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Why Is Regions Financial (RF) Up 20.5% Since Last Earnings Report?

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A month has gone by since the last earnings report for Regions Financial (RF - Free Report) . Shares have added about 20.5% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Regions Financial due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Regions Q3 Earnings Beat Estimates on Higher Revenues

Regions Financial reported third-quarter 2020 adjusted earnings of 49 cents per share, surpassing the Zacks Consensus Estimate of 34 cents. Also, results compare favorably with the prior-year period earnings of 39 cents.

Results were driven by higher revenues on increases in both net interest income (NII) and fee income. Moreover, rise in deposit balances provided some respite. Notably, mortgage income and capital markets income were on an upswing. However, higher provisions for credit losses and rise in expenses were undermining factors.

Including certain one-time items, net income available to common shareholders was $501 million or 52 cents per share compared with the earnings of $385 million or 39 cents reported in the year-ago period.

Revenues Increase, Costs Rise

Adjusted total revenues (net of interest expense) came in at $1.6 billion in the reported quarter, outpacing the Zacks Consensus Estimate of $1.5 billion. The revenue figure also increased 6.8% from the year-ago quarter’s reported tally.

Regions Financial recorded adjusted pre-tax pre-provision income from continuing operations of $707 million, up 12.4% year over year.

On a fully-taxable equivalent (FTE) basis, net interest income was $1 billion, up 5.3%, year over year, riding on loan growth. Notably, higher loans were attributable to the company's Ascentium Capital equipment finance acquisition, Paycheck Payment Program (PPP) loans and robust mortgage production, along with solid deposit growth.

Yet, net interest margin (on an FTE basis) contracted 31 basis points (bps) year over year to 3.13% during the September-end quarter. Higher liquidity in the form of lower-returning assets, such as excess cash, held at the Federal Reserve and PPP loans hurt margin to an extent.

Non-interest income increased 17.4% year over year to $655 million. This upsurge mainly resulted from higher capital markets income, mortgage income, commercial credit card income, securities gains and wealth management income. Nonetheless, lower bank-owned life insurance, service charges on deposit account and other income acted as headwinds.

Non-interest expense rose 2.9% year over year to $896 million, mainly due to rise in salaries and employee benefits, furniture and equipment, along with professional, legal and regulatory expenses, partly offset by lower FDIC insurance assessments, outside services, credit expenses, branch consolidation, property and equipment charges, along with other expenses. On an adjusted basis, non-interest expenses were up 2.8% year over year to $889 million.

Adjusted efficiency ratio came in at 55.3% compared with the prior-year quarter’s 57.4%. A lower ratio indicates a rise in profitability.

Balance-Sheet Strength

As of Sep 30, 2020, adjusted total loans declined 2.4% sequentially to $88.4 billion. Yet, total deposits came in at $118.4 billion, up 1.4%.

As of Sep 30, 2020, low-cost deposits, as a percentage of average deposits, were 95%, compared with the prior-year quarter’s 92%. In addition, deposit costs came in at 11 bps in the July-September quarter.

Credit Quality: A Concern?

Credit metrics deteriorated during the third quarter. Non-performing assets, as a percentage of loans, foreclosed properties and non-performing loans held for sale, advanced 25 bps from the prior-year quarter to 0.90%. Also, non-accrual loans, excluding loans held for sale, as a percentage of loans, came in at 0.87%, expanding 31 bps year over year.

Allowance for loan losses as a percentage of loans, net of unearned income was 2.58%, up 153 bps from the year-earlier quarter. The company’s total business services criticized loans surged 60.9% on a year-over-year basis.

Furthermore, adjusted net charge-offs, as a percentage of average loans, came in at 0.50%, expanding 6 bps. Provision for loan losses was $113 million, up 4.6% from the prior-year quarter figure of $108 million.

Solid Capital Position

Regions Financial’s estimated ratios remained well above the regulatory requirements under the Basel III capital rules. As of Sep 30, 2020, Basel III Common Equity Tier 1 ratio (fully phased-in) and Tier 1 capital ratio were estimated at 9.3% and 10.8%, respectively, compared with the 9.6% and 10.8% recorded in the year-earlier quarter.

During the July-September period, the bank did not repurchase shares, but announced $149 million in dividends to common shareholders.


Management expects fourth-quarter NIIto be relatively flat to modestly lower as hedging benefits and further declines in deposit costs will help to offset continued pressure from long-term rates, asset remixing and runoff.

Excluding loans under Paycheck Protection Program and excess cash liquidity, core net interest margin is expected to be about 3.30%.

Fourth quarter net-charge offs is expected to remain in the range of 55 to 65 bps.

Long-Term Financial Targets (2019-2021)

In three-year period, Regions expects to deliver adjusted return on average tangible common equity of 18-20% by 2021 compared with 15.59% in 2018. Also, adjusted efficiency ratio of 55% or lower is expected, which is below 59.3% reported in 2018. Further, in both the cases, Regions plans to achieve positive operating leverage.

Pillars of Success

Firstly, Regions plans on taking advantage of its existing strength in areas such as customer focus, markets, team, culture and risk management in order to establish presence in key growth markets like Atlanta, Houston and Orlando. Further, it intends to hire professionals such as corporate bankers, wealth management professionals and mortgage loan originators to better serve and meet clients needs.

The company plans to generate funds for these investments with help of its Simplify and Grow continuous improvement approach that it introduced in 2017. These initiatives aim at making banking easier for customers, simplify processes and drive profitable long-term growth.

Further, Regions is making efforts to reduce costs related to third-party spending through strategic sourcing and vendor selectivity. It anticipates annual cumulative savings of nearly $60 million between 2018 and 2021.

Lastly, Regions highlights the importance of technology, and promises to continue driving innovation and expand digital banking capabilities, such as open accounts online, digital loan applications and wealth management digital advisory capabilities.

For the next three years, the company disclosed plans to pilot voice banking capabilities and expand its use of artificial intelligence for both customer-facing and back-office applications. Additionally, Regions is investing in technology to provide serve customers better and enhance credit risk management, as well as a variety of other internal processes across the company.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted 24.68% due to these changes.

VGM Scores

Currently, Regions Financial has an average Growth Score of C, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.


Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Regions Financial has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.

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