Regions Reports an Increase in 3Q Net Income & Total Revenue
Press release from the issuing company
Friday, October 24th, 2014
Regions Financial Corporation (NYSE:RF) today announced earnings for the third quarter of 2014. The company reported net income available to common shareholders of $305 million and earnings per diluted share of $0.22.
Increasing sales and expanding customer relationships
Regions' third quarter results reflect its continued focus on meeting a diverse range of customer needs while appropriately managing risk. The company again grew checking accounts and expanded the total number of quality households, both of which are essential to supporting sustainable long-term growth. The company continued to increase sales and deepen relationships, while increasing efficiency through continuous business process improvement.
"Our results demonstrate that, even in a challenging environment, we are growing the franchise through a disciplined focus on banking fundamentals," said Grayson Hall, chairman, president and CEO. "At the same time, we believe the recent positive credit rating agencies' actions reflect our improved risk profile, indicating further signs of our progress."
Modest loan growth but remaining prudent and disciplined
Total loan balances were $77 billion at the end of the quarter, an increase of $94 million from the previous quarter. Year-to-date loan balances increased $2 billion or 3 percent. The consumer lending portfolio led the modest loan growth from the previous quarter.
The consumer lending portfolio totaled $29 billion at the end of the quarter, an increase of $120 million over the prior quarter as production increased 2 percent. Indirect auto lending continued to demonstrate consistent growth as balances have steadily increased over the last 3 years. The indirect auto loan portfolio totaled $3.5 billion, an increase from the prior quarter of $121 millionor 4 percent.
Credit card balances increased 2 percent as spend volume and active card users increased 2 and 4 percent, respectively. Mortgage balances increased 1 percent over the prior quarter as production increased 1 percent, and mortgage prepayments remained subdued. Mortgage originations continued to be driven by purchases of new homes which represented 75 percent of total originations. These positive trends were somewhat offset by a $96 million decline in home equity balances.
The business lending portfolio totaled $48 billion at the end of the quarter, bringing year-to-date growth to $1.7 billion. Although the overall lending environment continues to be challenging, the company remains committed to maintaining prudent underwriting standards. Disciplined underwriting, coupled with loan payoffs related to customer mergers and acquisitions and refinancing activities resulted in a decline in total business lending balances. During the third quarter, total business loan production amounted to $12 billion compared to $14 billion in the second quarter. While line utilization decreased 40 basis points, commitments for new loans increased 2 percent from the previous quarter.
Total deposit balances were $94 billion, an increase of $1.7 billion or 2 percent year-to-date. The mix of deposits continued to improve as low-cost deposits increased $492 million in the quarter, while higher-cost certificates of deposit declined $184 million. Low-cost deposits as a percent of average deposits were 91 percent at the end of the quarter. Deposit costs remained at historic lows and were 11 basis points in the third quarter while total funding costs were 30 basis points.
Total revenue increased 2 percent
Total revenue increased 2 percent or $20 million compared to the previous quarter. Net interest income on a fully taxable equivalent basis was $837 million, and the resulting net interest margin was 3.18 percent. Net interest margin was negatively impacted by higher levels of cash and day count when compared to the prior quarter. Both net interest income and net interest margin were adversely impacted by lower asset yields driven by the persistently low rate environment and competitive pricing pressures.
Non-interest income increased $21 million, or 5 percent from the previous quarter. Revenue growth from the previous quarter was led by capital markets and service charges, which increased $8 million and $7 million respectively. Also, card and ATM fees increased $1 million, or 1 percent, as credit card spending increased. Credit card penetration rates increased to 15 percent of total consumer households as the company remains focused on opportunities within the existing customer base. In the third quarter, the company recognized net gains totaling $7 million related to the sale of investments in the securities portfolio. Additionally, certain leveraged leases were terminated resulting in a gain of $9 million with a partially offsetting $6 million tax expense.
Expenses reflect investments in talent and technology
Expenses totaled $826 million, and adjusted expenses(1) were flat from the prior quarter as the company continued to manage expenses while investing in talent and technology. Salary and benefit expenses increased 3 percent from the prior quarter, primarily driven by an increase in headcount and related benefits and incentives. The company remains committed to efficiency improvements and enhancing the customer experience through on-going investments in technology.
The company's adjusted efficiency ratio(1) was 63.6 percent at the end of the third quarter, an improvement of 60 basis points from the previous quarter.
Maintaining solid asset quality
Regions' results reflect solid asset quality driven by an improved economy and our continued risk discipline. Net charge-offs were $75 million, representing 0.39 percent of average loans. The provision for loan losses was $24 million, and the resulting allowance for loan and lease losses totaled 1.54 percent of total loans outstanding at the end of the quarter, a decline of 7 basis points from last quarter.
Non-performing loans (excluding loans held for sale) declined to $837 million, or 7 percent from the prior quarter. In addition, total delinquencies declined 4 percent, troubled debt restructurings (TDRs) declined 7 percent, and both criticized and classified loans declined from the prior quarter. These positive trends reflect the continuation of improving asset quality.
