Regions (RF) Q1 2026 Earnings Call Transcript

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DATE

Friday, April 17, 2026 at 10 a.m. ET

CALL PARTICIPANTS

• President — John Turner
• Chief Financial Officer — Anil Chadda

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TAKEAWAYS

• Loan Growth -- Ending loans increased 2%, with average loans up approximately 1%, primarily from commercial and industrial lending across multiple sectors.
• Loan Quality -- Nearly two thirds of loan growth was investment grade, and most remaining growth was near investment grade.
• Deposit Trends -- Average deposit balances increased modestly, with ending balances up 1% and noninterest-bearing deposits stable in the low 30% range.
• Deposit Costs -- Interest-bearing deposit costs declined 13 basis points, exiting at 1.69%; company targets sustained mid-30s deposit beta.
• Net Interest Income (NII) -- NII declined sequentially due to two fewer days in the quarter and absence of nonrecurring items; management expects a 2% rebound in Q2 and expansion for the remainder of the year.
• Net Interest Margin (NIM) -- Net interest margin was 3.67%, below expectations from tighter asset spreads and loan paydowns, but management reiterates full-year NII growth of at least 2.54% and year-end NIM below the 3.70s.
• Securities Portfolio Actions -- After quarter-end, the company sold approximately $900 million of shorter-duration securities at a $40 million loss to reposition for higher yields; payback period is estimated at approximately two years.
• Adjusted Noninterest Revenue -- Adjusted noninterest revenue declined 2% sequentially, driven by lower card and ATM fees and a 29% drop in other noninterest income, partially offset by a 5% increase in capital markets income.
• Fee Businesses -- Wealth management revenue rose 9% year over year; treasury management grew 6% sequentially, while card and ATM fees fell 5% linked quarter reflecting seasonality.
• Adjusted Noninterest Expense -- Adjusted noninterest expense decreased 4% from Q4, with management expecting a 1.5%-3.5% increase for the year, and positive operating leverage in 2026.
• Credit Quality -- Annualized net charge-offs fell 5 basis points to 54 basis points; allowance coverage moved down 8 basis points to 1.68%, with nonperforming loan (NPL) ratio down 2 basis points to 0.71%.
• Allowance for Credit Losses -- Allowance declined by $39 million, with 8 basis point reduction in ratio, maintaining 238% coverage of nonperforming loans.
• Credit Guidance -- Management expects full-year 2026 net charge-offs between 40 and 50 basis points.
• Capital and Dividend -- Reported common equity Tier 1 (CET1) ratio was 10.7%; $401 million in share repurchases completed and $227 million in dividends paid. Proposed capital framework changes reduce CET1 to 9.4%, but are expected to result in pro forma Basel III CET1 ratio of about 10.4% once fully implemented.
• Operating Targets -- Management reiterates targets for low single-digit loan and deposit growth and positive operating leverage for 2026.

SUMMARY

Regions Financial Corporation (NYSE:RF) presented sequentially lower net interest income and margin due to loan mix changes, but management reaffirmed guidance for full-year NII and positive operating leverage. The bank disclosed a significant $40 million securities repositioning loss designed to enhance future yield, and discussed adjustments to align with evolving capital regulations. The company described continued strength in loan pipelines, expanding hiring plans, and ongoing investments in digital initiatives as additional growth drivers for the remainder of 2026, with stable deposit costs forecasted even without further Fed rate cuts.

• Management stated, "we are very confident in hitting the ranges," specifically referencing NII and fee income guidance despite Q1 softness.
• John Turner highlighted customer liquidity is up "about 7% year over year," with lending activity expected to persist as business pipelines remain robust.
• With regards to potential regulatory changes, Anil Chadda signaled that AOCI inclusion and RWA methodology could enable capital ratios near the top of historic targets, and capital distribution priorities "are unchanged."
• The company indicated near-term margin improvement will lean on "managing deposit costs" and fixed asset repricing opportunities totaling approximately "$9 billion looking forward."
• Turner noted NDFR-related and private credit exposures remain small, aligning with a relationship-based, risk-focused lending approach not centered on aggressive expansion into higher-risk categories.
• Management expects treasury management and wealth to "remain a source of growth within overall service charges," reinforcing the strategic importance of diversified fee businesses.
• Near-term commercial real estate capital markets revenue remains "soft" but long-term rate declines could materially improve that contribution.
• Investment plans for digital offerings and banker hiring are set to generate incremental business and bolster core growth from late 2026 into 2027.

INDUSTRY GLOSSARY

• AOCI (Accumulated Other Comprehensive Income): Unrealized gains and losses on available-for-sale securities and other items incorporated into capital calculations under proposed regulatory frameworks.
• Beta (Deposit Beta): The proportion of market interest rate changes passed on to depositors through changes in deposit rates.
• NDFR (Non-Deposit Funding Related Lending): Lending activities linked to funding sources other than traditional deposits, often including private credit or specialized financing channels.
• Criticized Loans: Loans with credit quality concerns that require heightened management attention based on bank risk ratings.

