Q4 2024 Regions Financial Corp Earnings Call
and David Turner.
Christine: Good morning and welcome to the Region's Financial Corporation's Quarterly Earnings Call. My name is Christine and I will be your operator for today's call.
Christine: I would like to remind everyone that all participant phone lines have been placed on listen only. At the end of the call, there will be a question and answer session. If you wish to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue.
Christine: I will now turn the call over to Dana Nolan to begin.
Speaker Change: Thank you for staying. Welcome to Regions fourth quarter and full year 2024 earnings call. John and David will provide high level commentary regarding our results.
Speaker Change: Earnings documents, which include our forward-looking statement disclaimer and non-GAAP reconciliations, are available in the Investor Relations section of our website. These disclosures cover our presentation materials, today's prepared remarks, and Q&A. I will now turn the call over to John.
John: Thank you, Dana, and good morning, everyone. We appreciate you joining our call today.
John: This was a year of records at Regions, with our performance driven by a consistent focus on superior service as well as soundness, profitability, and growth. Our capital markets and wealth management businesses, as well as our treasury management products and services,
All generated record revenue in 2024.
John: This morning we reported strong full-year earnings of 1.8 billion dollars Resulting in earnings per share of one dollar ninety three cents and a top quartile return on average tangible common equity of 18%
John: We continue to benefit from our strong and diverse balance sheet.
solid capital liquidity positions, and prudent risk management.
John: Additionally, our proactive hedging strategy, investments in feed generating businesses, desirable footprint, and granular deposit base support our ability to deliver consistent
sustainable long-term performance.
John: and positions for growth in 2025 and beyond. We are fortunate to be in some of the best markets in the country. Our core markets are foundational to our deposit advantage and have supported growth that exceeds the rest of the U.S.
John: And we've achieved this growth while maintaining peer leading deposit betas and a top 5 market share in 70% of our core markets throughout our 15 state footprint.
John: We also have a presence in some of the fastest growing markets in the country.
John: Investments across these priority markets create significant future growth opportunities for regions.
John: Population growth across our footprint is expected to more than double that of the U.S.
John: But it's even more pronounced within our priority markets with expectations of growth of more than three times the national average
John: Importantly, we've already established a pattern of success in these markets, growing deposits by $12.5 billion since 2019 and outpacing the market.
We plan to build on this success with incremental investments.
further supporting growth and extending our advantage.
John: We believe we are uniquely positioned to leverage these advantages as they are underpinned by our long-standing presence across our footprint, where in many areas we've operated for more than 100 years.
John: This rich history has allowed us to invest in the communities we serve and build a strong brand and a loyal customer base.
John: So you'll see us continue to strategically invest in talent, technology, and markets over the next several years to drive growth and generate efficiencies.
John: We're excited about our growth prospects, however we'll continue our track record of judicious expense management.
John: Over the next couple of years, we expect to invest in bankers across all of our segments, corporate banking, consumer banking, and wealth management.
John: specifically we plan to add approximately 140 bankers across our product sets.
John: Treasury management bankers, mortgage loan officers, commercial relationship managers, as well as wealth management associates.
John: These additions are expected to focus primarily within our eight priority growth markets.
John: Additionally, within the consumer bank, we'll lean into our demonstrated successes with regard to capital allocation to better align resources throughout the branch network.
specifically focusing on priority markets and branch small business.
John: We'll also invest in enhanced online and mobile capabilities to take better advantage of the deposit opportunities presented by the 12 million small businesses located within our footprint.
John: We've already experienced branch small business deposit growth of 2.6 billion dollars or 30% since 2019.
John: and $1.1 billion or 41% growth occurring in our priority markets.
John: We believe these enhanced capabilities and focus will allow us to capture additional market share over time.
John: Putting us all together, we're excited about the momentum we have going into 2025. We have a solid plan for growth, a highly desirable footprint, and a leadership team with a proven track record of execution.
John: setting us up, we believe, for top quartile results in 2025 and beyond.
Speaker Change: Before I hand it over to David, I want to thank our 20,000 Regions Associates.
John: who put customers and their needs at the center of all we do.
Speaker Change: and focus on doing the right things the right way. They are the driving force behind the successful execution of our strategic plan, and I'm proud to call them teammates.
Speaker Change: With that, I'll hand it over to David to provide some highlights regarding the quarter and the year. Thank you, John. Let's start with the balance sheet. Average and ending loans declined modestly on a sequential quarter and full year basis.
David: Within the business portfolio, average loans decreased modestly quarter over quarter as our customers continue to carry excess liquidity, and utilization rates remain below historic levels.
David: However, client optimism is improving, and further clarity surrounding tax reform and tariffs is expected to be a catalyst for business activity and lending.
David: As a result, it will probably be the second half of the year before we see the impact filter through to the economy. As John noted, our footprint provides us meaningful advantages.
David: For example, within our footprint, there is $77 billion of federal infrastructure spending already approved and allocated at the state level, which will benefit customers in infrastructure and infrastructure-adjacent industries.
David: We're also encouraged that pipelines and commitments are trending up. As a result, we expect a notable pickup in C&I lending in 2025. But this will be partially offset by continued softness in commercial real estate origination.
