Regions Financial Corporation’s RF first-quarter 2015 earnings from continuing operations came in at 16 cents per share, missing the Zacks Consensus Estimate of 18 cents. Moreover, results compared unfavorably with the prior-year quarter earnings of 21 cents per share.
Regions Financial Corporation - Earnings Surprise | FindTheCompany
Results were affected by higher provisions for loan losses and increased non-interest expenses, partially offset by top-line growth. However, increase in loans and deposits were the positives for the quarter.
Income from continuing operations available to common shareholders was $220 million in the quarter, down from $295 million reported in the prior-year quarter.
Performance in Detail
Total revenue (net of interest expense) came in at $1.29 billion in the quarter, outpacing the Zacks Consensus Estimate of $1.27 billion. Moreover, revenues increased 0.9% on a year-over-year basis.
Regions reported adjusted pre-tax pre-provision income from continuing operations of $438 million in the first quarter, up 3.3% year over year.
On a fully taxable equivalent (FTE) basis, net interest income was $832 million, relatively stable with the prior-year quarter. Net interest margin (FTE) declined 8 basis points year over year to 3.18% in the quarter.
Regions’ non-interest income was $470 million, up 2.8% year over year. The rise was primarily driven by higher card and ATM fees, wealth management revenues, Capital markets fee income and other revenues, partially offset by lower service charges on deposit accounts.
Non-interest expense increased 10.8% year over year to $905 million. Higher branch consolidation, property and equipment costs and increased costs related to salaries and employee benefits, outside services and other expenses mainly led to the rise. These were, however, partially offset by lower professional, legal and regulatory expenses. On an adjusted basis, non-interest expenses declined 0.7% year over year to $840 million.
Total loans increased around 3.4% year over year to $78.2 billion. Total deposits came in at $97.45 billion, up 4.4% year over year. Total funding costs were 29 basis points.
As of Mar 31, 2015, low-cost deposits as a percent of total deposits were 91.4% compared with 90.1% as of Mar 31, 2014. Further, deposit costs came in at 12 basis points in the reported quarter.
Credit Quality
Credit metrics marked a significant improvement during the quarter at Regions. Non-performing assets as a percentage of loans, foreclosed properties and non-performing loans held for sale reduced to 1.24% from 1.63% in the prior-year quarter.
Further, non-accrual loans, excluding loans held for sale, as a percentage of loans came in at 1.02%, down from 1.41% in the prior-year quarter. Allowance for loan losses as a percentage of loans, net of unearned income was 1.40%, down from 1.67% in the prior-year quarter.
Further, allowance for credit losses was $1.16 billion, down 13.1% year over year. Net charge-offs came in at $54 million, down 34.1% year over year.
However, provision for loan losses was $49 million, significantly up from $2 million in the prior-year quarter.
Capital Position
Regions’ capital position was strong at the end of the quarter. In first quarter 2015, the company commenced the transition period for the Basel III capital rules. As of Mar 31, 2015 Basel III Common Equity Tier 1 ratio and Tier 1 capital ratio were estimated at 11.2% and 12.0%, respectively. At the end of the quarter, leverage ratio was 10.6% versus 10.2% in the prior-year quarter.
During the first quarter, Regions returned about $169 million as capital to shareholders through $67 million dividend payment and repurchase of common stock for $102 million.
Our Viewpoint
Results do not reflect a strong quarter for Regions, though increasing revenues, improving credit quality along with continued growth in loan and deposit balances are encouraging. We believe the company’s favorable funding mix, improved core business performance, its expansion mode and strategies will continue to yield profitable earnings in the upcoming quarters.
However, regulatory issues, expanding cost base and pressure on the top line remain major areas of concern. Regions currently carries a Zacks Rank #3 (Hold).
Performance of Other Major Banks
Banking majors Wells Fargo & Company WFC and JPMorgan Chase & Co. JPM kick-started the first-quarter earnings season.
Wells Fargo’s first-quarter 2015 earnings of $1.04 outpaced the Zacks Consensus Estimate of 98 cents. However, the reported figure fell a penny below the year-ago figure. JPMorgan’s earnings of $1.45 per share beat the Zacks Consensus Estimate of $1.39. The bottom line also improved 13.3% over the year-ago earnings of $1.28 per share.
Driven by lower expenses and absence of substantial legal costs, Bank of America Corp.’s BAC first-quarter 2015 results marked a year-over-year improvement. Earnings of 27 cents per share were up from a loss of 5 cents in the prior-year quarter. However, it was below the Zacks Consensus Estimate of 29 cents.
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Click to get this free report REGIONS FINL CP (RF): Free Stock Analysis Report JPMORGAN CHASE (JPM): Free Stock Analysis Report WELLS FARGO-NEW (WFC): Free Stock Analysis Report BANK OF AMER CP (BAC): Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research