen international capital and liquidity regulation. In June
2012, U.S. Regulators released three separate Notices of Proposed
Rulemaking covering U.S. implementation of the Basel III framework. In
July 2013, U.S. Regulators released final rules covering the U.S.
implementation of the Basel III framework, which will change capital
requirements and place greater emphasis on common equity. For Regions,
the Basel III framework will be phased in beginning in 2015 with full
implementation complete beginning in 2019. The calculations provided
below are estimates, based on Regions’ current understanding of the
final framework, 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 the Basel III implementation regulations are not formally
defined by GAAP, these measures are considered to be non-GAAP financial
measures, and other entities may calculate them differently from
Regions’ disclosed calculations. Since analysts and banking regulators
may assess Regions’ capital adequacy using the Basel III framework, we
believe that it is useful to provide investors the ability to assess
Regions’ capital adequacy on the same 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
See page 8 of the supplement to this earnings release for the
computation of income (loss) from continuing operations available to
common shareholders (GAAP) to pre-tax pre-provision income from
continuing operations (non-GAAP) to adjusted pre-tax pre-provision
income from continuing operations (non-GAAP). See page 12 of the
supplement to this earnings release for the reconciliation of select
annualized net charge-offs as a percentage of average loans ratios
(GAAP) to select adjusted annualized net charge-offs as a percentage of
average loans ratios (non-GAAP). See pages 16-18 of the
supplement to this earnings release for 1) a reconciliation of
average and ending stockholders’ equity (GAAP) to average and ending
tangible common stockholders’ equity (non-GAAP), 2) computation of
return on average tangible common stockholders’ equity (non-GAAP), 3)
computation of Basel III common equity Tier1 (non-GAAP) 4) a
reconciliation of total assets (GAAP) to tangible assets (non-GAAP), 5)
computation of tangible common stockholders’ equity (non-GAAP) to
tangible assets (non-GAAP) and tangible common book value per share
(non-GAAP), 6) a reconciliation of stockholders’ equity (GAAP) to Tier 1
common equity (non-GAAP), 7) computation of Tier 1 common and Basel III
common equity Tier1 risk-based ratios (non-GAAP), 8) a reconciliation of
non-interest expense (GAAP) to adjusted non-interest expense
(non-GAAP),9) a reconciliation of non-interest income (GAAP) to adjusted
non-interest income (non-GAAP), and 10) a computation of the adjusted
efficiency and fee income ratios (non-GAAP).
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