David: Average consumer loans remained stable in the fourth quarter as modest growth in credit card was offset by declines in other categories.
David: For full year 2025, we currently expect average loan growth of approximately 1% as we continue our focus on risk-adjusted returns.
David: From a deposit standpoint, both ending and average deposit balances grew modestly quarter over quarter, consistent with normal year-end seasonality. Noteworthy growth occurred in commercial due largely to year-end tax inflows to state, county, and municipal customers.
David: Despite modest growth in interest bearing commercial deposits during the quarter, we remain at our expected mix in a low 30% of non-interest bearing to total deposits.
David: We continue to believe this profile will be relatively stable in the coming quarters.
David: In the first quarter, we typically see a moderate reversion of the year-end commercial balance increase, offset by some growth in consumer deposits driven by tax refunds.
David: After the first quarter, overall balance has normally grown modestly through the year, which aligns with our baseline expectation.
David: For the full year of 2025, we expect average deposits to remain relatively stable for 2024, as modest growth in consumer deposits is expected to be offset by declines in commercial deposits as customers draw down their excess liquidity.
Let's shift to net interest income.
David: Net interest income grew 1% in the fourth quarter, demonstrating a well-positioned balance sheet profile amid Fed policy easing.
David: The benefits from lower deposit costs and hedging fully offset the pressure on asset yields from lower interest rates.
David: Link quarter interest bearing deposit costs fell by 21 basis points.
David: representing a falling interest rate bearing deposit beta of 34 percent.
David: We believe our ability to manage funding costs lower, even after exhibiting industry-leading performance during the rising rate cycle, further highlights the strength of our deposit advantage.
Thank you.
David: Growth and interest bearing deposits added cash balances and negatively impacted the reported deposit beta but had little impact to that interest income.
David: Net interest margin increased one basis point to 3.55 percent, overcoming the pressure from elevated average cash balances, which negatively impacted net interest margin by three basis points.
David: Finally, we took advantage of a steepening yield curve in the 4th quarter, executing the repositioning of $700 million of securities at a $30 million pre-tax loss and resulting in a 220 basis point yield benefit.
David: Today, we have few bonds that can be replaced and meet our interest rate risk and capital management objectives.
However, we will continue to reassess going forward.
David: In terms of 4-year 2025, net interest income is expected to increase between 2 and 5 percent, building on the growth momentum established in 2024.
David: In the near term, net interest income will decline modestly in the first quarter, due mostly to two fewer days.
David: After this, growth is expected to come from fixed rate loan and security shield turnover in the prevailing higher rate environment.
David: in Improving Loan and Deposit Growth Backdrop and the Ability to Protect Net Interest Income from Uncertainty as the Path of the Fed Ring Evolves.
David: Now let's take a look at fee revenue performance during the quarter.
and the other one.
David: Adjusted non-interest income declined 5% from a strong third quarter, while full-year adjusted non-interest income increased 9%, driven by record capital markets, treasury management, and wealth management income.
David: 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.
David: We expect full year 2025, adjusted noninterest income to grow between two and 4% versus 2024.
David: Let's move on to noninterest expense.
David: Adjusted noninterest expense declined 4% compared to the prior quarter, driven primarily by declines in salaries and benefits and lower visa class B shares expense, reflecting the third quarter litigation escrow funding that did not repeat.
David: Full year 2020 for noninterest expenses decreased 4% on a reported basis and 1% on an adjusted basis.
David: We have a demonstrated track record of managing our expense base over time and remain committed to prudently managing expenses to fund investments in our business. We will continue focusing on our largest expense categories, which include salaries and benefits occupancy and vendor spend.
David: We expect full year 2025, adjusted noninterest expense to be up approximately 1% to 3%.
David: And we expect to generate positive operating leverage.
David: Regarding asset quality provision expense was approximately equal to net charge offs at $120 million and the resulting allowance for credit loss ratio remained unchanged at 179%.
David: Annualized net charge offs as a percentage of average loans increased one basis point to 49 basis points driven primarily by our previously identified portfolios of interest.
David: Full year net charge offs were $458 million or <unk> 47 basis points.
David: Nonperforming loans as a percent of total loans increased 11 basis points to 96 basis points.
David: Modestly below our historical range, while business services criticized loans remained relatively stable.
David: Our through the cycle net charge off expectations are unchanged and remain between 40 and 50 basis points.
David: As it relates to 2025.
David: Currently expect full year net charge offs to be towards the higher end of the range attributable primarily to loans within our previously identified portfolios of interest.
David: We do expect losses to be more elevated in the first half of the year, but importantly losses associated with these portfolios are already reserved for.
David: Let's turn to capital liquidity.
We ended the quarter with an estimated common equity tier one ratio of 10, 8%.
David: Executing $58 million in share repurchases.
David: And paying $226 million in common dividends during the quarter.
David: When adjusted to include a OCI common equity tier one decreased from nine 1% to an estimated eight 8% from the third to fourth quarter attributable to the impact from higher long term interest rates on the securities portfolio.
David: We continued to execute transactions to better manage this volatility.
David: Near the end of the fourth quarter, we transferred an additional $2 billion of available for sale securities to held to maturity as we prepare for new regulatory expectations.
