RF - NYSE

Good morning, and welcome to the Regions Financial Corporation's Quarterly Earnings Call. My name is Chris, and I will be your operator for today's call. I would like to remind everyone that all participant phone lines have been placed on mute. At the end of the call, there will be a question and answer session. If you wish to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. I will now turn the call over to Dana Nolan to begin.

Thank you, Chris. Welcome to Regions Financial Corporation's fourth quarter and full year 2025 earnings call. John and David will provide high-level commentary regarding our results. Earnings documents, including our forward-looking statement 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.

Thank you, Dana, and good morning, everyone. Appreciate you joining our call today. Before we begin, I'd like to take a moment and personally thank David Turner for his service and leadership. After nearly a forty-year career in auditing and finance, including twenty years of service at Regions Financial Corporation, he has made a decision to retire. David has been one of, if not, the longest-serving CFOs across the financial space and is highly respected given his depth of experience and his practical approach. David joined the bank at a critical moment in our history. Through his steady leadership, strategic insight, and disciplined approach to financial management, Regions Financial Corporation not only navigated an exceptionally challenging period for our industry but emerged stronger, building the solid foundation we stand on today. While we certainly will miss David's leadership, not to mention his trademark sense of humor, I'm genuinely excited about working closely with Anil Chadda, our newly appointed CFO. Anil brings a deep understanding of Regions Financial Corporation's strategic vision and is fully aligned with our near-term goals and long-term priorities, having been a key member of David's leadership team for the past five years. At the same time, Anil offers a fresh perspective that will help us continue evolving and strengthening our business. With that, let me turn to our financial results. This morning, we reported strong full-year earnings of $2.1 billion, resulting in earnings per share of $2.33 on an adjusted basis. We also generated one of the highest returns on tangible common in the industry at just over 18%. We also reported solid fourth-quarter earnings of $514 million, resulting in earnings per share of $0.58 and $0.57 on an adjusted basis. We had a few items which negatively impacted fourth-quarter earnings by an additional $0.04. Dave will provide more detail on those in a moment. As you look at our results, it's clear we performed well against our strategic priorities and continue to build momentum heading into 2026 and beyond. We've made significant progress in hiring bankers to support our growth initiatives, and our investments in priority markets continue to pay off, accounting for over 40% of our new corporate client growth during 2025. We also made meaningful progress on our multiyear effort to modernize our core systems. When complete, we will be among a very small number of regional banks operating on a true modern core platform, something we believe will strengthen our competitive position. We launched a new native mobile app that's performing exceptionally well, earning a 4.9 out of 5-star rating in the App Store. And we continue to invest in capabilities that matter: authentication, data governance, data management, and real-time data. These investments strengthen security, enhance the customer experience, support growth, and expand the use of both traditional and generative AI across the company. Our transformation touches every layer of our technology stack, and every business, channel, and support function. We feel good about where we are and the opportunities ahead. At the same time, we've remained disciplined and focused on the fundamentals. Loan growth was challenged in 2025. Large corporate customers took advantage of very attractive financing opportunities in the capital markets and paid down debt. Our commitment to ongoing portfolio management and focus on risk-adjusted returns also drove reductions in loans outstanding as we exited certain portfolios and relationships. However, our net interest income continued to benefit from fixed asset turnover and prudent funding cost management, and we expect those tailwinds to persist. We grew adjusted noninterest income by 5% in 2025 as our wealth management and corporate bank businesses achieved another year of record fee income. Treasury Management products and services achieved a second consecutive record while capital markets posted its second-best year ever. We managed expenses prudently, producing 140 basis points of adjusted positive operating leverage. And we grew capital, increasing tangible book value per share by 20%, while returning $2 billion to shareholders through dividends and share buybacks. In summary, we delivered solid financial results through focused strategic execution, advancing our modernization agenda, strengthening our technology foundation, and driving performance across the franchise. We enter 2026 with momentum, a disciplined operating posture, and a clear commitment to generating consistent, sustainable, long-term performance. Before I turn it over to David, I want to thank our 20,000 Regions associates. Their dedication to serving customers, living our values, and executing with integrity is the reason we've been able to deliver the performance we're discussing today. Our progress is a result of commitment day in and day out to doing the right things the right way. Our associates continue to demonstrate what it means to serve with purpose, adapt with resilience, and work as one team. I'm incredibly proud of the way we show up for our customers, our communities, and for one another. I want to thank them for their leadership, their hard work, and their belief in what we're building together. With that, I'll hand it over to David to provide some highlights from the quarter and the full year.

