We'd like to get started with our first fireside chat after lunch here. Let me just get my papers in order. We're Regions Financial Corporation. To my immediate left, we have John Turner, who is Chairman, President, and CEO of Regions, which has about $160 billion in assets. He joined or he became President of Regions back in 2011, and he's been obviously managing and running the company for quite some time. Moving on to Anil Chadha, if I said it right.
Chadha.
Okay.
Thank you.
He's the incoming Chief Financial Officer. Prior to that, he was the Controller, and he will be taking over the official reins, I think March 31st.
Correct.
Is that correct? He's replacing, of course, David Turner, who's at the end of the podium here, and many of you know David. He's been to our conferences in the past. He joined Regions in 2005, and he's been there for over 20 years, and has been CFO since 2010. The other change in management is out front here, Dana Nolan. She's been with Regions for 37 years. Doesn't look it, but she's been there 37 years, and she's been heading up investor relations since 2016, and she would join the investor relations department in 2010. Her replacement, sitting to her left, is David Speer.
He joined Regions in 2009, and prior to taking over the head of investor relations, he headed up the strategy and corporate development area, and when he joined Regions in 2009, he joined it in the treasury department. Gentlemen, thank you for joining us today. Maybe John, we could start off with questions directed toward you. Obviously you're in a dynamic economy in the southeastern part of the United States. Maybe you could talk to us what's going on now. I know it's early in the year, but what are some of the economic trends you're seeing down there, behaviors by your corporate and consumer customers?
Yeah, you know, despite some of the recent volatility, customers remain, I think, optimistic. We have businesses continue to demonstrate really good, I think, management of their balance sheets and income statements, good liquidity, good capital positions. Businesses are generally positive. We're seeing continued job growth in our markets, nice announcements of job creation. North of Birmingham, 1,500 jobs, west of Birmingham, 1,000 jobs, down in lower Alabama, 2,000 here, 2,500 there. Same thing repeats itself in Georgia, in Tennessee, in South and North Carolina, where we do business. Good economic activity. Consumers, generally in pretty good shape. We're seeing more pressure probably on the lower income customer. Those customers bank, they have their checking accounts with us.
We don't provide a lot of credit to that customer, so we're not seeing much change in our consumer credit metrics, but we do know there's a little stress on the lower end. A lot of good job creation, so we expect continued economic expansion across our primary markets, which again are seven southeastern states and Texas. We also do business in the Midwest, which is also that economy's pretty solid too.
Yep. When you think about profitability, you guys are at the top of the heap among your peer group, of course, with a return on tangible common equity about 18%. When you look at it through the cycle, and I don't like that expression, but what's a reasonable number that when you kinda look back and as we look forward of return on tangible common equity?
Yeah. Our target, stated now a number of years ago, is 16%-18%.
Yeah.
Return on Average Tangible Common Equity, and we've outearned that for the most part over that period of time, particularly over the last five years. Our stated goal is to be in the top quartile amongst our peer group, and we've been fortunate enough to perform at the top of the peer group just based on positioning and, I think, really good Interest Rate Risk Management, among other things. I believe somewhere between 16% and 18% is going to consistently be our target, absent some changes. Again, our focus is on being in the top quartile amongst our peer group.
Yep. Anil, in the fourth quarter earnings call, you guys spoke about fee revenue growth.
Right.
If I recall, it was 3%-5% type of growth.
That's right.
through 2026. Can you give us some of the drivers behind what you expect to drive that growth?
Sure. I'll start with Capital Markets. We've espoused a range of $90-$105 million a quarter. We've stated that we expect to start the year towards the lower end of that range. We still feel like that business is gonna continue to grow year-over-year. We're seeing good activity in that business. Pipelines are building. As you know, with that business, it's always about timing of when deal activity will close. We're very optimistic in terms of seeing year-over-year growth there. Wealth Management was a really strong business for us last year. It's a place where we're making a lot of investments in FAs, in financial advisors.
