Regions Financial Corp at RBC Capital Markets Global Financial Institutions Conference Transcript

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

Question: Gerard Cassidy - RBC Capital Markets - Analyst : Great, John. Thank you very much for the opening comments. Maybe just following up on some of those comments regarding the deposit growth in your franchise, some of your peers have expanded into the Southeast franchise or Southeastern part of the United States. Can you share with us how the competition has maybe evolved over the last five to seven years as these players have opened up more branches? And obviously, you've got a very strong deposit base down there, but some color would be helpful.

Question: Gerard Cassidy - RBC Capital Markets - Analyst : And David, following up on John's comments about rate on deposits, Regions has been well regarded for the hedging program that you guys have put into place. Can you share with us the thoughts on the hedging program? And then second, what kind of interest rate environment is ideal for you as you put the hedging program in place? David Turner - Regions Financial Corp - Chief Financial Officer, Senior Executive Vice President of the Company and the Bank Yes. So the purpose of the hedging program was nothing more than insurance. It wasn't a trade; it was to protect us in a low-rate environment. We anticipated -- we had started that program in '18 with the expectation that rates would go down in '20, and they actually went down in '19. They caught the whole industry by surprise. And so you didn't start seeing the benefit of the hedging program until '20. It went all the way through '23. And as John kind of opened up, a lot of people thought it was a gimmick and didn't really understand what we were doing. I think now, it's been in our run rate for so long. People understand what we're doing. So right now, we are neutral to short-term rates. So we really don't care where -- from a rate standpoint, where Fed funds goes. The best environment for us is to have a normal rate environment, so 2.5%, 3% Fed funds and then have a little shape to the curve. So the 10-year being 4%-plus is really ideal for a bank. Now, if you have a 4% Fed funds, the reason I made the comment on we don't care from a rate standpoint, the question is, why is the Fed funds at 4% and not at 2.5% or 3%? And we're having this persistent inflation that's not helpful to anybody. So if we can just get back to normal would be REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 05, 2025 / 2:20PM, RF.N - Regions Financial Corp at RBC Capital Markets Global Financial Institutions Conference helpful. As those short-term rates come down, the benefits of the interest rate swaps will start to play. And we set it up to kind of be neutral when rates are neutral.

Question: Gerard Cassidy - RBC Capital Markets - Analyst : And maybe just to follow up on the liquidity part of your corporate customers, that's the real big game changer whenever we get into a credit cycle that the corporate customers should theoretically perform better.

Question: Gerard Cassidy - RBC Capital Markets - Analyst : Yes. Brian, being new to the seat, and I presume you've been out seeing your clients, of course, as John and David always do. Can you share with us, are there any new products or services or capabilities that you'd like to bring to the table to enhance the deepening of the relationships with your customers?

Question: Gerard Cassidy - RBC Capital Markets - Analyst : Got it. John, obviously, you're tied into the regulatory environment with being CEO and such. And it looks like that the new heads that are coming in to the regulatory agencies may have a more softer approach than the prior administration. Can you guys give us your view on what you've seen maybe evolving with the new regulators and how they could be more constructive with the industry and Regions, of course, to help support the growth of the --

Question: Gerard Cassidy - RBC Capital Markets - Analyst : Yes. And tying into mergers and acquisitions inside the banking industry this week, they rolled back the FDIC's M&A guidelines from 2024. How do you see M&A evolving with the banks? It's been kind of quiet for the last couple of years, but we all know you guys are products of mergers, of course, that consolidation is a critical part of the industry.

