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Regions Financial Earnings: Messy but Solid Quarter, Decent Outlook

The company expects 2024 expenses that are better than we modeled, reflecting recent restructuring.

Regions Financial Corp bank
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Regions Financial Corp

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What We Thought of Regions Financial’s Earnings

Regions Financial RF reported a decent end to 2023. Fourth-quarter reported earnings of $0.39 per share came in below the FactSet consensus of $0.46. However, we note that the FDIC special assessment had a $0.10 negative impact, based on our calculations. Revenue of $1.81 billion was healthy, in our view, and 1% above the consensus estimate. Overall, there was little in the release that would alter our long-term view of Regions, and we maintain our fair value estimate of $21.

Net interest income of $1.23 billion declined 5% from the third quarter, driven by higher deposit costs. Net interest margin was 3.60% in the quarter, down from 3.99% in the year-ago period. In 2024, Regions expects NIM to decline to 3.50% and NII of $4.7 billion-$4.8 billion. This is below our expectations, but we may have been too optimistic.

Noninterest income was up 2% sequentially, driven by mortgage income. The firm expects noninterest income of $2.35 billion at the midpoint, which is essentially in line with our $2.34 billion estimate. One risk worth noting is that the Federal Reserve is proposing to limit debit interchange fees. Regions estimates this would create a $45 million headwind to fee revenue in the second half of 2024.

Credit is generally manageable, in our view, even though credit metrics are showing a negative uptick. Net loan charge-offs were 0.54%, up from 0.40% in the third quarter, and nonperforming loans were 0.82%, up from 0.65%. For context, the prepandemic average in 2013-2019 was 0.46% for net charge-offs and 1.07% for nonperforming loans. Given deposit pressures, expenses are an important lever for profitability. The company expects 2024 expenses of $4.1 billion, which is better than we modeled and reflects recent restructuring.

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The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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About the Author

Rajiv Bhatia

Equity Analyst
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Rajiv Bhatia is an equity analyst for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. His areas of focus include custody banks, credit bureaus, and life insurers.

Before joining Morningstar in 2019, Bhatia spent four years analyzing financial technology stocks for clients at Raymond James.

Bhatia holds a bachelor's degree in applied mathematics and economics from Northwestern University as well as a master's degree in finance from Washington University in Saint Louis. He also holds the Chartered Financial Analyst® designation.

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