Regions Earnings: Solid Revenue, Stable Credit, but Expenses a Touch High

Key Morningstar Metrics for Regions Financial

• Fair Value Estimate: $23.00
• Morningstar Rating: 3 stars
• Morningstar Economic Moat Rating: None
• Morningstar Uncertainty Rating: High

What We Thought of Regions Financial’s Earnings

Overall, Regions Financial RF reported a decent third quarter. Revenue trends were generally strong as net interest income performed well, thanks to asset repricing and higher average interest-earning assets. Fee revenue was also strong, as asset-based and deal-related fees improved. Credit was mostly stable, but expenses were higher than we had forecast. As we incorporate third-quarter results, we do not expect a material change to our fair value estimate of $23 per share.

NII rose 3% sequentially to $1.23 billion, with an expansion of net interest margin to 3.54% from 3.51%, an additional day in the third quarter, and larger interest-earning assets driving growth. Regions expects NII to grow slightly in the fourth quarter and come in at $4.8 billion for the full year. This is slightly better than the firm’s previous expectation of NII at the upper end of $4.7 billion-$4.8 billion. On the negative side, average non-interest-bearing deposits declined 2.0% sequentially and made up 31.5% of its deposit base, down from 31.9% in the second quarter. We believe this is a bit worse than peers, as firms like Fifth Third Bancorp FITB reported a much more modest decline in non-interest-bearing deposits.

Fee income was a bright spot for Regions, with adjusted revenue growth of 15%. Wealth management income benefitted from asset appreciation, capital markets revenue grew 39% as deal activity picked up from a soft quarter last year, and deposit service charges were strong.

Adjusted expenses were up 4% sequentially due to higher salaries and benefits. Regions now expects 2024 expenses at $4.25 billion, versus a previous expectation of $4.15 billion-$4.20 billion. Given the revenue in the quarter, we are not too concerned with the uptick. Credit trends were mostly stable. Net charge-offs ticked up but were in line with historical norms. Nonperforming loans declined modestly.