Full Conference Call Transcript

Anil Chadda: Ending loans grew 2% while average loans increased approximately 1%. Growth was driven by broad-based C&I lending, including power and utilities, manufacturing, health care, and asset-based lending. Roughly half of this quarter's growth came from higher line utilization with the balance driven by new loans, approximately 80% of which were to existing clients. Almost two thirds of the growth was investment grade credits, with the majority of the remaining growth near investment grade, so very high quality. While the macroeconomic outlook remains volatile, we experienced strong loan growth in the latter half of the quarter. As John noted earlier, client sentiment remains broadly positive. Loan pipelines and commitments remain strong, and overall lending activity remains at a good pace.

An area that has not been a meaningful growth driver over the past year is NDFR-related lending. These loans reflect long-standing client relationships with predominantly investment grade credits with nearly half of balances associated with our long-standing REIT business. Private credit exposure remains limited, less than 2% of total loans, largely investment grade, well-enhanced. Existing client paydowns exceeded draws during the quarter. With respect to our full-year growth expectations, we continue to expect full-year average loans to be up low single digits versus 2025. Turning to deposits, average balances increased modestly, while ending balances increased approximately 1%, reflecting normal seasonal patterns associated with tax refunds and payments.

Balances grew while total deposit costs continued to decline, supported by our strong deposit franchise and focus on customer acquisition and retention. Through deliberate product management, we continue to see a shift in CDs into money market accounts across both our consumer and wealth businesses with growth in the combined balances. Our noninterest-bearing deposit mix remained in the low 30% range, consistent with our target and reflective of the operational nature of our deposit base. As a result, we continue to expect 2026 average deposits to be up low single digits versus the prior year. Let us shift to net interest income.

As expected, net interest income was lower linked quarter driven primarily by two fewer days in the quarter and the absence of nonrecurring items that benefited the fourth quarter. Net interest margin of 3.67% continues to evidence Regions Financial Corporation’s profitability advantage. That said, margin came in below expectations for the quarter, reflecting tighter asset spreads as a result of market conditions, paydowns of higher-yielding loans, and remixing into higher-quality credits. The core balance sheet performed well during the quarter and provides a solid foundation for net interest income growth over the remainder of the year.

Our neutral interest rate positioning once again performed as designed in the quarter, with minimal impact to net interest income from the Fed's fourth-quarter interest rate cuts. In the first quarter, interest-bearing deposit costs declined 13 basis points. The following cycle, interest-bearing deposit beta stands at 35%, and we remain confident in the mid-30s beta with the potential to outperform over time. Net interest income also continued to benefit from fixed-rate asset turnover with elevated long-term rates supporting pricing on term loans and securities. At current rate levels, we would expect balance sheet repricing to support margin expansion over multiple years. Finally, recent loan growth acceleration positions us well for future interest income growth.

Subsequent to quarter end, higher interest rates created an opportunity to sell approximately $900 million of shorter-duration securities that no longer support our balance sheet management objectives at a $40 million loss, repositioning those into longer-duration product types. The transaction is also well aligned with our overall capital deployment priorities, carrying a short, approximately two-year payback period and enhancing overall security yields. In the second quarter, we expect a strong rebound with approximately 2% net interest income growth followed by additional expansion in subsequent quarters. Fixed-rate asset turnover, seasonal average deposit inflows, accelerating loan growth, and continued discipline in funding costs will drive net interest income growth in a stable Fed funds environment.

For full year 2026, we reiterate our net interest income expectation of between 2.54% growth and for the net interest margin to exit the year below the 3.70s. Now let us turn to fee revenue performance for the quarter. Adjusted noninterest revenue declined 2% on a linked-quarter basis as seasonally lower card and ATM fees and a decline in other noninterest income were partially offset by higher capital markets revenue. Capital markets income increased 5% during the quarter, driven by improvements in commercial swap, loan syndication, and securities underwriting activity, partially offset by lower real estate capital markets and M&A fees.

Despite ongoing headwinds associated with market volatility and elevated interest rates, we continue to expect Capital Markets quarterly revenue to increase within our $90 million to $105 million range, trending near the lower end of the range in the second quarter and moving higher thereafter. Wealth management remains a good story for us, supported primarily by continued sales momentum with revenue up 9% year over year, and we expect this business to continue to be a steady contributor to fee revenue growth. Card and ATM fees declined 5% from the prior quarter, reflecting typical seasonal patterns. We expect this line item to follow normal patterns, peaking next quarter and moderating throughout the second half of the year.