Thank you, John. Before we move to the balance sheet, let me address the additional fourth-quarter items John mentioned that were not included in our non-GAAP adjusted items. We recorded $26 million of incremental tax expense associated with adjustments to certain state income tax reserves, resulting in a full-year effective tax rate of 21.4%. For the full year 2026, we expect the effective tax rate to return to the 20.5% to 21.5% range. We also incurred a total of $14 million of incremental expense related to severance, pension settlement, and visa class B litigation escrow funding. These items collectively reduced our fourth-quarter EPS by $0.04. Now let's move on to the balance sheet. Average and ending loans were relatively stable versus 2024 and the third quarter. While loan demand has been modestly improving throughout 2025, we experienced over $2 billion in strategic runoff, mainly from leveraged lending and continued resolutions within our portfolios of interest. We also saw consistently elevated refinancing of large corporate loan balances into the capital markets during 2025. The good news is that many of these headwinds are now largely behind us. Client sentiment is improving. Loan pipelines and commitments are strengthening. Excess corporate liquidity is beginning to normalize, and as John mentioned, we've made significant progress in our banker hiring initiative. Taken together, these trends give us confidence that loan growth will return to more normal levels in 2026. For the full year, we expect average loans to be up low single digits versus 2025. Deposits continued to perform well this quarter. Ending balances were up approximately $800 million, supported by strong customer acquisition and retention. Average deposits were roughly flat, modestly outperforming typical year-end seasonality, particularly in consumer banking where we normally see declines ahead of tax season. Importantly, we achieved this stability while continuing to reduce total deposit costs. Rate movements continue to drive a steady mix shift from CDs into money market accounts in both consumer and wealth. Higher third and fourth-quarter CD maturities help lower our average portfolio cost and, as expected, balanced attrition was modest. We saw limited impact on overall balances even as some funds migrated to money market. In the commercial bank, our five-quarter trend of growing total client-managed liquidity on and off balance sheet modestly reversed in the fourth quarter, driven primarily by a decline in off-balance sheet liquidity. Corporate customers are beginning to deploy excess liquidity into business investments, which we expect to support bank borrowings in 2026. Our noninterest-bearing mix remains in the low 30% range, consistent with our target and reflective of the operational nature of our deposit base. As a result, we again expect 2026 average deposits to be up low single digits versus the prior year. Let's shift to net interest income. Despite lower than anticipated loan growth, net interest income grew by 2% linked quarter, at the upper end of our expected range. Additionally, net interest margin rebounded to 3.7%, up 11 basis points inclusive of the nonrecurring benefits from higher than anticipated seasonal HR-related asset dividends and credit-related interest recoveries. The balance sheet remains well-positioned for the current and expected environment. Our neutral interest rate positioning performed as designed in the quarter, with very little impact on net interest income from the Fed's interest rate cuts. In the fourth quarter, interest-bearing deposit costs declined 16 basis points, equating to a 36% linked quarter beta. The falling cycle interest-bearing deposit beta is 33%, and we remain confident in a mid-thirties beta with the potential to outperform over time. Net interest income also benefited from fixed asset turnover in the fourth quarter as a steep yield curve continued to support term loan and securities pricing levels. While we expect these benefits to persist in 2026 and beyond, asset repricing is exposed to middle and long-term rate fluctuations. To mitigate a portion of this exposure, we added $3.5 billion of forward-starting receive-fixed swaps, scheduled to begin throughout 2026. These hedges, distinct from our short-term rate protection, are intended to lock in rate levels on future loan and securities production. Finally, the increase in margin was partly due to lower earning asset balances, including cash, which is now within the range we consider sufficient for liquidity management. Turning our attention to 2026, we expect net interest income to grow between 2.5% and 4%. The first quarter will be modestly lower, driven by fewer days and timing of HR-related asset dividends and the benefit from interest recoveries that benefited the fourth quarter. We anticipate sequential growth thereafter, supported by a well-protected interest rate risk position, continued fixed asset turnover, and balance sheet growth. After normalizing for nonrecurring items in the fourth quarter, a mid-360s net interest margin is a better starting point when looking to 2026. We expect the margin to be around 3.7% in the first quarter, elevated by day count. A continuation of positive trends throughout the year supports a low to mid-370s net interest margin in 2026. Now let's take a look at fee revenue performance during the quarter. Adjusted noninterest income increased 5% in 2025 but declined 6% versus the third quarter. The quarter-over-quarter decline in capital markets reflects postponed M&A transactions and normal seasonality in loan syndication and securities underwriting activity. Real estate capital markets and commercial swap activity were further impacted by the temporary government shutdown. For 2026, we expect Capital Markets quarterly revenue of $90 million to $105 million, trending near the lower end of the range early in the year and moving higher as the year progresses. Wealth Management delivered record full-year revenue and a fourth consecutive quarter of growth, supported by continued sales momentum and a favorable market backdrop. Mortgage income increased 8% in 2025; however, fourth-quarter results were negatively impacted by changes to MSR evaluations and net hedge performance. Service charges increased 4% in 2025, led by another record year in treasury management and strong growth in consumer checking and operating accounts across small business and commercial customers. For the full year 2026, we expect adjusted noninterest income to grow between 3% and 5% versus 2025. Let's move on to noninterest expense. Adjusted noninterest expense increased 2% in 2025 and was stable quarter over quarter. Salaries and benefits rose 3% in 2025, driven by higher health insurance costs, higher revenue-based incentives, and hiring tied to growth initiatives. Equipment software expenses increased 4% in 2025 as we continue our core modernization and migrate further to software-as-a-service solutions. Technology costs will run a bit higher. Historically, technology spend has been 9% to 11% of revenue. Going forward, expect it to be between 10% and 12%. Over time, these investments will drive efficiency and allow us to manage headcount lower through attrition. For the 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. Regarding asset quality, annualized net charge-offs as a percentage of average loans increased four basis points to 59 basis points, reflecting material progress on resolutions within previously identified portfolios of interest, which were reserved for in prior periods. Business services criticized and total nonperforming loans decreased 9% and 8%, respectively, as risk rating upgrades continue to outpace downgrades. The resulting NPL ratio declined six basis points to 73 basis points. As a result of the improvement in business services criticized loans and NPLs, as well as continued resolutions in stress portfolios, the allowance for credit losses decreased $27 million. The allowance for credit loss ratio declined two basis points to 1.76%. While the allowance as a percentage of NPLs actually increased to 242%. We expect full-year 2026 net charge-offs to be between 40 and 50 basis points. Should macro conditions continue to improve, we have the opportunity to operate towards the lower end or the middle part of that range for the year. Let's turn to capital and liquidity. We ended the quarter with an estimated common equity Tier 1 ratio of 10.8%, while executing $430 million in share repurchases and paying $231 million in common dividends. When adjusted to include AOCI, common equity Tier 1 remained unchanged compared to the prior quarter, an estimated 9.6%. We expect to manage common equity Tier 1 inclusive of AOCI around this level, providing meaningful flexibility to meet proposed and evolving regulatory changes, support strategic growth, and continue increasing the dividend and repurchasing shares commensurate with earnings. Likewise, liquidity remains stable and robust with ample cash to support growth. As you've heard throughout the call, we feel good about the progress we made this year and, importantly, the momentum we're carrying into 2026. Many of the 2025 headwinds are behind us, and the underlying trends on pipelines, deposit strength, fee income growth, and continued improvement in credit are all moving in the right direction. We're executing well, investing where it matters, and doing it with the same discipline around capital, expense management, and returns that have served us well over the years. There's a lot of opportunity in front of us across our markets, across our businesses, supported by the ongoing modernization of our core systems. We believe we're well-positioned to take advantage of those opportunities and to continue delivering consistent, sustainable, long-term performance for our shareholders. This covers our prepared remarks. We'll now move to the Q&A portion of the call.

