Can Inorganic Moves Boost Regions (RF) Financial Revenues in Q1? – April 19, 2022

Financial Regions (RF Free Report) is expected to release first quarter 2022 results on April 22, before the opening bell. Although the bank’s profits are expected to decline from the figure published a year ago, revenues are expected to increase.

The Birmingham, AL-based player’s fourth-quarter 2021 earnings missed Zacks’ consensus estimate of declining earnings and capital ratios. Nevertheless, the increase in loan and deposit balances was positive. Credit indicators were robust. Lower spending has also provided some relief.

Regions Financial has a decent earnings history. RF’s results have exceeded estimates in three of the last four quarters, missing the target in the other, averaging 23.4%.

RF’s activity in the reportable quarter was not enough to fuel analyst confidence. As a result, the Zacks consensus estimate for first-quarter earnings of 48 cents has moved south 2% over the past 30 days. The figure indicates a 23.8% drop from the figure reported a year ago. The consensus revenue estimate is set at $1.61 billion, suggesting marginal growth from the figure reported a year ago.

Main developments during the quarter

In January 2022, Regions Financial announced the waiver of the overdraft protection transfer fee and the insufficient funds fee, which will be effective from the end of the first and second quarters of 2022, respectively.

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

Factors at play

Loans: Continued economic expansion should have supported the credit environment during the quarter under review. Against this backdrop, loan growth should have improved. According to the latest news from the Fed Data, commercial and industrial loans, real estate, commercial real estate and consumer loans remained strong sequentially in the first quarter. Against this backdrop, the company’s commercial loans (comprising business and commercial loans as well as commercial real estate loans), which constitute a significant portion of RF’s loan portfolio, are expected to have improved in the quarter under review. The company could also have benefited from its strong loan portfolio. RF’s acquisition of EnerBank USA in the fourth quarter further expanded its mortgage and consumer loan product offerings. This could have improved 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 published figure.

Net Interest Income (“NII”): Although the Federal Reserve raised interest rates by 25 basis points in mid-March, it is likely that this will have a very less impact on the net interest margin (“NIM”) and the NII of the company during the quarter.

Also, the flattening of the yield curve (the difference between short and long-term interest rates) likely affected the bank’s NIM. Thus, the NII probably decreased. The Zacks consensus estimate for NII is expected to drop slightly to $1.01 billion, sequentially.

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

Non-interest income: While 2022 started on a positive note, the start of the Russian-Ukrainian war weighed on equity market performance. This probably decreased the company’s fee income. Investment management and trust and investment services fees will likely be negatively impacted by lower assets under management due to cash outflows and lower equity market levels.

Unlike past quarters, the deposit balance is not expected to increase much in the first quarter. This likely had a negative impact on revenue from service fees on deposits.

Additionally, rising inflation and uncertainty about future economic growth, primarily due to ongoing geopolitical concerns, likely hurt consumer confidence. Thus, it is likely to hurt Regions Financial’s card and ATM fees. Zacks’ consensus estimate for card and ATM fees is pegged at $124 million, suggesting a 2.4% decline from the figure reported a year ago. Trade credit fee revenue is expected to decline 2.9% to $22.3 million.

Additionally, rising mortgage rates and inflation weighed on mortgage originations and refinancing activity in the quarter, hurting RF’s mortgage bank charges.

The macroeconomic environment for entering into deals was unfavorable in the first quarter of 2022 due to an unstable economy following the Russian-Ukrainian war. With a decline 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 bolsters its capabilities in M&A advisory services. So despite macro headwinds, the company’s past acquisitions could help it weather the first quarter.

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

Zacks’ consensus estimate for capital markets revenue is pegged at $88 million, which is a 6% increase from the figure reported a year ago.

Zacks consensus estimate for total non-interest revenue is set at $600 million for the quarter under review, indicating a sequential decline of 2.4%.

Expenses: A growing expense base, primarily due to higher salaries and benefits, as well as some inflationary pressures, likely continued to hurt bottom line in the quarter ahead. Additionally, recent acquisitions and investments in technology have likely driven up costs.

Asset quality: Regions Financial, in two of the last three quarters, released the reserves it had built up to cover losses from the effects of the coronavirus pandemic. However, with the expected increase in loan balances and expectations of an economic slowdown due to geopolitical and inflationary concerns, the company may have built up 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 lacks the right combination of the two key ingredients – a positive win ESP and a Zacks rank #3 (Hold) or higher – to increase the chances of a win beat.

You can discover the best stocks to buy or sell before they’re flagged with our earnings ESP filter.

ESP Earnings: Regions Financial has an ESP on earnings of -1.05%.

Zacks Rank: Regions Financial currently has a Zacks rank of 3.

Actions worth a look

Associate Bancorp (BSA free report), M&T Bank (MTB free report) and Northern Trust Company (NTRS Free Report) are a few bank stocks you might want to consider as they have the right combination of elements to show a pace of earnings in their upcoming releases, according to our model.

The earnings ESP for ASB is +0.81% and the company is currently showing Zacks rank 2 (buy). ASB is expected to release its first quarter 2022 results on April 21.

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

MTB is expected to release its first quarter results on April 20. MTB currently has a #3 Zacks ranking and +5.43% ESP gain. You can see the full list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks consensus estimate for MTB’s first-quarter earnings rose 8.5% over the past 30 days.

The earnings ESP for NTRS is +0.06% and the company currently holds rank 3 of Zacks. NTRS is expected to release its first quarter 2022 results on April 26.

The Zacks consensus estimate for NTRS’ first quarter earnings has moved 1.2% north over the past month.

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Luisa D. Fuller