Okay, great. I have to read a disclosure first. For important disclosures, please see Morgan Stanley Research Disclosure website at morganstanley.com/researchdisclosures. If you have any questions, reach out to your Morgan Stanley sales representative. All right, super. With that out of the way, please join me in welcoming to the stage Regions Financial. We are pleased to have with us this morning John Turner, Chairman, President, and CEO of Regions. Thanks so much, John, for joining us. David Turner, Chief Financial Officer, and Kate Danella, Head of Consumer Banking. With that, John is going to kick off with a couple of slides, and then we're going to get into some Q&A.
Somebody have—oh, here it is. Okay.
Yes.
Yeah. Okay. Thanks, Betsy. Just a couple of maybe comments, introductory comments. Our focus has been on building consistent, sustainable, long-term performance. We talked a lot about soundness, profitability, and growth. That has led us to focus on improving credit risk management, liquidity and capital risk management practices and processes, operational and compliance risk management. We focused on diversifying and growing our revenue streams, and we've been investing in people and technology. Part of that focus on credit risk management, better client selectivity, better underwriting, effectively has, I think, significantly improved our credit risk outcomes. That is reflected in our CCAR results, as you can see here. Our capital degradation under stress is quite a bit better than the median average. Our PPNR, as a percentage of stress losses, again, the best amongst our peer groups.
I think very reflective of the quality of work we've done around credit risk management. All that's led to better returns. Since 2015, we've come from the bottom quartile to be the top performer in return on tangible common equity over each of the last four years, and are trending to make that a fifth year in 2025. Additionally, you've seen nice growth in earnings per share as we've been a top quartile performer on both a five and 10-year relative basis. We, you know, we look at these total shareholder returns and, again, feel like that our—we have delivered dividend growth of better than 10% on a CAGR basis, which is the top of our peer group as well. All those results have resulted in total shareholder return of over three, five, and 10-year basis.
It puts us, again, at the top of our peer group. We think that growth in tangible book value and the payment of dividends is a real proxy for a good stock price should be correlated. Again, as you can see here, our experience has been very good as we've delivered top quartile performance, tangible book value, and dividends on a relative basis. We also have, over the last 10-year period, bought back more stock on a relative basis than any of our peers as well. A great footprint, we talk often about that, really leads to our strong performance. 70% of our markets, we have top five market share or better, and our markets are growing at about 1/2x faster than the national average.
When you add our priority markets, we'll talk about in a minute, they grow at about 2 and 1/2x faster than the national average. We have a really good opportunity within our markets, and we expect to continue to benefit from that over time. Deposits have been growing. We talk about growth, and while we have not—we are not projecting a lot of loan growth for this year, deposit growth continues to be very good. We are doing that at a cost that is considerably less than our peers. All that has led, again, to, I think, top—when you combine our hedging strategy with the quality of our deposits, it has led to peer-leading margins, which continues to contribute to our overall profitability. Again, I talked about our priority markets. We have identified eight. You can see the names of those markets here.
They have contributed already to about $12.5 billion in deposit growth over the last five years. The deposit opportunity, the deposit gathering opportunity in those eight markets is over $1.5 trillion. Truly exceptional markets. We have been growing in each of the markets and have increased our market share in six of the eight today. We continue to make investments in our business. We will add about 170 bankers over the next three years in commercial banking, in wealth banking, in treasury management, and in our mortgage business. We are also—think about the way we focus on capital allocation. We think about human resources, human capital in the same way.
We are reallocating about 600 of our branch bankers who will be reskilled and focused on markets where we have real discrete opportunities, a high concentration of either small business bankers or wealth bankers around those markets, mostly in our priority markets. We think that will help drive additional growth. There are about 12 million small businesses in our priority markets. Today, we bank 400,000 of those customers. We think there is a tremendous opportunity. We are already seeing good success here as we have generated over $2.5 billion in deposit growth amongst small businesses across our markets. We are going to continue to invest in our businesses, invest in technology, invest in people. We think there is a real opportunity to continue to grow and deliver the same kinds of results that we have delivered over the last five years.
