Regions Financial Corp Q1 2025 Earnings Call Summary

The following is excerpted from the question-and-answer section of the transcript.

Question: Scott Siefers - Piper Sandler - Analyst : John, I was hoping maybe you could sort of give us your sense for the degree to which things -- at least your perception regarding the degree to which things will need to settle down before customers are willing to reengage with things like investments or other strategic decisions. And if there's any difference in how you would look at it for traditional commercial lending versus your capital markets businesses, et cetera? John Turner - Regions Financial Corp - Chairman, President and Chief Executive Officer of Regions Financial Corporation I don't know that I can put a degree of settling down on it, so to speak. But clearly, the volatility of uncertainty has customers in sort of a wait-and-see mode. I do think as it becomes more clear, what the nature of the tariffs will be, what products they'll be applied to, what countries and to what degree the customers can be more certain about the potential impacts. We're also following -- and thoughtful about this, but we're also following the changes in immigration policy and changes in regulation and the impact on businesses. We've had the opportunity over the last six weeks to visit with more than 60% of our Corporate Banking group customers, non-real estate related, and have a pretty good sense of their frame of mind. I would say, customers are

Question: Scott Siefers - Piper Sandler - Analyst : Perfect. Okay. And then maybe, David, when you think about the lower expense growth rate for the year, can you maybe put a little more context around how much of that is just sort of naturally lower cost due to less revenue-driven activity and -- versus how much might be actual cuts or delays to investments, things like that? Just I'm trying to get a sense for the balance in there. David Turner - Regions Financial Corp - Chief Financial Officer, Senior Executive Vice President of the Company and the Bank Yeah. So we had the seasonal increase. We were able to offset that a bit because of lower headcount. We also had some retirements that happened in the end of the fourth quarter, the very beginning of the first quarter that we benefited from that, will be ongoing. That's helping us offset the investments we have already made and will continue to make in terms of the additional hires that we had mentioned for our growth markets. So we have a schedule in the back, I think it's on page 19 in the deck, that shows the investments we want to make in all three of our segments to grow, in particular, in our priority markets. And so our whole point has been we're going to control costs but we -- and we need to make investments to grow. We have to find those savings somewhere else. We've been able to do that by controlling headcount in other areas. We've leveraged technology incrementally better. We still have a ways to go there. So it's really not -- it's not holding off on investments, it's finding the cost elsewhere in the business.

Question: John Pancari - Evercore ISI - Analyst : To the loan side, I know you bumped your guidance lower, and you just gave a little bit of color just around the customers are in kind of a wait-and-see mode. Can you give us a little bit more detail there? What are you seeing in terms of line utilization? Was there any pre-tariff drawdown that you saw that could be more of a pull forward? And then separately, are there any areas of growth that you're seeing that could be the main driver of loan growth here amid this uncertainty? John Turner - Regions Financial Corp - Chairman, President and Chief Executive Officer of Regions Financial Corporation Yeah. So John, we did see during the quarter, I guess, our pipelines are, I'll call them a bit mixed. I think the activity in sort of the upper end of the middle market and smaller corporate customer base is pretty soft. Customers were able to access the secondary market. During the first quarter, we had almost $800 million in paydowns from customers who went to the bond market, raised capital and reduced their outstandings with the bank. So that sector has been -- and the opportunity there is fairly soft. Within the middle market customer space and in real estate, we're beginning to see pipelines expanding a bit. And so those customers are more interested in making investments, we think, and that likely will continue. The issue is primarily understanding of what the impact of tariffs will be on cost of projects and other things, but we'll follow that more closely. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 17, 2025 / 2:00PM, RF.N - Q1 2025 Regions Financial Corp Earnings Call Line utilization is still flat. We're not seeing any borrowings to facilitate increasing inventories. And in fact, customers are still carrying a tremendous amount of liquidity on their balance sheets. We've seen a significant growth in what I'll call wholesale deposits, both on balance sheet and off-balance sheet. And I think until customers begin using that liquidity, it's not likely we see any real increase in borrowings under lines of credit.

