Regions Financial's (RF) Q2 Earnings Beat on High Revenues

Riding on high revenues, Regions Financial Corporation RF recorded an impressive earnings surprise of 3% in second-quarter 2018. Adjusted earnings of 34 cents per share outpaced the Zacks Consensus Estimate by a penny. Including certain one-time items, earnings came in at 32 cents, up 28% year over year.

Income from continuing operations available to common shareholders was $362 million compared with $300 million reported in the year-ago period.

Easing margin pressure and higher revenues were the positive factors. Moreover, credit quality recorded significant improvement. However, lower deposits balance was an undermining factor. In addition, expenses escalated in the quarter.

Revenues Improve, Costs Flare Up

Adjusted total revenues (net of interest expense) came in at $1.44 billion in the reported quarter, missing the Zacks Consensus Estimate of $1.45 billion. However, revenues climbed 5.2% from the year-ago quarter figure.

Regions Financial reported adjusted pre-tax pre-provision income from continuing operations of $561 million, up 12% year over year.

On a fully-taxable equivalent (FTE) basis, net interest income was $938 million, up 3.8% year over year. Net interest margin (on an FTE basis) expanded 17 basis points (bps) year over year to 3.49% in the quarter. Elevated market interest rates and deposit cost management drove the stellar results.

Non-interest income jumped 4.5% to come in at $512 million. Higher capital markets, wealth management income, card & ATM fees and service charges on deposit account primarily led to this rise, partly offset by lower mortgage income, bank-owned life insurance income and other income.

Non-interest expense escalated 4.1% year over year to $911 million. On an adjusted basis, non-interest expenses flared up 1.3% year over year to $876 million, mainly due to rise in almost all components of expenses, partially offset by lower branch consolidation, property and equipment charges, along with other expenses.

Balance Sheet Strength

As of Jun 30, 2018, total loans were marginally up year over year to $79.6 billion. Also, total deposits came in at $95.3 billion, down 2.9% year over year. Total funding costs came in at 52 bps.

As of Jun 30, 2018, low-cost deposits, as a percentage of average deposits, were 93% compared with 92.8% as of Jun 30, 2017. In addition, deposit costs came in at 24 bps in the second quarter.

Credit Quality: A Mixed Bag

Non-performing assets, as a percentage of loans, foreclosed properties and non-performing loans held for sale, contracted 31 bps from the prior-year quarter to 0.83%. Also, non-accrual loans, excluding loans held for sale, as a percentage of loans, came in at 0.74%, shrinking 29 bps from the year-ago quarter.

Allowance for loan losses as a percentage of loans, net of unearned income was 1.04%, down 26 bps from the year-earlier quarter. The company’s total business services criticized loans plunged 42.4% year over year.

In addition to this, net charge-offs as a percentage of average loans came in at 0.32%, contracting 2 bps. However, provision for loan losses was $60 million, up 25% 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 Jun 30, 2018, Basel III Common Equity Tier 1 ratio (fully phased-in) and Tier 1 capital ratio were estimated at 10.9% and 11.8%, respectively, compared to 11.4% and 12.3% recorded in the year-earlier quarter.

During the second quarter, this bank repurchased 13 million shares of common stock for a total cost of $235 million and announced $100 million in dividends to common shareholders.

Our Viewpoint

Regions Financial reported a decent quarter marked by top-line strength and improved credit quality. The company’s favorable funding mix, attractive core business and revenue-diversification strategies will likely yield profitable earnings in the upcoming quarters.

Though decline in deposits and loan growth at a slow pace pose concerns, we remain optimistic on the company's branch-consolidation plan and reduction of $400-million expenses by 2019.
 

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 #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other banks

Texas Capital Bancshares Inc. TCBI reported earnings per share of $1.38 in second-quarter 2018, in line with the Zacks Consensus Estimate. Results compared favorably with 97 cents recorded in the prior-year quarter. Results were driven by rise in revenues. Organic growth was reflected, with significant rise in loans and deposit balances. However, elevated expenses and provisions were major drags.

Driven by top-line strength, Northern Trust Corporation’s NTRS second-quarter 2018 adjusted earnings per share of $1.72 surpassed the Zacks Consensus Estimate of $1.63. Earnings compared favorably with $1.12 recorded in the year-ago quarter. Results exclude certain one-time items. Higher revenues and strong capital position were positives. In addition, the second quarter witnessed a rise in assets under custody, as well as assets under management. Moreover, mostly credit metrics marked a significant improvement. However, escalating operating expenses remained an undermining factor.

Reflecting top-line strength and lower provisions, U.S. Bancorp’s USB second-quarter earnings per share of $1.02 outpaced the Zacks Consensus Estimate by a penny. Also, results came ahead of the prior-year quarter earnings of 85 cents. Easing margin pressure on rising rates was witnessed in the quarter. Moreover, revenues improved, aided by rise in net interest, as well as fee income. Further, elevated average loans and deposits balances, along with lower provisions, were tailwinds. Nevertheless, escalating expenses and lower mortgage banking revenues were major drags.

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