Other noninterest income declined 29% driven primarily by commercial lease sales activity, with $6 million of gains recognized in the fourth quarter and $7 million of losses recognized in the current quarter. Service charges remained stable during the quarter as record treasury management fees offset seasonally lower consumer revenue. Overall, treasury management grew 6% on a linked-quarter basis, including strong growth in core payments revenue. We continue to invest in talent and innovation within the treasury management space, with a focus on embedded payments and digital client experiences. We expect this business to remain a source of growth within overall service charges. For full year 2026, we continue to expect adjusted noninterest income to grow between 3–5% versus 2025.

Let us move on to noninterest expense. While we continue to make meaningful investments across the franchise to support long-term growth, we remain focused on maintaining a disciplined approach to expense management. Adjusted noninterest expense declined 4% linked quarter, reflecting broad-based improvement across most expense categories. Salaries and benefits remained relatively stable as lower incentives and declines in market value adjustments for employee benefits liabilities offset the seasonal increases associated with payroll taxes, 401(k) match, and merit. For full year 2026, we expect adjusted noninterest expense to be up between 1.5% and 3.5%, and we expect to deliver full-year adjusted positive operating leverage.

Annualized net charge-offs as a percentage of average loans decreased 5 basis points to 54 basis points, reflecting continued progress on resolutions within previously identified portfolios of interest which were reserved for in prior periods. Business services criticized and total nonperforming loans remained relatively stable during the quarter. As risk rating upgrades continue to outpace downgrades, the resulting NPL ratio declined 2 basis points to 71 basis points, and the business services criticized ratio declined 16 basis points to 5.15%.

Allowance increases tied to loan growth and greater macroeconomic uncertainty were more than offset by meaningful progress in resolving loans within previously identified portfolios of interest, sustained risk rating upgrades exceeding downgrades, and continued improvement in the business services criticized and total nonperforming loan ratios. As a result, the allowance for credit losses declined $39 million. Strengthening asset quality across portfolios combined with high-quality loan growth drove an 8 basis point reduction in the allowance ratio to 1.68%, while coverage of nonperforming loans remained solid at 238%. We expect full year 2026 net charge-offs to be between 40 and 50 basis points. Let us turn to capital and liquidity.

We ended the quarter with an estimated common equity Tier 1 of 10.7%, while executing $401 million in share repurchases and paying $227 million in common dividends. We are encouraged by the proposed changes to the regulatory capital framework which will revise the definition of capital to include AOCI, and implement broad updates to risk-weighted asset calculations under the standardized approach. Including AOCI reduces our reported CET1 ratio to an estimated 9.4%. However, based on our preliminary assessment, the proposed changes are also expected to result in an estimated 10% reduction in risk-weighted assets, contributing to an approximate 100 basis point increase in capital.

Taken together, the proposed changes are expected to result in a fully implemented Basel III common equity Tier 1 ratio of approximately 10.4% on a pro forma basis. Importantly, our capital priorities remain unchanged. Once finalized, we expect to continue managing our fully implemented Basel III common equity Tier 1 ratio around the midpoint of our established 9.25% to 9.75% operating range. Finally, liquidity remains stable and robust, with ample capacity to support future growth. As John indicated, we are pleased with our quarterly performance, particularly given the evolving market dynamics, and believe we remain well positioned to continue delivering consistent, sustainable long-term performance for our shareholders. This covers our prepared remarks.

We will now move to the Q&A portion of the call.

Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 2 if you would like to remove your question from the queue. Our first question comes from the line of Ryan Nash with Goldman Sachs. Please proceed with your question.

Ryan Nash: You know, it was good to see that you reiterated the guidance across the board despite a slightly softer start. So I wanted to focus on revenues, whether it is NII or fees. Given 1Q along with some of the 2Q commentary, maybe just give us a sense of how you are tracking relative to your ranges and what is your confidence in terms of reaching the middle or the upper part of the NII range, and what do we need to see to make that happen? I have a follow-up.

Anil Chadda: First of all, we are very confident in hitting the ranges. Let me start with net interest income. Importantly, exiting the quarter with the strong loan growth that we saw—$2.3 billion point to point—really a great tailwind for us heading into the second quarter. Our deposit performance, the growth that we saw during the quarter, was also really strong. Our ability to continue to bring down deposit costs—we exited the quarter on an interest-bearing deposit cost of 1.69%—that is another good tailwind for us. And as we have talked about before, we still have fixed asset turnover that will benefit us over the course of the remainder of the year.

So all of those things coming together is really what gives us the confidence in terms of what we expect to see for NII both in the second quarter and going forward through the year. I would say loan trends still look good, so we are confident that what we are seeing will continue to persist. With respect to noninterest revenue, a couple of things there. First, cyclically, the first quarter is typically low for some of the consumer fee items—consumer service charges, card and ATM fees. Those tend to be lower in the first quarter. We expect that to rebound in the second quarter, so that will be a nice tailwind.

We have talked about capital markets and gave our guide for the second quarter and for the rest of the year. And then treasury management and wealth just continue to be good growth stories for us. We continue to expect to see growth there. It is great to see another record quarter out of treasury management. Wealth management up 9% year over year. So all these things are really pulling in the right direction, and what we are seeing right now really gives us confidence that we will operate within the range that we have given.