Question: Ebrahim Poonawala - Bank of America Merrill Lynch - Analyst : I guess, maybe, David, just sticking with the capital. So we did some, I think, bond book restructuring this quarter, pay back 2.7 years. Just give us a sense, is there more juice to go there in terms of restructuring more bonds? And like how are you thinking about that today versus buybacks? David Turner - Regions Financial Corp - Chief Financial Officer, Senior Executive Vice President of the Company and the Bank Yeah. So we have mentioned now for two quarters that we thought we were kind of at the end of the line in terms of being able to do that. And we really have targeted and it's arbitrary, but we've targeted a payback of three years or less. We really didn't think we had much left to do going into the quarter. The rate environment changed pretty abruptly for us and gave us an opportunity to do another small -- fairly small slug of that. And so we're again going to reiterate, we think we're kind of at the end of the line. But if the market gives us the opportunity to do that, again, we go through the math of looking at what's better for you to do a securities repositioning, take the loss or buy your REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 17, 2025 / 2:00PM, RF.N - Q1 2025 Regions Financial Corp Earnings Call shares back. And that's really the calculus. If we continue to see opportunities to do repositioning that's better than buyback, we will do so. It's just I think that's going to be a harder calculation to come back. We have a little bit left, but not -- just not much.

Question: Ebrahim Poonawala - Bank of America Merrill Lynch - Analyst : And just following up on that, you have markets where you have pretty significant manufacturing plants tied to the auto sector. Any impact you've seen right now either good or bad because of the auto tariffs? John Turner - Regions Financial Corp - Chairman, President and Chief Executive Officer of Regions Financial Corporation Not yet. Not yet. We really have not seen any significant impact associated with the tariffs to date nor immigration policy changes, but we are monitoring all those things, obviously.

Question: Matt O'Connor - Deutsche Bank - Analyst : The service charge line grew nicely year-to-year and then also linked quarter, where normally there is some seasonal pressures. So just talk about that. I think there's both treasury management and the consumer overdraft or some of the big drivers. So if you could touch on that. David Turner - Regions Financial Corp - Chief Financial Officer, Senior Executive Vice President of the Company and the Bank Yeah. I mean we continue to grow customer accounts, customer checking accounts, and more accounts are going to have more service charges. We do have a little bit of seasonality that comes in the service charge line item on the corporate side. And that's always a bit helpful in the first quarter. But all of our income lines on the non-interest revenue were very -- we're all increasing with the exception of capital markets, which is where we had the biggest challenge. And we expect that non-interest revenue source to be fairly stable to growing throughout 2025, ex the cap markets challenges. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 17, 2025 / 2:00PM, RF.N - Q1 2025 Regions Financial Corp Earnings Call John Turner - Regions Financial Corp - Chairman, President and Chief Executive Officer of Regions Financial Corporation Yeah. I'd just add, Matt. To reiterate David's point, growth in consumer checking accounts, growth in small business checking accounts are a driver of service charge income. We grew treasury management relationships about 9% last year, and you're seeing the benefits of that manifested in increased treasury management revenue and we would expect to continue to have that sort of success growing treasury management relationships as we expand our commercial and corporate banking businesses across our growing footprint.

Question: Erika Najarian - UBS - Analyst : My first question is, as we think about what the reserve is capturing in terms of unemployment rate, David, could you give us a sense on what the current baseline is and what the weighted average may be? David Turner - Regions Financial Corp - Chief Financial Officer, Senior Executive Vice President of the Company and the Bank Yeah. So we do our calculation a little differently. If you go look at -- and I'll get more pages up, Page 29, it will show you what our unemployment expectations are for the next start with (technical difficulty) about 4.2%, 4.3%. We also have a qualitative component and embedded in that qualitative component is trying to think what that -- a piece of that is what the unemployment rate could go to. When you weigh all that down, we're in the high 4% range as far as the unemployment that's embedded in our current allowance that we have at the end of the quarter.

Question: Gerard Cassidy - RBC Capital Markets - Analyst : I just want to clarify an answer on that last question on slide 30, your economic outlook with the unemployment rate. If I recall, those are the economic statistics for your region, your footprint rather than the country, am I correct in remembering that? John Turner - Regions Financial Corp - Chairman, President and Chief Executive Officer of Regions Financial Corporation That's correct.