We're gonna continue to do that, and we're gonna continue to see growth in that business from production, but also, to the extent the market is in our favor, will grow even more. Of course, just growing accounts, Treasury Management, consumer checking accounts, fee-based revenue will grow because of that. Treasury markets was another really important business for us last year. It's a place we'll continue to make investments to drive capabilities for our customers. When we make all these investments, we expect to see revenue to grow, and that's what's embedded in our guidance for the year.
Got it. Yeah, go ahead, John.
Can we go back to the last question you asked?
Yeah.
I wanna be clear. 16%-18%, we expect to operate at the top end of the range.
Okay.
over the next three years, the next planning cycle.
Yeah.
Just to be clear.
Yeah
I don't want anybody to think that we believe that our returns are gonna decline over the next three-year period. We do not at this point.
Sure. Maybe, John, there's been a number of mergers and acquisitions in your folks' footprint. What are some of the opportunities that you guys see as a result of your competitors being focused on integrating their deals successfully?
Yeah. Well, as we often say about M&A, it's hard, and it creates disruption. One of the reasons that we've not been attracted to M&A is we think that we have a plan that will allow us to continue to execute well and deliver the kinds of returns, as I just suggested, that we have been. hard for us to go acquire a bank, and that's going to, in some way, negatively impact the returns that we believe we can generate for our shareholders. for us, that disruption creates opportunity to win new customers. It creates opportunity to hire bankers to come to work with us, and, you know, we are seeing those opportunities and enjoying the benefits of some of that.
Yeah. In a similar vein, JP Morgan and some of the big money center banks, which really were not opening branches 10 years ago in some of your strongest markets.
Yeah.
Particularly Alabama, let's say, now they're expanding. Can you share with us, the competition, is it gonna intensify?
Yeah.
Can you tell us how you think you're gonna approach that?
Well, definitely intensifying, and with respect to the likes of JP Morgan, who are building branches in our footprint. You know, we're always looking at branch applications.
Yeah.
Across our footprint, so we know who's opening what branches when and where. We're able to look at our customer base and know whether or not our customer has an ancillary relationship with that bank. As an example, customer maybe has a credit card with JP Morgan. We can see that payment through the activity in their account, and we know to target our focus on that customer.
Yeah.
because we believe that's who they're going to try to win, so we anticipate that.
Yeah.
As they begin opening their branches, we're countering that activity with outreach, with different kinds of offers and things to ensure that we maintain those relationships. You know, I like to say, even in our best markets, we have 30% market share. That means 70% of the customers are banked by somebody else.
Yeah.
Remind our investors that we've been the hometown bank in so many of these markets. We've had long relationships with our customers. We have a strong local brand. Our bankers have a strong local brand, and we're out actively working with our customers every day. We believe that 70% of customers who are not banking with us but with someone else are at as much risk or more of leaving the institution they bank with than our customers are of leaving us. I feel good about what we're doing. Clearly, more competition in our markets makes us up our game and get better at what we do, and, you know, we like the challenge.
Good. David, since I know you got 20 days left, and you're not just a handsome face up here. I have to ask you a question. Obviously, you joined the bank about 20 years ago. We had a really rough time in 2008, 2009. You and I have compared notes on that. When you think back over your 20 years, what has changed the most that you've, you know, for the better, of course, at Regions and just banking in general?
Well, we learned a lot from mistakes that we made. If you go back and look at interest rate risk management, we had probably the highest net interest margin in 2007, over 4%. We were asset sensitive, and we rode that right into the ground, and our margin was 250-something. We learned to take that volatility out of our income statement because it's two-thirds of our revenue, and if you aren't good interest rate risk managers, you really can't be in banking.
Yeah.
