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Regions Financial (RF) Aided by NII & Loan Growth Amid Cost Woes
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Regions Financial Corporation (RF - Free Report) is well-poised to benefit from the expected rise in net interest income (NII) supported by higher rates and healthy average loan balance trends. Additionally, its buyouts seem encouraging for growth. However, pressure on mortgage income, lack of diversification in the loan portfolio and elevated expenses are key headwinds.
Regions Financial remains focused on improving its NII. Over the last three years (2019-2022), the bank's NII witnessed a compound annual growth rate (CAGR) of 8.5%, with the uptrend continuing in the first half of 2023. Given its asset-sensitive balance sheet, it is most likely that the bank’s NII and net interest margin will continue to improve on the back of high interest rates in the upcoming period. Management expects NII to increase 12-14% on a year-over-year basis in 2023.
Moreover, the company has a strong lending pipeline, which is expected to drive loan growth. This, too, is likely to support RF’s NII growth in the quarters ahead. Notably, over the past three years (ended 2022), total loans witnessed a CAGR of 5.2%, with the momentum continuing in the first six months of 2023. For the current year, management expects total loans to grow around 3-4% on a year-over-year basis.
Regions Financial continues to explore opportunities for bolt-on acquisitions, primarily in mortgage servicing rights. Its 2021 buyout of Clearsight, Sabal Capital and EnerBank USA, enabled it to diversify its revenue sources. Its commitment to diversify its revenue streams and meeting customer needs via diverse services is expected to support its long-term growth prospects.
Regions Financial maintains a solid balance sheet and liquidity position. As of Jun 30, 2023, it had long-term borrowings of $4.29 billion, while its liquidity sources aggregated $52.9 billion. It also enjoys investment-grade credit ratings, rendering it favorable access to the debt market. Hence, with strong financial footing and enough financial flexibility, RF seems well-positioned to meet its debt obligations, even if the economic situation worsens.
Further, the company’s meaningful capital deployment efforts through regular dividend payments and share repurchases are likely to continue enhancing its shareholder wealth.
Analysts seem optimistic regarding RF’s earnings growth prospects. The Zacks Consensus Estimate for its 2023 earnings has been revised marginally upward over the past 30 days. The company currently carries a Zacks Rank #3 (Hold).
Over the past three months, shares of RF have gained 1.6% compared with the industry's upside of 3.5%.
Image Source: Zacks Investment Research
However, Regions Financial continues to record an increase in expenses, with non-interest expenses experiencing a CAGR of 5.3% over the 2019-2022 period. The rising trend continued in the first six months of 2023.
With expenses likely to continue increasing in the forthcoming period, RF’s bottom line may be negatively impacted in the near term. Although the company is committed to generating positive adjusted operating leverage in 2023, management expects adjusted non-interest expenses to increase approximately 6.5% on a year-over-year basis.
Regions Financial’s mortgage income, a key component of its non-interest income, witnessed a negative CAGR of 1.5% over the 2019-2022 period. Moreover, the metric declined in the first half of 2023, as higher market interest rates resulted in lower mortgage production and sales.
It is likely that with the high mortgage rates in place, residential first mortgage loan origination volume and margins will be under distress in the upcoming period. This may adversely impact mortgage income further.
Regions Financial’s loan portfolio is mainly comprised of commercial loans, which include commercial and industrial lending, as well as commercial real estate lending. Given the current rapidly changing macroeconomic backdrop and high interest rates, commercial lending in the near term is likely to be under some pressure. Thus, a lack of loan portfolio diversification may hurt the company’s financials if the economic situation worsens.
Bank Stocks Worth a Look
A couple of better-ranked stocks from the banking space are Live Oak Bancshares (LOB - Free Report) and Bank7 (BSVN - Free Report) .
Live Oak currently sports a Zacks Rank #1 (Strong Buy). Its earnings estimates for 2023 have been revised 19.7% upward over the past 60 days. In the past three months, LOB’s shares have rallied 31.5%. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Bank7’s current-year earnings has been revised 7.4% upward over the past 60 days. Its shares have gained 3.8% in the past three months. Currently, BSVN carries a Zacks Rank #2 (Buy).