David: In the near term, we expect to manage common equity tier one inclusive of a OCI.
David: Closer to our 925% to 975% operating range.
David: This will provide meaningful capital flexibility going forward.
David: Pros and evolving regulatory changes, while supporting strategic growth objectives, and allowing us to continue to increase the dividend.
David: And repurchase shares commensurate with earnings.
David: That will move to the Q&A portion of the call.
David: Thank you we will now be conducting a question and answer session.
If you would like to ask a question. Please press star one on your telephone keypad.
David: Confirmation tone will indicate your line is in the question queue.
David: You May press star two if he would like to remove your question from the queue.
David: Please hold while we compile the Q&A roster.
David: Okay.
David: Yeah.
Speaker Change: Thank you. Our first question comes from the line of Ryan Nash with Goldman Sachs. Please proceed with your question.
Ryan Nash: Hey, good morning, good morning, everyone.
David:
Speaker Change: Maybe to start off with the outlook on expenses, the 1% to 3% growth inclusive of investments David maybe just talk about you know where you're getting efficiencies from to create capacity to make these investments and then second just given the investments that you're making combined with the comments.
He made about expectations for C&I loan growth to pick up what do you think that means for your ability to generate incremental positive operating leverage over time and I have a follow up.
Speaker Change: Yeah. So from an expense standpoint, you mentioned kind of the key categories, you had 60% of our expense base, our salaries and benefits. So we watch our head count very carefully making sure that we deploy the right number or the right people in the right places.
Speaker Change: And I think we've done a pretty good job of that that that never ends.
Speaker Change: <unk> to look for opportunities to streamline processes and leverage technology, which I think we do okay, but there's more opportunity there so managing that head count is important.
Speaker Change: Occupancy cost for US is one of our largest categories and we've done a pretty good job of reducing square footage over time, both in the branch footprint, but more so in the office footprint and and Thats helped us quite a bit and then third is we.
Speaker Change: We have oh.
Speaker Change: Pretty good effort.
Speaker Change: Effort on our vendors, making sure that we use vendors appropriately whether it's third party consultants or.
Speaker Change: Software vendors or whatever.
Speaker Change: Make sure that we're getting what we pay for and only getting what we need to have to run the business. So that's allowed us to make investments in other parts of technology. We're in the middle of putting in a new deposit system and loan system and so.
Speaker Change: We've been able to pay for that and we're going to make investments in people as John mentioned in his.
Speaker Change: In his comments so.
Ryan Nash: If we do all that we do we're going to generate positive operating leverage where we ended up on that Ryan.
Speaker Change: They have to see.
Speaker Change: Got it thanks for the color maybe to ask about capital. So David you talked about managing to the nine in the quarter to 97, five obviously, that's a bit of a moving target with rates, maybe just talk about what you think that means for the reported capital ratio that you're targeting and.
Speaker Change: Given the limited amount of growth, maybe just talk about how you're thinking about uses of capital and what it means for the amount of capital that you could returned over 2025. Thanks.
Speaker Change: Yeah. So.
Speaker Change: First and foremost we want to use our capital to grow our business.
Speaker Change: In particular loan growth and but we don't want to force loan growth, we want to we want to have it there at the ready.
Speaker Change: We think loan growth will be fairly slow in the front half of the year and pick up in the back half as more clarity with.
Speaker Change: Policy regulatory.
Speaker Change: Policies as well get clarity.
Speaker Change: After loans is really to the dividends, we want to target somewhere between 40 and 50% of our.
Speaker Change: All of our earnings to be paid out form of the dividends so call that 45 in the middle.
Speaker Change: You know as we think about a OCI, we believe we need to be within striking distance of our.
Speaker Change: Of our post OCI capital number so that's 925 to 975 at the end.
This quarter, we're at eight eight.
Speaker Change: That can move quite a bit based on the 10 year and so we've.
Speaker Change: We've kind of picked the 10 year at $4 50 is our base case by the way.
Speaker Change: So we don't have to get to 950 immediately but we want to be close enough to the extent that a OCI does become part of the capital regime. We don't know what the rules are going to going to be but we believe that is a high likelihood and therefore, we want to continue to build that which means our our reported CET. One we will continue to.
Speaker Change: The increase at some level, we do have.
Speaker Change: Buybacks baked into our two.
Speaker Change: Two our plan and and it just really depends on what loan growth ultimately ends up being if we have more loan growth than we have baked in which is approximately 1%.
Speaker Change: If we have more than that we'd have fewer buybacks. If we have less loan growth, we'll have more buybacks I do want to remind everybody and I haven't seen many talk about this but we have the last year of the seasonal amortization that goes into the common equity tier one ratio this quarter.
Speaker Change: Let's call it eight to 10 basis points, so that needs to be a piece, which means the first quarter buybacks will necessarily be lower than they otherwise would have been that makes sense.
Speaker Change: I appreciate the color.
Speaker Change: Right.
Scott <unk>: Our next question comes from the line of Scott <unk> with Piper Sandler. Please proceed with your question.
Scott <unk>: Good morning, everyone. Thanks for taking the question.
Speaker Change: David was hoping to get your thoughts on how you see deposit pricing pricing evolving.
