Regions Financial: Mostly Steady in the Second Quarter

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 Finacial’s Earnings

Regions Financial RF reported a second quarter with few surprises. The firm’s net interest income is performing mostly as expected, and credit trends are generally healthy, in our view. Similar to what we saw at other regional banks, Regions saw decreased loan-loss provisions. Overall, there was little in the firm’s earnings release that would alter our long-term view, and we maintain our fair value estimate of $22 per share.

NII was roughly flat sequentially. The firm still sees some deposit pressures, with deposit costs rising 3 basis points sequentially to 1.59%. For the full year, Regions expects to be at the high end of its previously reiterated range of $4.7 billion-$4.8 billion. Average deposits were roughly flat sequentially, and Regions still expects deposits to be stable to down modestly for 2024. Noninterest income was down 3% sequentially, driven by lower capital markets and mortgage income. Capital markets revenue being down was a bit of a surprise, given that bond issuance has generally been robust. On the positive side, Regions expects 2024 noninterest income to come in at the high end of its previous $2.3 billion-$2.4 billion range.

Credit trends were mostly stable in the quarter. Net charge-offs declined to 0.42% from 0.50% amid stable economic conditions, but Regions expects full-year net charge-offs to be at the high end of its 0.40%-0.50% range. We also note that in any given quarter, the charge-off rate can bounce around.

Regions expects adjusted operating expenses to be $4.15 billion-$4.20 billion, representing a 2% increase at the midpoint. Overall, we are not concerned by the increase, as this appears mostly offset by higher revenue expectations.