Our objective is to sustainably grow franchise value in a manner that benefits all our stakeholders. To achieve it, we are committed to disciplined execution against three strategic imperatives. Our consistent focus on revenue growth and diversification, expense control and effective capital deployment is our formula for long-term value creation.
Nikki Stephenson
Capital Markets Banker
“As we build our business, we want to pursue the highest and best opportunities that fit well with our client set. Our growth agenda is designed solely around our clients and their needs.”
Terry Katon,
Executive Managing Director and Group Head, Capital Markets
Increasing revenue is the goal of any enterprise, but Regions is focused on disciplined growth that also contributes to the diversification of our business. As a financial institution focused on risk, we recognize that diversification is one of the most powerful risk management tools at our disposal. That’s why our growth agenda emphasizes expanding the contribution to earnings from non-interest income. In 2016, we met that objective, growing non-interest income by 7 percent on an adjusted basis.
An especially strong contributor to that performance was our Capital Markets segment, which grew income 46 percent last year. Focusing on corporate, commercial and real estate banking clients, Capital Markets is comprised of three primary businesses: capital raising, hedging and risk management, and advisory services. This business is fueling growth by adding capabilities and talent, by deepening existing customer relationships and, where appropriate, through “bolt-on” acquisitions that expand the Regions product offerings.
Adjusted
Non-Interest Income*
According to Terry Katon, Head of Capital Markets, “A core strength for us is capital raising beyond what the bank supplies as loans. This is supplemental lending capacity, providing alternative sources of capital like second lien and mezzanine debt.” Our offerings also include long-term capital in the form of fixed-rate public debt and private debt. In order to continue the growth trajectory, the business requires additional investment in loan distribution, as well as trading and fixed-income distribution. Notes Katon, “We’re seeing lift from a revenue standpoint, and we believe we are in the early stages of that growth.”
The addition of high-quality businesses with unique capabilities and expertise is also driving success. Katon continues, “As we grow, we are being selective about the businesses we choose to be in. We want to pursue the highest and best opportunities that meet our clients’ needs.” BlackArch Partners, acquired in late 2015, specializes in merger and acquisition advisory services in the middle market space. “It’s a high-quality, relatively early-stage firm, with very talented people who have great experience and a great reputation in the market,” says Katon. “BlackArch had a great year in 2016, and we have the opportunity to expand their contributions as they are introduced to more Regions clients and we spread that capability across our client base.”
Attracting and developing the best people is crucial to continued growth. “Talent is critical to our success because our assets are the intellectual capital and expertise of our associates. It’s essential that we attract the right kind of professionals who align with our culture and understand our goals and objectives. Nikki Stephenson is a great example, a shining star in our Capital Markets organization. She’s superb at building teams, collaborating with bankers and delivering for clients. Nikki embodies what we look for as we continue to build our organization.”
A clear direction, expanded capabilities and top-tier talent: that’s Regions Capital Markets' formula for continued success.
Rohini Ashruff
Consumer Lending Operations
“In addition to reducing expenses, driving process efficiencies and enhancing revenue opportunities, our goal is to deliver a high-quality and predictable customer experience.”
Logan Pichel
Head of Consumer Lending
Adjusted
Eficiency Ratio*
Regions has set an ambitious efficiency target: reduce core expenses by $400 million by 2019. Achieving that objective requires improvements, big and small, across all departments and geographies. As that work of improving our efficiencies unfolds, it’s imperative that the entire company focus on what it can control and act on. The company has embraced lean Six Sigma principles that utilize problem-solving methodology to drive process improvements across the organization. These efforts to improve business process efficiencies and effectiveness touch nearly every function in the organization. Approximately 50 to 60 Six Sigma engagements are underway at any one time. Some are narrowly focused on a single department or geography, while others have broad impact across functional groups, such as human resources, finance, operations and technology.
