Regions Financial Corporation Q2 FY2026 earnings call

### Overall Financial Results - Reported GAAP net income of $549 million ($0.64 EPS), adjusted net income of $583 million ($0.68 EPS). Adjusted pre-tax pre-provision income was $831 million, with an adjusted return on tangible common equity of 20%.

### Macroeconomic and Operating Environment - Overall economic activity across the bank's footprint remains solid; businesses are well-positioned, with steady investment and job growth. Consumer spending is healthy, and customers maintain solid liquidity buffers and stable financial conditions.

### Strategic Progress - Received J.D. Power recognition as the number one regional bank in online banking satisfaction, with mobile app ranking improving to number two, reflecting investments in digital customer experience. - Successfully launched the new commercial lending platform, a major milestone in core banking modernization that improves technology infrastructure, speed to market, and client experience. - Core deposit transformation is on track: testing is underway, with a pilot expected in late 2026 and full conversion completed in 2027.

### Business Line Growth Initiatives - Consumer and small business: Re-skilled small business bankers drove a 7% year-to-date increase in small business checking account production versus 2024; small business balances contributed over 30% of quarter-over-quarter non-interest-bearing deposit growth. - Commercial banking: Added over 60 bankers in the past 18 months, driving a nearly 40% increase in new commercial client logos in H1 2026. - Wealth management: Advisors hired in the past three years have grown client assets by almost $6 billion, driving record fee revenue.

### Strategic Acquisition - Subsequent to quarter-end, announced the acquisition of Fraser & Raniere Company, a full-service investment banking firm with municipal securities expertise. The transaction expands the bank's capital markets platform and enhances public sector client service capabilities, aligned with the bank's targeted growth strategy.

### Capital Return and Capital Strength - The Board of Directors approved a 13% increase in the quarterly common dividend to $0.30 per share. Region Financial passed the 2026 Fed stress test with strong results: pre-tax pre-provision net revenue as a percentage of assets was the highest among peer regional banks, with a 101.4% coverage ratio of projected stress losses, the second highest in the peer group. The stress capital buffer remains at the regulatory floor of 2.5%. End-of-quarter common equity Tier 1 (CET1) ratio was 10.7%, or ~9.5% including AOCI, within the bank's 9.25% to 9.75% target operating range.

No separate formal product segment breakdown is provided in the prepared remarks, but core business performance is as follows: - Lending: Average loans increased 2% quarter-over-quarter, driven by broad-based growth in commercial and industrial (C&I) lending (power/utilities, manufacturing, public sector, retail trade) and solid investor real estate growth led by multifamily. Over half of Q2 loan growth was investment grade credits. Consumer loan balances remained stable, with new originations offsetting paydowns in residential mortgages and home improvement financing. - Deposits: Average deposits grew modestly, with a 1% increase in non-interest-bearing deposits. Non-interest-bearing deposits made up the low 30% range of total deposits, consistent with management's target. Ending deposits declined 1% quarter-over-quarter due to normal seasonal tax payment patterns. - Net Interest Income (NII): NII increased 2% quarter-over-quarter, with a net interest margin (NIM) of 3.66%. Interest-bearing deposit costs fell 3 basis points to 1.69%. - Fee Revenue: Adjusted non-interest income increased 7% quarter-over-quarter. Wealth management income increased 6% and hit a new record, contributing the largest share of core fee growth. Card and ATM fees increased 8% on higher seasonal transaction volumes. Capital markets income (excluding CVA) saw modest growth, with improvements in loan syndications, M&A advisory, and real estate capital markets offset by lower commercial swap income.

- Full-year 2026 average loan growth is expected to be low single digits, maintained from prior guidance. - Full-year 2026 average deposit growth is expected to be low single digits, maintained from prior guidance. - 2026 net interest income is expected to grow 2.5% to 4% year-over-year, with third quarter NII expected to increase ~2% and NIM expected to exit 2026 at ~3.7%. - Full-year 2026 adjusted non-interest income is expected to grow 3% to 5% year-over-year, with full-year results now expected to trend toward the lower end of this range. Capital markets quarterly revenue is expected to remain in the $90 million to $105 million range, trending toward the lower end in Q3 2026 before increasing later. - Full-year 2026 adjusted non-interest expense is expected to increase 1.5% to 3.5% year-over-year, with positive adjusted operating leverage still expected for the full year. - Full-year 2026 net charge-offs are expected to be between 40 and 50 basis points of average loans, maintained from prior guidance. - Deposit costs are expected to remain largely stable in the second half of 2026 assuming a constant Fed funds rate. If the Fed changes rates, management expects interest-bearing deposit beta to remain in the mid-30s, keeping the bank's interest rate risk position neutral. - The core deposit system conversion is expected to begin customer migrations in Q1 2027 and be complete by mid-to-third quarter 2027.

- Uncertainty around the future path of interest rates, with multiple competing factors influencing rate levels that could impact net interest margin and loan demand. - Persistent competitive pressure on deposit pricing in the Southeast U.S. from expanding competitor banks, with ongoing promotional pricing activity for deposits. - Minor softness in multifamily commercial real estate in a small number of Texas markets, though this is not viewed as a material concern at present. - Uncertainty around the final implementation of Basel III capital reforms and potential rating agency requirements that could impact capital management and share repurchase activity. - Potential indirect exposure to AI sector boom and bust cycles through connected customer industries, requiring ongoing stress testing and concentration risk monitoring. - Operational execution risk related to the large core deposit system conversion project scheduled for 2027.

Q: Given first half fee revenue is tracking toward the lower end of guidance, can the bank still deliver full-year positive operating leverage? / A: Unfavorable year-over-year comparables impacted first half results, but management remains confident that second half revenue growth combined with continued disciplined expense management will allow the bank to deliver positive operating leverage for the full year, as originally guided.

Q: With the bank noting fixed-rate asset repricing will support margin over time, what is the medium-term NIM outlook, and what are the key drivers? / A: The bank exited Q2 with a 3.66% NIM, expects NIM to be flat to slightly up in Q3, and reach ~3.70% by the end of 2026. Key drivers include 75-100 bps of yield pickup from $3 billion in fixed-rate asset turnover, a 7 bps benefit from hedge positioning, an extra calendar day in Q3, and additional turnover and a one-time HR asset dividend in Q4. Beyond 2026, repricing of fixed-rate assets will continue to support gradual margin expansion.

Q: Is the slight softness in corporate deposits just seasonality, or is it a trend driven by corporates spending excess cash and drawing down credit lines? / A: The decline is predominantly seasonal, but there is also a trend of corporates drawing down excess cash balances and increasing credit line utilization, which aligns with the 100 bps increase in line utilization seen in the quarter. Management expects this trend to continue through the end of 2026.

Q: How does the bank balance funding loan growth that outpaces deposit growth without pushing up core deposit costs, and how is it navigating competitive deposit pricing pressure? / A: The bank's long-term strategy is to grow loans and deposits at similar rates by continuing to invest in core non-interest-bearing checking for consumers and small businesses. If loan growth outpaces deposit growth in the short term, the bank will use alternative funding sources including FHLB advances and periodic unsecured debt issuance to fill the gap, rather than engaging in broad promotional deposit pricing that would increase overall funding costs. The bank's 76% loan-to-deposit ratio gives it significant flexibility to avoid this pressure, and betas are expected to remain in the mid-30s even if the Fed raises rates.