Q4 2024 Earnings Summary
- Regions Financial expects robust C&I loan growth of over 3%, driven by investments in growth markets and the hiring of additional bankers to capitalize on these opportunities.
- The company is committed to generating positive operating leverage by carefully managing expenses, including salaries and benefits, occupancy costs, and vendor spend, while investing in technology like a new loan and deposit system to enhance capabilities and efficiency, providing a competitive advantage.
- Regions Financial plans to return capital to shareholders through a target dividend payout ratio of approximately 45% of earnings and share buybacks, depending on loan growth and capital needs, enhancing shareholder value.
- Limited loan growth expectations: Regions Financial projects only approximately 1% loan growth for full year 2025, citing headwinds in commercial real estate and consumer lending that will offset C&I growth of a little over 3%.
- Elevated net charge-offs anticipated: The company expects full year net charge-offs to be towards the higher end of their through-the-cycle range of 40 to 50 basis points, with losses more elevated in the first half of the year, attributable to certain loan portfolios.
- Challenges in achieving higher loan growth despite favorable markets: Despite operating in markets with strong economic and population growth, Regions Financial faces obstacles in achieving robust loan growth due to customers' excess liquidity, low loan utilization rates, competition, and stagnant consumer and real estate lending.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +0.2% (Q4 2024: $1,815M vs Q4 2023: $1,811M) | Total Revenue remained nearly flat because modest operational growth (from both net interest and fee income) was largely offset by rising funding and deposit cost pressures; this reflects the broader challenges of a high-rate environment that were also observed in previous quarters. |
Net Income | +36.8% (Q4 2024: $534M vs Q4 2023: $391M) | Net Income increased significantly due to improved operating performance and effective cost management—including possibly lower credit provisions and efficiency gains—building on earlier performance improvements seen in prior periods, which helped overcome the external pressure from rising funding costs. |
EPS – Basic/Diluted | +43.6% (Q4 2024: $0.56 vs Q4 2023: $0.39) | EPS benefited from the higher net income and stable share count, translating operating and cost management improvements into a robust per-share gain. This upward trend continues the company’s effort to improve profitability despite challenging market conditions. |
Interest Expense |
| Interest Expense skyrocketed as the company shifted towards higher-cost funding sources—driven by increased deposit costs and rising borrowing rates—in a high interest rate environment. The dramatic jump suggests that the very low cost structure seen in Q4 2023 was not sustainable and that Q4 2024 reflects a normalization (or even worsening) of funding costs compared to previous periods. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Net Interest Income | FY 2024 | Expected to grow in Q4 2024 and beyond; margin 350 bps in Q4 2024. | no current guidance | no current guidance |
Noninterest Income | FY 2024 | $2.45B to $2.50B. | no current guidance | no current guidance |
Noninterest Expense | FY 2024 | $4.25B. | no current guidance | no current guidance |
Net Charge-Offs | FY 2024 | Toward the upper end of 40–50 bps. | no current guidance | no current guidance |
Capital Markets Revenue | FY 2024 | $80M to $90M in Q4 2024, potential for $100M in more favorable rates. | no current guidance | no current guidance |
Deposits | FY 2024 | Interest-bearing deposit costs expected to decline in Q4 2024 (mid-30s beta). | no current guidance | no current guidance |
Operating Leverage | FY 2025 | Committed to generating positive operating leverage in 2025. | no current guidance | no current guidance |
Net Interest Income | FY 2025 | no prior guidance | Expected to increase 2%–5%. | no prior guidance |
Noninterest Income | FY 2025 | no prior guidance | Expected to grow 2%–4% vs. FY 2024. | no prior guidance |
Noninterest Expense | FY 2025 | no prior guidance | Expected to increase 1%–3%. | no prior guidance |
Net Charge-Offs | FY 2025 | no prior guidance | Toward the higher end of 40–50 bps. | no prior guidance |
Loan Growth | FY 2025 | no prior guidance | 1% average growth. | no prior guidance |
Deposit Growth | FY 2025 | no prior guidance | Relatively stable vs. FY 2024, modest consumer offset by commercial decline. | no prior guidance |
Capital Management | FY 2025 | no prior guidance | CET1 ratio managed closer to 9.25%–9.75%, inclusive of AOCI. | no prior guidance |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Loan Growth | Q3: Slightly lower ending loans, still aims for modest increase in 2025. Q2: Stable with 1% business growth, cautious but optimistic for 2025. Q1: Muted growth, focusing on client selectivity. | Expects modest 1% total growth in 2025; C&I projected at 3% but offset by softer real estate and cautious consumer lending. Emphasis on risk-adjusted returns and portfolio remixing. | Recurring; sentiment shifted from cautious to slightly more positive outlook in 2025. |
