REGIONS FINANCIAL CORPORATION INTRODUCTION
The following discussion and analysis is part ofRegions Financial Corporation's ("Regions" or the "Company") Quarterly Report on Form 10-Q filed with theSEC and updates Regions' Annual Report on Form 10-K for the year endedDecember 31, 2020 , which was previously filed with theSEC . This financial information is presented to aid in understanding Regions' financial position and results of operations and should be read together with the financial information contained in Regions' Annual Report on Form 10-K. See Note 1 "Basis of Presentation" and Note 12 "Recent Accounting Pronouncements" to the consolidated financial statements for further detail. The emphasis of this discussion will be on the three and nine months endedSeptember 30, 2021 compared to the three and nine months endedSeptember 30, 2020 for the consolidated statements of income. For the consolidated balance sheets, the emphasis of this discussion will be the balances as ofSeptember 30, 2021 compared toDecember 31, 2020 . This discussion and analysis contains statements that may be considered "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. See pages 7 through 9 for additional information regarding forward-looking statements. CORPORATE PROFILE Regions is a financial holding company headquartered inBirmingham, Alabama , that operates in the South, Midwest andTexas . Regions provides traditional commercial, retail and mortgage banking services, as well as other financial services in the fields of asset management, wealth management, securities brokerage, trust services, merger and acquisition advisory services and other specialty financing. Regions conducts its banking operations throughRegions Bank , anAlabama state-chartered commercial bank that is a member of theFederal Reserve System . AtSeptember 30, 2021 , Regions operated 1,310 total branch outlets. Regions carries out its strategies and derives its profitability from three reportable business segments:Corporate Bank ,Consumer Bank , and Wealth Management, with the remainder in Other. See Note 10 "Business Segment Information" to the consolidated financial statements for more information regarding Regions' segment reporting structure. Regions' business strategy is focused on providing a competitive mix of products and services, delivering quality customer service, and continuing to develop and optimize distribution channels that include a branch distribution network with offices in convenient locations, as well as electronic and mobile banking. Regions' profitability, like that of many other financial institutions, is dependent on its ability to generate revenue from net interest income as well as non-interest income sources. Net interest income is primarily the difference between the interest income Regions receives on interest-earning assets, such as loans and securities, and the interest expense Regions pays on interest-bearing liabilities, principally deposits and borrowings. Regions' net interest income is impacted by the size and mix of its balance sheet components and the interest rate spread between interest earned on its assets and interest paid on its liabilities. Non-interest income includes fees from service charges on deposit accounts, card and ATM fees, mortgage servicing and secondary marketing, investment management and trust activities, capital markets and other customer services which Regions provides. Results of operations are also affected by the provision for credit losses and non-interest expenses such as salaries and employee benefits, occupancy, professional, legal and regulatory expenses,FDIC insurance assessments, and other operating expenses, as well as income taxes. Economic conditions, competition, new legislation and related rules impacting regulation of the financial services industry and the monetary and fiscal policies of the Federal government significantly affect most, if not all, financial institutions, including Regions. Lending and deposit activities and fee income generation are influenced by levels of business spending and investment, consumer income, consumer spending and savings, capital market activities, and competition among financial institutions, as well as customer preferences, interest rate conditions and prevailing market rates on competing products in Regions' market areas. OnFebruary 27, 2020 , Regions announced that it had entered into an agreement to acquireAscentium Capital LLC , an independent equipment financing company headquartered inKingwood, Texas . The transaction closed onApril 1, 2020 , and included approximately$1.9 billion in loans and leases to small businesses. Refer to the "Ascentium Acquisition" section for more detail. OnJune 8, 2021 , Regions entered into an agreement to acquireEnerBank USA , a consumer lending institution specializing in home improvement lending headquartered inSalt Lake City, Utah . The transaction closed onOctober 1, 2021 , and resulted in the addition of approximately$3.1 billion in loans to consumers. OnOctober 4, 2021 , Regions entered into an agreement to acquireSabal Capital Partners, LLC , a diversified financial services firm that facilitates lending in the small-balance commercial real estate market headquartered inIrvine, California . The transaction is expected to close in the fourth quarter of 2021, subject to regulatory approval. 53
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THIRD QUARTER OVERVIEW Economic Environment in Regions' Banking Markets One of the primary factors influencing the credit performance of Regions' loan portfolio is the overall economic environment in theU.S. and the primary markets in which it operates. TheOctober 2021 baseline forecast anticipates real GDP growth of 5.5 percent in 2021, 4.6 percent in 2022, and 2.9 percent in 2023. While the downside risks posed by the COVID-19 virus have not been eliminated, they nonetheless have diminished with further progress on the vaccination front, but global supply chain and logistics bottlenecks remain a constraint on growth. Ample liquidity in the household and corporate sectors along with accommodative monetary and fiscal policy will be supportive of growth. That said, Regions expects that by mid-2023 the economy will be back on the path of growth around 2.0 percent that prevailed prior to the pandemic. As has been the case since the onset of the pandemic, there remains a heightened degree of uncertainty around economic forecasts being made at present. The dominant theme in the economic data over recent months is the growing imbalance between the supply side of the economy and the demand side. Due to an unprecedented degree of fiscal and monetary policy support, greater numbers of people being vaccinated against the COVID-19 virus, and further easing of restrictions on economic activity, the demand side of the economy is notably robust. The supply side of the economy, however, is simply unable to keep pace. Shortages of labor and non-labor inputs and shipping bottlenecks have driven up costs to producers and acted as drags on output growth. Moreover, the extent to which they have been drawn down over recent months means inventories are no longer providing a meaningful buffer between demand and supply. The growing imbalance between demand and supply has contributed to the sharp acceleration in inflation over recent months. Supply/demand imbalances remain evident in the labor market data. As of September, the level of nonfarm employment was 4.97 million jobs below the pre-pandemic peak, while there are over three million fewer people in the labor force than was the case prior to the pandemic. Yet, there are over ten million open jobs waiting to be filled, and it seems clear that firms would be hiring more workers if they were available. While it had been expected that labor supply constraints would begin easing in the fall months, there is little evidence thus far showing that to be the case. The supply/demand imbalance in the labor market is leading to more upward pressure on wages than would seem consistent with the remaining degree of labor market slack, with average hourly earnings rising across all broad industry groups. It should be noted, however, that with the various rounds of pandemic-related transfer payments having largely run their course, labor earnings have resumed their role as the main driver of growth in personal income. The acceleration in the growth of labor income comes at a time when the personal saving rate remains significantly elevated, with an estimated$2.3 trillion more in household saving than would have been the case had pre-pandemic income and saving trends been maintained. Moreover, after having fallen by$6.26 trillion (annualized) in the second quarter of 2020, household net worth has since risen by$31.09 trillion , reflecting higher house prices and higher equity prices. Households have also been paring down non-mortgage debt, and household debt burdens continue to hover near record-lows. As such, conditions are in place for continued growth in consumer spending over coming quarters. Residential investment is expected to be a support for real GDP growth over coming quarters, but to a lesser degree than had previously been the case. Despite mortgage interest rates remaining favorable, notably lean inventories have fueled rapid house price appreciation over the past year, thus eroding affordability. Though still notably rapid, the pace of house price appreciation has begun to moderate, and further moderation is expected through the forecast horizon. As measured by the CPI, inflation has been at or above 5.0 percent in each month sinceMay 2021 , which is expected to remain the case into early-2022. While factors such as base effects and normalization effects that boosted inflation in the summer months have faded from the data, supply chain bottlenecks, higher shipping costs, and higher labor costs remain as sources of more persistent inflation pressures. As such, while inflation is expected to slow from current rates, it is likely to remain above theFOMC's 2.0 percent target rate through 2022. That said, theFOMC continues to believe that inflation pressures are mostly transitory which, along with their stated willingness to let inflation run above their target rate for "some time," makes it unlikely they will respond to higher inflation in the near term. While it is expected that theFOMC will begin tapering the pace of the Fed's monthly asset purchases in the fourth quarter of 2021, no changes in the Fed funds rate target range are expected until either late-2022 or early-2023. As such, monetary policy is expected to remain accommodative over the forecast horizon. The October baseline forecast incorporates the infrastructure bill which has garnered bipartisan support inCongress , which would result in roughly$579 billion in spending above what has previously been assumed. While there is scope for further fiscal policy measures, at present there are no specific details on either the spending side or the tax side of the ledger and, as such, no such changes are incorporated into the current baseline forecast. It should also be noted that expectations of the potential economic effects of the infrastructure bill and any additional spending should be tempered by the fact that any such spending would be phased in over an eight-to-ten year period and would be at least partially offset by tax increases. As such, the net effect on GDP growth in any given year over the forecast horizon would be relatively small. 54
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Patterns of economic activity within the Regions footprint are expected be broadly similar to those seen in theU.S. as a whole. While an above-average exposure to manufacturing across much of the footprint will be a tailwind to growth within the footprint, supply chain and logistics bottlenecks mean that growth will be slower than would otherwise be the case. To the extent remote working remains part of the post-pandemic landscape, states such asFlorida ,Georgia , the Carolinas,Tennessee , andTexas that have consistently benefited from above-average degrees of in-migration should continue to do so, which will provide support to the broader economies of these states. The continued signs of economic improvement, with consideration of uncertainty inherent in the forecast, impacted Regions' forecast utilized in calculating the ACL as ofSeptember 30, 2021 . See the "Allowance" section for further information. COVID-19 Pandemic Regions' business operations and financial results are influenced by the economic environment in which the Company operates. In the third quarter of 2021, the economic forecast continued to show signs of recovery. While some uncertainty remains, the economic forecast shows a much more positive outlook as the economy is more fully open. There are select areas where the COVID-19 pandemic impacted third quarter conditions, as discussed below. Regions expects that the pandemic will continue to influence economic conditions and the Company's financial results in future quarters, albeit at a diminishing rate. While most non-branch associates continued to work remotely during the third quarter of 2021, Regions began the process of returning remote working associates to office locations inOctober 2021 . As ofSeptember 30, 2021 , the outstanding balance of special COVID-related payment deferrals and forbearances, which were not government guaranteed, had declined to an immaterial amount. As a certified SBA lender, Regions provided its customers with the loan process under the PPP. Program funding ended in the second quarter of 2021 and the forgiveness process is ongoing. Regions originated PPP loans totaling approximately$6.2 billion , of which approximately 26,000 loans totaling approximately$1.5 billion remained outstanding as ofSeptember 30, 2021 . Regions expects that approximately 80% to 85% of the total$6.2 billion of PPP loans will be forgiven by year-end 2021. Regions continues to have strong liquidity and capital levels, which have the Company well-prepared to respond to customer borrowing needs. The Company has ample sources of liquidity that include a stable deposit base, cash balances held at theFederal Reserve , borrowing capacity at theFederal Home Loan Bank , unencumbered highly liquid securities, and borrowing availability at theFederal Reserve's discount window. See the "Liquidity", "Shareholders' Equity", and "Regulatory Capital " sections for further information. The COVID-19 pandemic also affected non-interest income. Due to changes in customer behavior, combined with continued enhancements to overdraft practices and transaction postings, the Company estimates consumer service charges will remain 10 percent to 15 percent below pre-pandemic levels. See Table 24 "Non-Interest Income" for more detail. Regions has experienced a modest increase in cyber events as a result of the COVID-19 pandemic, however the Company's layered control environment has effectively detected and prevented any material impact related to these events. Refer to the "Information Security" section for further detail. Capital During the third quarter of 2020, the FRB finalized Regions' SCB requirement for the fourth quarter of 2020 through the third quarter of 2021 at 3.0 percent. In the second quarter of 2021, Regions received the results of the Company's voluntary participation in 2021 CCAR. The FRB communicated that the Company exceeded all minimum capital levels under the supervisory stress test and the Company's stress capital buffer for the fourth quarter of 2021 through the third quarter of 2022 will be floored at 2.5 percent. As part of the Company's capital plan, onApril 21, 2021 , the Board authorized the repurchase of up to$2.5 billion of the Company's common stock, permitting purchases from the second quarter of 2021 through the first quarter of 2022. For the third quarter of 2021, Regions temporarily paused the repurchase of shares until the close of the EnerBank acquisition which was completed onOctober 1, 2021 . OnOctober 20, 2021 , the Company declared a cash dividend for the fourth quarter of 2021 of$0.17 per share of common stock, which was in compliance with the FRB's SCB framework. The Company intends to operate at a range for CET1 of 9.25 percent to 9.75 percent, with the expectation to manage to the mid-point by year-end 2021. The Company regularly performs internal stress testing which can result in modifications to the operating range. Third Quarter Results Regions reported net income available to common shareholders of$624 million , or$0.65 per diluted share, in the third quarter of 2021 compared to$501 million , or$0.52 per diluted share, in the third quarter of 2020. 55
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For the third quarter of 2021, net interest income (taxable-equivalent basis) totaled$976 million , down$24 million compared to the third quarter of 2020. The net interest margin (taxable-equivalent basis) was 2.76 percent for the third quarter of 2021 and 3.13 percent in the third quarter of 2020. The decrease in net interest income was primarily driven by a decrease in average loan balances and re-mixing into lower yielding lending portfolios. Net interest margin was negatively impacted by excess cash balances due to continued deposit growth as well as the repricing of fixed-rate loan and securities portfolios at lower market interest rates. Refer to Table 20 "Consolidated Average Daily Balances and Yield/Rate Analysis" for further details. The benefit from credit losses totaled$155 million in the third quarter of 2021, as compared to a provision of$113 million during the third quarter of 2020. The current quarter benefit was primarily due to positive credit performance and continued improvement in the economic forecast. Refer to the "Allowance for Credit Losses" section for further detail. Net charge-offs totaled$30 million , or an annualized 0.14 percent of average loans, in the third quarter of 2021, compared to$113 million , or an annualized 0.50 percent for the third quarter of 2020. The decrease was primarily driven by broad-based improvements across most portfolios. See Note 3 "Loans and the Allowance for Credit Losses" to the consolidated financial statements for additional information. The allowance was 1.80 percent of total loans, net of unearned income atSeptember 30, 2021 compared to 2.69 percent atDecember 31, 2020 . The decrease was impacted by the factors discussed above. The allowance was 283 percent of total non-performing loans atSeptember 30, 2021 compared to 308 percent atDecember 31, 2020 . Total non-performing loans (excluding loans held for sale) declined to 0.64 percent of total loans, net of unearned income, atSeptember 30, 2021 compared to 0.87 percent atDecember 31, 2020 . Refer to the "Allowance for Credit Losses" section for further detail. Non-interest income was$649 million for the third quarter of 2021, a$6 million decrease from the third quarter of 2020. The decrease was primarily driven by a decline in mortgage income and a gain on an equity investment that was recognized in the third quarter of 2020. These decreases were largely offset by increased capital markets income and other miscellaneous income. See Table 24 "Non-Interest Income" for more detail. Total non-interest expense was$938 million in the third quarter of 2021, a$42 million increase from the third quarter of 2020. The increase was primarily driven by higher salaries and employee benefits expense and a loss on early extinguishment of debt incurred in the quarter. See Table 25 "Non-Interest Expense" for more detail. Income tax expense for the three months endedSeptember 30, 2021 was$180 million compared to$104 million for the same period in 2020. See "Income Taxes" toward the end of the Management's Discussion and Analysis section of this report for more detail. Expectations 2021 Expectations Category Expectation (1) Up modestly
(dependent on timing and amount of
Total Adjusted Revenue PPP forgiveness)
Adjusted Non-Interest Expense Up modestly
Adjusted Average Loans Down low single digits
Adjusted Ending Loans Up low single digits
Net charge-offs / average loans Approximately 25 basis points
Effective tax rate (2) 22-23%
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(1)The impacts from the fourth quarter 2021 EnerBank USA and Sabal Capital
Partners, LLC acquisitions are not considered in these expectations.
