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Regions Financial (RF) to Post Q3 Earnings: A Beat in the Cards?

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Regions Financial (RF - Free Report) is scheduled to report third-quarter 2021 results on Oct 22, before the opening bell. The bank’s revenues are expected to reflect a year-over-year decline, while earnings will likely display growth.

This Birmingham, AL-based company’s second-quarter 2021 earnings surpassed the Zacks Consensus Estimate. Results were driven by higher revenues on increase in fee income. Moreover, a rise in deposit balances provided some respite. Notably, the commercial credit fee income and wealth management income were on an upswing. Also, benefit from credit losses was a tailwind. However, shrinking margins and lower loans were major drags.

Markedly, Regions has an impressive earnings surprise history. The company's results surpassed estimates in all of the trailing four quarters, the average surprise being 42.77%.

The Zacks Consensus Estimate for the third-quarter earnings are pegged at 53 cents, indicating an 8.2% year-over-year increase. However, the company is witnessing downward estimate revisions, reflecting analysts’ bearish sentiments. In fact, the Zacks Consensus Estimate for the third-quarter earnings per share has been revised 1.9% downward over the past week. Also, the Zacks Consensus Estimate of $1.56 billion for revenues suggests a 5.1% fall from the prior-year quarter.

Factors at Play

Net Interest Income: Overall growth in loans was moderate in the third quarter. Per the Fed’s latest data, the lending scenario was soft with weak home equity, and commercial and industrial loans. Conversely, the real estate, commercial real estate as well as consumer loan portfolios are anticipated to have offered support.

The steepening of the yield curve (the difference between short- and long-term interest rates) is likely to have supported the bank’s net interest margin (NIM). Though the yield on the 10-year U.S. Treasury Bond of 1.49% at the end of September was relatively stable on a sequential basis, the figure expanded 57 basis points from 0.92% at the end of 2020. Thus, the NII is likely to have got some support.

Excess liquidity, low loan yields, and low reinvestment rates on securities might have strained the earning asset yields. However, low deposit costs are expected to have been the offsetting factor.

The Zacks Consensus Estimate of $139.5 billion for average interest earning assets calls for a 9.7% year-over-year increase, while the NII is predicted to fall 2.5% to $975 million.

Non-Interest Revenues: The third quarter witnessed continued strength in the equity markets, boosting the market-driven revenues. Investment management and trust fee income is anticipated to have recorded solid growth.

In the third quarter, deposit balance is likely to have grown modestly, supported by the government stimulus. Also, deposit service charges are expected to have continued normalizing as the pandemic-related concessions keep reducing. These are likely to have driven higher revenues from service charges on deposits.

In addition, card fees are anticipated to have been supported by the improved consumer spending during the quarter in discussion. The Zacks Consensus Estimate for card and ATM fees is pegged at $130 million, suggesting a year-over-year rise of 13%. The commercial credit fee income is projected to be up 15.6% to $23.1 million.

Further, fixed income trading remained soft during the July-September quarter. Thus, fixed income trading revenues are likely to have decreased. The Zacks Consensus Estimate for capital market income is pinned at $59 million, calling for a 3.3% fall year over year. Moreover, the rising mortgage rates during the third quarter are likely to have reduced refinancing activities, along with the fall in new originations. Thus, these factors are expected to have abated Regions’ mortgage banking fees during the to-be-reported quarter.

Expenses: The bank bears a proven track record of prudent expense management, with nearly 67% of identified continued improvement initiatives completed .Thus, expenses in the quarter are anticipated to have been under control, aided by its continued cost-saving initiatives.

Asset Quality: The vaccine roll-outs and additional market reopening throughout the third quarter have infused optimism regarding the economic and GDP rebound. Hence, significant reserves (built due to the deterioration in the macroeconomic backdrop last year) are likely to have continued being released in the third quarter similar to the previous quarter.

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 +0.19%.

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

Other Banks Worth a Look

Here are a few 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:

Capital One Financial Corporation (COF - Free Report) is slated to report quarterly earnings on Oct 26. The company, holding a Zacks Rank of 2 (Buy) at present, has an Earnings ESP of +5.18%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

BankUnited, Inc. (BKU - Free Report) is scheduled to release third-quarter results on Oct 21. The company currently carries a Zacks Rank #3 and has an Earnings ESP of +1.90%.

The Earnings ESP for KeyCorp (KEY - Free Report) is +0.56%. This Zacks #3 Ranked company is scheduled to report quarterly numbers on Oct 21.