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On Friday, Goldman Sachs analyst Ryan Nash reaffirmed a Buy rating and a $31.00 price target for Regions Financial (NYSE:RF), following the company's fourth-quarter earnings report. Nash noted that Regions Financial's adjusted earnings per share (EPS) of $0.58 exceeded the Visible Alpha Consensus estimate of $0.55.
The bank's core pre-provision net revenue (PPNR) surpassed expectations at $829 million compared to the consensus of $811 million, attributed to slightly higher net interest income (NII) and lower core expenses.
Regions Financial reported a NII of $1.243 billion on a fully tax-equivalent basis, modestly above the consensus of $1.235 billion. This was driven by higher average earning assets, despite slower loan growth. The net interest margin edged up by 1 basis point to 3.55%, with loan yields slightly higher and deposit costs declining more than anticipated. Core expenses were reported at $1.029 billion, lower than the $1.055 billion consensus, primarily due to decreased salaries.
The bank's net charge-offs (NCOs) of 0.49% were just below the consensus of 0.53%, with a provision for credit losses that was also lower than expected at $114 million against a $127 million consensus. Non-performing loans (NPLs) increased quarter over quarter by approximately 11 basis points to 0.96%. The tangible book value saw a quarter-over-quarter decline of around 8% to $11.42, while the Common Equity Tier 1 (CET1) ratio improved by about 20 basis points quarter over quarter to 10.8%.
Looking ahead to 2025, Regions Financial provided guidance that aligns with current expectations. The forecast includes average loans increasing by 1% to an implied $98.0 billion, average deposits remaining stable at $126.6 billion, and NII growing by 2-5% from a baseline of $4.82 billion, which is in line with consensus estimates. Adjusted noninterest revenue is expected to rise by 2-4% from a baseline of $2.47 billion, indicating overall revenue of $7.53 billion versus a consensus of $7.57 billion. Adjusted expenses are projected to increase by 1-3% from a baseline of $4.23 billion, with the bank aiming to generate positive operating leverage in 2025. The NCOs are anticipated to be in the 40-50 basis points range, with expectations leaning towards the higher end in the first half of the year. The effective tax rate is estimated to be in the 20-21% range. Additionally, Regions Financial plans to manage its adjusted CET1 ratio around 9.25-9.75% in the near term.
In summary, Nash described the quarter as decent and the guidance as in line with expectations, noting that the lower expenses and credit performance might be well received by investors. Despite the negative positioning ahead of the report due to concerns about Regions Financial's leverage in an improving environment, the guidance could be perceived as conservative, potentially offering upside.
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