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Regions (RF) Reports Q2 Earnings as Expected, Revenues Up Y/Y

Regions Financial Corporation RF reported second-quarter 2019 adjusted earnings of 39 cents per share, in line with the Zacks Consensus Estimate. Results were up 14.7% year over year.

Income from continuing operations available to common shareholders was $374 million or 37 cents per share compared with $362 million or 32 cents per share reported in the year-ago period.

Lower expenses and higher net interest income were the positive factors. Additionally, loans 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, 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 $1.48 billion. The reported figure, however, inched up 1.3% from the year-ago quarter’s reported tally.

Regions Financial reported adjusted pre-tax pre-provision income from continuing operations of $598 million, up 6.6% year over year.

On a fully-taxable equivalent (FTE) basis, net interest income was $956 million, up 1.9% year over year. Yet, net interest margin (on an FTE basis) contracted 4 basis points (bps) year over year to 3.45% in the second quarter. Higher deposit costs and lower market interest rates mainly led to this downside.

Non-interest income slipped 3.5% to $494 million. Lower capital markets and mortgage 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, wealth management income and other income.

Non-interest expense dropped 5.5% year over year to $861 million. On an adjusted basis, non-interest expenses slipped 2.2% year over year to $857 million, mainly due to fall in almost all components of expenses, partly offset by higher branch consolidation, property and equipment charges, credit card costs, furniture, equipment and outside services expense and other expenses.

Adjusted efficiency ratio came in at 58.3% compared with 60.4% in the prior-year quarter. A lower ratio indicates a rise in profitability.

Balance-Sheet Strength

As of Jun 30, 2019, adjusted total loans were up 0.7% sequentially to $81.3 billion. Further, total deposits came in at $95 billion, down marginally.

As of Jun 30, 2019, low-cost deposits, as a percentage of average deposits, were 91% compared with 93% as of Jun 30, 2018. In addition, deposit costs came in at 53 basis points (bps) in the June-end quarter.

Credit Quality: A Mixed Bag

Non-performing assets, as a percentage of loans, foreclosed properties and non-performing loans held for sale, shrunk 11 bps from the prior-year quarter to 0.72%. Also, non-accrual loans, excluding loans held for sale, as a percentage of loans, came in at 0.64%, contracting 10 bps year over year.

Allowance for loan losses as a percentage of loans, net of unearned income was 1.02%, down 2 bps from the year-earlier quarter. The company’s total business services criticized loans escalated 10.5% year over year.

Furthermore, adjusted net charge-offs, as a percentage of average loans, came in at 0.44%, increasing 12 bps. Provision for loan losses was $92 million, up 53.3% from 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 Jun 30, 2019, Basel III Common Equity Tier 1 ratio (fully phased-in) and Tier 1 capital ratio were estimated at 9.9% and 11.1%, respectively, compared to 11% and 11.8%, recorded in the year-earlier quarter.

During the April-June quarter, Regions repurchased 12.8 million shares of common stock for a total cost of $190 million and announced $141 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 Price, Consensus and EPS Surprise

Regions Financial Corporation price-consensus-eps-surprise-chart | 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 $1.50 in second-quarter 2019, lagging the Zacks Consensus Estimate of $1.53. Results, however, compared favorably with the prior-year quarter’s $1.38. Elevated expenses were on the downside. However, rise in revenues was a positive factor. Further, organic growth was reflected, with significant rise in loans and deposit balances.

PNC Financial PNC reported positive earnings surprise of 1.8% in the second quarter. Earnings per share of $2.88 outpaced the Zacks Consensus Estimate of $2.83. The bottom line also reflected a 5.9% jump from the prior-year quarter’s reported figure. Higher revenues, driven by higher net interest income and escalating fee income, aided the company’s results. However, rise in costs and provisions were headwinds.

Driven by top-line strength, Synovus Financial SNV reported a positive earnings surprise of 1.01% in the June-end period. Adjusted earnings of $1.00 per share beat the Zacks Consensus Estimate of 99 cents. This apart, the reported figure came in 8.4% higher than the prior-year quarter tally. Higher revenues, backed by strong loan balances, stoked organic growth. Notably, lower efficiency ratio and rising fee income were tailwinds. Nonetheless, escalating expenses and provisions were undermining factors.

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