Ryan Nash: Thanks, Anil. And then I have a follow-up and a comment. First one, my follow-up—you noted that you still expect to manage to the midpoint of your range on capital, but I think you noted that it creates meaningful flexibility. So given the coming changes, maybe just talk about the potential to manage to the low end or even below, given that these changes are coming. And maybe expand on the flexibility comment—what else do we see for leveraging the capital? That is my question. And then my comment, Dana, I just want to say thank you for all the help over the years, and enjoy taking care of your grandchild and some traveling. Thank you.

John Turner: Thank you, Ryan. Yep. Great question, Ryan.

Anil Chadda: We do not want to get too far ahead of the proposed rule. As we indicated, based on the proposal, when you include AOCI and then the expected benefit in risk-weighted assets, we expect to be around 10.4%. The timing of each component, the phase-in schedule, things of that nature, will matter a lot. So we are not going to get ahead of that. We are going to continue to manage capital the way you have seen us. Our capital distribution priorities are unchanged. We will monitor these proposals, and once finalized, it will be our plan to continue to manage capital within that range. That is unchanged. But we do not want to get too far ahead of this.

We are fortunate we generate enough capital to do everything we want to do today to grow the business, and so we do not have to distribute capital ahead of this. We will take our time. But when we get final rules, our distribution priorities are unchanged, and we still believe our targets are where we should be.

Ryan Nash: Got it. Well, I figured I would try. Thank you.

Operator: Next question comes from the line of Scott Siefers with Piper Sandler. Please proceed with your question.

Scott Siefers: Hey. Thanks for taking the question. Maybe, Anil, I was hoping you could address in a little more detail the moving parts in the margin outlook for the remainder of the year. I think you touched on a combination of the tighter asset spreads and loan remixing as factors in the first quarter. Maybe just going forward, how much will those need to find relief, or is there simply enough balance sheet repricing opportunity that you can absorb continued pressure from those dynamics that hit the first quarter but still see both the margin and NII increase?

Anil Chadda: Sure. First of all, managing deposit costs is still the primary mechanism that we have to continue to meet our margin objectives for the year. I already alluded to where we exited the quarter from an interest-bearing deposit cost, so the opportunity there is still going to be a meaningful driver in terms of where we go over the balance of the year. We talked about the fixed asset repricing opportunities that we have, about $9 billion looking forward, so that will be helpful. We did see, as we alluded to, some investment grade credit draws late in the quarter. We like that credit. It is lower credit risk, great returns.

We also saw good kind of middle market growth throughout the first part of the quarter, and we expect to see that over the course of the year. That is going to benefit the margin as well as we look forward. Deposit growth is going to continue. I already mentioned we had good growth this quarter. We are going to see a seasonal uptick in the second quarter. So all those factors coming together are really going to be positive in terms of where our margin goes over the course of the year.

Scott Siefers: Terrific. Thank you. And then, John, your commentary on customer sentiment sounded pretty good, and I think Anil mentioned that about half the first quarter loan growth came from higher line utilization. Maybe a thought—where are utilization rates versus, say, 90 days ago, and where would you hope to see those advance to as the year goes on?

John Turner: Utilization rates are up about 200 basis points across both the corporate banking customer base and our middle market customers. We would expect to see a little more activity as the year goes along based upon the constructive feedback we are getting from customers. I will say that we observe customer liquidity is up—at least at Regions Financial Corporation—by about 7% year over year. So customers are still creating additional liquidity. At the same time, we are seeing borrowing activity, which is positive.

Scott Siefers: Okay. Perfect. Thank you. And then just finally, Dana, same thing—thanks for all the help. Best wishes.

Operator: Our next question comes from the line of John Pancari with Evercore. Please proceed with your question.

John Pancari: Morning. On the deposit backdrop, I know you indicated some pretty good deposit dynamics. I wonder if you can elaborate on the competitive backdrop that you are seeing in the Southeast. You have had a number of banks flag seemingly intensifying competitive pressures on the deposit front from not only some incumbents, but some newer entrants to the markets. So what are you seeing in terms of deposit pricing dynamics? Has that been impacting your expectation at all underlying the margin?

Anil Chadda: Sure, John. We have been in a highly competitive deposit backdrop, I would say, for north of a year. The one thing I would say that has been consistent is we are seeing banks, and we are as well, offering promotional offers in certain key markets where everyone is looking to grow customers. I will also say banks are being prudent in terms of how they think about the back book of their deposit base to manage that in the context of their overall deposit cost. The strategies are very similar to what we have seen over the past year.

We have adopted an approach that we think is appropriate where we can continue to grow new customers, especially in these high-growth markets, but also take advantage of our back book to price that in a way that is able to manage our deposit costs where we think they should be over time. We are seeing the same thing amongst our peers, and we think that dynamic will continue to hold. As loans continue to grow, I am optimistic in terms of what we are seeing in the debt capital markets where banks are accessing liquidity there.

