Regions Financial Corp at Barclays Global Financial Services Conference Transcript

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

Question: Jason Goldberg - Barclays - Analyst : Maybe the best place to start is, I guess a lot of uncertainty in the environment right now is kind of picking up maybe some mixed signals just given what's going on. You're obviously out talking to your customers all the time, a lot of data on the consumer side. Maybe just kind of talk to us what you're hearing, seeing and what's going on in Regions. David Turner - Regions Financial Corp - Chief Financial Officer, Senior Executive Vice President of the Company and the Bank So taking the questions a bit about loan growth and then credit quality kind of baked into one question. So let me talk about loan growth. We're not seeing a lot of demand for loans today. We think there's some uncertainty with regards to where the interest rate environment. We need rates to come down just a little bit. They tell us, they -- our customers. There's some uncertainty with regards to policy, including tax policy. So I think getting the election -- through the election cycle would be helpful. And the question is, as the Fed continues to cut rates, are they cutting coming off of unusually high rates to get to normal? Or are they having to do so because the economy is faltering? So that, I don't know that we know the answer to yet. We need to see. Again, if we can get into the fourth quarter, get through the election, get what is likely to be a cut with the Fed's next meeting and see about that. So we'll reassess what loan growth might look like for 2025. With regards to credit quality, credit quality is in pretty good shape. There are industries that are under stress. We've talked about CRE, office in particular. We haven't had losses on that yet, but we expect them but well reserved for them. So you shouldn't see a CECL provisioning for office deterioration. The consumer is actually in pretty good shape. We can see their balances in their account. We can see on the loan side, delinquencies. And there's been no abrupt changes there. I know there was a little difference in what came about yesterday in some discussion, but we are not subprime lenders. We do have loans that become subprime, but they didn't start out that way. And so losses like for credit cards have been in the 4% range for us or lower. That's about normal. So again, we don't see anything from the consumer that causes us to believe their problems there. And the good balances in their account are pretty consistent with pre-pandemic levels. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 11, 2024 / 1:45PM, RF.N - Regions Financial Corp at Barclays Global Financial Services Conference So deposit balances were about 1.7 times. Their spend pattern pre-pandemic had gone up to about 2.5 times. Today, it's back down to 1.7 times. So general, Jason, nothing all that remarkable to report.

Question: Jason Goldberg - Barclays - Analyst : Got it. On the loan side, what you're seeing there? Maybe talk to kind of deposit trends, what you're hearing/thinking? We -- maybe put the first ARS slide, while we answer this. But maybe in trends in terms of what you're seeing the Feds obviously widely expected to cut next week. Regions had maybe a lower than peer beta on the way up, which is a thing, but kind of how does that you form your view on the way down?

Question: Jason Goldberg - Barclays - Analyst : And can we get the first ARS slide we've been asking this for all the companies. I forgot to do this earlier. On the second-quarter earnings call, you kind of pointed to net interest income to be kind of the upper end of your targeted range as the Fed was maybe hiking less than expected. And now kind of looking forward that's going to be presumably hiking more, you also talked about the benefit of fixed rate assets repricing higher, potentially that benefit is going to be less, maybe just talk to, how you're thinking about net interest income growth in the back half of the year?

Question: Jason Goldberg - Barclays - Analyst : Perhaps the next ARS question. I'm a little behind on these. But I guess you mentioned security portfolio repositioning. We've seen a couple of that the last couple of quarters. Given the move in rates, is that something you continue to pursue? Or are you've done what you expect to do there?

Question: Jason Goldberg - Barclays - Analyst : Helpful. No, we like to ask before -- I'm just off my game, next ARS question. We'll get ahead of them on this. But on NIM, I guess, just maybe how you talk about net interest margin. I know you've kind of carry excess cash balances, which maybe weighs on NIM. As an (inaudible) neutral, a relative rate shifting, maybe that changes. Let me just talk about overall balance sheet management with respect to cash. You've also probably maybe a bit more active in hedging than some other players. So what's your strategy there is?

Question: Jason Goldberg - Barclays - Analyst : So here we ask the audience before you spoke, and it sounds like you are not too far off from that. So I guess on fee income -- I'm sorry, net interest income, it was kind of stable, it's up 2% for the third quarter, I think, was the guide that you gave on the July call. I guess, given kind of maybe move in rates? How you're feeling about that? And how big is the difference if the Fed goes 25 versus 50 basis points next week?

