Regions Financial Corp Q2 2025 Earnings Call Transcript

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

Question: Ebrahim Poonawala - Bofa Merrill Lynch Asset Holdings Inc - Analyst : Just maybe just first, big picture, John, if you can talk to the tax bill, what implication does that have? And maybe tie in like the customer sentiment may be, but what are the implications of the tax bill, the bonus depreciation? What does all of that mean as we think about loan growth and spending from your customers? And then on the other side, from a consumer standpoint, any of the tax rates, no taxes and tips, et cetera. Is any of that meaningful in terms of shoring up some of the consumer sort of balance sheet at the lower income level?

Question: Ebrahim Poonawala - Bofa Merrill Lynch Asset Holdings Inc - Analyst : Got it. And I guess maybe just as a follow-up. Obviously, we're seeing some pickup in bank M&A activity, the regulatory window seems to be open. Now both you and David have know all the good, bad and the ugly of bank M&A. So give us a sense of your perspective, like you have a decent stock currency, you've done a good job in terms of where the franchise is today. How should we think about the inorganic growth, how you would think about and assess bank deals? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JULY 18, 2025 / 2:00PM, RF.N - Q2 2025 Regions Financial Corp Earnings Call

Question: R. Scott Siefers - Piper Jaffray Inc - Analyst : David, I was hoping maybe with regard to the margin. If you could spend a little more time unpacking exactly where things are coming in better than you had expected. I know you touched on fixed asset turnover in your prepared remarks. But just given -- I think you had sort of previously teased the possibility of getting to 3.60% sooner than the end of the year, but now it's both higher and sooner. So just curious how things are playing out from your perspective. David Turner - Regions Financial Corp - Chief Financial Officer, Senior Executive Vice President of the Company and the Bank Sure. Just to level set, we had talked about getting to 3.60%. We changed our guidance to get there a little sooner than the end of the year, we did have a nice growth in the margin this quarter. But let me give you a couple of things that aren't going to repeat. We had some hedge notional that matured at the beginning of the quarter that had been serving as a negative to NII and margin that went away. And so that helped us call that $5 million, $6 million. We'll have new notional going on in the third quarter that will replace that. And just to remind everybody, we put these swaps on three years in advance. So the timing isn't exactly perfect. So that's $5 million or $6 million that won't repeat. And then we had a little bit more recoveries on some credit that we received. Normally, that number is about $5 million a quarter. It was about $10 million this quarter. So we had $5 million extra there, so call it, $10 million or 3 basis points that won't repeat. So you got to take your 3.65% margin and really start at 3.62%. As we think about next quarter -- this past quarter and next quarter is we really had the front book, back book. We told you 140 basis points of pickup, but we've also been controlling our deposit cost. We had a pretty big CD maturity month in the month of May, so this quarter. We don't have that type of change in the third quarter, but we do in the fourth quarter. So the third quarter is going to be a little bit more muted growth. We had nice loan growth at the end of the quarter, continuing to control our cost, and the front book, back book will continue at about the same level this quarter. As I said in the prepared comments, that front book, back book lasts for about three years, albeit diminishing over time, but it's a nice tailwind for us. And with the recent loan growth, that gives us pretty good confidence of having growth in the third quarter and beyond. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JULY 18, 2025 / 2:00PM, RF.N - Q2 2025 Regions Financial Corp Earnings Call

Question: John Pancari - Evercore Inc - Analyst : Just wanted to see if you could kind of walk through the loan growth dynamics a little bit more. Underneath that stable to up guidance, what are you seeing in terms of line utilization trends? And what are the biggest drivers on the commercial side from here in terms of either your markets or product areas? And then, I guess, similarly on the consumer side, where do you see the greatest drivers to asset growth?

Question: John Pancari - Evercore Inc - Analyst : Okay. John, I appreciate it. And just secondly, I probably sound like a broken record asking this on the various calls, but on -- particularly in the Southeast, I think it's relevant. But on competition and the competitive backdrop, certainly, heavy focus around the Southeast markets, hearing some pretty clear commentary around a step-up in both loan pricing competition as well on the deposit side. Your yields are still pretty good this quarter, both on the loan side and on the deposit pricing cost. So what are you seeing on competitive dynamics? And are there considerations you're making, whether you participate where you do see that intensification happening on the loan pricing side or deposits?

