Company Reports

Regions Financial 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 is performing as expected. Operating expenses were elevated, and the firm’s credit trends, while still healthy, mostly worsened. Regions largely maintained its 2024 outlook. We will maintain our no-moat rating and $22 fair value estimate.

Regions Financial is a midsize U.S. regional bank, primarily concentrated in the Southeast. After the disastrous acquisition of AmSouth before the global financial crisis, Regions has stabilized its core operations and turned into a solid regional bank. It has shied away from dramatic acquisitions since and has improved its risk-management and underwriting capabilities, becoming a safer bank in the process. Regions also boasts one of the more advantaged deposit bases under our coverage, with lower costs leading to extra profitability. The bank's focus on improving operational efficiency and building out fee-generating businesses has also improved its profitability profile, as the firm has managed to keep its expense growth to a minimal level for years now while also increasing fees.

Our thesis on the U.S. banks following the Silicon Bank fallout was that all of the banks we covered, except for First Republic (which we downgraded to a $3 fair value estimate on March 20, 2023, and a $0 fair value on April 27, 2023), would be able to weather the storm. We believed that banks in trouble were in uniquely risky positions. We believe this thesis has largely held up, and sorting through banks based on their unique risk profiles remains necessary and valuable. To the extent that the market is selling off all banks because of what has happened to NYCB, we think there could be opportunities once again while acknowledging the significant time horizon risk (how long does it take for the banks to prove to the market they are fine) and the choppy waters that could occur in the meantime (we expect more commercial real estate related loan losses in the future).

Regions Financial is a midsize U.S. regional bank, primarily concentrated in the Southeast. After the disastrous acquisition of AmSouth before the global financial crisis, Regions has stabilized its core operations and turned into a solid regional bank. It has shied away from dramatic acquisitions since and has improved its risk-management and underwriting capabilities, becoming a safer bank in the process. Regions also boasts one of the more advantaged deposit bases under our coverage, with lower costs leading to extra profitability. The bank's focus on improving operational efficiency and building out fee-generating businesses has also improved its profitability profile, as the firm has managed to keep its expense growth to a minimal level for years now while also increasing fees.

Regions reported a decent end to the year. Fourth-quarter reported EPS of $0.39 was 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 its earnings release that would alter our long-term view of the firm, and we will maintain our fair value estimate of $21.

Regions Financial is a midsize U.S. regional bank, primarily concentrated in the Southeast. After the disastrous acquisition of AmSouth before the global financial crisis, Regions has stabilized its core operations and turned into a solid regional bank. It has shied away from dramatic acquisitions since and has improved its risk-management and underwriting capabilities, becoming a safer bank in the process. Regions also boasts one of the more advantaged deposit bases under our coverage, with lower costs leading to extra profitability. The bank's focus on improving operational efficiency and building out fee-generating businesses has also improved its profitability profile, as the firm has managed to keep its expense growth to a minimal level for years now while also increasing fees.

Regions Financial is a midsize U.S. regional bank, primarily concentrated in the Southeast. After the disastrous acquisition of AmSouth before the global financial crisis, Regions has stabilized its core operations and turned into a solid regional bank. It has shied away from dramatic acquisitions since and has improved its risk-management and underwriting capabilities, becoming a safer bank in the process. Regions also boasts one of the more advantaged deposit bases under our coverage, with lower costs leading to extra profitability. The bank's focus on improving operational efficiency and building out fee-generating businesses has also improved its profitability profile, as the firm has managed to keep its expense growth to a minimal level for years now while also increasing fees.

Regions Financial is a midsize U.S. regional bank, primarily concentrated in the Southeast. After the disastrous acquisition of AmSouth before the global financial crisis, Regions has stabilized its core operations and turned into a solid regional bank. It has shied away from dramatic acquisitions since and has improved its risk-management and underwriting capabilities, becoming a safer bank in the process. Regions also boasts one of the more advantaged deposit bases under our coverage, with lower costs leading to extra profitability. The bank's focus on improving operational efficiency and building out fee-generating businesses has also improved its profitability profile, as the firm has managed to keep its expense growth to a minimal level for years now while also increasing fees.

No-moat Regions Financial reported worse-than-expected third-quarter results, causing shares to fall roughly 12% during the trading day. Earnings per share of $0.49 were in line with our $0.50 expectation but came in considerably lower than FactSet consensus of $0.58.

No-moat-rated Regions Financial reported solid second-quarter results as it handily outperformed our deposit pricing assumptions and continues to show less pricing strain than peers. Earnings per share of $0.59 were in line with FactSet consensus of $0.59 and a bit ahead of our $0.54 estimate.

Regions Financial is a midsized U.S. regional bank, primarily concentrated in the Southeast. After the disastrous acquisition of AmSouth before the global financial crisis, Regions has stabilized its core operations and turned into a solid regional bank. It has shied away from dramatic acquisitions since and has improved its risk-management and underwriting capabilities, becoming a safer bank in the process. Regions also boasts one of the more advantaged deposit bases under our coverage, with lower costs leading to extra profitability. The bank's focus on improving operational efficiency and building out fee-generating businesses has also improved its profitability profile, as the firm has managed to keep its expense growth to a minimal level for years now while also increasing fees.

