Regions Financial Earnings: Messy but Solid Quarter, Decent Outlook

Key Morningstar Metrics for Regions Financial

• Fair Value Estimate: $21.00
• Morningstar Rating: 3 stars
• Morningstar Economic Moat Rating: None
• Morningstar Uncertainty Rating: High

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.