Regions Financial : 2Q21 Earnings Transcript - pdf, 422KB, opens in a new window

Corrected Transcript

23-Jul-2021

Regions Financial Corp. (RF)

Q2 2021 Earnings Call

	Total Pages: 23
1-877-FACTSET www.callstreet.com	Copyright © 2001-2021 FactSet CallStreet, LLC

Regions Financial Corp. (RF)	Corrected Transcript
Q2 2021 Earnings Call	23-Jul-2021

CORPORATE PARTICIPANTS

Dana W. Nolan	David J. Turner, Jr.
Executive Vice President & Head-Investor Relations, Regions Financial	Senior Executive Vice President & Chief Financial Officer, Regions
Corp.	Financial Corp.
John M. Turner
President, Chief Executive Officer & Director, Regions Financial Corp.

.....................................................................................................................................................................................................................................................................

OTHER PARTICIPANTS

Matt O'Connor	Kenneth M. Usdin
Analyst, Deutsche Bank Securities, Inc.	Analyst, Jefferies LLC
Jennifer Demba	Bill Carcache
Analyst, Truist Securities, Inc.	Analyst, Wolfe Research LLC
Gerard Cassidy	Christopher Marinac
Analyst, RBC Capital Markets LLC	Analyst, Janney Montgomery Scott LLC
John Pancari	Christopher Spahr
Analyst, Evercore ISI	Analyst, Wells Fargo Securities LLC
Betsy L. Graseck
Analyst, Morgan Stanley & Co. LLC

	2
1-877-FACTSET www.callstreet.com	Copyright © 2001-2021 FactSet CallStreet, LLC

Regions Financial Corp. (RF)	Corrected Transcript
Q2 2021 Earnings Call	23-Jul-2021

MANAGEMENT DISCUSSION SECTION

Operator: Good morning and welcome to the Regions Financial Corporation's Quarterly Earnings Call. My name is Shelby, and I'll be your operator for today's call. I would like to remind everyone that all participant phone lines have been placed on listen-only. At the end of the call, there will be a question-and-answer session. [Operator Instructions]

I will now turn the call over to Dana Nolan to begin.

.....................................................................................................................................................................................................................................................................

Dana W. Nolan

Executive Vice President & Head-Investor Relations, Regions Financial Corp.

Thank you, Shelby. Welcome to Regions' second quarter 2021 earnings call. John and David will provide high level commentary regarding the quarter. Earnings documents, which include our forward-looking statement disclaimer, are available in the Investor Relations section of our website. These disclosures cover our presentation materials, prepared comments, and Q&A.

I will now turn the call over to John.

.....................................................................................................................................................................................................................................................................

John M. Turner

President, Chief Executive Officer & Director, Regions Financial Corp.

Thank you, Dana, and thank you for joining our call today. We're pleased with our performance this quarter. And, importantly, we're beginning to see increased activity across our footprint that gives us a greater confidence for overall growth in the second half of the year.

Earlier this morning, we reported earnings of $748 million, resulting in an earnings per share of $0.77 per share. Credit quality at Regions and across the industry has demonstrated remarkable resiliency throughout the pandemic. Broadly speaking, since the pandemic began, I believe banks have done a tremendous job staying close to customers and supporting their needs by providing capital advice and guidance.

As I have begun to trap our footprint again and meet with customers, I see them gaining confidence in the economic recovery and in their own business plans. I've seen the strength of our markets firsthand. This, combined with the ongoing successful execution of our strategic plan, has positioned Regions well for growth as the economic recovery continues.

We remain focused on clients selectivity, risk-adjusted returns and capital allocation, all while making investments, particularly in talent and technology to support growth. For example, over the last year, we redesigned our mobile app and are continuing to make further enhancements to both our online and mobile platforms. With these tied to sales process, you can now apply for almost any consumer banking product online.

We're putting digital tools in the hands of our bankers and contact center associates, allowing customers to start a process in one channel and seamlessly transition to another. We now have e-signature capabilities across most of the franchise. As a result of all of these changes, year-to-date, digital sales were up 53% over the prior year.

	3
1-877-FACTSET www.callstreet.com	Copyright © 2001-2021 FactSet CallStreet, LLC

Regions Financial Corp. (RF)	Corrected Transcript
Q2 2021 Earnings Call	23-Jul-2021

We have also leveraged artificial intelligence to build lead generation and next best action tools for our bankers. We're also utilizing artificial intelligence in our contact centers. Reggie, our virtual banker, is on pace to handle over a million customer calls this year.

Technology investments have also allowed nearly 100% of our contact center associates to work remotely, providing permanent cost saves from reductions in legacy Corporate space. In addition, over the last three years, we've increased mortgage loan originators by approximately 150 loans and we'll continue to add talent as we grow market share. We've also added approximately 80 client-facing associates across the Corporate Bank and Wealth Management with a particular focus on growth markets.

We've consolidated over 215 branches, while opening 75 de novo primarily within dense, fast-growing markets. These new branches have contributed almost 20% of our total rebuild checking account growth over the last three years.