Speaker Change: What's your sort of for the through the cycle beta expectations are on the way down, but just curious about any updated thoughts if we indeed sort of stay higher for.
Speaker Change: For a while and then maybe just sort of within the context of the pros and cons that you.
Speaker Change: Hopefully with <unk> on slide eight there just given that a good chunk of your NII momentum. This year is kind of programmatic.
Where are you most focused if you were to sort of stack rank.
Speaker Change: Sensitivity to either rates or the shape of the curve versus things like.
Speaker Change: Deposit pricing and stuff like that.
Speaker Change: Yes.
Speaker Change: I'm glad you referenced page eight is a good guide in terms of how we're thinking about our base case of what could drive NII up or down.
Speaker Change: Deposit pricing is very important to us.
Speaker Change: A couple of things there one we want to be competitive we want to be fair to our customers and make sure we're giving them a fair price on their deposits. We want to continue to grow deposits and that's why we're making investments in priority markets, where we can grow checking accounts noninterest bearing checking accounts.
Speaker Change: Core operating accounts of the business and so as we do that we will continue to.
Speaker Change: To lower our deposit cost our base cases of 35% call it 35% down beta which is about where we are.
Speaker Change: Now others have more of a move on that because they had a higher beta on accumulative basis through the cycle. So ours is necessarily going to be lower but we also have our hedging that's in place to help protect us.
Speaker Change: We do have some high cost Cds that are maturing that'll help us from a deposit standpoint.
Speaker Change: But we do continue to have promotional rates out there in some markets, where we're looking to grow and we think that's going to benefit our deposit growth.
Speaker Change: At the time, so it's really a combination of primarily.
We are really watching your deposit cost and the shape of the yield curve does help us.
Speaker Change: Just a bit too so a steeper yield curve is better.
David: Perfect Alright, Thank you very much David I appreciate it.
John: Our next question comes from the line of John Penn carry with Evercore. Please proceed with your question.
Good morning.
David: Morning.
David: Just on to the law.
David: Loan commentary a little bit again, you mentioned the loan growth about 1% expectation.
David: As you look at 2025, and and I know that that's relatively conservative it looks like a relatively low.
David: And you did cite that.
David: You're considering risk adjusted returns in that outlook, where are you seeing pressure on returns today that are influencing the pace of growth is like as you look at it by loan type or by geography, where you are seeing the pressure on returns.
David: John I would say, it's as much about just generally the portfolios, we're always evaluating our <unk>.
David: Loan portfolio and the relationships that we are able to establish with customers or are not able to establish with customers oftentimes we originate credit with an expectation that we will earn other business opportunities in over the course of a two year to three year period, we don't generate the kind of ancillary business.
David: We thought we would we don't build a relationship we thought we might.
David: And as a result.
David: Choose to exit those much of what we have been doing I think as you know over the last seven eight years.
David: Is continuing to focus on capital allocation Remixing, our business exiting certain portfolios relationships that don't generate appropriate risk adjusted returns to us and reallocating that capital in the business and that that is a discipline that we have we think has served us really well.
David: All in.
David: As a primary reason why we're able to generate consistent sustainable returns today.
David: John.
Speaker Change: Then to the your opening comment on the 1% there are a couple of different stories. There. So our C&I growth is quite.
David: Quite robust I think given the market.
Speaker Change: Of little over 3%.
Speaker Change: It's the investor real estate that will be more challenging.
Speaker Change: This year than consumer will have some pluses and some minuses credit card will grow a bit we could have mortgage up a little bit, but others. Other parts of the consumer business will be going the other way. So net net it's 1%, but there's different stories in there that we think.
Speaker Change: A reasonable we want to make sure we lay out our capital that we get the appropriate return on it.
Speaker Change: Got it okay, great. That's helpful and then on the expense guide of one 3%.
Speaker Change: Does that incorporate an increase in your I T budget like I believe it's currently 911%, but you had signaled that it might be moving higher so they've got up 1% to three incorporate an upward revision to that budget.
Speaker Change: It's it does we've continued to make investments as you know.
Speaker Change: Maybe better than most we are investing in a new deposit system inland system flown system will go in.
Speaker Change: Call It the second third quarter of this year.
Speaker Change: Systems, a couple of years away, but where we've been spending money on that we're going to continue to invest there and over time, we do believe that that 9% to 11% range will be higher.
Speaker Change: We haven't committed to a given percentage right now, but the guide that we have does contemplate those investments already those are the things that I've talked about earlier when I said, we have to make investments to grow to continue to have best in class technology, and we have to figure out how to pay for that and we have to.
Speaker Change: We have to look at salaries and benefits and occupancy of vendor spends as a way to get there.
Speaker Change: But I would just say John to two things about the deposit.
Speaker Change: System conversion one.
Speaker Change: It's on time, it's on track it's on time, it's on budget.
Speaker Change: Two while David indicated we may.
Speaker Change: In the future spend more money on technology, that's with the assumption that we're going to reduce expenses somewhere else.
Sean: Got it alright, great. Thanks, Sean.
Speaker Change: Our next question comes from the line of Peter Winter with D. A Davidson. Please proceed with your question.
