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Regions Financial (RF) Aided by Higher Rates Amid Expense Woes
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Regions Financial Corporation (RF - Free Report) is benefiting from a rise in net interest income (NII) supported by higher rates and decent loan growth. Additionally, its buyouts will also aid its growth. However, pressure on mortgage income and a lack of diversification in the loan portfolio are headwinds. Also, rising non-interest expenses are likely to impede bottom-line growth.
Regions Financial remains focused on improving its NII. It witnessed a compound annual growth rate (CAGR) of 8.5% over the last three years (2019-2022). The uptrend continued in the first quarter of 2023. Given the company’s asset-sensitive balance sheet, high interest rates are expected to support its NII and net interest margin in the upcoming period.
Moreover, the metric will be supported by the company’s strong lending pipeline, which is expected to drive loan growth. Over the past three years (ended 2022), the company’s total loans witnessed a CAGR of 5.2%. The rising trend continued in the first quarter of 2023. Management expects total loans to grow around 4% in 2023.
Regions Financial continues to explore opportunities for bolt-on acquisitions, primarily in mortgage servicing rights. In 2021, the company acquired Clearsight, Sabal Capital and EnerBank USA, diversifying its revenue sources. Its commitment to diversifying its revenue streams and meeting customer needs via diverse services is expected to support its long-term growth prospects.
As of Mar 31, 2023, Regions Financial had long-term borrowings of $2.31 billion, while its liquidity sources aggregated $53.8 billion. Given a strong liquidity profile and strong credit ratings, the company is less likely to be in default on interest and debt repayments if the economic situation worsens.
The robust liquidity position and decent earnings strength are also expected to support Regions Financial’s capital deployment activities. As of Mar 31, 2023, the company had repurchased a total of 725,000 shares for $15 million under its $2.5 billion share repurchase plan. Also, in July 2022, the bank announced an 18% increase in its quarterly common stock dividend to 20 cents per share. Such moves enhance shareholder value and boost investor confidence in the stock.
However, Regions Financial continues to record an increase in expenses. Non-interest expenses witnessed a CAGR of 5.3% over the 2019-2022 period. The rising trend continued in the first quarter of 2023. Such a trend is likely to continue negatively impacting the bottom line in the near term. Management expects adjusted non-interest expenses to increase 4.5-5.5% in 2023.
Regions Financial’s mortgage income witnessed a negative CAGR of 1.5% over the 2019-2022 period. Further, the metric declined in first-quarter 2023. High mortgage rates are likely to continue affecting residential first mortgage loan origination volume and margins in the upcoming period, thereby impeding non-interest income.
Moreover, the majority of Regions Financial’s loan portfolio comprises commercial and industrial lending, as well as commercial real estate lending. The current rapidly changing macroeconomic backdrop and high interest rates may put some strain on commercial lending. Thus, a lack of loan portfolio diversification is likely to hurt the company’s financials if the economic situation worsens.
Currently, Regions Financial carries a Zacks Rank #3 (Hold). Over the past six months, shares of the company have declined 11.1% compared with the 5.7% fall of the industry.
The Zacks Consensus Estimate for HomeTrust Banshares’s current-year earnings has been revised 7.7% upward over the past 60 days. Its shares have gained 16.3% in the past month.
The consensus estimate for FCNCA’s fiscal 2023 earnings has been revised 67.2% upward over the past 30 days. The company’s share price has increased 77.8% over the past six months.
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Regions Financial (RF) Aided by Higher Rates Amid Expense Woes
Regions Financial Corporation (RF - Free Report) is benefiting from a rise in net interest income (NII) supported by higher rates and decent loan growth. Additionally, its buyouts will also aid its growth. However, pressure on mortgage income and a lack of diversification in the loan portfolio are headwinds. Also, rising non-interest expenses are likely to impede bottom-line growth.
Regions Financial remains focused on improving its NII. It witnessed a compound annual growth rate (CAGR) of 8.5% over the last three years (2019-2022). The uptrend continued in the first quarter of 2023. Given the company’s asset-sensitive balance sheet, high interest rates are expected to support its NII and net interest margin in the upcoming period.
Moreover, the metric will be supported by the company’s strong lending pipeline, which is expected to drive loan growth. Over the past three years (ended 2022), the company’s total loans witnessed a CAGR of 5.2%. The rising trend continued in the first quarter of 2023. Management expects total loans to grow around 4% in 2023.
Regions Financial continues to explore opportunities for bolt-on acquisitions, primarily in mortgage servicing rights. In 2021, the company acquired Clearsight, Sabal Capital and EnerBank USA, diversifying its revenue sources. Its commitment to diversifying its revenue streams and meeting customer needs via diverse services is expected to support its long-term growth prospects.
As of Mar 31, 2023, Regions Financial had long-term borrowings of $2.31 billion, while its liquidity sources aggregated $53.8 billion. Given a strong liquidity profile and strong credit ratings, the company is less likely to be in default on interest and debt repayments if the economic situation worsens.
The robust liquidity position and decent earnings strength are also expected to support Regions Financial’s capital deployment activities. As of Mar 31, 2023, the company had repurchased a total of 725,000 shares for $15 million under its $2.5 billion share repurchase plan. Also, in July 2022, the bank announced an 18% increase in its quarterly common stock dividend to 20 cents per share. Such moves enhance shareholder value and boost investor confidence in the stock.
However, Regions Financial continues to record an increase in expenses. Non-interest expenses witnessed a CAGR of 5.3% over the 2019-2022 period. The rising trend continued in the first quarter of 2023. Such a trend is likely to continue negatively impacting the bottom line in the near term. Management expects adjusted non-interest expenses to increase 4.5-5.5% in 2023.
Regions Financial’s mortgage income witnessed a negative CAGR of 1.5% over the 2019-2022 period. Further, the metric declined in first-quarter 2023. High mortgage rates are likely to continue affecting residential first mortgage loan origination volume and margins in the upcoming period, thereby impeding non-interest income.
Moreover, the majority of Regions Financial’s loan portfolio comprises commercial and industrial lending, as well as commercial real estate lending. The current rapidly changing macroeconomic backdrop and high interest rates may put some strain on commercial lending. Thus, a lack of loan portfolio diversification is likely to hurt the company’s financials if the economic situation worsens.
Currently, Regions Financial carries a Zacks Rank #3 (Hold). Over the past six months, shares of the company have declined 11.1% compared with the 5.7% fall of the industry.
Image Source: Zacks Investment Research
Finance Stocks Worth a Look
A couple of better-ranked stocks from the finance space are HomeTrust Banshares, Inc. (HTBI - Free Report) and First Citizens BancShares (FCNCA - Free Report) , each sporting a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for HomeTrust Banshares’s current-year earnings has been revised 7.7% upward over the past 60 days. Its shares have gained 16.3% in the past month.
The consensus estimate for FCNCA’s fiscal 2023 earnings has been revised 67.2% upward over the past 30 days. The company’s share price has increased 77.8% over the past six months.