Regions Financial(RF) - 2025 Q2 - Quarterly Report

Forward-Looking Statements Cautionary Note Regarding Forward-Looking Statements and Risk Factor Summary The report contains forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially from projections, including economic, market, interest rate, credit, competitive, technological, operational, security, regulatory, and legal factors - Economic and Market Risks: The company's performance is sensitive to economic conditions, particularly in the Southeastern U.S., including property values, interest rates, unemployment, and inflation[23] - Interest Rate and Capital Markets Risk: Changes in market interest rates can adversely affect revenue, expenses, and the value of assets like the investment securities portfolio, potentially increasing funding costs and impacting liquidity[25] - Credit Risk: The company faces risks related to customer creditworthiness, loan collectability, and the adequacy of its allowance for credit losses[26] - Competitive and Technological Risks: Competition from traditional financial institutions and fintechs, along with an inability to keep pace with technological changes including digital banking and AI, could negatively impact revenue and business[32][33][34] - Operational and Security Risks: The company is exposed to operational risks, including cybersecurity threats such as data breaches and hacking, which could disrupt business and cause financial losses[38][40] - Regulatory and Legal Risks: Changes in banking laws and regulations, as well as adverse outcomes in litigation or regulatory proceedings, could impose additional costs and negatively affect business practices[42][43] Part I. Financial Information Financial Statements (Unaudited) The unaudited financial statements for the period ended June 30, 2025, show total assets increased to $159.2 billion, net income for Q2 2025 was $563 million, and for the six months ended June 30, 2025, net income rose to $1.05 billion, driven by higher net interest and non-interest income Consolidated Balance Sheets As of June 30, 2025, total assets were $159.2 billion, an increase from $157.3 billion at year-end 2024, primarily funded by a $3.3 billion increase in total deposits to $130.9 billion, while net loans remained stable at $95.1 billion and total shareholders' equity increased to $18.7 billion Consolidated Balance Sheet Highlights (in millions) | Account | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Assets | $159,206 | $157,302 | | Net Loans | $95,111 | $95,114 | | Total Deposits | $130,919 | $127,603 | | Total Liabilities | $140,500 | $139,392 | | Total Shareholders' Equity | $18,666 | $17,879 | Consolidated Statements of Income For Q2 2025, net income increased to $563 million from $501 million in Q2 2024, with diluted EPS rising to $0.59 from $0.52, driven by a 6.2% increase in net interest income and a significant rise in non-interest income, partially offset by higher non-interest expenses, leading to a six-month net income of $1.05 billion Key Income Statement Data (in millions, except per share data) | Metric | Q2 2025 | Q2 2024 | 6 Months 2025 | 6 Months 2024 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $1,259 | $1,186 | $2,453 | $2,370 | | Provision for Credit Losses | $126 | $102 | $250 | $254 | | Non-interest Income | $646 | $545 | $1,236 | $1,108 | | Non-interest Expense | $1,073 | $1,004 | $2,112 | $2,135 | | Net Income | $563 | $501 | $1,053 | $869 | | Diluted EPS | $0.59 | $0.52 | $1.10 | $0.89 | Consolidated Statements of Cash Flows For the six months ended June 30, 2025, net cash from operating activities significantly increased to $1.64 billion, while net cash used in investing activities was $1.98 billion, and net cash from financing activities was $806 million, resulting in a $463 million increase in cash and cash equivalents Six Months Ended June 30 Cash Flow Summary (in millions) | Activity | 2025 | 2024 | | :--- | :--- | :--- | | Net cash from operating activities | $1,639 | $557 | | Net cash from investing activities | $(1,982) | $(262) | | Net cash from financing activities | $806 | $1,383 | | Net change in cash and cash equivalents | $463 | $1,678 | Notes to Consolidated Financial Statements The notes detail accounting policies, including the reclassification of $2.0 billion in debt securities to held-to-maturity, stable loan portfolios with compositional shifts, consistent allowance for credit losses, redemption of $350 million Series D preferred stock, ongoing common stock repurchases, and income growth across Corporate Bank, Consumer Bank, and Wealth Management segments Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes strong Q2 2025 performance to higher net interest income and robust non-interest income, with a stable loan portfolio, a steady allowance for credit losses at 1.80%, a strong capital position with an estimated CET1 ratio of 10.8%, and robust liquidity sources of $64.8 billion Second Quarter Overview In Q2 2025, Regions reported net income available to common shareholders of $534 million, or $0.59 per diluted share, up from $477 million, or $0.52 per share, in Q2 2024, driven by increases in net interest income and non-interest income, despite a rise in the provision for credit losses, maintaining a strong capital position with an estimated CET1 ratio of 10.8% Q2 2025 Financial Highlights vs. Q2 2024 | Metric | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Net Income to Common Shareholders | $534 million | $477 million | | Diluted EPS | $0.59 | $0.52 | | Net Interest Income (Taxable-Equivalent) | $1.3 billion | $1.2 billion (approx.) | | Provision for Credit Losses | $126 million | $102 million | | Non-Interest Income | $646 million | $545 million | | Non-Interest Expense | $1.1 billion | $1.0 billion | Balance Sheet Analysis Total assets grew to $159.2 billion at June 30, 2025, funded by a $3.3 billion increase in deposits to $130.9 billion, while the loan portfolio remained stable at $96.7 billion with growth in investor real estate loans offsetting declines in commercial and consumer loans, and the debt securities portfolio increased by $1.7 billion to $32.3 billion - The company reclassified $2.0 billion of debt securities from available-for-sale to held-to-maturity in the first half