One highly successful project using this methodology focused on improving the processing time of home equity loans. Logan Pichel, Head of Consumer Lending, and Rohini Ashruff, who leads Consumer Lending Operations, used lean Six Sigma principles to reduce expenses. “Home equity lending represents approximately 35 percent of our consumer lending portfolio and 16 percent of consumer lending production, so it is a very significant part of our consumer business,” notes Pichel. “Over time, the application process expanded, and turnaround times were longer than desired. This reduced the rate of loans that were booked and increased overall labor costs.”
Ashruff’s group worked to identify a series of opportunities for improvement which included streamlined and simplified documents that auto-populate with essential information, a new documentation requirement checklist and better tools to share documents electronically. The result? An improved and simplified loan application process for both bankers and their customers.
After implementing these changes, loan production increased, labor costs per loan declined, and the percentage of approved loans that closed grew significantly. The aggregate positive impact was in the millions of dollars. Equally important, customer experience metrics improved. “In addition to reducing expenses, driving process efficiencies and enhancing revenue opportunities, our goal is to deliver a high-quality and predictable customer experience,” says Pichel.
Regions is committed to continued disciplined expense management and to reach a 60 percent adjusted efficiency ratio by the end of 2018. We are determined to use process improvements along with technology to reduce costs and enhance the customer experience.
* See table 2 in Form 10-K for GAAP to non-GAAP reconciliations ** Based on adjusted 2015 expensesDeron Smithy
Treasurer
“Capital and liquidity are the lifeblood of our business. Without both, we can’t effectively meet the needs of our customers. We seek the right mix of businesses that meet our objectives for shareholder return while ensuring that we have sufficient capital and liquidity to serve our clients in every business climate.”
Deron Smithy
Treasurer
As Regions continues to strengthen its capital planning and capital deployment capabilities, no consideration is more important than balancing the requirements of various Regions stakeholders. Treasurer Deron Smithy and his team are at the forefront of this effort, weighing complex considerations, such as economic forecasts, the interest rate environment, and the relative health of individual markets and industries, alongside the needs of borrowers, depositors and shareholders. According to Smithy, “It is a dynamic process with multiple dimensions and multiple stakeholders to consider. We think about how to position the balance sheet, what businesses we choose to engage in and help grow, and what is the right level of capital to meet the risks inherent in those businesses. Together, those factors establish the foundation for how we begin capital planning.”
In its simplest form, a bank is a depository institution where people bring their funds to earn a reasonable return for savings, and a place where companies as well as individuals come for their financing needs. Notes Smithy, “liquidity is the ability to meet the financing needs for our clients while, at the same time, assuring external stakeholders, such as the rating agencies, regulators, and our bond and equity investors, that we're managing the variability in our business and that we've got the wherewithal to perform consistent with our financial commitments. It is imperative that our customers have confidence that we will be there to support their needs not only during good times, but also periods where the economic environment is weakening.”
Smithy continues that in the years since the economic crisis, assessing and managing risk has been transformed into a much more robust and detailed process. “Risk management today is a far more integrated understanding of risk across a range of scenarios. Today all strategic decisions must be evaluated considering how they will perform during periods of stress. Scenario stress testing has become synonymous with prudent capital and liquidity planning.”
Forecasting is only as good as the data and market intelligence that are collected and analyzed. Regions' current process engages a wide array of participants across the bank and utilizes a broad set of inputs to develop a consensus baseline view. An internal economic forecast committee meets regularly, made up of a cross-section of professionals across the organization – from economists to portfolio managers to commercial and consumer bankers. “We have bankers on the ground who are engaged with customers every day. They can address the questions: Are those customers confident, or are they concerned about the future? How are the balance sheets for our consumers and our commercial customers trending? Bringing these associates into the room to provide real-time insight into what’s going on in the economy adds to our forecasting efforts. It has been very constructive internally, both to identify risk but also to help those associates forecast how changes in the environment can impact the businesses they serve.”
