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Regions Financial (RF) Q4 Earnings Beat Estimates, Costs Up

Regions Financial Corporation’s RF fourth-quarter 2019 adjusted earnings of 40 cents per share surpassed the Zacks Consensus Estimate of 39 cents. Moreover, the figure reflects 5.3% rise year over year.

Net income from continuing operations available to common shareholders was $366 million compared with $390 million reported in the year-ago period.

Results benefited from an improvement in revenues. The company’s balance sheet position remained strong in the quarter. However, higher expenses and rise in provisions hurt results to some extent.

For 2019, adjusted earnings from continuing operations were $1.55 per share, which surpassed the Zacks Consensus Estimate of $1.53. Moreover, the figure reflects improvement from $1.44 per share recorded a year ago. Net income from continuing operations available to common shareholders for the year was $1.5 billion, almost stable year over year.

Revenues Improve, Expenses Rise

Adjusted total revenues were $1.48 billion for the reported quarter, outpacing the Zacks Consensus Estimate of $1.47 billion. The figure also increased 3% from the year-ago quarter’s reported number.

For 2019, adjusted total revenues were $5.88 billion, outpacing the Zacks Consensus Estimate of $5.85 billion. The figure reflects rise of 2.3% from the year-ago reported number.

Regions Financial recorded adjusted pre-tax pre-provision income from continuing operations of $613 million in the quarter, up 2.9% year over year. For 2019, the company recorded its highest pre-tax pre-provision income since 2007.

On a fully-taxable equivalent (FTE) basis, quarterly net interest income was $931 million, down 4.1% year over year. Also, net interest margin (on an FTE basis) shrunk 13 basis points (bps) year over year to 3.39% in the fourth quarter. Lower market interest rates and higher funding costs resulted in the decline.

Non-interest income rose 16.8% to $562 million. Higher mortgage income, service charges on deposit accounts, card & ATM fees, wealth management income, capital markets income, bank-owned life insurance and other income primarily resulted in the upside.

Non-interest expenses increased 5.2% year over year to $897 million primarily due to rise in branch consolidation, property and equipment charges, and marketing costs. On an adjusted basis, non-interest expenses increased 3.1% year over year to $869 million.

Adjusted efficiency ratio was 58.1%, unchanged from the prior-year quarter. A stable ratio indicates no change in profitability.

Balance Sheet Solid

As of Dec 31, 2019, adjusted total loans were down 0.4% sequentially to $80.4 billion. Total deposits were $94.5 billion, up 0.5% from the previous quarter.

Credit Quality Deteriorates

Non-performing assets, as a percentage of loans, foreclosed properties and non-performing loans held for sale, increased 2 bps from the prior-year quarter to 0.70%. Also, non-accrual loans, excluding loans held for sale, as a percentage of loans, came in at 0.61%, expanding 1 bp year over year.

Allowance for loan losses as a percentage of loans, net of unearned income was 1.05%, up 4 bps from the year-earlier quarter. The company’s total business services criticized loans escalated 17.1% year over year.

Provision for loan losses was $96 million, up 1.1% from the prior-year quarter. However, adjusted net charge-offs, as a percentage of average loans, came in at 0.46%, unchanged from the year-ago quarter.

Capital Position Strong

Regions Financial’s estimated ratios remained well above the regulatory requirements under the Basel III capital rules. As of Dec 31, 2019, Basel III Common Equity Tier 1 ratio (fully phased-in) and Tier 1 capital ratio were estimated at 9.6% and 10.8%, respectively, compared with 9.9% and 10.7% recorded in the year-earlier quarter.

Capital Deployment Update

During the quarter, Regions Financial repurchased 7.8 million shares of common stock for $132 million and announced $149 million in dividends to common shareholders.

Our Viewpoint

The company put up a decent show in the quarter, backed by top-line strength. Its favorable funding mix, attractive core business and revenue-diversification strategies will likely yield profitable earnings in the upcoming period. Moreover, we remain optimistic on the company's branch-consolidation efforts and expense-reduction moves.

However, a decline in net interest income might hurt revenue growth in the near term. Also, escalating expenses might hamper the bottom line to some extent.

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

Better-than-expected trading performance and rise in mortgage banking fees drove JPMorgan’s JPM fourth-quarter 2019 earnings of $2.57 per share, which handily outpaced the Zacks Consensus Estimate of $2.32.

Citigroup C delivered a positive earnings surprise of 4.4% in fourth-quarter 2019, backed by revenue strength. Adjusted earnings per share of $1.90 for the quarter handily outpaced the Zacks Consensus Estimate of $1.82.

Wells Fargo’s WFC fourth-quarter 2019 adjusted earnings of 93 cents per share lagged the Zacks Consensus Estimate of $1.12. Results excluded litigation accruals. After including litigation accruals (not tax-deductible) of 33 cents per share, earnings were 60 cents per share compared with $1.21 in the prior-year quarter.

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