Regions Financial Corporation
) third quarter 2012 earnings from continuing operations came in
at 22 cents per share, marginally beating the Zacks Consensus
Estimate by 2 cents. Moreover, results compare favorably with 20
cents per share reported in the prior quarter.
Quarterly results benefited from a rise in non-interest income
backed by improved funding mix and reduced non-performing assets.
Yet, increased non-interest expenses and higher provision for
loan losses were dampeners. Moreover, contraction in net interest
margin depicts persistent low interest rate environment.
Net income available to common shareholders was $301 million, up
from $284 million reported in the prior quarter.
Performance in Detail
Total revenue (net of interest expense) came in at $1.3 billion,
below the Zacks Consensus Estimate of $1.4 billion. However,
revenue increased slightly on a sequential basis.
Regions reported pre-tax pre-provision net revenue of $481
million, down 4.4% sequentially, mainly attributed to increased
non-interest expenses and reduced net interest income. These
negatives were partially offset by improved non-interest revenue.
Net interest income was $817 million, down 2.5% sequentially.
Moreover, net interest margin contracted 8 basis points (bps)
sequentially to 3.08% in the quarter, attributed to lower yields
in the investment portfolio, partly offset by reduced deposit
costs. Funding mix showed an improvement as average low-cost
deposits inched up as a percentage of total deposits from 82% in
the prior quarter to 84%.
Regions' non-interest income was $533 million, up 5%
sequentially. Non-interest income included $12 million in
securities gains. Excluding securities gains, non-interest income
surged 5.3% sequentially, as mortgage revenue improved.
Year-to-date HARP II loan production was $1.2 billion, surpassing
the full year target of $1 billion.
However, non-interest expense increased 3% sequentially to $869
million. The rise was attributable to higher credit related
expenses and elevated marketing expenses.
Credit quality was a mixed bag during the quarter at Regions. Net
charge-offs decreased 1% sequentially to $262 million.
Additionally, net charge-offs as percentage of average net loans
stood at 1.38%, down 1 bp sequentially.
Further, non-performing assets reduced 11 bps sequentially to
2.93% of loans, foreclosed properties and non-performing loans
held for sale. Yet, provision for loan losses was up by 26.9%
sequentially to $33 million.
Inflows of non-performing loans increased 47% sequentially to
$463 million. Non-performing loans, excluding loans held for
sale, declined 2% sequentially to $1.9 billion.
As of September 30, 2012, Regions' Tier 1 capital ratio came in
at 11.5% compared with 11.0% in the prior quarter. Tier 1 common
risk-based ratio was 10.5%, up from 10.0% in the prior quarter.
The company's loan-to-deposit ratio was 79.0% as of the same
Developments in the Quarter
In September, Regions announced the managerial reorganization of
its Wealth Management Group, created in June 2011. The
appointment of new leaders came on the heels of Regions' plan of
expanding its Wealth Management solutions for individual and
Regions have pooled its trust, insurance, asset management and
private banking units into one group for some time now, so that
it could cater to affluent clients. It aims at providing clients
with simple, expedient and more beneficial financial management
solutions across the 16 states in which it operates.
The organization of the new group will aid in diversifying
revenue streams and will help in gaining profitable customers,
which in turn, will raise fee income.
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.
Additionally, significant improvement in credit quality would act
as a positive catalyst. Yet, regulatory issues and elevated
non-interest expenses remain major areas of concern.
Currently, shares of Regions retain a Zacks #2 Rank, which
translates into a short-term Buy rating. Considering the
fundamentals, we also maintain our long-term 'Outperform'
recommendation on the stock.
Among Regions' peers -
Midsouth Bancorp Inc.
) is expected to report its third-quarter 2012 earnings on
October 30, 2012.
MIDSOUTH BANCRP (MSL): Free Stock Analysis
REGIONS FINL CP (RF): Free Stock Analysis
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