Lower NII to Hurt Regions Financial in Q2 Earnings

Regions Financial Corporation RF is scheduled to report second-quarter 2024 results on Jul 19, before the opening bell. The bank's earnings and revenues in the to-be-reported quarter are expected to have declined from the year-ago reported figures.

This Birmingham, AL-based player's first-quarter 2024 earnings missed the Zacks Consensus Estimate due to a rise in expenses and a decline in net interest income (NII). Nonetheless, a rise in non-interest income supported results to some extent.

Regions Financial has a disappointing earnings surprise history. Its earnings surpassed estimates in one of the trailing four quarters and missed thrice, the average negative surprise being 3.66%.

The Zacks Consensus Estimate for second-quarter earnings of 49 cents per share has moved 2.1% north in the past 30 days. The figure indicates a 16.9% decline from the year-ago reported number.

The consensus estimate for revenues is pegged at $1.75 billion, indicating a 10.4% decrease from the prior-year reported figure.

Key Factors & Estimates for Q2

Loans: Region Financial's overall lending activities are likely to have been moderate in the second quarter. The demand for consumer loans declined, whereas commercial real estate loans experienced softer demand in the quarter under review than in prior quarters.

However, the demand for commercial and industrial loans improved, per the Federal Reserve's latest data. Given RF's significant exposure to commercial loans, this is likely to have positively impacted the company's average interest-earning assets during the second quarter of 2024 to some extent. The Zacks Consensus Estimate of $1.36 billion for average earning assets indicates a sequential marginal increase. 

NII: As the Federal Reserve kept the interest rates steady during the quarter at a 23-year high of 5.25-5.5%, RF is less likely to have recorded significant improvement in NII. Also, the inverted yield curve in the June-ended quarter and high funding costs are expected to have weighed on NII growth.

Management expects NII to remain flat or decline by 2% from the first quarter of 2024. The Zacks Consensus Estimate for NII indicates a 1.1% sequential fall to $1.17 billion.

Non-Interest Income: Consumer spending activities were decent in the second quarter of 2024. The expectations of a soft landing of the U.S. economy, gradually cooling inflation, and clarity on the Fed rate cut path are expected to have driven the client activity. This favorable trend is likely to have aided RF's card and ATM fee growth during the quarter under discussion.

The Zacks Consensus Estimate for card and ATM fees of $120.4 million implies a sequential increase of 3.8%.

Management anticipates overall deposit balances to decline in the to-be-reported quarter due to the impact of tax payments. Also, the consensus estimate for revenues from service charges on deposit accounts for Regions Financial of $143.4 million indicates a decline of 3.1% on a sequential basis.

Global deal-making witnessed a rebound in the second quarter, and the performance of the capital markets business, including issuance activities, improved. Solid financial performance, fading recession risks, buoyant markets, and expected rate cuts this year were the major factors driving a better picture. Yet, tough scrutiny by antitrust regulators and lingering geopolitical tensions were headwinds.

The Zacks Consensus Estimate for capital market income is pegged at $74.6 million, indicating a sequential decline of 18.1%.

In the second quarter, the mortgage rates declined from the peak of more than 8% but remained considerably high at almost 7%. Though the central bank has signaled a 25-basis point cut in rates this year, the demand for mortgages did not witness significant improvement. Due to the home price appreciation and lower supply, mortgage origination volume remained weak too.

The Zacks Consensus Estimate for mortgage income is pegged at $40 million, indicating a 2.4% decrease from the prior quarter's reported figure.

Wealth and asset management revenues are likely to have gained from higher equity market performance in the quarter. The Zacks Consensus Estimate for wealth management income is pegged at $120.3 million, indicating a 1.1% rise from the prior quarter's reported number.

Overall, the Zacks Consensus Estimate for total non-interest income is pinned at $596.7 million, indicating a 6% sequential rise.

Expenses: RF's expenses are expected to have remained high in the quarter under discussion due to an increase in salaries, employee benefit expenses and other expenses. Although the company is implementing expense management actions, its ongoing investment in technology advancement and franchise strengthening is likely to have kept the expense base elevated.

Asset Quality: The company is likely to have set aside a substantial amount of money for potential bad loans, given the expectations of an economic slowdown.

The Zacks Consensus Estimate for non-performing assets is pegged at $971.2 million, indicating a 5.3% rise from the prior quarter's reported figure.

What Our Quantitative Model Predicts

Our proven model does not predict an earnings beat for Regions Financial this time around. This is because it does not have the right combination of a positive Earnings ESP and Zacks Rank #1 (Strong Buy), 2 (Buy), or 3 (Hold) to increase the odds of an earnings beat.

Earnings ESP: Regions Financial has an Earnings ESP of -0.02%. 

Zacks Rank: The company currently carries a Zacks Rank #3.

Stocks to Consider

Here are some finance 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.

Northern Trust Corporation NTRS has an Earnings ESP of +1.56% and carries a Zacks Rank #2 at present. The company is slated to report second-quarter 2024 results on Jul 17.

Over the past 60 days, the Zacks Consensus Estimate for NTRS' quarterly earnings has moved upward by 1.7%.

M&T Bank Corporation MTB has an Earnings ESP of +0.22% and carries a Zacks Rank #3 at present. It is scheduled to release second-quarter 2014 earnings on Jul 18.

MTB's quarterly earnings estimates have moved marginally downward over the past seven days.

To read this article on Zacks.com click here.