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Regions Financial (RF) Q4 Earnings Beat, Expenses Flare Up

Regions Financial Corporation 's RF fourth-quarter 2016 earnings from continuing operations of 24 cents per share surpassed the Zacks Consensus Estimate of 22 cents. Also, the figure was 9.1% higher than the prior-year quarter earnings. On an adjusted basis, earnings per share came in at 23 cents.

Better-than-expected results were supported by impressive growth in revenues. Further, the quarter recorded continued growth in loans and deposits and capital position remained strong. However, credit quality reflected a mixed bag; while energy sector concerns seem to be easing. Rise in operating expenses was also a downside.

Income from continuing operations available to common shareholders was $278 million, up 2.2% year over year.

For 2016, income from continuing operations available to common shareholders was $1.1 billion compared with $1.0 billion in 2015. Earnings per share from continuing operations were 87 cents, up from 76 cents in 2015. Results were in line with the Zacks Consensus Estimate.

Revenue Improves, Costs Up

For 2016, adjusted total revenue (net of interest expense) came in at $5.57 billion, up 4.5% year over year. However, the figure was below the Zacks Consensus Estimate of $5.58 billion.

Adjusted total revenue (net of interest expense) came in at $1.39 billion in the quarter, up 2.1% year over year. Additionally, the figure was in line with the Zacks Consensus Estimate.

Regions Financial reported adjusted pre-tax pre-provision income from continuing operations of $488 million, up 2.3% year over year.

On a fully taxable equivalent (FTE) basis, net interest income was $874 million, up 2.1% year over year. Net interest margin (on an FTE basis) expanded 8 basis points (bps) year over year to 3.16% in the quarter.

Regions Financial reported 1.6% growth in non-interest income to $522 million. On an adjusted basis, non-interest income increased 2% from the prior-year quarter, reflecting a rise in almost all components of non-interest income.

Non-interest expense was up 3% year over year to $899 million. On an adjusted basis, non-interest expenses rose 1.9% year over year to $877 million.

Balance Sheet Strength

As of Dec 31, 2016, total loans were up 1.4% year over year to $80.1 billion. Further, total deposits were $99.0 billion, up about 1% from the prior-year quarter. Total funding costs were 30 bps.

As of Dec 31, 2016, low-cost deposits as a percentage of average deposits, were 92.0% compared with 92.4% as of Sep 30, 2016. Further, deposit costs came in at 13 bps in the reported quarter.

Credit Quality: A Mixed Bag; Energy Headwinds Eases

Non-performing assets, as a percentage of loans, foreclosed properties and non-performing loans held for sale, expanded 24 bps 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 1.24%, up 28 bps from the year-ago quarter.

Allowance for loan losses as a percentage of loans, net of unearned income was 1.36%, in line with the prior-year quarter. Moreover, provision for loan losses was $48 million, down 30.4% year over year.

However, net charge-offs as a percentage of average loans came in at 0.41%, up 3 bps. Further, the company's total business services criticized loans climbed 7.1% year over year mainly due to risk rating migration in the energy portfolio.

Strong Capital Position

Regions Financial's estimated ratios remained well above the regulatory requirements under the Basel III capital rules. As of Dec 31, 2016, Basel III Common Equity Tier 1 ratio (fully phased-in) and Tier 1 capital ratio were estimated at 11.0% and 11.9%, respectively, compared to 10.7% and 11.7% in the prior-year quarter. At the end of the quarter, leverage ratio was 10.1% compared with 10.3% in the year-ago quarter.

During 2016, Regions Financial returned about $1.2 billion as capital to shareholders through dividend payments and common stock repurchases.

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 higher expenses are concerns.

Regions Financial Corp. Price, Consensus and EPS Surprise

Regions Financial Corp. Price, Consensus and EPS Surprise | Regions Financial Corp. 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 Banks

Bank of America CorporationBAC reported fourth-quarter 2016 earnings. Rise in trading revenue as well as mortgage banking fees led to earnings of 40 cents per share, which surpassed the Zacks Consensus Estimate of 38 cents. Further, the figure was 48% higher than the year-ago quarter number.

Driven by interest income, Wells Fargo & Company 's WFC fourth-quarter 2016 earnings recorded a positive surprise of about 3%. Adjusted earnings of $1.03 per share outpaced the Zacks Consensus Estimate by 3 cents. Moreover, it compared favorably with the prior-year quarter's earnings of $1.00 per share.Including net hedge ineffectiveness accounting impact of 7 cents, earnings came in at 96 cents per share.

Comerica Inc.CMA delivered a positive earnings surprise of 4.2% in fourth-quarter 2016. Adjusted earnings per share of 99 cents came ahead of the Zacks Consensus Estimate of 95 cents. The adjusted figure excludes a restructuring charge of 7 cents per share. Also, earnings increased 43.8% year over year.

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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.


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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