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Text: We appreciate you joining our call today.
We're very pleased with our performance this quarter as we achieved earnings of $624 million, resulting in earnings per share of $0.65.
Adjusted pre-tax pre-provision income increased 4% sequentially.
And we generated year-to-date positive operating leverage.
Our ability to keep the momentum going and deliver solid third quarter results comes from three primary factors.
First, we continue to benefit from our growing footprint.
Unemployment levels are improving.
And most of our markets are well below the national level.
People and businesses are continuing to move into our 15 state footprint and that bodes well for our growth prospects for the remainder of the year and into 2022.
We'll continue to make strategic investments in core and growth markets where we can grow new customers and deepen existing relationships.
On that note, we're also pleased to share that year-to-date net account growth has exceeded account growth for the preceding three years combined.
Second, credit quality has demonstrated incredible resiliency and continues to exceed our expectations.
Businesses across all industries have found ways to adapt and prosper despite ongoing supply chain and labor issues.
And consumers continue to cautiously manage their finances.
Overall, we feel very good about the health of our business and consumer customers.
Third, we continue to take advantage of opportunities to invest in talent, technology and capabilities to support growth.
For instance, earlier this month, we closed on our acquisition of EnerBank, a leading home improvement point-of-sale lender, a key part of our strategy to serve as a premier lender to homeowners.
We also entered into an agreement to acquire Sabal Capital Partners.
Sabal has a strong reputation and proprietary technology platform that will expand our real estate capital markets' capabilities.
Once the transition is complete, we expect to be a Top 5 bank agency producer.
The EnerBank and Sabal acquisitions complemented our existing portfolio of products and capabilities in the consumer and corporate bank.
We will continue to evaluate prudent, non-bank M&A opportunities that will allow us to expand our products and services and enhance our relevancy with our customers.
Also, we recently launched our Bank On-certified Now Checking' Account.
This new product has all the benefits of a traditional checking account without the concern of overdraft fees.
And finally, our investments in digital and data are positioning us for growth.
Through a technology-enabled seamless experience in branches and across all platforms, customers are responding to the personalized service, advice and guidance they receive from Regions.
Today, more than two-thirds of our customer transactions are digital.
Further, over the last two years, active mobile banking users are up 23% and notably, Zelle transactions have more than tripled.
We feel really good about our progress and momentum.
We operate in some of the best markets in the country, have a solid strategic plan, an outstanding team, and the experience to compete effectively.
We focus everyday on delivering products and services that are valued by our customers, while continuing to support our communities and provide an appropriate return to our shareholders.
Now, David will provide you with some details regarding the quarter.
Let's start with the balance sheet.
Adjusted average and ending loans increased approximately 1% during the quarter.
Although business loans continue to be impacted by low utilization rates and excess liquidity, pipelines have surpassed pre-pandemic levels.
In addition, production remained strong with a line of credit commitments increasing $2 billion year-to-date.
Consumer loans reflected another strong quarter of mortgage production, accompanied by modest growth in credit card.
However, consumer loans remain negatively impacted by exit portfolios and further paydowns 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, we are not including any impacts from our EnerBank acquisition, which closed on October 1 and resulted in the addition of $3.1 billion in loan balances that will benefit the fourth quarter and beyond.
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 are also producing strong new account growth.
We are continuing to analyze probable future deposit behavior.
And based on analysis of pandemic-related deposit inflow characteristics, we currently believe approximately 30% or $10 billion to $12 billion of deposit increases can be used to support longer-term growth through the rate cycle.
Additional portions of the deposit increases could persist on the balance sheet, but are likely to be more rate sensitive.
Let's shift to net interest income and margin.
Pandemic-related items continue to impact net interest income and margin.
Net interest income from PPP loans decreased $12 million from the prior quarter, but is expected to pick up in the fourth quarter.
Cash averaged $25 billion during the quarter and when combined with PPP, reduced third quarter reported margin by 54 basis points.
Excluding excess cash and PPP, net interest income grew almost 1.5% linked quarter, and our adjusted margin was essentially stable at 3.30%.
This reflects strengthening loan growth as well as active balance sheet management efforts despite a near zero short-term rate environment.
Similar to prior quarters, the impact on NII from historically low long-term interest rates was completely offset by balance sheet management strategies, lower deposit costs and higher hedging income.
During the third quarter, we repositioned an additional $5 billion of receive-fixed swaps.
We shortened the maturities from 2026 to late 2022.
The repositioning locked in the associated gains that will be amortized over the remaining life of the interest rate swaps and will allow for more NII expansion when rates are projected to increase.
Further, with the inclusion of EnerBank's fixed-rate loan portfolio, less hedges will be needed to protect NII and the net interest margin profile from falling rates.
The cumulative value created from our hedging program is approximately $1.6 billion.
Roughly 75% of that amount has either been recognized or is locked into future earnings from hedge terminations reflecting the dynamic management of our hedging strategy.
