Back to top

Image: Bigstock

Can Inorganic Moves Drive Regions Financial (RF) Q1 Earnings?

Read MoreHide Full Article

Regions Financial (RF - Free Report) is scheduled to report first-quarter 2022 results on Apr 22, before the opening bell. Although the bank’s earnings are expected to decline from the year-ago reported figure, revenues are expected to increase.

This Birmingham, AL-based player’s fourth-quarter 2021 earnings missed the Zacks Consensus Estimate on fall in revenues and capital ratios. Nonetheless, rise in loan and deposit balances was a positive. Credit metrics were robust. Fall in expenses also provided some respite.

Regions Financial has a decent earnings surprise history. RF's results surpassed estimates in three of the trailing four quarters, missing the mark in the other, with the average being 23.4%.

RF’s activities in the to-be-reported quarter were inadequate to stoke analysts’ confidence. As a result, the Zacks Consensus Estimate for first-quarter earnings of 48 cents has moved 2% south in the past 30 days. The figure indicates a 23.8% fall from the year-ago reported figure. The consensus estimate for revenues is pegged at $1.61 billion, suggesting a marginal growth from the year-ago reported figure.

Key Developments During the Quarter

In January 2022, Regions Financial announced the removal of overdraft protection transfer charges and non-sufficient funds fees, which will be effective from the end of the first and second quarter of 2022, respectively.

In the same month, Regions Financial completed the buyout of Clearsight Advisors, Inc. The acquisition, formally closed on Dec 31, 2021, expands Regions Financial’s mergers and acquisitions (M&A) advisory capabilities in the technology industry.

Factors at Play

Loans: Ongoing economic expansion is expected to have supported the lending environment in the quarter under review. Amid this, loan growth is anticipated to have improved. Per the Fed’s latest data, the commercial and industrial loans, real estate, commercial real estate, and consumer loans remained strong sequentially in the first quarter. Amid this, the company’s commercial loans (comprising of commercial and business lending as well as commercial real estate lending), which are a notable part of RF’s loan portfolio, are likely to have improved in the quarter under review. The company might have benefited from its strong loans pipeline as well. RF’s acquisition of EnerBank USA in the fourth quarter has further expanded its offerings in home-lending products and consumer loans. This might have enhanced the company’s lending capabilities in the first quarter.

The Zacks Consensus Estimate of $146 billion for average interest-earning assets calls for a 1.3% increase from the last-reported figure.

Net Interest Income (“NII”): Though the Federal Reserve increased interest rates by 25 basis points in mid-March, there is likely to be very less impact of the same on the company’s net interest margin (“NIM”) and NII in the quarter.

Further, the flattening of the yield curve (the difference between short and long-term interest rates) is likely to have affected the bank’s NIM. Thus, NII is likely to have decreased. The Zacks Consensus Estimate for NII is predicted to fall marginally to $1.01 billion, sequentially.

Nonetheless, excluding cash and Paycheck Protection Program (“PPP”), management expects adjusted NIM to increase in the upper 3.3% range, mostly due to rising market rates. Management expects PPP loan contribution to NII to be between $8 million to $12 million.

Non-Interest Revenues: While 2022 started on a positive note, the onset of the Russian-Ukraine war dampened the equity market's performance. This is likely to have decreased the company’s fee income. Investment management, and trust and investment services fees are likely to be negatively impacted by a decrease in assets under management from outflows and lower equity market levels.

Unlike the last several quarters, deposit balance is not expected to grow much during the first quarter. This is likely to have had an adverse impact on revenues from service charges on deposits.

In addition, rising inflation and uncertainty over economic growth going forward, mainly due to the ongoing geopolitical concerns, are likely to have hurt consumer sentiments. Thus, this is likely to harm Regions Financial’s card and ATM fees. The Zacks Consensus Estimate for card and ATM fees is pegged at $124 million, suggesting a fall of 2.4% from the year-ago reported figure. The commercial credit fee income is projected to be down 2.9% to $22.3 million.

Also, rising mortgage rates and inflation weighed on mortgage originations and refinancing activities during the quarter, hurting RF’s mortgage banking fee.

The macro environment for deal-making was unfavorable in first-quarter 2022 due to unstable economy as a result of the Russia-Ukraine war. With a decrease in global M&A volumes, the company’s capital market fees are likely to have been affected. Nonetheless, the company’s acquisition of Clearsight and Sabal Capital Partners in the fourth quarter enhances its capabilities in the M&A advisory services space. Hence, despite macro-economic headwinds, the company’s past acquisitions might help it sail through the first quarter.

Management expects capital market fees to be near the lower end of the $90-110 million range (excluding the impact of CVA/DVA) in the first quarter as the company integrates and ramps up new acquisitions.

The Zacks Consensus Estimate for capital markets income is pinned at $88 million, calling for a 6% rise from the year-ago reported figure.

The Zacks Consensus Estimate for total non-interest income is pegged at $600 million for the quarter under review, indicating a 2.4% fall sequentially.

Expenses: A rising expense base, primarily due to higher salaries and benefits, as well as some inflationary pressures, is likely to have continued hurting the bottom line in the to-be-reported quarter. Further, recent acquisitions and investments in technology are likely to have pushed costs up.

Asset Quality: Regions Financial, in two of the three trailing quarters, released reserves that it had built to cover losses from the effects of the coronavirus pandemic. However, with the anticipated rise in loan balance and expectations of economic slowdown due to geopolitical and inflation concerns, the company might have built reserves in the first quarter.

Here is What Our Quantitative Model Predicts:

Our proven model does not predict an earnings beat for Regions Financial this time around. This is because RF does not have 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 Financial has an Earnings ESP of -1.05%.

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

Stocks That Warrant a Look

Associated Bancorp (ASB - Free Report) , M&T Bank (MTB - Free Report) and Northern Trust Corporation (NTRS - Free Report) are a few banking stocks that you might want to consider as these have the right combination of elements to post an earnings beat in their upcoming releases, per our model.

The Earnings ESP for ASB is +0.81% and the company carries a Zacks Rank #2 (Buy) at present. ASB is slated to report first-quarter 2022 results on Apr 21.

The Zacks Consensus Estimate for ASB’s first-quarter earnings has moved 2.6% south over the past week.

MTB is scheduled to release first-quarter results on Apr 20. MTB currently has a Zacks Rank #3 and an Earnings ESP of +5.43%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for MTB’s first-quarter earnings has moved 8.5% upward over the past 30 days.

The Earnings ESP for NTRS is +0.06% and the company carries a Zacks Rank #3 at present. NTRS is slated to report first-quarter 2022 results on Apr 26.

The Zacks Consensus Estimate for NTRS’s first-quarter earnings has moved 1.2% north over the past month.

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