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Regions Financial (RF) Aided by NII & Loan Growth Amid Cost Woes
Regions Financial Corporation (RF - Free Report) is well-poised to benefit from the expected rise in net interest income (NII) supported by higher rates and healthy average loan balance trends. Additionally, its buyouts seem encouraging for growth. However, pressure on mortgage income, lack of diversification in the loan portfolio and elevated expenses are key headwinds.
Regions Financial remains focused on improving its NII. Over the last three years (2019-2022), the bank's NII witnessed a compound annual growth rate (CAGR) of 8.5%, with the uptrend continuing in the first half of 2023. Given its asset-sensitive balance sheet, it is most likely that the bank’s NII and net interest margin will continue to improve on the back of high interest rates in the upcoming period. Management expects NII to increase 12-14% on a year-over-year basis in 2023.
Moreover, the company has a strong lending pipeline, which is expected to drive loan growth. This, too, is likely to support RF’s NII growth in the quarters ahead. Notably, over the past three years (ended 2022), total loans witnessed a CAGR of 5.2%, with the momentum continuing in the first six months of 2023. For the current year, management expects total loans to grow around 3-4% on a year-over-year basis.
Regions Financial continues to explore opportunities for bolt-on acquisitions, primarily in mortgage servicing rights. Its 2021 buyout of Clearsight, Sabal Capital and EnerBank USA, enabled it to diversify its revenue sources. Its commitment to diversify its revenue streams and meeting customer needs via diverse services is expected to support its long-term growth prospects.
Regions Financial maintains a solid balance sheet and liquidity position. As of Jun 30, 2023, it had long-term borrowings of $4.29 billion, while its liquidity sources aggregated $52.9 billion. It also enjoys investment-grade credit ratings, rendering it favorable access to the debt market. Hence, with strong financial footing and enough financial flexibility, RF seems well-positioned to meet its debt obligations, even if the economic situation worsens.
Further, the company’s meaningful capital deployment efforts through regular dividend payments and share repurchases are likely to continue enhancing its shareholder wealth.
Analysts seem optimistic regarding RF’s earnings growth prospects. The Zacks Consensus Estimate for its 2023 earnings has been revised marginally upward over the past 30 days. The company currently carries a Zacks Rank #3 (Hold).
Over the past three months, shares of RF have gained 1.6% compared with the industry's upside of 3.5%.
Image Source: Zacks Investment Research
However, Regions Financial continues to record an increase in expenses, with non-interest expenses experiencing a CAGR of 5.3% over the 2019-2022 period. The rising trend continued in the first six months of 2023.
With expenses likely to continue increasing in the forthcoming period, RF’s bottom line may be negatively impacted in the near term. Although the company is committed to generating positive adjusted operating leverage in 2023, management expects adjusted non-interest expenses to increase approximately 6.5% on a year-over-year basis.
Regions Financial’s mortgage income, a key component of its non-interest income, witnessed a negative CAGR of 1.5% over the 2019-2022 period. Moreover, the metric declined in the first half of 2023, as higher market interest rates resulted in lower mortgage production and sales.
It is likely that with the high mortgage rates in place, residential first mortgage loan origination volume and margins will be under distress in the upcoming period. This may adversely impact mortgage income further.
Regions Financial’s loan portfolio is mainly comprised of commercial loans, which include commercial and industrial lending, as well as commercial real estate lending. Given the current rapidly changing macroeconomic backdrop and high interest rates, commercial lending in the near term is likely to be under some pressure. Thus, a lack of loan portfolio diversification may hurt the company’s financials if the economic situation worsens.
Bank Stocks Worth a Look
A couple of better-ranked stocks from the banking space are Live Oak Bancshares (LOB - Free Report) and Bank7 (BSVN - Free Report) .
Live Oak currently sports a Zacks Rank #1 (Strong Buy). Its earnings estimates for 2023 have been revised 19.7% upward over the past 60 days. In the past three months, LOB’s shares have rallied 31.5%. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Bank7’s current-year earnings has been revised 7.4% upward over the past 60 days. Its shares have gained 3.8% in the past three months. Currently, BSVN carries a Zacks Rank #2 (Buy).