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.

Hey, good morning, everyone. Good morning. David, just wanted to say congratulations on the retirement.

You will certainly be missed on these calls. Maybe not by me, but I'm assuming by others.

Thank you, Ryan. You just mad because of outbound being no

was actually hoping to get a come on now out of you. So, I'll take the sports insult. But maybe, to start with loan growth. So, you know, at the conference last month, you guys talked about pipelines being up over 80% and you were growing commitments. Maybe just unpack for us the loan growth guidance, how do you anticipate coming from C&I, from consumer? And within the outlook, is there any further runoff baked in or movement into capital markets that's embedded in there? Thanks.

Yeah. So, Ryan, it's John. Thank you for the question. Say, first of all, customer sentiment is generally positive, and I think the environment's pretty good. That being commercial customers, I should say. We have seen a nice increase in pipeline activity, quarter over quarter, year over year, and we believe that's a catalyst for growth. We're beginning to see customers use some of their excess liquidity, which we think is also a precursor, obviously, to borrowing and increased line utilization. We've talked about the good markets that we're in. About 40% of our new logos, new customers came from the new markets that we're in. We're continuing to hire bankers. We've targeted hiring almost 120 bankers over a two-year period. We hired about 50 in 2025. So we're working toward adding those additional bankers. They'll all be or firstly, all be in our priority markets, those eight priority markets where we think we have real opportunity. We're adding the small business bankers and our branches to separate from those 120 commercial bankers that we want to add. So we believe those activities really set the foundation for growth. We're leaning into our expertise. We have some really strong specialized industry groups, particularly in energy and health care, power utilities, where we think we're going to continuously expansionary activities, and we really like our real estate banking team and all the capital markets products that we have to go with that. And we think position us to grow on the wholesale side of the business. So while we're guiding to lower single-digit loan growth, we feel good about how we're positioned today. We've seen nice commitment growth and, again, pipeline activity is positive. On the consumer side, I would say customers are still in really good shape from our perspective. Activity is still good. While we don't expect a lot of growth out of our consumer business, I expect that we'll see some. But the primary driver will be our commercial banking activities and leaning into the strength of our franchise, both our core markets and our growth markets, our priority markets where we have opportunities. The final question you had was related to runoff. We think we've worked through most of the portfolio shaping activities that have been underway over the last twelve to eighteen months. And so don't believe that would be a headwind as it has been particularly through 2025.

