Regions Financial Corporation (RF) 2024 Q2 Earnings Call Summary

Optimistic Highlights

• Strong Second Quarter Earnings: Regions Financial Corporation reported strong second quarter earnings of $477 million, with earnings per share of $0.52.
• Stable Revenue and Resilient Net Interest Income: Total revenue remained stable at $1.7 billion on a reported basis and $1.8 billion on an adjusted basis, with net interest income showing resilience.
• Improvement in Asset Quality: The quarter experienced broad-based improvement in overall asset quality, with non-performing and business services criticized loans as well as net charge-offs improving sequentially.
• Growth in Wealth Management: Wealth management increased 3% to a new quarterly record, reflecting increased sales activity and stronger markets.
• Positive Outlook for Net Interest Income: Net interest income is expected to grow over the second half of the year, with expectations towards the upper end of the $4.7 billion to $4.8 billion range.

Pessimistic Highlights

• Modest Decline in Fee Revenue: Fee revenue declined modestly compared to the first quarter, primarily driven by lower capital markets and mortgage income.
• Challenges in Commercial Lending Competition: The competitive backdrop for commercial lending remains tough, especially in the Southeast, impacting loan demand.
• Concerns Over Credit Quality in Specific Sectors: While overall credit performance improved, there are ongoing concerns about asset classes such as office, senior housing, and transportation.

Company Outlook

• Expectation of Stable to Modest Loan Growth: Average loans for 2024 are expected to be stable to down modestly compared to 2023, with pipelines beginning to rebuild despite near-term macroeconomic and political uncertainty.
• Guidance on Full Year 2024: Adjusted non-interest income is expected to be at the top end of the $2.3 billion to $2.4 billion range, and adjusted non-interest expenses are projected to be between $4.15 billion and $4.2 billion.
• Capital and Liquidity: The company plans to maintain its common equity Tier 1 ratio consistent with current levels, providing flexibility to meet proposed regulatory changes and support strategic growth objectives.

Q & A Highlights

• Q: Can you walk through the key drivers of the updated NII guidance? (Ryan Nash, Goldman Sachs)

  A: The increase in NII is driven by controlled deposit costs, balance sheet growth, and a securities repositioning trade. Loan growth in the back half of the year is expected to support NII growth into 2025. (David Turner)

• Q: How is the increase in expenses driven by better revenues? (Ryan Nash, Goldman Sachs)

  A: The increase in expenses is largely attributable to the expected increase in revenue, both NII and NIR. There's also about $20 million in expenses associated with market value adjustments on HR assets. (David Turner)

• Q: Can you speak to the competitive backdrop for commercial lending? (Scott Siefers, Piper Sandler)

  A: The market is competitive, but Regions is competing effectively through quality teams and long-term relationships. Customers remain cautious due to inflation and political uncertainty, but activity is improving. (John Turner)

• Q: What are your expectations for deposit betas as rates come down? (Erika Najarian, UBS)

  A: The expectation is a mid-30% down rate beta, with different buckets of deposits having different beta assumptions. The cumulative beta is expected to be in the 43% to 45% range. (David Turner)

• Q: How do you view acquisitions, particularly in banking consolidation? (Gerard Cassidy, RBC)

  A: Regions has historically focused on non-bank acquisitions to add capabilities and diversify revenue. While observing the market, bank acquisition is not part of the current strategy due to its disruptive nature. (John Turner)