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Regions' (RF) Q2 Earnings Beat Estimates on Stellar Revenues

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Regions Financial (RF - Free Report) reported second-quarter 2021 earnings of 77 cents per share, which surpassed the Zacks Consensus Estimate of 52 cents on impressive top-line strength. Also, the bottom line compares favorably with the prior-year loss of 25 cents.

Results were driven by higher revenues on increase in fee income. Moreover, rise in deposit balances provided some respite. Notably, commercial credit fee income and wealth management income were on an upswing. Also, benefit from credit losses was a tailwind. However, shrinking margins and lower loans were major drags.

Including certain one-time items, net income available to common shareholders was $748 million or 77 cents per share as against the loss of $237 million or 25 cents reported in the year-ago period.

Revenues Increase, Expenses Fall

Total revenues came in at $1.58 billion in the reported quarter, outpacing the Zacks Consensus Estimate of $1.55 billion. The top line also increased 2.4% from the year-ago quarter’s reported number.

On a fully-taxable equivalent (FTE) basis, net interest income was $975 million, down 1% year over year. However, net interest margin shrunk 5 basis points (bps) to 3.31%.

Non-interest income climbed 8% year over year to $619 million. This upsurge mainly resulted from higher service charge on deposits, card and ATM fees, commercial credit fee income, wealth management income and other income. Nonetheless, lower mortgage and capital markets income acted as a headwind.

Non-interest expense slid 2.8% year over year to $898 million, mainly due to fall in net occupancy, outside services, professional, legal and regulatory expenses, FDIC insurance assessmentsand other expenses. On an adjusted basis, non-interest expenses marginally dropped year over year to $895 million.

Adjusted efficiency ratio came in at 56.9% compared with the prior-year quarter’s 57.7%. A lower ratio indicates a rise in profitability.

Balance Sheet Position

As of Jun 30, 2021, loans, net of unearned income, declined slightly on a sequential basis to $84.1 billion. Yet, total deposits came in at $131.5 billion, up 1.5%.

As of Jun 30, 2021, low-cost deposits, as a percentage of average deposits, were 96.7% compared with the prior-year quarter’s 93.9%. In addition, deposit costs came in at 5 bps during the April-June period.

Credit Quality: A Mixed Bag

Credit metrics was a mixed bag during the second quarter. Non-performing assets, as a percentage of loans, foreclosed properties and non-performing loans held for sale, advanced 19 bps from the prior-year quarter to 0.93%. Additionally, non-accrual loans, excluding loans held for sale, as a percentage of loans, came in at 0.79%, expanding 11 bps.

However, allowance for credit losses as a percentage of loans, net of unearned income was 2%, shrinking 68 bps from the year-earlier quarter. The company’s total business services criticized loans fell 24%.

Annualized net charge-offs, as a percentage of average loans, came in at 0.23%, contracting 57 bps. Benefit from credit losses of $337 million was recorded during the quarter against the year-earlier quarter provision of $882 million.

Solid Capital Position

Regions Financial’s estimated ratios remained well above the regulatory requirements under the Basel III capital rules. As of Jun 30, 2021, Basel III Common Equity Tier 1 ratio (fully phased-in) and Tier 1 capital ratio were estimated at 10.4% and 11.9%, respectively, compared with the 8.9% and 10.4% recorded in the year-earlier quarter.

During the June-end quarter, the bank repurchased 8 million shares of common stock, worth $179 million and announced $147 million in dividends to common shareholders.

Our Viewpoint

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 shrinking net interest income 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 the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here..

Performance of Other Banks

Bank of America’s (BAC - Free Report) second-quarter 2021 earnings of $1.03 per share handily beat the Zacks Consensus Estimate of 77 cents. The bottom line compared favorably with the 37 cents earned in the prior-year quarter.

PNC Financial (PNC - Free Report) delivered second-quarter 2021 earnings surprise of 42.4% on substantial reserve release. Adjusted earnings per share of $4.50 surpassed the Zacks Consensus Estimate of $3.16.

Large reserve releases, solid investment banking performance and modest rise in loan demand drove JPMorgan’s (JPM - Free Report) second-quarter 2021 earnings of $3.78 per share. The bottom line comfortably outpaced the Zacks Consensus Estimate of $3.05.