Got you. Maybe as my follow-up. So John, the banks over the last ten years have been focused on improving returns and it's obviously resulted in you guys having peer-leading returns. And you know, the environment now feels like the markets are much more focused on growth and you know, you're obviously taking steps with a lot of the hiring that you guys are doing, but maybe just talk a little bit about how you're thinking about the trade-off between growth and returns at this point? And do you foresee that a lot of this hiring that you're doing is gonna result in an uptick in growth over time so that you guys are gonna be growing more in line with peers. How do you think about that trade-off over the medium term? Thank you.

Well, I'd say first and foremost, we're focused on capital allocation, on risk-adjusted returns. On ensuring that we're delivering top quartile returns on tangible common equity. That's our focus. That was our commitment back to ourselves and to the market in 2014, 2015. And I think that focus has allowed us to continue to shape our business in a way that we are performing at the top of our peer group from a return on tangible common equity perspective. And as a result, our shareholders are benefiting as a result of that. And I would say that as we think about growth, we've historically said we want to grow with the economy plus a little, and that reflects the good markets that we're in. I think that will always be true. Our desire is to deliver consistent, sustainable, long-term performance to eliminate some of the volatility that had characterized our franchise back in the February and early two thousands in particular and, I guess, all through the February, through that decade. And I think we've generally done that. And so, to me, there's no trade-off between growth and returns. We need to make sure that we're sound first, we're profitable second, that we're growing third. And we think we can do all those things given the markets that we're in. And, Ryan, I'll add this, David. You know, there's a lot of discussion about balance sheet growth. We also we're fixated on earnings per share growth, with the right return profile, and our earnings per share growth has been quite nice over an extended period of time relative to the peer group. So there are a lot of other ways to continue to make money. We acknowledge we want to grow the balance sheet, but you need to do it in a responsible way. When it's there. And if you try to force it, you're gonna get yourself in trouble. We've been very disciplined with that, and we're in great markets with the hires that John mentioned, and we think we can grow faster on the balance sheet than what you've seen. At least in 2025.

I was trying to let you get off easy on your last call, David, but appreciate the color. Thank you.

Our next question comes from the line of Scott Siefers with Piper Sandler. Please proceed with your question.

Good morning, everyone. Thank you for taking the question. David, I was hoping you could maybe help to kind of unpack the fourth-quarter capital markets performance and outlook. The postponed M&A transaction is definitely understandable given the shutdown, but you'd also, in the release, noticed a lower syndication and security underwriting activity that kinda feels like the will start on the slower end but pick up from there. So just curious about any comments about pipeline, why it trajects or leaps back up after the first quarter, etcetera?

Yeah. We feel good about capital markets in total. Loan syndications have a little bit of seasonality there in the fourth quarter, came in a bit weaker than we had hoped, but we believe that can pick up in 2026. We'll have a little bit of a slow start in the first quarter, but it'll pick up, and we believe that the guidance that we've given you is pretty good. You know, M&A activity by its nature is a bit episodic. We do have a lot in the pipeline. It just didn't get closed in the fourth quarter. We expect that to get closed in the first half of the year. And so we think capital markets, it had its second-best year in its history. It just had a, you know, it just didn't have the fourth quarter where we wanted it to be. So think we're gonna rebound and feel very confident that we're gonna get that up on a run rate in the guidance we've given you.

I would just add in with respect to real estate corporate bank and capital markets related activities, adding a couple of bankers to that business, and we think that will be a catalyst for some additional revenue. Improving interest rate environment helps as well. So, the business is pretty well balanced, I think, between a variety of sources of revenue, and we expect that 2026 will be another good year for capital markets, and we should see nice growth over 2025 performance.

Perfect. Thank you. And then, so the deposit beta performance, you know, it sounds like it's going very well and could still ultimately outpace your expectations? Just maybe some additional thoughts on pricing trends, what you're seeing competitively, and especially how they move from here if we had another couple of rate cuts throughout '26?

So that last part of your question is important, and it's we want to remain competitive, but we also have to acknowledge where the market's going. We had a pretty big CD maturity quarter as we told you at the last conference we were at in the fourth quarter that helped propel that 36 basis point improvement over beta. For the quarter, 33% on a cumulative. We think, and our guidance is really centered around the mid-30% change. And so we think if you look at the first quarter, we'll have another $3.5 billion of CD maturities. We got another $5 billion in the second quarter. It's a pretty big quarter there. So, being reactive, we've had nice reactivity from our corporate banking group and our consumer banking group and the wealth group. To react to what's going on in the marketplace. To watch what the Fed's doing, but also to stay competitive in the markets that are important.

