Regions reports record 2018 earnings from continuing operations of $1.5 billion, up 28 percent over the prior year, and strong earnings per share of $1.36, up 39 percent

Regions Financial Corporation (NYSE:RF) today announced earnings for the
fourth quarter and full year ended December 31, 2018. For the fourth
quarter, the company reported net income available to common
shareholders from continuing operations of $390 million, a 28 percent
increase compared to the fourth quarter of 2017. Earnings per diluted
share from continuing operations were $0.37, a 42 percent increase. For
the full year of 2018, the company reported record net income available
to common shareholders from continuing operations of $1.5 billion, a 28
percent increase over the prior year, and strong earnings per diluted
share from continuing operations of $1.36, a 39 percent increase.
Pre-tax pre-provision income increased 9 percent over the prior year,
generating approximately 1.5 percent in positive operating leverage.
Adjusted pre-tax pre-provision income(1) was at its highest
level since 2007, increasing 12 percent over the prior year, generating
approximately 3.6 percent in positive operating leverage on an adjusted
basis(1).

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Full-year 2018 net income available to common shareholders was $1.7
billion, a 41 percent increase over the prior year. Earnings per diluted
share were $1.54, a 54 percent increase. Total net income available to
common shareholders includes an after-tax gain of $196 million
associated with the sale of Regions Insurance reflected within
discontinued operations.

“This year we delivered high-quality growth in loans, non-interest
income and households while also building a more efficient and effective
company,” said John Turner, President and CEO. “Our team finished the
year strong achieving record full-year earnings driven by solid revenue
generation, expense management and a focus on continuous improvement.
Through our Simplify and Grow initiative, we made structural changes to
create a more nimble organization while making strategic investments in
talent and technology to better serve our customers. We have positive
momentum heading into 2019 and are well-positioned to generate
consistent and sustainable long-term performance across economic cycles.”

SUMMARY OF FULL YEAR 2018 RESULTS:

shareholders (A) – (B)

* 2018 discontinued operations includes a $196 million after-tax gain
associated with the sale of Regions Insurance.

Full year 2018 results compared to full year
2017:

SUMMARY OF FOURTH QUARTER 2018 RESULTS:

shareholders (A) – (B)

* 3Q18 discontinued operations includes a $196 million after-tax gain
associated with the sale of Regions Insurance.

Fourth quarter 2018 results compared to third
quarter 2018:

Fourth quarter 2018 results compared to fourth
quarter 2017:

Selected items impacting earnings from
continuing operations:

* Based on income taxes at an approximate 25% incremental rate beginning
in 2018, and 38.5% for all prior periods. Tax rates associated with
leveraged lease terminations are incrementally higher based on their
structure.

Regions continues to focus on increasing organizational efficiency and
effectiveness. Recent actions include streamlining its structure and
refining its branch network while making investments in new
technologies, delivery channels and other drivers of growth. The company
incurred $7 million of severance expense during the fourth quarter, as
well as $3 million of expenses associated with branch consolidation,
property and equipment charges.

Total revenue from continuing operations

 

NM – Not Meaningful

* Changes in corporate income tax rates effective in 2018 resulted in a
decrease to the taxable equivalent adjustment.

** These market value adjustments relate to assets held for employee
benefits that are offset within salaries and employee benefits expense.

Comparison of fourth quarter 2018 to third quarter
2018

Total revenue of approximately $1.4 billion in the fourth quarter
decreased approximately 2 percent on a reported basis and 1 percent on
an adjusted basis(1) compared to the prior quarter.

Net interest income and other financing income increased $16 million or
2 percent over the prior quarter and net interest margin rose 5 basis
points to 3.55 percent. Net interest margin and net interest income and
other financing income benefited from higher interest rates partially
offset by higher funding costs. Net interest income and other financing
income also benefited from higher average loan balances.

Non-interest income decreased $38 million or 7 percent on a reported
basis, and $34 million or 7 percent on an adjusted basis(1),
as increases in service charges and capital markets income were
offset by decreases in market value adjustments on employee benefit
assets, bank-owned life insurance, mortgage and other non-interest
income.

Capital markets income increased 11 percent primarily attributable to
higher loan syndication income, fees generated from the placement of
permanent financing for real estate customers, and merger and
acquisition advisory services partially offset by lower customer
interest rate swap income. Swap income declined approximately $6 million
due to negative market value adjustments at year-end.

