Regions Financial Corporation (NYSE:RF) Q2 2019 Earnings Conference Call - Final Transcript
Jul 19, 2019 • 11:00 am ET
[Operator Instructions] Your first question comes from Ryan Nash of Goldman Sachs .
John M. Turner
Hey, good morning guys. So it looks like you've seen an inflection in deposit costs, although -- at 29% you had one of the lowest beta cycle to date. So you're talking about the NIM approaching 3.40% and then increasing, can you just talk about how you feel about your ability to bring down deposit cross -- deposit costs across most of -- across retail wealth and commercial? And then as you think about the sensitivities you've outlined, given all the changing dynamics on the balance sheet, how do you think about the sensitivity to short versus long-term rate? And then I have a follow-up.
David J. Turner
Okay, this is David. So -- we are encouraged by the reaction in our teams on deposit cost. We clearly are competitive, but we are -- we're able in the month of June through our actions. We took the month before that to reduce deposit costs a couple of basis points and if we put that in a chart to show you that we expect that to have already peaked, to the extent that we continue to get short-term rates down, that will give us even more ability to reduce deposit cost.
We have about 10% of our deposits are indexed -- 10% of our interest bearing deposits are indexed, but we also have another 10% of our interest bearing deposits that are -- have been exception price that are really money market type deposits that we get to address as rates change. So we can move pretty quickly as the market changes, which gives us some confidence that we continue to hold our margin at that 3.40% level for the remainder of the year even if we get two, roughly three cuts as the forwards imply.
Got it and maybe as my follow-up, you talked about the environment being challenging and it might be hard to hit some of your target. I guess if the rate environment does improve, do you think you could still approach the low end of your efficiency in ROTC target? And then second, do you expect to continue to be able to generate positive operating leverage even if you don't hit the target? Thanks.
David J. Turner
Yes, so we made a commitment at Investor Day that we would generate positive operating leverage each year of our three year plan. Clearly, the rate outlook put some pressure on that, but we still are committed to generating positive operating leverage. If you recall the last three year plan that we had, the market didn't behave quite like we thought, it was going to either and we pulled whatever it took to make sure we met the targets and so we have confidence in that. Clearly, if we have a persistent low rate environment for this whole three-year period that does put pressure on certain of those metrics .
But I would like to point out, we're six months into