Net Interest Margin | Q3: Aiming for mid-350 bp range in late 2024, potentially 360 bp in 2025. Q2: Down 4 bps but targeting 3.50% exit rate in 2024. Q1: Projected upper 350–360 bp range by year-end, deposit remix was a headwind. | Reported 3.55%, up 1 bp, aided by securities repositioning and stable deposit costs. Expects further benefit into 2025. | Consistent topic; marginal improvement with favorable repositioning. |
Operating Leverage | Q3: Tight expense control plus investments to drive leverage. Q2: Balancing expenses with revenue growth, aiming at better efficiency. Q1: No mention. | Committed to positive operating leverage in 2025; guiding 1–3% expense growth while investing in tech and talent. | Recurring since Q2; steady bullish tone on cost discipline and growth. |
Credit Quality and Net Charge-offs | Q3: Charge-offs 48 bps, ACL 1.79%. Q2: $102M in charge-offs, upper end of 40–50 bps range, ACL stable at 1.78%. Q1: 50 bps with a couple large credits, projecting 40–50 bps for full year. | Net charge-offs of $120M (49 bps), up slightly but within expectations. Nonperformers at 96 bps of loans. 2025 losses to track high end of 40–50 bp range, mostly reserved. | Recurring with slight uptick in loss levels but remains within guided range. |
Fee Income | Q3: Fee income +9% QoQ; strong M&A, underwriting. Q2: Down 3% on lower capital markets/mortgage; expects mid-single-digit growth. Q1: +6% from capital markets, offset by lower overdrafts. | Targets 2–4% growth in 2025; capital markets remain strong ($80–90M/quarter), wealth management growing double digits. | Recurring; stable positive outlook with capital markets as main driver. |
Deposit Growth | Q3: Stable balances, deposit costs peaked and expected to ease. Q2: Seasonal fluctuations but overall stable, NIB 30%. Q1: Seasonal tax inflow, mix shift slowing, expects bottom in H1 2024. | Modest QoQ increase, stable noninterest-bearing mix (low-30%), uses promotional rates where needed. Expects overall flat deposits in 2025. | Recurring; continued focus on deposit stability and selective pricing. |
Capital Returns | Q3: $101M buybacks, $229M dividends, CET1 9.1%. Q2: $87M buybacks, $220M dividends, 10.3–10.4% CET1. Q1: Fair dividend, opportunistic buybacks, 10.3% CET1. | Dividend payout 40–50% of earnings; share buybacks scale with loan growth; CET1 targeted at 9.25–9.75%. Repurchased $58M shares in Q4 2024. | Recurring; flexible capital return plan tied to growth and regulatory needs. |
Technology Investments | Q3: Significant project on track, focusing on tech, cyber, compliance. Q2: Core conversions, 9–11% of revenue to IT. Q1: Core systems on time and budget. | Rolling out new deposit (by 2027) and loan systems (by mid-2025), cloud-based approach, 9–11% of budget to IT. Aims for faster product launches and better bundling. | Recurring; high-priority upgrades with incremental progress each quarter. |
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Expense Outlook and Operating Leverage
Q: How will you manage expenses to create capacity for investments?
A: Management is focusing on controlling headcount, reducing occupancy costs, and optimizing vendor spend to create capacity for investments in technology like new deposit and loan systems. They are committed to generating positive operating leverage through these efficiency measures. -
Capital Management and Buybacks
Q: How do you plan to manage capital and return capital in 2025?
A: The priority is to use capital to grow the business, especially loan growth, but without forcing it. Dividends are targeted at 40% to 50% of earnings. They aim to maintain a CET1 ratio within 9.25% to 9.75%, considering potential regulatory changes that include AOCI in capital. Buybacks are included in the plan but will depend on actual loan growth. -
Deposit Pricing and NIM Outlook
Q: How do you see deposit pricing evolving and its impact on NII?
A: Management aims to be competitive in deposit pricing while managing costs. They project a 35% down beta on deposits. Maturing high-cost CDs will help lower costs. Hedging strategies are in place to protect NII. A steeper yield curve would be beneficial. -
Loan Growth and Returns
Q: What are the expectations for loan growth and factors affecting it?
A: Overall loan growth is expected to be about 1% in 2025. C&I loans are projected to grow over 3%, but investor real estate loans will be challenging, and consumer loans will have mixed results. They are focusing on risk-adjusted returns, exiting relationships that don't meet return expectations, and reallocating capital accordingly. -
Net Charge-offs and Credit Outlook
Q: Will net charge-offs exceed 50 bps in the first half?
A: Net charge-offs could drift slightly above 50 basis points in a quarter due to a handful of large credits in office, senior housing, and transportation. They are appropriately reserved for these losses, and coverage ratios may begin to come down absent loan growth and with an improving economy. -
Fee Income and Non-Interest Revenue
Q: Can you explain the outlook for fee income categories?
