The headlines for Regions’ recent third-quarter financial report are in.
Solid earnings and economic recovery in our markets and improved credit quality has positioned the company for future growth – positive news that was particularly welcome after the challenging and unpredictable year banks experienced with the COVID-19 pandemic and resulting economic volatility.
Looking back on 2021 earnings performance and ahead to the future, Regions head of Financial Risk Management Martha Raber joins us to talk about Regions’ credit position – what that means and how it impacts the financial health of customers and the bank.
First, would you define asset quality and then elaborate on its importance to a bank’s financial health?
Loans are a critical component of a bank’s assets, but they also carry a certain amount of risk. Regions’ bankers and credit teams have rigorous processes in place to manage our loan portfolios and protect the bank and our customers. The most important step is client selectivity and then developing strong relationships with our customers and understanding their businesses and personal financial situations and needs. This knowledge helps the bank identify and then provide the products and services that are a good fit for each customer.
Regions also utilizes a variety of other analytical models and tools, as well as closely assessing macroeconomic conditions, industry and sector trends and portfolio performance, to ensure our investments reflect smart business practices.
In Regions’ third-quarter earnings report, one of the highlights was the charge-off percentage. Would you explain why that’s important?
If a loan is delinquent and deemed uncollectible – like if a business goes bankrupt, for example – banks charge it off and it’s removed from our balance sheet. It doesn’t necessarily mean the borrower is off the hook, as we will continue to work toward a recovery, but it’s no longer on our active “bad loan” list.
In the third quarter of 2021, Regions reported that the net charge-off ratio improved 9 basis points quarter over quarter to 0.14%, the lowest level on record since the company’s 2006 merger. Fewer charge offs indicate that our credit quality has improved and that reflects overall better financial health for the bank. It’s also a good indicator that our customers and communities are thriving, and our economy is becoming more robust.
Last year, the economic forecast was grim. Can you talk briefly about how Regions assisted customers during that difficult time while also protecting the bank from financial risk?
I mentioned earlier the importance of strong relationships with our customers. Because we know and understand their operations and financial needs, we were quickly able to assess risks and opportunities, and provide solutions for customers. Among those solutions were payment deferrals and loan forbearances. Regions provided loan assistance to approximately 40,000 customers, which resulted in more than $5 billion in deferral at the highest point of the pandemic.
Regions also funded $6.7 billion in Paycheck Protection Program loans to assist small businesses through the pandemic. These loans provided financial support to companies allowing them the opportunity to ‘right size’ their balance sheets and income statements impacted by the COVID-19 virus.
The COVID-19 Delta variant is still a wild card but based on what you know now, what’s your forecast for the remainder of the year and into 2022 as it relates to Regions’ credit story?
COVID-19 case numbers and hospitalizations are decreasing, thankfully, and the economic outlook remains positive in our footprint.
Loan pipelines, which are loans in some form of process, have now surpassed pre-pandemic levels and production remains strong, so we’re optimistic about loan growth especially into next year.
Mortgage activity remains high, with consumers continuing to purchase and refinance homes.
From an asset quality perspective, we expect further strengthening that will be demonstrated by improving metrics such as Criticized, Classified and Non-Performing Loans.
Though we all must remain vigilant to the continued impact from the virus, as well as supply chain disruptions and transitory inflation, our clients are generally optimistic as they have realized improved financial performance and are moving forward on executing on their strategic objectives. Regions is well positioned to support these financial needs.