From what I see now, the way banks are managing their deposit base and other funding sources, I think, will continue as we all have opportunities to grow loans from here.

John Pancari: Great. Thank you. And then on the margin, I know you cited the pressure from tighter asset spreads. Can you give us a little more color on where spreads stand? What loan types are you seeing that compression? Is that competitive pressures? And you also mentioned the paydown of some higher-yielding loans. If you can just give us a little more color on that. And is there any incremental actions you expect on the portfolio reshaping?

Anil Chadda: The tighter spreads are primarily in larger C&I where we saw line utilization late in the quarter. That is the primary area. We also saw earlier in the quarter, broadly across the balance sheet, tighter mortgage spreads for some of the actions the government's taking as well as a refi pop that we saw earlier in the first quarter. But primarily, where we are seeing the tighter spreads is in IG within the C&I space.

John Pancari: Got it. And then the portfolio reshaping efforts, anything incremental that you expect on that front?

Anil Chadda: I think all that is proceeding just as planned, and as we alluded to last quarter, a lot of that is behind us. We will continue going down that path as we have.

John Pancari: Got it. Thank you very much, Anil, and best of luck to you in retirement.

Anil Chadda: Thank you, John.

Operator: Our next question comes from the line of Analyst with Morgan Stanley. Please proceed with your question.

Analyst: Hi. Good morning. You spoke about line draws. It sounds like there is good fundamental demand coming through. I just wanted to see if you have seen any defensive line draws and any reason that utilization rates may flatten or even decline from here?

Anil Chadda: The line draws that we saw were predominantly late in the quarter when there is uncertainty in the capital markets. That is really where we saw most of that come in. I would not call it defensive in nature. I would just say given where the capital markets were, as we saw uncertainty in the market, customers drew on bank lines. I would expect that to abate through time as capital markets reopen. But nothing defensive in terms of what we are seeing.

Analyst: Got it. And then on the capital market side, you are expecting that trends to the lower end given volatility in rates. Most of your comments on the environment have been fairly constructive. So what market conditions would move you back towards the $100 million-plus range on capital markets revenues?

John Turner: The primary business that is impacted is our real estate capital markets business, and it has been soft now for four to five quarters based on just the rate environment. As longer-term rates come down, we would see, we believe, a benefit in the real estate capital markets business, which would be important, and that would more than offset any impacts on other parts of the business.

Analyst: Got it. Great. Thank you. And, Dana, all the very best.

Operator: Our next question comes from the line of Gerard Cassidy with RBC. Please proceed with your question.

Gerard Cassidy: Hey, John. Hi, Anil. Anil, in talking about the loan loss reserve, I think you pointed out that the increases were tied to loan growth, but also the macro uncertainty out there. If the conflict in the Middle East takes a decided turn for the better—the straits opened up today as you probably saw the headlines—what would that do for the second- or third-quarter allowance? Does that start to reduce the allowance as that macro risk drops meaningfully and kind of surprises all of us that it is maybe going to be resolved sooner than expected?

Anil Chadda: If you look on the waterfall that we included in the appendix, we attributed about $17 million of growth quarter over quarter to the uncertainty. That is primarily what we are seeing in the Middle East. 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. I would not say it is overly material. But we did feel it appropriate to put up a little bit in terms of macroeconomic uncertainty. That is the part of the allowance that I would point you to.

Gerard Cassidy: Very good. And then to follow up on the commercial loan conversation that you guys have presented. You are not really big NDFI lenders—as a regional bank you are down at the bottom of kind of the group, which lowers the risk, of course. But why have you not maybe pursued it as aggressively as some of your peers in terms of the different categories of NDF lending? What do you guys see there that makes you maybe a little more cautious?

John Turner: I think we just generally are more cautious, Gerard. As we think about our lending activities, they are principally based on relationships that are established within our footprint. We have some businesses where we have specialized capabilities; we actually do lend out of footprint. This would be an area where we are getting our feet wet, learning a little more about it. Today, we have relationships with just in excess of 25 funds, and those funds are fairly broadly distributed in terms of the businesses and the sectors that they are lending into. Total exposure, I think, is just above $3 billion to those funds within private credit, about $1.8 billion in outstandings.

I think we are just trying to learn to understand—can we build relationships, can we gain deposits, can we participate in capital markets activity? That is fundamental to how we want to operate our business. If we cannot do that, then it is just not an appropriate allocation of capital for us.

Gerard Cassidy: Very good. And, Dana, hopefully, you have tons of fun in retirement.

Operator: Our next question comes from the line of Ken Usdin with Autonomous Research. Please proceed with your question.

