Executives at Regions Financial are taking an increasingly cautious approach when it comes 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 that the pace at which average loan balances increased during the second quarter is not likely to be repeated during the third quarter.
Why not? Because the Birmingham, Alabama, company plans to apply more scrutiny to loan requests in light of mounting economic uncertainty and the rising potential for a downturn, Turner said during the bank’s quarterly earnings call. And more scrutiny could lead to fewer new loans.
While Regions should “have a lot of opportunity to grow” loans, “this is a time when you need to be very cautious, very careful, and make sure your client selectivity is robust,” Turner said.
“So we may be a little conservative in terms of our loan balances from here on out,” he said.
To be sure, loan demand at the $160.9 billion-asset bank remains healthy across several industries, including financial services, utilities, wholesale durables, investor real estate and some sectors of transportation, Turner said. Still, “a little bit of cautious tone is all we’re sending, and we will grow as the market gives us permission, with the right metrics,” he said.
Meanwhile, Regions has revised its projections for average loan balances in 2022, which are now expected to increase about 8% from last year, up from the 4%-5% projected in April. The change assumes a slowdown in loan growth and a pickup in capital markets activity, Turner said.
Although recent market volatility has caused capital markets in general to cool, there’s an expectation that the borrowers will want to tap into that segment once again. “So that is part of our projection as well,” Regions CEO John Turner said.
Regions’ loan growth outlook is in keeping with several other large regionals, including PNC Financial Services Group in Pittsburgh, which predicted average loan growth of about 13% for 2022, and KeyCorp in Cleveland, which expects average loans to grow 9%-11% this year.
The McLean, Virginia, company is starting to “trim around the edges” of its auto portfolio, CEO Richard Fairbank said. That move stands in contrast with Capital One's leaning into its credit card business, which helped push marketing spending above $1 billion.
However, banks’ general economic forecasts have differed this earnings season. PNC CEO William Demchak told analysts last week that he
For the second quarter, Regions reported net income of $583 million, down 26.2% from the year-earlier quarter, partly due to additional provisions for credit losses. Regions’ provision in the second quarter was $60 million compared with a release of $337 million a year earlier.
Earnings per share totaled 59 cents, up 4 cents from average estimate of analysts polled by FactSet Research Systems.
Average loan balances rose 7.6% year over year and 3.4% from the prior quarter, the company said. Average deposit balances also grew, though more modestly at 6.5% year over year and 0.6% compared to the first quarter. Earlier this year, executives had predicted that between $5 billion and $10 billion of nonoperational corporate deposits would
Still, “we continue to expect a range of $5 billion to $10 billion of overall balance reduction for the full year of 2022, resulting from tightening monetary policy,” Turner told analysts.
Net interest income rose 15.1% year over year thanks to higher interest rates, average loan growth and securities purchase. Noninterest income rose 3.4% during the same time period due to an uptick in capital markets income and higher cards and ATM fees.
