Regions keeps costs in check as loan growth proves elusive

Gary Tramontina

Regions Financial in Birmingham, Alabama, said that commercial lending should rise in the year ahead, while consumers and property owners may not borrow as much.

The bank is looking for stronger commercial-and-industrial loan demand in 2025, citing improved business owner confidence and expectations for lower taxes and lighter regulation.

President-elect Donald Trump, who retakes the White House helm on Monday, campaigned on a pro-business platform. Regions executives said during the company's fourth-quarter earnings call on Friday that C&I loans could advance by 3% this year as a result.

But overall growth for the year could continue to prove challenging, given modest demand across several consumer segments amid lingering high interest rates and the bank's conservative posture on commercial real estate. CRE loans were a source of rising charge-offs for the bank in the fourth quarter. Additionally, some business clients remain flush with cash and, as such, are not drawing on credit lines, Regions said.

In total, Regions estimated full-year 2025 loan growth of just 1%.

"We have some headwinds that are generated by the fact that the real estate business is not growing today…due to cost of insurance, cost of borrowing money, cost of supplies and construction. All those things have been a headwind to new originations within real estate," Regions Chairman and CEO John Turner Jr. said during the call. "So that naturally offsets growth in C&I."

"Consumers are still spending money, but probably a little more cautiously than they were," he added. "And so while we're seeing some growth in our card portfolio, other consumer businesses are fairly stable. I think we have to see some other things besides C&I…to experience real overall growth in the portfolio."

The $157 billion-asset bank reported total loans of $96.4 billion for the fourth quarter, down 2% from a year earlier, with modest declines in both consumer and business lending. Total deposits were flat at $126.5 billion.

As such, Turner said, Regions expects to continue scrutinizing expenses this year. Turner said the bank's expense base could inch ahead by 1% to 3%, driven in part by selective hiring and investments in technology, though he emphasized Regions expects revenue growth to at least modestly outstrip any cost increases.

"We're committed to generating positive operating leverage," the chief executive said. Investments, however, come "with the assumption that we're going to reduce expenses somewhere else."

Regions' non-interest expenses for the fourth quarter totaled $1 billion, down 12% from a year earlier. It trimmed costs across staffing, branches, office space and vendor budgets, and all are areas where expenses may be further reduced.

"On the good side, they're keeping expenses pretty tight," said Truist Securities analyst Brian Foran.

Net loan charge-offs rose to $119 million, or 49 basis points of average loans for the fourth quarter. That was up 1 basis point from the previous quarter and up 5 basis points from a year earlier. The company cited lingering challenges in office and senior housing loans – sore spots across the industry.

"The charge-off ratio could drift a little higher than the 40 to 50 basis point range in a given quarter, given that we have handful of large credits primarily in office and senior housing and in transportation, which we've signaled," Turner said. "In fact, roughly half of our nonaccruals are in those three portfolios. And so as you think about resolutions, they might be somewhat episodic. We could experience a quarter when charge-offs were a little higher."

But Regions noted that nonperforming loans were modestly below the company's historical range, and its provision for losses of $120 million covered charge-off. Its allowance for credit loss ratio remained unchanged at 1.79%.

Regions reported fourth-quarter net income of $534 million, or 56 cents per share, up from $391 million, or 39 cents, a year earlier.

The company reported $1.8 billion in total revenue for the quarter, in line with the final quarter of 2023. Its top line included $1.2 billion in net interest income, down slightly from a year earlier. But its non-interest income of $585 million was up from $580 million in the year-ago quarter, bolstered by increased capital markets activity and deal advisory fees.

Its net interest margin of 3.55% increased by 1 basis point from the prior quarter but contracted 5 basis points from a year earlier.