Regions Financial Corporation — Q1 2021 Form 10-Q
Business context and reporting period. Regions is a bank holding company headquartered in Birmingham, Alabama, serving customers across the South, Midwest and Texas. This unaudited filing covers the three months ended March 31, 2021; balance-sheet comparisons are with December 31, 2020. Results are compared with Q1 2020 unless otherwise noted. Amounts are in U.S. dollars.
Key financial metrics
| Metric | Q1 2021 / March 31, 2021 | Comparable period / prior year-end |
|---|---|---|
| Net income | $642 million; $614 million available to common shareholders; diluted EPS $0.63 | Q1 2020: $162 million; $139 million available to common shareholders; diluted EPS $0.14 |
| Net interest income | $967 million GAAP; $978 million taxable-equivalent | Q1 2020: $928 million GAAP; $940 million taxable-equivalent |
| Net interest margin | 3.02%; adjusted, excluding PPP and excess cash, 3.40% | Q1 2020: 3.44% GAAP and adjusted |
| Non-interest income / expense | $641 million / $928 million | Q1 2020: $485 million / $836 million |
| Credit provision and losses | $142 million benefit from credit losses; net charge-offs $83 million, or 0.40% annualized | Q1 2020: $373 million provision; net charge-offs $123 million, or 0.59% annualized |
| Assets and loans | Total assets $153.3 billion; loans $84.8 billion; net loans $82.8 billion | December 31, 2020: assets $147.4 billion; loans $85.3 billion; net loans $83.1 billion |
| Deposits and borrowings | Deposits $129.6 billion; long-term borrowings $2.9 billion | December 31, 2020: deposits $122.5 billion; borrowings $3.6 billion |
| Cash and cash flow | Cash and cash equivalents $24.9 billion; operating cash flow $719 million | Q1 2020 operating cash flow $787 million; period-end cash $5.3 billion |
| Capital and equity | Shareholders’ equity $17.9 billion; holding-company CET1 10.31%; total capital 14.04% | December 31, 2020: equity $18.1 billion; CET1 9.84%; total capital 13.56% |
Material changes versus comparable periods
- Net income available to common shareholders rose to $614 million from $139 million. The improvement principally reflects a swing from a credit-loss provision to a benefit, alongside higher non-interest income and lower funding costs.
- Net interest income increased, but reported margin declined as excess cash and PPP balances grew and assets repriced at lower rates. Management reported adjusted margin of 3.40% after excluding PPP and excess cash.
- Non-interest income increased $156 million, led by capital markets and mortgage income; deposit service charges fell $21 million. Non-interest expense increased $92 million, mainly from salaries and employee benefits.
- Deposits grew $7.1 billion from year-end, primarily reflecting government stimulus payments and business customers retaining liquidity. Cash and cash equivalents increased about $7.0 billion. Loans declined $511 million from year-end, while PPP loans rose to $4.3 billion.
- The allowance for credit losses fell to $2.068 billion from $2.293 billion at year-end, largely due to improving credit metrics and the economic outlook. Non-performing loans excluding held-for-sale loans were $738 million versus $745 million at year-end; the allowance was 280% of those loans.
- Accumulated other comprehensive income declined $723 million during the quarter, largely from unrealized changes in securities and derivatives associated with market-rate movements; shareholders’ equity consequently declined despite net income.
Outlook, commentary, risks and unusual items
- 2021 expectations: Adjusted revenue down modestly, depending partly on PPP forgiveness timing and amount; adjusted non-interest expense stable; adjusted average loans down low single digits; adjusted ending loans up low single digits; net charge-offs to average loans of 40–50 basis points; effective tax rate approximately 22%. Revenue assumptions include short-term rates near zero and the 10-year Treasury yield between 1.5% and 1.75%.
- Management’s April baseline forecast anticipated U.S. real GDP growth of 6.2% in 2021, 4.1% in 2022 and 2.3% in 2023, while emphasizing uncertainty around the pandemic and recovery. The company reported about $437 million of outstanding customer deferrals, down 92% from June 2020; 96% of balances that had exited deferral were current or less than 30 days past due.
- Regions reported strong liquidity, including $23.0 billion on deposit with the Federal Reserve, $13.3 billion of Federal Reserve borrowing availability and $15.4 billion of FHLB capacity; it had no FHLB borrowings at quarter-end. Management’s interest-rate sensitivity estimates are scenario-based, not forecasts, and depend significantly on behavior of pandemic-related “surge” deposits.
- Credit risks include persistent uncertainty from COVID-19, borrower repayment capacity, economic forecasts, collateral values and potential volatility in credit metrics. Identified high-risk COVID-19 commercial and investor-real-estate exposure was $3.4 billion, down from $5.2 billion at year-end. Approximately $33.3 billion of commercial and investor-real-estate loans and $1.2 billion of consumer loans referenced LIBOR.
- Regions disclosed ongoing cooperation with a CFPB investigation into certain overdraft practices. It estimated reasonably possible legal losses above accrued amounts of up to approximately $20 million, while noting it could incur no additional losses. The maximum quantifiable DUS loss-share guarantee was approximately $1.5 billion, but the recorded liability was about $5 million and the maximum is not representative of expected loss.
- Subsequent events: on April 21, the Board authorized up to $2.5 billion of common-stock repurchases from Q2 2021 through Q1 2022, subject to applicable constraints. A $400 million Series E preferred offering was completed May 4; proceeds were intended to redeem Series A preferred stock in June. Regions submitted for 2021 CCAR voluntarily and expected results by June 30, with a new stress capital buffer effective October 1.
Important facts for investors to verify
- Whether the large credit-loss benefit and lower allowance remain appropriate as stimulus and loan deferrals unwind, and whether reported asset-quality trends persist.
- How deposit growth, cash balances, PPP forgiveness and loan demand affect future net interest margin and the stated revenue and loan outlook.
- Progress and financial implications of the CFPB overdraft investigation, other legal contingencies and LIBOR contract remediation.
- The outcome of the 2021 CCAR review, capital-buffer requirements, and whether the authorized repurchases and preferred-stock refinancing proceed as described.
- The sustainability of fee income gains and expense trends, particularly capital markets income, mortgage activity, service charges and employee-related costs.