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Regions Financial (RF) Down 4.7% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research

A month has gone by since the last earnings report for Regions Financial (RF). Shares have lost about 4.7% 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 the most recent earnings report in order to get a better handle on the important catalysts.

Regions Reports In-Line Q2 Earnings, Revenues Up Y/Y

Regions Financial reported second-quarter 2019 adjusted earnings of 39 cents per share, in line with the Zacks Consensus Estimate. Results were up 14.7% year over year.

Income from continuing operations available to common shareholders was $374 million or 37 cents per share compared with $362 million or 32 cents per share reported in the year-ago quarter.

Lower expenses and higher net interest income were the positives. Additionally, loans escalated. However, lower fee income, due to reduced capital markets and mortgage banking income, was a major drag. Additionally, elevated provisions were an undermining factor.

Revenues Up, Costs Drop

Adjusted total revenues (net of interest expense) came in at $1.45 billion, missing the Zacks Consensus Estimate of $1.48 billion. The top line, however, inched up 1.3% from the year-ago quarter’s reported figure.

Regions Financial reported adjusted pre-tax pre-provision income from continuing operations of $598 million, up 6.6% year over year.

On a fully-taxable equivalent (FTE) basis, net interest income was $956 million, up 1.9% year over year. Yet, net interest margin (on an FTE basis) contracted 4 basis points (bps) to 3.45% in the second quarter. Higher deposit costs and lower market interest rates mainly led to this downside.

Non-interest income slipped 3.5% to $494 million. Lower capital markets and mortgage income primarily resulted in this downside. However, these negatives were partly offset by higher card & ATM fees, service charges on deposit account, commercial credit fee income, bank-owned life insurance, wealth management income and other income.

Non-interest expense dropped 5.5% year over year to $861 million. On an adjusted basis, non-interest expenses slipped 2.2% to $857 million. The decline was mainly due to fall in almost all components of expenses, partly offset by higher branch consolidation, property and equipment charges, credit card costs, furniture, equipment and outside services expense and other costs.

Adjusted efficiency ratio came in at 58.3% compared with 60.4% in the prior-year quarter. A lower ratio indicates a rise in profitability.

Balance-Sheet Strength

As of Jun 30, 2019, adjusted total loans were up 0.7% sequentially to $81.3 billion. Further, total deposits came in at $95 billion, down marginally.

As of Jun 30, 2019, low-cost deposits, as a percentage of average deposits, were 91% compared with 93% as of Jun 30, 2018. In addition, deposit costs came in at 53 basis points (bps) in the June-ended quarter.

Credit Quality: A Mixed Bag

Non-performing assets, as a percentage of loans, foreclosed properties and non-performing loans held for sale, shrunk 11 bps from the prior-year quarter to 0.72%. Also, non-accrual loans, excluding loans held for sale, as a percentage of loans, came in at 0.64%, contracting 10 bps.

Allowance for loan losses as a percentage of loans, net of unearned income was 1.02%, down 2 bps from the year-earlier quarter. The company’s total business services criticized loans escalated 10.5%.

Furthermore, adjusted net charge-offs, as a percentage of average loans, came in at 0.44%, increasing 12 bps. Provision for loan losses was $92 million, up 53.3% from the prior-year quarter.

Strong Capital Position

Regions Financial’s estimated ratios remained well above the regulatory requirements under the Basel III capital rules. As of Jun 30, 2019, Basel III Common Equity Tier 1 ratio (fully phased-in) and Tier 1 capital ratio were estimated to be 9.9% and 11.1%, respectively, compared with 11% and 11.8%, recorded in the year-earlier quarter.

During the April-June quarter, Regions repurchased 12.8 million shares of common stock for a total cost of $190 million and announced $141 million in dividends to common shareholders.


Regions Financial has laid following expectations on assumptions of three Fed Funds rate reductions of 25 bps in 2019.

Adjusted expenses are expected to remain relatively stable or fall slightly in 2019. Also, it seeks to generate adjusted positive operating leverage.

The company anticipates full-year 2019 adjusted total revenue growth in the range of 2-4%.

Management expects adjusted average loans in 2019 to grow in low to mid-single digits on a year-over-year basis.

Net charge-offs are estimated at 40-50 bps for 2019.

Common Equity Tier 1 ratio is targeted at 9.5% for third-quarter 2019.

The effective tax rate is projected in the range of 20-22% for 2019.

Long-Term Financial Targets (2019-2021)

The company expects adjusted average loan growth for 2019 to be in the low single digits. Further, Regions anticipates 2-4% rise in full-year revenues. It expects adjusted expenses to trend flat in the year.

Notably, 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, fresh estimates have trended downward during the past month.

VGM Scores

At this time, Regions Financial has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. However, the stock was allocated a grade of A on the value side, putting it in the top 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.


Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Regions Financial has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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