With that, Betsy, maybe we'll go to Q&A. Is that okay?
Super. That sounds terrific. Thanks so much, John, for that overview and reminding us about the profitability and the growth opportunities you have. I did want to dig into all of that. First, I wanted to understand how are clients thinking about investing today? Obviously, we've had quite a bit of volatility with the tariff talk year to date. You've been out visiting with clients recently, right, across any particular regions that you've been to?
Across our footprint, the bulk of our business is in seven southeastern states and Texas. That is where I have spent more time. I have talked to bankers across our footprint and customers, obviously, as I have been out in markets. I would characterize their attitudes, as I am sure others have, as sort of wait and see. Customer sentiment is better. I would not call it positive, but it is definitely less negative than it was the first part of September. We have seen continued improvement. Customers are preparing to invest. Pipelines within our small business and middle market business have continued to grow. The corporate sector, which we would refer to as companies with $250 million or more in revenue, is still soft. Real estate pipelines are beginning to pick up as multifamily developers look out and see opportunities to begin thinking about development.
All in all, I'd say customers are today patient. They are watching closely what the impacts of tariffs, immigration reform, and other things might be. Generally, the underlying economy is good, and sentiment is, is okay.
Okay. And putting capital to work is on pause, or?
Yeah. I mean, I think we're seeing some borrowing activity again amongst those small business and middle market customers who just have a consistent need. There's definitely not been the level of activity that we anticipated at the beginning of the year. That is reflective of uncertainty about the path of tariffs and generally the economy. All in all, I think the tone continues to improve.
Okay. Kate, how are consumers and small businesses that you focus on handling the volatility?
Yeah, Betsy, same or a ditto for John's comments on the small business side. On the personal side, it's a similar kind of slight mismatch between feeling and, in fact. So sentiment is slightly down, because of the uncertainty, obviously. Consumers have watched their 401(k) volatility there, the mortgage market not rebounding, like many of us had hoped. But to the facts and just where how consumers are behaving, responding, still in a position of strength. If you look at retail spend as an example, our spend for our customers, our everyday spend. If you look at Costco, if you look at Amazon, that's up year over year. Walmart, up year over year. Restaurants, entertainment, flat. Discretionary spend, which is where you see some of the softness, is still holding up. Spend is holding up.
I think if you were to look at employment and payroll, our unemployment receipts are still below 2019 levels. Our payroll, Social Security is still indicating a strong labor market. In fact, payrolls are up on a real basis, adjusted basis from 2019. I think we have a page in the slide deck around average balances in our checking accounts relative to spend. Our customers are holding about 1.6x their spend in their checking accounts. That is slightly down from pre-pandemic. When you factor in the balances in interest-bearing accounts, that is really where the delta is. You know, across all spend balances, payrolls are all still indicating financial strength across most of our customer segments, really all of our customer segments.
Excellent. Thank you. David, how would you describe the impact, expected impact of tariffs on your C&I loan book, from a credit perspective? And is there any sectors you're leaning into or pulling away from?
I think there's still uncertainty with regards to the impact of tariffs. I mean, there are going to be some winners and some losers. What our clients are telling us is depending on the level of the tariffs, so if you're in the 20%-30% range, they're telling us they can deal with that. Part of that, they'll eat. Part of that, they'll pass through to clients, I mean, to their customers. If you can get it down from some of the levels that we've heard about to a little bit lower, that's all doable. I think you can do that without having any real credit events. We don't have a lot of credit risk identified yet for tariffs. You know, when we set the reserve at the end of the first quarter, all that hadn't happened.
were not discussions, until after that. We need to wait till June. I do not see any real big change to credit coming up. All bets are off until June 30th. Right now, things seem to be okay with regards to credit. Our customers are pretty healthy. Kate just talked about consumers are pretty healthy. We talked about charge-offs being in the 40 to 50 range, with it being a little higher in the first half of the year, and then settling down to the lower part of that range in the back half, such that the end of the year will probably be between 45 and 50.
