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Fee Income to Aid Regions (RF) Q4 Earnings Amid Low Rates

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Regions Financial (RF - Free Report) is scheduled to report fourth-quarter 2020 results on Jan 22, before the bell. The bank’s results are estimated to reflect year-over-year rise in earnings and revenues.

This Birmingham, AL-based company’s third-quarter 2020 earnings outpaced the Zacks Consensus Estimate. 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.

Markedly, Regions has a decent earnings surprise history. The company's results surpassed the consensus estimate in two of the trailing four quarters for as many misses, the average negative surprise being 100.74%.

The bank’s activities in the to-be-reported quarter were adequate to win analysts’ confidence. As a result, the Zacks Consensus Estimate for quarterly earnings has been revised upward in the last seven days. Also, earnings are expected to display year-over-year growth of 5%. Further, the Zacks Consensus Estimate of $1.55 billion for sales indicates a 4.95% increase from the prior-year quarter.
 

Now let’s discuss the factors that are likely to have impacted the company’s fourth-quarter performance:

 

Factors at Play

Low Net Interest Income: The overall lending scenario was soft during the October-December quarter, with commercial real estate and consumer loan portfolios having offered some support. Conversely, weakness in revolving home equity and commercial and industrial activities are expected to have offset growth. Low deposit costs and higher average interest earning assets might have been offsetting factors.

With the interest rates near-zero level, Regions’ net interest margin and NII are likely to have been adversely impacted.

Management expects fourth-quarter NII to have been relatively flat to modestly lower, as hedging benefits and further declines in deposit costs might have helped offset continued pressure from long-term rates, asset remixing and run-off. Excluding loans under the Paycheck Protection Program and excess cash liquidity, core net interest margin is estimated to be about 330 basis points (bps).

The Zacks Consensus Estimate of $126.6 billion for average interest earning assets calls for a 16.1% year-over-year improvement during the quarter under review, while the NII is expected to improve 6.1% to $988 million.

Decent Non-Interest Revenues: The December-end quarter witnessed continued strength in equity markets, boosting market-driven revenues. Wealth, trust, trading and asset management revenues are anticipated to have recorded high numbers. As the initial fee waivers begin to expire, a rebound in deposit service charges, though at a slower pace, is likely to have been witnessed.

Nonetheless, card fees might have been affected by lower consumer spending on a high unemployment level during the October-December quarter and uncertainty surrounding the new stimulus package. The Zacks Consensus Estimate for card and ATM fees is pegged at $114 million, suggesting a slight fall sequentially. In addition, the Federal Reserve’s accommodative monetary policy and decline in mortgage rates during the December-end quarter drove refinancing activities, while growth in new originations was also impressive.

Further, fixed income trading revenues are likely to have increased owing to a rise in client activity on volatile markets.

The Zacks Consensus Estimate for capital market revenues is pinned at $57 million, suggesting a 6.6% fall year on year, while commercial credit fee income is projected to be up 6.1% to $19.1 million.

Stable Expenses: The bottom line will likely reflect Regions’ efficient expense management during the quarter to be reported. The company intends to keep expenses stable while investing in revenue-generating areas.

Asset Quality: Substantial reserve builds is unlikely to have been recorded in the to-be-reported quarter. Also, net charge-off levels for the fourth quarter are projected in the range of 55 to 65 bps.

Here is what our quantitative model predicts:

Regions has the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: The Earnings ESP for Regions is +3.53%.

Zacks Rank: Regions currently carries a Zacks Rank of 3, which increases the predictive power of ESP.

Other Banks Worth a Look

Here are a few other bank stocks that you may want to consider, as our model shows that these too have the right combination of elements to post an earnings beat this time around:

The Earnings ESP for CullenFrost Bankers, Inc. (CFR - Free Report) is +4.5% and the stock sports a Zacks Rank of 1 (Strong Buy), at present. The company is slated to report fourth-quarter 2020 numbers on Jan 28.You can see the complete list of today’s Zacks #1 Rank stocks here.

Huntington Bancshares Incorporated (HBAN - Free Report) is set to release earnings figures on Jan 22. The company, which flaunts a Zacks Rank of 1 at present, has an Earnings ESP of +3.39%.

BankUnited, Inc. (BKU - Free Report) is scheduled to announce quarterly results on Jan 21. The company has an Earnings ESP of +2.46% and currently carries a Zacks Rank of 2.

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