(2)Does not include the impact of potential tax legislation.
Regions believes that expressing certain expectations as non-GAAP measures will
assist investors in analyzing the operating results of the Company and
predicting future performance on the same basis as that applied by management.
The reconciliation with respect to these forward-looking non-GAAP measures is
expected to be consistent with the actual non-GAAP reconciliations within
Management's Discussion and Analysis of this Form 10-Q. For more information
related to the Company's 2021 expectations, refer to the related sub-sections
discussed in more detail within Management's Discussion and Analysis of this
Form 10-Q.
BALANCE SHEET ANALYSIS
The following sections provide expanded discussion of significant changes in
certain line items in asset, liability, and shareholders' equity categories.
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CASH AND CASH EQUIVALENTS Cash and cash equivalents increased approximately$9.6 billion from year-end 2020 toSeptember 30, 2021 , due primarily to an increase in cash on deposit with the FRB. Elevated cash from deposit growth is held at the FRB. Deposit growth was primarily driven by pandemic-related deposit inflows resulting in higher consumer account balances and new account growth during the first nine months of 2021. See the "Liquidity" and "Deposits" sections for more information. DEBT SECURITIES The following table details the carrying values of debt securities, including both available for sale and held to maturity: Table 1-Debt Securities September 30, 2021 December 31, 2020 (In millions) U.S. Treasury securities $ 784 $ 183 Federal agency securities 97 105 Mortgage-backed securities: Residential agency 20,076 19,611 Residential non-agency 1 1 Commercial agency 6,939 6,586 Commercial non-agency 564 586 Corporate and other debt securities 1,470 1,204 $ 29,931 $ 28,276 Debt securities available for sale, which constitute the majority of the securities portfolio, are an important tool used to manage interest rate sensitivity and provide a primary source of liquidity for the Company. Regions maintains a highly rated securities portfolio consisting primarily of agency mortgage-backed securities. See Note 2 "Debt Securities " to the consolidated financial statements for additional information. Also see the "Market Risk-Interest Rate Risk" and "Liquidity" sections for more information. Debt securities increased$1.7 billion fromDecember 31, 2020 toSeptember 30, 2021 . The increase from year-end was primarily the result of the purchase of approximately$2.0 billion inU.S treasury securities, mortgage-backed securities and corporate and other debt securities during the second quarter of 2021. LOANS HELD FOR SALE Loans held for sale totaled$934 million atSeptember 30, 2021 , consisting of$850 million of residential real estate mortgage loans,$81 million of commercial mortgage and other loans, and$3 million of non-performing loans. AtDecember 31, 2020 , loans held for sale totaled$1.9 billion , consisting of$1.4 billion of residential real estate mortgage loans,$460 million of commercial mortgage and other loans, and$6 million of non-performing loans. The levels of residential real estate and commercial mortgage loans held for sale that are part of the Company's mortgage originations fluctuate depending on the timing of origination and sale to third parties. 57
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LOANS
Loans, net of unearned income, represented approximately 59 percent of Regions' interest-earning assets as ofSeptember 30, 2021 . The following table presents the distribution of Regions' loan portfolio by portfolio segment and class, net of unearned income: Table 2-Loan Portfolio September 30, 2021 December 31, 2020 (In millions, net of unearned income) Commercial and industrial $ 41,748 $ 42,870 Commercial real estate mortgage-owner-occupied (1) 5,446 5,405 Commercial real estate construction-owner-occupied (1) 252 300 Total commercial 47,446 48,575 Commercial investor real estate mortgage 5,608 5,394 Commercial investor real estate construction 1,704 1,869 Total investor real estate 7,312 7,263 Residential first mortgage 17,347 16,575 Home equity lines 3,875 4,539 Home equity loans 2,556 2,713 Indirect-vehicles 500 934 Indirect-other consumer 2,123 2,431 Consumer credit card 1,136 1,213 Other consumer 975 1,023 Total consumer 28,512 29,428 $ 83,270 $ 85,266 __________ (1)Collectively referred to as CRE. PORTFOLIO CHARACTERISTICS The following sections describe the composition of the portfolio segments and classes disclosed in Table 2, explain changes in balances from 2020 year-end, and highlight the related risk characteristics. Regions believes that its loan portfolio is well diversified by product, client, and geography throughout its footprint. However, the loan portfolio may be exposed to certain concentrations of credit risk which exist in relation to individual borrowers or groups of borrowers, certain types of collateral, certain types of industries, certain loan products, or certain regions of the country. Refer to Note 6 "Allowance for Credit Losses" in the Annual Report on Form 10-K for the year endedDecember 31, 2020 for additional information regarding Regions' portfolio segments and related classes, as well as the risks specific to each. While the economic environment continues to improve as the economy re-opens, there are select industries that continue to experience impacts of the COVID-19 pandemic. See Table 3 and Table 4 below for more detail. Commercial The commercial portfolio segment includes commercial and industrial loans to commercial customers for use in normal business operations to finance working capital needs, equipment purchases and other expansion projects. Commercial and industrial loans decreased$1.1 billion since year-end 2020. TheSeptember 30, 2021 balance includes$1.5 billion of PPP loans, a decrease of$2.1 billion compared to year-end 2020, reflecting PPP forgiveness. While line utilization levels remain well below pre-pandemic levels, utilization levels slightly increased by the end of the third quarter compared to the inflection point reached in the second quarter. Excluding PPP lending balances, commercial loan balances increased since year-end 2020 driven by growth in healthcare, transportation, technology and defense, as well as equipment lending throughAscentium . Commercial also includes owner-occupied commercial real estate mortgage loans to operating businesses, which are loans for long-term financing of land and buildings, and are repaid by cash flows generated by business operations. Owner-occupied commercial real estate construction loans are made to commercial businesses for the development of land or construction of a building where the repayment is derived from revenues generated from the business of the borrower. Over half of the Company's total loans are included in the commercial portfolio segment. These balances are spread across numerous industries as noted in the table below. The Company manages the related risks to this portfolio by setting certain lending limits for each significant industry. The following tables provide detail of Regions' commercial lending balances in selected industries. 58
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Table 3-Commercial Industry Exposure
September 30, 2021
Unfunded
Loans Commitments Total Exposure
(In millions)
Administrative, support, waste and repair $ 1,501 $ 1,227 $ 2,728
Agriculture 331 229 560
Educational services 2,954 923 3,877
Energy 1,455 2,463 3,918
Financial services 4,858 5,538 10,396
Government and public sector 2,744 527 3,271
Healthcare 3,876 2,291 6,167
Information 1,845 1,184 3,029
Manufacturing 4,643 4,326 8,969
Professional, scientific and technical services 2,226 1,366 3,592
Real estate (1) 6,817 8,175 14,992
Religious, leisure, personal and non-profit
services 1,849 667 2,516
Restaurant, accommodation and lodging 1,702 418 2,120
Retail trade 2,377 2,143 4,520
Transportation and warehousing 2,889 1,503 4,392
Utilities 2,134 2,862 4,996
Wholesale goods 3,265 3,281 6,546
Other (2) (20) 3,153 3,133
Total commercial $ 47,446 $ 42,276 $ 89,722
December 31, 2020 (3)
Unfunded
Loans Commitments Total Exposure
(In millions)
Administrative, support, waste and repair $ 1,605 $ 1,017 $ 2,622
Agriculture 424 332 756
Educational services 3,055 852 3,907
Energy 1,676 2,337 4,013
Financial services 4,416 4,905 9,321
Government and public sector 2,907 621 3,528
Healthcare 4,141 2,468 6,609
Information 1,699 1,096 2,795
Manufacturing 4,555 4,216 8,771
Professional, scientific and technical services 2,467 1,594 4,061
Real estate (1) 7,285 7,456 14,741
Religious, leisure, personal and non-profit
services 1,966 810 2,776
Restaurant, accommodation and lodging 2,196 341 2,537
Retail trade 2,578 2,178 4,756
Transportation and warehousing 2,731 1,415 4,146
Utilities 1,829 2,758 4,587
Wholesale goods 3,050 3,303 6,353
Other (2) (5) 1,774 1,769
Total commercial $ 48,575 $ 39,473 $ 88,048
________
(1)"Real estate" includes REITs, which are unsecured commercial and industrial
products that are real estate related.
(2)"Other" contains balances related to non-classifiable and invalid business
industry codes offset by payments in process and fee accounts that are not
available at the loan level.
(3)As customers' businesses evolve (e.g. up or down the vertical manufacturing
chain), Regions may need to change the assigned business industry code used to
define the customer relationship. When these changes occur, Regions does not
recast the customer history for prior periods into the new classification
because the business industry code used in the prior period was deemed
appropriate. As a result, comparable period changes may be impacted.
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Regions has identified certain industry sectors within the commercial and investor real estate portfolio segments that have the highest risk due to COVID-19. A bottom-up review was performed in all three quarters of 2021, which narrowed the high-risk industry sectors compared to year-end 2020. As ofSeptember 30, 2021 , these high-risk industries include energy, consumer services and travel, retail, restaurants, and hotels. Identified COVID-19 high-risk balances have declined$2.7 billion from$5.2 billion at year-end 2020 to$2.5 billion as ofSeptember 30, 2021 . Industries and sub-sectors identified as high-risk may change in future periods depending on how the macroeconomic environment conditions develop over time. These identified high-risk industries, and specified sectors within these industries, are detailed in Table 4 below. Regions is closely monitoring customers in these industries and has frequent dialogue with these customers. All loans within these tables are in the commercial portfolio segment, unless specifically identified as IRE. PPP loan balances are not included in Table 4 as these loans are not considered high risk, as they are fully guaranteed by theU.S. government. Table 4-COVID-19 High-Risk Industries September 30, 2021 Balance % of Total Outstanding Loans (1) Utilization % % Criticized (2) ($ in millions) Commercial Energy - oil & gas extraction, oilfield services, coal $ 930 1.1 % 48 % 22 % Consumer services & travel - amusement, arts and recreation, charter bus industry, taxi & limousine service 559 0.7 % 76 % 8 % Retail (non-essential) - clothing, miscellaneous store retailers 204 0.2 % 45 % 2 % Restaurants - full services 531 0.6 % 69 % 32 % Total commercial 2,224 2.7 % 57 % 19 % REITs and IRE Hotels - full service, limited service, extended stay 298 0.4 % 95 % 95 % Total REITs and IRE 298 0.4 % 95 % 95 % Total COVID-19 high-risk industries$ 2,522
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(1)Amounts have been calculated using whole dollar values. (2)Regions defines classified loans as commercial and investor real estate loans risk-rated substandard accrual and non-accrual, and criticized loans as those risk-rated special mention, substandard accrual and non-accrual. Criticized loans are also referred to as "criticized and classified".Investor Real Estate Loans for real estate development are repaid through cash flows related to the operation, sale or refinance of the property. This portfolio segment includes extensions of credit to real estate developers or investors where repayment is dependent on the sale of real estate or income generated from the real estate collateral. A portion of Regions' investor real estate portfolio segment consists of loans secured by residential product types (land, single-family and condominium loans) within Regions' markets. Additionally, this category includes loans made to finance income-producing properties such as apartment buildings, office and industrial buildings, and retail shopping centers. Total investor real estate loans increased$49 million in comparison to 2020 year-end balances. Residential First Mortgage Residential first mortgage loans represent loans to consumers to finance a residence. These loans are typically financed over a 15 to 30 year term and, in most cases, are extended to borrowers to finance their primary residence. These loans increased$772 million in comparison to 2020 year-end balances. The increase in residential first mortgage loans was primarily driven by an increase in originations due to continued historically low market interest rates. Approximately$4.8 billion in new loan originations were retained on the balance sheet through the first nine months of 2021. Home Equity Lines Home equity lines are secured by a first or second mortgage on the borrower's residence and allow customers to borrow against the equity in their homes. Home equity lines decreased by$664 million in comparison to 2020 year-end balances. Substantially all of this portfolio was originated through Regions' branch network. Beginning inDecember 2016 , new home equity lines of credit have a 10-year draw period and a 20-year repayment term. During the 10-year draw period customers do not have an interest-only payment option, except on a very limited basis. FromMay 2009 toDecember 2016 , home equity lines of credit had a 10-year draw period and a 10-year repayment term. Prior toMay 2009 , home equity lines of credit had a 20-year repayment term with a balloon payment upon maturity or a 5-year draw 60
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period with a balloon payment upon maturity. The term "balloon payment" means there are no principal payments required until the balloon payment is due for interest-only lines of credit. The following table presents information regarding the future principal payment reset dates for the Company's home equity lines of credit as ofSeptember 30, 2021 . The balances presented are based on maturity date for lines with a balloon payment and draw period expiration date for lines that convert to a repayment period. Table 5-Home Equity Lines of Credit - Future Principal Payment Resets First Lien % of Total Second Lien % of Total Total (Dollars in millions) 2021$ 73 1.90 % $ 52 1.34 %$ 125 2022 69 1.77 % 67 1.73 % 136 2023 95 2.43 % 73 1.89 % 168 2024 136 3.52 % 100 2.58 % 236 2025 137 3.53 % 150 3.88 % 287 2026-2031 1,502 38.76 % 1,158 29.89 % 2,660 2031-2035 149 3.85 % 109 2.80 % 258 Thereafter 3 0.08 % 2 0.05 % 5 Total$ 2,164 55.84 %$ 1,711 44.16 %$ 3,875 Home Equity Loans Home equity loans are also secured by a first or second mortgage on the borrower's residence, are primarily originated as amortizing loans, and allow customers to borrow against the equity in their homes. Home equity loans decreased by$157 million in comparison to 2020 year-end balances. Substantially all of this portfolio was originated through Regions' branch network. Other Consumer Credit Quality Data The Company calculates an estimate of the current value of property secured as collateral for both residential first mortgage and home equity lending products ("current LTV"). The estimate is based on home price indices compiled by a third party. The third party data indicates trends for MSAs. Regions uses the third party valuation trends from the MSAs in the Company's footprint in its estimate. The trend data is applied to the loan portfolios taking into account the age of the most recent valuation and geographic area. The following table presents current LTV data for components of the residential first mortgage, home equity lines and home equity loans classes of the consumer portfolio segment. Current LTV data for some loans in the portfolio is not available due to mergers and systems integrations. The amounts in the table represent the entire loan balance. For purposes of the table below, if the loan balance exceeds the current estimated collateral the entire balance is included in the "Above 100%" category, regardless of the amount of collateral available to partially offset the shortfall. 61
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Table 6-Estimated Current Loan to Value Ranges
September 30, 2021
Residential Home Equity Lines of Credit Home Equity Loans
First Mortgage 1st Lien 2nd Lien 1st Lien 2nd Lien
(In millions)
Estimated current LTV:
Above 100% $ 5 $ 1 $ 1 $ 3 $ 1
Above 80% - 100% 1,923 9 16 19 5
80% and below 15,142 2,123 1,632 2,342 174
Data not available 277 31 62 8 4
$ 17,347 $ 2,164 $ 1,711 $ 2,372 $ 184
December 31, 2020
Residential Home Equity Lines of Credit Home Equity Loans
First Mortgage 1st Lien 2nd Lien 1st Lien 2nd Lien
(In millions)
Estimated current LTV:
Above 100% $ 20 $ 4 $ 2 $ 5 $ 4
Above 80% - 100% 2,510 32 82 22 12
80% and below 13,790 2,417 1,888 2,452 207
Data not available 255 32 82 7 4
$ 16,575 $ 2,485 $ 2,054 $ 2,486 $ 227
Indirect-Vehicles
Indirect-vehicles lending, which was lending initiated through third-party
business partners, largely consists of loans made through automotive
dealerships. This portfolio decreased $434 million from year-end 2020 as Regions
has discontinued its indirect auto lending business. The Company remains in the
direct auto lending business.
