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Regions Financial (RF) Up 6.5% Since Earnings Report: Can It Continue?
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It has been about a month since the last earnings report for Regions Financial Corporation (RF - Free Report) . Shares have added about 6.5% in that time frame.
Will the recent positive trend continue leading up to its next earnings release, or is RF due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Regions Financial's Q1 Earnings Beat, Costs Escalate
Riding on high revenues, Regions Financial recorded an impressive earnings surprise of 12.9% in first-quarter 2018. Reported earnings of 35 cents per share outpaced the Zacks Consensus Estimate of 31 cents. Moreover, results compared favorably with the prior-year quarter’s earnings of 23 cents.
Income from continuing operations available to common shareholders was $398 million compared with $277 million reported in the year-ago period.
Easing margin pressure and higher revenues were the positive factors. Moreover, credit quality recorded a significant improvement. However, lower loans and deposits balance were the undermining factors. In addition, expenses escalated.
Revenues Improve, Costs Flare Up
Adjusted total revenues (net of interest expense) came in at $1.41 billion in the reported quarter, missing the Zacks Consensus Estimate of $1.44 billion. However, revenues climbed 5.9% from the year-ago quarter figure.
Regions Financial reported adjusted pre-tax pre-provision income from continuing operations of $550 million, up 11.1% year over year.
On a fully-taxable equivalent (FTE) basis, net interest income was $922 million, up 4.7% year over year. Net interest margin (on an FTE basis) expanded 21 basis points (bps) to 3.46% in the quarter. Elevated market interest rates and deposit cost management drove the stellar results. These increases were partially offset by reduced average loan balances and elevated funding costs.
Non-interest income jumped 7% to $507 million. Higher capital markets, investment management and trust fee income and service charges on deposit account primarily led to the rise, partly offset by lower mortgage income and bank-owned life insurance.
Non-interest expenses escalated 4.9% year over year to $884 million. On an adjusted basis, non-interest expenses flared up 2.9% to $865 million, mainly due to rise in almost all components of expenses.
Balance Sheet Strength
As of Mar 31, 2018, total loans were slightly down year over year to $79.8 billion. Also, total deposits came in at $97 billion, down 2.4%. Total funding costs came in at 46 bps.
As of Mar 31, 2018, low-cost deposits, as a percentage of average deposits, were 92.9% compared with 92.7% as of Mar 31, 2017. In addition, deposit costs came in at 21 bps in the reported quarter.
Credit Quality Improves
Non-performing assets, as a percentage of loans, foreclosed properties and non-performing loans held for sale, contracted 52 bps from the prior-year quarter to 0.85%. Also, non-accrual loans, excluding loans held for sale, as a percentage of loans, came in at 0.75%, shrinking 51 bps from the year-ago quarter.
Allowance for loan losses as a percentage of loans, net of unearned income was 1.05%, down 28 bps from the year-earlier quarter. The company’s total business services criticized loans plunged 37.3% year over year.
Additionally, provision for loan losses recorded credit of $10 million compared with $70 million reported in the prior-year quarter. In addition to this, net charge-offs as a percentage of average loans came in at 0.42%, contracting 9 bps.
Strong Capital Position
Regions Financial’s estimated ratios remained well above the regulatory requirements under the Basel III capital rules. As of Mar 31, 2018, Basel III Common Equity Tier 1 ratio (fully phased-in) and Tier 1 capital ratio were estimated at 11% and 11.9%, respectively, compared with 11.2% and 12.1% recorded in the year-earlier quarter.
During the first quarter, this bank repurchased 12.5 million shares of common stock for a total cost of $235 million and announced $101 million in dividends to common shareholders.
Other Development
Recently, Regions Financial entered into a definitive agreement to vend its Regions Insurance subsidiary and affiliates. On completion, the deal is likely to record an after-tax gain of about $200 million and Common Equity Tier 1 of around $300 million.
The agreement is expected to close in third-quarter 2018, subject to certain regulatory approvals. Moreover, the capital generated from this transaction is anticipated to repurchase shares subject to results of 2018 CCAR.
Outlook for 2018
Regions Financial expects NII and other financing income growth in the range of 4-6%.
Adjusted non-interest income is estimated to grow 3-6%.
Regions Financial expects adjusted expenses to remain stable in 2018, while efficiency ratio is expected to scale below 60% in 2018. Adjusted operating leverage is projected to be 3-5%.
Management expects average loans in 2018 to grow in low single digits on a year-over-year basis.
Average deposits are expected to grow in low single digits, excluding brokered and Wealth Institutional Services deposits.
Net charge-offs (NCOs) are estimated at 35-50 bps for 2018. Based on the recent performance and current market conditions, management expects it to be at the lower end of that range. Nevertheless, quarter-to-quarter volatility in certain credit metrics can be expected particularly associated with huge dollar commercial credits.
The effective tax rate is projected to be in the 20-22% range for 2018.
For 2018, following tax-reform changes, adjusted return on average tangible common equity ratio is expected to be in the 14-16% range.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. There have been 12 revisions higher for the current quarter compared to five lower.
At this time, RF has a poor Growth Score of F, however its Momentum is doing a lot better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that the stock is more suitable for momentum investors than value investors.
Outlook
Estimates have been broadly trending upward for the stock and the magnitude of these revisions looks promising. Notably, RF has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Regions Financial (RF) Up 6.5% Since Earnings Report: Can It Continue?