Ken Usdin: Hey. Good morning, all. First quarter credit quality was exactly as expected, taking care of that already expected stuff. And then your outlook for the year looks good, and there is good stability in the NPAs and some of the other metrics. Are you kind of through that piece of taking care of some of that legacy stuff? And what is your general line of sight on those other portfolios that you have mentioned in the past? Thanks.

John Turner: I would say, Ken, we previously identified office, multifamily, transportation, and communications as portfolios where we have some credits we are working through, working out. We have generally seen most of that activity has been completed, but we still have a few credits of some size that we are working on. While we are indicating that we expect charge-offs over the course of the year to be between 40 and 50 basis points, the timing of which we get back within that range is still not entirely clear. But we think credit quality is continuing to improve as reflected in our metrics. Nonperforming loans down to 71 basis points, criticized loans continuing to decline.

Charge-offs should follow, as they are a trailing indicator of improving credit quality.

Anil Chadda: I will just add, as all that happens, our 1.68% allowance ratio should approximate down to the 1.62% that we disclosed as our kind of day one. That assumes we resolve the credit that John mentioned, and that assumes that the macroeconomic uncertainty gets resolved in a positive way. The timing of which that happens, we will see. That is where we think we will end up based on the composition of our loan portfolio.

Ken Usdin: Understood. Okay. And then the second thing, Anil—you are starting right off the bat, following David on the hedging and securities portfolio repositioning activity. Is that at all any adjustment to higher for longer, or is this more just kind of normal course of moving some stuff further out to later time periods? Just wondering if it is just normal course or any adjustments you are making because of the environment. Thanks.

Anil Chadda: No. It is just normal course. As securities shorten, they do not accomplish our balance sheet management objectives as they once did, and so we will extend duration on the new securities that we purchase. It is just an extension of what you have seen us do before.

Ken Usdin: Alright. Great. Thanks a lot.

Operator: Our next question comes from the line of Matt O'Connor with Deutsche Bank. Please proceed with your question.

Matt O'Connor: Good morning. I just wanted to follow up on the fees. Some of these categories, if we look year over year, the growth was a little bit less than what we thought, like the consumer service charges—flat, up a little bit—card flat. Maybe just talk about some of those dynamics and give some guidance for card in 2Q, but just thinking about those categories maybe more medium term.

Anil Chadda: I would say in terms of medium-term guidance, they are cyclically lower in the first quarter. They tend to peak in the second quarter and then kind of hold flat from there. From a year-over-year comparison standpoint, we do have some one-off items if you just look quarter over quarter in particular, in terms of how we treated certain expenses associated with some of those programs. So there are some one-time changes that, if you just look year over year, would mute the growth. But in terms of path from here, we expect to peak next quarter and then hold at that level throughout the rest of the year.

Matt O'Connor: And that would be for the card and ATM fees, right? And consumer service charges?

Anil Chadda: Yes, for card and ATM fees and the consumer service charges portion.

Matt O'Connor: Okay. Thank you.

Operator: Our next question comes from the line of Ebrahim Poonawala with Bank of America. Please proceed with your question.

Ebrahim Poonawala: Morning, John. Morning, Anil. First question—listening to your messaging on the drawdowns towards the end of the quarter due to market volatility. Does that create a risk of payoffs? If some of the macro subsides and markets are less volatile, do you see customers paying off and that credit then moves off balance sheet? And secondly, thinking about capital markets—obviously, it is a little more real estate biased in your case. Without getting any rate cuts for the year, do you think CRE lending and real estate capital markets can still have a good year?

John Turner: Maybe I will answer the second question first. Yes. We continue to lean into that opportunity. We have a fairly significant portion of our portfolio that is maturing towards the back end of the year. There will be some opportunities within that portfolio to help customers with permanent placement of those obligations. Additionally, we see other opportunities with customers who have debt in other places that will need to refinance. So we think the real estate capital markets business can still have a good year even if we do not get a lot of improvement in rates. But if we do, it gets materially better, we think.

With respect to line utilization, about half of the increase in line utilization was attributable to our larger corporate customers, the other half to our middle market customers who are continuing to invest in their businesses and grow. While there is some risk that we will see some paydowns amongst those larger corporate customers, we expect the middle market customers to continue to borrow as they invest in their businesses. Pipelines are up for the year fairly significantly, and we also expect new originations to overcome any paydowns that we might experience in the corporate space. So all in all, we feel really good about our ability to deliver the loan growth that we have guided to.

Ebrahim Poonawala: Got it. And then maybe, Anil, for you or both of you, as we think about the declining RWA density on the back of the capital proposals, how sensitive are you to managing to a certain level of tangible common equity ratio? Any thoughts there?

Anil Chadda: I would not say that we are managing to a tangible common equity ratio. What we are thinking about really is, first, across all the changes that are being proposed, we think they are positive. We will continue to manage to total CET1 ratio within that 9.25% to 9.75% range. We think it is appropriate. We will manage through that through time as we get finalization of the rules. With respect to the proposed RWA changes themselves, we have to think about not just the regulatory implications but other constituents as well and how they think about RWA and the capital needed on our balance sheet.