The Federal Reserve released its review of what went wrong with supervision and regulation of Silicon Valley Bank. There are still no official new regulatory proposals, but this is the first official clue about where the regulators are heading. Our thesis was that regulations were going to change but that they would be manageable changes phased in over a period of several years. This is why we do not think capital raises are likely for the banks under our coverage. We think this is a key point because prices currently seem to be implying permanently impaired profitability or capital raises for multiple banks under our coverage. We think this is too harsh.

No-moat-rated Regions Financial reported first-quarter results that show some slight pressure on the earnings outlook, but we view the pressure as quite manageable. We had already expected fourth-quarter results would be the peak for profitability in the current rate cycle, and while the drop-off from that peak has accelerated a bit, it is nothing categorically different. Regions is known for its strong deposit franchise, and results show that it is barely affected by the recent banking industry turmoil. As we incorporate the latest results, we do not expect a material change to our $19 fair value estimate, although we may increase it slightly, since near-term results are coming in better than our updated “shocked” projections from late March. Regions has been one of the more fully priced regionals under our coverage, and heading into earnings, we believed the shares were fully valued. We think other banks are trading at larger dislocations to fair value.

We have updated our fair value estimates for a number of regional banks in our coverage (M&T Bank: $179 to $163, Fifth Third Bancorp: $42 to $38, Regions Financial: $21 to $19, KeyCorp: $24 to $21, Huntington: $17 to $15, Comerica: $86 to $79 , Zions: $66 to $58, Cullen/Frost: $133 to $124 ). We did this based on an expectation of increased funding costs, some pressure on deposit bases (in other words, deposit outflows), and potentially lower securities yields in the future due to potential changes in bank regulations (which would likely force banks to hold more short-term treasuries instead of their current preference for mortgage-backed securities).

Regions Financial is a midsized U.S. regional bank, primarily concentrated in the Southeast. After the disastrous acquisition of AmSouth before the global financial crisis, Regions has stabilized its core operations and turned into a solid regional bank. It has shied away from dramatic acquisitions since and has improved its risk-management and underwriting capabilities, becoming a safer bank in the process. Regions also boasts one of the more advantaged deposit bases under our coverage, with lower costs leading to extra profitability. The bank's focus on improving operational efficiency and building out fee-generating businesses has also improved its profitability profile, as the firm has managed to keep its expense growth to a minimal level for years now while also increasing fees.

We are increasing our Morningstar Uncertainty Rating on our U.S. regional banking coverage (excluding U.S. Bancorp and PNC Financial Services) to High from Medium, to reflect the increased uncertainty associated with predicting what the deposit base, funding costs, and regulatory costs will look like in the future. We’re leaving the Uncertainty Ratings on the largest banks unchanged, as we believe they are less likely to experience deposit base volatility.

With the U.S. banking system coming under heightened liquidity pressure, we had speculated that the Federal Reserve might step in and provide some sort of solution. There was a lot of speculation about what mechanism/s could be used, and one of our favorites was simply allowing banks to exchange their underwater securities, at par, with the Fed. This has the benefit of taking away any concerns about being forced to sell these securities at fair value and therefore taking a hit to capital while also exposing the U.S. taxpayer to minimal risk of loss, as most securities held by the banks are either agency-backed MBS or Treasuries.

Bank stocks sold off meaningfully on March 9 as Silicon Valley Bank announced that it would have to take a number of “strategic actions,” including selling off its entire available-for-sale securities portfolio (incurring a $1.8 billion aftertax loss, or roughly 15% of the bank’s tangible common equity as of Dec. 31, 2022), announcing it is seeking to raise $2.25 billion in additional capital, and increasing its use of “term borrowings” (essentially higher-cost but more stable funding). Aside from crypto-related meltdowns, this is one of the first banks we’ve seen that has really suffered a liquidity crunch that has forced it to restructure the balance sheet and realize losses on its securities portfolios.

Regions Financial is a midsized U.S. regional bank, primarily concentrated in the Southeast. After the disastrous acquisition of AmSouth before the global financial crisis, Regions has stabilized its core operations and turned into a solid regional bank. It has shied away from dramatic acquisitions since and has improved its risk-management and underwriting capabilities, becoming a safer bank in the process. Regions also boasts one of the more advantaged deposit bases under our coverage, with lower costs leading to extra profitability. The bank's focus on improving operational efficiency and building out fee-generating businesses has also improved its profitability profile, as the firm has managed to keep its expense growth to a minimal level for years now while also increasing fees.

No-moat-rated Regions Financial reported fourth-quarter EPS of $0.70, which beat the FactSet consensus of $0.65 and was roughly in line with our estimate of $0.68. Revenue of $2 billion was just ahead of our expectation of $1.93 billion, while expenses of $1 billion were also just ahead of our estimate. Results were generally solid for the bank, with decent sequential loan growth of 2%, net interest income growth that exceeded our expectations, and relatively steady credit metrics.