Question: Jason Goldberg - Barclays - Analyst : Yes. Maybe pivoting to fee income. In the deck you put out three weeks ago, you kind of reiterated -- expected to be the upper end of the guide for 2024. Although I felt like the commentary on capital markets within the deck was maybe a bit more positive than the tone that we got earlier. So just maybe talk to the key fee income drivers maybe expand on kind of the capital markets commentary you made in -- just your thoughts on --? David Turner - Regions Financial Corp - Chief Financial Officer, Senior Executive Vice President of the Company and the Bank Yes. So our -- we have 5 broad categories of NIR. They're all pretty predictable. With the exception of capital markets, that has a little bit of -- a little more episodic in terms of what's going on there. And the biggest -- most of the volatility is driven by M&A activity. So you saw in the first quarter, we actually had a really strong capital markets quarter, that's because deals that should have closed, we thought we're going to close in December, fell over the first quarter. So we reset expectations, second quarter was much lighter than that. And as we looked at deals that were in the pipeline, that gave us the confidence that the second half capital markets was going to be pretty strong, and that's why we put it in the deck. We don't know when those deals necessarily close in any given quarter. But the third quarter looks to be more promising. So I think that we should have a pretty strong capital markets finish to the quarter. The other category service charges, interchange fees, wealth management, all of those are working exactly like we thought they would work and feel confident that we'll be at the upper end of that range when we get to the end of the year. We'll reset expectations for next year. We're trying to get our capital markets business to about $100 million a quarter. We're in the, call it, $80 million range expectation now for the remainder of the year or maybe a tad higher than that. So hopefully, we can -- we need a lower rates. There's a lot of real estate capital markets business in that capital markets revenue stream for us. You really need that more activity driven by lower rates to drive that. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 11, 2024 / 1:45PM, RF.N - Regions Financial Corp at Barclays Global Financial Services Conference And of course, our interest rate protection business, you don't need that as much today. So again, if you have lower rates, then that business could pick up too.

Question: Jason Goldberg - Barclays - Analyst : And then because how do you think about positive operating leverage and kind of put in the other budget? David Turner - Regions Financial Corp - Chief Financial Officer, Senior Executive Vice President of the Company and the Bank Yes. So we don't let our business support something that we're going through our strategic planning process right now, and we'll do our budget and present that in December. But we don't let the businesses support provide a -- what their financial projections are unless they have positive operating leverage. And then we take the support areas and we keep their cost increases to a certain minimum unless they have to do something for a regulatory issue or cyber or something like that, where we have to make investments. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 11, 2024 / 1:45PM, RF.N - Regions Financial Corp at Barclays Global Financial Services Conference So we're going through that right now. And I think when we add it all up, we'll generate positive operating leverage in '25, the amount of which we we'll tell you in January when we get there.

Question: Jason Goldberg - Barclays - Analyst : Got it. Maybe put up the next ARS question as specific to asset quality, and it's -- I know in your kind of -- when I asked you about the -- what you hear from customers -- you talked about credit quality. But it's kind of been lumpy throughout the industry. Your results in 2Q -- you kind of did see some, I would say, broad-based improvement. So maybe just delve a bit deeper into in terms of what you're hearing, seeing as kind of been a lot of idiosyncratic C&I credits across the industry. You're obviously play in a lot of the same industries transport come up a lot more recently. David Turner - Regions Financial Corp - Chief Financial Officer, Senior Executive Vice President of the Company and the Bank Yes. So from a credit quality standpoint, we feel good in cross borders, as I said in my opening comments. We did our charge-offs for the year would be pushing on 50 basis points. We're at 46 year to date, which implies it would be over 50% -- 50 basis points in any given quarter, third or fourth. We still believe 50 maybe slightly better than that as an offing. We had a few things break our way. We do have, from time to time, these big lumpy credits that make a big noise. And we've got a few we're working on right now. But if you step back and kind of look generally what's going on with the consumer, C&I customers, all that feels pretty good. And so we said our charge-offs should range in that 40 to 50 basis point range. This year, we're going to be at the upper end of that. But I think still that's a pretty range for us based on the risk profile that we have. We do continue to look at large credits. There are certain industries that have some of those -- trucking, you had mentioned as an area that's just more supply than there is demand. There's going to be losses in trucking. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 11, 2024 / 1:45PM, RF.N - Regions Financial Corp at Barclays Global Financial Services Conference We're in CRE office. We don't have a lot there, but we haven't had losses in office, but we will. And we have those well reserved for, so you shouldn't see the CECL provisioning more for that. And so if our charge-offs are -- where we think they're going to be, then you would expect there to be a provision less in charge-offs or a reserve release if you will, that should be coming. The magnitude of which we'll have to see what the calculation looks like at the end of the quarter.

