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Text: John and David will provide high-level commentary regarding the quarter.
We appreciate you joining our call today.
We're very pleased with our fourth quarter and full-year results.
We achieved a great deal despite a challenging interest rate and operating environment.
Despite continued economic uncertainty, we remain focused on what we can control, and our efforts are paying off.
We grew consumer checking accounts by 3% and small business accounts by 5%.
Notably, our 2021 net retail account growth exceeds the previous three years combined and represents an annual growth rate that is three times higher than pre-pandemic levels.
We increased new corporate banking group loan production by approximately 30% and generated record capital markets revenue.
Through our enhanced risk management framework, we delivered our lowest annual net charge-off ratio since 2006.
We made investments in key talent and revenue-facing associates to support strategic growth initiatives.
We continue to grow and diversify revenue through our acquisitions of EnerBank, Sabal Capital Partners, and Clearsight Advisors.
We successfully executed our LIBOR transition program to ensure our clients are ready to move to alternative reference rates.
We continue to focus on making banking easier through investments in target markets, technology, and digital capabilities.
We surpassed our two-year $12 million commitment to advance programs and initiatives that promote racial equity and economic empowerment for communities of color.
Before closing, we're extremely proud of our achievements in 2021 but none of these would have been possible without the hard work and dedication of our nearly 20,000 associates.
The past year posed unique challenges as we continue to transition to our new normal, both on a personal and professional level.
Despite continued uncertainty, our associates remain steadfast.
They continue to bring their best to work every day, providing best-in-class customer service, successfully executing our strategic plan, and maintaining strong risk management practices, all of which contributed to our success.
In 2022 and beyond, we'll continue to focus on growing our business by making investments in areas that allow us to make banking easier for our customers, all while continuing to provide our associates with the tools they need to be successful.
We will make incremental adjustments to our business by leaning into our strengths and investing in areas where we believe we can consistently win over time.
These changes represent a natural extension of our commitment to making banking easier for our customers and complement the enhanced alerts, time order posting process, as well as our Bank On certified checking product we launched last year.
It's important to note that the financial impact of these enhancements have been fully incorporated in our total revenue expectation for 2022.
Again, we're pleased with our results and have great momentum as we head into 2022.
Now Dave will provide you with some select highlights regarding the quarter.
Let's start with the balance sheet.
Including the impact of acquired loans from the EnerBank transaction, adjusted average and ending loans grew 6% and 7%, respectively, during the quarter.
Although business loans continue to be impacted by excess liquidity, pipelines have surpassed pre-pandemic levels.
And encouragingly, we experienced a 240-basis-point increase in line utilization rates during the fourth quarter.
In addition, production remained strong with line of credit commitments increasing $4.7 billion year over year.
Consumer loans reflected the addition of $3 billion of acquired EnerBank loans, as well as another strong quarter of mortgage production accompanied by modest growth in credit card.
Looking forward, we expect full-year 2022 reported average loan balances to grow 4% to 5% compared to 2021.
Let's turn to deposits.
Although the pace of deposit growth has slowed, balances continued to increase this quarter to new record levels.
The increase includes the impact of EnerBank deposits acquired during the fourth quarter, as well as continued growth in new accounts and account balances.
We are continuing to analyze our deposit base and pandemic-related deposit inflow characteristics in order to predict future deposit behavior.
Based on this analysis, we currently believe approximately 35% or $12 billion to $14 billion of deposit increases can be used to support longer-term asset 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, especially later in the Fed cycle.
While we expect a portion of the surge deposits to be rate sensitive, you will recall that the granular nature and generally rate insensitive construct of our overall deposit base represents significant upside for us when rates do begin to increase.
Let's shift to net interest income and margin.
Net interest income increased 6% versus the prior quarter, driven primarily from our EnerBank acquisition, favorable PPP income, and organic balance sheet growth.
Net interest income from PPP loans increased $8 million from the prior quarter but will be less of a contributor going forward.
Approximately 89% of estimated PPP fees have been recognized.
Cash averaged $26 billion during the quarter.
And when combined with PPP reduced fourth quarter's reported margin by 51 basis points, our adjusted margin was 3.34%, modestly higher versus the third quarter.
Excluding the impact of a large third-quarter loan interest recovery, core net interest income was mostly stable as loan growth offset impacts from the low interest rate environment.
Similar to prior quarters, net interest income was reduced by lower reinvestment yields on fixed-rate loans and securities.
These impacts are expected to be more neutral to positive going forward.
The hedging program contributed meaningfully to net interest income in the fourth quarter.
The cumulative value created from our hedging program is approximately $1.5 billion.
Roughly 90% of that amount has either been recognized or is locked into future earnings from hedge terminations.
Excluding, PPP Net interest income is expected to grow modestly in the first quarter, aided by strong fourth-quarter ending loan growth, as well as continued loan growth in the first quarter, partially offset by day count.
Regions balance sheet is positioned to benefit meaningfully from higher interest rates.
Over the first 100 basis points of rate tightening, each 25-basis-point increase in the federal funds rate is projected to add between $60 million and $80 million over a full 12-month period.