Market volatility in the fourth quarter also drove significant valuation
declines in assets held for employee benefits and negatively impacted
bank-owned life insurance income. Market value adjustments on total
employee benefit assets decreased $22 million, and bank-owned life
insurance income decreased $6 million.

Mortgage income decreased 6 percent primarily due to seasonally lower
production and sales revenue, partially offset by higher hedging and
valuation adjustments on residential mortgage servicing rights and an
increase in servicing income. During the quarter, the company also
completed the purchase of rights to service approximately $2.7 billion
of additional residential mortgage loans.

The decrease in other non-interest income was attributable primarily to
a net $3 million decline in the value of certain equity investments in
the fourth quarter compared to a net $8 million increase in the third
quarter. In addition, $4 million of third quarter leveraged lease
termination gains did not repeat.

Comparison of fourth quarter 2018 to fourth
quarter 2017

Total revenue increased 2 percent on a reported and adjusted basis(1)
compared to the fourth quarter of 2017.

Net interest income and other financing income increased 6 percent, and
net interest margin increased 18 basis points. On an adjusted basis(1),
net interest income and other financing income increased 6 percent and
net interest margin increased 16 basis points. Net interest margin and
net interest income and other financing income benefited primarily from
higher interest rates partially offset by higher funding costs, as well
as a mix shift within the consumer loan portfolio into higher yielding
products. Net interest income and other financing income also benefited
from higher average loan balances.

Non-interest income decreased 7 percent on a reported basis and 5
percent on an adjusted basis(1) as growth in service charges,
card and ATM fees, and wealth management income was offset by decreases
in market value adjustments on employee benefit assets, capital markets,
mortgage, bank-owned life insurance and other non-interest income.

Service charges income increased 8 percent reflecting continued customer
account growth, and card and ATM fees increased 5 percent primarily due
to higher interchange revenue associated with increased transactions and
new account growth. Wealth management income increased 5 percent led by
growth in investment services income.

Market volatility in the current quarter drove significant valuation
declines in assets held for employee benefits and negatively impacted
bank-owned life insurance income. Market value adjustments on total
employee benefit assets decreased $21 million, and bank-owned life
insurance income decreased $8 million.

Capital markets income decreased 11 percent reflecting lower merger and
acquisition advisory services, fees generated from the placement of
permanent financing for real estate customers, and customer interest
rate swap income. Mortgage income decreased 17 percent attributable
primarily to lower secondary marketing gains and lower production.

Non-interest expense from continuing
operations

NM – Not Meaningful

Comparison of fourth quarter 2018 to third quarter
2018

Non-interest expense decreased 7 percent compared to the third quarter
due primarily to a $60 million contribution to the Regions Financial
Corporation Foundation during the prior quarter reflected in other
non-interest expense. On an adjusted basis(1), non-interest
expense decreased 1 percent primarily due to a reduction in salaries and
benefits, professional fees, and FDIC insurance assessments. These
reductions were partially offset by increases in occupancy expense.

Salaries and benefits decreased 1 percent reflecting the benefit of
staffing reductions. This decline was partially offset by one additional
workday in the fourth quarter and an increase in incentive-based
compensation. Professional fees decreased 16 percent attributable to
lower legal fees, and FDIC insurance assessments decreased 36 percent
reflecting the discontinuation of the FDIC’s surcharge. Occupancy
expense increased 5 percent attributable to storm-related charges
associated with Hurricane Michael.

The company’s reported fourth quarter efficiency ratio was 58.7 percent
and 58.1 percent on an adjusted basis(1). The fourth quarter
effective tax rate was approximately 17 percent reflecting beneficial
adjustments for certain state tax matters and retrospective tax
accounting method changes finalized in the quarter. The effective tax
rate was approximately 20 percent for the full-year 2018.

Comparison of fourth quarter 2018 to fourth
quarter 2017

Non-interest expense decreased 7 percent compared to the fourth quarter
of the prior year primarily due to a $40 million contribution to the
Regions Financial Corporation Foundation during the prior year reflected
in other non-interest expense. On an adjusted basis(1), non-interest
expense decreased 3 percent primarily due to lower salaries and
benefits, FDIC insurance, and Visa class B shares expense, partially
offset by increases in occupancy, professional fees, and provision for
unfunded credit losses.