of 2025 to reduce AOCI volatility in preparation for expected regulatory changes[235] - Total loans remained flat since year-end 2024, as a decline in commercial loans (due to low utilization) and most consumer loans was offset by a $388 million increase in investor real estate loans[241][251] - Total deposits increased by $3.3 billion from year-end 2024, reflecting customer growth and a preference for liquidity, with the mix of non-interest-bearing deposits remaining stable at approximately 31% of total deposits[307] Credit Quality and Allowance for Credit Losses Overall asset quality improved in Q2 2025, with non-performing loans decreasing by $136 million to $792 million, while the allowance for credit losses (ACL) remained stable at $1.7 billion, representing 1.80% of total loans, reflecting a balance between a deteriorating economic forecast and improved credit metrics Allowance for Credit Losses Metrics | Metric | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Allowance for Credit Losses | $1,743 million | $1,729 million | | ACL to Total Loans | 1.80% | 1.79% | | Total Non-Performing Loans | $792 million | $928 million | | NPLs to Total Loans | 0.82% | 0.96% | - The June 2025 baseline economic forecast, used for the ACL calculation, reflected deterioration across most key variables compared to March, which increased the allowance, but this was offset by improved credit metrics and reduced qualitative adjustments[280][288][290] - Portfolios identified as being under higher risk ('portfolios of interest') include business offices and trucking, with the office portfolio having $213 million in non-performing loans and the trucking portfolio having $114 million[261][262][263] Results of Operations For Q2 2025, net interest income (taxable-equivalent) increased to $1.3 billion with a net interest margin of 3.65%, up 14 basis points year-over-year, driven by asset repricing and lower funding costs, while non-interest income rose 18.5% to $646 million, and non-interest expense increased 6.9% to $1.1 billion - Net interest income and margin increased in Q2 2025 vs Q2 2024 due to the replacement of fixed-rate assets in a higher rate environment and effective management of deposit costs[337] - Capital markets income grew 22.1% in Q2 2025 year-over-year, driven by higher loan syndication revenue, commercial swap income, and merger and acquisition fees[393] - Mortgage income increased 41.2% in Q2 2025 year-over-year, primarily due to favorable mortgage servicing rights (MSR) valuation adjustments[394] - Salaries and employee benefits expense rose 8.0% in Q2 2025 year-over-year due to merit increases, higher production-based incentives, and increased medical expenses[399] - FDIC insurance assessments decreased by 31.0% in Q2 2025 year-over-year, primarily due to updates to the special assessment related to 2023 bank failures and a lower base assessment[400] Capital and Liquidity The company maintained a strong capital position with an estimated Common Equity Tier 1 (CET1) ratio of 10.8% at June 30, 2025, well above the 7.0% minimum requirement, supported by robust total liquidity sources of $64.8 billion, including $7.9 billion in cash at the Federal Reserve and $25.3 billion in unencumbered securities Regulatory Capital Ratios (Estimated) | Ratio | June 30, 2025 | Minimum Requirement + SCB | | :--- | :--- | :--- | | CET1 Ratio | 10.76% | 7.00% | | Tier 1 Capital Ratio | 11.85% | 8.50% | | Total Capital Ratio | 13.73% | 10.50% | Liquidity Sources (in billions) | Source | Availability as of June 30, 2025 | | :--- | :--- | | Cash at the Federal Reserve Bank | $7.9 | | Unencumbered investment securities | $25.3 | | FHLB borrowing availability | $11.0 | | Federal Reserve Bank borrowing availability | $20.6 | | Total liquidity sources | $64.8 | Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk, with a mostly neutral net interest income profile to parallel yield curve shifts as of June 30, 2025, estimating a $49 million increase in net interest income for a gradual 100 basis point rate increase and a $56 million decrease for a 100 basis point rate decrease Interest Rate Sensitivity (Estimated Annual Change in NII) | Scenario (Gradual Change) | Impact (in millions) | | :--- | :--- | | +200 basis points | $97 | | +100 basis points | $49 | | -100 basis points | $(56) | | -200 basis points | $(99) | - The company's balance sheet is naturally asset sensitive, but discretionary strategies using the investment portfolio and derivative hedges are employed to mitigate this, resulting in a mostly neutral asset/liability position as of June 30, 2025[342][343] Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of June 30, 2025, with no material changes to internal control over financial reporting during the second quarter of 2025 - The CEO and CFO concluded that the company's disclosure controls and procedures are effective as of the end of the reporting period[409] - No material changes were made to the internal control over financial reporting during the quarter ended June 30, 2025[410] Part II. Other Information Legal Proceedings The company is routinely subject to legal and regulatory proceedings, but management believes the outcomes of pending matters will not materially affect the consolidated financial position or results of operations, with aggregate reasonably possible losses in excess of accruals estimated to be immaterial - Management is of the opinion that the outcomes of pending and threatened legal matters will not have a material effect on Regions' business or consolidated financial position[211] Risk Factors No material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2024, are reported - No material changes to risk factors from the 2024 Annual Report on Form 10-K are reported[412] Unregistered Sales of Equity Securities and Use of Proceeds During Q2 2025, Regions repurchased approximately 6.7 million shares of its common stock at an average price of $21.44 per share, with approximately $1.5 billion remaining available for repurchase under the authorized plan through Q4 2025 Q2 2025 Share Repurchases | Metric | Value | | :--- | :--- | | Total Shares Purchased | 6,689,090 | | Average Price Paid per Share | $21.44 | | Remaining Authorization (as of June 30, 2025) | ~$1.51 billion |