Peter Winter: Hi, good morning.
Speaker Change: So to follow up on expenses just right.
Peter Winter: If I think about your on your opening comments you outlined a series of investments you plan to make in <unk>.
Peter Winter: Are bankers and future revenue growth.
Peter Winter: The expense guidance is 1% to 3%. So the question is would you pulled back on.
Peter Winter: These investments if revenue growth comes in a little bit weaker than expected given this focus on positive operating leverage.
Peter Winter: Well, we are committed to generating positive operating leverage we believe that we will make the investments in people primarily although we also in our case, we're making investments in technology alone way enhancing our mobile platform as an example.
Peter Winter: We will make those investments in a measured way.
Peter Winter: And we expect to generate revenue associated with those investments so.
Peter Winter: I don't anticipate having to necessarily address.
Peter Winter: Dress your question because we do think the revenue growth will come given the investments we've made and the track record, we have and making investments like this which generate positive operating revenue. We are very much committed to positive operating leverage over time.
Peter Winter: We expect we will absolutely deliver that in 2025.
Peter Winter: And if we get the revenue growth. We believe we will that will continue in 'twenty six and beyond.
Peter Winter: Just to add to that your question is coming at what point would you would you abandon positive operating leverage and sometimes you need to do that because you need to make investments that you can't get paid back for today, that's not with 2025 is going to be about 2025 has some built in.
Peter Winter: A tailwind.
Peter Winter: <unk> for us in terms of just front book back book and the investments we're going to make we're going to be all over making sure. They generate the revenue that we've pro forma Ed and so the question isn't about whether we have positive operating leverage question is how much and so.
Ryan Nash: I kind of came at the I think Ryan's original question. So.
Ryan Nash: We're very committed to that this year and very committed to making investments to grow our business.
Ryan Nash: In areas, where we think we'll have disproportionate growth relative to the rest of the United States.
Ryan Nash: Got it that's helpful really helpful and then just.
Ryan Nash: On credit you mentioned.
Ryan Nash: Net charge offs will be elevated in the first half of the year and then down lower in the second half do you think.
Speaker Change: Net charge offs come in above the upper end of that 40 to 50 basis points in the first half I understand that it's reserved for and then secondly would you expect the ACL ratio to drift lower from 175, $1 79, which has been pretty consistent.
And 24.
Ryan Nash: Well.
Ryan Nash: 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 a handful of large credits primarily in office.
Ryan Nash: Senior housing and transportation, which we've signaling effect.
Ryan Nash: Half of our non accruals are in those three.
Ryan Nash: Those three portfolios. So as you think about resolutions they might be somewhat episodic we could experience.
Ryan Nash: A quarter when charge offs were a little higher than the range.
We believe obviously appropriately reserved for losses in those credits and so assuming they get resolved I think you can also see absent loan growth with an improving economy.
Ryan Nash: Our coverage ratios would would begin to come down.
Ryan Nash: Got it.
Ryan Nash: John.
Ryan Nash: Our next question comes from the line of Matt O'connor with Deutsche Bank. Please proceed with your question.
Speaker Change: Good morning was hoping to get some details I'm sorry, if you covered it earlier, but just talk to the other categories Besides capital market.
Speaker Change: I don't know if there's seasonality usually strong freaky levels, but service charges card monthly management were all down.
Speaker Change: Just any thoughts on what drove it for two and then the outlook on some of those categories. Thank you.
Speaker Change: Yeah I think.
Speaker Change: What's baked in.
Speaker Change: You see some numbers that are baked in for next year that others have.
Speaker Change: We have this HR asset.
Speaker Change: We're.
Speaker Change: We adjust.
Speaker Change: Benefits for us.
Speaker Change: Certain individuals and we have a trust funds that so as the as the assets in the trust go up NAR goes up and so do expenses and that's why we have this little bit of noise in our numbers that's about $15 million. If you look at page 14 in our supplement you can see it quarter to.
Speaker Change: Quarter, its about $15 million, we think people put in our run rate thats it really distorts.
Debt.
Speaker Change: You know as you get to the fourth quarter.
Speaker Change: The things that are a little bit more episodic or capital market. Since you've mentioned, so M&A advisory had a good finish for the year.
It depends on what's in the pipeline at any given quarter, so youre not going to get a nice smooth quarterly run rate on that caption alone, which is why we while we finished at 90 $798 million in the quarter for total capital markets work signaling more $80 to $90, which should be baked into expectations. If we.
Speaker Change: Closed more deals it'll be higher than that.
Speaker Change: If we don't close many will be at the lower end, so M&A is a bit like.
Speaker Change: Like I said episodic you have swap income swapping because people just aren't entering into interest rate protection right now given the rate environment. So that's not much of a contributor.
Syndication revenue was up in the quarter.
Speaker Change: That has been a little bit episodic, but they had a good finish to the year and then we have real estate capital markets.
Speaker Change: <unk> really been our strongest a more steady contributor, but it can be a bit better than it was in the fourth quarter dependent on rates, if we get rates coming down just a little bit it actually could have even a better quarter. So.
Speaker Change: Net capital markets I think 80 to 90 for the time being and we're going to work to get it to $100 million, but we need a little help from the rate environment service charges are fairly predictable.
