Regions Financial Corp at Goldman Sachs U.S. Financial Services Conference Transcript

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

Question: Ryan Nash - Goldman Sachs - Analyst : So maybe, David, kick it off for us. Since the last time we heard from you, there has clearly been a lot of change on particularly on the political side. We couldn't see a more business-friendly environment. As you think about next year, maybe just start off and talk about how you think the bank is positioned to win in 2025. David Turner - Regions Financial Corp - Chief Financial Officer, Senior Executive Vice President of the Company and the Bank Yes. Great to be here. So we had the election. Market kind of took off. There are some things that maybe we get a bit of a break on there, There are a couple of regulatory issues that we've been dealing with in terms of Basel III and long-term debt. Don't know exactly where those are going to go yet. But I think next year is set up to be a pretty good year. We do have GDP expectation of -- real GDP expectation of about 2%, so not explosive growth, but pretty solid growth. We think, given the markets that we operate in, we're well positioned with that. We've got great capital and liquidity. We are going to make some investments primarily in people, and Brian can talk a little bit about this, but relationship managers, wealth advisers to take advantage of those growth opportunities with the migration of folks that are coming in to the Southeast and the Southwest. And so we're excited about 2025 and what it could bring, and I think it could be a pretty solid year for us.

Question: Ryan Nash - Goldman Sachs - Analyst : And you highlighted that you've started to see some signs of an uptick, I guess, what do you think that means for your expectations for loan growth as we move into next year? Recognizing we'll get really formal guidance as we get to January. But what do you think that means in a 2% GDP environment? Is there pent-up demand for us to see better loan growth? Do you think it's going to remain slower? Just how are you more broadly thinking about that?

Question: Ryan Nash - Goldman Sachs - Analyst : The 42% growth. David or Deron, you talked about modest NII growth in the fourth quarter, we'll get to the fourth quarter and a little bit, and then growth going forward. Maybe just walk through some of the moving pieces. And what will be the main one or two factors that will determine how fast do you think it could grow? And does the fact that we get more or less cuts really make that big of a difference in terms of your ability to drive net interest income growth? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 11, 2024 / 3:40PM, RF.N - Regions Financial Corp at Goldman Sachs U.S. Financial Services Conference

Question: Ryan Nash - Goldman Sachs - Analyst : Got you. One of the things that we've been hearing at the conference has been banks having a lot of success repricing deposits lower post the first three cuts. You had -- when you last you talked about you guys are expecting like a mid-30s beta. You've put out some numbers in terms of where deposit costs already were. I think there was about 2.2%. Can you maybe just talk about how your deposit price repricing efforts are progressing? And how does the slower Fed maybe impact your ability to reach that cumulative low 40s level that you've talked about over time, Deron?

Question: Ryan Nash - Goldman Sachs - Analyst : So maybe to just bring that home in terms of what it implies to the margin. You've talked about a margin in the 3.60s into next year. I think we're in the low 3.50s now. Maybe just talk about the main drivers of the margin. We obviously hit on fixed rate asset repricing. I know that you guys have obviously built a lot of liquidity. And maybe just help us think, once we get to that point, is there more to go in terms of where you think the margin will inevitably settle out as we get into that steeper yield curve environment? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 11, 2024 / 3:40PM, RF.N - Regions Financial Corp at Goldman Sachs U.S. Financial Services Conference

Question: Ryan Nash - Goldman Sachs - Analyst : So just focusing a minute on deposits. We've heard a handful of banks talk about solid deposit growth in the near term. How are you thinking about deposit growth and funding your balance sheet? Should we see a pickup in loan growth? And do you think we're done with the migration across the book?

Question: Ryan Nash - Goldman Sachs - Analyst : Got you. Helpful. We'll come to expenses shortly. Brian touched upon some of the things, treasury management, as an example. Fee income has been a pretty good -- it's been a real bright spot for the company despite capital markets not firing on all cylinders. Maybe just talk about what's driven the better performance this year and what businesses are you most excited about into '25.

Question: Ryan Nash - Goldman Sachs - Analyst : And so the rates would be the biggest driver of that David Turner - Regions Financial Corp - Chief Financial Officer, Senior Executive Vice President of the Company and the Bank Yes.

