This article includes updates from a conference call with executives and analysts' research notes.
Executives at Regions Financial in Birmingham, Alabama, are looking forward to Nov. 6. That's the day after Election Day, and Regions' management team is hoping the result, whatever it is, provides a sense of certainty that will coax companies into jump-starting their strategic plans.
"We still feel like we will see some … growth in loans in 2025, as there's more certainty about the political environment, as there's more certainty about the continued direction of the economy," Chairman and CEO John Turner said Friday on a conference call with analysts.
John Turner
Gary Tramontina
The $157.4 billion-asset Regions, which disclosed its third-quarter financial results Friday, reported period-ending loans and leases totaling $96.8 billion, roughly even with the second quarter, and down 2% from a year ago. Regions is projecting year-end average loan growth will be in line with or slightly below last year's level of $98.2 billion.
"We obviously are in great markets, and we think we can take advantage of those when a little bit of this uncertainty … dissipates a bit, and get on the growth trajectory in 2025," Chief Financial Officer David Turner said on the conference call.
Regions reported net income totaling $490 million, level with last year's result.
Net interest income for the three months ended Sept. 30 totaled $1.23 billion. That was down nearly 6% from the same period in 2023, but the bank benefited from tight expense control and a lower provision for credit losses. In that respect, Regions' third-quarter results mirrored those from the second quarter, when effective financial restraint combined with lower loan charge-offs helped drive a $501 million profit.
Regions is projecting full-year 2024 spread income totaling $4.8 billion, down about 10% from the 2023 level. As with a number of other banks, however, it expects net interest income to increase in the fourth quarter and into 2025. Indeed, deposit costs are already beginning to moderate. They remained flat at 2.34% between the second and third quarters. David Turner said he expects funding costs to trend down in the wake of the Federal Reserve's 50-basis-point rate cut last month.
"When coupled with fixed-rate asset turnover at higher market yields, this provides the support to grow net interest income in the fourth quarter and beyond," David Turner said on the conference call.
Average deposits totaled $126 billion on Sept. 30, in line with last year. Regions is forecasting year-end average deposits to be even with or slightly below the 2023 result.
Prior to the start of earnings season, analysts were projecting a deal-driven uptick in capital markets revenue across the banking industry. That appears to be playing out, as a number of banks, most prominently Truist Financial, PNC Financial Services Group and Huntington Bancshares, have reported exceptional revenues from their investment-banking-related activities. Regions followed suit, reporting a 44% year-over-year jump in capital markets revenue to $92 million.
While David Turner said he expects capital markets' performance to cool slightly in the fourth quarter, the business should develop into an increasingly important component of Regions' revenue stream going forward. "Over time and in a more favorable interest rate environment, we expect our capital markets business can consistently generate quarterly revenue of approximately $100 million," Turner said.
Regions also reported big gains from its wealth management business, which reported quarterly record revenue totaling $128 million in the third quarter, up more than 14% from a year earlier. The number of wealth management relationships increased nearly 9% between August 2023 and August 2024.
David Rochester, an analyst who covers Regions for Compass Point Research & Trading, wrote that he viewed its third-quarter earnings report "favorably," particularly the performance of its fee-income business lines, whose growth he termed "unexpected."
Regions posted overall noninterest income of $572 million in the third quarter, including the impact of a $78 million securities loss.
The bank reported net charge-offs of $117 million, or 0.48% of average loans. That was up from $101 million, 0.40% of average loans, during the same period a year ago, though most of the increase was confined to two loans, according to David Turner. The company is forecasting full-year 2024 charge-offs toward the high end of its 40-to-50-basis-point target range. Nonperforming loans totaled $821 million at Sept. 30, up from $642 million a year ago.
Regions continued to demonstrate tight cost control. Noninterest expenses for the third quarter totaled $1.07 billion, down slightly from the same period in 2023. Spending this year included $14 million of expenses connected to Visa litigation escrow charges. While Regions is projecting what it termed a "slight increase" in fourth-quarter noninterest expenses over the third-quarter total, its full-year adjusted operating costs are expected to total $4.25 billion, in line with the 2023 result.
Both the CEO and CFO said the company is committed to producing positive operating leverage, with revenue growth outpacing any increase in operating costs, in 2025.
"We need to generate positive operating leverage," John Turner said. "We think that creates shareholder value over time."
Regions reported a Common Equity Tier 1 capital ratio of 10.6% at Sept. 30, up from 10.4% a year ago. The company expects to maintain capital at the current level "over the near term," David Turner said.
Regions also reported increased usage of its digital channels, with the number of mobile banking users and logins growing substantially over the past 12 months.
The North Carolina-based bank rolled out a multiyear program to provide loans, investments and philanthropic support to communities in the western part of the state.
Consumer Financial Protection Bureau Director Rohit Chopra said the FICO credit-scoring model has drawbacks in price, predictiveness and market competition, and stakeholders should develop a more open-sourced model that uses artificial intelligence.
Analysts say lenders' shares could rally on deregulation, lighter tax burdens and a resurgence of M&A. Declining interest rates and lower loan losses could further bolster bottom lines and attract investor interest.