Speaker Change: There is no real noise and anything wealth management continues to grow at double digits, partly due to markets, but partly due to just growth in customers and balances and we're making investments and wealth advisors to continue on that path. So we're happy with that.
Speaker Change: The probably the biggest negative would.
Speaker Change: Would be end of the card and ATM fee line.
Speaker Change: That's where we.
Speaker Change: We have our rewards liability we we.
Speaker Change: He started.
Speaker Change: Identifying to our customers real time, what the rewards liability was when you log on because we thought that was helpful to them and we believe it is helpful.
Speaker Change: As a result of that people are using the rewards more so we had to digest, our reward liability and that was a little bit of Ddos and N IR for the fourth quarter that shouldn't repeat as we go forward into 2025.
Speaker Change: Okay. That's super helpful. Thank you.
Speaker Change: Yes.
Speaker Change: Our next question comes from the line of Erika Najarian with UBS. Please proceed with your question.
Speaker Change: Hi, Thank you just going back to slide eight David. Thank you for all the color on data in different scenarios.
Speaker Change: Just wondering you know it's been such a long time investors have seen a neutral rate that wasn't rahal and as we think about your experience as regions given your deposit base, how should we think about so I guess you know what you've seen.
Speaker Change: Current rate environment with regard to the DDA growth and I guess I'm wondering how are we it seems like we've completely lap the impact.
Speaker Change: The impact of.
Speaker Change: Excess liquidity in terms of pressure on deposits and just I guess wondering what is the environment, where you know regions can see itself growing DDA again.
Speaker Change: Yeah, I think it's a great question.
Speaker Change: And in very important one because <unk> consumer DDA and operating accounts of business are the fuel that that make our engine work and we've done a pretty good job of continuing to grow checking accounts.
Speaker Change: But we're doubling down on it.
Speaker Change: Investments in on our consumer side, our branch small business and our small business and the commercial side.
Speaker Change: And reinforcing to our relationship managers to grow new logos. So that we can get the operating account and it's not about making of the loan it's about getting the relationship which is evidenced by an operating account of a business and we will continue to do that we will continue to have more than 30% of our total deposits are noninterest bearing.
Speaker Change: Is very valuable to us.
Speaker Change: Margin standpoint.
So.
Speaker Change: It's not really the rate environment. That's the driver of that it's about us just getting out boots on the ground and getting after it and that's kind of the challenge that John's put to the businesses.
Speaker Change: We're looking forward to seeing.
Speaker Change: I see and what we can do by making the investments in our priority markets that we listed in our and our and our material.
Speaker Change: Got it and then second question, maybe this investment continued investments in.
Speaker Change: Fee income.
Speaker Change: David you mentioned investing in more mortgage servicing assets and.
Speaker Change: 2025, and as you think about perhaps.
Speaker Change: Where you can service your clients even better what is your what are your priorities in terms of just fee income investment.
Speaker Change: In 'twenty five and now how should we think about that trajectory over the medium term.
Speaker Change: Well, so we ask all of our businesses to take a look at what products and services that our customers need and value that we don't provide and theirs.
Speaker Change: So there's not a whole lot, but you've seen us invest in businesses like the ball unclear site.
Speaker Change: And the business side that have been helpful to us we don't have a robust fixed income sales and trading platform that would be nice if we could find something that made sense for us there you mentioned msr's.
Speaker Change: We'd love to buy.
Speaker Change: As in the wealth group, but there is too expensive and so we have to continue.
Speaker Change: Continue to chip, we have the capital to invest in those non bank type acquisitions. So we can come up with a product or service that we don't have we're all over it and but we have to make sure we pay an appropriate price words.
Speaker Change: Got it thank you.
Speaker Change: Our next question comes from the line of Gerard Cassidy with RBC. Please proceed with your question.
Gerard Cassidy: Hey, Jonathan.
Speaker Change: Good morning.
Speaker Change: John You started your presentation with some very impressive.
Speaker Change: Economic data and population data demographics in your core footprint.
Speaker Change: At the same time, you and your peers continue to struggle to really achieve.
Speaker Change: Good loan growth.
Speaker Change: Good loan growth I guess, you could define is.
Speaker Change: The rate of growth of nominal GDP in the area in which you operate.
Speaker Change: Is it going to take to you think cause I know you guys have been talking about modest loan growth for some time, particularly in the commercial side. What do you think it's going to take to bring the loan growth into let's say mid single digits for you for you folks over the next couple of years.
Speaker Change: Well there are some natural headwinds Gerardo one is there's just a tremendous amount of liquidity in the marketplace customers have shrunk their balance sheets. They are operating their working capital needs are less than they were pre COVID-19 customers have figured out how to operate with less inventory receivables turn potentially.
More quickly and they just have a lot of cash and so we believe that customers have to put that money to work before we will see an increase in activity, having said that we do continue to expect our commercial lending activity to be pretty good David talked about 3% projected loan growth we saw.
So a really nice increase in production year over year, but one utilization is still at historically low levels.
Speaker Change: All of that said, we also have to see growth in other portfolio. So we have.
Speaker Change: Some headwinds that are generated.
