Regions Financial Highlights Strong 2025 and Upbeat 2026 Outlook

Regions Financial Corp. ((RF)) has held its Q4 earnings call. Read on for the main highlights of the call.

Regions Financial Corp.’s latest earnings call struck an upbeat tone, as management highlighted strong full-year performance, industry-leading returns, record fee income in several businesses, and tangible progress on long-term technology modernization. While executives acknowledged pockets of near-term pressure—from loan growth headwinds and higher tech spending to seasonal softness in capital markets—the overall message was that the franchise is generating robust profitability today while investing to stay competitive tomorrow, with improving credit trends helping to offset lingering charge-off noise.

Robust Earnings Underscore a Strong 2025

Regions reported full-year 2025 net earnings of $2.1 billion and adjusted EPS of $2.33, underscoring the bank’s ability to generate solid profits despite a choppy macro backdrop. Fourth-quarter 2025 earnings came in at $514 million, with GAAP EPS of $0.58 and adjusted EPS of $0.57, reflecting only modest impact from nonrecurring items. Management framed these results as evidence that the core franchise is performing well across cycles, setting a firm base for the 2026 outlook.

Industry-Leading Returns on Tangible Equity

A key highlight was profitability: Regions delivered one of the highest returns on tangible common equity in the industry, just over 18% for the full year. That level of ROTCE places the bank at the upper end of the U.S. regional peer group and signals strong capital efficiency and disciplined risk-taking. Management emphasized that sustaining high returns, even while investing heavily in technology and growth initiatives, is central to the value proposition for shareholders.

Fee Income Strength and Business-Line Momentum

Noninterest income was a major bright spot. Adjusted noninterest income grew 5% in 2025, driven by diverse engines of fee revenue. Wealth management logged record full-year revenue and has now produced four consecutive quarters of growth, highlighting increasing wallet share and deeper client relationships. Treasury Management posted a second consecutive record year, benefiting from higher volumes and expanded solutions. Capital markets delivered its second-best year ever, despite a softer fourth quarter, showcasing the resilience of Regions’ fee-driven businesses and their importance in diversifying earnings beyond traditional lending.

Improved Margin and Balance Sheet Dynamics

On the balance sheet, Regions showed improving margin trends. Net interest income grew 2% quarter-on-quarter, and net interest margin rebounded to 3.7%, up 11 basis points, aided by some nonrecurring items. Notably, interest-bearing deposit costs declined 16 basis points in the fourth quarter, supporting profitability even as industry deposit competition remains intense. Management reiterated confidence in achieving a mid-30% deposit beta over the cycle, suggesting the bank can manage funding costs effectively as rate dynamics evolve.

Shareholder Returns Remain a Priority

Regions underscored its commitment to capital return, sending a clear signal to investors. The company returned a total of $2.0 billion to shareholders in 2025 via dividends and share repurchases. In the fourth quarter alone, Regions executed $430 million in buybacks and paid $231 million in common dividends. The continued willingness to repurchase stock while maintaining robust capital levels reflects management’s confidence in the durability of earnings and the bank’s valuation.

Capital and Liquidity Strength Support Growth and Buybacks

Capital metrics remain solid. The estimated CET1 ratio stood at 10.8% at quarter-end, or 9.6% inclusive of accumulated other comprehensive income (AOCI). Management indicated it plans to manage CET1 inclusive of AOCI around current levels, roughly in the 9.25%–9.75% target range. That positioning provides flexibility to fund modest balance-sheet growth, absorb potential credit normalization, and continue returning capital to shareholders without compromising regulatory strength or resilience.

Operational Modernization and Digital Experience Gains

The call highlighted major progress on core systems modernization, a multi-year effort that management views as essential to long-term competitiveness. User testing is underway, with a pilot slated for the third quarter of 2026 and full conversion targeted for early 2027. Regions also launched a new native mobile app, which has earned a 4.9/5 rating in the App Store, signaling strong customer adoption and satisfaction. Ongoing investments in authentication, data governance, and AI capabilities are designed to enhance security, personalization, and operational efficiency across the platform.

Expense Discipline Drives Positive Operating Leverage

Despite heavy investment, Regions kept a tight rein on expenses in 2025. The bank delivered 140 basis points of adjusted positive operating leverage, as revenues grew faster than costs. Adjusted noninterest expense rose just 2% for the year, a modest increase given the scale of technology and growth initiatives underway. For 2026, management guided to adjusted noninterest expense growth of 1.5%–3.5% while still delivering positive operating leverage, reinforcing the message that the bank can both invest for the future and protect profitability.

Improving Credit Quality and Resolution Progress

Asset quality trends moved in the right direction, even though charge-offs remain elevated as a trailing indicator. Business services criticized loans fell 9% and total nonperforming loans decreased 8%, driving an improved NPL ratio of 73 basis points, down 6 bps. The allowance for credit losses declined by $27 million to 1.76% of loans, yet allowance coverage of nonperforming loans increased to 242%, signaling robust reserves against problem credits. Management now expects net charge-offs in a more normalized 40–50 bps range for 2026, reflecting confidence in the underlying portfolio.

Growth in Priority Markets and Strategic Hiring

Regions is leaning into markets and segments where it sees the strongest opportunity. Investments in priority markets generated over 40% of new corporate client growth in 2025, demonstrating that targeted expansion efforts are paying off. To support this growth, the bank added roughly 50 of a targeted 120 commercial bankers under a two-year hiring plan. Management framed this talent investment as critical to deepening client relationships and capturing more fee and lending business over time.