Okay.
Yeah. Betsy, I sent you an, last time I checked, we have a very disciplined, structured process to get out and talk to customers and try to understand what they think the impact might be. Last time I checked, we had talked to over 70% of our customers of any size. And to David's point, it is a very, the results are mixed. Some will potentially do better, some not as well. There have been no sirens go off, no great concerns at this point.
Okay. Great. John, let's move on to strategy. You gave us some of the results of that strategy in your slide deck with peer-leading returns, and a great footprint. Just want to understand your assessment of your competitive position within the regions, and where there are opportunities to lean in. You talked about the deposit share you've been taking in the priority markets. Maybe you could talk a little bit on how that could translate into some incremental growth for you.
Yeah. So, you know, we think we're very well positioned. We have a nice mix of core markets, places that we've been for 150, 160, 175 years, markets that generate much of the core deposit base that we enjoy, the low-cost, loyal core deposit base we enjoy, and these priority markets where we have growth opportunities, where there's $1.5 trillion in deposits that we can compete for. At the end of the day, our business is about gathering deposits. What we do with those deposits, those customer relationships, operating deposits, then drives the success of our business. There will be periods of time when we lean into lending because the market gives us those opportunities. At the core, we're focused on, are we growing core relationships? Are we growing operating deposits? Are we growing fee income that comes with those relationships?
I think if you look at our business today, we've been growing core deposits at a rate over 30%, at the top of the peer group and at a very low cost. We are growing our service charge revenue. We're growing treasury management revenue at a 9% clip. We've been growing wealth management at an 8.3% CAGR over the last six years. The business, the core business is growing. We are exiting certain portfolios from time to time, very focused on capital allocation and credit risk management. Loans are not growing as rapidly, but they will grow over time when the opportunity exists. In the meantime, the core business is doing well, and we're in some really good markets.
What is needed to unlock loan demand?
Yeah. I mean, I think customers need to have more clarity about the path forward. They need to feel more certain about the economy and understand. I mean, everybody's not impacted directly by tariffs. Everybody's, I guess, indirectly impacted by tariffs. Everyone wants to understand the path of the economy, wants to feel confident about the future. We still need a little clarity, I think, in order to unlock demand.
Now, you also discussed at the beginning of the year the strategy to add bankers and relationship managers across the franchise. How far along that effort are you?
We, as an example, we'd like to hire 80 commercial bankers. As of yesterday, I think we'd hired 23. It's a three-year objective. We're continuing to recruit bankers in our markets, wealth bankers, treasury management bankers, mortgage loan originators. Kate and Mike can speak to mortgage. It is a process. It'll take some time. We're, what is that? We're 25% of the way there, 30% of the way there.
Okay. Do you think that you're going to get to that 80 by year-end, or that's just a multi-year goal?
I think it's a multi-year goal.
Okay. And then what about the capital markets growth strategy? That's part of that.
I think the market conditions have led to less growth over the last two-plus years in the interest rate environment and other factors. But we're really happy with the success we're having with capital markets and continuing to build that business. Remember back in 2014, it was a $65 million business, really built solely around our derivative sales in an environment where you could really push a lot of interest rate derivatives out. That business has changed, and the opportunity has changed. Yet we've grown to a $340-$350 million business. We think our capital markets platform is a $400 million business over time. This year, we expect to generate $80-$90 million a quarter on a run rate.
We feel good, feel good about capital markets and the impact it's having not only on diversifying revenue, but on strengthening relationships with customers, which was a primary objective.
Okay. You talked a little bit about treasury management. What's driving the growth there?
Yeah. A couple of things. One is enhanced product offerings. Two is a focus on cash and the cash conversion cycle. You know, our bankers, we think, are highly skilled in talking to customers about cash, about their cash and cash conversion, which is why we are not leading with credit. We are leading with talking about the customer's business and how cash and the cash conversion cycle affects their business. That has led to a lot of success, continuing to grow treasury management opportunities. Today, about 65% of our corporate banking or wholesale customers have a treasury management relationship with us. We have some upside opportunity, continuing to grow that. Last year, we grew relationships at about 10% and fee income at about 9%. You add that growth in relationships plus with new product offerings, and that is driving the growth in revenue.
