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Regions Financial (RF) to Post Q4 Earnings: A Beat in Store?

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Regions Financial (RF - Free Report) is scheduled to report fourth-quarter and 2021 results on Jan 20, before the opening bell. The bank’s revenues and earnings are expected to indicate a decline from the year-ago reported figure.

This Birmingham, AL-based player’s third-quarter 2021 earnings surpassed the Zacks Consensus Estimate. Results were driven by a strong capital position. Moreover, rise in deposit balances provided some respite. Benefit from credit losses was a tailwind. However, lower revenues and rising expenses were major drags.

Regions has an impressive earnings surprise history. RF's results surpassed estimates in all the trailing four quarters, the average being 37.9%.

RF’s activities in the to-be-reported quarter were inadequate to stoke analysts’ confidence. As a result, the Zacks Consensus Estimate for fourth-quarter earnings of 49 cents has been unchanged in the past 30 days. The figure indicates a 21% fall from the year-ago reported figure. The consensus estimate for revenues is pegged at $1.62 billion, suggesting a fall of 3.8% from the year-ago reported figure.

Key Developments During the Quarter

In December 2021, Regions had inked a definitive agreement to acquire McLean, VA-based Clearsight Advisors, Inc. Clearsight is a preeminent merger and acquisition firm catering to clients in the technology, professional services, data and information services, and digital and technology-enabled service industries. The acquisition marks an additional avenue for the bank to broaden its specialty capabilities as well as merger and acquisition advisory services for the existing technology sector clients.

In the same month, Regions’ subsidiary Regions Bank closed the previously announced acquisition of Sabal Capital. In October 2021, Regions had agreed to acquire the diversified financial services firm, leveraging tech-driven origination and servicing platform for off-balance-sheet lending in the small-balance commercial real estate market.

In October, Regions Bank had completed the previously-announced deal to acquire the specialized home improvement lender EnerBank USA from its parent company CMS Energy Corporation. The acquisition is a strategic fit for Regions and will help it leverage EnerBank’s platform to offer a comprehensive suite of financing options to homeowners, fortifying its presence in the homeowners lending space.

Factors at Play

Net Interest Income (NII): In the fourth quarter, which is a seasonally strong quarter for loan growth, lending activity witnessed a decent acceleration, sequentially. Per the Fed’s latest data, the commercial and industrial loans and real-estate loans remained strong in the to be-reported quarter, while the consumer loan portfolio was flat, sequentially. Amid this, RF is likely to have witnessed decent Q4 loan growth.

The steepening of the yield curve (the difference between short and long-term interest rates) is likely to have backed the bank’s net interest margin (NIM). The yield on the 10-year U.S. Treasury Bond of 1.52% at the end of December 2021 was up 59 basis points from 0.93% at the end of December 2020. Thus, NII is likely to have got some impetus.

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

The Zacks Consensus Estimate of $143.1 billion for average interest earning assets calls for a 10.6% increase from the year-ago reported figure while NII (fully-taxable equivalent) is predicted to fall 1.5% to $975 million. Nonetheless, management expects NII to grow 5-6%, sequentially. Excluding cash or Paycheck Protection Program, adjusted net interest margin is expected to increase to 3.4%, mostly due to the Enerbank acquisition.

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

Per the Fed data, deposits improved in the quarter, led by stimulus-driven liquidity and higher money market balances. These are likely to have bolstered revenues from service charges on deposits.

In addition, card fees are anticipated to have been aided by the improved consumer spending during the quarter in discussion. The Zacks Consensus Estimate for card and ATM fees is pegged at $131 million, suggesting a rise of 12% from the year-ago reported figure. The commercial credit fee income is projected to be up 5.3% to $23.17 million.

Further, fixed income trading remained soft during the October-December months. Thus, fixed income trading revenues are likely to have decreased. The Zacks Consensus Estimate for capital market income is pinned at $78 million, calling for a 29.1% fall from the year-ago reported figure. Moreover, the rising mortgage rates during the fourth quarter are likely to have reduced refinancing activities and the fall in new originations. Thus, these factors are expected to have reduced Regions’ mortgage-banking fees during the to-be-reported quarter.

Expenses: A rising expense base, primarily due to incentives, is likely to have continued hurting the bottom line in the to-be reported quarter.

Asset Quality: With the gradual economic improvement amid the coronavirus pandemic, given the vaccine rollouts and additional market re-openings throughout the quarter, CMA is likely to have released reserves in the fourth 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: Regions has an Earnings ESP of +2.46%.

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

Stocks That Warrant a Look

BOK Financial (BOKF - Free Report) , The PNC Financial Services Group, Inc. (PNC - Free Report) and Huntington Bancshares Incorporated (HBAN - Free Report) are a few companies worth considering as these have the right combination of elements to beat on earnings in their upcoming releases, per our model.

BOK Financial has an Earnings ESP of +3.64% and a Zacks Rank #2 (Buy) at present. BOKF is slated to report fourth-quarter and full-year results on Jan 19.
Over the past 30 days, the Zacks Consensus Estimate for BOKF’s quarterly earnings has moved marginally downward.

PNC Financial is scheduled to release fourth-quarter 2021 and annual earnings on Jan 18. PNC, which is Zacks #3 Ranked at present, has an Earnings ESP of +2.29%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

PNC’s fourth-quarter earnings estimates have moved marginally downward over the past month.

Huntington Bancshares is scheduled to release earnings on Jan 21. HBAN, currently a #3 Ranked player, has an Earnings ESP of +1.46%.

The Zacks Consensus Estimate for Huntington Bancshares’ fourth-quarter earnings has been unchanged over the past month.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.