We learned how, with our low-cost deposit base, how to hedge that risk, which it's a low-rate environment. We started putting that on, and it's been one of the key reasons why we've outperformed peer group, in particular when rates fell. We weren't particularly good at credit risk management, and we learned that concentration risk management's important. We had too much land, too much real estate. Now, in part, we put two real estate banks together in 2006. It took. We knew we had a concentration, but we had to move much quicker, because the financial crisis hit us. We learned from mistakes. We had a really good leader.
Grayson Hall started out, you know, leading the bank and having us really focus all of our people on the mission, what we were trying to do. He served us for nine years, and then John took over and has taken it up another notch. We've had really good leadership. We have really, really good people working together, and if I had to say what's the single most important thing, it'd be that. We've had some hugely talented people that have come through Regions. Some retired, some still there. I think understanding what we're trying to accomplish, we've talked about being a top quartile performer.
There's a reason for that, because that gives us control over our destiny. Having everybody focus on executing their part of our strategic plan, we remind them all the time, "This is your part. Play your part." When they do that, and everybody runs in the same direction, you get the results that we're getting. There's no one thing, but boy, we really did learn from our mistakes. We made some doozies, and the reason we're here is because of our deposit base, and it continues to be the competitive advantage that we have that's very, very difficult for anybody to replicate.
Yeah. Anil, following up on David's comments, particularly about the margin and hedging.
Right
which, Regions truly stands out, can you share with. Now David's obviously retiring. He's been part of the team that put that together.
Sure.
Can you share with us how you're going to continue to carry that ongoing?
Absolutely. I joined the bank in 2011, so you know. Right when this was coming to an end, and then the rebuild, if you will, was starting. I saw firsthand the impact of being offsides did to the bank. We've had a great team in place for many years, who've worked on this together. We've learned the lessons from the past. We've seen the benefit of having a well-hedged portfolio, capitalizing on the strength of our deposit base, and we're not gonna go back against that. Our strategy going forward is gonna be the same, because we've learned our lessons before. We've seen the benefit, and it allows us to extract the benefit from our franchise. I'm 100% convicted it's the right strategy going forward, and you shouldn't see anything else from us.
Very good.
You know.
Yeah, go ahead, John.
... give Dave a little credit too. The other thing I think that's been really important to us is focus on capital allocation.
Yeah
An understanding of risk-adjusted returns in our business, and a willingness to exit businesses, portfolios, relationships.
Yeah
that didn't generate appropriate risk-adjusted returns. As a result, we've seen the benefits of that, I think, in our returns.
Yeah
As we've been much more effective at managing the capital that our shareholders are kind enough to give us.
Sure. Oh, absolutely. John, Regions has a number of systems upgrades that you're going through. Can you share with us where we stand there?
Yeah
What's, how it's gonna roll out, and what it means to the profitability going forward?
The first, I guess, big delivery is in May when we convert from one AFS platform to another.
Yes.
That's going well. We're sort of in the last stages of that as we think about the conversion. It will make the experience for our customers and our bankers better, and will help reduce complexity. We're going from three systems to one, which will be important, and again, I think give us some contemporary capabilities we don't have. Followed by a conversion of our deposit system, and we're in the user acceptance testing phase now. All the work to connect our platform at the application layer has been done, and now so we're testing to see if everything's gonna work like it's supposed to. We've gone through the phase of account origination, which is the first step in our user acceptance testing.
Money movement's next, and that's the more complicated part of the business, and so we'll see. Today, we feel good about where we are. Assuming we stay on track, we'll begin a pilot in the third quarter of this year, with the idea that we begin conversion in the first quarter of 2027, and we complete all that by the mid part of 2027. No big bang for us, so it'll be a fairly measured approach to ensure that, there's not a lot of disruption to our customers. We're excited about the Temenos relationship, platform, and what that new deposit system will give us in the future.
Yep. Simply, what was, like, the advantages you're going to get now versus the old system?
Yeah
... or just some-
Well, the first thing was the old system was sunsetted, and we're the last bank on it. There was really we didn't have much choice.
Like David, he's.
