Regions Financial in Birmingham, Alabama, said lingering deposit cost pressures and relatively soft loan demand impacted its fourth-quarter earnings, and these headwinds are likely to persist into this year as interest rates remain high and borrowers show caution.
The parent company of Regions Bank said that its fourth-quarter net interest income declined nearly 5% from the prior quarter to $1.2 billion. Its net interest margin contracted by 13 basis points to 3.60% amid rising deposit costs, which were driven partly by an ongoing shift from non-interest-bearing accounts into interest-bearing ones.
Total fourth-quarter loans declined by less than 1% from the prior quarter to $98.3 billion, Regions said, with many commercial borrowers waiting on the sidelines for lower rates and a clearer view of macroeconomic conditions.
The U.S. economy continued to grow in 2023 alongside a
"We are seeing clients make long-term investments when they have to, but if they can defer, they're holding off," Regions Chief Financial Officer David Turner Jr. said during a call with analysts Friday after the company posted its results. "In general, sentiment varies across industries — with some continuing to expect growth, while others have a more muted outlook."
Echoing that assessment and looking ahead, Regions President and CEO John Turner Jr. said: "We still think loan growth for the year is going to be relatively muted." In addition to the impact of higher rates, he cited "uncertainty related to the economy, geopolitical conditions, the political environment here in the U.S."
All of that noted, both Regions executives said rates appear to have leveled off and could gradually decline later in 2024. They envision funding cost pressures easing around midyear and also see the potential for an uptick in both economic activity and loan demand around the same time. Those conditions should pave the way for improved net interest income in the second half of 2024 and into next year, they said.
"We expect net interest income trends to stabilize over the first half of the year and grow over the back half of the year," said David Turner, the finance chief.
Regions reported fourth-quarter net income of $391 million, or 39 cents per share. This compared with $490 million, or 49 cents, in the previous quarter, and $685 million, or 70 cents, a year earlier.
Regions, along with larger companies across the banking sector, was subject in the fourth quarter to a special Federal Deposit Insurance Corp. assessment tied to the failures of Silicon Valley Bank and Signature Bank in the spring of 2023. Regions' assessment totaled $119 million and weighed down quarterly earnings.
Excluding that assessment and $28 million in severance-related costs, the $152 billion-asset banking company said its non-interest expenses declined 5% from the prior quarter. It expects those costs to be essentially flat this year.
Still, the bank's trajectory on net interest income "could remain an issue despite a better cost outlook," Piper Sandler analyst Scott Siefers said in a note to clients.
Regions noted that its charge-off rate remains low by historical standards and is likely to move up modestly early in 2024. The bank cited loans for senior housing, office buildings, transportation and warehouses as ongoing areas of vulnerability.
