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Regions Financial's (RF) Q4 Earnings Beat on High Revenues

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Driven by top-line strength, Regions Financial Corporation (RF - Free Report) recorded an impressive earnings surprise of 3.8% in fourth-quarter 2017. Reported earnings of 27 cents per share outpaced the Zacks Consensus Estimate of 26 cents. Moreover, results compared favorably with the prior-year quarter’s earnings of 23 cents. Results included certain one-time items of 7 cents per share.

Income from continuing operations available to common shareholders was $318 million compared with $278 million in the year-ago period.

Easing margin pressure and higher revenues were the positive factors. Moreover, credit quality recorded significant improvement. However, lower loans and deposits balance were the undermining factors. In addition, expenses escalated.

For 2017, income from continuing operations available to common shareholders was $1.19 billion compared with $1.09 billion in 2016. Earnings per share from continuing operations were $1.00, up from 87 cents in 2016. Results surpassed the Zacks Consensus Estimate by a penny.

Revenues Improve, Costs Flare Up

For 2017, adjusted total revenues (net of interest expense) came in at $5.71 billion, up 2.6% year over year. Further, the figure surpassed the Zacks Consensus Estimate of $5.69 billion.

Adjusted total revenues (net of interest expense) came in at $1.47 billion in the reported quarter, beating the Zacks Consensus Estimate of $1.45 billion. Additionally, revenues climbed 6.2% from the year-ago quarter figure.

Regions Financial reported adjusted pre-tax pre-provision income from continuing operations of $548 million, up 12.3% year over year.

On a fully-taxable equivalent (FTE) basis, net interest income was $930 million, up 6.4% year over year. Net interest margin (on an FTE basis) expanded 23 basis points (bps) year over year to 3.39% in the quarter. Elevated market interest rates and deposit cost management drove the results. These increases were partially offset by reduced average loan balances, the impact of debt issued during the third quarter and the tax-related reduction related to leveraged leases.

Non-interest income jumped 6.3% to come in at $555 million. Higher capital markets, wealth management, and card & ATM fees primarily led to the rise, partly offset by lower mortgage income.

Non-interest expense escalated 5.9% year over year to $952 million. On an adjusted basis, non-interest expenses flared up 2.7% year over year to $901 million, mainly due to elevated salaries and employee-benefit expenses, outside services costs and other expenses.

Balance Sheet Strength

As of Dec 31, 2017, total loans were slightly down year over year to $79.9 billion. Also, total deposits came in at $96.9 billion, down 2.2% year over year. Total funding costs came in at 38 bps.

As of Dec 31, 2017, low-cost deposits, as a percentage of average deposits, were 92.9% compared with 92.5% as of Dec 31, 2016. In addition, deposit costs came in at 17 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 45 bps from the prior-year quarter to 0.92%. Also, non-accrual loans, excluding loans held for sale, as a percentage of loans, came in at 0.81%, shrunk 43 bps from the year-ago quarter.

Allowance for loan losses as a percentage of loans, net of unearned income was 1.17%, down 19 bps from the year-earlier quarter. The company’s total business services criticized loans plunged 32% year over year.

Additionally, provision for loan losses recorded credit of $44 million compared with the provision of $48 million reported in the prior-year quarter. In addition to this, net charge-offs as a percentage of average loans came in at 0.31%, contracting 10 bps.

Strong Capital Position

Regions Financial’s estimated ratios remained well above the regulatory requirements under the Basel III capital rules. As of Dec 31, 2017, Basel III Common Equity Tier 1 ratio (fully phased-in) and Tier 1 capital ratio were estimated at 10.8% and 11.7%, respectively, compared to 11.1% and 12% recorded in the year-earlier quarter.

During 2017, Regions Financial returned about $1.6 billion as capital to shareholders through dividend payments and common stock repurchases. Notably, during the fourth quarter, this bank repurchased 31.1 million shares of common stock for a total cost of $500 million and announced $103 million in dividends to common shareholders.

Our Viewpoint

Regions Financial reported a decent quarter marked by top-line strength and improved credit quality. 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 loans and deposits pose concerns, we remain optimistic on the company's branch-consolidation plan and reduction of $400-million expenses by 2019.

Regions Financial Corporation Price, Consensus and EPS Surprise

Regions Financial Corporation Price, Consensus and EPS Surprise | Regions Financial Corporation Quote

Currently, Regions Financial flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Performance of Other banks

Riding on higher revenues, PNC Financial PNC reported a positive earnings surprise of 4.1% in fourth-quarter 2017. Adjusted earnings per share of $2.29 beat the Zacks Consensus Estimate of $2.20. Moreover, the bottom line reflected a 16.2% increase from the prior-year quarter.

Continued easing of pressure on net interest margin supported the company’s higher net interest income during the quarter. Also, non-interest income witnessed year-over-year growth. However, higher expenses hurt results to some extent. Further, deterioration in credit quality was a headwind.

Though fixed income trading income slumped as expected, Citigroup Inc. C delivered a positive earnings surprise of 7.6% in fourth-quarter 2017 on prudent expense management and strong consumer banking. Adjusted earnings per share of $1.28 for the quarter easily outpaced the Zacks Consensus Estimate of $1.19. Also, earnings compared favorably with the year-ago figure of $1.14 per share.

Notably, results including non-recurring non-cash charge related to the tax reform of $22 billion, or $8.43 per share, reported loss of $18.3 billion or $7.15 per share.

Overall top-line strength was reflected, driven by higher banking and consumer banking revenues, along with loan growth. Moreover, expenses dropped on efficiency savings by the bank.

Comerica Inc. CMA pulled off a positive earnings surprise of 5.8% in the fourth quarter. Adjusted earnings per share of $1.28 surpassed the Zacks Consensus Estimate of $1.21. Also, the bottom line compares favorably with the prior-year quarter figure of 99 cents.

Results reflected an increase in revenues supported by easing margin pressure and higher fee income. Strong capital position and improving credit quality were the positives. However, higher expenses and a fall in loans balance remained major headwinds.

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