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Regions (RF) to Report Q2 Earnings: What's in the Offing?

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Regions Financial (RF - Free Report) is scheduled to report second-quarter 2021 results on Jul 23, before the opening bell. The bank’s results are estimated to reflect a year-over-year rise in earnings and revenues.

The Birmingham, AL-based company’s first-quarter 2021 earnings outpaced the Zacks Consensus Estimate. Results were driven by higher revenues on increases in both net interest income (NII) and fee income. A rise in deposit balances provided some respite. However, a rise in expenses and lower loans were major drags.

The company has a decent earnings surprise history. It topped on earnings in three of the trailing four quarters and missed in the other, the average negative surprise being 76.4%.

Regions Financial Corporation Price and EPS Surprise

 

Regions Financial Corporation Price and EPS Surprise

Regions Financial Corporation price-eps-surprise | Regions Financial Corporation Quote

Factors at Play

Low NII: Despite the reopening of the economy and witnessing substantial growth, overall demand for loans was subdued in the second quarter. Per the Fed’s latest data, the overall lending scenario was soft during the April-June quarter, with weak commercial and industrial loans. Hence, Region’s interest income is expected to have received lesser support from this avenue in the quarter under review.

Low interest-rate environment and the flattening of the yield curve are expected to have hurt the company’s net interest margin and NII in the to-be-reported quarter.

Nonetheless, low deposit costs, higher average interest-earning assets and an additional day in the quarter are expected to have been the offsetting factors.

Management expects NII to be stable,with uncertain timing of Paycheck Protection program (PPP) fee acceleration to benefit NII. NIM is expected to be in the mid 3.30%, excluding PPP/cash.

The Zacks Consensus Estimate of $133 billion for average interest-earning assets suggests a 7.2% year-over-year improvement in the quarter under review. The consensus mark for NII of $975 million implies a 1% fall.

High Non-Interest Revenues: Card fees are likely to have improved on higher consumer spending, owing to decreased unemployment level, consumer optimism on a new stimulus package, and extensive vaccination drives. Mortgage rates have been low since the past year. Hence, incentive for refinancing activities is likely to have subsided after strong activity in 2020, while flaring housing pricing is anticipated to have affected purchase origination growth in the second quarter. The factors are expected to have limited Region’s mortgage banking fee growth in the to-be-reported quarter.

Nonetheless, the equity markets remained strong in the second quarter, boosting market-driven revenues. Wealth, trust, trading and asset-management revenues are anticipated to have recorded high numbers. Also, a rise in deposits in the quarter is expected to have driven fees from service charge on deposits.

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.

Improvement in Asset Quality: With continued improvement in the macroeconomic condition in the second quarter, increased vaccination rates and support from stimulus packages, Regions is likely to have released some provision for loan losses in the second quarter.

Key Developments During Q2

Regions’ subsidiary, Regions Bank, has inked a deal to acquire a specialized home-improvement lender, EnerBank USA, from its parent, CMS Energy for $960 million. The all-cash deal is expected to close in fourth-quarter 2021. It will be accretive to 2022 earnings per share (including Purchase Accounting Adjustments and “no foregone share repurchases”) in a low-single-digit percentage, while over the medium term, it is projected to be 5% accretive to earnings.

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 +1.96%.

Zacks Rank: Regions currently carries a Zacks Rank of 3.

The bank’s activities in the to-be-reported quarter were adequate to gain analysts’ confidence. As a result, the Zacks Consensus Estimate of 52 cents for earnings has been revised marginally upward in the past 30 days and indicates substantial growth from the year-ago reported number. Further, the Zacks Consensus Estimate of $1.55 billion for revenues indicates a marginal increase from the prior-year quarter’s reported figure.

Other Stocks Worth a Look

Here are a few other finance 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:

BankUnited, Inc. (BKU - Free Report) is set to release earnings numbers on Jul 22. The company has a Zacks Rank of 3 at present and an Earnings ESP of +3.07%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

T. Rowe Price Group, Inc. (TROW - Free Report) is slated to report quarterly results on Jul 29. The company has an Earnings ESP of +1.04% and carries a Zacks Rank of 3, currently.

Huntington Bancshares Incorporated (HBAN - Free Report) is slated to report quarterly results on Jul 29. The company has an Earnings ESP of +1.42% and a Zacks Rank of 3 at present.