Okay. Cash conversion?
You know, like, businesses understanding what it means to sell a product, carry a receivable, collect a receivable, buy more inventory, and how does that affect their working capital?
Got it. All right. Kind of the basic fundamentals.
Basic fundamentals of operating the business.
Okay.
Cash is king, we say, so.
Got it. Kate, maybe you can speak a little bit about that. I'm sure in your world with the branches, with the small business, can you speak to how you're utilizing the treasury platform that Regions has?
I'll start maybe a little bit with the banker strategy for us. We noted earlier we're investing in mortgage loan officers. We're about eight bankers ahead of schedule. It's a three-year plan. Ahead of schedule there, on the 600 bankers that we are repurposing in micro markets where we have outsized opportunity in small business or wealth, we're about 65% in staffing. Those 600 bankers will get there by end of year, certainly before end of year. Feel good about those investments and the efforts to date to get there. As it relates to small business, our focus is on the micro businesses in our branch trade area. We're focused certainly on cash management, but first getting that deposit, checking account payments.
We have really focused our bankers, built a proprietary AI tool to help look within the 400,000 customers that we serve today, to identify needs, prompt next best actions. That feeds a lot of our outbound marketing as well as our conversation guides for our bankers. We rolled that tool out, something that we leveraged from our corporate bank, rolled that out at the beginning of the year and the beginning of this investment platform that we are making in small business. Tools, people, training, and really think that will help put wind in our sails as we grow small business through the branches.
Excellent. Then on wealth, wealth is driven out of a separate channel then.
Right.
You and Kate, is that right?
Right.
Yeah.
Yeah.
Can we talk a little bit about where the opportunities are in wealth?
Yeah. We have been growing the lower end of the market, which is a retail-focused platform. We call Regions Investment Services. It is essentially a branch brokerage business. That has been growing rapidly. If you go back to, again, maybe 2014, 2015, we had zero branch-based brokers. We have added now over 250. They are continuing to drive revenue and to strengthen relationships with existing customers. In addition to that, we have a very effective investment management and trust platform through both our private bank, our wealth bank, and our corporate trust group. You know, we have, this may surprise some people, we provide a wide range of services. In addition to management of securities portfolios, we manage natural resources. We manage over one million acres of timberland. We manage oil and gas properties, commercial real estate, farmland for families and wealthy individuals.
That business continues to grow at a nice, nice clip. I think I mentioned the CAGR over six years is about 8.3% growth in wealth management. We are looking to hire more wealth bankers, tremendous in-migration of people into our markets. We think that presents a real opportunity to us and, for us. We will continue to invest there.
You manage some very diverse asset classes for your clients. You know, as the GENIUS Act makes its way through Congress, there is going to be more opportunity for banks to work with crypto assets and digital assets. I'm wondering, is that something that you would consider adding to the product set that you offer to your clients?
Never say never, but I've not been a great fan of crypto. I think we'll be a follower there for sure, not a leader.
Okay. I guess a function of demand from clients, that.
Yeah. That's right.
Okay.
We, and frankly, we have not had a lot of conversation with the customers about that. We do pay attention and follow what our customers are doing for sure.
Okay. All right. Excellent. Kate, with that wealth strategy, you do need to partner with the wealth team. Is that right?
That's right. The 300 bankers, three of the 600 bankers that we are upskilling, are going to be focused more and more on partnering with the wealth organization. We do a great job partnering with them today, but we have identified markets and really within a branch radius where we have outsized opportunity. Those 300 bankers will be focused on certainly home equity mortgage, but making referrals into the wealth organization. It is at a very hyper-local branch-by-branch basis.
Okay. Super. Back to you, John. Just, generally speaking here, we've got a new administration that is considering lightening the regulatory, regulatory burden on banks, right? We heard from Michelle Bowman on Friday. And while I know a lot of that is G-SIB-focused, there's discussion around, regulation in general.