Salaries and benefits decreased 2 percent compared to the fourth quarter
of the prior year, and 3 percent excluding the impact of severance
charges, reflecting the impact of staffing reductions. This decline was
partially offset by one additional workday in the current year quarter
and an increase in incentive-based compensation. Staffing levels
declined by 1,045 full-time equivalent positions or 5 percent from the
fourth quarter of the prior year.

Loans and Leases

NM – Not meaningful.

* 2018 average residential first mortgage balances include the impact of
a $254 million loan sale during the first quarter of 2018.

Comparison of fourth quarter 2018 to third quarter
2018

Average loans and leases increased 1 percent to $81.9 billion in the
fourth quarter. Adjusted(1) average loans and leases
increased 1 percent reflecting broad-based growth across the business
and consumer lending portfolios.

Average balances in the business lending portfolio increased 2 percent.
Growth in commercial and industrial loans was broad-based across the
corporate and middle market portfolios, driven by specialized lending,
government and institutional banking, and real-estate investment trust
portfolios. Owner-occupied commercial real estate loans decreased
modestly, while investor real estate loans increased 3 percent driven by
growth in term lending primarily within the office and industrial
property types.

Adjusted(1) average consumer loans increased 1 percent with
growth led by a 12 percent increase in indirect-other consumer, a 2
percent increase in consumer credit card, and a modest increase in
residential first mortgage loans partially offset by a 2 percent decline
in home equity lending.

Comparison of fourth quarter 2018 to fourth
quarter 2017

Average loans and leases increased 3 percent compared to the fourth
quarter of 2017, and adjusted(1) average loans increased 4
percent.

Average balances in the business lending portfolio increased 5 percent
as growth in commercial and industrial loans was partially offset by a
decline in owner-occupied commercial real estate loans. Investor real
estate loans increased 3 percent driven primarily by growth in term
lending.

Adjusted(1) average consumer balances increased 3 percent as
growth in indirect-other consumer, residential first mortgage,
indirect-vehicle, consumer credit card, and other consumer loans was
partially offset by declines in home equity lending.

Deposits

Comparison of fourth quarter 2018 to third quarter
2018

Total average deposit balances decreased less than 1 percent to $93.2
billion in the fourth quarter.

Average deposits in the Consumer segment decreased $318 million or 1
percent and Corporate segment average deposits decreased $240 million or
1 percent. Average deposits declined approximately 3 percent in the
Wealth Management segment and included the impact of ongoing strategic
reductions of certain collateralized deposits. Average deposits in the
Other segment also decreased modestly.

Comparison of fourth quarter 2018 to fourth
quarter 2017

Total average deposit balances decreased 4 percent from the prior year
as growth in average Consumer segment deposits was offset by strategic
reductions in Wealth Management and Other segment deposits. In addition,
Corporate segment deposits decreased $2.0 billion or 7 percent primarily
due to customers using liquidity to pay down debt or invest in their
businesses.

Asset quality

* Excludes guaranteed residential first mortgages that are 90+ days past
due and still accruing.

** Business services represents the combined total of commercial and
investor real estate loans.

Comparison of fourth quarter 2018 to third quarter
2018

Overall asset quality reflected seasonality during the fourth quarter.
Total non-performing, criticized and troubled debt restructured loans
all declined, while net charge-offs and delinquencies increased. Total
non-performing loans, excluding loans held for sale, decreased to 0.60
percent of loans outstanding, the lowest level since 2007. Business
services criticized and total troubled debt restructured loans decreased
5 percent and 14 percent, respectively.

Annualized net charge-offs increased 6 basis points to 0.46 percent of
average loans. The provision for loan losses approximated net
charge-offs, and the resulting allowance for loan and lease losses
totaled 1.01 percent of total loans outstanding and 169 percent of total
non-accrual loans. Delinquent loans 90 days or more past due also
increased modestly. Overall asset quality remains within our stated risk
appetite, and volatility in certain credit metrics can be expected.

Comparison of fourth quarter 2018 to fourth
quarter 2017

Annualized net charge-offs increased 15 basis points compared to the
fourth quarter of 2017, while the allowance for loan and lease losses as
a percent of total loans decreased 16 basis points. Total non-performing
loans, excluding loans held for sale, decreased 24 percent and total
business services criticized loans decreased 22 percent, including a 32
percent decline in classified loans. In addition, total troubled debt
restructured loans, excluding loans held for sale, decreased 36 percent.