Again, we think all of this is positive to what we can do with capital through time. But our caution will be, one, tied to finalization of the rules, and two, to make sure that we understand where each of the other constituents land as well when it comes to these proposed changes.

Ebrahim Poonawala: Got it. And, Dana, all the best, and I am sure we will stay in touch. Take care.

Operator: Our next question comes from the line of Dave Rochester with Cantor Fitzgerald. Please proceed with your question.

Dave Rochester: Hey. Good morning, guys. I want to go back to the credit discussion. I am trying to figure out how you are thinking about the trajectory of the problem loan bucket from here. Given all the work that you have already done, are you expecting to see more meaningful moves lower in NPAs and criticized assets as we get to the back half of the year? And then if you could just update us on your progress in the transportation book, that would be great.

John Turner: We should continue to see some improvement in credit quality, and NPAs could come down a little further. If you look back over time, NPAs have averaged closer to 1%, I think, and so I would not expect them to come down too much further than 71 basis points. Maybe we get into the 60s, but I do not see a lot of movement beyond that. I would tell you that we think credit is pretty well normalized in our book given the composition of our portfolio today, and we feel good about our ability to deliver on the 40 to 50 basis points of charge-offs as we indicated.

With respect to transportation, we are still working through a couple of credits there. But generally speaking, I think we have identified and resolved most of the exposure. We provided some slides in the deck—on transportation, page 24—giving you a little insight into our exposure there. What you would see is, one, we have had a fairly significant reduction in the size of the outstandings or the commitments, representing about 1.2% of total loans. NPLs have come down to about $51 million, and again, when we look at our reserve against that portfolio, we think it is appropriately reserved for any losses that we might experience.

Dave Rochester: So you are in the latter innings on that one.

John Turner: Yes, we are.

Dave Rochester: Great. And then just back on the securities repositioning you did, given today’s rates, is there any more you could do there? Anything that is left on the table that you could potentially source at some point in the future?

Anil Chadda: I would say it is small. There is not much right now. We will continue to look at securities as they get closer to maturity—that creates an opportunity—but we will need to see where rates are to see if it makes sense to do. As you have seen from us in the past, we are very mindful of thinking about it through returns and payback period—really strong payback period on this trade we did at two years—so we are disciplined when it comes to using capital in this way.

Dave Rochester: Great. Thanks, guys. And, Anil, welcome. And, Dana, it has been great working with you. Good luck and enjoy.

Operator: Our next question comes from the line of Erika Najarian with UBS. Please proceed with your question.

Erika Najarian: Hi. Good morning. Anil, just a two-parter for you on CET1. First, given your risk profile, what were the considerations in terms of RSA, which you showed us, versus ERBA? And you mentioned other constituents. A few of your peers have talked about the ratings agencies and perhaps, because of the benefit to RWA—particularly for the regional banks—that there might be a tendency for the ratings agencies to look at un-risk-weighted assets or un-risk-weighted capital measures. I just wanted your comments on those two topics.

Anil Chadda: You really hit the second point. That is the other constituent that we need to be mindful of. As you alluded to, some use direct regulatory risk-weighted assets in their approach. We will need to see how they think about this, and we will clearly work with them to share our thoughts on that, but you really hit the second piece there. On the first piece, just to walk you through our preliminary view of the two approaches—we communicated our 100 basis point expected impact under the standardized approach. We have looked at the ERBA approach.

In particular, as you know, the two primary benefits that we would get through that approach are the incremental benefits on risk weights on investment grade credits that we have talked about today, so that is meaningful, and then also other retail exposures where you could get an incremental lift in terms of risk-weighted assets. The counter to that for us is the operational loss add-on, and our current calculation of that for us actually overwhelms the benefits from the other two. It is something we will have to continually assess. We are fortunate that as proposed you have an evergreen option to opt in, which is beneficial.

But for us right now, the operational loss component overwhelms the benefits in particular from investment grade credits and retail exposures as currently proposed.

Erika Najarian: Got it. And just directly asking—you mentioned that deposit costs are a big factor in terms of your net interest income outlook, and your peers, both money center and regional, are coming into the markets that you have long dominated. If the Fed does not cut, what is the trajectory for deposit costs at Regions Financial Corporation? In other words, will you be able to keep deposit costs flat if the Fed is not cutting this year?

Anil Chadda: We will, and we think—talked about the 1.69% exit rate—we think that will continue into the second quarter, and it will decline modestly. Total deposit costs will decline modestly from there. Again, we think the competitive pressures—banks are performing as we would expect in terms of how they are managing deposit costs—and we expect that to continue into the future.

Operator: Our next question comes from the line of Chris McGratty with KBW. Please proceed with your question.

