Regions Financial's (RF) Q1 Earnings Improve Y/Y, Revenues Up

Regions Financial Corporation RF reported first-quarter 2019 earnings of 37 cents per share, up 5.7% year over year. Results came in line with the Zacks Consensus Estimate.

Income from continuing operations available to common shareholders was $378 million compared with $398 million reported in the year-ago period.

Easing margin pressure, lower expenses and higher revenues were the positive factors. Moreover, credit quality recorded significant improvement. Additionally, loans and deposits escalated. However, lower fee income, backed by reduced capital markets and mortgage banking income, were major drags.  Additionally, elevated provisions were an undermining factor.

Revenues Up Y/Y, Costs Drop

Adjusted total revenues (net of interest expense) came in at $1.45 billion in the reported quarter, missing the Zacks Consensus Estimate of $1.46 billion. However, the reported figure climbed 2.6% from the year-ago quarter tally.

Regions Financial reported adjusted pre-tax pre-provision income from continuing operations of $597 million, up 8.5% year over year.

On a fully-taxable equivalent (FTE) basis, net interest income was $961 million, up 4.2% year over year. Net interest margin (on an FTE basis) expanded 7 basis points (bps) year over year to 3.53% in the first quarter. Elevated market interest rates led to this upside, partially mitigated by higher deposit costs.

Non-interest income edged down 1% to $502 million. Lower capital markets, mortgage income and other income primarily resulted in this downside. However, these negatives were partly offset by higher card & ATM fees, service charges on deposit account, commercial credit fee income, bank-owned life insurance and wealth management income.

Non-interest expense dropped 1.2% year over year to $852 million. On an adjusted basis, non-interest expenses slipped 2.7% year over year to $860 million, mainly due to fall in almost all components of expenses, partly offset by higher branch consolidation, property and equipment charges, credit card costs, Visa class B shares expense and other expenses.

Adjusted efficiency ratio came in at 58.3% compared with 60.5% in the prior-year quarter. A lower ratio indicates a rise in profitability.

Balance-Sheet Strength

As of Mar 31, 2019, adjusted total loans were up 2.3% sequentially to $80.8 billion. Further, total deposits came in at $94.2 billion, up 1.1% sequentially.

As of Mar 31, 2019, low-cost deposits, as a percentage of average deposits, were 91% compared with 92.9% as of Mar 31, 2018. In addition, deposit costs came in at 46 basis points (bps) in the first quarter.

Credit Quality: A Mixed Bag

Non-performing assets, as a percentage of loans, foreclosed properties and non-performing loans held for sale, shrunk 14 bps from the prior-year quarter to 0.71%. Also, non-accrual loans, excluding loans held for sale, as a percentage of loans, came in at 0.62%, shrinking 13 bps year over year.

Allowance for loan losses as a percentage of loans, net of unearned income was 1.01%, down 4 bps from the year-earlier quarter. The company’s total business services criticized loans slipped 4.5% year over year.

Further, adjusted net charge-offs, as a percentage of average loans, came in at 0.38%, decreasing 2 bps. Provision for loan losses was $91 million compared with credit provision of $10 million witnessed in the prior-year quarter.

Strong Capital Position

Regions Financial’s estimated ratios remained well above the regulatory requirements under the Basel III capital rules. As of Mar 31, 2019, Basel III Common Equity Tier 1 ratio (fully phased-in) and Tier 1 capital ratio were estimated at 9.8% and 10.6%, respectively, compared to 11.1% and 11.9%, recorded in the year-earlier quarter.

During the Jan-Mar quarter, Regions Financial repurchased 12.2 million shares of common stock for a total cost of $190 million and announced $142 million in dividends to common shareholders.

Our Viewpoint

Regions Financial put up a decent show in the quarter, backed by top-line strength and improved credit quality to an extent. 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 fee income and loan growth at a sluggish pace pose concerns, we remain optimistic on the company's branch-consolidation plan and reduction of expenses this year.

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

Driven by prudent expense management, Wells Fargo WFC recorded a positive earnings surprise of 11.1% in first-quarter 2019. Earnings of $1.20 per share surpassed the Zacks Consensus Estimate of $1.08. Results also came in above the prior-year quarter adjusted earnings of $1.12. Higher net interest income and fall in expenses aided the company’s performance.

PNC Financial PNC reported positive earnings surprise of 0.8% in first-quarter 2019. Earnings per share of $2.61 surpassed the Zacks Consensus Estimate of $2.59. Further, the bottom line reflected a 7.4% jump from the prior-year quarter. Higher revenues, driven by easing margin pressure and escalating fee income, aided the results. However, rise in costs and provisions were headwinds.

Higher rates and improved investment banking performance drove JPMorgan’s JPM first-quarter 2019 earnings of $2.65 per share, which outpaced the Zacks Consensus Estimate of $2.32. Also, the figure was up 12% from the prior-year quarter. Investment banking fees recorded 9% growth with 12% rise in advisory fees and 21% increase in debt underwriting income, partially offset by 23% decline in equity underwriting fees.

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