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Regions Financial (RF) Tops Q1 Earnings, Expenses Escalate

Zacks

Regions Financial Corporation’s RF first-quarter 2017 earnings from continuing operations of 23 cents per share surpassed the Zacks Consensus Estimate by a penny. Also, the figure was 15% higher than the prior-year quarter tally.

Better-than-expected results were supported by impressive growth in non-interest income and easing margin pressure. Further, the quarter recorded continued growth in deposits, though loans balance declined. However, credit quality reflected a mixed bag. Rise in operating expenses was also a headwind.

Income from continuing operations available to common shareholders was $278 million, up 8.2% year over year.

Non-Interest Income Improves, Costs Up

Adjusted total revenue (net of interest expense) came in at $1.39 billion in the quarter, in line with the Zacks Consensus Estimate as well as the prior-year quarter figure.

Regions Financial reported adjusted pre-tax pre-provision income from continuing operations of $497 million, down 5.7% year over year.

On a fully taxable equivalent (FTE) basis, net interest income was $881 million, marginally down year over year. Net interest margin (on an FTE basis) expanded 6 basis points (bps) year over year to 3.25% in the quarter.

Regions Financial reported around 1% growth in non-interest income to $510 million. On an adjusted basis, non-interest income remained stable year over year.

Non-interest expense was up 1% year over year to $877 million. On an adjusted basis, non-interest expenses rose 3.4% year over year to $872 million.

Balance Sheet Strength

As of Mar 31, 2017, total loans were down 2.1% year over year to $79.9 billion. Further, total deposits came in at $99.4 billion, up about 1.2% from the prior-year quarter. Total funding costs were 32 bps.

As of Mar 31, 2017, low-cost deposits, as a percentage of average deposits, were 93.0% compared with 92.0% as of Dec 31, 2016. Further, deposit costs came in at 14 bps in the reported quarter.

Credit Quality: A Mixed Bag

Non-performing assets, as a percentage of loans, foreclosed properties and non-performing loans held for sale, expanded 1 bp from the prior-year quarter to 1.37%. Also, non-accrual loans, excluding loans held for sale, as a percentage of loans, came in at 1.26%, up 4 bps from the year-ago quarter.

Allowance for loan losses as a percentage of loans, net of unearned income was 1.33%, down 8 bps from the prior-year quarter. In addition, provision for loan losses was $70 million, plunging 38.1% year over year.

However, net charge-offs as a percentage of average loans came in at 0.51%, up 17 bps. Further, the company’s total business services criticized loans declined 2.8% year over year.

Strong Capital Position

Regions Financial’s estimated ratios remained well above the regulatory requirements under the Basel III capital rules. As of Mar 31, 2017, Basel III Common Equity Tier 1 ratio (fully phased-in) and Tier 1 capital ratio were estimated at 11.2% and 12.1%, respectively, compared to 10.7% and 11.6% in the prior-year quarter.

During first-quarter 2017, Regions Financial repurchased 10.2 million shares of common stock for a total cost of $150 million and declared $78 million in dividends to common shareholders. This reflects 80% of earnings returned to shareholders.

Our Viewpoint

Regions Financial’s favorable funding mix, attractive core business and revenue diversification strategies will yield profitable earnings in the upcoming quarters. We also remain optimistic on the company's branch consolidation plan and reduction of $300 million in expenses by 2018, in a bid to achieve an efficiency ratio below 60%.

Additionally, steady capital deployment measures will continue to boost investors’ confidence in the stock. However, regulatory issues and escalating expenses remain concerns.

Regions Financial Corporation Price, Consensus and EPS Surprise

Regions Financial Corporation Price, Consensus and EPS Surprise | Regions Financial Corporation Quote

Currently, Regions Financial carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of other Major Banks

Citigroup Inc. C delivered a positive earnings surprise of 8.9% in first-quarter 2017, riding on higher revenues. The company’s earnings per share of $1.35 for the quarter outpaced the Zacks Consensus Estimate of $1.24. Also, earnings compared favorably with the year-ago figure of $1.10 per share. Notably, results reflect one-time adjustments of 1 cent.

Driven by net interest income, Wells Fargo & Company’s WFC first-quarter 2017 earnings recorded a positive surprise of about 3.1%. Earnings of $1.00 per share outpaced the Zacks Consensus Estimate by 3 cents. Moreover, the figure compared favorably with the prior-year quarter’s earnings of 99 cents per share.

M&T Bank Corporation MTB recorded a positive earnings surprise of 10.8% in first-quarter 2017. The company reported net operating earnings of $2.15 per share which surpassed the Zacks Consensus Estimate of $1.94. Also, the bottom line improved 15% year over year.

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