Perfect. Okay. Thank you. And, David, just congratulations on your retirement. We'll certainly miss you on these calls and elsewhere.

Thank you, Scott. Appreciate it.

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

John. Good morning, Gerard.

Good morning.

David, congratulations. You're leaving big shoes to fill. Good luck in the future endeavors.

Thank you, Gerard. Appreciate it.

John and David, can you share with us, you mentioned in the slide, I think it was slide three, on the loans about the downsizing of the portfolio. And you specifically pointed it out about $2.6 billion of loans in 'twenty five were refinanced through the capital markets. Can you share with us what's the attraction that the customers are seeing? Is it lower rates, easier terms? What's the real driver of that going into the capital markets?

Gerard, most of that activity is in investment-grade credits within our real estate corporate banking business, so REITs, within the energy portfolio and financial services, insurance companies, that we bank. And so the cost of capital was lower. They could borrow more cheaply. Terms were potentially better. An activity that does occur on an annual basis. We see particularly in those three industries, customers enter the capital markets and raise some capital. And that activity occurred this year as well. Probably a little earlier than it does sometimes. Oftentimes, within the REIT portfolio, particularly, it's the third quarter of the year, but we did see a fair amount of activity in 2025.

Was it more pronounced John, in '25 than years past that you can recall?

Seems to be. Yeah. Seem to have been. Because the market was not open for a while, and then when it did open, we did see a lot of activity.

Got it. And then just following up on credit quality. Credit's in good shape. You guys have identified the, you know, the higher risk portfolios of office, commercial real estate, and trucking. And transportation. Any color on the trends you mentioned that the backdrop is getting better economically for trucking? What are you guys seeing in those higher risk portfolios as we look into '26?

Yeah. Well, first of all, I'd say to your point in credit, quality or the deterioration in credit quality peaked a couple quarters ago. We've seen four quarters of improvement in nonperforming loans. Down from 96 basis points to 73. Criticized loans down 32% over a four-quarter period. Charge-offs, which is a trailing indicator, reached a high point this quarter at 59 basis points. We expect that obviously to come down. We're guiding to 40 to 50 basis points and feel very confident that we'll perform within that range. So we do expect to continue to see improvement in credit quality. I would say trucking and transportation is getting better. But still, challenged. From our perspective. Other industries like forest products, some construction-related activity or building materials industries still struggling a little bit. But in general, I would say we continue to see, as reflected in the metrics in our own portfolio, continued improvement and, so are optimistic about 2026 and beyond.

Gerard, I'll add that. So we're sitting with an allowance for loan loss credit loss of $1.76. Right now, we put a schedule in the back of our appendix. It shows you what kind of day one CECL was when she's when an environment pretty benign from a credit standpoint. That implies based on the current portfolio that we have today that our reserve could be $1.64. So over time, and we can debate what that means in terms of over time, you should expect us all things being equal, to get back to a normalized environment that $1.76 to trend down to $1.64. You saw a bit of that. We're down two basis points this quarter. And you should see that trend continue. Throughout '26.

Very good. Thank you.

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

Good morning, John. Good morning, David.

Morning.

David, you're a legend. Best of luck. We will miss you. And, apparently, other banks are gonna miss you too. I've been hearing from a number of other executives just saying how much they're gonna miss you at different conferences and everything. So and, you know, Walt, we look forward to working with you.

Thank you, John.

So just a question on the capital front. Just given the CET one at 10.8, you did the $430 million buyback in the fourth quarter. I mean, can you just kind of frame how you're thinking about the pace of buybacks as you look at the capital need for organic? You talked about loan growth, you know, generally improving and some of the runoff slowing. So how do you balance that in terms of the pace of buybacks? Do you think it's reasonable as you look at 2026?

Sure, John. This is Anil. I'll take that. So we look at every quarter, we generate about forty basis points of capital. And we'll pay a dividend of 18 basis points of that. To your point, beyond that, our number one focus is to invest back into our business through good loan growth. When we see that, we're definitely gonna fund that with capital. When we don't see that, we're gonna step in and buy back shares like we saw us do this quarter. So the $430 million is really a testament to what we were seeing in terms of loans coming onto the balance sheet. We saw an opportunity early in the quarter in particular when the stock price was down a bit and stepped in and bought back shares then. Our goal is to always invest in loan growth, and when we see that good quality loan growth, we're gonna step in there and generate and invest capital into that.

And then, you know, and I'll add to it. So we're at 9.6% on an adjusted CET one adjusted for AOCI. Our range is 9.25% to 9.75%, so we're right on top of that. Have a little extra. And, we're gonna do exactly what Anil said, use it for loans and then buy it back if not there, if the loan growth is not there.

