What's in Store for Regions Financial's (RF) Q4 Earnings?

Regions Financial Corporation RF is scheduled to report fourth-quarter and 2023 results on Jan 19, before the opening bell. The bank’s earnings and revenues are expected to have declined from the year-ago reported figures.

This Birmingham, AL-based player’s third-quarter 2023 earnings missed the Zacks Consensus Estimate on increasing expenses and provision for credit losses. Nonetheless, a rise in net interest income (NII) and average loan balances supported the results to some extent.

Regions Financial has a disappointing earnings surprise history. RF's earnings surpassed estimates in one of the trailing four quarters and missed thrice, the average negative surprise being 5.04%.

Regions Financial Corporation Price and EPS Surprise

 

Regions Financial Corporation Price and EPS Surprise

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

Estimate Trend

RF’s activities in the to-be-reported quarter were unimpressive to gain analysts’ confidence. As a result, the Zacks Consensus Estimate for fourth-quarter earnings of 47 cents per share has moved marginally south in the past week. Also, the figure indicates a 30% fall from the year-ago reported number.

The consensus estimate for revenues is pegged at $1.80 billion, suggesting a 10% decline from the prior-year reported figure.

For 2023, the consensus estimate of $2.19 indicates a year-over-year 7.6% decline. Revenue estimates of $7.57 billion indicate a 5% year-over-year increase.Management expects total adjusted revenues to rise 5-6%.

Key Factors & Estimates for Q4

Loans: The challenging macroeconomic backdrop and high interest rates hurt the banks’ lending activities in the fourth quarter. Per the Fed’s latest data, the overall lending scenario was weak. The demand for commercial and industrial, real estate, and consumer loans (except credit card loans) was subdued in October and November.

Given RF’s significant exposure to commercial loans, the company’s loan growth in the fourth quarter is likely to have been affected. This is expected to have negatively influenced the average earning asset balance for the quarter.

The Zacks Consensus Estimate for average interest-earning assets of $138.13 billion indicates a marginal decline from the last reported figure.

NII: Though the Federal Reserve did not raise rates in the quarter, the policy rate stands at a 22-year high of 5.25-5.5% at present. Such high rates are likely to have a positive impact on the company’s NII.

Despite the high interest rate environment, softer loan demand, inversion of the yield curve and higher funding costs are anticipated to have negatively impacted NII in the quarter to be reported.

Management expects NII to decline 5% sequentially. The Zacks Consensus Estimate for NII suggests a 4.5% sequential fall to $1.23 billion.

Non-Interest Income: As customers are likely to have migrated to higher-yielding alternatives, RF is expected to have witnessed a decline in deposit balances in the to-be-reported quarter. This is likely to have an adverse impact on revenues from service charges on deposits. The consensus estimate for the said metric of $141 million indicates a marginal decline on a sequential basis.

Nonetheless, high inflation is expected to have increased card transactions, thereby supporting RF’s card and ATM fees in the quarter. The Zacks Consensus Estimate of $128 million implies a sequential increase of 1.5%.

Merger and acquisition activities continued to be depressed in the fourth quarter, with total deal value declining from the prior year. Nonetheless, green shoots were observed in the capital markets and issuance activities. The major factor driving a better picture was the stabilizing interest rate environment. Thus, the company’s capital markets income is likely to have been adversely impacted.

Management expects revenues of $60-$80 million from the capital markets (excluding credit valuation adjustment and debit valuation adjustment). The Zacks Consensus Estimate is pegged at $69 million.

In the fourth quarter, mortgage rates declined, with the rate on a 30-year fixed mortgage falling to 6.61% in December from 7.31% in September end. Nonetheless, due to home price appreciation, origination volumes (both purchase and refinancing) remained lower than that in the prior quarter.

These factors are likely to have weighed on RF’s mortgage income. Nonetheless, the Zacks Consensus Estimate for RF’s fourth-quarter 2023 mortgage income is pegged at $26.95 million, implying a 3.8% fall sequentially.

The Zacks Consensus Estimate for wealth management income is pegged at $113 million, suggesting a marginal rise from the prior quarter’s reported number.

Overall, the Zacks Consensus Estimate for total non-interest income is pegged at $570 million, indicating a marginal increase sequentially.

Expenses:RF’s expenses are expected to have been high in the fourth quarter on general inflationary pressures. This is likely to have increased costs, whereas wage inflation is anticipated to have escalated personnel expenses, hurting the bottom line in the to-be-reported quarter.Management expects 2023 adjusted non-interest expenses to increase 9.5%.

Asset Quality: With an uncertain macroeconomic outlook and slower GDP growth, RF’s credit quality is likely to have deteriorated. Thus, it is expected to have built reserves in the fourth quarter. The Zacks Consensus Estimate for total non-performing assets of $532 million implies a 4.4% jump from the prior quarter’s reported figure.

Here is What Our Quantitative Model Predicts:

Our proven model does not predicts an earnings beat for Regions Financial this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat, which is not the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: Regions Financial has an Earnings ESP of -5.28%.

Zacks Rank: Regions Financial currently carries a Zacks Rank of 3.

Stocks That Warrant a Look

Here are a couple of 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.

Bank OZK OZK is slated to report fourth-quarter and 2023 results on Jan 18. It has an Earnings ESP of +5.97% and a Zacks Rank #3 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Over the past week, the Zacks Consensus Estimate for OZK’s quarterly earnings per share has moved marginally south to $1.45.

First Horizon Corporation FHN is scheduled to release fourth-quarter and 2023 earnings on Jan 18. The company, which carries a Zacks Rank #3 at present, has an Earnings ESP of +4.17%.

The consensus estimate for FHN’s quarterly earnings has been unchanged at 31 cents per share over the past 60 days.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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