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Why Is Regions Financial (RF) Up 0.8% Since Last Earnings Report?

A month has gone by since the last earnings report for Regions Financial (RF). Shares have added about 0.8% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Regions Financial due for a pullback? 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 catalysts.

Regions Reports Q3 Earnings In Line, Revenues Up

Regions Financial reported third-quarter 2019 adjusted earnings of 39 cents per share, in line with the Zacks Consensus Estimate. Earnings were up 5.4% year over year.

Income from continuing operations available to common shareholders was 5 million compared with the 4 million reported in the year-ago period.

Lower expenses and higher non-interest income were the driving factors. However, lower net interest income due to reduced market-interest rates were major drags. Additionally, elevated provisions were an undermining factor.

Revenues Up, Costs Drop

Adjusted total revenues (net of interest expenses) came in at .49 billion in the reported quarter, outpacing the Zacks Consensus Estimate of .47 billion. The top line also increased 2.5% from the year-ago quarter’s reported figure.

Regions Financial recorded its highest adjusted pre-tax pre-provision income from continuing operations in a decade of 9 million, up 4% year over year.

On a fully-taxable equivalent (FTE) basis, net interest income was million, down 0.5% year over year. Also, net interest margin (on an FTE basis) shrunk 3 basis points (bps) year over year to 3.44% in the third quarter. Lower market-interest rates and loan balances mainly resulted in this downside. Yet, fall in deposit costs and the benefits of repositioning strategies of the investment portfolio were on the upside.

Non-interest income climbed 7.5% to 8 million. Higher mortgage income, service charges on deposit account, card & ATM fees, commercial credit fee income, wealth management income and other income primarily resulted in this upside. However, the positives were partly offset by lower capital markets income.

Non-interest expenses dropped 5.5% year over year to 1 million, mainly due to fall in net occupancy, professional, legal and regulatory expenses, FDIC insurance assessments and other expenses. On an adjusted basis, non-interest expenses escalated 1.4% year over year to 5 million.

Adjusted efficiency ratio came in at 57.4% compared with the prior-year quarter’s 58.1%. A lower ratio indicates a rise in profitability.

Balance-Sheet Strength

As of Sep 30, 2019, adjusted total loans were down 0.7% sequentially to .7 billion. Further, total deposits came in at billion, down 0.9%.

As of Sep 30, 2019, low-cost deposits, as a percentage of average deposits, were 91% compared with 93% as of Sep 30, 2018. In addition, deposit costs came in at 49 bps in the September-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 0.65%. Also, non-accrual loans, excluding loans held for sale, as a percentage of loans, came in at 0.56%, contracting 10 bps year over year.

Allowance for loan losses as a percentage of loans, net of unearned income was 1.05%, up 2 bps from the year-earlier quarter. The company’s total business services criticized loans escalated 15% year over year.

Furthermore, adjusted net charge-offs, as a percentage of average loans, came in at 0.44%, advancing 4 bps. Provision for loan losses was 8 million, up 28.6% 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 Sep 30, 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 the 10.2% and 11% recorded in the year-earlier quarter.

During the July-September quarter, Regions Financial repurchased 39.7 million shares of common stock for a total cost of 9 million and announced million in dividends to common shareholders.


Regions Financial has laid following expectations on assumptions of two Fed Funds rate reductions of 25 bps in fourth-quarter 2019.

Management expects net interest income and NIM to remain under pressure in the fourth quarter, which might be partially mitigated through reductions in deposit costs. NIM is expected to be around 3.30% in the fourth quarter.

Full-year adjusted revenues are anticipated to grow approximately 2%.

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

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

The effective tax rate is projected in the range of 20-21% 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 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 have trended downward during the past month.

VGM Scores

Currently, Regions Financial has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, 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 C. 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 has been net zero. 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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