Indirect-Other Consumer
Indirect-other consumer lending represents other lending initiatives through
third parties, including point of sale lending. This portfolio decreased $308
million from year-end 2020 due to exiting a third party relationship during the
fourth quarter of 2019.
Consumer Credit Card
Consumer credit card lending represents primarily open-ended variable interest
rate consumer credit card loans. These balances decreased $77 million from
year-end 2020.
Other Consumer
Other consumer loans primarily include direct consumer loans, overdrafts and
other revolving loans. Other consumer loans decreased $48 million from year-end
2020.
Regions considers factors such as periodic updates of FICO scores, unemployment,
home prices, and geography as credit quality indicators for consumer loans. FICO
scores are obtained at origination and refreshed FICO scores are obtained by the
Company quarterly for all consumer loans. For more information on credit quality
indicators refer to Note 3 "Loans and the Allowance for Credit Losses" .
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ALLOWANCE
The allowance consists of two components: the allowance for loan losses and the reserve for unfunded credit commitments. Discussion of the methodology used to calculate the allowance is included in Note 1 "Summary of Significant Accounting Policies" and Note 6 "Allowance for Credit Losses" to the consolidated financial statements in the Annual Report on Form 10-K for the year endedDecember 31, 2020 , as well as related discussion in Management's Discussion and Analysis. The allowance is sensitive to a number of internal factors, such as modifications in the mix and level of loan balances outstanding, portfolio performance and assigned risk ratings. The allowance is also sensitive to external factors such as the general health of the economy, as evidenced by changes in interest rates, GDP, unemployment rates, changes in real estate demand and values, volatility in commodity prices, bankruptcy filings, health pandemics, government stimulus, and the effects of weather and natural disasters such as droughts, floods and hurricanes. Management considers these variables and all other available information when establishing the final level of the allowance. These variables and others have the ability to result in actual credit losses that differ from the originally estimated amounts. The allowance totaled$1.5 billion atSeptember 30, 2021 compared to$2.3 billion atDecember 31, 2020 , which represents management's best estimate of expected losses over the life of the loan and credit commitment portfolios. Key drivers of the change in the allowance are presented in Table 7 below. While many of these items overlap regarding impact, they are included in the category most relevant. Table 7- Allowance Changes Three Months Ended September 30, September 30, 2021 2020 (In millions) Allowance for credit losses, beginning balance$ 1,684 $ 2,425 Net charge-offs (30) (113)
Provision over (less than) net charge-offs:
Economic outlook and adjustments (91) (22) Changes in portfolio credit quality (66) 115 Changes in specific reserves (21) 52 Other portfolio changes (1) 23 (32) Total provision over (less than) net charge-offs (185) - Allowance for credit losses, ending balance$ 1,499 $ 2,425 Nine Months Ended September 30, September 30, 2021 2020
(In millions) Allowance for credit losses, beginning balance (as adjusted for change in accounting guidance) (3)
$ 2,293 $ 1,415
Initial allowance on acquired PCD loans - 60
Net charge-offs (160) (418)
Provision over (less than) net charge-offs:
Economic outlook and adjustments (485) 488 Changes in portfolio credit quality (147) 539 Changes in specific reserves (74) 78 Other portfolio changes (1) 72 187 Initial provision impact of non-PCD acquired loans (2) - 76 Total provision over (less than) net charge-offs (794) 950 Allowance for credit losses, ending balance $
1,499
_______
(1)This line item includes the net impact of portfolio growth, portfolio run-off, pay-downs and changes in the mix of total outstanding loans. This line item excludes the impact of PPP loans of$1.5 billion as ofSeptember 30, 2021 , which are fully backed by theU.S. government and have an immaterial associated allowance. (2)This balance includes$64 million related to the initial allowance for non-PCD loans acquired as part of theAscentium acquisition. Impact included only for the quarter of acquisition. (3)Regions adopted the CECL accounting guidance onJanuary 1, 2020 and recorded the cumulative effect of the change in accounting guidance as a reduction to retained earnings and an increase to deferred tax assets in the first quarter of 2020. Credit metrics are monitored throughout the quarter in order to understand external macro-views, trends and industry outlooks, as well as Regions' internal specific views of credit metrics and trends. The third quarter of 2021 exhibited continued strong asset quality performance, reflecting broad-based improvements across most portfolios. Commercial and investor real estate criticized balances decreased approximately$168 million , classified balances decreased$107 million , and total net 63
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charge-offs decreased$17 million compared to the second quarter of 2021. Non-performing loans, excluding held for sale, and non-performing assets decreased approximately$136 million and$234 million , respectively, compared to the second quarter of 2021. Additionally, mortgage LTVs are holding up well and while the HPI remained strong in the third quarter of 2021, the pace of house price appreciation has begun to moderate and further moderation is expected through the forecast horizon. Regions continued to perform a bottom-up review of loan portfolios during the third quarter of 2021, which resulted in no change to the sectors considered high-risk compared to the second quarter of 2021; however the balance of loans in COVID-19 high-risk industry segments declined approximately$200 million fromJune 30, 2021 . Refer to the "Portfolio Characteristics" section for more information about the high-risk industries. As the credit risk within Regions' loan portfolio continues to be evaluated, both negative and positive factors of the economic landscape were considered in determining the allowance estimate. As economic activity continued to accelerate due to the largely reopened economy, the third quarter of 2021 showed continued signs of economic improvement. Regions'September 2021 forecast was relatively consistent with theJune 2021 forecast with continued increases in HPI and some caution around GDP growth. Regions' economic forecast utilized in theSeptember 30, 2021 allowance estimate considered sustained reopening of the economy, further vaccine distribution and continued increases in consumer spending on goods and services. Refer to the Economic Environment in Regions' Banking Markets within the "Third Quarter Overview" section for more information. Furthermore, Regions benchmarks its internal forecast with external forecasts and external data available. The table below reflects a range of macroeconomic factors utilized in the Base forecast over the two-year R&S forecast period as ofSeptember 30, 2021 . The unemployment rate is the most significant macroeconomic factor among the CECL models. Unemployment rates in the third quarter and the forecasted periods remained normalized. Table 8- Macroeconomic Factors in the Forecast Pre-R&S Base R&S Forecast Period September 30, 2021 3Q2021 4Q2021 1Q2022 2Q2022 3Q2022 4Q2022 1Q2023 2Q2023 3Q2023 Real GDP, annualized % change 3.8 % 5.6 % 5.2 % 4.1 % 3.2 % 2.6 % 2.3 % 2.2 % 2.3 % Unemployment rate 5.2 % 4.8 % 4.6 % 4.4 % 4.2 % 4.1 % 4.0 % 3.9 % 3.8 % HPI, year-over-year % change 18.1 % 16.0 % 12.9 % 8.1 % 4.0 % 3.4 % 3.5 % 3.6 % 3.8 % S&P 500 4,450 4,557 4,600 4,630 4,657 4,693 4,726 4,764 4,805 The continued improvement in the economic outlook and positive credit performance during the quarter (described above) were significant drivers of the modeled decreases in the allowance. While Regions' quantitative allowance methodologies strive to reflect all risk factors, any estimate involves assumptions and uncertainties resulting in some level of imprecision. The qualitative framework has a general imprecision component which is meant to acknowledge that model and forecast errors are inherent in any modeling estimate. TheSeptember 30, 2021 general imprecision allowance was reduced compared to the second quarter of 2021, but continues to reflect management's caution with respect to the modeled reductions in the allowance given the uncertainty surrounding the pace of economic recovery, including the potential for higher inflation, as the changing status of the pandemic unfolds. Based on the overall analysis performed, management deemed an allowance of$1.5 billion to be appropriate to absorb expected credit losses in the loan and credit commitment portfolios as ofSeptember 30, 2021 . 64
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Details regarding the allowance and net charge-offs, including an analysis of
activity from the previous year's totals, are included in Table 9 "Allowance for
Credit Losses." As noted above, economic trends such as interest rates,
unemployment, volatility in commodity prices, inflation and collateral
valuations as well as the length and depth of the COVID-19 pandemic and policy
accommodations will impact the future levels of net charge-offs and may result
in volatility of certain credit metrics during the remainder of 2021 and beyond.
Table 9-Allowance for Credit Losses
Nine Months Ended September 30
2021 2020
(Dollars in millions)
Allowance for loan losses at January 1 $ 2,167 $ 869
Cumulative change in accounting guidance (1) - 438
Allowance for loan losses, January 1 (as adjusted for change in accounting guidance)
(1) 2,167 1,307
Loans charged-off:
Commercial and industrial 101 291
Commercial real estate mortgage-owner-occupied 3 8
Commercial real estate construction-owner-occupied 1 -
Commercial investor real estate mortgage 19 -
Residential first mortgage 1 3
Home equity lines 5 9
Home equity loans 1 2
Indirect-vehicles 4 16
Indirect-other consumer 47 58
Consumer credit card 33 46
Other consumer 41 54
256 487
Recoveries of loans previously charged-off:
Commercial and industrial 44 24
Commercial real estate mortgage-owner-occupied 3 4
Commercial real estate construction-owner-occupied - -
Commercial investor real estate mortgage 3 1
Residential first mortgage 3 3
Home equity lines 11 8
Home equity loans 3 2
Indirect-vehicles 4 8
Indirect-other consumer 4 1
Consumer credit card 8 7
Other consumer 13 11
96 69
Net charge-offs (recoveries):
Commercial and industrial 57 267
Commercial real estate mortgage-owner-occupied - 4
Commercial real estate construction-owner-occupied 1 -
Commercial investor real estate mortgage 16 (1)
Residential first mortgage (2) -
Home equity lines (6) 1
Home equity loans (2) -
Indirect-vehicles - 8
Indirect-other consumer 43 57
Consumer credit card 25 39
Other consumer 28 43
160 418
Provision for (benefit from) loan losses (579) 1,327
Initial allowance on acquired PCD loans - 60
Allowance for loan losses at September 30 1,428 2,276
Reserve for unfunded credit commitments at January 1 126 45
Cumulative change in accounting guidance (1) - 63
Provision for (benefit from) unfunded credit losses (55) 41
Reserve for unfunded credit commitments at September 30 71 149
Allowance for credit losses at September 30 $ 1,499 $ 2,425
Loans, net of unearned income, outstanding at end of period $ 83,270 $ 88,359 Average loans, net of unearned income, outstanding for the period
$ 84,214 $ 88,199 65
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Nine Months Ended September 30
2021 2020
(Dollars in millions)Net loan charge-offs (recoveries) as a % of average loans, annualized (2): Commercial and industrial
0.18 % 0.78 %
Commercial real estate mortgage-owner-occupied - % 0.10 %
Commercial real estate construction-owner-occupied 0.50 % - %
Total commercial 0.16 % 0.71 %
Commercial investor real estate mortgage 0.40 % (0.03) %
Commercial investor real estate construction - % - %
Total investor real estate 0.30 % (0.03) %
Residential first mortgage (0.02) % - %
Home equity-lines of credit (0.20) % 0.02 %
Home equity-closed-end (0.09) % - %
Indirect-vehicles 0.03 % 0.73 %
Indirect-other consumer 2.62 % 2.49 %
Consumer credit card 2.97 % 4.10 %
Other consumer 3.85 % 5.03 %
Total consumer 0.40 % 0.66 %
Total 0.25 % 0.63 %
Ratios:Allowance for credit losses at end of period to loans, net of unearned income
1.80 % 2.74 %
Allowance for credit losses at end of period to loans, excluding PPP, net (non-GAAP) (3)
1.83 % 2.90 %
Allowance for loan losses at end of period to loans, net of unearned income
1.71 % 2.58 %
Allowance for credit losses at end of period to non-performing loans, excluding loans held for sale
283 % 316 %
Allowance for loan losses at end of period to non-performing loans, excluding loans
held for sale 269 % 297 %
_______
(1)Regions adopted the CECL accounting guidance on January 1, 2020 and recorded
the cumulative effect of the change in accounting guidance as a reduction to
retained earnings and an increase to deferred tax assets. See Note 1 for
additional details.
(2)Amounts have been calculated using whole dollar values.
(3)See Table 19 for calculation.
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Allocation of the allowance for credit losses by portfolio segment and class is
summarized as follows:
Table 10-Allowance Allocation
September 30, 2021 December 31, 2020
Allowance Allowance to Allowance Allowance to
Loan Balance Allocation Loans % (1) Loan Balance Allocation Loans % (1)
(Dollars in millions)
Commercial and industrial $ 41,748 $ 647 1.5 % $ 42,870 $ 1,027 2.4 %
Commercial real estate mortgage-owner-occupied 5,446 128 2.4 5,405 242 4.5
Commercial real estate construction-owner-occupied 252 9 3.6 300 24 8.0
Total commercial 47,446 784 1.7 48,575 1,293 2.7
Commercial investor real estate mortgage 5,608 86 1.5 5,394 167 3.1
Commercial investor real estate construction 1,704 11 0.6 1,869 30 1.6
Total investor real estate 7,312 97 1.3 7,263 197 2.7
Residential first mortgage 17,347 129 0.7 16,575 155 0.9
Home equity lines 3,875 92 2.4 4,539 122 2.7
Home equity loans 2,556 30 1.2 2,713 33 1.2
Indirect-vehicles 500 4 0.8 934 19 2.0
Indirect-other consumer 2,123 177 8.3 2,431 241 9.9
Consumer credit card 1,136 123 10.8 1,213 161 13.3
Other consumer 975 63 6.5 1,023 72 7.0
Total consumer 28,512 618 2.2 29,428 803 2.7
Total $ 83,270 $ 1,499 1.8 % $ 85,266 $ 2,293 2.7 %
Less: SBA PPP loans 1,536 2 0.2 % 3,624 1 -
Total, excluding PPP loans (2) $ 81,734 $ 1,497 1.8 % $ 81,642 $ 2,292 2.8 %
_______
(1)Amounts have been calculated using whole dollar values.
(2)Non-GAAP; see Table 19 for reconciliation.
TROUBLED DEBT RESTRUCTURINGS (TDRs)
TDRs are modified loans in which a concession is provided to a borrower
experiencing financial difficulty. As provided initially in the CARES Act passed
into law on March 27, 2020 and subsequently extended through the Consolidated
Appropriations Act signed into law on December 27, 2020 , certain loan
modifications related to the COVID-19 pandemic beginning March 1, 2020 through
the earlier of 60 days after the end of the pandemic or January 1, 2022 are
eligible for relief from TDR classification. Regions elected this provision of
both Acts; therefore, modified loans that met the required guidelines for relief
are not considered TDRs and are excluded from the disclosures below.
