Forget M&A: Regions takes different path in pursuit of growth

After recently ruling out bank acquisitions (at least for the time being), Regions Financial CEO John Turner has a simple growth plan: hire more bankers.

Turner, six months in as head of the $125 billion-asset company, wants to hire more specialists in select industries where Regions has already had success, and he wants to add bankers in fast-growing markets like Atlanta and Nashville, Tenn.

He also favors investments in technology, particularly those that can lighten bankers’ workloads or simplify customers’ lives.

Bankers will be urged to focus on winning broad-based customer relationships. Regions is not a “credit-only provider,” and landing the deposit or cash management business of a commercial borrower is a tried-and-true path to prudent growth, Turner said.

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Turner said that Regions has delivered steady growth, particularly in its corporate banking business.

“It’s all very good specialized industry expertise that is driving loan growth, deposit growth and capital markets fee income,” he told American Banker in a recent interview.

Industry observers say that Turner’s experience in client-facing business roles and as president of Whitney National Bank in New Orleans should serve him well as CEO of Regions, where he has worked since 2011. His deep roots in the Birmingham, Ala., bank’s core markets, including his years spent at AmSouth Bancorp., are also a benefit.

As Regions continues to progress on its improvement initiative, dubbed Simplify and Grow, analysts say Turner can lead the bank to prudent expansion in an era of tepid loan demand and stiff competition for deposits.

“[Turner] brings a skill set that is very nuts and bolts, which I think in this environment still matters. Being able to drive new business, and understanding what customers are looking for and how things are changing on the ground level, are very important,” said Chris Marinac, an analyst at FIG Partners in Atlanta. “I think having that history both within Regions as well as in the business in general is a very good match for what the company needs at this point.”

Turner has yet to outline his own big-picture vision for Regions, though many expect him to be at the company’s investor day in February. He has, however, built out his management team and weighed in in favor of operational improvement rather than costly acquisitions in the near term.

In the interview, Turner shared some of his thoughts about the handoff of power from his predecessor Grayson Hall, investments in technology, niche hiring and risk management in commercial lending.

Talk us through the succession phase a little bit. What about that process did you find especially helpful?

JOHN TURNER: Being named president at the end of [2017] gave me a chance to work with Grayson and spend time with our teammates and spend time with our board in preparation for the opportunity [to become CEO in July]. The two-step process was very helpful to me, and then as Grayson has stayed on as executive chair, that has also been very helpful. I’ve had the opportunity to visit with him as needed on topics important to the bank and to me, getting his advice and guidance. I think that’s been a real benefit of the way we made the transition.

Can you bring us up to speed on “Simplify and Grow” and some of the improvements you’ve made so far there?

We’re about a year into the Simplify and Grow initiative. While we’re beginning to see the impacts of it — we saw it in the third quarter in our improved efficiency ratio, and we’ll see it again in the fourth quarter — we think that we’re only beginning to realize the benefits we’ll derive.

We did elect to sell our insurance business, we’ve closed a number of our branches, and we’ve begun to digitize our consumer lending process. We’ve also seen the impacts on the commercial lending approval process, reducing turnaround time from nine days to two days.

Using [artificial intelligence] in the call center also had a significant impact on the number of man hours required to answer calls because we’ve used IBM’s Watson to help intercept calls and provide service to customers. Those are some examples of things we have done to date.

Where do you plan to grow Regions in 2019?

First of all, we’re making investments in people and capabilities. We’re hiring bankers in our mortgage business, we’re hiring bankers in wealth management, and we’re hiring bankers in in commercial banking. In particular, we are focusing those bankers in markets, specifically Atlanta, Orlando and Houston, where we’re also building some branches.

We are making investments to grow our capital markets business as well. We’ve seen really nice growth there the last couple years, and we think there’s an opportunity to continue to grow that business. We’re making some investments in technology to make banking easier for our customers, improving our mobile platform, continuing to make improvements online. We recently rolled out the Zelle [person-to-person payments] platform to our customers.

When we think about commercial banking, we continue to hire bankers with a focus on industry specialization. We think there are opportunities to grow a number of our specialized industry groups, like technology and defense, like financial services, like health care, like energy, power and utilities.

What’s your strategy for growing deposits?

We’re focused on growing households, and as we grow households, so goes growth in deposits. At the end of the third quarter 2018, year over year, we had grown consumer checking accounts about 1.5%, core consumer demand deposits have grown about 6% and savings about 8%. So if we’re growing checking accounts and we’re growing households, we will grow core deposits.

We do that by ensuring that we’re providing great service to our customers across all the channels that our customers want to bank across. Our business is about gathering deposits. At the end of the day, that’s where it begins, and we do that based upon the quality of interaction with our customers and the households that we can build.

You’ve remarked previously that you’re treading cautiously on commercial lending — how do you strike the right balance between profitable growth and prudent risk management?

We’re very focused on picking the right clients in the right industries and in industries and markets that we understand. We spend a lot of time talking about risk in our business and returns in our business. We’re focused on sound underwriting and proactive credit servicing. We think that all of those aspects are important to developing a broad relationship. We’re not a credit-only provider, so as we think about how we build a sound and professional business, it begins with a focus on the client and the expectation that we can build a broad relationship. When we do, we have a lot of success.

Banking is a cyclical business, and we want to build a business that is sustainable. Credit is your biggest risk and your biggest cost; you’ve got to be focused on building a business that’s sound and performs through the economic cycles.

Coming out of the economic crisis, we learned a number of lessons. One of them was the importance of balance and diversity. Another one was the importance of having specialists to do specialized business.

Real estate is an example of a business that was a much larger business at Regions before the recession. Today it’s quite a bit smaller, but it’s a very profitable business. It’s a business we think we can grow, but it’s managed by specialists who understand the real estate business, who understand the cycles in real estate, who are focused on banking experienced customers with good access to capital, and who are operating in solid markets and developing good products.

That extends to all of our other businesses as well, as we think about the kinds of clients we want to bank, the markets we want to be in, the industries we want to be in, and being prepared for the inevitable swings in economic cycles.