This includes recent hedging changes and is supported by a large proportion of stable deposit funding and a significant amount of earning assets held in cash when compared to the industry.
Importantly, we continue to shorten the maturity profile of our hedges in the fourth quarter.
Hedging changes to date support increasing net interest income exposure to rising rates, positioning us well for higher rates in 2022 and beyond.
In summary, net interest income is poised for growth in 2022 through balance sheet growth and a higher yield curve in an expanding economy.
Now, let's take a look at fee revenue and expense.
Adjusted noninterest income decreased 5% from the prior quarter, primarily due to elevated other noninterest income in the third quarter but did not repeat in the fourth quarter.
Organic growth and the integration of Sabal Capital Partners and Clearsight Advisors will drive growth in capital markets revenue in 2022.
Going forward, we expect capital markets to generate quarterly revenue of $90 million to $110 million, excluding the impact of CVA and DVA.
Mortgage income remained relatively stable during the quarter.
And while we don't anticipate replicating this year's performance in 2022, mortgage is expected to remain a key contributor to fee revenue, particularly as the purchase market and our footprint remains very strong.
Wealth management income increased 5%, driven by stronger sales and market value impacts, and is expected to grow incrementally in 2022.
Seasonality drove an increase in service charges compared to the prior quarter.
Looking ahead, as announced yesterday, we are making changes to our NSF and overdraft practices, which along with previously implemented changes will further reduce these fees.
NSF and overdraft fees make up approximately 50% of our service charge line item.
These changes will be implemented throughout 2022.
But once fully rolled out, together with our previous changes implemented last year, we expect the annual impact to result in 20% to 30% lower service charges revenue versus 2019.
Based on our expectations around the implementation timeline, we estimate $50 million to $70 million will be reflected in 2022 results.
NSF and overdraft revenue has declined substantially over the last decade.
And once fully implemented, we expect the annual contribution from these fees will be approximately 50% lower than 2011 levels.
Since 2011, NSF and overdraft revenue has decreased approximately $175 million and debit interchange legislation reduced card and ATM fees another $180 million.
We have successfully offset these declines through expanded and diversified fee-based services.
And as a result, total noninterest income increased approximately $400 million over this same time period.
Through our ongoing investment in capabilities and services, we will continue to grow and diversify revenue to overcome the impact of these new policy changes.
We expect 2022 adjusted total revenue to be up 3.5% to 4.5% compared to the prior year, driven primarily by growth in net interest income.
This growth includes the impact of lower PPP-related revenue and the anticipated impact of NSF and overdraft changes.
Let's move on to noninterest expense.
Adjusted noninterest expenses increased 5% in the quarter.
Salaries and benefits increased 4%, primarily due to higher incentive compensation.
Base salaries also increased as we added approximately 660 new associates, primarily as a result of acquisitions that closed this quarter.
The increased headcount also reflects key hires to support strategic initiatives within other revenue-producing businesses.
We have experienced some inflationary pressures already and expect certain of those to persist in 2022.
If you exclude variable-based and incentive compensation associated with better-than-expected fee income and credit performance, as well as expenses related to our fourth quarter acquisitions, our 2021 adjusted core expenses remained relatively stable compared to the prior year.
We will continue to prudently manage expenses while investing in technology, products, and people to grow our business.
As a result, our core expense base will grow.
We expect 2022 adjusted noninterest expenses to be up 3% to 4% compared to 2021.
Importantly, this includes the full-year impact of recent acquisitions, as well as anticipated inflationary impacts.
Despite these impacts, we remain committed to generating positive adjusted operating leverage in 2022.
Overall credit performance remained strong.
Annualized net charge-offs increased 6 basis points from the third quarter's record low to 20 basis points driven in part by the addition of EnerBank in the fourth quarter.
Full-year net charge-offs totaled 24 basis points, the lowest level on record since 2006.
Nonperforming loans continued to improve during the quarter and are now below pre-pandemic levels at just 51 basis points of total loans.
Our allowance for credit losses remained relatively stable at 1.79% of total loans, while the allowance as a percentage of nonperforming loans increased 66 percentage points to 349%.
We expect credit losses to slowly begin to normalize in the back half of 2022 and currently expect full-year net charge-offs to be in the 25 to 35 basis point range.
With respect to capital, our common equity Tier 1 ratio decreased approximately 130 basis points to an estimated 9.5% this quarter.
During the fourth quarter, we closed on three acquisitions, which combined absorbed approximately $1.3 billion of capital.
Additionally, we repurchased $300 million of common stock during the quarter.
We expect to maintain our common equity Tier 1 ratio near the midpoint of our 9.25% to 9.75% operating range.
So, wrapping up on the next slide are our 2022 expectations, which we've already addressed.
In closing, the momentum we experienced in the fourth quarter positions us well for growth in 2022 as the economic recovery continues.
Pretax pre-provision income remains strong.
Expenses are well controlled.
Credit risk is relatively benign.
Capital and liquidity are solid, and we're optimistic about the pace of the economic recovery in our markets.

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record performance, accelerating growth.
qtrly average loans and leases increased 4 percent compared to prior quarter.

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