It has been about a month since the last earnings report for Regions Financial Corporation (RF - Free Report) . Shares have added about 6.5% in that time frame.
Will the recent positive trend continue leading up to its next earnings release, or is RF due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Regions Financial's Q1 Earnings Beat, Costs Escalate
Riding on high revenues, Regions Financial recorded an impressive earnings surprise of 12.9% in first-quarter 2018. Reported earnings of 35 cents per share outpaced the Zacks Consensus Estimate of 31 cents. Moreover, results compared favorably with the prior-year quarter’s earnings of 23 cents.
Income from continuing operations available to common shareholders was $398 million compared with $277 million reported in the year-ago period.
Easing margin pressure and higher revenues were the positive factors. Moreover, credit quality recorded a significant improvement. However, lower loans and deposits balance were the undermining factors. In addition, expenses escalated.
Revenues Improve, Costs Flare Up
Adjusted total revenues (net of interest expense) came in at $1.41 billion in the reported quarter, missing the Zacks Consensus Estimate of $1.44 billion. However, revenues climbed 5.9% from the year-ago quarter figure.
Regions Financial reported adjusted pre-tax pre-provision income from continuing operations of $550 million, up 11.1% year over year.
On a fully-taxable equivalent (FTE) basis, net interest income was $922 million, up 4.7% year over year. Net interest margin (on an FTE basis) expanded 21 basis points (bps) to 3.46% in the quarter. Elevated market interest rates and deposit cost management drove the stellar results. These increases were partially offset by reduced average loan balances and elevated funding costs.
Non-interest income jumped 7% to $507 million. Higher capital markets, investment management and trust fee income and service charges on deposit account primarily led to the rise, partly offset by lower mortgage income and bank-owned life insurance.
Non-interest expenses escalated 4.9% year over year to $884 million. On an adjusted basis, non-interest expenses flared up 2.9% to $865 million, mainly due to rise in almost all components of expenses.
Balance Sheet Strength
As of Mar 31, 2018, total loans were slightly down year over year to $79.8 billion. Also, total deposits came in at $97 billion, down 2.4%. Total funding costs came in at 46 bps.
As of Mar 31, 2018, low-cost deposits, as a percentage of average deposits, were 92.9% compared with 92.7% as of Mar 31, 2017. In addition, deposit costs came in at 21 bps in the reported quarter.
Credit Quality Improves
Non-performing assets, as a percentage of loans, foreclosed properties and non-performing loans held for sale, contracted 52 bps from the prior-year quarter to 0.85%. Also, non-accrual loans, excluding loans held for sale, as a percentage of loans, came in at 0.75%, shrinking 51 bps from the year-ago quarter.
Allowance for loan losses as a percentage of loans, net of unearned income was 1.05%, down 28 bps from the year-earlier quarter. The company’s total business services criticized loans plunged 37.3% year over year.
Additionally, provision for loan losses recorded credit of $10 million compared with $70 million reported in the prior-year quarter. In addition to this, net charge-offs as a percentage of average loans came in at 0.42%, contracting 9 bps.
Strong Capital Position
Regions Financial’s estimated ratios remained well above the regulatory requirements under the Basel III capital rules. As of Mar 31, 2018, Basel III Common Equity Tier 1 ratio (fully phased-in) and Tier 1 capital ratio were estimated at 11% and 11.9%, respectively, compared with 11.2% and 12.1% recorded in the year-earlier quarter.
During the first quarter, this bank repurchased 12.5 million shares of common stock for a total cost of $235 million and announced $101 million in dividends to common shareholders.
Other Development
Recently, Regions Financial entered into a definitive agreement to vend its Regions Insurance subsidiary and affiliates. On completion, the deal is likely to record an after-tax gain of about $200 million and Common Equity Tier 1 of around $300 million.
The agreement is expected to close in third-quarter 2018, subject to certain regulatory approvals. Moreover, the capital generated from this transaction is anticipated to repurchase shares subject to results of 2018 CCAR.
Outlook for 2018
Regions Financial expects NII and other financing income growth in the range of 4-6%.
Adjusted non-interest income is estimated to grow 3-6%.
Regions Financial expects adjusted expenses to remain stable in 2018, while efficiency ratio is expected to scale below 60% in 2018. Adjusted operating leverage is projected to be 3-5%.
Management expects average loans in 2018 to grow in low single digits on a year-over-year basis.
Average deposits are expected to grow in low single digits, excluding brokered and Wealth Institutional Services deposits.
Net charge-offs (NCOs) are estimated at 35-50 bps for 2018. Based on the recent performance and current market conditions, management expects it to be at the lower end of that range. Nevertheless, quarter-to-quarter volatility in certain credit metrics can be expected particularly associated with huge dollar commercial credits.
The effective tax rate is projected to be in the 20-22% range for 2018.
For 2018, following tax-reform changes, adjusted return on average tangible common equity ratio is expected to be in the 14-16% range.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. There have been 12 revisions higher for the current quarter compared to five lower.
Regions Financial Corporation Price and Consensus
Regions Financial Corporation Price and Consensus | Regions Financial Corporation Quote
VGM Scores
At this time, RF has a poor Growth Score of F, however its Momentum is doing a lot better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that the stock is more suitable for momentum investors than value investors.
Outlook
Estimates have been broadly trending upward for the stock and the magnitude of these revisions looks promising. Notably, RF has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.