Speaker Change: The fact that the real estate business is not growing today, largely new originations due to cost cost of.
Speaker Change: Cost of insurance cost of borrowing money cost of supplies and construction all of those things have been a headwind to new originations within real estate, so that naturally offsets growth in C&I and then the consumer book is fairly stable consumers are still spending money, but probably a little more cautiously than there.
Speaker Change: <unk> and <unk>.
Speaker Change: So while we're seeing some growth in our card portfolio or other consumer businesses are fairly stable I think we have to see some other things. Besides C&I loan growth in order to experience real overall loan growth in the portfolio.
Speaker Change: And John just tying into those comments can you give us any color or maybe do it.
Speaker Change: You know the acquisitions you guys did a couple of years ago, and interbank and to see them.
Speaker Change: Right.
Speaker Change: Are they doing in terms of growing their loan books relative to when you bought them and what you expected they were going to produce.
Speaker Change: Yeah, I think we've been really happy with with both acquisitions I would say is cynthia them, which is the.
Speaker Change: The older of the two is a small business loan originator their focus has been on business essential equipment. They have been growing that business nicely, but have over the course of the last call. It 12 to 18 months running up against some pressure as small businesses are feeling the pressure of increased cost.
Speaker Change: Increased borrowing costs et cetera. So.
Speaker Change: <unk> grown as much over the last 12 months as we would expect we are however, having really good experience integrating that platform into our branches. So that our branch bankers can use the capabilities that we have within <unk>.
Speaker Change: As an example, a syndrome can approve alone within about 75 minutes. They have really good technology, we can close that loan quickly and so we're happy and excited about what that means for growth in small business lending within our branches.
Speaker Change: With.
Speaker Change: Interbank the home improvement finance business, we have a bit of a run off portfolio, there and that we had some solar originations.
The business that we've decided not to continue to grow and so as we're remixing.
Speaker Change: Our portfolio, so to speak or our portfolios with an interbank, we don't anticipate a lot of growth there in 2025, but that will come over time, we've been really happy with the quality of the credit and both our Cynthia and interbank and we believe that those are portfolios and capabilities frankly given.
Speaker Change: The technology that they have that we can continue to.
Speaker Change: To.
Speaker Change: Okay.
Speaker Change: To grow over time.
Speaker Change: And I'd add to that Gerard.
Speaker Change: Your question was about balances both of those portfolios that John just mentioned.
Speaker Change: Are there a natural hedge on lower a lower rate environment, because they're fixed rate lending with with much more spread.
Speaker Change: That is typical and that has higher risk, but we get paid and compensated for that risk, which is why we really like both of those businesses.
Speaker Change: Very good I appreciate that and then.
Speaker Change: You guys. Obviously, you didn't put together some really good slides through your earnings call and we all appreciate that and I found the slides 20, and 21 very interesting about your securities portfolio and the information.
Speaker Change: <unk> that's provided there.
Speaker Change: On the held to maturity section of the Securities portfolio you show it represents about 14%.
Speaker Change: And if we assume that and we all don't know all of the details of the Basel III and game. When it is finalized hopefully later this year, but assuming that the available for sale unrealized losses will go through regulatory capital as you alluded to in your comments.
Speaker Change: Where do you think the HTM portfolio goes too or are you comfortable just keeping that at the current level.
Speaker Change: Yeah. So.
Speaker Change: Gerard you saw that we over this past year, we've increased that quite a bit we were at about 3% I think but the beginning of the year. We're at 14 today.
Speaker Change: We have a an interim plan to get to about 25%.
Speaker Change: We realize that's lower than the peer median still but we do think that to.
Speaker Change: To the extent a OCI does become part of the regime that reducing the volatility of capital relative to changes in interest rates is important for us.
Speaker Change: So we think 25 is comfortable enough.
Speaker Change: You start getting into higher percentages, you really have to think about the interplay with LCR and liquidity risk management. So you don't want a hamstring yourself by putting too much in HTM to solve one problem and create another one for you. So we think 25 just about any regime is is a pretty good starting point and once we get.
Speaker Change: There, we'll reevaluate and come back to all of our investors and analysts an update at that percentage if need be.
Speaker Change: And I know you've been very active in the repositioning as you pointed out in slide 21 should we assume in 'twenty five and maybe 2016 to reach the targeted number you just gave us.
Speaker Change: Repositioning is.
Speaker Change: Is likely to be part of that strategy to get there.
Speaker Change: Yeah.
Speaker Change: I would say our repositioning youre not going to see the magnitude of the repositioning and 25% that you saw in 'twenty four primarily because we just don't have the securities out there that are that help.
Speaker Change: To help us make sense for that we've been trying to take losses with a payback period under three years I think our last one was about two seven years.
Speaker Change: And we really don't want to go much over that so.
Speaker Change: We have a steeper curve, maybe maybe that make some sense to us our baseline is $4 50 on the turn and we start pushing it on five than maybe we have a different answer in either case. So I don't think we're going to have the magnitude of the repurchases that you saw in 'twenty four.
Speaker Change: Great. Okay. Thank you I appreciate the color.
Speaker Change: Our next question comes from the line of Betsy <unk> with Morgan Stanley. Please proceed with your question.
