Regions Financial's (RF) Q3 Earnings in Line, Costs Down
Regions Financial Corporation 's RF third-quarter 2017 earnings from continuing operations of 25 cents per share came in line with the Zacks Consensus Estimate. The figure came in 4.2% higher than the prior-year quarter tally.
Easing margin pressure and lower expenses were the positive factors. Decline in non-interest income, along with lower loans and deposits balance, were the undermining factors. Moreover, provisions escalated.
Income from continuing operations available to common shareholders was $296 million, down 1.7% year over year.
Revenues Improve Y/Y, Costs Down
Adjusted total revenues (net of interest expense) came in at $1.42 billion in the quarter, lagging the Zacks Consensus Estimate of $1.45 billion. However, revenues climbed 1.9% from the year-ago quarter figure.
Regions Financial reported adjusted pre-tax pre-provision income from continuing operations of $524 million, up 12.2% year over year.
On a fully-taxable equivalent (FTE) basis, net interest income was $921 million, up 7.6% year over year. Net interest margin (on an FTE basis) expanded 30 basis points (bps) year over year to 3.36% in the quarter. Elevated market interest rates, impact of balance-sheet management strategies, favorable credit-related interest recoveries and deposit cost management drove the results. These increases were partially offset by reduced average loan balances.
Non-interest income declined 14% to come in at $515 million. Lower mortgage income, capital markets fee income and other non-interest income primarily led to the fall. On an adjusted basis, non-interest income decreased 7% year over year.
Notably, management expects growth in capital market revenues, slight increase in mortgage, wealth management, and card & ATM fees to accelerate non-interest income in Q4.
Non-interest expense dipped 5.1% year over year to $886 million. On an adjusted basis, non-interest expenses decreased 3.5% year over year to $880 million. Lower professional, legal and regulatory expenses, Visa class B shares expense, credit for unfunded credit losses and other expenses primarily led to the fall.
Balance Sheet Strength
As of Sep 30, 2017, total loans were down 1.9% year over year to $79.4 billion. Further, total deposits came in at $97.6 billion, down 1.7% year over year. Total funding costs came in at 37 bps.
As of Sep 30, 2017, low-cost deposits, as a percentage of average deposits, were 93% compared with 92.4% as of Sep 30, 2016. In addition, deposit costs came in at 17 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, contracted 41 bps from the prior-year quarter to 1.06%. Also, non-accrual loans, excluding loans held for sale, as a percentage of loans, came in at 0.96%, contracting 37 bps from the year-ago quarter.
Allowance for loan losses as a percentage of loans, net of unearned income was 1.31%, down 8 bps from the year-earlier quarter. The company's total business services criticized loans plunged 20.8% year over year.
However, provision for loan losses more than doubled on a year-over-year basis to $79 million, including hurricane-related estimated loan losses. In addition to this, net charge-offs as a percentage of average loans came in at 0.38%, expanding 12 bps.
Strong Capital Position
Regions Financial's estimated ratios remained well above the regulatory requirements under the Basel III capital rules. As of Sep 30, 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 11% and 11.9% recorded in the year-earlier quarter.
During third-quarter 2017, Regions Financial repurchased 34.6 million shares of common stock for a total cost of $500 million and announced $105 million in dividends to common shareholders.
Regions reported a decent quarter marked by top-line strength and prudent cost management. The company's favorable funding mix, attractive core business and revenue diversification strategies will likely 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 and an additional $100 million by 2019, in a bid to achieve an efficiency ratio below 60%.
Nevertheless, higher provisions and lower non-interest income remain headwinds. Furthermore, decline in loans and deposits pose concerns.
Regions Financial Corporation Price, Consensus and EPS Surprise
Currently, Regions Financial carries a Zacks Rank #4 (Sell). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
Performance of Other banks
BB&T Corporation 's BBT third-quarter 2017 adjusted earnings of 78 cents per share came in line with the Zacks Consensus Estimate. Results recorded 2.6% bottom-line improvement from the year-ago quarter. Results reflected an increase in revenues and higher expenses. The quarter witnessed a decrease in loans and leases and deposits. Additionally, provision for credit losses decreased, which was a tailwind.
Driven by top-line strength, Synovus Financial CorporationSNV recorded a positive earnings surprise of 1.6% in third-quarter 2017. Adjusted earnings of 65 cents per share beat the Zacks Consensus Estimate by a penny. Also, the reported figure came in 25% higher than the prior-year quarter tally. Higher revenues backed by strong loans & deposits balances drove organic growth. Notably, lower efficiency ratio was a tailwind. Moreover, positive impact of rising rates was witnessed.
Despite weak fixed income market revenues, Citigroup Inc.C delivered a positive earnings surprise of 7.6% in the third quarter on prudent expense management. Earnings per share of $1.42 for the quarter easily surpassed the Zacks Consensus Estimate of $1.32. Also, earnings compared favorably with the year-ago figure of $1.24 per share. Notably, results included after-tax gain related to the sale of a fixed income analytics business.
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