RF Q1 Deep Dive: Loan Growth Pauses Amid Client Uncertainty, Deposit Base Steady

Regional banking company Regions Financial (NYSE:RF) reported revenue ahead of Wall Street’s expectations in Q2 CY2025, with sales up 10.1% year on year to $1.91 billion. Its non-GAAP profit of $0.60 per share was 7.5% above analysts’ consensus estimates.

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StockStory’s Take

Regions Financial’s first quarter results reflected stable profitability despite revenue coming in below Wall Street’s expectations. Management pointed to persistent client caution, with many business customers delaying investment and borrowing decisions due to evolving tariff policies and macroeconomic uncertainty. CEO John Turner noted, “the volatility and uncertainty have customers in sort of a wait-and-see mode,” highlighting that the bank’s core deposit franchise and diversified fee income streams helped offset muted loan demand. Record treasury and wealth management revenue contributed to non-interest income stability, while capital markets activity lagged due to softer M&A and real estate transactions.

Looking forward, Regions Financial’s outlook is anchored in cautious optimism, with management emphasizing a stable deposit base and gradual improvement in loan demand should economic clarity emerge. CFO David Turner described the path ahead as dependent on “clarity in the operating environment,” particularly regarding tariffs and regulatory changes. The company expects net interest income to improve through the year, aided by deposit cost management and fixed-rate asset turnover, but continues to monitor potential headwinds from slower GDP growth and elevated charge-offs in certain loan portfolios. Investments in talent and technology remain a priority, even as expense growth is carefully managed.

Key Insights from Management’s Remarks

Management attributed first quarter performance to stable deposits, cautious client behavior, and resilience in fee-based businesses amid ongoing macroeconomic uncertainty.

• Client caution dampens loan growth: Many commercial customers postponed investment and borrowing decisions, citing uncertainty around tariffs, regulatory policy, and economic conditions. This led to flat line utilization rates and a slight decline in average loan balances, particularly as clients accessed alternative capital markets and held excess liquidity.
• Deposit base remains steady: The company reported growth in both average and ending deposit balances, bolstered by money market products and customer preference for liquidity. Management expects deposit levels to remain stable, reflecting customer caution and seasonal patterns.
• Fee income diversification: Record results in treasury and wealth management helped offset softer capital markets revenue, which was impacted by lower merger and acquisition, real estate, and loan syndication activity. Management sees the potential for capital markets to rebound when market conditions improve, but near-term expectations remain muted.
• Expense discipline and targeted investments: Adjusted expenses rose modestly, driven by seasonal payroll factors and continued hiring in key growth markets. Management is offsetting these investments by managing headcount elsewhere and leveraging technology, aiming for positive operating leverage even as revenue growth moderates.
• Asset quality and reserving: Net charge-offs increased in portfolios previously identified as higher risk, but the company maintained a steady allowance for credit losses. Management anticipates elevated charge-offs in the first half of the year, followed by potential reserve releases if economic conditions stabilize.

Drivers of Future Performance

Regions Financial’s guidance is shaped by macroeconomic uncertainty, client investment hesitancy, and a focus on deposit cost control and disciplined expense management.

• Loan demand tied to clarity: Management indicated that commercial and consumer loan growth will likely remain subdued until clients gain confidence regarding tariff impacts and broader economic direction. The company’s growth outlook assumes only modest loan increases in the near term, with more material acceleration possible if uncertainty abates later in the year.
• Deposit cost and margin management: Ongoing efforts to reduce deposit costs are expected to support net interest margin as fixed-rate assets mature and are reinvested at prevailing rates. Management highlighted that funding mix and cost control are central to stabilizing and growing net interest income in a potentially falling rate environment.
• Expense and credit risk vigilance: Regions plans to continue investing in talent and technology, especially in priority markets, but will balance this with tight expense discipline. Asset quality remains under watch, especially within portfolios sensitive to consumer spending and manufacturing, as charge-offs are projected to stay elevated through the first half of the year.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will focus on (1) indications of client willingness to resume borrowing and investment activity, (2) the trajectory of deposit growth and cost management in a shifting interest rate landscape, and (3) asset quality trends as charge-offs play out in higher-risk loan portfolios. Execution on technological and talent investments, as well as capital deployment through buybacks or dividends, will also be important signposts.

Regions Financial currently trades at $25.95, up from $24.56 just before the earnings. Is there an opportunity in the stock?See for yourself in our full research report (it’s free).

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