Regions Financial Corporation'
s (
RF
) first-quarter 2012 earnings from continuing operations came in at
14 cents per share, outshining the Zacks Consensus Estimate of 8
cents. Results also compared favorably with 9 cents per share
reported in the prior quarter.
Quarterly results benefited from improved net interest margin
and better credit quality, backed by lower loan loss provisions and
reduced non-performing assets.
Net income available to common shareholders was $145 million in
the reported quarter as against a net loss of $602 million in the
prior-quarter. This also compared favorably to the prior-year
quarter's net income of $17.0 million.
Performance in Detail
Total revenue at Regions came in at $1.3 billion, in line with
Zacks Consensus Estimate. Moreover, revenue fell 0.7% sequentially
and 25.1% year over year.
Regions reported pre-tax pre-provision net revenue of $419.0
million, down 11.0% sequentially, mainly due to seasonal increase
in expenses from payroll taxes and subsidiary's annual dividend
payment.
Net interest income was $827 million, down 2.6% from the prior
quarter and 3.3% from the prior-year quarter. Funding mix showed an
improvement as average low-cost deposits as a percentage of total
deposits inched up from 79.2% in the prior quarter to 80.0%.
Net interest margin of 3.09% was up 1 basis point (bps)
sequentially and in line with prior-year quarter. The sequential
gain driven mainly from lower deposit costs and decline in lower
average excess cash reserves at the Federal Reserve as well as
lower non-accrual levels. However, these benefits were partly
offset by the impact of previously terminated balance-sheet
hedges.
Regions' non-interest income from continuing operations was $524
million, up 3% sequentially. Excluding securities gains,
non-interest income was $512 million up 2.4% from the previous
quarter and 2.8% from the year-ago quarter. The sequential gain was
a result of higher mortgage income, partially mitigated by lower
service charges.
Regions' non-interest expenses, excluding goodwill impairment,
were $913 million, growing 5.0% sequentially but dipping 2.0% year
over year. The sequential rise was due to higher salaries and
benefits partially offset by lower other real estate expense.
Credit Quality
Credit quality improved during the quarter at Regions. Inflows
from non-performing loans decreased 32% sequentially to $381
million. Non-performing loans, excluding loans held for sale,
declined 9% in the reported quarter.
Net charge-offs dropped 43 bps sequentially and 64 bps on a year
over year basis to 1.73% of average loans. Moreover, non-performing
assets decreased 41 bps sequentially and 136 bps year over year to
3.42% of loans, foreclosed properties and non-performing loans held
for sale.
Provision for loan losses fell 60.3% sequentially and 75.7% year
over year to $117 million in the quarter under review.
Capital Ratios
As of March 31, 2012, Regions' Tier 1 capital ratio came in at
14.3% compared with 13.3% in the prior-quarter. Tier 1 common
risk-based ratio was 9.6%, up from 8.5% in the prior-quarter.
Tangible common equity ratio was 7.35% as against 6.57% in the
previous quarter.
Recent Developments
In January 2012, Regions submitted a capital plan to the Federal
Reserve for complete capital analysis. After a thorough
examination, Regions received permission from the Fed to execute
its plan to strengthen its capital position. Since then, the
company has taken varied steps to solidify its financial
position.
In March 2012, Regions successfully raised $900.0 million from
its common equity, yielding $875.0 million in net proceeds.
In April 2012, the company completed the sale of Morgan Keegan
to
Raymond James Financial Inc.
(
RJF
) resulting in proceeds of $1.2 billion. Along with the
divestiture, it repaid $3.5 billion to the U.S. Treasury
department.
Our Take
We believe that the company's favorable funding mix, enhanced
core business performance, its expansion mode and strategies will
continue to yield profitable earnings in the long run. Moreover,
improved credit quality will act as a positive catalyst for the
company.
While the de-risking measures at Regions are encouraging, the
upfront costs of such initiatives cannot be avoided. Additionally,
persistent regulatory issues remain a cause of major concern.
Currently, Regions retains a Zacks #3 Rank, which translates
into a short-term Hold rating. Moreover, considering the
fundamentals, we maintain our long-term Neutral recommendation on
the stock.
Community Trust Bancorp Inc
. (
CTBI
), one of its close peers retains a Zacks#1 Rank, which translates
into 'Strong Buy' Rating.
COMMUN TRUST BC (
CTBI
): Free Stock Analysis Report
REGIONS FINL CP (
RF
): Free Stock Analysis Report
RAYMOND JAS FIN (
RJF
): Free Stock Analysis Report
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