Regions Financial Corporation (NYSE:RF) today announced earnings for the
second quarter of 2014. The company reported net income available to
common shareholders of $292 million and earnings per diluted share of
$0.21.
Steady progress
Regions’ second quarter results reflect the company’s steady progress
and its ongoing commitment to meeting a broad range of customer needs in
a prudent and sustainable manner. The company increased revenue by
growing loans, deposits, checking accounts and quality households. In
addition, the company reduced adjusted non-interest expenses(1),
creating positive operating leverage and improved efficiencies.
“These results demonstrate continued momentum as we effectively execute
our business plans,” said Grayson Hall, chairman, president and CEO. “By
focusing on meeting our customers’ needs, we are delivering sustainable
and diversified revenue growth while controlling expenses and
maintaining prudent credit standards.”
Balance sheet continues to strengthen
Total ending loan balances increased $833 million or 1.1 percent from
the prior quarter to $77 billion. Total new and renewed loan production
was up 22 percent over the previous quarter as the company expanded its
customer base and deepened existing relationships. Importantly, both the
business and consumer lending portfolios achieved broad-based growth
across the company's geographic markets.
Business lending achieved another solid quarter of growth as loans
increased 1 percent, bringing the portfolio to $48 billion. The
company’s specialized lending groups, asset-based lending and middle
market commercial lending were the primary drivers of growth. Commercial
and industrial loans increased 3 percent, while the investor real estate
portfolio was relatively flat. Commercial and industrial production
increased 26 percent from the previous quarter, line utilization
increased 30 basis points and commitments for new loans increased 3
percent.
The consumer lending portfolio totaled $29 billion at the end of the
quarter, an increase of 1 percent over the prior quarter as production
increased 22 percent. Indirect auto lending continued to exhibit solid
growth as balances increased 5 percent, and production increased 5
percent. These increases were primarily driven by an 18 percent increase
in the average number of loans per dealer this year as the company
improved the efficiencies in back-office automation. Credit card
balances increased 3 percent as spend volume increased 14 percent, and
sales of new cards increased 3 percent. Mortgage balances were up
slightly over the prior quarter as production increased 31 percent and
mortgage prepayments slowed significantly. Mortgage originations
continued to be driven by purchases of new homes and represented 76
percent of total originations.
Total deposit balances were $94 billion, an increase of approximately 1
percent compared to the previous quarter. The mix of deposits continued
to improve as low-cost deposits increased $697 million while higher cost
certificates of deposit declined $268 million. Low-cost deposits as a
percent of average deposits were 90 percent at the end of the quarter.
Deposit costs totaled 11 basis points in the second quarter, and total
funding costs were 31 basis points.
Total revenue increased 2 percent
Total revenue increased $25 million or 2 percent compared to the
previous quarter. Net interest income on a fully taxable equivalent
basis was $837 million, an increase of $6 million from the previous
quarter, and the resulting net interest margin declined 2 basis points
to 3.24 percent. Net interest income was positively impacted by loan
growth. However, this improvement was offset by lower asset yields and
loan spread compression resulting from the persistently low rate
environment and competitive pricing pressures. If rates remain at
current levels, modest net interest margin compression is expected going
forward.
Non-interest income increased $19 million, or 4 percent from the
previous quarter, as the company continued to grow the number of
checking accounts and quality households. Revenue growth was diversified
as capital markets, mortgage, insurance and service charges income
increased from the prior quarter. Card and ATM fees increased $5
million, or 6 percent, as credit card spending increased and debit card
transaction volume increased 8 percent. The company also recognized a
net gain of $6 million related to the sale of certain investments in the
securities portfolio.
Continued focus on cost control
Expenses totaled $820 million, and adjusted non-interest expenses(1)
declined $19 million or 2 percent from the prior quarter. Salary and
benefit expenses declined 3 percent from the prior quarter, primarily
driven by the seasonal decrease in payroll taxes compared to the first
quarter and reduced staffing. Occupancy related expenses declined 3
percent, and other expenses declined 13 percent from the prior quarter.
Deposit administrative fees declined $9 million, primarily related to a
refund of previously incurred fees.
The company’s adjusted efficiency ratio(1) was 64.2 percent
at the end of the second quarter, an improvement of 270 basis points
from the previous quarter, reflecting the company’s focus on
continuously managing expenses.
Credit quality improved as net charge-offs declined
Regions demonstrated continued credit quality improvement as the
economic environment continued to improve. Net charge-offs declined to
$67 million, a decrease of 18 percent from the previous quarter,
representing 0.35 percent of average loans. The provision for loan
losses was $35 million, and the resulting allowance for loan and lease
losses totaled 1.61 percent of total loans outstanding at the end of the
quarter, a decline of 6 basis points from last quarter.
Non-performing loans (excluding loans held for sale) declined to $899
million, or 16 percent from the prior quarter. In addition, total late
stage delinquencies declined 2 percent and troubled debt restructurings
(TDRs) declined 15 percent, another sign of improving asset quality.
While total criticized loans increased from the previous quarter,
classified loans continued to decline.
Strong capital and solid liquidity
Regions' capital position remains strong as the Tier 1 ratio was
estimated at 12.5* percent at quarter-end. In addition, the
Tier 1 Common ratio(1) was estimated at 11.6*
percent, an increase of 20 basis points from last quarter, and the
Common Equity Tier 1 Basel III ratio(1) was estimated at 11.0*
percent. Likewise, the company’s liquidity position remained solid as
the loan to deposit ratio at the end of the quarter was 82 percent.
Highlights
|
|
Quarter Ended
|
($ in millions, except per share data)
|
|
6/30/2014
|
|
3/31/2014
|
|
6/30/2013
|
Net Income
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
822
|
|
|
$
|
816
|
|
|
$
|
808
|
|
Non-interest income
|
|
457
|
|
|
438
|
|
|
497
|
|
Total revenue
|
|
1,279
|
|
|
1,254
|
|
|
1,305
|
|
Provision for loan losses
|
|
35
|
|
|
2
|
|
|
31
|
|
Non-interest expense
|
|
820
|
|
|
817
|
|
|
884
|
|
Income from continuing operations before income tax
|
|
424
|
|
|
435
|
|
|
390
|
|
Income tax expense
|
|
125
|
|
|
128
|
|
|
122
|
|
Income from continuing operations (A)
|
|
299
|
|
|
307
|
|
|
268
|
|
Income (loss) from discontinued operations, net of tax
|
|
1
|
|
|
12
|
|
|
(1
|
)
|
Net income
|
|
300
|
|
|
319
|
|
|
267
|
|
Preferred dividends (B)
|
|
8
|
|
|
8
|
|
|
8
|
|
Net income available to common shareholders
|
|
$
|
292
|
|
|
$
|
311
|
|
|
$
|
259
|
|
Income from continuing operations available to common
shareholders (A) – (B)
|
|
$
|
291
|
|
|
$
|
299
|
|
|
$
|
260
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS Summary
|
|
|
|
|
|
|
|
|
|
Earnings per common share
|
|
$
|
0.21
|
|
|
$
|
0.22
|
|
|
$
|
0.18
|
|
Income (loss) per share from discontinued operations
|
|
—
|
|
|
0.01
|
|
|
—
|
|
Earnings per common share from continuing operations
|
|
$
|
0.21
|
|
|
$
|
0.21
|
|
|
$
|
0.18
|
|
|
|
|
|
|
|
|
|
|
|
Key Ratios
|
|
|
|
|
|
|
|
|
|
Net interest margin (FTE) from continuing operations~
|
|
3.24
|
%
|
|
3.26
|
%
|
|
3.16
|
%
|
Tier 1 capital*
|
|
12.5
|
%
|
|
11.8
|
%
|
|
11.6
|
%
|
Tier 1 common risk-based ratio (non-GAAP)*(1)
|
|
11.6
|
%
|
|
11.4
|
%
|
|
11.1
|
%
|
Basel III common equity Tier 1 ratio (non-GAAP)*(1)
|
|
11.0
|
%
|
|
10.8
|
%
|
|
10.3
|
%
|
Tangible common stockholders’ equity to tangible assets(non-GAAP)(1)
|
|
9.84
|
%
|
|
9.53
|
%
|
|
8.72
|
%
|
Tangible common book value per share (non-GAAP)(1)
|
|
$
|
8.12
|
|
|
$
|
7.81
|
|
|
$
|
7.11
|
|
Allowance for loan losses as a percentage of loans, net of unearned
income
|
|
1.61
|
%
|
|
1.67
|
%
|
|
2.18
|
%
|
Net charge-offs as a percentage of average net loans~
|
|
0.35
|
%
|
|
0.44
|
%
|
|
0.77
|
%
|
Non-accrual loans, excluding loans held for sale, as a percentage of
loans
|
|
1.17
|
%
|
|
1.41
|
%
|
|
2.01
|
%
|
Non-performing assets as a percentage of loans, foreclosed
properties and non-performing loans held for sale
|
|
1.37
|
%
|
|
1.63
|
%
|
|
2.25
|
%
|
Non-performing assets (including 90+ past due) as a percentage of
loans, foreclosed properties and non-performing loans held for
sale(2)
|
|
1.69
|
%
|
|
1.97
|
%
|
|
2.68
|
%
|
|
|
|
|
|
|
|
|
|
|
*Tier 1 Common and Tier 1 Capital ratios for the current quarter
are estimated ~Annualized
|
(1) Non-GAAP, refer to pages 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 $119 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 are 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 contacts are List Underwood and Dana Nolan
at (205) 581-7890; Regions’ Media contact is Evelyn Mitchell at (205)
264-4551.
Use of non-GAAP financial measures
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 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 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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