Strong capital and solid liquidity
Regions' capital position remains strong as the Tier 1 ratio was estimated at 12.7* percent at quarter-end. In addition, the Tier 1 Common ratio(1) was estimated at 11.8* percent, an increase of 20 basis points from last quarter, and the Common Equity Tier 1 Basel III ratio(1) was estimated at 11.2* percent. The company plans to begin repurchasing shares of common stock in the fourth quarter pursuant to its previously disclosed $350 million share repurchase program.
The company's liquidity position remained solid as the loan to deposit ratio at the end of the quarter was 81 percent. The company remains well positioned as it relates to the final liquidity coverage ratio rule recently released by the joint supervisory committee and expects to be fully compliant by the January 2016 deadline.
Highlights | Quarter Ended | |||||||||||||||||
($ in millions, except per share data) |
9/30/2014 | 6/30/2014 | 9/30/2013 | |||||||||||||||
Net Income | ||||||||||||||||||
Net interest income | $ | 821 | $ | 822 | $ | 824 | ||||||||||||
Non-interest income | 478 | 457 | 495 | |||||||||||||||
Total revenue | 1,299 | 1,279 | 1,319 | |||||||||||||||
Provision for loan losses | 24 | 35 | 18 | |||||||||||||||
Non-interest expense | 826 | 820 | 884 | |||||||||||||||
Income from continuing operations before income tax | 449 | 424 | 417 | |||||||||||||||
Income tax expense | 127 | 125 | 124 | |||||||||||||||
Income from continuing operations (A) | 322 | 299 | 293 | |||||||||||||||
Income (loss) from discontinued operations, net of tax | 3 | 1 | — | |||||||||||||||
Net income | 325 | 300 | 293 | |||||||||||||||
Preferred dividends (B) (3) | 20 | 8 | 8 | |||||||||||||||
Net income available to common shareholders | $ | 305 | $ | 292 | $ | 285 | ||||||||||||
Income from continuing operations available to common
shareholders (A) - (B) |
$ | 302 | $ | 291 | $ | 285 | ||||||||||||
Diluted EPS Summary | ||||||||||||||||||
Earnings per common share | $ | 0.22 | $ | 0.21 | $ | 0.20 | ||||||||||||
Income (loss) per share from discontinued operations | — | — | — | |||||||||||||||
Earnings per common share from continuing operations | $ | 0.22 | $ | 0.21 | $ | 0.20 | ||||||||||||
Key Ratios | ||||||||||||||||||
Net interest margin (FTE) from continuing operations~ | 3.18 | % | 3.24 | % | 3.24 | % | ||||||||||||
Tier 1 capital* | 12.7 | % | 12.5 | % | 11.5 | % | ||||||||||||
Tier 1 common risk-based ratio (non-GAAP)*(1) | 11.8 | % | 11.6 | % | 11.0 | % | ||||||||||||
Basel III common equity Tier 1 ratio (non-GAAP)*(1) | 11.2 | % | 11.0 | % | 10.4 | % | ||||||||||||
Tangible common stockholders' equity to tangible assets (non-GAAP)(1) | 9.92 | % | 9.84 | % | 9.02 | % | ||||||||||||
Tangible common book value per share (non-GAAP)(1) | $ | 8.23 | $ | 8.12 | $ | 7.32 | ||||||||||||
Allowance for loan losses as a percentage of loans, net of unearned income | 1.54 | % | 1.61 | % | 2.03 | % | ||||||||||||
Net charge-offs as a percentage of average net loans~ | 0.39 | % | 0.35 | % | 0.60 | % | ||||||||||||
Non-accrual loans, excluding loans held for sale, as a percentage of loans | 1.09 | % | 1.17 | % | 1.78 | % | ||||||||||||
Non-performing assets as a percentage of loans, foreclosed properties and non-performing loans held for sale | 1.30 | % | 1.37 | % | 2.03 | % | ||||||||||||
Non-performing assets (including 90+ past due) as a percentage of loans, foreclosed properties and non-performing loans held for sale(2) | 1.61 | % | 1.69 | % | 2.38 | % | ||||||||||||
*Tier 1 Common and Tier 1 Capital ratios for the current quarter are estimated |
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~Annualized |
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(1) Non-GAAP, refer to pages 12, and 16-18 of the financial supplement to this earnings release |
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(2) Guaranteed residential first mortgages were excluded from the 90+ past due amounts, refer to pages 11 and 14 of the financial supplement to this earnings release |
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(3) Preferred stock expense increased to $20 million in the third quarter attributable to the preferred stock issuance in April. Due to the timing of this issuance, the first coupon period was longer than future coupon periods and resulted in additional expense of approximately $4 million dollars. Going forward, the run-rate for preferred stock expense will be approximately $16 million dollars, assuming the current level of preferred stock outstanding. |