Got it. Okay. Very helpful. Thanks for that. Then separately, I guess you could just give us your updated thoughts around M&A potential whole bank M&A. Just kind of, pick up. We know that there's a potential, you know, need for scale in certain businesses, certain markets, obviously, that you could argue is, you know, here. And then lastly, you know, you just, I guess, the check that we could see in a seven a window close. How do you view it? What's your updated thoughts on that front?

Yeah. Well, maybe I'll ask the last part first. The window clearly is open. But I don't think decision-making of any sort should be driven by whether the window's open or closed. I mean, ultimately, it ought to be about whether or not the transaction is in the best interest of the bank's shareholders and will create value for shareholders over time. We remain our position is unchanged. M&A is not depository M&A is not part of our strategy today. We're continuing to observe what's going on in the marketplace. We do not suffer from fear of missing out at this point. We're gonna continue to operate our business, execute our plan, focus on our transformation of our core deposit system and all that goes with that over the next fifteen to eighteen months. And, and just continue to do what we've been doing.

Our next question comes from the line of Peter Winter with D.A. Davidson. Please proceed with your question.

Thanks. Good morning. John, I wanted to ask about just overall banking. Obviously, it's a very competitive business, but do you see risk of losing market shares as these bigger regional banks are coming into your markets? Or is it really an opportunity to take advantage of some dislocation?

Well, we think it's an opportunity. I mean, we again, are in really good markets, core markets, where we've been for a hundred and twenty-five, 150, and some it's a hundred and seventy-five years. Have a really strong brand. We have very good market share, bankers that are well known in their communities, and a really good job taking care of our customers. And we have an opportunity to grow in those markets, and we are doing that. Separately, we're in growth markets. We talk about our eight priority markets where we have a chance to grow and last year, about 40%, as I said earlier, of our new commercial banking relationships were won in those markets. And so, you know, I view it as an opportunity to continue to grow. We're gonna focus on our customers on providing unique ideas and solutions to help them grow their businesses, whether they be businesses or consumers. We're gonna take care of our customers, and I think we'll have an opportunity to continue to grow our business regardless of what the conditions are, the markets that we operate.

Got it. And then can you talk about where you are in the process of the modernization of the platform and maybe highlight some of the benefits from this initiative versus competitors?

Sure. So we have worked through all the very difficult integration work, and we've now entered the user testing phase, and that will go on for likely the next two plus quarters. We should, sometime in the third quarter, move to production and a pilot phase where we'll begin with a small cohort of customers piloting the system to ensure that it does everything that we believe it will do, and that'll lead us to beginning a conversion of our customer base in early 2027, assuming everything continues to go as planned. Been really happy with the progress we're making. The team's doing a great job. It is a super complex and challenging effort, but we have been, as I said, really pleased with the effort, activity, and the progress that we're making. To your question about the benefits to us, we think that will give us a speed to market, as we want to offer customers new products. It will support our ambition to be sound in that the system will be very contemporary in nature. We're not customizing any aspect of it, so we can continue to update the system as the vendor provides updates and that will be super helpful to us. It also, I think, will enhance our ambition to provide a really great experience, an omnichannel experience to our customers. And we think that that will be really, really important. Another benefit is in order to convert your 5 million customers from one system to another, you have to go through the process of cleansing all your data, organizing your data in a way that will facilitate a lot of things, including additional work we're doing around artificial intelligence and generative AI. So, we think there are a lot of benefits both direct and indirect, that will support the business. And, are excited about how that will position us going forward.

Got it. Thanks. And, David, I'll add my congratulations to retirement. It's truly been very enjoyable working with you over these years.

Thank you so much. Appreciate it.

Our next question comes from the line of Christopher Spar with Wells Fargo. Please proceed with your question.

Hi. Good morning. Thanks for taking the call. So my question is regarding the expense outlook. And just looking at the headcount increase, the competition increase, large regional banks basically kind of threw down the gauntlet earlier today. Talking about how they're kind of expanding to growth markets. And I understand that you're gonna kind of defend your market share or try to grow that, but I'm just wondering, like, if you know, how are you gonna be able to keep costs kind of with inflation where it is and with higher headcount? And then second, the follow-up will be on the tech initiative and the increase in tech spend. I get it where you are. You can see you can manage headcount lower through attrition. I'm just wondering about the ability to do that in the timeline for that as well. Thank you.

Yeah. Thanks for the question. This is Anil. So, it's an important question and something that we've been focused on for going back ten years. There's always been important places where we need to invest in our business, whether it's in risk management, whether it's in security, of course, growing our bankers is something that we've been very focused on over the past couple of years. We always have to find ways to fund that growth. Over the past ten years, you can see in our slide deck, our compound annual growth rate for expenses is 2.8%. So it's incumbent upon us every day to make sure we're making the right investments to grow revenue. Making the right investments in technology, but also find ways to fund those investments. That's been a critical part of our history. It's something really important to us now. It's evident in our expense guide for the next year. And it's evident in our commitment to positive operating leverage. So it's something we've seen before, and it's something that we continue to execute day in and day out.