Chris McGratty: Hey, morning. Intra-quarter, you talked about living in the high end of the 16% to 18% return on tangible common equity range for the next three years. You were slightly above that last year. I think the Street has you a little bit over 18%. Is the outlook that those comments were made now that we have some clarity on regulatory—how much does the numerator versus denominator play in maintaining that level of profitability?

Anil Chadda: Looking forward, there are a couple of things to think about. First, let us talk about the proposed capital changes. If those go in as proposed and if the other constituents do not meaningfully impact how we think about capital, that in and of itself is a tailwind to returns to the extent we choose to buy back shares from that. That would prop up returns overall. Our reason for framing up our guide of 16% to 18% is because, as we have said before, we need to be top quartile when it comes to overall returns. We do not need to be number one.

We need to make sure we make all the right investments into our business, and we believe that we can continue to do that. We did it this quarter in terms of the growth that we saw. When we do that, we are going to continue to grow income, and returns will increase from that as well. The intent of us making that statement is to reiterate that we are well positioned to grow and do not feel like we have to be number one in our peer group. We are committed to invest capital as long as we get a good return out of it. That is really why we positioned it the way we have.

We will continue to monitor the peer landscape. Back to my earlier point, everyone is going to benefit to some degree from these capital proposals. Others are taking actions where they think they may be able to raise returns, and we will continue to reassess what the right levels are for us through time, but our goal is to remain top quartile among our peer set.

Chris McGratty: That is great color. Thank you. And my follow-up would be just more capital beyond buybacks. You have been clear about inorganic not being a focus today. Maybe remind us where you are with some of the projects internally as you fast-forward to the back half of the year. Is that something where you may have to consider being more flexible with inorganic growth if the right opportunity came about?

John Turner: We will deliver the loan conversion in May. We have a fairly significant improvement in our digital offering, particularly for small businesses, that we will deliver over the course of the summer and then begin piloting our deposit conversion in the third quarter. That project continues to progress on track. We feel really good about it. That will position us to do a number of things focusing on how we continue to improve our business and improve the customer and banker experience once we get that work done. Those are important areas of focus for us. In terms of what it means for inorganic growth, we are going to stay focused on executing our plan.

We believe our plan will allow us to deliver top quartile results for our shareholders consistent with the same good execution that we have experienced over the last five to seven years, and that will be our focus going forward.

Operator: Our final question comes from the line of David Chiaverini with Jefferies. Please proceed with your question.

David Chiaverini: Hi. Good morning. Thanks for taking the questions. Follow-up on deposit costs. There has been some discussion about how cash optimization by customers in an AI world could pressure deposits at banks that have a lower cost of deposits relative to peers. Can you talk about your view on this and how Regions Financial Corporation plans to protect its market share?

Anil Chadda: It is a great question. What could happen from AI is kind of proliferating several parts of the economy. When we think about the impact on deposits, we start with the nature of our customer base. Our customer base average deposit is about $5,200. When we think about the ability for customers to move money around, what our customers are really using their account for is ease of payments. We have to stay focused on making sure we are providing them the most efficient way to make payments across their daily lives.

A much lower percentage of our customer base is really yield seeking, and that, in my opinion, will be the first place where you will see the use of AI allow people to move funds around. I would also say it is pretty easy to move funds around today. It does not take too much effort to move cash in and out of accounts to get a higher yield. I am sure AI can do it marginally quicker, but I would also say I think today is pretty efficient as well. I think it is something that could play out.

I think it will play out more severely for those customers that have larger balances seeking yield—we see them do it today. As of right now, for our customers, we need to make sure we are giving them all the payment capabilities they need to be done efficiently. We will continue to monitor the space, but that is how we are thinking about it right now.

David Chiaverini: Very helpful. Thanks for that. And then shifting over to the hiring pipeline, how does that look given the M&A that is occurring in your footprint?

John Turner: It is good. We have hiring plans in our commercial banking business, in our wealth banking business, in our branches. We are moving along, having accomplished more than two thirds of the hiring we had hoped to do as part of our plans—part of our three-year plan. We feel really good about the quality of the bankers that we are hiring and the opportunities that we have associated with that. It takes a little while for those bankers to begin to generate new business once they get settled in, so we would expect to see the impact of some of that hiring in the latter part of this year and in 2027, which is another tailwind for growth, we believe.

Anil Chadda: I would just say even for our existing banker population, our platform is really delivering them the tools to grow their business. We are seeing a really nice decline year over year in attrition, even amongst our existing bankers. For us, we view that as a great vote of confidence that they have the platform they want to be able to deliver to their customers.

David Chiaverini: Thank you, and all the best, Dana.

Operator: Okay. Thank you very much. We appreciate everybody’s participation. And once again, congratulations to Dana. We appreciate her leadership and commitment, and connectivity with all of you in the investment community. We will miss her, but we are confident Tom is going to do a great job. Thank you, and have a great weekend. This concludes today’s teleconference. You may disconnect your lines at this time.

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