Capital and liquidity

Under the Basel III capital rules, Regions’ estimated capital ratios
remain well above current regulatory requirements. The Tier 1(2)
and Common Equity Tier 1(2) ratios were estimated at 10.7
percent and 9.9 percent, respectively, at quarter-end under the phase-in
provisions. In addition, the Common Equity Tier 1 ratio(1)(2)
was estimated at 9.8 percent on a fully phased-in basis.

During the fourth quarter, the company repurchased 22.0 million shares
of common stock for a total of $370 million through open market
purchases and declared $144 million in dividends to common shareholders.
On October 24, 2018, the Company’s accelerated share repurchase
agreement closed and final settlement resulted in an additional delivery
of 8.75 million shares of common stock on October 29, 2018, bringing the
total shares repurchased under the agreement to 37.8 million. The
company’s loan-to-deposit ratio at the end of the quarter was 88
percent, and as of quarter-end, the company remained fully compliant
with the liquidity coverage ratio rule.

(1) Non-GAAP, refer to pages 8, 12, 13, 18, 24, 25 and 28 of the
financial supplement to this earnings release

(2) Current quarter Basel III common equity Tier 1, and Tier 1 capital
ratios are estimated.

Conference Call

A replay of the earnings call will be available beginning Friday,
January 18, 2019, at 2 p.m. ET through Monday, February 18, 2019. To
listen by telephone, please dial 1-855-859-2056, and use access code
6691007. An archived webcast will also be available on the Investor
Relations page of www.regions.com.

About Regions Financial Corporation

Regions Financial Corporation (NYSE:RF), with $126 billion in assets, is
a member of the S&P 500 Index and is one of the nation’s largest
full-service providers of consumer and commercial banking, wealth
management, and mortgage products and services. Regions serves customers
across the South, Midwest and Texas, and through its subsidiary, Regions
Bank, operates approximately 1,500 banking offices and 2,000 ATMs.
Additional information about Regions and its full line of products and
services can be found at www.regions.com.

Forward-Looking Statements

This release may include forward-looking statements as defined in the
Private Securities Litigation Reform Act of 1995, which reflect Regions’
current views with respect to future events and financial performance.
Forward-looking statements are not based on historical information, but
rather are related to future operations, strategies, financial results
or other developments. Forward-looking statements are based on
management’s current expectations as well as certain assumptions and
estimates made by, and information available to, management at the time
the statements are made. Those statements are based on general
assumptions and are subject to various risks, and because they also
relate to the future they are likewise subject to inherent uncertainties
and other factors that may cause actual results to differ materially
from the views, beliefs and projections expressed in such statements.
Therefore, we caution you against relying on any of these
forward-looking statements. These risks, uncertainties and other factors
include, but are not limited to, those described below:

The foregoing list of factors is not exhaustive. For discussion of these
and other factors that may cause actual results to differ from
expectations, look under the captions “Forward-Looking Statements” and
“Risk Factors” of Regions’ Annual Report on Form 10-K for the year ended
December 31, 2017 as filed with the SEC.

The words “future,” “anticipates,” “assumes,” “intends,” “plans,”
“seeks,” “believes,” “predicts,” “potential,” “objectives,” “estimates,”
“expects,” “targets,” “projects,” “outlook,” “forecast,” “would,”
“will,” “may,” “might,” “could,” “should,” “can,” and similar terms and
expressions often signify forward-looking statements. You should not
place undue reliance on any forward-looking statements, which speak only
as of the date made. Factors or events that could cause our actual
results to differ may emerge from time to time, and it is not possible
to predict all of them. We assume no obligation and do not intend to
update or revise any forward-looking statements that are made from time
to time, either as a result of future developments, new information or
otherwise, except as may be required by law.

Regions’ Investor Relations contact is Dana Nolan at (205) 264-7040;
Regions’ Media contact is Evelyn Mitchell at (205) 264-4551.