Residential first mortgage, home equity, consumer credit card and other consumer
TDRs are consumer loans modified under the CAP. Commercial and investor real
estate loan modifications are not the result of a formal program, but represent
situations where modifications were offered as a workout alternative. Renewals
of classified commercial and investor real estate loans are considered to be
TDRs, even if no reduction in interest rate is offered, if the existing terms
are considered to be below market. Insignificant modifications are not
considered TDRs. More detailed information is included in Note 3 "Loans and the
Allowance for Credit Losses" to the consolidated financial statements. The
following table summarizes the loan balance and related allowance for accruing
and non-accruing TDRs for the periods presented:
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Table 11-Troubled Debt Restructurings
September 30, 2021 December 31, 2020
Loan Allowance for Credit Loan Allowance for Credit
Balance Losses Balance Losses
(In millions)
Accruing:
Commercial $ 86 $ 5 $ 77 $ 6
Investor real estate 28 - 44 1
Residential first mortgage 223 31 188 23
Home equity lines 29 4 35 5
Home equity loans 61 9 78 8
Consumer credit card - - 1 -
Other consumer 4 - 4 -
431 49 427 43
Non-accrual status or 90 days past due and
still accruing:
Commercial 74 10 124 18
Residential first mortgage 32 5 42 6
Home equity lines 3 - 2 -
Home equity loans 6 1 7 1
115 16 175 25
Total TDRs - Loans $ 546 $ 65 $ 602 $ 68
TDRs - Held For Sale 2 - 1 -
Total TDRs $ 548 $ 65 $ 603 $ 68
The following table provides an analysis of the changes in commercial and
investor real estate TDRs. TDRs with subsequent restructurings that meet the
definition of a TDR are only reported as TDR additions in the period they were
first modified. Other than resolutions such as charge-offs, foreclosures,
payments, sales and transfers to held for sale, Regions may remove loans from
TDR classification if the following conditions are met: the borrower's financial
condition improves such that the borrower is no longer in financial difficulty,
the loan has not had any forgiveness of principal or interest, the loan has not
been restructured as an "A" note/"B" note, the loan has been reported as a TDR
over one fiscal year-end and the loan is subsequently refinanced or restructured
at market terms such that it qualifies as a new loan.
For the consumer portfolio, changes in TDRs are primarily due to additions from
CAP modifications and outflows from payments and charge-offs. Given the types of
concessions currently being granted under the CAP as detailed in Note 3 "Loans
and the Allowance for Credit Losses" to the consolidated financial statements,
Regions does not expect that the market interest rate condition will be widely
achieved. Therefore, Regions expects consumer loans modified through CAP to
continue to be identified as TDRs for the remaining term of the loan.
Table 12-Analysis of Changes in Commercial and Investor Real Estate TDRs
Nine Months Ended September 30, 2021 Nine Months Ended September 30, 2020
Investor Investor
Commercial Real Estate Commercial Real Estate
(In millions)
Balance, beginning of period $ 201 $ 44 $ 245 $ 33
Additions 53 71 232 35
Charge-offs (9) - (52) -
Other activity, inclusive of payments and removals
(1) (85) (87) (173) (23)
Balance, end of period $ 160 $ 28 $ 252 $ 45
________
(1)The majority of this category consists of payments and sales. It also
includes normal amortization/accretion of loan basis adjustments, loans
transferred to held for sale, removals and reclassifications between portfolio
segments. Additionally, it includes $15 million of commercial loans and $41
million of investor real estate loans refinanced or restructured as new loans
and removed from TDR classification for the nine months ended September 30,
2021 . During the nine months ended September 30, 2020 , $18 million of
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commercial loans and$12 million of investor real estate loans were refinanced or restructured as new loans and removed from TDR classification. NON-PERFORMING ASSETS Non-performing assets are summarized as follows:
Table 13-Non-Performing Assets
(Dollars in millions)
Non-performing loans:
Commercial and industrial $ 359 $ 418
Commercial real estate mortgage-owner-occupied 68 97
Commercial real estate construction-owner-occupied 11 9
Total commercial 438 524
Commercial investor real estate mortgage 4 114
Total investor real estate 4 114
Residential first mortgage 37 53
Home equity lines 44 46
Home equity loans 7 8
Total consumer 88 107
Total non-performing loans, excluding loans held for sale 530 745
Non-performing loans held for sale 3 6
Total non-performing loans(1) 533 751
Foreclosed properties 13 25
Total non-performing assets(1) $ 546 $ 776
Accruing loans 90 days past due:
Commercial and industrial $ 3 $ 7
Commercial real estate mortgage-owner-occupied 2 1
Total commercial 5 8
Residential first mortgage(2) 68 99
Home equity lines 20 19
Home equity loans 13 13
Indirect-vehicles 2 4
Indirect-other consumer 3 5
Consumer credit card 11 14
Other consumer 2 2
Total consumer 119 156
$ 124 $ 164
Non-performing loans(1) to loans and non-performing loans held for sale
0.64 % 0.88 %
Non-performing assets(1) to loans, foreclosed properties, non-marketable investments, and non-performing loans held for sale
0.66 % 0.91 %
_________
(1)Excludes accruing loans 90 days past due. (2)Excludes residential first mortgage loans that are 100% guaranteed by the FHA and all guaranteed loans sold to the GNMA where Regions has the right but not the obligation to repurchase. Total 90 days or more past due guaranteed loans excluded were$44 million atSeptember 30, 2021 and$57 million atDecember 31, 2020 . Non-performing loans atSeptember 30, 2021 have decreased compared to year-end levels, driven by improvement in retail, energy and administrative, support and waste repair. Economic trends such as interest rates, unemployment, volatility in commodity prices, and collateral valuations will impact the future level of non-performing assets. Circumstances related to individually large credits could also result in volatility. 69
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The following table provides an analysis of non-accrual loans (excluding loans
held for sale) by portfolio segment:
Table 14- Analysis of Non-Accrual Loans
Non-Accrual Loans, Excluding Loans Held for Sale
Nine
Months Ended
Investor
Commercial Real Estate Consumer(1) Total
(In millions)
Balance at beginning of period $ 524 $ 114 $ 107 $ 745
Additions 379 4 3 386
Net payments/other activity (242) (1) (22) (265)
Return to accrual (116) - - (116)
Charge-offs on non-accrual loans(2) (92) (19) - (111)
Transfers to held for sale(3) (13) (94) - (107)
Transfers to real estate owned (2) - - (2)
Balance at end of period $ 438 $ 4 $ 88 $ 530
Non-Accrual Loans, Excluding Loans Held for Sale
Nine Months Ended September 30, 2020
Investor
Commercial Real Estate Consumer(1) Total
(In millions)
Balance at beginning of period $ 431 $ 2 $ 74 $ 507
Additions 661 121 21 803
Net payments/other activity (165) (5) (2) (172)
Return to accrual (67) - - (67)
Charge-offs on non-accrual loans(2) (272) - - (272)
Transfers to held for sale(3) (14) - -
(14)
Transfers to real estate owned (4) - - (4) Sales (14) - - (14) Balance at end of period $ 556$ 118 $ 93$ 767 ________ (1)All net activity within the consumer portfolio segment other than sales and transfers to held for sale (including related charge-offs) is included as a single net number within the net payments/other activity line. (2)Includes charge-offs on loans on non-accrual status and charge-offs taken upon sale and transfer of non-accrual loans to held for sale. (3)Transfers to held for sale are shown net of charge-offs of$7 million and$6 million recorded upon transfer for the nine months endedSeptember 30, 2021 and 2020, respectively. GOODWILLGoodwill totaled$5.2 billion at bothSeptember 30, 2021 andDecember 31, 2020 and is allocated to each of Regions' reportable segments (each a reporting unit), at which level goodwill is tested for impairment on an annual basis or more often if events and circumstances indicate the fair value of the reporting unit may have declined below the carrying value (refer to Note 1 "Summary of Significant Accounting Policies" to the consolidated financial statements included in the Annual Report on Form 10-K for the year endedDecember 31, 2020 for further discussion of when Regions tests goodwill for impairment and the Company's methodology and valuation approaches used to determine the estimated fair value of each reporting unit). The result of the assessment performed for the third quarter of 2021 did not indicate that the estimated fair values of the Company's reporting units (Corporate Bank ,Consumer Bank and Wealth Management) had declined below their respective carrying values. Therefore, Regions determined that a test of goodwill impairment was not required for any of Regions' reporting units for theSeptember 30, 2021 interim period. 70
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DEPOSITS
Regions competes with other banking and financial services companies for a share
of the deposit market. Regions' ability to compete in the deposit market depends
heavily on the pricing of its deposits and how effectively the Company meets
customers' needs. Regions employs various means to meet those needs and enhance
competitiveness, such as providing a high level of customer service and
competitive pricing and convenient branch locations for its customers. Regions
also serves customers through providing centralized, high-quality banking
services and the Company's digital channels and contact center.
The following table summarizes deposits by category:
Table 15-Deposits
September 30, 2021 December 31, 2020
(In millions)
Non-interest-bearing demand $ 57,145 $ 51,289
Interest-bearing checking 25,217 24,484
Savings 14,573 11,635
Money market-domestic 30,736 29,719
Time deposits 4,368 5,341
Customer deposits 132,039 122,468
Corporate treasury time deposits - 11
$ 132,039 $ 122,479
Total deposits at September 30, 2021 increased approximately $9.6 billion
compared to year-end 2020 levels, driven by increases in all categories other
than customer time deposits. Increases across those categories were primarily
driven by pandemic-related deposit inflows resulting in increased consumer
customer deposit balances and new account growth. To a lesser degree, growth in
non-interest bearing demand is due to an increase in deposits from business
customers who continue to retain excess liquidity. Customer time deposits
decreased due to maturities, and continued lower interest rates resulted in a
decrease in the utilization of time deposit accounts.
LONG-TERM BORROWINGS
Table 16-Long-Term Borrowings
September 30, 2021 December 31, 2020
(In millions)
Regions Financial Corporation (Parent):
3.20% senior notes due February 2021 $ - $ 360
3.80% senior notes due August 2023 - 997
2.25% senior notes due May 2025 745 744
1.80% senior notes due August 2028 645 -
7.75% subordinated notes due September 2024 100 100
6.75% subordinated debentures due November 2025 155 155
7.375% subordinated notes due December 2037 298 298
Valuation adjustments on hedged long-term debt (21) 64
1,922 2,718
Regions Bank:
2.75% senior notes due April 2021 - 190
3 month LIBOR plus 0.38% of floating rate senior notes due
- 66
6.45% subordinated notes due June 2037 496 496
Ascentium note securitizations 30 97
Other long-term debt 3 2
529 851
Total consolidated $ 2,451 $ 3,569
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Long-term borrowings decreased by approximately$1.1 billion since year-end 2020 due primarily to redemptions of parent and bank debt. See the "Liquidity" section for further detail of Regions' borrowing capacity with the FHLB, which is currently not being utilized. OnJanuary 12, 2021 , Regions sent notices of redemption, which resulted in the redemption onJanuary 22, 2021 , of its 3.20% senior notes dueFebruary 2021 pursuant to their terms, at an aggregate redemption price equal to the sum of 100% of the principal amount of the notes being redeemed and any accrued and unpaid interest to, but excluding, the redemption date. OnFebruary 19, 2021 ,Regions Bank sent notices of redemption, which resulted in the redemption onMarch 1, 2021 of its 2.75% senior bank notes dueApril 1, 2021 and of its senior floating rate bank notes dueApril 1, 2021 pursuant to their terms, at an aggregate redemption price equal to the sum of 100% of the principal amount of the notes being redeemed and any accrued and unpaid interest to, but excluding, the redemption date. OnAugust 12, 2021 , Regions issued$650 million of 1.80% senior notes dueAugust 2028 which were effectively converted to floating rate notes at 1 month LIBOR through the simultaneous execution of an interest rate swap. Also onAugust 12, 2021 , Regions sent notices of redemption, which resulted in the redemption onAugust 23, 2021 , of its 3.80% senior notes dueAugust 2023 pursuant to their terms, at an aggregate redemption price equal to 100% of the principal amount of the notes being redeemed and any accrued and unpaid interest to, but excluding, the redemption date. In conjunction with the redemption, Regions incurred related early extinguishment pre-tax charges totaling$20 million . AtSeptember 30, 2021 , oneAscentium note securitization class remained outstanding with an interest rate of 2.12% maturing inOctober 2025 . AtDecember 31, 2020 , theAscentium note securitizations had various classes and had a weighted-average interest rate of 2.12% with remaining maturities ranging from 3 years to 5 years and a weighted-average of 4.3 years. SHAREHOLDERS' AND TOTAL EQUITY Shareholders' equity was$18.6 billion atSeptember 30, 2021 as compared to$18.1 billion atDecember 31, 2020 . During the first nine months of 2021, net income increased shareholders' equity by$2.1 billion , cash dividends on common stock reduced shareholders' equity by$460 million , and cash dividends on preferred stock reduced shareholders' equity by$84 million . Changes in AOCI decreased shareholders' equity by$783 million , primarily due to the net change in unrealized gains (losses) on securities available for sale and derivative instruments as a result of changes in market interest rates during the nine months endedSeptember 30, 2021 . The derivative instruments are hedges designed to protect net interest income in a low short-term interest rate environment, such as the one that currently exists. During the second quarter of 2021, the Company issued Series E preferred stock, which increased shareholders' equity by$390 million . During the second quarter of 2021, the Company also redeemed all of the outstanding shares of it's Series A preferred stock, which decreased shareholders' equity by$500 million . Common stock repurchased during the first nine months of 2021 reduced shareholders' equity$167 million . These shares were immediately retired and therefore are not included in treasury stock. Total equity includes noncontrolling interest of$18 million , representing the unowned portion of a low income housing tax credit fund syndication, of which Regions held the majority interest atSeptember 30, 2021 . See Note 5 "Shareholders' Equity and Accumulated Other Comprehensive Income" section for additional information. REGULATORY REQUIREMENTSRegions and Regions Bank are required to comply with regulatory capital requirements established by Federal and State banking agencies. These regulatory capital requirements involve quantitative measures of the Company's assets, liabilities and selected off-balance sheet items, and also qualitative judgments by the regulators. Failure to meet minimum capital requirements can subject the Company to a series of increasingly restrictive regulatory actions. Under the Basel III Rules, Regions is designated as a standardized approach bank. Additional discussion of the Basel III Rules, their applicability to Regions, recent proposals and final rules issued by the federal banking agencies and recent laws enacted that impact regulatory requirements is included in the "Supervision and Regulation" subsection of the "Business" section in the 2020 Annual Report on Form 10-K and the "Regulatory Requirements" section of Management's Discussion and Analysis in the 2020 Annual Report on Form 10-K. Additional discussion is also included in Note 13 "Regulatory Capital Requirements and Restrictions" to the consolidated financial statements in the 2020 Annual Report on Form 10-K. In the third quarter of 2020, the federal banking agencies finalized a rule related to the impact of CECL on regulatory capital requirements. The rule allows an add-back to regulatory capital for the impacts of CECL for a two-year period. At the end of the two years, the impact is then phased-in over the following three years. The add-back is calculated as the impact of initial adoption, adjusted for 25 percent of subsequent changes in the allowance. AtSeptember 30, 2021 , the impact of the add-back on CET1 was approximately$390 million , or approximately 36 basis points. 72
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The following table summarizes the applicable holding company and bank regulatory requirements: Table 17-Basel III Regulatory Capital Requirements
September 31, 2021 December 31, 2020 Minimum To Be Well
Ratio (1) Ratio Requirement Capitalized
Common equity Tier 1 capital:
Regions Financial Corporation 10.76 % 9.84 % 4.50 % N/A
Regions Bank 12.35 12.17 4.50 6.50 %
Tier 1 capital:
Regions Financial Corporation 12.30 % 11.39 % 6.00 % 6.00 %
Regions Bank 12.35 12.17 6.00 8.00
Total capital:
Regions Financial Corporation 14.09 % 13.56 % 8.00 % 10.00 %
Regions Bank 13.72 13.89 8.00 10.00
Leverage capital:
Regions Financial Corporation 8.81 % 8.71 % 4.00 % N/A
Regions Bank 8.85 9.30 4.00 5.00 %
_______(1)The current quarter Basel III CET1 capital, Tier 1 capital, Total capital, and Leverage capital ratios are estimated.