Loan Growth Headwinds and Strategic Runoff

While earnings were strong, loan growth in 2025 remained constrained. Regions intentionally ran off more than $2 billion in loans, primarily in leveraged lending and other portfolios deemed non-core or higher risk. In addition, many corporate customers opted to refinance in the capital markets instead of on bank balance sheets, further dampening loan balances. Management expects a return to low single-digit average loan growth in 2026, but stressed that disciplined portfolio reshaping will remain a priority over headline loan growth.

Nonrecurring Q4 Charges and Tax Adjustments

Fourth-quarter results included several modest nonrecurring items that weighed on reported earnings but do not reflect ongoing run-rate performance. Regions recorded $26 million of incremental tax expense tied to state tax reserve adjustments and $14 million of incremental severance, pension, and escrow expenses. Together, these items reduced Q4 EPS by about $0.04. Management isolated these impacts so investors can better gauge the underlying earnings power entering 2026.

Quarterly Noninterest Income Dip on Seasonal and Timing Factors

Despite strong full-year fee growth, adjusted noninterest income fell 6% versus the third quarter. The decline stemmed mainly from postponed M&A transactions, seasonal weakness in loan syndication and underwriting, and temporary disruptions linked to a government shutdown that affected real estate capital markets and swap activity. Management characterized these headwinds as timing-related rather than structural, pointing to the full-year fee performance as a better indicator of franchise momentum.

Elevated Charge-Offs Still a Lagging Indicator

Net charge-offs ticked up modestly in the quarter, with the annualized rate rising 4 basis points to 59 bps. Executives emphasized that charge-offs are a trailing indicator of credit stress already recognized and managed, and that broader credit indicators—such as criticized and nonperforming loans—are moving favorably. The expectation for 2026 charge-offs to moderate into the 40–50 bps range suggests the worst of this mini-credit cycle may be passing, assuming the macro backdrop remains reasonably stable.

Higher Near-Term Technology Spend Pressures Costs

Regions acknowledged that technology and software expenses will remain elevated in the near term as core modernization and digital initiatives progress. Technology spend is expected to run at 10%–12% of revenue, up from the historical 9%–11% range. While this creates some pressure on expense levels, management stressed that these investments are necessary to drive future efficiencies, improve customer experience, and enhance risk management—ultimately supporting better long-term returns.

Capital Markets Facing Seasonal and Timing Volatility

The capital markets business, while strong on a full-year basis, saw weaker revenue in the fourth quarter from seasonal patterns and deal timing. Looking to 2026, management guided to quarterly capital markets revenue of $90 million–$105 million, with expectations that results will track toward the lower end of that range early in the year before improving as M&A and syndication pipelines re-accelerate. Investors should expect some quarter-to-quarter volatility but view the franchise as structurally sound and strategically important.

Deposit Mix Shifts and Managing CD Maturities

Funding dynamics continue to evolve as customers respond to the interest rate environment. In the fourth quarter, customer behavior shifted away from certificates of deposit toward money market accounts, a move that can affect both funding stability and cost. Ending deposits rose by roughly $800 million and average deposits were essentially flat, but Regions faces sizable CD maturities—about $3.5 billion in the first quarter and $5 billion in the second. Management will need to carefully balance retention, pricing, and deposit beta exposure as those CDs roll off.

Modernization Limits Near-Term M&A Flexibility

One trade-off of the core systems overhaul is reduced flexibility for large-scale acquisitions in the near term. Management was candid that the modernization program, with conversion scheduled across 2026–2027, effectively limits the bank’s ability to pursue whole-bank M&A until the program is complete. While this narrows strategic optionality in the short run, Regions believes the long-term benefits of a modern, scalable core platform outweigh the opportunity cost of delaying larger deals.

Pockets of Industry-Specific Credit Pressure Persist

Although overall credit quality is improving, Regions still sees pressure in certain industry verticals. Trucking and transportation are showing signs of improvement but remain stressed, while forest products and some building materials and construction-related sectors continue to face headwinds. Management framed these issues as contained pockets of risk within a broadly healthy portfolio, backed by strong reserve coverage and ongoing de-risking efforts.

Guidance Signals Cautious Optimism for 2026

Looking ahead, Regions’ 2026 guidance reflects cautious optimism grounded in the strength of 2025 results. The bank expects average loans and deposits to grow in the low single digits, supported by renewed loan growth after strategic runoff, while net interest income is projected to rise 2.5%–4.0%, with net interest margin starting around the mid-3.60s and trending to the low–mid-3.70s for the year. Adjusted noninterest income is forecast to grow 3%–5%, including capital markets revenue of $90 million–$105 million per quarter, and adjusted noninterest expense is expected to increase 1.5%–3.5%, delivering another year of positive operating leverage even with technology spend at 10%–12% of revenue. Credit costs are anticipated to normalize, with net charge-offs in the 40–50 bps range and allowance levels potentially easing from 1.76% of loans toward roughly $1.64 billion in total reserves, while CET1 inclusive of AOCI is managed in the 9.25%–9.75% range. Management also expects the effective tax rate to revert to roughly 20.5%–21.5% and plans to continue returning capital to shareholders, supported by steady deposits, a mid-30s deposit beta, and additional receive-fixed swaps to manage interest rate risk.

In sum, Regions Financial’s earnings call painted the picture of a bank balancing near-term pressures with long-term opportunity. Strong profitability, industry-leading returns, healthy capital and liquidity, and improving credit metrics give management room to invest aggressively in technology and talent while still rewarding shareholders through buybacks and dividends. For investors, the key takeaway is a franchise that appears structurally stronger and more diversified than in prior cycles, with measured 2026 growth expectations that prioritize quality and sustainability over sheer volume expansion.