We're also investing in products and capabilities to serve our customers. In Wealth Management, we deepened our expertise in the not-for-profit and health care space through the acquisition of Highland Associates. And we're working on a digital advisory solution with deployment targeted for late this year or early next. Last year, we purchased Ascentium Capital to help small businesses with their essential equipment needs and the platform has performed well throughout the pandemic.

On the Consumer side, we just announced an agreement to acquire EnerBank, the top five originator and the home improvement point of sale space, which we're really excited about. Going forward, we'll continue to look for bolt-on acquisitions that provide products and capabilities that are important to our customers.

Win some really great markets as reflected on the slide you see now. These markets coupled with our go-to- market strategy and aided by technology investments have helped us realize some really nice growth and consumer checking accounts. Our year-to-date account growth is nearly 3 times higher than our 2019 pre- pandemic rate for the same period. So, we have a really solid strategic plan that supports our goal of generating consistent, sustainable, long-term performance, and we have a proven track record of successful execution. We feel very good about our progress and believe we are really well-positioned to grow as the economic recovery continues to gain momentum in our markets.

Now, David will provide you with some details regarding the quarter.

.....................................................................................................................................................................................................................................................................

David J. Turner, Jr.

Senior Executive Vice President & Chief Financial Officer, Regions Financial Corp.

Thank you, John. Let's start with the balance sheet. Average adjusted loans remain stable during the quarter, although adjusted ending loans increased 1%, confirming our view that loan growth should begin in the back half of the year. Although Corporate loans continue to be impacted by low utilization rates and excess liquidity, pipelines have now surpassed pre-pandemic levels. Production remains strong with new and renewed commitments increasing 33% compared to first quarter. And we believe utilization rates reached an inflection point during the quarter.

On a reported basis, average Corporate loans increased, while ending loans decline, reflecting an acceleration in

1. forgiveness late in the quarter. Through June 30, approximately 53% of total PPP loans have been forgiven, and we anticipate that reaching approximately 80% by year-end.

	4
1-877-FACTSET www.callstreet.com	Copyright © 2001-2021 FactSet CallStreet, LLC

Regions Financial Corp. (RF)	Corrected Transcript
Q2 2021 Earnings Call	23-Jul-2021

Consumer loans reflected another strong quarter of mortgage production accompanied by modest ending growth in credit card. However, Consumer loans continue to be negatively impacted by runoff portfolios and further pay downs in home equity. Overall, we continue to expect full-year 2021 adjusted average loan balances to be down by low-single digits compared to 2020, although we expect adjusted ending loans to grow by low-single digits. With respect to loan guidance and the rest of our 2021 expectations, we're not including any impacts from our pending EnerBank acquisition.

So, let's turn to deposits. Although the pace of deposit growth has slowed, balances continue to increase this quarter to new record levels. The increase is primarily due to higher account balances. However, as John mentioned, we're also producing strong new account growth.

We are continuing to analyze probable future deposit behavior and, based on an analysis of pandemic-related deposit inflow characteristics, we currently believe between 20% and 30% of the deposit increases will likely persist on the balance sheet.

Broadly speaking, we think liquidity will normalize over time as the Fed becomes less accommodative. Reductions in their asset purchases will mitigate future liquidity increases in the system, which should curb further deposit growth.

Let's shift to the net interest income and margin, which remain a significant source of stability for Regions. Pandemic-related items continued to impact the NII and margin. PPP-related NII increased $3 million from the prior order. Cash averaged $23 billion during the quarter and, when combined with PPP, reduced second quarter reported margin by 50 basis points. Excluding excess cash and PPP, our adjusted margin was 3.31%, evidencing active balance sheet management efforts despite a near-zeroshort-term rate environment. The 9-basis-point linked quarter decline was mostly attributable to the purchase of $2 billion of securities and one additional day in the quarter, both of which support NII, at the expense of margin.

Similar to prior quarters, the impact on NII from historically low long-term interest rates was completely offset by balance sheet management strategies, a lower deposit cost, and higher hedging income. Lower LIBOR drove a $2 million increase from loan hedges and, at current rate levels, we expect roughly $105 million of hedge-related interest income each quarter until the hedge has begin to mature in 2023.

Since the beginning of 2021, we have repositioned a total of $6.3 billion of cash flow swaps and floors. We do not currently expect any further repositioning. However, this is continually evaluated in the context of a dynamic balance sheet.

Our current balance sheet profile allows us to support our goal of A consistent sustainable earnings growth. Specifically, we are positioned to benefit from higher middle tenure interest rates and increases in short-term interest rates in the future, while protecting the NII stability to the extent the Fed remains on hold longer than the market currently expects.

Importantly, the recent declines of longer maturity market yields have less of an impact on Regions' earnings potential as most of our fixed rate production has maturities of shorter than six years, a point on the curve that, on a relative basis, has fallen less.

With respect to outlook, we view the second quarter's NII to be the low point for the year. Over the second half and beyond, a strengthening economy, a relatively neutral impact from rates, and organic and strategic balance sheet growth are expected to ultimately drive NII growth.

	5
1-877-FACTSET www.callstreet.com	Copyright © 2001-2021 FactSet CallStreet, LLC