Regions Financial ( RF Quick Quote RF - Free Report) reported first-quarter 2021 earnings of 63 cents per share, which surpassed the Zacks Consensus Estimate of 48 cents on impressive top-line strength. Also, the bottom line compared favorably with the prior-year figure of 14 cents.
Results were driven by higher revenues on increases in both net interest income (NII) and fee income. Moreover, rise in deposit balances provided some respite. Notably, mortgage and wealth management income were on an upswing. Also, credit provision was a tailwind. However, rise in expenses and lower loans were major drags.
Including certain one-time items, net income available to common shareholders was $614 million or 63 cents per share compared with the earnings of $139 million or 14 cents reported in the year-ago period.
Revenues Increase, Expenses Rise
Adjusted total revenues (net of interest expense) came in at $1.60 billion in the reported quarter, outpacing the Zacks Consensus Estimate of $1.55 billion. The top line also increased 13.7% from the year-ago quarter’s reported number.
On a fully-taxable equivalent (FTE) basis, net interest income was $978 million, up 4% year over year. Yet, net interest margin shrunk 9 basis points (bps) to 3.4%.
Non-interest income increased 32.2% year over year to $641 million. This upsurge mainly resulted from higher mortgage income, card and ATM fees, commercial credit fee income, wealth management income and other income. Nonetheless, lower service charges on deposit account acted as a headwind.
Non-interest expense rose 11% year over year to $928 million, mainly due to rise in salaries and employee benefits, professional, legal and regulatory expenses, along with equipment and software expenses, partly offset by lower outside services, net occupancy, marketing, credit expenses and branch consolidation, property and equipment charges. On an adjusted basis, non-interest expenses flared up 11.4% year over year to $918 million.
Adjusted efficiency ratio came in at 56.8% compared with the prior-year quarter’s 57.9%. A lower ratio indicates a rise in profitability.
As of Mar 31, 2021, loans, net of unearned income, declined slightly on a sequential basis to $84.8 billion. Yet, total deposits came in at $129.6 billion, up 5.8%.
As of Mar 31, 2021, low-cost deposits, as a percentage of average deposits, were 96.2% compared with the prior-year quarter’s 92.6%. In addition, deposit costs came in at 6 bps during the January-March period.
Credit Quality: A Mixed Bag
Credit metrics was a mixed bag during the first quarter. Non-performing assets, as a percentage of loans, foreclosed properties and non-performing loans held for sale, advanced 11 bps from the prior-year quarter to 0.9%. Additionally, non-accrual loans, excluding loans held for sale, as a percentage of loans, came in at 0.87%, expanding 15 bps.
Allowance for loan losses as a percentage of loans, net of unearned income was 2.33%, up 56 bps from the year-earlier quarter. The company’s total business services criticized loans surged 48.8%.
However, annualized net charge-offs, as a percentage of average loans, came in at 0.4%, contracting 19 bps. Benefit from credit losses of $142 million was recorded during the quarter against the year-earlier quarter provision of $373 million.
Solid Capital Position
Regions Financial’s estimated ratios remained well above the regulatory requirements under the Basel III capital rules. As of Mar 31, 2021, Basel III Common Equity Tier 1 ratio (fully phased-in) and Tier 1 capital ratio were estimated at 10.3% and 11.9%, respectively, compared with the 9.4% and 10.6% recorded in the year-earlier quarter.
During the March-ended quarter, the bank did not repurchase shares but announced $149 million in dividends to common shareholders.
Regions Financial put up an impressive performance during the reported quarter on higher revenues and release of reserves. The company’s favorable funding mix, attractive core business and revenue-diversification strategies will likely yield stellar earnings in the upcoming period as well.
Though rise in expenses is a concern, we are optimistic about the bank’s branch-consolidation plan and rising fee income. Nevertheless, margin pressure is expected to prevail.
Currently, Regions carries a Zacks Rank #3 (Hold). You can see
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