Regions Financial Corporation — Q2 2022 Form 10-Q
Business context and reporting period. Regions is a bank holding company operating mainly in the South, Midwest and Texas, with retail and mortgage banking, commercial banking, and wealth management businesses. This unaudited filing covers the quarter and six months ended June 30, 2022; comparisons are primarily with the corresponding 2021 periods and, for balance-sheet items, December 31, 2021.
Financial performance and position
| Metric | Q2 2022 / June 30, 2022 | Comparable period / prior date |
|---|---|---|
| Net income | $583 million; $558 million available to common shareholders; diluted EPS $0.59 | Q2 2021: $790 million; $748 million common; diluted EPS $0.77 |
| Net interest income | $1.108 billion GAAP; $1.119 billion taxable-equivalent. Taxable-equivalent net interest margin: 3.06% | Q2 2021: $963 million GAAP; $975 million taxable-equivalent; margin 2.81% |
| Credit provision and losses | $60 million provision; $38 million net charge-offs, or 0.17% annualized of average loans | Q2 2021: $337 million benefit; $47 million net charge-offs, or 0.23% |
| Non-interest income / expense | $640 million / $948 million | Q2 2021: $619 million / $898 million |
| Loans and deposits | Loans $93.5 billion; deposits $138.3 billion | December 31, 2021: loans $87.8 billion; deposits $139.1 billion |
| Assets, equity and borrowings | Total assets $160.9 billion; shareholders’ equity $16.5 billion; long-term borrowings $2.3 billion | December 31, 2021: $162.9 billion; $18.3 billion; and $2.4 billion, respectively |
| Capital and liquidity | Estimated holding-company CET1 ratio 9.25%; cash and cash equivalents $20.5 billion | Cash and cash equivalents were $29.4 billion at December 31, 2021 |
For the six months ended June 30, net income was $1.131 billion versus $1.432 billion in 2021; net interest income was $2.123 billion versus $1.930 billion. Net cash from operating activities was $1.505 billion, investing activities used $8.987 billion, and financing activities used $1.429 billion. Cash and cash equivalents declined $8.911 billion in the period.
Material changes versus comparable periods
- Q2 net income available to common shareholders fell $190 million year over year. Higher net interest income and non-interest income were more than offset by the shift from a large credit-loss benefit in 2021 to a provision in 2022, alongside higher expenses.
- Q2 taxable-equivalent net interest income increased $144 million year over year, supported by higher rates, loan growth and a larger securities portfolio. Deposit funding costs remained low; elevated liquidity continued to weigh on margin.
- Loans increased $5.7 billion from year-end, led by commercial and industrial lending. Deposits decreased $809 million, as some commercial and wealth customers reduced excess balances and acquired EnerBank time deposits matured.
- Shareholders’ equity fell $1.8 billion from year-end, chiefly reflecting a $2.4 billion decline in accumulated other comprehensive income, primarily from rate-driven unrealized losses on available-for-sale securities and derivatives. Available-for-sale securities had $2.258 billion of gross unrealized losses at June 30; management said it did not intend, and was not more likely than not required, to sell the positions before recovery.
- Non-performing loans excluding loans held for sale declined to $369 million from $451 million at year-end; the allowance for credit losses was $1.514 billion, or 1.62% of loans, versus $1.574 billion, or 1.79%, at year-end.
Outlook, risks and contingencies
- Management’s 2022 expectations were adjusted revenue growth of 7.5%–8.5%, adjusted non-interest expense growth of 4.5%–5.5%, adjusted operating leverage of about 3%, and average loan growth of about 8%. Net charge-offs were expected toward the lower end of 20–30 basis points; the effective tax rate was expected at 21%–23%; and CET1 was expected near the midpoint of a 9.25%–9.75% operating range. Revenue guidance used the July 1, 2022 forward interest-rate curve.
- Regions reported an asset-sensitive interest-rate position. Its modeled 12-month net interest income benefit under a gradual +100 basis-point rate shift ranged from $119 million to $215 million, depending on assumptions about the retention and repricing of pandemic-related “surge” deposits. Management cautioned that these simulations are not forecasts.
- Management cited inflation, rising rates, supply-chain disruption, geopolitical tensions and uncertainty in economic growth as risks to borrowers, credit costs, securities values and deposit pricing. The filing also discusses cybersecurity, regulatory, competitive and LIBOR-transition risks.
- The CFPB was investigating historical overdraft practices; Regions said it believed its practices were lawful and had begun resolution discussions. The possible loss for this matter could not be estimated and could be material. Separately, the company estimated reasonably possible losses above accrued amounts of up to approximately $20 million across other matters, while noting it could incur no excess losses.
- Off-balance-sheet unused credit commitments were $64.7 billion. Fannie Mae loss-share guarantees had a stated maximum quantifiable contingent liability of approximately $1.7 billion; the filing said this is not representative of expected loss.
- The Board authorized up to $2.5 billion in common-stock repurchases through Q4 2024; $15 million had been repurchased under the plan by June 30. The quarterly common dividend was subsequently raised 18% to $0.20, payable October 3, 2022. The Federal Reserve finalized a 2.5% stress capital buffer for Q4 2022 through Q3 2023.
Most important facts for investors to verify
- Whether loan growth, higher interest rates and deposit repricing deliver the projected revenue and margin gains, particularly if higher deposit betas or deposit outflows emerge.
- Whether credit quality remains strong and the allowance remains adequate as inflation, interest rates and economic growth affect borrowers and collateral.
- The extent and duration of the securities and derivative-related AOCI losses, and any resulting effects on equity, capital or liquidity.
- Developments and potential financial consequences of the CFPB overdraft investigation, which the company said could not yet be estimated.
- Execution against the 2022 guidance, including expense growth, capital targets, dividends and the authorized repurchase program.