Regions Financial Corporation 's ( RF )
second quarter 2012 earnings from continuing operations came in at
20 cents per share, outshining the Zacks Consensus Estimate by 6
cents. Moreover, results compare favorably with 14 cents per share
reported in the prior quarter.
REGIONS FINL CP (RF): Free Stock Analysis
RAYMOND JAS FIN (RJF): Free Stock Analysis
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Quarterly results benefited from improved net interest margin and
better credit quality backed by lower loan loss provisions and
reduced non-performing assets. Moreover, improved funding mix and
decline in non-interest expenses were the positives for the
quarter. Yet, lower top-line, aided by reduced non-interest income
was a dampener.
Net income available to common shareholders, including income of
$4 million from discontinued operations due to the gain from the
sale of Morgan Keegan was $284 million. Moreover, related to the
repayment of the company's Series A preferred stock, Regions
increased the accretion of the discount along with the final
preferred stock dividends, which decreased net income by $71
million or by a nickel. Yet, results compare favorably with net
income of $145.0 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. Moreover,
revenue fell 7.1% sequentially.
Regions reported pre-tax pre-provision net revenue of $503
million, up 15% sequentially, mainly attributed to reduced
non-interest expenses and improved net interest income. These
positives were offset by decreased non-interest revenue.
Net interest income was $838 million, up 1.3% sequentially.
Moreover, net interest margin improved by 7 basis points (bps)
sequentially to 3.16% in the quarter. Margins were benefited by
lower deposit costs, reduced non-accrual levels and increased
deployment of excess cash. Funding mix showed an improvement as
average low-cost deposits inched up as a percentage of total
deposits from 80% in the prior quarter to 82%.
Regions' non-interest income was $507 million, down 3%
sequentially. Non-interest income included $12 million in
securities gains. Excluding securities gains, non-interest income
declined 3.3% sequentially, as account service fees and charges
declined $21 million.
Non-interest expense fell 8% sequentially to $842 million. The
decline was attributable to lower credit related expenses.
Credit quality improved during the quarter at Regions. Inflows of
non-performing loans decreased 17% sequentially to $315 million.
Non-performing loans, excluding loans held for sale, declined 11%
sequentially to $1.9 billion.
Net charge-offs decreased 20% sequentially to $265 million.
Additionally, net charge-offs as percentage of average net loans
stood at 1.39%, down 34 bps sequentially.
Further, non-performing assets reduced 38 bps sequentially to
3.04% of loans, foreclosed properties and non-performing loans held
for sale. Also, provision for loan losses was down significantly by
78% sequentially to $26 million.
As of June 30, 2012, Regions' Tier 1 capital ratio came in at
11.0% compared with 14.3% in the prior quarter. Tier 1 common
risk-based ratio was 10.0%, up from 9.6% in the prior quarter. The
company's loan-to-deposit ratio was 80.0% as of the same
Developments in the Quarter
In April 2012, Regions 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.
Additionally, in May 2012, Regions also completed the buyback of
warrants by paying $45 million to the U.S. Treasury
Department. These warrants were issued to the U.S. Department
of the Treasury as part of the company's participation in the
Troubled Asset Relief Program's (TARP).
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, improved credit quality and TARP repayment would act
as positive catalysts. Yet, regulatory issues remain a major area
Shares of Regions retain a Zacks #2 Rank, which translates into a
short-term Buy rating. However, considering the fundamentals, we
maintain a long-term 'Neutral' recommendation on the stock.