Regions’ approach to short-term loan growth: “very cautious, very cautious”

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Regions Financial executives are taking an increasingly cautious approach to putting more loans on the books, even as the company raises its full-year loan growth forecast.

On Friday, Chief Financial Officer David Turner told analysts the pace at which average loan balances grew in the second quarter is unlikely to be repeated in the third quarter.

Why not? Because the Birmingham, Alabama company plans to apply greater scrutiny to loan applications in light of growing economic uncertainty and growing potential for a downturn, Turner said on the quarterly earnings call. form the bank. And closer scrutiny could lead to fewer new loans.

While regions should “have plenty of opportunities to develop” lending, “this is a time when you have to be very careful, very careful and make sure your customer selectivity is solid,” Turner said.

“So we can be a bit conservative in terms of our loan balances going forward,” he said.

Average second-quarter loan balances in the regions increased 7.6% year-over-year and 3.4% from the prior quarter.

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To be sure, demand for lending to the $160.9 billion asset bank remains healthy across several sectors, including financial services, utilities, wholesale durable goods, investor real estate and some transportation sectors. , said Turner. Still, “a bit of cautious tone is all we’re sending, and we’ll grow as the market allows us, with the right metrics,” he said.

Meanwhile, regions have revised their projections for average loan balances in 2022, which are now expected to increase by around 8% from last year, compared to 4% to 5% forecast in April. The change assumes a slowdown in loan growth and a pick-up in capital markets activity, Turner said.

Although the recent market volatility has cooled the financial markets in general, it is expected that borrowers will again want to take advantage of this segment. “So that’s also part of our projection,” Regions CEO John Turner said.

The regions’ loan growth outlook is in line with several other major regions, including PNC Financial Services Group in Pittsburgh, which forecast average loan growth of around 13% for 2022, and KeyCorp in Cleveland, which expects average loans increase by 9% to 11%. This year.

However, general economic forecasts from banks have differed this earnings season. PNC CEO William Demchak told analysts last week that he don’t expect a severe recession. Meanwhile, his counterpart at Citizens Financial Group, Bruce Van Saun, issued a more cautious note, saying the Providence, Rhode Island company is prepare for a recession setting floating rates in its commercial loan portfolio and shifting its consumer loan business to less risky strategies.

For the second quarter, the regions reported net income of $583 million, down 26.2% from the year-ago quarter, partly due to additional provisions for credit losses. The regions provision in the second quarter was $60 million, compared to a release of $337 million a year earlier.

Earnings per share totaled 59 cents, up 4 cents from the average estimate of analysts polled by FactSet Research Systems.

Average loan balances increased 7.6% year over year and 3.4% from the prior quarter, the company said. Average deposit balances also increased, albeit more modestly, to 6.5% year over year and 0.6% from the first quarter. Earlier this year, executives predicted between $5 billion and $10 billion in non-operational business deposits start from The regions’ balance sheet during the first quarter, but so far deposit balances have remained essentially flat, executives said.

Still, “we continue to expect a range of $5 billion to $10 billion in overall balance reduction for the whole of 2022, resulting from monetary policy tightening,” Turner told analysts.

Net interest income increased 15.1% year over year due to higher interest rates, average loan growth and the purchase of securities. Non-interest revenue increased 3.4% over the same period due to higher capital markets revenue and higher card and ATM fees.

Changes The bank’s overdraft and insufficient funds policies are expected to generate $600 million in service fee revenue this year, the company said. The introduction of a “grace period feature” in 2023 will likely bring that revenue down to $550 million next year, the company said.

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