Regions Financial Corporation — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; balance-sheet comparisons are against December 31, 2021. Regions is a bank holding company operating primarily across the South, Midwest and Texas, with Corporate Bank, Consumer Bank and Wealth Management segments.
Financial performance and condition
- Earnings: Net income was $548 million, down from $642 million a year earlier. Net income available to common shareholders was $524 million; diluted EPS was $0.55 versus $0.63.
- Revenue and margins: Net interest income was $1.015 billion, up $48 million year over year; on a taxable-equivalent basis it was $1.026 billion. Net interest margin fell to 2.85% from 3.02%, as elevated cash balances weighed on yields. Non-interest income declined to $584 million from $641 million, while non-interest expense increased to $933 million from $928 million.
- Credit: The provision for credit losses was a benefit of $36 million, compared with a $142 million benefit in Q1 2021. Net charge-offs were $46 million, or 0.21% of average loans annualized, versus $83 million, or 0.40%. The allowance for credit losses was $1.492 billion, 1.67% of loans, down from $1.574 billion and 1.79% at year-end.
- Balance sheet and liquidity: Total assets were $164.1 billion; loans were $89.3 billion, up from $87.8 billion at year-end. Deposits were $141.0 billion, up $2.0 billion. Cash and cash equivalents were $27.9 billion. Regions reported $14.9 billion of FRB borrowing availability and approximately $16.3 billion of FHLB capacity, with no FHLB borrowings.
- Debt and capital: Long-term borrowings totaled $2.343 billion. Estimated holding-company CET1 was 9.39%; Regions Bank’s estimated CET1 was 11.19%. Shareholders’ equity declined to $17.0 billion from $18.3 billion, primarily reflecting a $1.503 billion after-tax decline in AOCI, including unrealized losses on securities and hedges.
- Cash flow: Operating activities provided $584 million, investing activities used $3.599 billion, and financing activities provided $1.549 billion. Cash and cash equivalents decreased $1.466 billion during the quarter.
Material changes versus the comparable period
- Lower earnings reflected a smaller credit-loss benefit and reduced non-interest income, partly offset by higher net interest income.
- Non-interest income was pressured by lower mortgage income ($48 million versus $90 million) and capital markets income ($73 million versus $100 million). Service charges and card fees increased.
- Loans grew, led by commercial and industrial lending. Commercial and investor real estate criticized balances and non-performing loans also declined from the prior quarter, according to management.
- Available-for-sale securities had $1.346 billion of gross unrealized losses at quarter-end, compared with $275 million at year-end; management attributed the increase primarily to higher market interest rates and reported no identified credit impairment in the positions discussed.
- Regions repurchased approximately 9.1 million common shares for $215 million and declared a $0.17-per-share dividend. A new authorization permits up to $2.5 billion of repurchases through Q4 2024.
Outlook, commentary and risks
- 2022 expectations: Adjusted revenue growth of 4.5%–5.5%; adjusted non-interest expense growth of 3%–4%; positive adjusted operating leverage; average loan growth of 4%–5%; net charge-offs of approximately 20–30 basis points; effective tax rate of 21%–23%; and CET1 near the midpoint of a 9.25%–9.75% operating range. Revenue expectations use the March 31 forward-rate curve and exclude subsequent securities purchases.
- Management described credit performance as strong, while citing uncertainty from inflation, supply-chain and labor constraints, geopolitical tensions, interest-rate movements and borrower conditions. The bank is asset-sensitive in its modeled rate scenarios, but results depend on deposit pricing, retention and balance-sheet assumptions.
- Interest-rate risk includes material deposit uncertainty: approximately $27 billion of deposits were identified as pandemic-related “surge” balances. In a gradual +100-basis-point scenario, estimated 12-month net interest income benefit ranged from $116 million to $221 million, depending on assumed deposit behavior; management cautions these simulations are not forecasts.
- Regions continued integration of EnerBank, Sabal and Clearsight. EnerBank added consumer home-improvement lending; acquired-asset fair-value estimates remained preliminary.
- Legal contingency: Regions estimated reasonably possible losses above accrued amounts of up to approximately $20 million in aggregate, while noting it could incur no excess loss. A CFPB investigation into certain overdraft practices remains ongoing; a possible loss is considered reasonably possible, but the amount cannot currently be estimated.
- Other disclosed exposures include cyber and third-party operational risks, regulatory and capital constraints, LIBOR transition, mortgage-servicing valuation sensitivity, and Fannie Mae loss-share guarantees with a stated maximum quantifiable contingent liability of approximately $1.7 billion; the recorded guarantee liability was about $7 million.
Most important facts for investors to verify
- Whether loan growth and higher rates translate into stronger net interest income without materially higher deposit costs or deposit attrition.
- Whether credit quality remains strong and the allowance remains adequate as inflation, rates and economic conditions evolve.
- The effects of unrealized securities and hedge losses on AOCI, capital and flexibility to return capital.
- Progress and potential financial consequences of the CFPB overdraft investigation and other legal matters.
- Delivery against 2022 guidance, including expense growth, loan growth, credit costs and the planned share repurchases.
- Integration results for recent acquisitions and the performance and funding trajectory of EnerBank’s acquired loans and deposits.