In October of 2020, the SCB framework that was finalized in the first quarter of 2020, was implemented. This new framework created a firm-specific risk sensitive buffer that is applied to regulatory minimum capital levels to help determine effective minimum ratio requirements. The SCB is now floored at 2.5 percent to ensure effective minimum capital levels do not decline as a result of this rule change. At implementation, the SCB replaced the current Capital Conservation Buffer, which was a static 2.5 percent in addition to the minimum risk-weighted asset ratios shown above. During the third quarter of 2020, and in connection with the results of its supervisory stress test released inJune 2020 , theFederal Reserve finalized Regions' SCB requirement for the fourth quarter of 2020 through the third quarter of 2021 at 3.0 percent. The 3.0 percent requirement represented the amount of capital degradation under the supervisory severely adverse scenario, inclusive of four quarters of planned common stock dividends. In the second quarter of 2021, Regions received the results of the Company's voluntary participation in 2021 CCAR. The FRB communicated that the Company exceeded all minimum capital levels under the supervisory stress test and the Company's stress capital buffer for the fourth quarter of 2021 through the third quarter of 2022 is floored at 2.5 percent. The Company intends to operate at a range for CET1 of 9.25 percent to 9.75 percent, with the expectation to manage to the mid-point by year-end 2021. The Company regularly performs internal stress testing which can result in modifications to the operating range. TheFederal Reserve approved its rule for tailoring enhanced prudential standards for bank holding companies with$100 billion or more in total consolidated assets. The framework outlines tailored standards for matters related to capital and liquidity. Regions is a "Category IV" institution under these rules.
LIQUIDITY
Regions maintains a robust liquidity management framework designed to
effectively manage liquidity risk in accordance with sound risk management
principals and regulatory expectations. The framework establishes sustainable
processes and tools to effectively identify, measure, mitigate, monitor, and
report liquidity risks beginning with Regions' Liquidity Management Policy and
the Liquidity Risk Appetite Statements approved by the Board. Processes within
the liquidity management framework include, but are not limited to, liquidity
risk governance, cash management, liquidity stress testing, liquidity risk
limits, contingency funding plans, and collateral management. While the
framework is designed to comply with liquidity regulations, the processes are
further tailored to be commensurate with Regions' operating model and risk
profile.
See the "Liquidity" section for more information. Also, see the "Supervision and
Regulation-Liquidity Regulation" subsection of the "Business" section, the "Risk
Factors" section and the "Liquidity" section in the 2020 Annual Report on Form
10-K for additional information.
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RATINGS
Table 18 "Credit Ratings" reflects the debt ratings information ofRegions Financial Corporation andRegions Bank by Standard and Poor's ("S&P"), Moody's, Fitch and Dominion Bond Rating Service ("DBRS"). Table 18-Credit Ratings As of September 30, 2021 S&P Moody's Fitch DBRSRegions Financial Corporation Senior unsecured debt BBB+ Baa2 BBB+ AL Subordinated debt BBB Baa2 BBB BBBH Regions Bank Short-term A-2 P-1 F1 R-IL Long-term bank deposits N/A A2 A- A Senior unsecured debt A- Baa2 BBB+ A Subordinated debt BBB+ Baa2 BBB AL Outlook Stable Stable Positive Stable _________ N/A - Not applicable. OnJuly 13, 2021 , Fitch upgraded Regions' outlook from Stable to Positive citing improved credit quality and returns relative to peers. In general, ratings agencies base their ratings on many quantitative and qualitative factors, including capital adequacy, liquidity, asset quality, business mix, probability of government support, and level and quality of earnings. Any downgrade in credit ratings by one or more ratings agencies may impact Regions in several ways, including, but not limited to, Regions' access to the capital markets or short-term funding, borrowing cost and capacity, collateral requirements, and acceptability of its letters of credit, thereby potentially adversely impacting Regions' financial condition and liquidity. See the "Risk Factors" section in the 2020 Annual Report on Form 10-K for more information. A security rating is not a recommendation to buy, sell or hold securities, and the ratings are subject to revision or withdrawal at any time by the assigning rating agency. Each rating should be evaluated independently of any other rating. Additional information on the credit rating ranking within the overall classification system is located on the website of each credit rating agency. NON-GAAP MEASURES The table below presents computations of earnings and certain other financial measures, which exclude certain significant items that are included in the financial results presented in accordance with GAAP. These non-GAAP financial measures include "adjusted average balances of loans", "adjusted ending balances of loans", "ACL to loans excluding PPP, net ratio", "adjusted net interest margin", "adjusted efficiency ratio", "adjusted fee income ratio", "return on average tangible common shareholders' equity" on a consolidated operations basis, and end of period "tangible common shareholders' equity", and related ratios. Regions believes that expressing earnings and certain other financial measures excluding these significant items provides a meaningful basis 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 because 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. Management and the Board utilize these non-GAAP financial measures as follows: •Preparation of Regions' operating budgets •Monthly financial performance reporting •Monthly close-out reporting of consolidated results (management only) •Presentations to investors of Company performance •Metrics for incentive compensation Average total loans and ending total loans are presented including commercial loans reclassified from held for sale and excluding loan balances related to loans originated through the SBA's PPP program, the indirect-other consumer exit portfolio and the indirect-vehicles exit portfolio to arrive at adjusted average total loans (non-GAAP) and adjusted ending total loans (non-GAAP). Regions believes adjusting average and ending total loans provides a meaningful calculation of loan growth rates and presents them on the same basis as that applied by management. 74
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Ending total loans are presented excluding loan balances related to loans originated through the SBA's PPP program. Regions believes the related ACL to loans excluding PPP ratio provides meaningful information about credit loss allowance levels when the SBA's PPP loans, which are fully backed by theU.S. government, are excluded from total loans and the related credit loss is excluded from the total allowance for credit losses. Net interest margin is presented excluding the impact of SBA PPP loans and excess cash, defined as cash exceeding$750 million . Regions believes the adjusted net interest margin (non-GAAP) provides investors with meaningful additional information about Regions' performance when margin associated with the SBA's PPP loans and excess cash are excluded from net interest margin (GAAP). The adjusted efficiency ratio (non-GAAP), which is a measure of productivity, is generally calculated as adjusted non-interest expense divided by adjusted total revenue on a taxable-equivalent basis. The adjusted fee income ratio (non-GAAP) is generally calculated as adjusted non-interest income divided by adjusted total revenue on a taxable-equivalent basis. Management uses these ratios to monitor performance and believes these measures provide meaningful information to investors. Non-interest expense (GAAP) is presented excluding adjustments 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 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 on a taxable-equivalent basis. Adjustments are made to arrive at adjusted total revenue on a taxable-equivalent basis (non-GAAP), which is the denominator for the adjusted efficiency and adjusted fee income ratios. Tangible common shareholders' equity ratios have become a focus of some investors in analyzing the capital position of the Company absent the effects of intangible assets and preferred stock. Traditionally, theFederal 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. Analysts and banking regulators have assessed Regions' capital adequacy using the tangible common shareholders' equity measure. Because tangible common shareholders' equity is not formally defined by GAAP, this measure is considered to be a non-GAAP financial measure and other entities may calculate it differently than Regions' disclosed calculations. Since analysts and banking regulators may assess Regions' capital adequacy using tangible common shareholders' equity, Regions believes that it is useful to provide investors the ability to assess Regions' capital adequacy on this 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 shareholders. The following tables provide: 1) a reconciliation of average total loans (GAAP) to adjusted average total loans (non-GAAP), 2) a reconciliation of ending total loans (GAAP) to adjusted ending total loans (non-GAAP), 3) a reconciliation of ending total loans excluding PPP loans (non-GAAP), a reconciliation of ACL (GAAP) to ACL excluding PPP loans' ACL (non-GAAP), and a computation of ACL to ending loans excluding PPP loans (non-GAAP), 4) a reconciliation of net interest margin (GAAP) to adjusted net interest margin (non-GAAP), 5) a reconciliation of net income (GAAP) to net income available to common shareholders (GAAP), 6) a reconciliation of non-interest expense (GAAP) to adjusted non-interest expense (non-GAAP), 7) a reconciliation of net interest income, taxable equivalent basis (GAAP) to adjusted net interest income, taxable equivalent basis (non-GAAP), 8) a reconciliation of non-interest income (GAAP) to adjusted non-interest income (non-GAAP), 9) a computation of adjusted total revenue (non-GAAP), 10) a computation of the adjusted efficiency ratio (non-GAAP), 11) a computation of the adjusted fee income ratio (non-GAAP), and 12) a reconciliation of average and ending shareholders' equity (GAAP) to average and ending tangible common shareholders' equity (non-GAAP) and calculations of related ratios (non-GAAP). 75
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Table 19-GAAP to Non-GAAP Reconciliations
Three Months Ended September
30 Nine Months Ended September 30
2021 2020 2021 2020
(Dollars in millions)
ADJUSTED AVERAGE BALANCES OF LOANS
Average total loans (GAAP) $ 83,350
- - 122 -
Less: SBA PPP loans 2,138 4,558 3,273 2,597
Less: Indirect-other consumer exit portfolio 806 1,318 916 1,502
Less: Indirect-vehicles 557 1,223 698 1,447
Adjusted average total loans (non-GAAP) $ 79,849
(1)On
September 30, December 31,
2021 2020
(Dollars in millions)
ADJUSTED ENDING BALANCES OF LOANS
Ending total loans (GAAP) $ 83,270 $ 85,266
Add: Commercial loans held for sale reclassified to the portfolio(1) - 239
Less: SBA PPP loans 1,536 3,624
Less: Indirect-other consumer exit portfolio 760 1,101
Less: Indirect-vehicles 500 934
Adjusted ending total loans (non-GAAP) $
80,474
(1)On
September 30, 2021
(Dollars in millions)
ACL/LOANS, EXCLUDING PPP, NET
Ending total loans (GAAP) $ 83,270 $ 85,266 $ 88,359
Less: SBA PPP loans 1,536 3,624 4,594Ending total loans excluding PPP, net (non-GAAP) $ 81,734
$ 81,642 $ 83,765
ACL at period end $ 1,499 $ 2,293 $ 2,425
Less: SBA PPP loans' ACL 2 1 -
ACL excluding PPP loans' ACL (non-GAAP) $ 1,497 $ 2,292 2,425
ACL/Loans, excluding PPP, net (non-GAAP) 1.83 % 2.81 % 2.90 %
Three Months Ended September 30 Nine Months Ended September 30
2021 2020 2021 2020
ADJUSTED NET INTEREST MARGIN
Net interest margin (GAAP) 2.76 % 3.13 % 2.86 % 3.24 %
Impact of SBA PPP loans (1) (0.05) % 0.01 % (0.04) % 0.02 %
Impact of excess cash (2) 0.59 % 0.27 % 0.52 % 0.15 %
Adjusted net interest margin (non-GAAP) 3.30 % 3.41 % 3.34 % 3.41 %
________
(1)The impact of SBA PPP loans was determined using average PPP loan balances of$2.1 billion and$3.3 billion for the three and nine months endedSeptember 30, 2021 , respectively, and$4.6 billion and$2.6 billion for the three and nine months endedSeptember 30, 2020 , respectively. Related SBA PPP net interest income totaled$31 million and$113 million for the three and nine months endedSeptember 30, 2021 , respectively, and$31 million and$49 million for the three and nine months endedSeptember 30, 2020 , respectively. (2)The impact of excess cash was determined using the average cash balance in excess of$750 million , which approximates the average cash balance for the four quarters preceding the outbreak of the COVID 19 pandemic, and related net interest income. Excess cash totaled$24.4 billion and$20.9 billion for the three and nine months endedSeptember 30, 2021 , respectively, and$9.6 billion and$5.0 billion for the three and nine months endedSeptember 30, 2020 , respectively. The related net interest income totaled$3 million and$8 million for the three and nine months endedSeptember 30, 2021 , respectively, and$1 million and$2 million for the three and nine months endedSeptember 30, 2020 , respectively. 76
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Three Months Ended
2021 2020 2021 2020
(Dollars in millions)
INCOME
Net income (loss) (GAAP) $ 651 $ 530 $ 2,083 $ 478
Preferred dividends and other (GAAP) (1) (27) (29) (97) (75)
Net income (loss) available to common shareholders (GAAP) A $ 624 $ 501 $ 1,986 $ 403
ADJUSTED EFFICIENCY AND FEE INCOME RATIOS
Non-interest expense (GAAP) B $ 938 $ 896 $ 2,764 $ 2,656
Significant items:
Contribution to Regions' Financial Corporation foundation - - (3) -
Branch consolidation, property and equipment charges - (3) (5) (24)
Salary and employee benefits-severance charges - (2) (5) (5)
Loss on early extinguishment of debt (20) (2) (20) (8)
Professional, legal and regulatory expenses - - - (7)
Acquisition expenses - - - (1)
Adjusted non-interest expense (non-GAAP) C $ 918 $ 889 $ 2,731 $ 2,611
Net interest income (GAAP) D $ 965 $ 988 $ 2,895 $ 2,888
Taxable-equivalent adjustment 11 12 34 37
Net interest income, taxable-equivalent basis E 976 1,000 2,929 2,925
Non-interest income (GAAP) F 649 655 1,909 1,713
Significant items:
Securities (gains) losses, net (1) (3) (3) (4)
Gains on equity investment - (44) (3) (44)
Leveraged lease termination gains (2) - (2) (2)
Bank owned life insurance (2) - - (18) -
Adjusted non-interest income (non-GAAP) G $ 646 $ 608 $ 1,883 $ 1,663
Total revenue D+F=H $ 1,614 $ 1,643 $ 4,804 $ 4,601
Adjusted total revenue D+G=I $ 1,611 $ 1,596 $ 4,778 $ 4,551
Total revenue, taxable-equivalent basis E+F=J $ 1,625 $ 1,655 $ 4,838 $ 4,638 Adjusted total revenue, taxable-equivalent basis (non-GAAP) E+G=K
$ 1,608 $ 4,812 $ 4,588 Efficiency ratio (GAAP)(3) B/J 57.71 % 54.13 % 57.14 % 57.27 % Adjusted efficiency ratio (non-GAAP)(3) C/K 56.58 % 55.28 % 56.77 % 56.93 % Fee income ratio (GAAP)(3) F/J 39.95 % 39.57 % 39.47 % 36.94 % Adjusted fee income ratio (non-GAAP)(3) G/K 39.83 % 37.81 % 39.14 % 36.26 %
RETURN ON AVERAGE TANGIBLE COMMON SHAREHOLDERS' EQUITY Average shareholders' equity (GAAP)
$ 18,453 $ 17,759 $ 18,165 $ 17,203 Less: Average intangible assets (GAAP) 5,285 5,322 5,295 5,214 Average deferred tax liability related to intangibles (GAAP) (96) (103) (99) (96) Average preferred stock (GAAP) 1,659 1,656 1,658 1,459 Average tangible common shareholders' equity (non-GAAP) L$ 11,605 $ 10,884 $ 11,311 10,626 Return on average tangible common shareholders' equity (non-GAAP)(4) A/L 21.34 % 18.32 % 23.48 % 5.07 % September 30, 2021 December 31, 2020
(Dollars in millions, except per share
data)
TANGIBLE COMMON RATIOS
Ending shareholders' equity (GAAP) $ 18,605 $ 18,111
Less: Ending intangible assets (GAAP) 5,282 5,312
Ending deferred tax liability related to intangibles (GAAP) (97) (106)
Ending preferred stock (GAAP) 1,659 1,656
Ending tangible common shareholders' equity (non-GAAP) M $ 11,761 $ 11,249
Ending total assets (GAAP) $ 156,153 $ 147,389
Less: Ending intangible assets (GAAP) 5,282 5,312
Ending deferred tax liability related to intangibles (GAAP) (97) (106)
Ending tangible assets (non-GAAP) N $ 150,968 $ 142,183
End of period shares outstanding O 955 960
Tangible common shareholders' equity to tangible assets (non-GAAP)(3)
M/N 7.79 % 7.91 %
Tangible common book value per share (non-GAAP)(3) M/O $ 12.32 $ 11.71
________
NM - Not Meaningful
(1)Preferred stock dividends and other for the nine months ended September 30,
2021 includes $13 million of issuance costs associated with the redemption of
Series A preferred shares in the second quarter of 2021.