Question: Gerard Cassidy - RBC Capital Markets - Analyst : Certainly, got it. And then one other follow-up just on credit. You guys coming out of the pandemic identified some of the ongoing portfolio, surveillance portfolios like transportation, trucking. As we move forward in a slower growth environment, have you identified any other portfolios that you're keeping extra attention to outside of what you've already identified from the pandemic area? Are there any portfolios in particular that you look at? John Turner - Regions Financial Corp - Chairman, President and Chief Executive Officer of Regions Financial Corporation Yeah. I'd say retail trade, manufacturing, particularly related to consumer durables, I think we'll have to watch the consumer and where they're spending or not. And those will be areas that we follow with some interest. Construction would be another area with potential impacts on rising cost above and beyond what we've already experienced.

Question: Christopher Spahr - Wells Fargo Securities, LLC - Analyst : So my question is just a follow-up on the fee drivers and your lower guide, but yet you had like record wealth management and treasury management going into the quarter. So just -- is it all -- you're going to be at the low end of the capital markets guide of $80 million to $90 million? Or are there some other things that kind of that led to you to kind of lower your guidance for fees for the year? David Turner - Regions Financial Corp - Chief Financial Officer, Senior Executive Vice President of the Company and the Bank Yeah. Chris, the main driver is exactly what you said is capital markets. All the other categories seem to be doing pretty well. We could have a bit of a challenge in the wealth area just because of the market. We'll see -- they're continuing to grow assets in the wealth management area, which will be nice. But there's also a market component of fee revenue there, too. So the market now makes that a bit more challenging, but the biggest single driver is what is capital market is going to be. And that is driven by more specifically, M&A activity, real estate capital markets and loan syndications. And all three of those were down this quarter. And hopefully, over time, we can get those to rebound, which is why we've given you that business is set up to generate $100 million a quarter, but it's just not going to happen with uncertainty that's created the rate environment. Those are two big drivers of that revenue stream. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 17, 2025 / 2:00PM, RF.N - Q1 2025 Regions Financial Corp Earnings Call

Question: Betsy Graseck - Morgan Stanley - Analyst : I just want to understand the comment you made earlier around how net charge-offs are expected to be? Do I get it right front-end loaded? And like, how should I be thinking about the pace of what we're going to be seeing in the beginning of the year versus the end of the year? And how much differential is there there? And then separately, you've reserved all for this, so the provision is neutral. Is that a fair read? Or what did I miss? John Turner - Regions Financial Corp - Chairman, President and Chief Executive Officer of Regions Financial Corporation Yeah. I think the way to think about it, Betsy, is we identified a couple of credits in the portfolios of interest that we've previously talked about, office specifically, senior housing, transportation, where we're in a workout mode. We don't know exactly the timing of those resolutions, but we believe that it would likely be in the first or second quarter. As a consequence, we've signaled charge-offs could be higher in the first and second quarter or the first half of the year than in the latter part of the year. Having said that, we're still committed to a range of 40 to 50 basis points. So you can draw your conclusions. We recorded 52 basis points of charge-offs in this quarter. If we're still going to be within that range of 40 to 50 basis points, you can sort of assume the trajectory from here. We still believe the second quarter will be higher than the third and fourth. So again, based on things that we think we're going to get, we're going to resolve. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 17, 2025 / 2:00PM, RF.N - Q1 2025 Regions Financial Corp Earnings Call David Turner - Regions Financial Corp - Chief Financial Officer, Senior Executive Vice President of the Company and the Bank From a provisioning standpoint, again, all things being equal, you should expect the provision to be right there with charge-offs. Now if we get some loan growth or we get economic deterioration, both of those can drive an increase in the provision over charge-offs. But we just have to wait until we get to the end of the quarter to see.

Question: Betsy Graseck - Morgan Stanley - Analyst : Right. right. Understood. Thanks so much. Appreciate the time. John Turner - Regions Financial Corp - Chairman, President and Chief Executive Officer of Regions Financial Corporation Thank you. Okay. Well, that concludes, I think, all the questions we had today. So thank you for participating on our call. Thanks for your interest in our company. Have a great weekend.