Regions Financial Earnings: Barely Seeing Any Effects From Banking Industry Turmoil

Regions Financial Stock at a Glance

• Current Morningstar Fair Value Estimate: $19.00
• Stock Star Rating: 3 Stars
• Uncertainty Rating: High
• Economic Moat Rating: None

Regions Financial Earnings Update

No-moat-rated Regions Financial RF 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 for Regions stock, 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.

Regions saw its deposit base decrease only slightly in the first quarter, down 2%, and management maintained its full-year deposit outflow outlook that was in place before March, although the outcome is likely to be toward the lower end of that previous guidance. This is a better result than our updated March 28 forecast for an 8% decline for the year.

Funding costs are accelerating, but only barely. The bank’s deposit beta increased to 39% in the quarter from 22% last quarter—a result better than any other bank under our coverage. In other words, Region’s deposit base and funding structure are intact. The net interest income outlook fell to “up 12%-14%” from “up 13%-15%.” This represents a decrease of only $50 million in NII and is a much better result than we were expecting in our March 28 forecast, where we were looking for growth of only 4% for the year.