Question: Ken Usdin - Autonomous - Analyst : I wanted to follow up on one of your prepared remarks where you talked about like now that we've got that line of sight on the systems being closer to being done, I'm just wondering what we should be thinking about in terms of when we get to that moment, do we start to see just an incremental amount of efficiency that come out of the system? Does it free up some legacy costs when we get there? And also, does it change anything in your mind about like the strategic push forward for Regions? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JULY 18, 2025 / 2:00PM, RF.N - Q2 2025 Regions Financial Corp Earnings Call

Question: Ken Usdin - Autonomous - Analyst : Got it. And as a follow-up to what you've been building, you just mentioned the commercial system, like how run rated are the bankers that you've hired so far in terms of their production potential? And how are you doing in terms of your pacing in terms of the competitive ability to add more people like you've talked about over the last few years looking at like, what, upwards of 150 plus over the next couple of years?

Question: Gerard Cassidy - RBC Capital Markets Inc - Analyst : Can you guys share with us -- your credit quality is very good, improved this quarter, but many of the banks this quarter had really good improvement. And it's interesting because the backdrop that we have of the economic uncertainty brought on by the Trump administration's tariff policies potentially causing increased inflation, predictions three months ago of recession probabilities going up and credit across the board this quarter was really good. Can you give any color on what you guys are seeing? And then second, John or David, if those two portfolios that you have identified that you keep extra scrutiny on transportation and office commercial real estate, any color on those portfolios as well? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JULY 18, 2025 / 2:00PM, RF.N - Q2 2025 Regions Financial Corp Earnings Call

Question: Gerard Cassidy - RBC Capital Markets Inc - Analyst : Very good. And then just a more broad question for either of you. Can you share with us your thoughts on the coin legislation passed yesterday in Congress and stablecoins are probably going to be part of the payment system as we go forward and also deposits. How are you guys approaching adopting some sort of stablecoin solution? And do you think there could be a consortium of banks getting together for a single stablecoin, kind of like what you guys do with Zelle?

Question: Gerard Cassidy - RBC Capital Markets Inc - Analyst : Very good. I'd also add, John, to your slide 4, slide 17 and 18 are very impressive, too. So thank you.

Question: Betsy Graseck - Morgan Stanley - Analyst : So the question I have just is on the operating leverage, which you identified in the 150 to 250 range this year, is that right? David Turner - Regions Financial Corp - Chief Financial Officer, Senior Executive Vice President of the Company and the Bank That's correct.

Question: Betsy Graseck - Morgan Stanley - Analyst : Got it. Okay. And then my follow-up is just on the net interest margin where you indicated. You mentioned 4% at one point. I wanted to understand the -- and I understand that a normalized yield curve and you indicated front end at 3%, long end at 4%, right? Not 10%, 4%. I hope you're not laughing. I guess the question is, what other factors besides a normalized yield curve with the front end of three would be? David Turner - Regions Financial Corp - Chief Financial Officer, Senior Executive Vice President of the Company and the Bank Yeah, I think it's a --

Question: Matthew O'Connor - Deutsche Bank - Analyst : You mentioned a couple of times about $1 billion of runoff in the past year within the commercial book. And I was just wondering if you could size how much runoff there's still to do and the timing of that on the commercial side. And then I think there's some consumer stuff that you've been running off as well and to size that the same.

Question: Matthew O'Connor - Deutsche Bank - Analyst : Yes. So actually, just to clarify, the $400 million to $500 million, that's further commercial runoff by the end of the year?

Question: Matthew O'Connor - Deutsche Bank - Analyst : And how much in total is that coming to an end?

Question: Matthew O'Connor - Deutsche Bank - Analyst : Okay. And then the second part of the question was just on the consumer side. I think you might saw from like indirect auto. Just remind us like how much is left to run off in the pace of that? David Turner - Regions Financial Corp - Chief Financial Officer, Senior Executive Vice President of the Company and the Bank Nothing material there, Matt. That's negligible.

Question: Matthew O'Connor - Deutsche Bank - Analyst : Okay. Great. So I guess the point is like on loans, the drag from runoff should be a lot less, especially going into next year, and then the production is obviously increasing.