Thank you.

Our next question comes from the line of David Chiaverini with Jefferies. Please proceed with your question.

Hi. Thanks. So I had a follow-up on loan growth. And the pace of hiring. So you mentioned about hiring 120 bankers. Over two years. You did 50 in 2025. I'm curious, how does this pace compare to the prior say, three to five-year trend? And do you expect incremental hiring above this pace as you take advantage of the M&A disruption?

Yeah. So it would be a bit of an uptick in hiring, I would say, over the previous I think your time frame was three years and reflects hours. Double the pace, I would say. Reflects our commitment to, again, growing primarily in these primary markets where or priority markets where we see opportunity. With respect to incremental hiring, one of our expectations of our leaders in our markets is that they're constantly recruiting and identifying who the best bankers are in the markets. That they operate in. So to the extent that we find an opportunity to hire a banker or a team of bankers who are recognized in their markets as being really good at what they do, and we think they'd be a great addition to the Regions team. I expect our teams will recruit them to come to work for us whether they're included in the 120 targeted bankers or not. So we're actively looking for bankers all the time. Who can provide great service to our customers and be additive to our teams.

Thanks for that. And as we think about the guide of low single digit for 2026, as the headwind subside, it sounds like borrower sentiment is improving, pipelines are up significantly. You're mostly through the runoff. Is this low single this year kind of a step function to mid-single digit looking out to 2027?

I think that's reasonable to assume. We're not haven't committed to that yet. Dana won't let me provide any guidance beyond 2026, but I think you can expect momentum to continue. We expect momentum to continue to build in our business, particularly as we're recruiting more talent. And we're benefiting from the opportunities that are in our markets.

Great. Thanks for that. And, David, congrats on your retirement.

Thank you. I appreciate it.

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

I guess just one a couple of follow-up questions. One, on the systems conversion, John and David, I'm not sure if you've mentioned when this will all be completed. And in the meantime, does it restrict your ability to do something? I heard your comments around M&A earlier, but if you wanted to it sort of restrict that flexibility in the meantime or not?

We expect to be completed toward the latter part of 2027. And I would say technically, it does not restrict our ability to do an M&A transaction practically it would be very challenging, we believe. So, that is a factor. In certainly in how we think about how we're positioned relative to M&A and outreach.

Got it. And just one follow-up on the loan growth front. When we think about just the tariff uncertainty and maybe the Supreme Court's gonna rule on this next week, do you think that may materially change sort of sentiment among your customers when they think about borrowing and investing? Or do you think they have enough clarity today to kind of move forward with expected plans?

We think they have enough clarity. I hear and don't talk with many customers who are overly focused on that topic.

Got it. Anil, congratulations. And David, all the best. Look forward to seeing you soon.

Thank you. Thank you so much. Appreciate it.

Our next question comes from the line of Betsy Graseck with Morgan Stanley. Please proceed with your question.

Good morning. Hi, good morning. David, I'll throw in my comments too. Thank you so much for the time and insights over the years, and I hope that wherever retirement takes you, you have a fantastic and enjoyable time.

Thank you, Betsy. I really appreciate it.

And, Anil, look forward to working with you. I do just have two short follow-ups. One is just on the net interest margin as you discussed way earlier in the call. You know, coming in in 1Q similar to where we are today and then dipping down a bit and then you know, ending the year. Roughly where we are today, if I have that right. And I'm just wondering what is the dip down a function of, and how low does it go during that? Pressured point?

Yeah. I think so first off, we need to level set where we finish. So we had about four basis points of NIM in there through things that won't that we aren't counting on repeating. Interest recoveries, being one in the HR asset dividend, was unusually high. We always have a little bit of that. That mean we won't have an interest recovery. We just don't count on it. So that's four basis points. So we start with three sixty-six. We think we'll finish the quarter first quarter at three seventy, and it'll inch up from there throughout the year. And maybe we get a few more points on top of that. Somewhere between the low three seventies and the mid three seventies perhaps. And that's assuming you see our assumption is that we have that mid 30% beta expectation in our loan growth in low single digits. I think, would be important. And, you know, and we have we don't have any big changes in the ten year in particular. As we get repricing fixed asset repricing benefits.

Okay. Great. Thank you. And then on the you talked about the tech spend going from 9% to 11% of revs to 10% to 12 and that, that offset would be headcount. And I'm just wondering, is that expected to be managed in a way that the tech investment spend and the headcount offset each other in each quarter, or should we expect any kind of expense ratio changes as you're going through this? Which sounds like no, of course, but you tell me.

