REGIONS-FINANCIAL Earningcall Transcript Of Q2 of 2024

David J. Turner -- Senior Executive Vice President, Chief Financial Officer

Thank you, John. Let's start with the balance sheet. Average and ending loans remained
relatively stable on a sequential quarter basis. Within the business portfolio, while average loans
remained relatively stable, ending loans increased 1%.

Despite near-term macroeconomic and political uncertainty, pipelines are beginning to rebuild.
Average consumer loans also remained stable as modest growth in residential mortgage and
consumer credit card were offset by declines in home equity and other miscellaneous consumer
loans. We continue to expect 2024 average loans to be stable to down modestly compared to
2023. From a deposit standpoint, deposits remained relatively stable on an average basis while
ending balances declined 2%.

These declines in the second quarter reflect anticipated tax seasonality. Having largely returned
to pre-pandemic patterns, we expect relative stability in deposits, which is typical for summer
and early fall. As expected, deposit remixing has slowed. Competitive pricing and customer
demand for promotional products has stabilized.

Over the second quarter, the proportion of noninterest bearing deposits relative to total deposits
has remained steady in the low 30% range. Now, let's shift to net interest income. Net interest
income increased modestly during the quarter, outperforming our expectations. The increase
reflects stabilizing deposit trends and asset yield expansion.

Also exceeding expectations, the net interest margin declined only 4 basis points, resulting
primarily from higher average cash levels. As expected, deposit remixing and cost increases
slowed meaningfully in the quarter. The full cycle interest-bearing deposit beta remained stable
at 43%, and we continue to expect a mid-40% deposit beta will be the peak this cycle. Asset
yields benefited from the maturity and replacement of fixed rate loans and securities at current
higher rate levels.

This includes the repositioning of approximately $1 billion of securities late in the quarter with
an estimated payback period of 2.6 years relative to the $50 million pre-tax loss recorded this
quarter. Following our successful $750 million debt issuance in June, we used the proceeds to
purchase a like amount of securities with a similar duration in order to maintain a relatively
neutral balance sheet position and bolster liquidity. We believe net interest income has reached
an inflection point and is expected to grow over the second half of the year as deposit trends

continue to improve and the benefits of fixed rate asset turnover persist. As we move further
into 2024, a stabilizing deposit and funding environment, along with securities repositioning and
favorable debt issuance levels, have pushed our expectation for net interest income toward the
upper end of our $4.7 billion to $4.8 billion range.

This narrow range portrays a well protected profile under a wide array of possible economic
outcomes. Now, let's take a look at fee revenue performance this quarter. Adjusted non-interest
income declined 3%, driven primarily by lower capital markets and mortgage income. If you
recall, capital markets experienced seasonally elevated activity in the first quarter as several
bills were pushed from the fourth quarter of 2023.

Over time and in a more favorable interest rate environment, we expect our capital markets
business can consistently generate quarterly revenue of approximately $100 million. But in the
near term, we expect it will run around $70 million to $80 million per quarter. The decline in
mortgage income was primarily driven by a positive $6 million adjustment to the company's
mortgage pipeline valuation in the first quarter that did not repeat. While modestly lower versus
the seasonally high first quarter, treasury management continues to perform exceptionally well.

Versus the second quarter of last year, treasury management's client base has increased 6%
while total revenue is up 8%. Helping to offset this quarter's fee income declines, wealth
management increased 3% to a new quarterly record, reflecting increased sales activity and
stronger markets. Based on a strong first half of the year, we now expect full year 2024 adjusted
noninterest income to be at the top end of our $2.3 billion to $2.4 billion range. Let's move on to
noninterest expense.

Adjusted non-interest expense decreased 6% compared to the prior quarter, driven primarily by
lower salaries and benefits, occupancy, and professional fees. The improvement in salaries and
benefits was attributable primarily to lower base salaries and seasonally higher HR-related
expenses in the first quarter. Operational losses also decreased during the quarter and current
activity continues to normalize within expected levels. We continue to expect full year 2024
operational losses to be approximately $100 million.

We remain committed to prudently managing expenses to fund investments in our business. We
will continue focusing on our largest expense categories, which include salaries and benefits,
occupancy, and vendor spend. Based on results through the first half of the year, including
outperformance in revenue and our expectation to be toward the top end of our previously
provided full year revenue ranges, we now expect full year 2024 adjusted noninterest expenses
to be between $4.15 billion and $4.2 billion. Regarding asset quality, as John indicated, overall
credit performance improved during the quarter.

Provision expense was essentially equal to net charge-offs at $102 million, and the resulting
allowance for credit loss ratio remained relatively stable at 1.78%. We expect full year 2024 net
charge-offs to be toward upper end of our 40 to 50 basis-point range attributable to a few large
credits within our higher risk portfolios. However, those losses are fully reserved for. Assuming
stable loan balances and a relatively stable economic outlook, we expect our ACL ratio to
remain flat to declining over the second half of the year.

Let's turn to capital and liquidity. We ended the quarter with an estimated common equity Tier 1
ratio of 10.4%, while executing $87 million in share repurchases and $220 million in common
dividends during the quarter. Earlier this week, the board of directors declared a quarterly
common stock dividend of $0.25 per share, a 4% increase over the second quarter. This
increase is in addition to the 20% increase last year, representing three consecutive years of
robust dividend growth, well supported by underlying financial performance.

Additionally, we received notification of our supervisory capital strength test results, including
the primarily stress capital buffer, which will remain at 2.5% for the fourth quarter of 2024
through the third quarter of 2025. We expect to maintain our common equity Tier 1 ratio
consistent with current levels over the near term. This level will provide sufficient flexibility to
meet proposed regulatory changes along the implementation timeline while supporting
strategic growth objectives and allowing us to continue to increase the dividend and repurchase
shares commensurate with earnings. With that, we'll move to the Q&A portion of the call.

Questions & Answers: