Regions Financial Corporation — Q1 2024 Form 10-Q
Business context and reporting period. Regions is a Birmingham-based financial holding company serving the South, Midwest and Texas, with specialty businesses operating nationally. It provides consumer and commercial banking, mortgage, capital markets and wealth services. This unaudited quarterly report covers the three months ended March 31, 2024; balance-sheet comparisons are to December 31, 2023. All dollar amounts below are in U.S. dollars.
Financial results and condition
| Metric | Q1 2024 | Comparable period / prior date |
|---|---|---|
| Net income / diluted EPS | $368 million / $0.37 | Q1 2023: $612 million / $0.62 |
| Net income available to common shareholders | $343 million | Q1 2023: $588 million |
| Net interest income, GAAP | $1.184 billion | Q1 2023: $1.417 billion |
| Net interest margin, taxable-equivalent | 3.55% | Q1 2023: 4.22% |
| Non-interest income / expense | $563 million / $1.131 billion | Q1 2023: $534 million / $1.027 billion |
| Provision for credit losses | $152 million | Q1 2023: $135 million |
| Net charge-offs / average loans | $121 million / 0.50% | Q1 2023: $83 million / 0.35% |
| Total assets | $154.9 billion | Dec. 31, 2023: $152.2 billion |
| Total loans / deposits | $96.9 billion / $129.0 billion | Dec. 31, 2023: $98.4 billion / $127.8 billion |
| Allowance for credit losses | $1.731 billion; 1.79% of loans | Dec. 31, 2023: $1.700 billion; 1.73% |
| Cash and cash equivalents | $11.25 billion | Dec. 31, 2023: $6.80 billion |
| Borrowed funds | $4.33 billion | Dec. 31, 2023: $2.33 billion |
| Regions Financial CET1 ratio | Estimated 10.32% | Dec. 31, 2023: 10.26% |
Net cash from operating activities was $396 million, investing activities provided $1.209 billion and financing activities provided $2.844 billion. Cash and cash equivalents rose $4.449 billion during the quarter.
Material changes and management commentary
- Common-shareholder earnings fell year over year as higher deposit and funding costs reduced net interest income. Interest expense on deposits rose to $495 million from $179 million; deposit cost, including non-interest-bearing deposits, increased to 1.56% from 0.56%. Higher yields on maturing and replacement assets partly offset this pressure.
- Non-interest income increased 5.4%, supported by capital markets and mortgage income. Non-interest expense rose 10.1%, including higher salaries, operational losses and FDIC assessments.
- Regions sold about $1.3 billion of available-for-sale securities, recording $50 million of pretax losses, and reinvested proceeds at yields about 190 basis points higher. The securities portfolio’s duration lengthened by 0.15 years. AOCI declined $412 million in the quarter, mainly from securities and derivative valuation changes.
- Loans declined $1.5 billion from year-end, including a $1.2 billion reduction in commercial and industrial loans. Deposits increased $1.2 billion, which Regions attributed partly to typical first-quarter tax-refund seasonality; deposit balances continued to remix from non-interest-bearing to interest-bearing accounts.
- Non-performing loans excluding loans held for sale rose to $906 million from $805 million at year-end. Management cited continuing credit normalization and downgrades in areas including office, professional services, transportation and manufacturing. Commercial and investor real estate criticized balances also increased.
Outlook, risks and unusual items
Management’s 2024 expectations are net interest income of $4.7–$4.8 billion; adjusted non-interest income of $2.3–$2.4 billion; adjusted non-interest expense of approximately $4.1 billion; average loans and deposits stable to down modestly; net charge-offs of 40–50 basis points of average loans; and an effective tax rate of approximately 21%. Management expects to manage CET1 near current levels over the near term. The net interest income outlook assumes stable or lower short-term rates and long-term rates flat at March 31, 2024 levels.
Management reported $60.8 billion of available liquidity sources at quarter-end: $8.7 billion in cash at the Federal Reserve, $20.8 billion in unencumbered securities, $11.2 billion in FHLB borrowing availability and $20.1 billion in Federal Reserve discount-window availability. Estimated uninsured deposits were $48.7 billion; the filing states that over 60% of deposits were FDIC-insured.
- Credit risks include continued asset-quality normalization and stress in certain commercial real estate portfolios. About 45% of the multifamily portfolio and 51% of the office portfolio were scheduled to mature in the next 12 months, including matured balances. Regions reported stressed weighted-average LTVs of approximately 70% for multifamily and 105% for office, based on a third-party property price index.
- Other key exposures include interest-rate and deposit-pricing changes, potential deposit outflows, collateral and securities values, economic conditions, operational and cyber risks, and regulatory changes. The filing notes proposed debit interchange and overdraft rules and proposed Basel III Endgame capital changes.
- The FDIC special-assessment accrual was increased by $18 million in Q1 following revised loss estimates. Operational losses increased to $42 million from $13 million, primarily due to check-related warranty claims. The filing says reasonably possible legal losses in excess of accruals are currently estimated to be immaterial; outcomes remain uncertain.
- Regions reported $2.3 billion as the maximum quantifiable contingent liability on Fannie Mae loss-share guarantees; the filing emphasizes that this worst-case amount is not representative of expected loss. Unused credit commitments were $63.7 billion.
- Common dividends were $0.24 per share in Q1, up from $0.20 a year earlier. Regions repurchased $102 million of shares during the quarter and reported additional repurchases of $72 million through May 6, 2024.
Important facts for investors to verify
- Whether deposit pricing, deposit mix and funding costs stabilize sufficiently to support management’s net interest income outlook.
- Trends in criticized and non-performing loans, charge-offs, allowance coverage and performance of office and multifamily exposures, including upcoming maturities.
- Whether the expected benefits of securities repositioning offset the realized $50 million loss and the effects of market-rate changes on AOCI and capital.
- How liquidity availability, uninsured deposits and use of FHLB or Federal Reserve funding evolve; stated borrowing capacity depends on eligible collateral.
- Whether expense and credit-cost expectations are achieved, including FDIC assessments, operational losses and any material developments in legal or regulatory matters.