Regions Financial Corp Q3 2024 Earnings Call Summary

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

Question: Scott Siefers - Piper Sandler Companies - Analyst : David, I was hoping if you could sort of touch on some of the nuance within NII momentum. And I guess I'll ask just the first and then follow-up question, I'll kind of wrap into one. I think you've previously suggested the margin could push up closer to like 3.60% as we enter next year and then kind of advance from there over the next couple of years. feels like the fourth quarter make a little bit of a step back. Does that knock us off the track for the 3.60% and prior path? And then the follow-on is regardless, it still feels as if NII will remain on an upward trajectory. So any updated thoughts on how the pacing looks over the next few periods? David Turner - Regions Financial Corp - Chief Financial Officer, Senior Executive Vice President of the Company and the Bank Sure. Yes, Scott, we're still intact with regards to that 3.60% I do think we'll be in the lower part of the 3.50% is in the fourth quarter. We're going to grow a little bit in terms of NII as indicated. And then going into 2025, we still have benefit from the front book back book that's going to benefit us. We've had a little bit of earning asset growth to and continue to control our deposit costs. And of course, we have our derivatives that naturally reset. Those are a negative carry this past quarter of $110 million. And so as rates come down, that certainly helps offset lowering rates. So that gives us confidence that we can go into next year in grow margin.

Question: John Pancari - Evercore ISI - Analyst : Just first on the loan growth side. I guess if you could just give us a little more color on what are your terms of loan demand. I know you indicated that utilization is below historical levels. And then given that, what do you see as the catalyst really to be driven material pickup? And maybe how do you think about that pickup materializing when you look at either fourth quarter or 2025? John Turner - Regions Financial Corp - President and Chief Executive Officer of Regions Financial Corporation, Director Yes. So we set our customers are cautiously optimistic. I would say the environment is generally a positive one. The economy is still good, though slowing. We've seen some growth in middle market commercial and our energy portfolio and asset-based lending. And that's offset by declines in the real estate book as projects are maturing and particularly in the multifamily space paying off, which offsets some of the growth we're experiencing on the business side. We've had a little growth in credit card balances and our Interbank originations that's somewhat offset by the decline in experienced some pay downs there. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 18, 2024 / 2:00PM, RF.N - Q3 2024 Regions Financial Corp Earnings Call So I think activity is okay. Pipelines are softer than they were last quarter, but we still feel like we will see some modest possibly growth in loans in 2025 as there's more certainty about the political environment as there's more certainty about the continued direction of the economy, prices begin to moderate a bit. Businesses are still doing well. Balance sheets are strong, margins are compressing, but customers are still making good money, and we think they'll want to invest in their business when it's more clear. We do have a more clear path later in 2025. David Turner - Regions Financial Corp - Chief Financial Officer, Senior Executive Vice President of the Company and the Bank Yes. John, it's David. I would add that our expectation is for real GDP to be in the 2% -- a little over 2% range in 2025. We obviously are in great markets, and we can take advantage of those when the -- a little bit of this uncertainty that John just mentioned dissipates a bit and then get on the growth trajectory in 2025.

Question: Ebrahim Poonawala - BofA Global Research (US) - Analyst : I guess first question around credit. I think, David, you mentioned the charge-offs towards the higher end sectors you've talked about. Just maybe if we look forward, given where the economy today is customer base is, do you think the charge-offs remains sticky in that 40% to 50% range? Or do we actually see a stair step function decline at some point over the coming quarters? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 18, 2024 / 2:00PM, RF.N - Q3 2024 Regions Financial Corp Earnings Call John Turner - Regions Financial Corp - President and Chief Executive Officer of Regions Financial Corporation, Director Yes. Ebrahim, we look back historical -- at our historic performance, it's been kind of a 46 basis points of charge-offs prior to the pandemic and we vacated -- we think based upon the composition of our portfolio that our charge-offs will range somewhere between 40 and 50 basis points. On average, there may be a quarter where they're modestly higher because of large exposures, maybe a quarter where they're lower because better performance, particularly in the business portfolio. We are seeing a really good consumer credit performance right now, and I feel good about that. And again, based upon the composition of our portfolio and our historical performance, we think 40 to 50 basis point range is really typical.

Question: Erika Najarian - UBS Securities LLC - Analyst : David, for another question on deposit repricing. I'm wondering if you could give us a sense of the cadence over the next several quarters. So obviously, some of the maturing retail and index deposits will reprice more immediately. How should we think about once the easy stuff has repriced, how we can look forward to deposit repricing going forward? And maybe think us through if we haven't seen a neutral rate that wasn't 0% in such a long time, what is your typical deposit spread when the neutral rate has a level like 2.75% and 3%? David Turner - Regions Financial Corp - Chief Financial Officer, Senior Executive Vice President of the Company and the Bank Well, there's several questions baked into there. So if you look at maturities, that was the first part of your question, we have $3 billion that will be maturing here in the fourth quarter between our retail customers, which is probably $2.5 billion of that number. And then we got some wealth and small business customers. We're not seeing the flight for yield as much as we had been, and so that's dissipating. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 18, 2024 / 2:00PM, RF.N - Q3 2024 Regions Financial Corp Earnings Call And as I mentioned earlier, our CDs of 4.25% to 4.50% that are maturing, new rates for CDs are closer to 4%. Still trying to keep the duration it, I guess, the average probably closer to five months now with this expectation is rates are going to come down, we would have an opportunity to take care of it. From a money market standpoint, you can see the deposit shift that came out of NIB went into money market. We can continue to challenge those rates pretty quickly. And so I think -- a mechanism to be able to adjust our rates pretty quickly. At 3% Fed funds, you're talking about deposit costs in the 1% range. So a couple of hundred basis point spread between those two. John Turner - Regions Financial Corp - President and Chief Executive Officer of Regions Financial Corporation, Director Deposit cost. David Turner - Regions Financial Corp - Chief Financial Officer, Senior Executive Vice President of the Company and the Bank Yes.