Yeah. We didn't, we did not have much choice. We had to do something. We chose Temenos. We think it gives a contemporary cloud-based platform. It will allow us to bring products to market much more quickly. It's forced us to organize our data in ways that we think now we've cleansed our data, it's well-organized. That's gonna be a key advantage, we think, in the future. The whole process we're going through of essentially converting ourselves strengthens our whole program management program. If we were ever interested in M&A, we'll have a team that's converted. We've already converted about five million customers, our own customers, and so we know how that process works. We certainly know our system well. I think it gives us a lot of advantages both currently and in the future when the work is done.
John-
Yeah. Go ahead.
Maybe one thing I'd add to that is the other capabilities it gives us is as we think about deposit pricing opportunities in a highly competitive environment, we're able to better segment our data and have bespoke offerings in particular markets, customer segments, as John mentioned, how granular we get with customers who we really wanna target, we are much better capable of doing that off the new platform. So we're excited about that. The other thing that's out there for in the industry is tokenized deposits. Right.
It provides us a platform there as well. We're excited about those opportunities looking forward also.
Yeah. Tying into the systems, can you share with us how you're implementing artificial intelligence, AI, and what some of the benefits could be for your organization?
Want to talk about that?
Yeah. Be glad to. We have multiple use cases that we're investigating across the company. I think before, you all have heard me talk about, you know, what we've done in the developer space. We've deployed the developer tool, Copilot.
GitHub.
GitHub Copilot, thank you, across our developer community. Through the end of the year, we had deployed that to approximately 10% of our developers. We expect to have that fully deployed to 100% of our developers by the end of this year. Where we've deployed that up till now, we've seen 30%, 60%, 90% lift in test case development. We think that's a huge opportunity for us going forward, especially as we continue to invest in technology. It's not a reduction in headcount story, it's how do we really grow the business and grow the use cases in a far more efficient manner. We're really excited about that. Each of our businesses are also looking for opportunities to better enable revenue generation.
Focused on hiring the right bankers, but making sure they have the right technology capabilities to deliver products and services to customers. We've deployed tools in the past across our commercial banking and wealth space. There's opportunities for us to expand that as well. We're also investigating places where we have high turnover, so call center and places like that, where you can deploy chatbots and potentially manage your turnover risk in a more efficient way. There's a lot of use cases out there. We're glad to see some of them start to produce some early returns, especially in the developer space. It's a place you have to continue to invest and stay up-to-date and alert to the opportunities that are available.
One of the stories or themes in the investment world is how agentic AI could possibly force deposits.
Right
you know, low-cost deposits into higher-yielding deposits.
Right.
David touched on your asset of the low-cost deposit base.
Right. Yeah.
Can you share your thoughts on how that might impact those customers? I think some people don't fully appreciate a $5,000 depositor.
Right.
may not necessarily.
Yeah.
... run to-
You know, there's a certain segment of the deposit population or our customer base who are rate shoppers.
Yes.
We know that.
Yes.
An agent may make it easier for them to rate shop.
Yeah.
They're already pretty good at it.
I agree.
I promise.
Agreed.
That customer and those funds, we're not competing for on a regular basis.
Right.
Remember, we're operating on a 72%-74% loan-to-deposit ratio. Our focus is on low-cost, transactional, primary deposit relationships, operating accounts of small businesses and middle market companies. That's the core of our deposit base, and so yes, I think it may make it easier for some customers to shop rate. Our deposit base is very granular, to your point. Average consumer customer account balance, about $5,500. So, I just think yes, it will have an impact on the industry. Yes, it will have some impact on us, but I don't see it as being a real threat to our business because of the very core nature of it.
Right.
We continue to grow it, and we grow it amongst our more core customers. It's, if you look at our track record over the last couple years, we've grown deposits almost as fast as any of our peers and at a cost that's significantly lower than our peers.
Got it.
We'll continue to do that.
Yep. Sticking with the, you know, the non-bank competitors, if you will, can you tell us some of the competitive dynamics that you're seeing from the non-bank lenders or the fintech, players? How is that shaping up in terms of competition for you folks?
