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Regions Financial (RF) Q1 Earnings Top, Provisions Rise

Regions Financial Corporation’s RF first-quarter 2016 earnings from continuing operations came in at 20 cents per share, beating the Zacks Consensus Estimate by a penny. Moreover, the figure improved 25% year over year.

 

 

Results benefited from higher net interest income as well as non interest income and lower expenses, partially offset by increased provisions. Also, the quarter witnessed increase in loans and deposits while maintaining a strong capital position. However, credit quality reflected weakness.

The quarter included certain non-recurring charges and benefits, which had no impact on overall earnings. Income from continuing operations available to common shareholders was $257 million in the quarter, up from $220 million reported in the prior-year quarter.

Performance in Detail

Total revenue (net of interest expense) came in at $1.37 billion in the quarter, up 6.5% on a year-over-year basis. Moreover, the figure outpaced the Zacks Consensus Estimate of $1.34 billion.

Regions reported adjusted pre-tax pre-provision income from continuing operations of $527 million, up 20.3% year over year.

On a fully taxable equivalent (FTE) basis, net interest income was $883 million, up 6.1% from the prior-year quarter. Net interest margin (FTE) inched up 1 basis point year over year to 3.19% in the quarter.

Primarily driven by higher net revenue from affordable housing and capital market fees, Regions reported a 7.7% year-over-year rise in non-interest income to $506 million. Also, card and ATM fees, bank-owned life insurance revenue and commercial credit fee income improved. However, the quarter recorded securities losses and lower mortgage income as well as other revenue.

Non-interest expense decreased 4% year over year to $869 million. The decline reflected absence of loss on early extinguishment of debt and lower professional, legal and regulatory expenses as well as branch consolidation, property and equipment charges. These were, however, offset by a rise in outside services, FDIC insurance assessments as well as furniture and equipment expense.

On an adjusted basis, non-interest expenses were almost flat on a year-over-year basis at $843 million.

Total loans increased 4.3% year over year to $81.6 billion. Total deposits amounted to $98.2 billion, up nearly 1% year over year. Total funding costs were 28 basis points.

As of Mar 31, 2016, low-cost deposits as a percent of total deposits were 92.7% compared with 91.4% as of Mar 31, 2015. Further, deposit costs came in at 11 basis points in the reported quarter.

Credit Quality

Credit metrics deteriorated during the quarter at Regions. Non-performing assets as a percentage of loans, foreclosed properties and non-performing loans held for sale increased to 1.36% from 1.24% in the prior-year quarter.

Also, non-accrual loans, excluding loans held for sale, as a percentage of loans came in at 1.22%, up from 1.02% in the prior-year quarter. Allowance for loan losses as a percentage of loans, net of unearned income was 1.41%, up from 1.40% in the prior-year quarter.

Further, allowance for credit losses was $1.20 billion, up 3.4% year over year. Net charge-offs came in at $68 million, up 25.9% year over year.

Moreover, provision for loan losses was $113 million, significantly up from $49 million in the prior year quarter.

Capital Position

Regions’ capital position was strong at the end of the quarter. In fourth-quarter 2015, the company commenced the transition period for the Basel III capital rules. As of Mar 31, 2016, Basel III Common Equity Tier 1 ratio (fully phased-in) and Tier 1 capital ratio were estimated at 10.7% and 11.6%, respectively, versus 11.2% and 12.2%, respectively, in the prior-year quarter. At the end of the quarter, leverage ratio was 10.1% versus 10.6% in the prior-year quarter.

During the quarter, Regions returned about $255 million as capital to shareholders through $80 million dividend payment and repurchase of common stock for $175 million.

Our Viewpoint

Regions’ favorable funding mix, improved core business performance and strategic acquisitions will act as catalysts in the near term. Also, steady capital-deployment measures will continue to boost investors’ confidence in the stock. However, regulatory issues and absence of steady growth in fee income remain matters of concern.

Regions currently carries a Zacks Rank #4 (Sell).

Performance of Some Major Banks

JPMorgan Chase & Co. JPM kick started the first-quarter earnings season for the banking sector and reported earnings of $1.35 per share surpassing the Zacks Consensus Estimate of $1.26, which was pretty conservative given the number of downward revisions over the last couple of months. However, the figure reflects a 7% decline from the year-ago period, indicating the impact of challenging market conditions.

Among other Wall Street giants, Citigroup Inc. C will report first-quarter 2016 earnings on Apr 15, while U.S. Bancorp USB will report on Apr 20.

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JPMORGAN CHASE (JPM): Free Stock Analysis Report
 
US BANCORP (USB): Free Stock Analysis Report
 
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REGIONS FINL CP (RF): Free Stock Analysis Report
 
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