Question: Gerard Cassidy - RBC Capital Markets - Analyst : Got it. David, obviously, in your fourth-quarter earnings call, you gave us guidance for 2025. Any update you'd like to share with us how the quarter is going and how it looks? David Turner - Regions Financial Corp - Chief Financial Officer, Senior Executive Vice President of the Company and the Bank Yes. I think, obviously, there's been a lot of uncertainty out there with regards to rates. I think the front book, back book benefit that we had was about 170 basis points. It's about 140-ish now, so down a little bit, puts a little incremental pressure on our range of NII for the year of 2% to 5%. But we're still in that range. The first quarter has some anomalies in it. We had some things happening in the fourth quarter that won't repeat, will be down in the first relative to the fourth day counts, a big piece of that, too. And we had some interest recoveries in the fourth quarter. We don't know if we'll have those in the first or not. But the year is intact. And so I think our deposits are coming in a little bit better than we had anticipated this time of year, and they're always up a little bit for tax refunds. But not seeing a lot of loan growth, as Brian mentioned, but everything else kind of intact, controlling our expenses well, even though we're making an investment. So I want to be clear, our expense guide of 1% to 3% for the year includes all the investments that you just heard John and Brian talk about. So we feel good about that for 2025.

Question: Gerard Cassidy - RBC Capital Markets - Analyst : Yes. And when you do open a new branch, how long does it take you guys typically to get to breakeven in the deposit level that generally is needed for that to be achieved? David Turner - Regions Financial Corp - Chief Financial Officer, Senior Executive Vice President of the Company and the Bank Yes. So it's changed over time. It's depending on where you put the branch. It's a three- to five-year play, has historically been five years, which is a long time. And trying to tighten that up, using a little more marketing to try and get that closer to three just to breakeven and then have some growth takes you a couple more years. So it's not quick, which is why you have to be careful how many you're going to put down because they are expensive. And in order to afford to do that, then you have to tighten up costs somewhere else. And that's through two for one branch consolidation, as John mentioned, helps you justify adding that new branch where people moved, and you should expect to actually get the growth. If you're going to spend $5 million on a branch, which is about what the cost, you got to get after it to have the growth you need.

Question: Gerard Cassidy - RBC Capital Markets - Analyst : Got it. And John, you had talked about in your prepared remarks the strength and return on tangible common equity, the earnings growth as well. When you guys focus on creating long-term shareholder wealth, what do you focus on? And how do you guys try to measure that?

Question: Gerard Cassidy - RBC Capital Markets - Analyst : David, just a follow-up what you said about OCI. Assuming that in the new Basel III endgame whenever it comes, that they will keep for Category 4 banks, the OCI component in regulatory capital, how will you approach managing your securities portfolio, assuming that's going to become permanent over the next five years? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 05, 2025 / 2:20PM, RF.N - Regions Financial Corp at RBC Capital Markets Global Financial Institutions Conference David Turner - Regions Financial Corp - Chief Financial Officer, Senior Executive Vice President of the Company and the Bank Yes. So there will be several things that we have already started to do in anticipation of that coming into capital. So we had probably the lowest

Question: Gerard Cassidy - RBC Capital Markets - Analyst : And speaking of capital, can you just update us on your thinking on CET1, where you are today and where you think you may get to once the rules are finally laid out? David Turner - Regions Financial Corp - Chief Financial Officer, Senior Executive Vice President of the Company and the Bank So we've, for a while now, had a range of CET1 9.25, 9.75. That's the range we think we need to have for the risk profile that we run. And we -- that's been proven through a lot of the CCAR work, our own stress testing. And so call it, 9.5% right in the middle is where we wanted to be. We're substantially higher than that today because we know OCI is going to come in to play. If you were to apply OCI today, we're probably in that 9.1 pushing on 9.2 because of the 10-year coming down the way it has. We'll see where it finishes in the quarter. But we're within striking distance of that regime, even though there will be a phase in, we thought getting to that [9.25] at the low end. It was important to get there sooner rather than later. Then it gives us a lot of flexibility to use our capital in the manner that we want, which is support loan growth, make sure we have an appropriate dividend, 40% to 50% of our earnings paid out the dividend, non-bank acquisitions. We're not looking at bank acquisitions today. And then we use -- the last is to repurchase our shares, which we really don't like to do, but we will to keep our capital from being bloated. So that's kind of how our order is from capital allocation.