Question: Jason Goldberg - Barclays - Analyst : Got it. And here, we asked the audience ahead of you, and they seem to think you'll be in that 40 to 50 band range each year. I guess on capital, we got the -- I guess, we'll get the Basel IV next week. We've got a preview last night -- or yesterday morning. And you guys will, I guess, not get hit with the RWA inflation that you thought. While you will get hit with the AOCI tax or whatever you want to call it. It's a lot less today, I suspect that it was on June 30. So I guess just how you're thinking about thought capital management, you guys have been modestly buying back stock. But just your CET1, I'm sure, mid-8s point, just how you're thinking about that?

Question: Jason Goldberg - Barclays - Analyst : And I guess on the -- you mentioned nonbank acquisitions, you've done Enerbank and Ascentium and Sabal and a bunch of others over the last few years. I guess, kind of what are you looking for? What's your kind of size appetite and what could maybe expect of you? David Turner - Regions Financial Corp - Chief Financial Officer, Senior Executive Vice President of the Company and the Bank Yes. So we don't have any really size limitations. We -- what we do is we ask our businesses to think products and services that we don't have that we need to have to complement what we're doing today for our customers. And so we looked at the Ascentiums of the world and the Enerbanks of the world. Both of those, those two products, those two companies really help you in a low-rate environment because the spread on those are really high. In a high rate environment like we have today, if they're not as profitable. But as rates come down, the interest -- the yield on the loans then move commensurate with that so you get an expansion. So it's a good product to help us in a low-rate environment, which is our NIM assessment. That's why we do all the hedging that we do is to protect our interest. Our net interest income and margin when rates are low. So we like those type of businesses to help offset that risk. And then wealth management, if we could find something to bolster that, the problem is they're so expensive. And we just can't afford to do that. So it has to fit within our financial model, along with being additive to what our customers really want. We're looking all the time. We haven't had found one of late, but we have the capital to be able to do that.

Question: Jason Goldberg - Barclays - Analyst : And just a question. You talked about this low mid-single-digit increase in RWAs under kind of the original Basel proposal under the new proposal, even though it's not impacting you, what would kind of be that RWA impact? Have you looked at that? David Turner - Regions Financial Corp - Chief Financial Officer, Senior Executive Vice President of the Company and the Bank Well, we did. I mean if we -- I mean if we were under B3?

Question: Jason Goldberg - Barclays - Analyst : Yes. The bank before you suggested it would be a benefit, leading you to believe if some of these Category 4 banks got together, they could become Category 3. Maybe the math looks good and we can maybe kind of more kind of MOE-like transactions? David Turner - Regions Financial Corp - Chief Financial Officer, Senior Executive Vice President of the Company and the Bank Yes, I don't know about that. I do think that there were some benefits that we were going to get. Unfortunately, we're going to have to do two calculations, and we don't have to do that now. But I don't think we're going to take that bait, Jason.

Question: Jason Goldberg - Barclays - Analyst : And then maybe finally in the closing minutes, when I have you both back here next year, what do you think will be the kind of big themes that we'll be discussing? David Turner - Regions Financial Corp - Chief Financial Officer, Senior Executive Vice President of the Company and the Bank Well, a lot of the same things we talk about, all the time, what's the economy doing and where is the growth going to come from. A lot of folks out in the audience that are listening, who want to figure out what's the give me the reason I need to make an investment in anything. Where is the growth going to come from? Where is it going to be appropriately done. So you're not taking excessive risk. How is your economy? Where you operate working? M&A is always be a part of it, too. So I think that those are probably be the general questions.