Use of non-GAAP financial measures

Management uses pre-tax pre-provision income (non-GAAP) and adjusted
pre-tax pre-provision income (non-GAAP), as well as the adjusted
efficiency ratio (non-GAAP) and the adjusted fee income ratio (non-GAAP)
to monitor performance and believes these measures provide meaningful
information to investors. Non-interest expense (GAAP) is presented
excluding certain adjustments to arrive at adjusted non-interest expense
(non-GAAP), which is the numerator for the efficiency ratio. Net
interest income and other financing income (GAAP) is presented excluding
certain adjustments related to tax reform to arrive at adjusted net
interest income and other financing income (non-GAAP). Non-interest
income (GAAP) is presented excluding certain adjustments to arrive at
adjusted non-interest income (non-GAAP), which is the numerator for the
fee income ratio. Adjusted non-interest income (non-GAAP) and adjusted
non-interest expense (non-GAAP) are used to determine adjusted pre-tax
pre-provision income (non-GAAP). Net interest income and other financing
income (GAAP) on a taxable-equivalent basis and non-interest income are
added together to arrive at total revenue on a taxable-equivalent basis.
Net interest income and other financing income on a taxable-equivalent
basis is presented excluding certain adjustments related to tax reform
to arrive at adjusted net interest income and other financing income on
a taxable-equivalent basis (non-GAAP). Adjustments are made to arrive at
adjusted total revenue on a taxable-equivalent basis (non-GAAP), which
is the denominator for the fee income and efficiency ratios. Regions
believes that the exclusion of these adjustments provides a meaningful
base for period-to-period comparisons, which management believes will
assist investors in analyzing the operating results of the Company and
predicting future performance. These non-GAAP financial measures are
also used by management to assess the performance of Regions’ business.
It is possible that the activities related to the adjustments may recur;
however, management does not consider the activities related to the
adjustments to be indications of ongoing operations. Regions believes
that presentation of these non-GAAP financial measures will permit
investors to assess the performance of the Company on the same basis as
that applied by management.

Tangible common stockholders’ equity ratios have become a focus of some
investors and management believes they may assist investors in analyzing
the capital position of the Company absent the effects of intangible
assets and preferred stock. Analysts and banking regulators have
assessed Regions’ capital adequacy using the tangible common
stockholders’ equity measure. Because tangible common stockholders’
equity is not formally defined by GAAP or prescribed in any amount by
federal banking regulations it is currently considered to be a non-GAAP
financial measure and other entities may calculate it differently than
Regions’ disclosed calculations. Since analysts and banking regulators
may assess Regions’ capital adequacy using tangible common stockholders’
equity, management believes that it is useful to provide investors the
ability to assess Regions’ capital adequacy on this same basis.

The calculation of the fully phased-in pro-forma “Common equity Tier 1”
(CET1) is based on Regions’ understanding of the Final Basel III
requirements. For Regions, the Basel III framework became effective on a
phased-in approach starting in 2015 with full implementation beginning
in 2019. The calculation includes estimated pro-forma amounts for the
ratio on a fully phased-in basis. Regions’ current understanding of the
final framework includes certain assumptions, including the Company’s
interpretation of the requirements, and informal feedback received
through the regulatory process. Regions’ understanding of the framework
is evolving and will likely change as analysis and discussions with
regulators continue. Because Regions is not currently subject to the
fully-phased in capital rules, this pro-forma measure is considered to
be a non-GAAP financial measure, and other entities may calculate it
differently from Regions’ disclosed calculation.

A company’s regulatory capital is often expressed as a percentage of
risk-weighted assets. Under the risk-based capital framework, a
company’s balance sheet assets and credit equivalent amounts of
off-balance sheet items are assigned to broad risk categories. The
aggregated dollar amount in each category is then multiplied by the
prescribed risk-weighted percentage. The resulting weighted values from
each of the categories are added together and this sum is the
risk-weighted assets total that, as adjusted, comprises the denominator
of certain risk-based capital ratios. CET1 capital is then divided by
this denominator (risk-weighted assets) to determine the CET1 capital
ratio. The amounts disclosed as risk-weighted assets are calculated
consistent with banking regulatory requirements on a fully phased-in
basis.

Non-GAAP financial measures have inherent limitations, are not required
to be uniformly applied and are not audited. Although these non-GAAP
financial measures are frequently used by stakeholders in the evaluation
of a company, they have limitations as analytical tools, and should not
be considered in isolation, or as a substitute for analyses of results
as reported under GAAP. In particular, a measure of earnings that
excludes selected items does not represent the amount that effectively
accrues directly to stockholders.

Management and the Board of Directors utilize non-GAAP measures as
follows:

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