Speaker Change: Good morning Betsy.
Betsy: Morning, Hey, good to chat.
Speaker Change: Chad.
Speaker Change: Couple of follow ups here one on the expenses you were indicating that the loan system will go into place. This year what was it two Q3 Q.
Speaker Change: That's correct question, Okay is there.
Will there be expense roll off as it relates to system unwind or is that more of a 'twenty six.
Speaker Change: Yeah, I don't think that Youll see any appreciable.
Speaker Change: Pick up.
Speaker Change: From that when we get to the third quarter.
Speaker Change: Okay, that's kind of baked into our run rate. So I don't think there's any change from that going live.
Speaker Change: Alright, but once it goes live life you touched it wait a couple of quarters and then you get to turn off the old system right.
Speaker Change: We do but I don't think there's a perishable savings there I think the new system really gives us an opportunity to serve our clients better.
Speaker Change: What that's all about and as.
Speaker Change: It's a cloud based system and I think that it will.
Speaker Change: It'll help our relationship managers in particular serve our customers better.
Speaker Change: Okay Super and then just a follow up on the question around the bankers I know you mentioned at the beginning of the call of 140 bankers that you're looking to bring in over the course of the year I'm, assuming that's the timeframe.
Speaker Change: But can you give us a sense of.
Speaker Change: How does this number 140 compare to prior years I'm trying to get a sense of what kind of ramp.
Speaker Change: You are driving in the business as I'm sure you know head count times productivity as revenues Theyre looking to understand the ramping here and is this a one year is this a multiyear that'd be very helpful to understand thanks, so much but you've got you've got to the answer at the very end.
Speaker Change: It's a multi that's a multi year that's a call. It two to three year ramp that's not we're not hiring 140 people of one year I'm not sure. We can hire 140 people in one year.
Speaker Change: You'll see that.
Speaker Change: Really coming on throughout the year, probably towards the middle of the year and the back of the year, that's baked into our 1% to 3% and so.
Speaker Change: Shouldn't see this big Cliff effect of having all of this expense with no revenue.
Speaker Change: We're going to we're going to feather it in so that it makes sense for US again, we're committed to positive operating leverage at the same time, we are committed to growth. So how we do that and the pace and we do that is going to have to be very measured so youre not going to see just all a sudden a bunch.
Speaker Change: A bunch of people show up on our doorstep.
Speaker Change: Got it and I'm just wondering yeah I'm sure you've been hiring people into this business along the way as well and you're indicating that you are going to be accelerating the pace of <unk>.
Speaker Change: Hiring into this space I'm just wondering is this a doubling of.
Speaker Change: Prior pace.
Speaker Change: Yeah, I mean, depending on the business Betsy it would be 10% to 20% increase in head count and depending upon the business for function.
Speaker Change: Just about range.
Speaker Change: Okay, Great that's super Thank you so much.
Speaker Change: Thank you. Our final question comes from the line of Chris <unk> with Wells Fargo. Please proceed with your question.
Speaker Change: Hi, Chris Hi, Thanks, Thanks for squeezing me in.
Speaker Change: Afternoon. So this is a kind of a deal.
Speaker Change: Right.
Speaker Change: The strong footprint and outside of the growth you expect in yet.
Speaker Change: Odyssey loans and deposits, it's a lot of recent blades, but growing much what do you think the organic growth should be in a more normal environment for both.
Speaker Change: Yeah, well I mean, we've.
Speaker Change: <unk> consistently said, we think we ought to grow in our core markets, we ought to be growing with the economy, plus a little where we have.
Speaker Change: Significant market share and presence we acknowledged that there are a number of new competitors in the marketplace or indicating they want to come into the marketplace, which makes.
It makes the business more challenging but we.
Speaker Change: I have a high degree of confidence in our ability to continue to protect our markets our core markets.
Speaker Change: And grow in those markets and at the same time, we're excited about the growth markets that we have an opportunity with <unk>.
Speaker Change: Call them priority markets, where we have an opportunity to grow our business that maybe a little faster rate relative to our current position there.
Speaker Change: And I know this was kind of asked a little bit already but just can you just be a bit more specific on the tech progress like what's the timeline. When do you think it will be done and what are kind of the ancillary benefits you may expect to see both just on the operating standpoint, but also an opportunity standpoint. Thank you.
Speaker Change: Yes, David mentioned, we will convert to our new loan system. Later this year and then begin running a pilot on the deposit system in the second half of 2026 with implement to full implementation.
Speaker Change: The likely the second quarter first and second quarter of 2027 in terms of benefits. So we think it gives us a good bit more capabilities faster product launches, we can bundle products will have.
Speaker Change: We think more interesting capabilities its cloud based system it will allow us to upgrade.
Speaker Change: The system much more easily quickly and.
Speaker Change: All in all we think gives us a competitive edge.
Speaker Change: Advantage.
Speaker Change: Alright, thank you.
Yes.
Speaker Change: Okay. That's all the questions. So thank you all very much for calling in today. We appreciate your interest in regions.
Speaker Change: Have a great weekend.
This concludes today's teleconference. You may disconnect your lines at this time.
Speaker Change: Okay.