Yeah. Betsy, we don't have any big initiatives planned. I mean, again, we're as I think Anil pointed out, one of the, we believe, strengths of the company is how effective we've managed our expenses over the last ten plus years. And so we're always looking for opportunities to improve. There are areas that are probably obvious to you where there we believe there's opportunity for improvement. And use of technology, which will result in a reallocation headcount more than likely into places where we have a chance to support growth. So I think we'll manage it over time as again, as the opportunities develop, it won't be part of a broad onetime initiative.

Yep. Betsy, that comment was meant to be a very broad comment. It was not to be a backhanded way of saying we're gonna have volatility in our quarterly expense structure because of it. So don't read that into it.

Sounds good. Thank you. Appreciate it.

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

Good morning.

Good morning.

Thank you. I'm interested in your trends in consumer account checking account growth. That's been a big focus. The larger banks this quarter and the number of accounts they're opening. With your exceptional retail deposit base, can you just talk about trends in new account growth?

Yep. We're seeing nice growth in consumer checking accounts. Again, our focus is on a core consumer checking customer. One that is going to have a direct deposit with us, is going to actively use their debit card and use their checking account. That is our history. That is the source of our very loyal, low-cost deposit base, and that's what we're continuing to focus on. Growing. We have seen a nice increase in digital originations. So as we have developed our digital capabilities, our mobile banking platform has continued to improve. And we're seeing additional enhancements to our growth initiatives as a result of that. Customer has to have a direct deposit with us for us to count on a, you know, a new oh, yeah. Well, should say also, we just introduced a new capability that allows a customer to pretty easily move their direct deposit from a competitor to Regions, which has resulted in, I think, a nice increase to some of the uptick in activity.

Great. And just a finer point on the tech question. The 10 to 12, is that a kind of a one-year catch-up, or is that kind of a new level set? I know you've been at nine to 11 for a bit of

Yeah. We'd say that's a new level set. We've been running at about 11 so the upper end of that nine to 11 range. So we've shifted our guidance to 10 to 12.

Okay. Thank you very much.

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

Good morning. Thank you so much. Good morning. Actually, most of my questions have been asked and answered, but maybe just one for Anil since you're on the line. You know, could you give us a sense of when you take over and fill these very large shoes that David has left for you, what would you tell investors your sort of top three priorities are as you take on the role?

Yeah. First, it's great to step into the role with the stability that we have. We have a great strategic plan that John has outlined and the board's approved, and it's critical for us to continue to execute that. It's nice to come in when you're performing very well. It's incumbent upon us to continue to do that. And David has built a phenomenal team in finance. Great partnerships with our businesses, and that is job number one, two, and three, is to continue on the great path we've been on, execute our plan, and to continue to deliver great financial performance.

Got it. And, David, you'll be missed, but I'm sure investors won't miss you smoking them on the golf course. And it's scary to think that you're actually potentially going to get better and lower handicap.

I'm going to work on my putting. So congratulations, and welcome again, Anil.

Thank you.

Thank you very much, Erika.

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

Morning, Matt. Good morning. Hoping you guys could talk about your leverage to the recovery in commercial real estate. Obviously, there's the credit aspect of it. You've been pretty clear about being past the worst there and being well reserved for remaining office loans. But as we think about from a loan volume perspective, obviously, we're seeing industry loans inflect. It does seem like there's more and more momentum building. So how do you think about that leverage? You do have a good slide in there showing a lot of maturities coming in the next couple of years. Which is the case for the industry. So is that upside risk? As we think about growing loans overall? Or is there a risk that more of the CRE loans get refied away from you than expected?

Yeah. I mean, we've so we've been very successful, you know, when things mature to be being able to refinance those. The rate environment's helping a bit more on growth in that space, in particular, in multifamily because we've been able to, you know, as rates have come down, the math's starting to work. So before the rates came down, we were demanding more of a down payment. To make the math work for us. Well, that didn't happen with the developer. So now it's coming into equilibrium. We're seeing demand for the multifamily. We're seeing more opportunity there. And yes, we had derisked commercial real estate over the years, but that is not constraining our ability to grow. When we get paid, the risk that we take. And so hopefully, we'll have the opportunity to grow over time.

Yeah. I'd just add, Matt. We have really strong real estate banking teams, great customer base. We have developed, I think, a portfolio of products that allowed us to meet our customers' needs across a variety of financing capabilities and requirements and I feel like it's a business that we will continue to invest in. We'll continue to see it grow, and I am confident that it will be an important contributor to our longer-term success both on the balance sheet and the income statement as capital markets activity picks up.

Okay. Thank you very much.

Thank you. Okay. Is that that's all our call today. Thank you very much for your participation, and your support of Regions Financial Corporation. We appreciate it. And, everybody, congratulations. I'll add my congratulations to David Turner. Done a great job for us here. Been a really important member of our leadership team. We will miss him and his sense of humor, but are excited about Anil and his filling the role as CFO. So thank you again for your participation. All the best.