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Low Rates to Mar Regions (RF) Q2 Earnings Amid Coronavirus Crisis

Zacks Equity Research

Regions Financial RF is scheduled to report second-quarter 2020 results on Jul 17, before the opening bell. The bank’s results are estimated to reflect a year-over-year decline in earnings, while revenues are likely to display growth.

This Birmingham, AL-based company’s first-quarter 2020 earnings missed the Zacks Consensus Estimate. Results were negatively impacted by lower revenues, resulting from a reduction in net interest income on lower rates and a deteriorating fee income. Additionally, elevated provisions were an undermining factor. Yet, lower non-interest expenses were the driving factor.

Notably, Regions has a disappointing earnings surprise history. The company's results surpassed the consensus estimate in one of the trailing four quarters, came in line in the other two, and missed in another, the average negative surprise being 4.62%.

Additionally, the company’s activities in the to-be-reported quarter were inadequate to win analysts’ confidence. As a result, its Zacks Consensus Estimate for quarterly earnings has been revised downward in the last seven days. This suggests a year-over-year slump of 82.1%. However, the Zacks Consensus Estimate of $1.45 billion for sales indicates a 0.9% increase from the prior-year quarter’s reported tally.

Regions Financial Corporation Price and EPS Surprise

Regions Financial Corporation Price and EPS Surprise

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

Now let’s discuss the factors that are likely to have impacted the company’s second-quarter performance:

Factors at Play

Low Net Interest Income: The overall lending scenario remained decent during the April-June quarter, with commercial and industrial, along with real estate loan portfolios having offered significant support. Conversely, as consumer sentiment dipped amid the coronavirus concerns, the demand for consumer loans was hit hard.

With the central bank cutting interest rates to near zero in March to support the U.S. economy, Regions’ net interest margin and NII are likely to have been adversely impacted. However, low deposit costs and higher average interest earning assets might have been offsetting factors.

Management expects second-quarter net interest income and net interest margin to benefit from the Ascentium Capital acquisition. Net interest margin is anticipated at 3.4%.

The Zacks Consensus Estimate of $118.8 billion for average interest earning assets calls for a 6.9% year-over-year improvement during the quarter under review, while the NII is expected to rise 3.7% to $977 million.

Dismal Non-Interest Revenues: Due to the pandemic, continued slowdown in economic activity in the quarter is likely to have strained fee income. Lower consumer spending might have hurt card fees. In addition, the Federal Reserve’s accommodative monetary policy and decline in mortgage rates during the June-end quarter drove refinancing activities, while growth in new originations was muted.

Nevertheless, fixed income trading revenues are likely to have increased owing to a rise in client activity on volatile markets.

Notably, the Zacks Consensus Estimate for capital market revenues is pinned at $34 million, suggesting a significant rise sequentially, while commercial credit fee income is projected to be down 3.1% to $17.4 million.

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

Here is what our quantitative model predicts:

Regions does not have the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: The Earnings ESP for Regions is -18.52%.

Zacks Rank: Regions currently carries a Zacks Rank of 3, which increases the predictive power of ESP. But we also need to have a positive ESP to be confident of a positive earnings surprise.

Banks Worth a Look

Here are a few bank stocks that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this time around:

The Earnings ESP for CullenFrost Bankers, Inc. CFR is +6.27% and the stock carries a Zacks Rank of 3, at present. The company is slated to report second-quarter numbers on Jul 30. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Huntington Bancshares Incorporated HBAN is set to release earnings figures on Jul 23. The company, which carries a Zacks Rank of 3 at present, has an Earnings ESP of +11.6%.

T. Rowe Price Group, Inc. TROW is scheduled to release quarterly results on Jul 29. The company has an Earnings ESP of +3.91% and currently sports a Zacks Rank of 1.

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Regions Financial Corporation (RF) : Free Stock Analysis Report
 
Huntington Bancshares Incorporated (HBAN) : Free Stock Analysis Report
 
T. Rowe Price Group, Inc. (TROW) : Free Stock Analysis Report
 
CullenFrost Bankers, Inc. (CFR) : Free Stock Analysis Report
 
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