Question: Erika Najarian - UBS Securities LLC - Analyst : Perfect. And John, the second question is for you. A lot of the remaining challenge, so to speak, stories in banks have often been management teams and board and doing -- underinvestment of predecessors. And you guys have always hit the right balance of efficiency and investment. As we think about the setup for next year, David mentioned the NII trajectory if we remove the election uncertainty, I suspect that your fees will benefit as well in 2025, should we calibrate our expectations for expenses relative to revenue rather than just setting it flat to up 1% or whatever it is. In other words, should the Street just expect, okay, what can regions generate revenue-wise in a better environment and just expect positive operating leverage from there? John Turner - Regions Financial Corp - President and Chief Executive Officer of Regions Financial Corporation, Director Yes, at the end of the day, we're committing to positive operating leverage in 2025. A lot of what we do is we look at the revenue generation we're going to have. We have our core expenses. We're constantly challenging, and we're trying to figure out how much we can free up for investment because the more we can free up and invest not just technology and cyber or consumer compliance, REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 18, 2024 / 2:00PM, RF.N - Q3 2024 Regions Financial Corp Earnings Call it's people. It's putting more people on more boots on the ground in the markets that we want to continue to grow in, but we have obviously a cap in terms of how much we can do based on the revenue generation that we have. So we need to generate positive operating leverage. We think that creates shareholder value over time. And we can generate more revenue, then we can use a bigger piece of the expense base to make those investments, but that's where it gets calibrated to come back to generate positive operating leverage. David Turner - Regions Financial Corp - Chief Financial Officer, Senior Executive Vice President of the Company and the Bank I would just add, Erika, we're committed to finding ways to eliminate expenses to use those money to finance investments in our business. And if you look at Treasury management, as an example, we've grown relationships by 5% year-over-year and revenues

Question: Matt O'Connor - Deutsche Bank Securities Inc. - Analyst : I was wondering if you guys could talk about the card and ATM fee line. I know it's just a few million dollars down in Q2 and not like all that impact for the overall picture. But it was down, and I was just looking at how it's been down for the past seven quarters

Question: Matt O'Connor - Deutsche Bank Securities Inc. - Analyst : Okay. And it does seem like the risk of debit card interchange reform has quieted down. So is that a line item that you're hopeful of growing in the future? David Turner - Regions Financial Corp - Chief Financial Officer, Senior Executive Vice President of the Company and the Bank Yes. I mean the way to grow that is to continue to grow customers. And so we focus on growing ticking accounts and the more checking accounts, the more cards we have in people's hands. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 18, 2024 / 2:00PM, RF.N - Q3 2024 Regions Financial Corp Earnings Call And I think, again, being in the markets that we're in are going to give us the opportunity to do that, especially as we invest in people that I just talked about. So yes, I think that's opportunities to grow. You do point out that there is a risk there in terms of the debit interchange rules. If that goes through, it has quieted down. We don't know that there's no law that says it has to change at all from where it is right now. So we're going to continue to monitor that. But right now, we don't count that as something that will happen in 2025. John Turner - Regions Financial Corp - President and Chief Executive Officer of Regions Financial Corporation, Director Yes. And Matt, I'd just remind you that when we talked about this before, Visa publishes a power score, which is a reflection of consumer customers, debit utilization, activation and utilization. And for 42 quarters in a row now, Region's customer base has been first in terms of power score, we have a customer base that's very actively uses their cards, particularly debit cards and so to David's point, as long as we can continue to grow households, put more cards in customers' hands, we believe that there's plenty of opportunity to grow fee revenue associated with that category.

Question: Betsy Graseck - Morgan Stanley Co. LLC - Analyst : Yes, a couple of cleanups here. One, I know we talked a lot about deposit rates. And I'm wondering what's the implication for deposit growth? And how are you thinking about that because of the fuel for the balance sheet, obviously. David Turner - Regions Financial Corp - Chief Financial Officer, Senior Executive Vice President of the Company and the Bank It gets back to, again, being in the markets that we're in, a lot of migration of people and businesses into our markets. We're making investments in people. And our core strategy of our company has been focusing on growth in checking accounts of a consumer and wealth and operating accounts of a business, including small business, where we're really kind of putting more effort on that than we have in the past. We're up about 30% since the pre-pandemic in terms of deposits since 2019. And so we think we have a good opportunity to grow. We have to be competitive with rates, Betsy. I mean we're not trying to just be the low-cost provider. We're trying to be fair and balanced, and we think we've done that. And so we're going to have our opportunity to grow. On the corporate banking side, we managed about $8 billion of cash off balance sheet for our customers. And we're not paying the rate that they would want. We get it for them, and we get a little fee for it. But if we ever needed the liquidity for that, we could increase our rates and grow there. But we hadn't had to do that. What we want to do is we're balancing deposit growth and loan growth to maximize our net interest margin.