Mm-hmm.
There is the supervision process. You know, the list goes on. How are you thinking about what is likely going to change here? What is the most important change that you are looking for, and how would that impact Regions?
Yeah. You know, we think we'll get more clarity on capital liquidity, obviously. I think long-term debt. We hadn't heard anybody talk about that. That proposal's probably not coming up anytime soon, if ever. I think M&A, there appears to be a more favorable tone around M&A, which should be helpful to the industry in general. I think the two biggest things from our perspective will be increased transparency, so better dialogue with regulators around their observations and ours. We participate in the CCAR process every other year. We'd love to have better insight as to what their observations are about our stress losses, etc. We've never had those kinds of conversations. That would be helpful.
The other is just generally the regulatory tone and supervision, which, again, I think there'll be more transparency around and a little more clarity. We've not, as someone said at dinner last night, it's been 15 years since the regulatory regime has at least been as appeared to be as favorable as it looks like it may be now. You know, that's not to say that, you know, I expect we're going to get everything we want. The reality is the industry has improved tremendously over the last 15 years in terms of the way that we're structured, the way we're organized, the amount of capital liquidity that we carry, our processes, our controls, so much better than we were 15 years ago.
I welcome the balance, which is what I think we're going to get, just a little better balance between the industry and supervision.
You brought up M&A as a positive for the industry. Could you speak a little bit to how you could potentially use that more transparent, predictable M&A regulatory environment?
Yeah. So we, I think, have been real consistent that we have not been interested in depository M&A. That is still true. Go back to 2014, 2015, as we looked at the environment then, our currency was not very good. We did not believe we could participate in M&A if we wanted to. We did see a real path to top quartile returns if we could execute our plan, which we did. That has helped improve our currency. We still believe that we have a real opportunity. Just focus on execution of our plan. We can continue to deliver top quartile results and grow the business versus do an acquisition, which can be very disruptive. Think about that. Add to it the fact that we have got a big technology project underway. We would expect to complete our core deposit conversion sometime in 2027.
Until then, I think we're going to just do what we do every day. Depository acquisition is not necessarily in our future. Non-bank M&A, we've been very interested in. I think we've been successful executing. We'll likely continue to try to find those opportunities. They've been harder to find over the last two or three years as others have been interested as well. That is our view on M&A.
Your point on good for the industry?
I think the tone will be good for the industry. That is, it does appear that, based on comments that leadership within the regulatory agencies have made, they're more favorably inclined to support M&A activity and to expedite processes. Whether things get approved or not, there's still a process for that. Creating clarity around and creating a better process so it's more clear and expeditious, I think they're committed to, which will be good for the industry.
When you think about the opportunity set ahead of you for non-depository acquisitions, thinking about where, where would you be leaning towards? Is it acquiring talent in some of the fee-based businesses you talked about, or is it more on the technology side or?
We, you know, we're continuing to look for mortgage servicing right acquisition opportunities. We may or may not want to add some capabilities within wealth management. Those are, a lot of those are people-centric. They're expensive. They're just hard to find. On the capital market side, we have most of the capabilities we'd like to have. We talk sometimes about fixed income sales and trading. We don't originate fixed income offerings. We typically participate. Might we like to do that? We don't have the sales and trading capabilities we'd need. That is expensive and hard to start. Again, we're looking kind of around the edges. We might add to some of the things that we currently do, but we don't have, different than going back to 2014, 2015, 2016. You know, we don't have nearly the needs that we did back then.
Okay. Super. On the thought of increasing your share, we'll look to Kate to help drive that
in markets.
Yes.
Yes. Yeah. We are laser-focused on growing households, growing operating accounts, participating in the growth in our markets. We, as John mentioned, have the luxury that we do not need to de novo in a net new market because our markets are growing so well that that is very expensive and time-consuming. What we look at every single day is optimizing the footprint we have.
Okay. Great.
