Back to top

Image: Bigstock

Regions Financial (RF) Down 0.7% Since Last Earnings Report: Can It Rebound?

Read MoreHide Full Article

A month has gone by since the last earnings report for Regions Financial (RF). Shares have lost about 0.7% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Regions Financial due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Regions Financial Q4 Earnings Beat Estimates, Costs Up

Regions Financial’s fourth-quarter 2019 adjusted earnings of 40 cents per share surpassed the Zacks Consensus Estimate of 39 cents. Moreover, the figure reflects 5.3% rise year over year.

Net income from continuing operations available to common shareholders was $366 million compared with $390 million reported in the year-ago quarter.

Results benefited from an improvement in revenues. The company’s balance sheet position remained strong in the quarter. However, higher expenses and rise in provisions hurt results to some extent.

In 2019, adjusted earnings from continuing operations were $1.55 per share, which surpassed the Zacks Consensus Estimate of $1.53. Moreover, the figure reflects improvement from $1.44 per share recorded a year ago. Net income from continuing operations available to common shareholders was $1.5 billion, almost stable year over year.

Revenues Improve, Expenses Rise

Adjusted total revenues were $1.48 billion in the quarter, outpacing the Zacks Consensus Estimate of $1.47 billion. The figure also increased 3% from the year-ago quarter’s reported number.

In 2019, adjusted total revenues were $5.88 billion, outpacing the Zacks Consensus Estimate of $5.85 billion. The figure reflects rise of 2.3% from the year-ago reported number.

Regions Financial recorded adjusted pre-tax pre-provision income from continuing operations of $613 million in the quarter, up 2.9% year over year. In 2019, the company recorded its highest pre-tax pre-provision income since 2007.

On a fully-taxable equivalent (FTE) basis, quarterly net interest income was $931 million, down 4.1% year over year. Also, net interest margin (on an FTE basis) shrunk 13 basis points (bps) year over year to 3.39% in the fourth quarter. Lower market interest rates and higher funding costs resulted in the decline.

Non-interest income rose 16.8% to $562 million. Higher mortgage income, service charges on deposit accounts, card & ATM fees, wealth management income, capital markets income, bank-owned life insurance and other income primarily resulted in the upside.

Non-interest expenses increased 5.2% year over year to $897 million primarily due to rise in branch consolidation, property and equipment charges, and marketing costs. On an adjusted basis, non-interest expenses increased 3.1% to $869 million.

Adjusted efficiency ratio was 58.1%, stable year over year. A stable ratio indicates no change in profitability.

Balance Sheet Solid

As of Dec 31, 2019, adjusted total loans were down 0.4% sequentially to $80.4 billion. Total deposits were $94.5 billion, up 0.5% from the previous quarter.

Credit Quality Deteriorates

Non-performing assets, as a percentage of loans, foreclosed properties and non-performing loans held for sale, increased 2 bps from the prior-year quarter to 0.70%. Also, non-accrual loans, excluding loans held for sale, as a percentage of loans, came in at 0.61%, expanding 1 bp year over year.

Allowance for loan losses as a percentage of loans, net of unearned income was 1.05%, up 4 bps from the year-earlier quarter. The company’s total business services criticized loans escalated 17.1% year over year.

Provision for loan losses was $96 million, up 1.1% from the prior-year quarter. However, adjusted net charge-offs, as a percentage of average loans, came in at 0.46%, unchanged from the year-ago quarter.

Capital Position Strong

Regions Financial’s estimated ratios remained well above the regulatory requirements under the Basel III capital rules. As of Dec 31, 2019, Basel III Common Equity Tier 1 ratio (fully phased-in) and Tier 1 capital ratio were estimated at 9.6% and 10.8%, respectively, compared with 9.9% and 10.7% recorded in the year-earlier quarter.

Capital Deployment Update

During the quarter, Regions Financial repurchased 7.8 million shares of common stock for $132 million and announced $149 million in dividends to common shareholders.


For first-quarter 2020, management expects NIM to expand to around 340 bps, benefiting from its hedging strategy.

Expenses are expected to remain relatively stable in 2020. Also, it seeks to generate adjusted positive operating leverage.

Management expects full-year 2020 average loan balances to remain relatively stable on a reported basis and to grow in the low single-digit on an adjusted basis. Rise is expected to be led by business services lending specifically C&I loan with modest growth in owner-occupied commercial real estate and investor real estate. Within consumer lending, growth is anticipated in residential mortgage, indirect to other, card and direct lending.

For 2020, the company expects net charge-offs to be between 45 bps and 55 bps.

The effective tax rate is projected in the range of 20-22% for 2020.

Long-Term Financial Targets (2019-2021)

In three-year period, Regions expects to deliver adjusted return on average tangible common equity of 18-20% by 2021 compared with 15.59% in 2018. Also, adjusted efficiency ratio of 55% or lower is expected, which is below 59.3% reported in 2018. Further, in both the cases, Regions plans to achieve positive operating leverage.

Pillars of Success

Firstly, Regions plans on taking advantage of its existing strength in areas such as customer focus, markets, team, culture and risk management in order to establish presence in key growth markets like Atlanta, Houston and Orlando. Further, it intends to hire professionals such as corporate bankers, wealth management professionals and mortgage loan originators to better serve and meet clients needs.

The company plans to generate funds for these investments with help of its Simplify and Grow continuous improvement approach that it introduced in 2017. These initiatives aim at making banking easier for customers, simplify processes and drive profitable long-term growth.

Further, Regions is making efforts to reduce costs related to third-party spending through strategic sourcing and vendor selectivity. It anticipates annual cumulative savings of nearly $60 million between 2018 and 2021.

Lastly, Regions highlights the importance of technology, and promises to continue driving innovation and expand digital banking capabilities, such as open accounts online, digital loan applications and wealth management digital advisory capabilities.

For the next three years, the company disclosed plans to pilot voice banking capabilities and expand its use of artificial intelligence for both customer-facing and back-office applications. Additionally, Regions is investing in technology to provide serve customers better and enhance credit risk management, as well as a variety of other internal processes across the company.

How Have Estimates Been Moving Since Then?

It turns out, estimates review flatlined during the past month.

VGM Scores

Currently, Regions Financial has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.


Regions Financial has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Published in