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    REGIONS FINANCIAL (RF)

    Q3 2024 Earnings Summary

    Reported on Jan 6, 2025
    Pre-Earnings PriceN/ADate unavailable
    Post-Earnings PriceN/ADate unavailable
    Price ChangeN/A
    • Regions Financial expects to achieve positive operating leverage in 2025 by focusing on expense management and investing in growth areas such as Treasury Management (relationships up 5%, revenue up 18% year-over-year ), Wealth Management (relationships up 9%, assets under management up 9% ), and Capital Markets, which is continuing to grow.
    • Strong customer engagement positions Regions to grow fee revenue, particularly in debit card fees; Regions' customer base has been first in Visa's power score for 42 quarters in a row, reflecting active debit card usage, and the bank aims to grow checking accounts to capitalize on this engagement.
    • Expected net interest income growth in Q4 and into 2025, driven by declining deposit costs due to maturing CDs rolling over at lower rates, and the bank's presence in markets with strong economic prospects, allowing it to benefit when customer investment resumes.
    • Persistent elevated credit charge-offs due to large exposures may continue to pressure earnings, with the possibility of higher charge-offs in some quarters.
    • Softer loan demand and weaker pipelines compared to the prior quarter may limit loan growth prospects into 2025, especially amid economic and political uncertainties.
    • Competitive pressures on deposit rates may challenge the bank's ability to grow deposits without compressing net interest margins, as they need to balance deposit growth with competitiveness in rates.
    1. Net Interest Income Momentum
      Q: Is the target of a 360 million margin still intact, and what's the outlook for NII growth?
      A: David Turner confirmed that the margin target of 360 million is still intact and expects to be in the lower part of the 350s in the fourth quarter. He anticipates NII growth into 2025, driven by the benefit from the front book-back book dynamics, earning asset growth, controlled deposit costs, and natural resetting of derivatives, which had a negative carry of $110 million in the past quarter. As rates come down, resetting derivatives will help offset lowering rates, giving confidence to grow margin next year.

    2. Expense Expectations and Positive Operating Leverage
      Q: Can you discuss the confidence in upwardly revised expense expectations and the outlook for positive operating leverage next year?
      A: David Turner expressed confidence in the expense estimates for the year, seeing no significant uncertainties that could alter the outlook. Expenses are closely managed, with continuous efforts to find savings opportunities to reinvest in growth, setting up for growth in 2025. He affirmed that the company will generate positive operating leverage in 2025. John Turner added that salary and benefits are controllable expenses, and investments are being made in a major technology project that is on track and on budget.

    3. Credit Quality and Charge-Offs
      Q: Do you expect charge-offs to remain in the 40–50 basis points range, or could they decline over the coming quarters?
      A: John Turner expects charge-offs to range between 40 and 50 basis points, aligning with historical performance before the pandemic, which averaged 46 basis points. There may be quarters with modestly higher or lower charge-offs due to large exposures or better performance, particularly in the consumer portfolio, which is currently performing very well.

    4. Deposit Pricing and Costs
      Q: Can deposit costs be reduced further even without additional Fed rate cuts?
      A: David Turner expects deposit costs to continue declining into the fourth quarter, even without further rate cuts. Maturing CDs with rates of 4.25% to 4.50% are being replaced with new rates closer to 4%, and the exit rate for interest-bearing deposits was 2.20%, down from 2.34% for the quarter. The company is well-positioned to grow NII in the fourth quarter and into 2025, balancing deposit growth and loan growth to maximize net interest margin.

    5. Deposit Repricing Outlook
      Q: What's the expected cadence of deposit repricing over the next several quarters, and what's the typical deposit spread when the neutral rate is 2.75% to 3%?
      A: David Turner noted that $3 billion in deposits will mature in the fourth quarter, with retail CDs maturing from rates of 4.25% to 4.50% to new rates closer to 4%, with an average duration of about five months. Money market rates can be adjusted quickly as well. At a 3% Fed funds rate, total deposit costs would be around 1%, resulting in a couple of hundred basis points spread between the Fed funds rate and deposit costs.

    6. Loan Growth and Demand
      Q: What is the outlook for loan demand and growth, and what catalysts could drive a material pickup?
      A: John Turner stated that customers are cautiously optimistic, with the economy slowing but still positive. Growth has been seen in middle market commercial, energy portfolio, and asset-based lending, offset by declines in the real estate book as projects mature, particularly in multifamily. Pipelines are softer than last quarter, but modest loan growth is possible in 2025 as political and economic uncertainties diminish. David Turner added that with an expectation of real GDP growth of over 2% in 2025, the bank is positioned to take advantage of opportunities when uncertainties dissipate.

    7. Fee Income Growth – Card and ATM Fees
      Q: Can you discuss the outlook for growing the card and ATM fee line, given recent declines and the risk of debit card interchange reform?
      A: David Turner attributed recent declines to volume and mix between credit and debit, with no systemic issues preventing future growth. He emphasized the opportunity to grow this line by continuing to grow customers and checking accounts, leading to more cards in customers' hands, especially in their growing markets. John Turner highlighted that Region's customers have been first in Visa's power score for 42 quarters in a row, reflecting active debit card usage. As they continue to grow households, there's plenty of opportunity to grow fee revenue in this category. The risk of debit interchange rules changing has quieted down, and they are not counting on any changes in 2025.

    8. Deposit Growth Outlook
      Q: What's the implication of deposit rates on deposit growth, and how are you fueling the balance sheet?
      A: David Turner believes that being in markets with migration of people and businesses provides opportunities to grow deposits. The core strategy focuses on growth in checking accounts for consumers and businesses, including small businesses. Deposits are up about 30% since 2019. The bank manages about $8 billion of cash off-balance sheet for corporate banking customers, which could be brought on-balance sheet if needed by adjusting rates. The goal is to balance deposit growth and loan growth to maximize net interest margin.

    9. Investments in Capital Markets and Private Credit
      Q: Are there plans to invest more in capital markets, specifically in private credit, to power growth in that line?
      A: John Turner is monitoring developments in the private credit space but has no specific inclination at this point. Much of the private credit origination seen in their markets involves higher leverage and structures that don't currently interest them. The focus is on optimizing existing investments in Capital Markets, such as Small Business Administration (SBA) real estate originations, M&A advisory platforms like Clearsight and BlackArch, and potentially adding capabilities like fixed income sales and trading over time. The immediate priority is executing well on current investments rather than pursuing new ones.

    Research analysts covering REGIONS FINANCIAL.