Closing in lower growth areas of certain markets in order to open and constantly optimizing. That's what we'll continue to do. It's been proven to be very successful for us.
Thanks so much, Kate.
Actually, I'd love to add back to the M&A in these markets. If there's M&A in our markets, that creates a lot of disruption. We're not going to be part of that, as John mentioned. We are going to be part of taking advantage of that disruption if it occurs. If somebody's going to do a deal where we are, then we're going to be all over customers and people and trying to grow our business that way as well.
Okay. David, while we have you, maybe we could talk a little bit about the numbers. First off, any change to guidance that you have for us right now?
You know, things are trending like we laid out in our guidance, in our deck. You know, we've continued to see benefit coming from the front book, back book, repricing of the balance sheet, $12 billion-$14 billion worth of fixed-rate asset repricing, securities, and loans, picking up 125-150 basis points. We're neutral to rate, short-term rate. It doesn't matter whether we hit rate cuts or not, relative to interest rate risk. You know, having a little shape to the curve, a little steepening there helps us a bit. We're where we want to be with regards to continuing to drive growth and to earn net interest income. We talked about getting our margin to the 360 range. We were 352 last quarter. We're going to get to 360 by the end of the year.
It looks like we might be able to get there a little sooner. Things are working well. Our deposits continue to reprice down. If you take CDs, a lot of them in Kate's world that mature and come up for repricing, we're getting benefit from having lower interest costs there.
Your NII guide of plus 1% to plus 4% year on year with the curve could be pushing up towards mid.
Right now, kind of the core is right there in the middle.
Mm-hmm.
That is 2% or 3%. Things continue to work out. We get, you know, like I said, a little shape to the curve, and it stays there. Could we be pushing to the upper end maybe? We do not have a lot of loan growth baked in at all. Our deposits continue to trend a little bit better than we thought. Things are working to the positive on that front.
Yeah. H8 is growing at about 3%. Does that sound right to you for your business?
Yeah. I think, you know, at least as of now, and we'll see, a lot of the customers would like to put those deposits to work when they have more clarity with regards to, to the economy. That's part of why we don't have a lot of loan growth. We think those customers, commercial customers in particular, will want to work through their liquidity first before they start borrowing. That could change the total, if you will, from deposit, from a deposit standpoint.
Okay. Great. And then on fee income, growth of 1-3%. Does that still sound about right?
Yeah. We continue to do well. John mentioned service charges and embedded in that is TM. Our interchange is doing well. Mortgage is the one that's soft right now. Capital markets, those two have been a bit challenging. As John mentioned, we think we can be in capital markets of $80 million-$90 million, probably be at the lower end of that in the quarter. You know, a good component of that is M&A. That's probably 25% of that in a normal run rate, and that's episodic. It depends on if you get deals closed. You could be at the higher end of the $80 million-$90 million. If you do not, you are going to be at the lower end. Wealth management continues to be a success for us.
Okay. Great. And then on expenses, I know you're guiding flat to up 2% for the year, right?
Mm-hmm.
which is implying positive operating leverage. Maybe you can talk a little bit about where the cost saves are coming from and is there, is there more to give as we move into the future? I'm thinking about the core modernization cost, and how that is going to fade from here.
As John mentioned, we're the deposit system, we'll be working on that the remainder of this year. All of 2026, we'll start doing some conversions in the latter part of 2026 and into 2027. That's baked into the run rate. We don't see any near-term savings coming from that. We're putting in our new commercial loan system in, call it the end of the third quarter, fourth quarter, AFS Vision. That's in the run rate. We've been looking at all areas of expense. We start with salaries and benefits and occupancy and third-party spend. We're trying to save there so we can make the investments we need to make. All those folks we want to hire, we have to pay for that. We still want to generate positive operating leverage.
We have been able to do all that and have the results that we have projected.
Super. Thank you so much for joining us this morning, John, Kate, and David. It's been a pleasure. I hope you enjoy the rest of your day. Thanks so much.
Thank you. Thank you.
Thank you.