A: Capital markets income is expected to be in the range of $80 million to $90 million, with possible fluctuations due to M&A activity and the rate environment. Service charges are stable, and wealth management continues to grow at double digits. Card and ATM fees were impacted by adjustments to rewards liabilities, which should not repeat in 2025. -
Investments in Technology
Q: What is the timeline and benefits of your technology investments?
A: The new loan system will go live in the second to third quarter of this year, and the deposit system is expected to pilot in the second half of 2026 with full implementation by mid-2027. These investments aim to enhance client service and competitiveness through faster product launches and improved capabilities, though immediate expense reductions are not anticipated. -
Acquisitions Performance
Q: How are your acquisitions, EnerBank and Ascentium, performing?
A: Both acquisitions are performing well. Ascentium, focusing on business-essential equipment financing, has grown but faced recent pressures due to small business challenges. EnerBank is remixing its portfolio; while significant growth isn't expected in 2025, they anticipate growth over time. Both provide a natural hedge in a lower rate environment with higher spreads and appropriate risk compensation. -
Securities Portfolio and HTM Strategy
Q: Will you increase your HTM securities portfolio amid regulatory changes?
A: They have increased the HTM portfolio from 3% to 14% and plan to reach about 25%. This strategy reduces capital volatility due to interest rate changes, especially if AOCI is included in capital calculations. They aim to balance this without hindering liquidity risk management. -
Deposit Growth and DDA Accounts
Q: How can you grow DDA accounts in this rate environment?
A: They are investing in growing consumer and business checking accounts, emphasizing that expanding customer relationships is crucial. The rate environment isn't the primary driver; it's about proactive efforts to attract and retain customers. -
Expense Guidance and IT Budget
Q: Does the expense guidance include an increase in the IT budget?
A: Yes, the 1% to 3% expense growth guidance includes increased investments in technology, such as new deposit and loan systems. While the IT budget may rise over time, they are committed to offsetting this through efficiencies in other areas like salaries, benefits, and vendor spend. -
Investments in Fee Income Areas
Q: What are your priorities for fee income investments in 2025?
A: They are exploring new products and services customers need, like fixed income sales and trading platforms. They are interested in acquiring RIAs for their wealth group but find current valuations too high. Previous investments like Sabal and Clearsight have been beneficial. -
Loan Growth in Footprint and Market Share
Q: What will it take to achieve mid-single-digit loan growth?
A: Headwinds include excess liquidity, reduced working capital needs, low line utilization, and challenges in real estate lending due to costs. The consumer loan book is stable but not growing significantly. Increased loan growth will require customers putting cash to work and improved market conditions. -
Organic Growth Expectations
Q: What should be the organic growth rate in a normal environment?
A: They aim to grow with the economy plus a little extra, leveraging their strong market presence. While acknowledging increased competition, they are confident in protecting and expanding their market share in both core and priority markets. -
Banker Hiring Plans
Q: How does hiring 140 bankers compare to prior years?
A: The plan to hire 140 bankers is a multiyear effort over 2-3 years, representing a 10% to 20% increase in headcount depending on the business line. This investment is included in the expense guidance and aims to drive revenue growth. -
Expense Management if Revenue Weakens
Q: Will you pull back on investments if revenue growth is weaker?
A: They are committed to positive operating leverage and believe that investments in people and technology will generate revenue growth. Expenses will be managed carefully, and investments will be made in a measured way, expecting returns over time. -
Loan System Conversion Expense Impact
Q: Will the new loan system lead to expense reductions?
A: Immediate significant expense reductions are not expected upon the loan system going live. The focus is on enhancing client service and competitive advantage rather than immediate cost savings. -
Fee Income Details
Q: What caused declines in service charges, cards, and investment management fees?
A: Non-interest revenue was distorted by an HR asset adjustment of about $15 million. Capital markets revenues are episodic, affected by factors like M&A activity and the rate environment. Card and ATM fees were reduced due to increased usage of rewards liabilities, which should not repeat in 2025. -
Technology Investments Timeline and Benefits
Q: Can you provide specifics on tech progress and expected benefits?
A: The new loan system will be implemented later this year, with the deposit system piloted in the second half of 2026 and fully implemented by mid-2027. Benefits include faster product launches, bundling capabilities, and cloud-based advantages, enhancing competitiveness and client service. -
DDA Growth and Deposits Strategy
Q: How can you drive deposit growth given current pressures?
A: They are focused on growing non-interest-bearing deposits by expanding checking accounts and capturing operating accounts from businesses. Success depends on relationship-building efforts rather than the rate environment, and they plan to invest in priority markets to achieve this. -
Repositioning Securities Portfolio
Q: Will you reposition the securities portfolio to reach HTM targets?
A: Significant repositioning like in 2024 is unlikely in 2025, as opportunities with acceptable payback periods are limited. Any future repositioning will depend on rate changes and the availability of suitable securities.
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