(2)The second quarter 2021 amount relates to an individual BOLI claim benefit,
which is a tax-free gain.
(3)Amounts have been calculated using whole dollar values.
(4)Income statement amounts have been annualized in calculation.
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OPERATING RESULTS
NET INTEREST INCOME AND MARGIN
Table 20-Consolidated Average Daily Balances and Yield/Rate Analysis
Three Months Ended September 30
2021 2020
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate (1) Balance Expense Rate (1)
(Dollars in millions; yields on taxable-equivalent basis)
Assets
Earning assets:
Federal funds sold and securities purchased
under agreements to resell $ 2 $ - 0.18 % $ - $ - - %
Debt securities (2) 29,308 135 1.85 24,950 140
2.24
Loans held for sale 1,044 7 2.64 1,147 8
2.89
Loans, net of unearned income (3)(4) 83,350 858 4.07 89,370 915
4.06
Interest bearing deposits in other banks 25,144 9 0.15 10,372 2 0.10
Other earning assets(5) 1,303 8 2.06 1,323 6 1.79
Total earning assets 140,151 1,017 2.88 127,162 1,071 3.35
Unrealized gains/(losses) on securities
available for sale, net (2) 674 1,143
Allowance for loan losses (1,581) (2,308)
Cash and due from banks 1,937 2,174
Other non-earning assets 14,449 14,674
$ 155,630 $ 142,845
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Savings $ 14,328 4 0.13 $ 10,935 4 0.14
Interest-bearing checking 25,277 2 0.03 22,098 4 0.07
Money market 30,765 2 0.02 29,146 8 0.12
Time deposits 4,527 7 0.55 6,150 16 1.08
Other deposits 1 - 1.50 13 - 1.87
Total interest-bearing deposits (6) 74,898 15 0.08 68,342 32 0.19
Long-term borrowings 2,774 26 3.65 5,829 39 2.63
Total interest-bearing liabilities 77,672 41 0.20 74,171 71 0.38
Non-interest-bearing deposits (6) 56,999 - - 48,314 - -
Total funding sources 134,671 41 0.12 122,485 71 0.23
Net interest spread (2) 2.67 2.97
Other liabilities 2,506 2,576
Shareholders' equity 18,453 17,759
Noncontrolling interest - 25
$ 155,630 $ 142,845
Net interest income /margin on a
taxable-equivalent basis (7) $ 976 2.76 % $ 1,000 3.13 %
________
(1)Amounts have been calculated using whole dollar values.
(2)Debt securities are included on an amortized cost basis with yield and net
interest margin calculated accordingly.
(3)Loans, net of unearned income include non-accrual loans for all periods
presented.
(4)Interest income includes net loan fees of $34 million and $21 million for the
three months ended September 30, 2021 and 2020, respectively.
(5)Due to the impact of interest bearing deposits in other banks on the balance
sheet in 2021, other earning assets and interest bearing deposits in other banks
for prior periods have been revised to reflect the 2021 presentation.
(6)Total deposit costs may be calculated by dividing total interest expense on
deposits by the sum of interest-bearing deposits and non-interest-bearing
deposits. The rates for total deposit costs equal 0.04% and 0.11% for the three
months ended September 30, 2021 and 2020, respectively.
(7)The computation of taxable-equivalent net interest income is based on the
statutory federal income tax rate of 21% for both September 30, 2021 and 2020
adjusted for applicable state income taxes net of the related federal tax
benefit.
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Nine Months Ended September 30
2021 2020
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate (1) Balance Expense Rate (1)
(Dollars in millions; yields on taxable-equivalent basis)
Assets
Earning assets:
Federal funds sold and securities purchased
under agreements to resell $ 4 $ - 0.14 % $ - $ - - %
Debt securities (2) 28,381 399 1.88 24,184 446 2.46
Loans held for sale 1,341 31 3.07 824 19 3.12
Loans, net of unearned income (3)(4) 84,214 2,584 4.08 88,199 2,741 4.13
Interest bearing deposits in other banks 21,695 20 0.13 5,778 6 0.15
Other earning assets (5) 1,293 25 2.51 1,417 26 2.43
Total earning assets 136,928 3,059 2.97 120,402 3,238 3.58
Unrealized gains (losses) on securities
available for sale, net (2) 722 896
Allowance for loan losses (1,870) (1,829)
Cash and due from banks 1,987 2,053
Other non-earning assets 14,553 14,316
$ 152,320 $ 135,838
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Savings $ 13,535 14 0.14 $ 9,973 11 0.15
Interest-bearing checking 24,835 6 0.03 21,046 32 0.20
Money market 30,322 7 0.03 27,395 46 0.22
Time deposits 4,830 24 0.65 6,712 63 1.27
Other deposits 3 - 1.20 333 4 1.58
Total interest-bearing deposits (5) 73,525 51 0.09 65,459 156 0.32
Federal funds purchased and securities sold under agreements to repurchase - - - 50 1 1.39 Other short-term borrowings - - - 1,064 9 1.13 Long-term borrowings 2,954 79 3.55 7,261 147 2.68 Total interest-bearing liabilities 76,479 130 0.23 73,834 313
0.57
Non-interest-bearing deposits (5) 55,163 - - 42,323 - -
Total funding sources 131,642 130 0.13 116,157 313 0.36
Net interest spread (2) 2.75 3.01
Other liabilities 2,513 2,470
Shareholders' equity 18,165 17,203
Noncontrolling interest - 8
$ 152,320 $ 135,838
Net interest income and other financing
income/margin on a taxable-equivalent basis (7) $ 2,929 2.86 % $ 2,925 3.24 %
________
(1)Amounts have been calculated using whole dollar values.
(2)Debt securities are included on an amortized cost basis with yield and net
interest margin calculated accordingly.
(3)Loans, net of unearned income include non-accrual loans for all periods
presented.
(4)Interest income includes net loan fees of $108 million and $26 million for
the nine months ended September 30, 2021 and 2020, respectively.
(5)Due to the impact of interest bearing deposits in other banks on the balance
sheet in 2021, other earning assets and interest bearing deposits in other banks
for prior periods have been revised to reflect the 2021 presentation.
(6)Total deposit costs may be calculated by dividing total interest expense on
deposits by the sum of interest-bearing deposits and non-interest-bearing
deposits. The rates for total deposit costs equal 0.05% and 0.19% for the nine
months ended September 30, 2021 and 2020, respectively.
(7)The computation of taxable-equivalent net interest income is based on the
statutory federal income tax rate of 21% for both September 30, 2021 and 2020
adjusted for applicable state income taxes net of the related federal tax
benefit.
Net interest income decreased for the third quarter 2021 compared to the same
period in 2020 and slightly increased for the first nine months of 2021 compared
to the same period in 2020. The net interest income decline in the third quarter
was due to lower long-term rates, but was partially offset by lower deposit and
borrowing costs, active cash management strategies, and an outsized credit
interest recovery during the quarter. Interest income on loans for the first
three and nine months of 2021 and 2020 was aided by the Company's hedging
strategy, with benefits expanding as more notional became active throughout
2020. The hedges had a positive impact of approximately $314 million for the
first nine months of 2021 compared to $163 million in the same period of 2020.
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Net interest margin declined for both the third quarter and first nine months of 2021, compared to the same periods in 2020, primarily driven by continued elevated liquidity as indicated by higher cash balances. Regions continues to prudently manage its excess liquidity balances through extinguishments of long-term borrowings and securities purchases. Net interest margin for the third quarter and first nine months of 2021 compared to the same periods of 2020 was negatively impacted by the repricing of fixed-rate loan portfolios and the securities portfolio at lower market interest rates. Excluding the impact of PPP lending and excess cash, which Regions considers to be balances in excess of$750 million , adjusted net interest margin (non-GAAP) for the third quarter 2021 and the nine months endedSeptember 30, 2021 compared to the same periods in 2020 declined modestly to 3.30% and 3.34%, respectively. See Table 19 "GAAP to Non-GAAP Reconciliations" for a reconciliation of adjusted net interest margin. Exclusive of the impact from PPP loans, excess cash, an outsized credit recovery experienced in the third quarter, and the fourth quarter EnerBank and Sabal acquisitions, net interest income is expected to be stable in the fourth quarter; aided by hedging, balance sheet management strategies, and deposit rates. MARKET RISK-INTEREST RATE RISK Regions' primary market risk is interest rate risk. This includes uncertainty with respect to absolute interest rate levels as well as relative interest rate levels, which are impacted by both the shape and the slope of the various yield curves that affect the financial products and services that the Company offers. To quantify this risk, Regions measures the change in its net interest income in various interest rate scenarios compared to a base case scenario. Net interest income sensitivity to market rate movements is a useful short-term indicator of Regions' interest rate risk. Sensitivity Measurement-Financial simulation models are Regions' primary tools used to measure interest rate exposure. Using a wide range of sophisticated simulation techniques provides management with extensive information on the potential impact to net interest income caused by changes in interest rates. Models are structured to simulate cash flows and accrual characteristics of Regions' balance sheet. Assumptions are made about the direction and volatility of interest rates, the slope of the yield curve, and the changing composition of the balance sheet that results from both strategic plans and from customer behavior. Among the assumptions are expectations of balance sheet growth and composition, the pricing and maturity characteristics of existing business and the characteristics of future business. Interest rate-related risks are expressly considered, such as pricing spreads, the pricing of deposit accounts, prepayments and other option risks. Regions considers these factors, as well as the degree of certainty or uncertainty surrounding their future behavior. The primary objective of asset/liability management at Regions is to coordinate balance sheet composition with interest rate risk management to sustain reasonable and stable net interest income throughout various interest rate cycles. In computing interest rate sensitivity for measurement, Regions compares a set of alternative interest rate scenarios to the results of a base case scenario derived using "market forward rates." The standard set of interest rate scenarios includes the traditional instantaneous parallel rate shifts of plus 100 and 200 basis points. Given low market rates by historical standards, the Company focuses on a falling rate shock scenario where all rates fall to levels consistent with historical minimums. In addition to parallel curve shifts, multiple curve steepening and flattening scenarios are contemplated. Regions includes simulations of gradual interest rate movements phased in over a six-month period that may more realistically mimic the speed of potential interest rate movements. Exposure to Interest Rate Movements-As ofSeptember 30, 2021 , Regions was asset sensitive to both gradual and instantaneous parallel yield curve shifts as compared to the base case for the 12-month measurement horizon endingSeptember 2022 . The third quarter of 2021 continued the trend of growth in low-cost deposits and cash balances held with theFederal Reserve . Retention of these balance sheet liquidity inflows is uncertain and much of the recent deposit growth may be more rate sensitive under a rising rate scenario. Therefore, additional sensitivity analysis focused on pandemic-related "surge" deposit pricing behavior and retention is outlined in Table 21. The estimated exposure associated with the rising and falling rate scenarios in the table below reflects the combined impacts of movements in short-term and long-term interest rates. Currently, net interest income sensitivity to short-term rates is approximately neutral when excluding pandemic-related deposit increases; however, it will increase in 2023 and beyond as receive fixed interest rate swap hedges begin to mature. An increase or reduction in short-term interest rates (such as the Fed Funds rate, the rate of Interest on Excess Reserves and 1-month LIBOR) will drive the yield on assets and liabilities contractually tied to such rates higher or lower. Under either environment, it is expected that changes in funding costs and balance sheet hedging income will completely offset the change in asset yields until those hedges mature. Importantly, the potential to retain "surge" deposits with lower than expected repricing behavior represents an opportunity for further net interest income growth in the increasing rate scenario as well. Net interest income remains exposed to intermediate yield curve tenors. While this was a headwind to net interest income during the pandemic, it also represents a tailwind to net interest income growth as the yield curve steepens. An increase in intermediate and long-term interest rates (such as intermediate to longer-termU.S. Treasuries, swap and mortgage rates) will drive yields higher on certain fixed rate, newly originated or renewed loans, increase prospective yields on certain investment 80
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portfolio purchases, and reduce amortization of premium expense on existing securities in the investment portfolio. The opposite is true in an environment where intermediate and long-term interest rates fall. Approximately 70% of fixed rate asset production is at the 5-year tenor point or shorter. The interest rate sensitivity analysis presented below in Table 21 is informed by a variety of assumptions and estimates regarding the progression of the balance sheet in both the baseline scenario as well as the scenarios of instantaneous and gradual shifts in the yield curve. Though there are many assumptions which affect the estimates for net interest income, those pertaining to deposit pricing, deposit mix and overall balance sheet composition are particularly impactful. Given the uncertainties associated with the prolonged period of low interest rates and industry liquidity, management evaluates the impact to its sensitivity analysis of these key assumptions. Sensitivity calculations are hypothetical and should not be considered to be predictive of future results. The Company's baseline balance sheet assumptions include management's best estimate for balance sheet growth in the coming 12 months. However, the behavior of pandemic-related "surge" deposits under a rising rate scenario is uncertain. Therefore, Table 21 includes two balance sheet scenarios to help inform a potential range of outcomes. The first is an opportunity scenario, and assumes that these deposits behave more like stable, legacy balances, which is consistent with historical disclosures. The second is a reduction scenario assuming that these depositors will be more sensitive to rate, requiring a higher interest rate in order to hold their balances with the bank. For this scenario, "surge" deposits are assumed to encompass all balance growth on legacy accounts evidenced fromFebruary 2020 toSeptember 2021 , or approximately$27 billion . These deposits, including non-interest bearing products, are attributed with a 75% repricing beta in rising rate scenarios. Importantly, the impact to net interest income under a changing rate environment is the same whether the "surge" deposit balances are held at a higher beta or the balances attrite and the funding is replaced with wholesale sources. Given the evolving nature of the environment, estimates have been conservatively derived. Should the balances remain with the Company longer or demonstrate less sensitivity to interest rates, there is potential for upside (e.g. the opportunity scenario). The disclosure in Table 21 does not prescribe a view as to the longevity of surge deposits on the balance sheet. The behavior of deposit pricing in response to changes in interest rate levels is largely informed by analyses of prior rate cycles. In the base case scenario and falling rate scenarios in Table 21, interest-bearing deposit rates remain in the single digits. The deposit beta model is dynamic across both interest rate level and time. Currently, the Scenario One gradual +100 basis point shock outlined in the table below includes an approximate 20% to 25% interest-bearing deposit beta for legacy deposits. Again, the "surge" deposit interest-bearing deposit beta is bookended in each scenario, assuming legacy betas and a 75% beta, respectively. Deposit pricing outperformance or underperformance of 5% in that scenario would increase or decrease net interest income by approximately$30 million , respectively. In rising rate scenarios only, management assumes that the mix of legacy deposits will change versus the base case as informed by analyses of prior rate cycles. Management assumes that in rising rate scenarios, some shift from non-interest bearing to interest-bearing products will occur. The magnitude of the shift is rate dependent and equates to approximately$3 billion over 12 months in the gradual +100 basis point scenario in Table 21. The table below summarizes Regions' positioning over the next 12 months in various parallel yield curve shifts (i.e., including all yield curve tenors). The scenarios are inclusive of all interest rate hedging activities. More information regarding hedges is disclosed in Table 22 and its accompanying description. Importantly, outstanding receive-fixed cash flow hedges begin to mature inDecember 2022 . While those maturities are outside of the 12-month horizon of the analysis outlined in Table 21, the hedge maturity profile will begin to add asset sensitivity at a time when markets currently expect theFOMC to begin to increase short-term interest rates. The EnerBank acquisition, which closedOctober 1, 2021 , is excluded from the analysis outlined in Table 21. EnerBank is initially estimated to have little impact on Regions' interest rate risk position. Over time, as its fixed-rate, brokered time deposit funding matures and fixed-rate loan balances grow, EnerBank is expected to assist Regions in being modestly less asset sensitive. The combined impacts from hedge maturities and the EnerBank acquisition will add rising rate exposure (i.e. increase sensitivity) to the interest rate shocks in Table 21 in 2023 and beyond. 81
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Table 21-Interest Rate Sensitivity
Scenario Two:
Estimated Annual Change
Scenario One: Estimated Annual Change in Net Interest Income
in Net Interest Income September 30, 2021
September 30, 2021(1)(2)(3) (1)(2)(4)
(In millions)
Gradual Change in Interest Rates
+ 200 basis points $474 $215
+ 100 basis points 258 128
- 100 basis points (floored)(5) (77) (77)
Instantaneous Change in Interest Rates
+ 200 basis points $606 $287
+ 100 basis points 346 186
- 100 basis points (floored)(5) (100) (100)
_________
(1)Disclosed interest rate sensitivity levels represent the 12-month forward looking net interest income changes as compared to market forward rate cases and include expected balance sheet growth and remixing. While not included in the table, hedge maturities partially offset by EnerBank impacts are expected to add rising rate exposure by 2023. (2)All cash flow hedges are fully reflected within the measurement horizon (See Table 23 for additional information regarding hedge maturity dates). (3)Scenario assumes all deposits (including "surge" deposits) perform consistently with historical experiences. (4)Scenario accounts for uncertainty in "surge" deposit balances. Assumes a 75% beta on "surge" balances, calculated as legacy deposit growth experienced sinceFebruary 2020 ($27 billion as ofSeptember 2021 ). (5)The -100 basis point (floored) scenario represents a rate shock where all rates are floored at historical lows observed during the pandemic. Regions has established scenarios by which yield curve tenors will fall to a consistent level. The shock magnitude for each tenor, when compared to market forward rates, equates to the lesser of the shock scenario amount, or a rate equal to the historical all-time minimum. Further, the scenarios presented do not allow for negative rates. The falling rate scenarios in Table 21 above quantify the expected impact for both gradual and instantaneous shocks under this environment. Interest rate movements may also have an impact on the value of Regions' securities portfolio, which can directly impact the carrying value of shareholders' equity. Regions from time to time may hedge these price movements with derivatives (as discussed below). Derivatives-Regions uses financial derivative instruments for management of interest rate sensitivity. ALCO, which consists of members of Regions' senior management team, in its oversight role for the management of interest rate sensitivity, approves the use of derivatives in balance sheet hedging strategies. Derivatives are also used to offset the risks associated with customer derivatives, which include interest rate, credit and foreign exchange risks. The most common derivatives Regions employs are forward rate contracts, Eurodollar futures contracts, interest rate swaps, options on interest rate swaps, interest rate caps and floors, and forward sale commitments. Forward rate contracts are commitments to buy or sell financial instruments at a future date at a specified price or yield. A Eurodollar futures contract is a future on a Eurodollar deposit. Eurodollar futures contracts subject Regions to market risk associated with changes in interest rates. Interest rate swaps are contractual agreements typically entered into to exchange fixed for variable rate (or vice versa) streams of interest payments. The notional principal is not exchanged but is used as a reference for the size of interest settlements. Interest rate options are contracts that allow the buyer to purchase or sell a financial instrument at a predetermined price and time. Forward sale commitments are contractual obligations to sell market instruments at a future date for an already agreed-upon price. Foreign currency contracts involve the exchange of one currency for another on a specified date and at a specified rate. These contracts are executed on behalf of the Company's customers and are used by customers to manage fluctuations in foreign exchange rates. The Company is subject to the credit risk that another party will fail to perform. Regions has made use of interest rate swaps and floors in balance sheet hedging strategies to effectively convert a portion of its fixed-rate funding position to a variable-rate position and to effectively convert a portion of its variable-rate loan portfolios to fixed-rate. Regions also uses derivatives to economically manage interest rate and pricing risk associated with its mortgage origination business. In the period of time that elapses between the origination and sale of mortgage loans, changes in interest rates have the potential to cause a decline in the value of the loans in this held-for-sale portfolio. Futures contracts and forward sale commitments are used to protect the value of the loan pipeline and loans held for sale from changes in interest rates and pricing. 82