Excluding EnerBank and PPP, adjusted net interest income should be relatively stable in the fourth quarter, after excluding the non-recurring interest recovery in the third quarter.
Including PPP and the EnerBank acquisition, linked quarter net interest income is expected to grow between 5% and 6% in the fourth quarter.
As illustrated on the slide, over a longer horizon, a strengthening economy, the ability to benefit from higher rates, and organic and strategic balance sheet growth are expected to ultimately drive net interest income growth.
Now, let's take a look at fee revenue and expense.
Adjusted non-interest income increased 8% from the prior quarter, primarily attributable to strong capital markets' activity, including record loan syndication revenue and solid M&A advisory fees.
We expect capital markets to remain strong in the fourth quarter, generating revenue in the $60 million to $70 million range, excluding the impact of CVA and DVA.
We will provide more specificity regarding 2022 expectations in January.
Other non-interest income also increased during the quarter, due to an increase in the value of certain equity investments as well as increased gains associated with the sale of certain small dollar equipment loans and leases.
Mortgage income decreased quarter-over-quarter, primarily due to mortgage servicing rights, valuation adjustments, partially offset by improved secondary market gains.
Service charges remained relatively stable, compared to the prior quarter.
And we continue to expect they will remain 10% to 15% below pre-pandemic levels.
We attribute the decline to changes in customer behavior as well as customer benefits from enhancements to our overdraft practices, including transaction posting order.
Card and ATM fees remained stable compared to the second quarter.
Debit and credit card spend remain above pre-pandemic levels as we continue to benefit from elevated account growth and increased economic activity in our footprint.
Given the timing of interest rate declines in 2020 and excluding the fourth quarter benefit from our EnerBank acquisition, we expect 2021 adjusted total revenue to be up modestly compared to the prior year, but this will ultimately be dependent on the timing and amount of PPP loan forgiveness.
Let's move onto non-interest expense.
Adjusted non-interest expenses increased 3% in the quarter, as higher salary and benefits and professional and legal fees were offset by decline in marketing expenses.
Salaries and benefits increased 4%, primarily due to higher variable-based compensation associated with elevated fee income as well as one additional day in the third quarter.
Associate headcount also increased by 149 positions during the quarter with the vast majority of those within revenue producing businesses.
Further, exceptional performance, particularly in credit, is also contributing to higher incentive compensation.
We will continue to prudently manage expenses, while investing in technology, products and people to grow our business.
Excluding approximately $35 million of core run rate expenses associated with our fourth quarter EnerBank acquisition, we expect adjusted non-interest expenses to be up modestly compared to 2020, and we remain committed to generating positive operating leverage over time.
From an asset quality standpoint, we delivered an exceptionally strong quarter as overall credit continues to perform better than expected, reflecting continued broad-based improvement across virtually all portfolios and continued recoveries associated with strong collateral asset values.
Annualized net charge-offs decreased 9 basis points during the quarter to 14 basis points, representing the company's lowest level on record post our 2006 merger of equals.
In addition to lower charge-offs, non-performing loans and business services criticized loans also improved, while total delinquencies remain unchanged during the quarter.
Our allowance for credit losses declined 20 basis points to 1.8% of total loans and 283% of total non-accrual loans.
Excluding PPP loans, our allowance for credit losses was 1.83%.
The decline in the allowance reflects better-than-expected credit trends and the continued constructive outlook on the economy.
The allowance reduction resulted in a $155 million benefit to the provision.
Future levels of the allowance will depend on the timing of charge-offs, greater certainty with respect to the resolution of remaining risk to credit losses as well as the integration of EnerBank.
Year-to-date net charge-offs are 25 basis points, and we expect full-year 2021 net charge-offs to approximate at same level, which includes the impact of EnerBank and excludes the benefit of any future recoveries that may occur.
With respect to capital, our common equity Tier 1 ratio increased approximately 40 basis points to an estimated 10.8% this quarter.
As previously noted, we continue to prioritize the utilization of our capital for organic growth and non-bank acquisitions like the EnerBank and Sabal that propel future growth.
Beyond that, we use share repurchases to manage our capital levels.
Share repurchases were temporarily paused ahead of the EnerBank closing, which absorbed approximately $1 billion of capital in the fourth quarter.
We anticipate being back in the repurchase market this quarter and expect to manage common equity Tier 1 to the midpoint of our 9.25% to 9.75% operating range by year-end.
So wrapping up on the next slide, our 2021 expectations, which we've already addressed.
In summary, we are very pleased with our third quarter results and are poised for growth as the economic recovery continues.
Pre-tax, pre-provision income remain strong; expenses are well controlled; credit quality is outperforming expectations; capital and liquidity are solid; and we are optimistic about the pace of the economic recovery in our markets.

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compname reports q3 earnings per share of $0.65.
q3 earnings per share $0.65.
qtrly average loans and leases decreased 1 percent compared to prior quarter.

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