Regions Financial (RF) Q1 FY26 earnings call: guidance and Q&A

How confident is management in hitting the middle/upper part of NII range, and what needs to happen?

Management is very confident, citing strong Q1 loan growth ($2.3B point-to-point), deposit growth, continued decline in deposit costs (1.69% exit rate for interest-bearing deposits), and fixed asset turnover. For noninterest revenue, Q1 is cyclically low for consumer fees, expected to rebound in Q2. Capital markets, treasury management, and wealth management are also expected to contribute positively.

“So first of all, we're very confident in hitting the ranges. Let me start with net interest income. So I think importantly, exiting the quarter with the strong loan growth that we saw $2.3 billion point-to-point is really a great tailwind for us heading into the second quarter, our deposit performance.”

asked by Ryan Nash · answered by Anil Chadha

With proposed capital changes creating flexibility, would Regions consider managing to the low end or below its CET1 range, and how else might capital be leveraged?

Management will not get ahead of the proposed rule, reiterating that capital distribution priorities are unchanged. They will continue to manage within the 9.25%-9.75% CET1 range once rules are finalized, emphasizing that they generate enough capital to grow the business without needing to distribute ahead of final rules.

“We're going to continue to manage capital the way you've seen us. Our capital distribution priorities are unchanged. We'll monitor these proposals and once finalized, it will be our plan to continue to manage capital within that range. That is unchanged.”

asked by Ryan Nash · answered by Anil Chadha

Where are utilization rates compared to 90 days ago, and what are expectations for their advancement?

Utilization rates are up about 200 basis points across corporate and middle market customers. Management expects more activity as the year progresses due to constructive customer feedback, noting that customer liquidity is up ~7% YoY, but borrowing activity is also increasing.

“So utilization rates are up about 200 basis points, I guess, across both the corporate banking markets or customer base and our middle market customers. And we'd expect to see a little more activity as the year goes along, it is based upon the constructive feedback we're getting from customers.”

asked by Robert Siefers · answered by John Turner

If geopolitical conflicts (Middle East) resolve, would the allowance for credit losses see a modest release?

Management attributed about $17 million of Q1 allowance growth to macro uncertainty, primarily from the Middle East. A positive resolution could lead to a modest release, though it wouldn't be overly material.

“we attributed about $17 million of growth quarter-over-quarter to macro uncertainty. That's primarily what we're seeing in the Middle East. So to the extent that gets resolved and the other kind of second order effects resolve in a positive to neutral way, we could see a modest release in the allowance of that.”

asked by Gerard Cassidy · answered by Anil Chadha

Do late-quarter line draws create risk of payoffs if markets stabilize? Can real estate capital markets have a good year without rate cuts?

While some larger corporate customers might pay down lines, middle market customers are expected to continue borrowing. New originations are strong and expected to overcome potential payoffs. Real estate capital markets can still have a good year due to maturing portfolios and refinancing needs, and would materially improve with rate cuts.

“While there is some risk that we'll see some paydowns amongst those larger corporate customers, we expect the middle market customers, again, to continue to borrow as they invest in their businesses. Pipelines are up for the year fairly significantly.”

asked by Ebrahim Poonawala · answered by John Turner

What are the considerations for RWA vs ERBA, and how do rating agencies' views on unrisk-weighted assets factor in?

The rating agencies are a key "other constituent" to be mindful of. For ERBA, the operational loss add-on currently overwhelms the benefits from investment-grade credits and retail exposures. Management is fortunate to have an evergreen option to opt-in but finds the operational loss component too significant as currently proposed.

“On the first piece, just to walk you through our preliminary view of the 2 approaches. And so we communicated our 100 basis point expected impact under the standardized approach... The counter to that for us is the operational loss add-on. And so our current oculation of that for us actually overwhelms the benefits from the other two.”

asked by L. Erika Penala · answered by Anil Chadha

How does Regions view AI's potential to pressure deposits, especially for banks with lower deposit costs, and how will it protect market share?

Regions' customer base has an average deposit of $5,200, primarily using accounts for payments, not yield-seeking. While AI might make fund movement marginally quicker, it's already efficient. The impact will be more severe for customers with larger balances seeking yield. Regions will focus on providing efficient payment capabilities.

“Our customer base average deposit is about $5,200. And when we think about the ability for customers to move money around what our customers are really using their account for is for ease of payments.”

asked by David Chiaverini · answered by Anil Chadha