Question: Ryan Nash - Goldman Sachs - Analyst : Got you. So usually at this point, I would have asked you about your ability to generate positive operating leverage next year. But you've already committed to that. It's less fun. And you'd answered it on last quarter's earnings call. So there's not as much of a mystery in there. But I guess the question that I'll ask this time is, how do you balance the amount of positive operating leverage while making the necessary investments? And is there a level of efficiency that the bank is targeting over time? I know you used to talk about 55 or potentially even below. We're obviously in the high 50s today. What is the goal where you'd like to see the company? David Turner - Regions Financial Corp - Chief Financial Officer, Senior Executive Vice President of the Company and the Bank Yes. So we're one of the more efficient banks. We can still be more efficient than we are today. I think targeting the mid-50s in time is a good short-term goal. But it actually needs to be even less than that. That's going to take some doing. That's going to take the things I just talked about in terms of leveraging technology. When you get into -- if you try to force positive operating leverage every year and not make the investments you need to make to grow, that's a problem. But if we have a time where you need to make the investments and just give up on positive operating leverage I think the market gets that as long as you tell them that's what's coming. . This -- but, of course, we said last year at this conference we would not have positive operating leverage in '24 and we didn't. And so I think we can make the investments we need to make. We have some tailwinds coming from revenue, as Deron mentioned, in terms of front book, back book being in good parts of the market stable to growing NIR. So I think we can make the investments and still generate positive operating leverage, the amount of which we're not going to tell you today. We will tell you that in January. You'll have to wait.

Question: Ryan Nash - Goldman Sachs - Analyst : Got you. So we're two months into the quarter, David or Deron, maybe any updates in terms of the expectations that you had laid out? I know it sounds like deposit growth is coming in a little bit better. It sounds like you're having success in terms of bringing down deposit costs? I think you said the capital markets $80 million, $90 million. Credit. Maybe just a broad update on how things are progressing in the fourth quarter.

Question: Ryan Nash - Goldman Sachs - Analyst : I seem to be getting a daily text from David as a close, where it stands.-- They could happen. David Turner - Regions Financial Corp - Chief Financial Officer, Senior Executive Vice President of the Company and the Bank Yes. expenses are in line with where we are, capital and liquidity. Credit is in pretty good shape. I do want to remind everybody that we said we'd be at charge-offs at around 50 basis points for the year. We're at 47, 48 through the third quarter, implying we'll have higher charge-offs in the fourth quarter. We have a couple deals, in particular, related to office. We have well reserved for. That will come through probably a charge-off in the fourth quarter that will cause that to spike a little bit. But when you step back and look at credit, we're actually in pretty good shape.

Question: Ryan Nash - Goldman Sachs - Analyst : Shifting to capital, and maybe I'll start with specifics before we talk a little bit more high level. Deron, you've successfully executed on a handful of securities restructurings. I think they're supposed to add $70 million to NII in 2025. And you've been able to do it in relatively short earn backs. Can you maybe just talk about how you're thinking about additional securities repositions? And how are you thinking about that relative to buyback? And where are sort of the pressure points in terms of how much more you're willing to do?

Question: Ryan Nash - Goldman Sachs - Analyst : Yes. And we were talking about it last night, I said, even close to a five-year, you're still getting a better earn-back than you are if you're buying back stock. David, maybe just pulling up on capital. You're above 10.5. Last summer you reported, you were above 9 adjusted. Maybe that's taken a small hit just because rates have come in. Obviously, you're well above the targeted level of, call it, 9.5 at the midpoint. Maybe just talk about how you're thinking about the capital ratio from here? And given that a lot of these regulations either are going to be delayed or watered down, how does that change the way you think about managing the capital ratio? David Turner - Regions Financial Corp - Chief Financial Officer, Senior Executive Vice President of the Company and the Bank Yes. So our target range is still 9.25 to 9.75 on CET1, including AOCI. At the end of the third quarter, that measure was 9.1. I think our actual reported CET1 was 10.6. And so -- now that backed up that 9.1 is down to 8.8, 8.9 because of the tenure. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 11, 2024 / 3:40PM, RF.N - Regions Financial Corp at Goldman Sachs U.S. Financial Services Conference No, we don't know what the regime is going to be on capital. Last we heard, we may not be in Basel III, but we may still have the AOCI. So we're kind of treating it as if we did. And we believe getting to that 9.5 with AOCI embedded, while it creates a little bit of short-term pain, it probably creates more optionality for us going forward. So you should see us accrete up just a little bit. Now AOCI is coming to us too through repositioning and just time. And so 9.5 is the number, and we'll get there probably sooner rather than later.

Question: Ryan Nash - Goldman Sachs - Analyst : Maybe one last question for Mr. Willman since this is first time on the stage with us here. You talked about utilization being depressed by, call it, 250, 300 basis points. When you're out talking to corporates, what are they waiting to see to actually start to draw down -- to actually start to borrow? I know you said they have to draw down on some of their cash purse. But we talked about last night, there's always uncertainty in the market. So what are they really waiting to see in order to draw down further?