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NII & Loan Balance Aid Regions Financial's Growth Amid High Costs
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Regions Financial Corporation (RF - Free Report) is well-positioned for top-line growth, driven by decent loan balances. The company’s strong liquid profile will continue to support its capital distribution activities. However, pressure on mortgage income due to high rates and elevated expenses remain near-term concerns.
Region Financial’s Drivers of Growth
The company has witnessed a steady growth in its loan balances, with a compound annual growth rate (CAGR) of 3.4% over the past five years (2018-2023). The company's strong presence in strategic markets across the Southeastern and Midwest United States positions it to capitalize on favorable economic and business trends in the regions, which will likely drive loan growth.
Also, RF’s net interest income (NII) has witnessed steady growth driven by the company’s decent loan demand. NII witnessed a CAGR of 7.3% over the past five years, ending 2023, with the uptrend continuing in the first half of 2024. Improvement in loan balances, combined with the Federal Reserve's announcement of a rate cut in September 2024, will likely stabilize funding costs and drive NII growth.
Regions Financial has a solid balance sheet and liquidity position. As of Jun 30, 2024, its total debt (long-term and short-term borrowings) was $5.6 billion, whereas the liquidity sources aggregated $56.7 billion. Given a strong liquidity profile, Regions Financial is less likely to default on interest and debt repayments if the economic situation worsens.
We remain encouraged by Regions Financial’s efforts to enhance shareholder value through its capital-deployment activities. In July 2024, the bank announced a 4% increase in its quarterly common stock dividend to 25 cents per share. The company currently has an annualized dividend growth rate of 11.48%.
In the same month, The Goldman Sachs Group, Inc. (GS - Free Report) and The PNC Financial Services Group, Inc. (PNC - Free Report) also increased their quarterly dividend by 9.1% and 3.2%, respectively. GS and PNC's current annualized dividend growth rates stand at 24.42% and 8.84%, respectively.
In April 2022, Regions Financial’s board of directors announced a share repurchase program of up to $2.5 billion of common stock from the second quarter of 2022 through the fourth quarter of 2024. In the first half of 2024, the company repurchased $189 million worth of shares under this program. As of June 30, 2024, $2.05 billion shares remained available under the authorization. Given the company’s robust liquidity, its capital deployment activities seem sustainable and will drive investors’ confidence in the stock.
Escalating Costs and Low Mortgage Volume to Hurt RF
Regions Financial continues to record an increase in expenses. Non-interest expenses witnessed a CAGR of 4.3% over the 2018-2023 period. In the first six months of 2024, the expense level remained flat year over year. The rise was majorly due to increases in salaries, and employee benefit expenses and other expenses. Although the company is implementing expense management actions, its ongoing investment in technology advancement and franchise strengthening will keep costs high in the near term.
Regions Financial’s mortgage income, which is a key component of its non-interest income, witnessed a negative CAGR of 4.5% over the 2018-2023 period, with the downward trend persisting in the first half of 2024. Although mortgage rates are declining, they remain high considerably. Coupled with home price appreciation and limited supply, mortgage origination volume remains subdued. While the current decline in mortgage rates is likely to support the growth in the long run, it will take some time before this positively impacts the company's mortgage banking business performance in the near term.
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NII & Loan Balance Aid Regions Financial's Growth Amid High Costs
Regions Financial Corporation (RF - Free Report) is well-positioned for top-line growth, driven by decent loan balances. The company’s strong liquid profile will continue to support its capital distribution activities. However, pressure on mortgage income due to high rates and elevated expenses remain near-term concerns.
Region Financial’s Drivers of Growth
The company has witnessed a steady growth in its loan balances, with a compound annual growth rate (CAGR) of 3.4% over the past five years (2018-2023). The company's strong presence in strategic markets across the Southeastern and Midwest United States positions it to capitalize on favorable economic and business trends in the regions, which will likely drive loan growth.
Also, RF’s net interest income (NII) has witnessed steady growth driven by the company’s decent loan demand. NII witnessed a CAGR of 7.3% over the past five years, ending 2023, with the uptrend continuing in the first half of 2024. Improvement in loan balances, combined with the Federal Reserve's announcement of a rate cut in September 2024, will likely stabilize funding costs and drive NII growth.
Regions Financial has a solid balance sheet and liquidity position. As of Jun 30, 2024, its total debt (long-term and short-term borrowings) was $5.6 billion, whereas the liquidity sources aggregated $56.7 billion. Given a strong liquidity profile, Regions Financial is less likely to default on interest and debt repayments if the economic situation worsens.
Shares of this Zacks Rank #3 (Hold) company have gained 22.2% compared with the industry’s growth of 10.6%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Image Source: Zacks Investment Research
We remain encouraged by Regions Financial’s efforts to enhance shareholder value through its capital-deployment activities. In July 2024, the bank announced a 4% increase in its quarterly common stock dividend to 25 cents per share. The company currently has an annualized dividend growth rate of 11.48%.
In the same month, The Goldman Sachs Group, Inc. (GS - Free Report) and The PNC Financial Services Group, Inc. (PNC - Free Report) also increased their quarterly dividend by 9.1% and 3.2%, respectively. GS and PNC's current annualized dividend growth rates stand at 24.42% and 8.84%, respectively.
In April 2022, Regions Financial’s board of directors announced a share repurchase program of up to $2.5 billion of common stock from the second quarter of 2022 through the fourth quarter of 2024. In the first half of 2024, the company repurchased $189 million worth of shares under this program. As of June 30, 2024, $2.05 billion shares remained available under the authorization. Given the company’s robust liquidity, its capital deployment activities seem sustainable and will drive investors’ confidence in the stock.
Escalating Costs and Low Mortgage Volume to Hurt RF
Regions Financial continues to record an increase in expenses. Non-interest expenses witnessed a CAGR of 4.3% over the 2018-2023 period. In the first six months of 2024, the expense level remained flat year over year. The rise was majorly due to increases in salaries, and employee benefit expenses and other expenses. Although the company is implementing expense management actions, its ongoing investment in technology advancement and franchise strengthening will keep costs high in the near term.
Regions Financial’s mortgage income, which is a key component of its non-interest income, witnessed a negative CAGR of 4.5% over the 2018-2023 period, with the downward trend persisting in the first half of 2024. Although mortgage rates are declining, they remain high considerably. Coupled with home price appreciation and limited supply, mortgage origination volume remains subdued. While the current decline in mortgage rates is likely to support the growth in the long run, it will take some time before this positively impacts the company's mortgage banking business performance in the near term.