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Fee Income to Support Regions Financial's (RF) Q3 Earnings

Zacks Equity Research

Regions Financial RF is scheduled to report third-quarter 2019 results on Oct 22, before the opening bell. The bank’s results are estimated to reflect year-over-year rise in both revenues and earnings.

This Birmingham, AL-based company’s second-quarter 2019 earnings compared favorably with the prior-year quarter’s earnings, recording 14.7% increase. Lower expenses and higher net interest income were the positives. However, lower fee income, due to reduced capital markets, elevated provisions and mortgage banking income, were major drags.

Further, the Zacks Consensus Estimate for third-quarter earnings has remained unchanged at 39 cents in the last 60 days. This, however, suggests a year-over-year improvement of nearly 21.9%. The Zacks Consensus Estimate for sales of $1.47 billion indicates around 0.75% growth from the prior-year quarter’s reported tally.

Notably, the company’s share price has appreciated post second-quarter earnings. For the three-month period ended Sep 30, 2019, the stock has gained around 5%.

Will the upcoming earnings release give a boost to Regions’ stock? This depends largely on whether or not the firm is able to post a beat in the third quarter.

Regions Financial Corporation Price and EPS Surprise

Regions Financial Corporation Price and EPS Surprise

Regions Financial Corporation price-eps-surprise | Regions Financial Corporation Quote

Factors at Play

Soft Loan Growth: Per the Fed’s latest data, rise in loans is likely to have been low on a sequential basis for the September-end quarter. Particularly, weakness in revolving home equity loans, commercial and industrial (C&I), and commercial real estate loans might have offset growth in consumer loans. Also, trade-war concerns have hurt business sentiments across the industries, which might have affected loan demand.

Notably, management’s anticipations of loan growth in 2019 will likely be reflected in the quarterly results. The bank projects adjusted average loans to display year-over-year growth in mid-single digits.

Net Interest Income (NII) Disappointing: A dismal lending scenario — mainly in the areas of commercial and industrial, and commercial real estate — during the third quarter is expected to have had an adverse impact on net interest income (NII), while decent consumer loan growth might have been an offsetting factor.

Further, the Fed’s accommodative-policy stance with decline in interest rates (two rate cuts — in July and September), flattening of the yield curve and steadily-rising deposit betas are likely to have hurt the bank’s net interest margin.

Also, the Zacks Consensus Estimate for average interest earning assets of $111 billion for the quarter is slightly down sequentially. Yet, the consensus estimate of $957 million for NII reflects around 1.6% sequential growth.

Non Interest Income Improving: The persistent decline in non-interest income has been weighing on the top line for the past few years. Fixed income trading revenues are likely to have been muted on a year-over-year basis due to the challenging trading environment during the quarter.

Nonetheless, consumer spending trend was stronger during the July-September quarter, which will likely have bolstered the bank’s credit and debit card revenues. In a reversal in trend, mortgage banking performance is also projected to have improved, aided by lower mortgage rates, which drove refinancing activities during the quarter.

Notably, the Zacks Consensus Estimate for capital market revenues is $42.4 million, up 8.7% sequentially, while commercial credit fee income is marginally up to $18.6 million.

Expenses to Remain Stable: The bottom line will likely reflect Regions’ efficient expense management during the quarter to be reported. While investing in revenue-generating areas, the company intends to keep expenses stable.

Here is what our quantitative model predicts:

Our proven model predicts an earnings beat for Regions this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Regions has an Earnings ESP of +0.90% and carries a Zacks Rank of 3, currently.

Other Stocks That Warrant a Look

Here are some stocks you may want to consider, as according to our model, these have the right combination of elements to post an earnings beat this quarter.

BOK Financial Corporation BOKF is set to release results on Oct 23. The company has an Earnings ESP of +1.50% and carries a Zacks Rank of 3, at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Cullen/Frost Bankers, Inc. CFR is slated to release earnings on Oct 24. The company has an Earnings ESP of +0.07% and currently carries a Zacks Rank of 3.

Huntington Bancshares Incorporated HBAN has an Earnings ESP of +0.60% and at present, holds a Zacks Rank of 3. It is scheduled to report quarterly figures on Oct 24.

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