Yeah. I mean, we've had non-bank lending competitors for some time, and the way we have viewed those, we try to learn from them, understand.
Yep.
what they're offering, what customers like. We've actually acquired.
I think that's right.
We've actually acquired two, I think, right?
Yep.
Ascentium and EnerBank, now we call Regions Home Improvement Financing. We did that after studying what we saw in those particular segments and deciding that we wanted to have those capabilities, but we thought acquiring them rather than building them out suited us, and we believe that's been true. In the case of Ascentium, it's been a great product offering for our small business customers. We now leverage it through our branches, which has been really helpful. We're about to introduce some digital account opening capabilities to our small business customers we think will allow us to leverage that Ascentium platform into deposit, into depository relationships that didn't exist.
There are a lot of things, the advantages we think we've gained, but the key is to study what they're doing, understand what customers prefer, determine whether or not you can offer those capabilities or you need to acquire. We're seeing that in the payment space as well, where we've entered into some relationships in Treasury Management to give us some payment capabilities, like in healthcare payments, that we think are gonna be really important to our customers. That's been our approach, and I think it's served us well.
Yep. Regions has been very good in giving us color and insights on credit quality. You've identified in the past certain segments of the portfolio.
Yeah.
You're watching extra carefully. Can you update us on what you guys are thinking on credit and, in particular, the segments of the portfolio that you're
Yeah.
putting an emphasis.
Yeah, in our case, credit continues to improve. Charge-offs were elevated in the fourth quarter, may be elevated again in the first quarter, but we're guiding to 40-50 basis points for the year, and we think that's a good range. We have identified some problem credits in office and in transportation.
Right.
To name two sectors that we continue to work through. There are some, a couple of credits that are related to the digital space that we're also working on, working out of. Over that period of time, over the last couple of quarters, you've seen level of criticized, classified assets come down, non-performing assets come down, and we believe that's a trend that is will be sustained. What you'll see as that occurs is our provisioning will likely come down as well, and over time, we'd expect the allowance to return toward what we'd call a CECL Day-One portfolio, which was about 101, 160.
164
160-
Yep
163, 164-
Right.
Something like that. Credit quality is good, and we don't see really any new emerging areas of a problem for us.
Very good. Coming back to the branches that people are expanding with, can you share with us your branch expansion strategy?
Yeah.
For maybe a generalist PM, it's counterintuitive. You touched on digital, but everything is going digital, you know, who goes into a branch, that kind of stuff?
Yeah.
Maybe just some thoughts on that.
Yeah. You know, we find customers still associate with branches. They want to come into branches when they need advice and guidance, when they have a problem, when they are doing something that they don't have a lot of experience doing, or it's a first-time event. We think branches still provide an important connection to our brand. People see our branches in markets. They know we're making investments there. It reminds them of who the bank is. We think the way branches look and feel is a really important reinforcement of who our brand is, and so they're important. To your question, we're gonna build 135-150 branches over the next five years. We just made the decision to pull that forward a little bit. It was a seven-year plan, now it's five.
Oops.
It might be four if we can, you know, we can acquire properties faster, and we think we have the opportunity to make investment. Simultaneously, we'll probably close about as many.
Okay.
Because, you know, what we see is population shifting. We see opportunities to combine branches, two for one, three for one. All that both gives our customers more opportunities to bank with us, gives us access to new customers, and at the same time helps us manage the cost associated with continuing to expand our footprint. What we've found is branching in existing markets where we have a presence already is highly profitable.
Yep.
Entering de novo markets where we have a very limited presence is much more challenging. That's because, again, we're focused on building core relationships with customers, not just buying deposits, and that's hard work.
Yep.
Where you have a presence, you're known in a market. You got a big tailwind. It helps a lot.
In those 160+ branches, geographically, where are they? What's the concentration?
I was looking at some numbers the other day. I would say maybe 16 to 20 in Florida.
