Regions Financial Earnings: Mixed Quarter, 2024 Outlook Mostly Reiterated

Key Morningstar Metrics for Regions Financial

• Fair Value Estimate: $22.00
• 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 mixed start to 2024. First-quarter adjusted revenue edged out the FactSet consensus estimate of $1.75 billion, and adjusted earnings per share of $0.46 came in a penny above the consensus estimate of $0.45, by our calculations. Net interest income is still bottoming out but performing as expected. Operating expenses were elevated, and the firm’s credit trends, while still healthy, mostly worsened. Regions largely kept its 2024 outlook. We maintain our no-moat rating and $22 fair value estimate.

NII declined 4% sequentially, in line with the firm’s expectation of a 3%-5% decline. Deposit costs were the biggest culprit, with deposits shifting toward interest-bearing from non-interest-bearing and Regions paying more on interest-bearing deposits. The bank reiterated its 2024 outlook for NII of $4.7 billion-$4.8 billion, but it now expects lower loan balances.

Adjusted fee revenue was $613 million in the first quarter, up from $581 million in the fourth quarter and $535 million in the year-ago quarter. Capital markets activity is boosting those fees, and higher asset values are boosting wealth-management fees. Expenses were elevated due to higher salaries and nonrecurring operating losses, but we expect this to normalize.

Adjusted net charge-offs were 0.50%, up from 0.39% in the fourth quarter, with the culprits being the restaurant and commercial manufacturing sectors. Nonperforming loans as a percentage of all loans were 0.94%, up from 0.82% at the beginning of the quarter, and are now higher than 2019 levels. Regions expects 2024 net charge-offs to be 0.40%-0.50%, which implies some improvement. We model 0.50%.