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The following table presents additional information about the hedging interest rate derivatives used by Regions to manage interest rate risk: Table 22-Hedging Derivatives by Interest Rate Risk Management Strategy
September 30, 2021
Weighted-Average
Notional
Amount Maturity (Years) Receive Rate(1) Pay Rate(1) Strike Price(1)
(Dollars in millions)
Derivatives in fair value hedging
relationships:
Receive fixed/pay variable swaps $ 1,400 5.0 0.6 % 0.1 % - %
Derivatives in cash flow hedging relationships: Receive fixed/pay variable swaps 17,000 1.9 0.8 0.1 - Interest rate floors 3,500 2.8 - - 2.2 Total derivatives designated as hedging
instruments$ 21,900 2.3 0.7 % 0.1 % 2.2 % _________
(1)Variable rate indexes on swap and floor contracts reference a combination of short-term LIBOR benchmarks, primarily 1-month LIBOR.
As ofSeptember 30, 2021 , all of the cash flow hedging relationships designated in Table 22 above were active. Total cash flow hedges have a current weighted average maturity of approximately 2.3 years. During the third quarter, Regions shortened a portion of its future hedge exposure to balance its future interest rate risk needs with the evolving macro-economic environment and its changing balance sheet. Swap notionals of$5 billion with a weighted-average life of 4.4 years were re-structured to mature inDecember 2022 . Year-to-date, total notional of$11.3 billion has been replaced with shorter maturity swaps. In addition, longer maturity receive fixed swap termination trades of$1.3 billion in the second quarter of 2021 were intended to offset some of the sensitivity impact from adding$2.0 billion fixed-rate securities during the second quarter. Importantly, the gain on unwound hedges is deferred and amortized into net interest income over the life of the original hedge, creating no change in the expected net interest income profile relative to the discounted future cash flows under market forward rates at the time the hedges are unwound. These changes and the resulting hedge maturity profile allow for an increasing asset sensitive balance sheet position when theFOMC seems more likely to move short-term rates higher. Further, the industry transition away from LIBOR rates is not expected to materially impact either hedge effectiveness or income recognition on the Company's current portfolio of hedges. The following table presents cash flow hedge notional amounts outstanding at each year-end period. The initial hedge maturities begin inDecember 2022 . Table 23-Schedule of Notional for Cash Flow Hedging Derivatives Notional Amount Years Ended 2021(1) 2022(1) 2023 2024 2025 (In millions)
Receive fixed/pay variable swaps
$ 4,450 $ - Interest rate floors 3,500 3,500 3,500 1,000 250 Cash flow hedges$ 20,500 $ 11,500 $ 8,950 $ 5,450 $ 250 _________ (1)All cash flow hedges active within the 12-month measurement horizon are included in the income sensitivity levels as disclosed in Table 21. Regions manages the credit risk of these instruments in much the same way as it manages credit risk of the loan portfolios by establishing credit limits for each counterparty and through collateral agreements for dealer transactions. For non-dealer transactions, the need for collateral is evaluated on an individual transaction basis and is primarily dependent on the financial strength of the counterparty. Credit risk is also reduced significantly by entering into legally enforceable master netting agreements. When there is more than one transaction with a counterparty and there is a legally enforceable master netting agreement in place, the exposure represents the net of the gain and loss positions with and collateral received from and/or posted to that counterparty. All hedging interest rate swap derivatives traded by Regions are subject to mandatory clearing. The counterparty risk for cleared trades effectively moves from the executing broker to the clearinghouse allowing Regions to 83
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benefit from the risk mitigation controls in place at the respective clearinghouse. The "Credit Risk" section in Regions' Annual Report on Form 10-K for the year endedDecember 31, 2020 contains more information on the management of credit risk. Regions also uses derivatives to meet the needs of its customers. Interest rate swaps, interest rate options and foreign exchange forwards are the most common derivatives sold to customers. Other derivative instruments with similar characteristics are used to hedge market risk and minimize volatility associated with this portfolio. Instruments used to service customers are held in the trading account, with changes in value recorded in the consolidated statements of income. The primary objective of Regions' hedging strategies is to mitigate the impact of interest rate changes, from an economic perspective, on net interest income and the net present value of its balance sheet. The overall effectiveness of these hedging strategies is subject to market conditions, the quality of Regions' execution, the accuracy of its valuation assumptions, counterparty credit risk and changes in interest rates. See Note 8 "Derivative Financial Instruments and Hedging Activities" to the consolidated financial statements for a tabular summary of Regions' quarter-end derivatives positions and further discussion. Regions accounts for residential MSRs at fair market value with any changes to fair value being recorded within mortgage income. Regions enters into derivative transactions to economically mitigate the impact of market value fluctuations related to residential MSRs. Derivative instruments entered into in the future could be materially different from the current risk profile of Regions' current portfolio. LIBOR TRANSITION OnMarch 5, 2021 , theFCA announced that LIBOR will not be available for use afterDecember 31, 2021 . Further, existing contracts referencing 1-week or 2-month USD LIBOR settings must be remediated no later thanDecember 31, 2021 . Existing contracts referencing all other USD LIBOR settings must be remediated no later thanJune 30, 2023 . Regions holds instruments that may be impacted by the discontinuance of LIBOR, including loans, investments, derivative products, floating-rate obligations, and other financial instruments that use LIBOR as a benchmark rate. However, Regions' LIBOR exposure is primarily in settings other than 1-week or 2-month USD LIBOR. The Company has established a LIBOR Transition Program, which includes dedicated leadership and staff, with all relevant business lines and support groups engaged. As part of this program, the Company continues to identify, assess, and monitor risks associated with the discontinuation of LIBOR. Steps to mitigate risks associated with the transition are being overseen by Regions'Executive LIBOR Steering Committee . Regions is following industry efforts to develop alternative reference rates and is operationally ready to offer new benchmarks as they are adopted by regulatory agencies and industry groups. Regions has taken proactive steps to facilitate the transition on behalf of customers, which include: •The adoption and ongoing implementation of fallback provisions that provide for the determination of replacement rates for LIBOR-linked financial products. •The adoption of new products linked to alternative reference rates, such as adjustable-rate mortgages, consistent with guidance provided by the US regulators, ARRC, and GSEs. •The discontinuation of LIBOR-based commercial lending after mid-September. The Company has already made preparations to provide multiple alternative rates based on market competition and demand. Regions has participated in, evaluated, or made preparations to lend with a number of other indexes, including SOFR, BSBY, and AMERIBOR. Regions continues to evaluate its financial and operational infrastructure in its effort to transition all financial and strategic processes, systems, and models to reference rates other than LIBOR. Regions has also implemented processes to educate all client-facing associates and coordinate communications with customers regarding the transition. As ofSeptember 30, 2021 , Regions had approximately$33.7 billion of total outstanding commercial and investor real estate loans and approximately$1 billion of total consumer loans that reference LIBOR. Regions also has securities within its investment portfolio of$368 million that reference LIBOR. Furthermore, Regions' Series B and C preferred stock reference LIBOR when their dividend rate begins to float after 2023 and had total carrying values of$433 million and$490 million , respectively, as ofSeptember 30, 2021 . In the third quarter of 2020, Regions adopted temporary accounting relief for affected transactions that reference LIBOR. See Note 1 "Summary of Significant Accounting Policies" in Regions' Annual Report on Form 10-K for the year endedDecember 31, 2020 for details. LIQUIDITY Liquidity is an important factor in the financial condition of Regions and sustains Regions' ability to meet the needs of the Company and its customers. Regions' goal in liquidity management is to maintain liquidity sources and reserves sufficient to satisfy the cash flow requirements of depositors and borrowers, under normal and stressed conditions. Accordingly, Regions maintains a variety of liquidity sources, as further described below. Furthermore, Regions performs specific procedures, 84
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including scenario analyses and stress testing to evaluate and maintain appropriate levels of available liquidity in alignment with liquidity risk. Regions' operation of its business provides a generally balanced liquidity base which is comprised of customer assets, consisting principally of loans, and funding provided by customer deposits and borrowed funds. Maturities in the loan portfolio provide a steady flow of funds, and are supplemented by Regions' relatively steady deposit base. The securities portfolio serves as a primary source and storehouse of liquidity. Proceeds from maturities and principal and interest payments of securities provide a continual flow of funds available for cash needs (see Note 2 "Debt Securities " to the consolidated financial statements). Furthermore, the highly liquid nature of the portfolio (for example, the agency guaranteed MBS portfolio) can be readily used as a source of cash through various secured borrowing arrangements. Cash reserves, liquid assets and secured borrowing capabilities (including borrowing capacity at the FHLB, as discussed below) aid in the management of liquidity in normal and stressed conditions, and/or meeting the need of contingent events such as obligations related to potential litigation. (See Note 11 "Commitments, Contingencies and Guarantees" to the consolidated financial statements for additional discussion of the Company's funding requirements.) Liquidity needs can also be met by borrowing funds in national money markets, though Regions does maintain limits on short-term unsecured funding due to the volatility that can affect such markets. The balance with the FRB is the primary component of the balance sheet line item, "interest-bearing deposits in other banks." AtSeptember 30, 2021 , Regions had approximately$25.8 billion in cash on deposit with the FRB, an increase from approximately$16.4 billion atDecember 31, 2020 , which has continued to be impacted by deposits associated with government programs offered in relation to COVID-19. Refer to the "Cash and Cash Equivalents" section for more information. Regions' borrowing availability with the FRB as ofSeptember 30, 2021 , based on assets pledged as collateral on that date, was$12.8 billion . Regions' financing arrangement with the FHLB adds additional flexibility in managing the Company's liquidity position. As ofSeptember 30, 2021 , Regions had no FHLB borrowings and its total borrowing capacity from the FHLB totaled approximately$16.2 billion . FHLB borrowing capacity is contingent on the amount of collateral pledged to the FHLB.Regions Bank pledges certain securities and loans as collateral, which comprise its FHLB borrowing capacity. Additionally, investment in FHLB stock is required based on membership and in relation to the level of outstanding borrowings. The FHLB has been and is expected to continue to be a reliable and economical source of funding. Regions maintains a shelf registration statement with theSEC that can be utilized by Regions to issue various debt and/or equity securities. Additionally, Regions' Board has authorizedRegions Bank to issue up to$10 billion in aggregate principal amount of bank notes outstanding at any one time. Refer to Note 12 "Borrowings" to the consolidated financial statements in the 2020 Annual Report on Form 10-K for additional information. Regions may, from time to time, consider opportunistically retiring outstanding issued securities, including subordinated debt in privately negotiated or open market transactions for cash or common shares. Regulatory approval would be required for retirement of some instruments. See Note 5 "Shareholders' Equity and Accumulated Other Comprehensive Income" to the consolidated financial statements for further information. Regions' liquidity policy requires the holding company to maintain cash sufficient to cover the greater of (1) 18 months of debt service and other cash needs or (2) a minimum cash balance of$500 million . Cash and cash equivalents at the holding company totaled$1.5 billion atSeptember 30, 2021 . Overall liquidity risk limits are established by the Board through its Risk Appetite Statement and Liquidity Policy. The Company's Board, LROC and ALCO regularly review compliance with the established limits. CREDIT RISK Regions' objective regarding credit risk is to maintain a credit portfolio that provides for stable credit costs with acceptable volatility through an economic cycle. Regions has various processes to manage credit risk as described below. In order to assess the risk profile of the loan portfolio, Regions considers risk factors within the loan portfolio segments and classes, the currentU.S. economic environment and that of its primary banking markets, as well as counterparty risk. See the "Portfolio Characteristics" section of the Annual Report on Form 10-K for the year endedDecember 31, 2020 for a discussion of risk characteristics of each loan type. INFORMATION SECURITY RISK Regions faces information security risks, such as evolving and adaptive cyber attacks that are conducted regularly against Regions and other large financial institutions to compromise or disable information systems, which have increased in recent years. This trend is expected to continue for a number of reasons, including increases in technology-based products and services used by us and our customers, the growing use of mobile, cloud, and other emerging technologies, and the increasing sophistication and activities of organized crime, hackers, terrorists, nation-states, activists and other external parties or fraud on the part of employees. 85
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As a result of the COVID-19 pandemic, Regions has experienced a modest increase in cyber events, such as phishing attacks and malicious traffic from outsidethe United States . However, the Company's layered control environment has effectively detected and prevented any material impact related to these events. Even when Regions successfully prevents cyber attacks to its own network, the Company may still incur losses that result from customers' account information being obtained through breaches of retailers' networks that enable customer transactions. The related fraud losses, as well as the costs of re-issuing new cards, may impact Regions' financial results. In addition, Regions also relies on some vendors to provide certain business infrastructure components, and although Regions actively assesses and monitors the information security capabilities of these vendors, Regions' reliance on them may also increase exposure to information security risk. In the event of a cyber attack or other data breach, Regions may be required to incur significant expenses, including with respect to remediation costs, costs of implementing additional preventative measures, addressing any reputational harm and addressing any related regulatory inquiries or civil litigation arising from the event. Refer to the "Information Security Risk" section in Management's Discussion and Analysis included in the Annual Report on Form 10-K for the year endedDecember 31, 2020 for further discussion of Regions' information security risk. PROVISION FOR (BENEFIT FROM) CREDIT LOSSES The provision for (benefit from) credit losses is used to maintain the allowance for loan losses and the reserve for unfunded credit losses at a level that in management's judgment is appropriate to absorb expected credit losses over the contractual life of the loan and credit commitment portfolio at the balance sheet date. The benefit from credit losses totaled$155 million in the third quarter of 2021 compared to the provision for credit losses of$113 million during the third quarter of 2020. The benefit from credit losses totaled$634 million for the first nine months of 2021 compared to the provision for credit losses of$1.4 billion for the first nine months of 2020. Refer to the "Allowance" section for further detail. 86
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NON-INTEREST INCOME
Table 24-Non-Interest Income
Three Months Ended September 30 Quarter-to-Date Change 9/30/2021 vs. 9/30/2020
2021 2020 Amount Percent
(Dollars in millions)
Service charges on deposit accounts $ 162 $ 152 $ 10 6.6 %
Card and ATM fees 129 115 14 12.2 %
Mortgage income 50 108 (58) (53.7) %
Capital markets income 87 61 26 42.6 %
Investment management and trust fee income 69 62 7 11.3 %
Bank-owned life insurance 18 17 1 5.9 %
Investment services fee income 26 23 3 13.0 %
Commercial credit fee income 23 20 3 15.0 %
Gain on equity investment(1) - 44 (44) (100.0) %
Securities gains (losses), net 1 3 (2) (66.7) %
Market value adjustments on employee
benefit assets - other 5 14 (9) (64.3) %
Other miscellaneous income 79 36 43 119.4 %
$ 649 $ 655 $ (6) (0.9) %
Nine Months Ended September 30 Year-to-Date 9/30/2021 vs. 9/30/2020
2021 2020 Amount Percent
(Dollars in millions)
Service charges on deposit accounts $ 482 $ 461 $ 21 4.6 %
Card and ATM fees 372 321 51 15.9 %
Mortgage income 193 258 (65) (25.2) %
Capital markets income 248 165 83 50.3 %
Investment management and trust fee income 204 186 18 9.7 %
Bank-owned life insurance 68 52 16 30.8 %
Investment services fee income 78 62 16 25.8 %
Commercial credit fee income 68 55 13 23.6 %
Gain on equity investment(1) 3 44 (41) (93.2) %
Securities gains (losses), net 3 4 (1) (25.0) %
Market value adjustments on employee
benefit assets - other 20 5 15 300.0 %
Other miscellaneous income 170 100 70 70.0 %
$ 1,909 $ 1,713 $ 196 11.4 %
________
NM - Not Meaningful
(1) The 2021 amount is a gain on the sale of an equity investment, whereas the
2020 amount is a valuation gain on the investment that was sold in the first
quarter 2021.
