Regions Financial Corporation

Good morning, and welcome to the Region's Financial Corporation's quarterly earnings call. My name is Shelby, and I'll be your operator for today's call. I would like to remind everyone that all participant phone lines have been placed on listen only. At the end of the call, there will be a question and answer session. If you wish to ask a question, please press star one on your telephone keypad. I will now turn the call over to Dana Nolan to begin.

Thank you, Shelby. Welcome to Region's second quarter 2020 earnings conference call. John Turner will provide some high-level commentary, and David Turner will take you through an overview of the quarter. Earnings-related documents, including forward-looking statements, are available under the investor relations sections of our website. These disclosures cover our presentation materials, prepared comments, as well as the Q&A segment of today's call. And with that, I will turn the call over to John.

Thank you, Dana, and thank you all for joining our call today. Over the last four months, we have experienced tremendous disruption and uncertainty caused by both COVID-19 and overt examples of social inequality. The impact on our customers, communities, and associates has been profound, and the resulting operating environment has been challenging. As our country works through the current health crisis and takes steps to address the systemic racial injustices that impact so many people in our society, we remain focused on the things that we can control. We're committed to supporting our associates, our communities, and our customers through these difficult times by providing much-needed capital, advice and guidance, and financial support. It is incumbent on us to use our resources and expertise in ways that create positive change. Providing value to all stakeholders creates the foundation to deliver sustainable long-term performance. The disruptive and uncertain operating environment has presented both opportunities and challenges. In the second quarter, we delivered $646 million in adjusted pre-tax, pre-provision income. This was region's highest PPI in over 10 years and a reflection of our decade-long effort to optimize our balance sheet and improve risk-adjusted returns while making strategic investments all to deliver sustainable performance and reduce variability in our revenue streams. However, while the core business performance was solid, it was more than offset by an elevated provision caused by further deterioration in the economic outlook and the resulting impact on risk ratings and credit quality. Just a few weeks ago, while acknowledging that conditions were fragile, I said we were cautiously optimistic about the prospect for economic recovery in our footprint. The southeast had fared better than other parts of the economy as evidenced by the fact that the unemployment rate in the majority of southeastern states had been better than the national average. And the number of small businesses that closed within the region because of the crisis was also below the national average. Most of the states where we operate had reopened, consumer deferral requests had begun to taper off, and consumer spend continued to increase toward more normal levels. So clearly, there were some positive signs that we felt pretty good about. However, by the end of the quarter, certain areas in our footprint began experiencing an acceleration in COVID-19 cases, and some states paused or reversed their reopening plans. The potential for a second wave of COVID-19 infections, coupled with uncertainty surrounding the extension or renewal of various aid programs, including the CARES Act, has impacted our view on the potential pace of the recovery. While we have experienced positive momentum over the latter part of the quarter, much uncertainty remains and our provisioning reflects that. As a result of this environment, we recorded a second quarter credit loss provision of $882 million. The provision reflects adverse conditions and significant uncertainty within the economic outlook. combined with downgrades in certain portfolios, particularly energy, restaurant, retail, and hotel, as well as the impact of $182 million in net charge-offs. This quarter's provision also includes $64 million related to the initial allowance for non-credit deteriorated loans acquired in the purchase of Ascenium Capital, which closed on April 1st. We're committed to assisting our customers through this difficult time, However, we have not modified our rigorous credit review process and have continued to make risk rating adjustments as necessary. In addition, all business loans granted a deferral have been reviewed and risk ratings have been adjusted in accordance with our existing policies. Based upon the work we've done and our assumptions around the economic outlook, we do not anticipate substantial reserve bills during the remainder of 2020. We know the economy will continue to experience stress as we combat the public health crisis. However, we've spent a decade strengthening our capital position and credit risk management framework, which have positioned us well to weather the economic downturn. In the most recent round of supervisory stress tests conducted by the Federal Reserve, regions exceeded all minimum capital levels. While we were pleased with our capital resiliency under stress, We believe our industry-leading hedging program, which became effective in 2020, will provide additional support to pre-provisioned net revenue. With respect to our common stock dividend, the Federal Reserve has introduced an income test where the common dividend cannot exceed the average of the trailing four quarters net income. Management will recommend to the Board later next week that we maintain the dividend for the third quarter of 2020. We are committed to effectively managing our capital to strengthen organic growth, generate sustainable long-term value for our shareholders, and continue lending activities to support customers and communities during the economic downturn. That being said, we must continue to focus on what we can control and remain committed to prudently managing expenses in the face of a challenging revenue environment. Thank you for your time and attention this morning. With that, I'll now turn it over to David.