Yep.
Maybe 6-10 in and around Atlanta. In Tennessee across markets, it's, again, maybe, and these numbers are-
Yeah, yep
you know, I'm trying to, from memory. Let's say 12-16 in Tennessee.
Yep.
Pretty widely distributed across our footprint.
Yep.
No concentration of more than in, let's say, Miami.
Yep.
... uh, six to nine.
Yep.
In Nashville.
Yep.
... uh, five to seven-
Yep.
as an example.
No branches in Portland, Maine.
Not yet. We could. Maybe a wealth office. How about that? Know where all the money is, right?
Very good. When we look at bank M&A, we touched on it briefly. It's gonna continue, we think. What's your guys' view just from that standpoint? Not the existing deals that have been done.
Yeah.
Just what's your view? What would you see happening?
I think it clearly will continue. I mean, we've been a consolidating industry going back.
Yeah.
To the beginning of time, I guess. Certainly over the last number of years, we've seen consolidation. The regulatory environment appears to be quite favorable. The turnaround time on approvals has been really amazing.
Yeah.
Surprising, and great for the industry. The certainty of a transaction lends to, I think, more confidence, both on the part of the buyer and seller, which is a really good thing, and very appropriate in my opinion.
Yep. We're winding down here in the last couple of minutes, and maybe John, you can share with us, and David also, like you to answer this, what message do you want to leave with investors today? David, I know this is your last public appearance, so any last thoughts as well we'd like to hear. Start off with you.
You want to start with me? Okay. Well, I would say, you know, we're focused on continuing to make it. We're in really great markets. We're focused on continuing to make investments in people, in technology, in process, to ensure that we're building a bank that performs consistently, is resilient, and that consistent performance is sustainable over time. You know, we're not gonna be the fastest horse in the race. Often refer to us as a little bit of the, you know, we're the tortoise in a lot of respects. We're focused on managing our business for the benefit of our shareholders, our customers, our associates, and our communities over time.
I think, you know, we have, because of that, we've been able to build a business that has, over the last five years, delivered top returns in our peer group. We think we'll continue to do that with a focus on capital allocation, risk-adjusted returns, doing the right thing the right way. I feel good about what we've accomplished, great about the team that we're building. Again, we're in really good markets. I think we'll execute well. Notwithstanding the fact that we'll have a new CFO, I think we'll be okay.
Okay. David, any just last comments?
Yeah, Anil's gonna do fine. No, it's been a great run for the past 20 years. You know, listen, it's Regions. People ask what do you misunderstand about Regions. We really have a good team. We're in great markets. We have a great foundation in terms of our deposit base that we can leverage. We know how to make money. We learned a lot of that from all the mistakes that we made, but we're very good at what we do. Capital allocation is critically important to us. We don't have to do anything. It doesn't have to be real special. Just execute the plan. We don't have a very complicated strategic plan.
Our board signs off on it every October, and we all know our part, and we just execute that plan. To John's point, we're gonna have one of the highest returns. We don't have to be number one in return. We just need to be top quartile. We stay fixed on that, and we're gonna be efficient, have to continue to monitor cost. We're gonna pay a fair dividend. I had to get that in. From fixed income. I need that. They voted me down on the increase I wanted to have the other day, by the way, but yeah. It's been a great run, and thank you guys for all the support and beatings that you've given me.
It has been a great run. You'll be missed both personally and professionally from everybody. I had a T-shirt made up. It has obviously the green logo of Regions, but what I did was I had the stock performance under your tenure.
Oh, you're inflating things there.
It has been a great run. What's even better.
That's fun.
David and I share stories about grandkids, so I had.
Oh, that's great.
that the little guys know what their grandfather's been doing. David, thank you so much.
Thank you.
I got shirts for a bunch of you, so 'cause I know John's gonna wanna wear his shirt around the office. Please, a round of applause for the guys from Regions.
Thank you. Thank you.