Service charges on deposit accounts-Service charges on deposit accounts include
non-sufficient fund and overdraft fees, corporate analysis service charges,
overdraft protection fees and other customer transaction-related service
charges. The increases during the third quarter and the first nine months of
2021 compared to the same periods of 2020 were the result of elevated consumer
spending in 2021 as the pace of economic activity continued to accelerate. While
service charge revenue improved, changes to customer spending behaviors as a
result of the pandemic, combined with enhancements to overdraft practices and
transaction posting procedures, are expected to keep service charges
approximately ten to fifteen percent below pre-pandemic levels. See the "Third
Quarter Overview" section for further detail.
Card and ATM fees-Card and ATM fees include the combined amounts of credit
card/bank card income and debit card and ATM related revenue. Card and ATM fees
increased in both the third quarter and the first nine months of 2021 compared
to the same periods of 2020, driven by increased debit card spending and
transaction volume.
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Mortgage income-Mortgage income is generated through the origination and servicing of residential mortgage loans for long-term investors and sales of residential mortgage loans in the secondary market. The decrease in mortgage income in the third quarter of 2021 compared to the same period in 2020 was due primarily to lower mortgage refinance production. The decrease in mortgage income for the nine months endedSeptember 30, 2021 was due to lower mortgage refinance production in the second and third quarters compared to the elevated production volume experienced in the same periods in 2020, as well as losses on mortgage servicing rights and related economic hedges. Capital markets income-Capital markets income primarily relates to capital raising activities that include securities underwriting and placement, loan syndication, as well as foreign exchange, derivatives, merger and acquisition and other advisory services. Capital markets income increased in the third quarter of 2021 and the first nine months of 2021 compared to the same periods in 2020 primarily due to increases in merger and acquisition advisory fees and loan syndication revenue. Additionally, capital markets income for the nine months ended 2021 compared to the same period in 2020 benefited from increases in securities and underwriting placement fees and fees generated from the placement of permanent financing for real estate. Investment management and trust fee income-Investment management and trust fee income represents income from asset management services provided to individuals, businesses and institutions. Investment management and trust fee income increased in the third quarter and first nine months of 2021 compared to the same periods of 2020 due primarily to favorable market conditions and an increase in sales. Bank-owned life insurance-Bank-owned life insurance income primarily represents income earned from the appreciation of the cash surrender value of insurance contracts held and the proceeds of insurance benefits. Bank-owned life insurance increased during the the first nine months of 2021 compared to the same period of 2020 due primarily to an$18 million individual BOLI claim benefit recognized in the second quarter of 2021. Investment services fee income-Investment services fee income represents income earned from investment advisory services. Investment services fee income increased during the third quarter and the first nine months of 2021 compared to the same periods of 2020 due primarily to stronger financial advisor production and favorable market conditions. Commercial credit fee income-Commercial credit fee income includes letters of credit fees and unused commercial commitment fees. Commercial credit fee income increased during the first nine months of 2021 compared to the same period of 2020 primarily driven by an increase in unused commercial line fees. While line utilization reached an inflection point in the second quarter of 2021, overall credit line utilization remains lower than the same period of 2020. Securities gains (losses), net-Net securities gains (losses) primarily result from the Company's asset/liability management process. See Table 1 "Debt Securities " section for additional information. Market value adjustments on employee benefit assets-Market value adjustments on employee benefit assets are the reflection of market value variations related to assets held for certain employee benefits. The adjustments are offset in salaries and benefits. Other miscellaneous income-Other miscellaneous income includes net revenue from affordable housing, valuation adjustments to equity investments (other than the item shown separately above), fees from safe deposit boxes, check fees and other miscellaneous income. Net revenue from affordable housing includes actual gains and losses resulting from the sale of affordable housing investments, cash distributions from the investments and any related impairment charges. Other miscellaneous income increased in the third quarter and the first nine months of 2021 compared to the same periods of 2020 primarily due to increases in commercial loan and leasing related fee income generated from the 2020 acquisition ofAscentium , SBIC income and increases in the values of certain other equity investments. 88
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NON-INTEREST EXPENSE
Table 25-Non-Interest Expense
Three Months Ended September 30 Quarter-to-Date Change 9/30/2021 vs. 9/30/2020
2021 2020 Amount Percent
(Dollars in millions)
Salaries and employee benefits $ 552 $ 525 $ 27 5.1 %
Equipment and software expense 90 89 1 1.1 %
Net occupancy expense 75 80 (5) (6.3) %
Outside services 38 44 (6) (13.6) %
Marketing 23 22 1 4.5 %
Professional, legal and regulatory expenses 21 22 (1) (4.5) %
Credit/checkcard expenses 16 12 4 33.3 %
FDIC insurance assessments 11 10 1 10.0 %
Branch consolidation, property and equipment
charges - 3 (3) (100.0) %
Visa class B shares expense 4 5 (1) (20.0) %
Loss on early extinguishment of debt 20 2 18 NM
Other miscellaneous expenses 88 82 6 7.3 %
$ 938 $ 896 $ 42 4.7 %
Nine Months Ended September 30 Year-to-Date 9/30/2021 vs. 9/30/2020
2021 2020 Amount Percent
(Dollars in millions)
Salaries and employee benefits $ 1,630 $ 1,519 $ 111 7.3 %
Equipment and software expense 269 258 11 4.3 %
Net occupancy expense 227 235 (8) (3.4) %
Outside services 115 133 (18) (13.5) %
Marketing 74 68 6 8.8 %
Professional, legal and regulatory expenses 65 68 (3) (4.4) %
Credit/checkcard expenses 47 37 10 27.0 %
FDIC insurance assessments 32 36 (4) (11.1) %
Branch consolidation, property and equipment
charges 5 24 (19) (79.2) %
Visa class B shares expense 14 18 (4) (22.2) %
Loss on early extinguishment of debt 20 8 12 150.0 %
Other miscellaneous expenses 266 252 14 5.6 %
$ 2,764 $ 2,656 $ 108 4.1 %
________
NM - Not Meaningful
Salaries and employee benefits-Salaries and employee benefits consist of
salaries, incentive compensation, long-term incentives, payroll taxes, and other
employee benefits such as 401(k), pension, and medical, life and disability
insurance, as well as, expenses from liabilities held for employee benefit
purposes. During the third quarter and first nine months of 2021, salaries and
benefits expense increased compared to the same periods in 2020 primarily driven
by higher variable-based compensation associated with elevated fee income. Also
contributing to the increase for the first nine months of 2021 was an increase
in 401(k) and other benefits expenses as a result of positive market valuation
adjustments,. A decline in base salaries in the third quarter and first nine
months of 2021 partially offset the increases in total salaries and benefits
expense. Full-time equivalent headcount decreased to 18,963 at September 30,
2021 from 19,766 at September 30, 2020 , reflecting the continuing impact of the
Company's efficiency initiatives implemented as part of its strategic
priorities.
Outside services-Outside services consists of expenses related to routine
services provided by third parties, such as contract labor, servicing costs,
data processing, loan pricing and research, data license purchases, data
subscriptions, and check printing. Outside services decreased during the third
quarter and the first nine months of 2021 compared to the same periods in 2020
due primarily to Regions exiting a third party lending relationship.
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Credit/Checkcard expenses-Credit/Checkcard expenses include credit and checkcard fraud and expenses. Credit/checkcard increased in the first nine months of 2021 compared to the same period in 2020 primarily due to an increase in debit card fraud. Branch consolidation, property and equipment charges-Branch consolidation, property and equipment charges include valuation adjustments related to owned branches when the decision to close them is made. Accelerated depreciation and lease write-off charges are recorded for leased branches through and at the actual branch close date. Branch consolidation, property and equipment charges also include costs related to occupancy optimization initiatives. Loss on early extinguishment of debt-During the third quarter of 2021, Regions redeemed its 3.80% senior bank notes and incurred related early extinguishment pre-tax charges totaling$20 million . During the first nine months of 2020, Regions incurred early extinguishment charges of$8 million related to the redemption of twoRegions Bank senior notes and early terminations of FHLB advances. Other miscellaneous expenses-Other miscellaneous expenses include expenses related to communications, postage, supplies, certain credit-related costs, foreclosed property expenses, mortgage repurchase costs, operational losses and other costs (benefits) related to employee benefit plans. INCOME TAXES The Company's income tax expense for the three months endedSeptember 30, 2021 was$180 million compared to$104 million for the three months endedSeptember 30, 2020 , resulting in effective tax rates of 21.7 percent and 16.5 percent, respectively. The income tax expense for the nine months endedSeptember 30, 2021 was$591 million compared to$99 million for the nine months endedSeptember 30, 2020 , resulting in effective tax rates of 22.1 percent and 17.1 percent, respectively. The Company expects the full-year tax rate to range from approximately 22 percent to 23 percent for 2021, excluding the impact of unanticipated discrete items and the impact of potential tax legislation. The effective tax rate is affected by many factors including, but not limited to, the level of pre-tax income, the mix of income between various tax jurisdictions with differing tax rates, enacted tax legislation, net tax benefits related to affordable housing investments, bank-owned life insurance income, tax-exempt interest and nondeductible expenses. In addition, the effective tax rate is affected by items that may occur in any given period but are not consistent from period-to-period, such as the termination of certain leveraged leases, share-based payments, valuation allowance changes and changes to unrecognized tax benefits. Accordingly, the comparability of the effective tax rate between periods may be impacted. AtSeptember 30, 2021 , the Company reported a net deferred tax liability of$430 million compared to a net deferred tax liability of$505 million atDecember 31, 2020 . The decrease in the net deferred tax liability was primarily due to the decrease in unrealized gains on available for sale securities and derivative instruments, which was partially offset by a decrease in the deferred tax asset related to allowance for loan losses. ASCENTIUM ACQUISITION OnApril 1, 2020 , Regions completed its acquisition of an equipment finance companyAscentium Capital, LLC . The acquisition gives Regions the ability to increase business loans and leases to small business customers usingAscentium's tech-enabled same-day credit decision and funding capabilities. As a result of the acquisition Regions recorded approximately$2.4 billion of assets and assumed$1.9 billion of liabilities. Of the total assets acquired,$1.9 billion were loans and leases that are included in Regions' commercial and industrial loan portfolio. Of the liabilities assumed,$1.8 billion were long-term borrowings. Regions subsequently paid down a significant portion of the borrowings, and as ofSeptember 30, 2021 ,$30 million of long-term debt remained. Assets acquired and liabilities assumed were recorded at estimated fair value. Of the loans acquired, a portion were determined to be credit deteriorated on the date of purchase. Purchased loans that have experienced a more than insignificant deterioration in credit quality since origination are considered to be credit deteriorated. PCD loans are initially recorded at purchase price less the ALLL recognized at acquisition. Subsequent credit loss activity is recorded within the provision for credit losses. Regions recorded PCD loans of$873 million as a result of the acquisition, which was reflective of a nominal discount. Regions recorded an ALLL related to these loans of$60 million , which was included in the total acquired asset value as part of the acquisition. The non-credit discount related toAscentium's PCD loans and the fair value mark on non-PCD loans were immaterial. In conjunction with the acquisition, Regions initially recognized goodwill of$348 million and other intangible assets of$47 million . Purchase accounting adjustments of$16 million reduced goodwill during the measurement period. Intangible assets are comprised of trademarks, customer lists and other intangibles. Intangible assets will be amortized over the expected useful life of each recognized asset. 90
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