Regions Posts Profit, Tops Estimate - Analyst Blog
October 27 2011 - 4:15AM
Zacks
Regions Financial Corporation’s (RF)
third-quarter 2011 earnings came in at 8 cents per share,
outshining the Zacks Consensus Estimate by 4 cents. Quarterly
results benefited from lower loan loss provisions and represented
the company’s fourth consecutive quarterly profit after incurring
losses since the second quarter of 2009.
Adjusted earnings per share, excluding regulatory adjustments
and significant items, also came in at 8 cents per share for the
reported quarter compared with a profit of 4 cents in the prior
quarter and loss of 17 cents in the year-ago quarter.
Net income available to common shareholders came in at $101.0
million, up from $55 million in the prior quarter and substantially
better than a loss of $209 million in the year-ago quarter.
Performance in Detail
Regions reported pre-tax pre-provision net revenue of $537
million, up 20% sequentially and 18% year over year. On an adjusted
basis, pre-tax pre-provision net revenue came in at $540 million,
up 8% sequentially and 19% year over year. This also represented
the highest level on an adjusted basis in the last twelve
quarters.
Total revenue came in at $1.6 billion, in line with the Zacks
Consensus Estimate. However, revenue fell 2.6% sequentially and
0.9% year over year.
Net interest income was $858 million, down 0.7% sequentially and
1.2% year over year. Funding mix showed an improvement as average
low-cost deposits inched up as a percentage of total deposits from
73.5% in the prior-year quarter to 77.8%. Net interest margin of
3.02% was down 3 basis points (bps) sequentially but up 6 bps from
the prior-year quarter.
Regions’ non-interest income was $745 million, down 4.6%
sequentially and 0.7% year over year. Non-interest income included
$1 million in securities losses. Excluding securities gains,
non-interest income fell 1.5% sequentially, primarily due to lower
capital market revenues, offset by an increase in mortgage revenue
and stable service charges.
Non-interest expense decreased 11% sequentially and 8% year over
year to $1.07 billion. Moreover, excluding charges related to
branch consolidation and property and equipment charges, adjusted
non-interest expense came in at $1.06 billion, down 5%
sequentially.
The improvement in costs resulted from a decline in salaries and
benefits expense, coupled with a fall in net occupancy expense and
lower FDIC premiums. However, the company reported a modest
increase in credit-related expenses.
Credit Quality
Credit quality was mixed during the quarter at Regions. Inflows
of non-performing loans increased 36% sequentially to $755 million.
Non-performing loans, excluding loans held for sale, declined
3%.
Net charge-offs decreased 19 bps sequentially and 100 bps year
over year to 2.52% of average loans. However, non-performing assets
decreased 16 bps sequentially and 73 bps year over year to 4.23% of
loans, foreclosed properties and non-performing loans held for
sale.
Provision for loan losses fell 10.8% sequentially and 53.3% year
over year to $355 million.
Capital Ratios
As of September 30, 2011, Regions’ Tier 1 capital ratio came in
at 12.8% compared with 12.6% in the prior quarter. Tier 1 common
risk-based ratio was 8.2%, up from 7.9% in the prior quarter. On a
Basel III pro-forma basis, Tier 1 common and Tier 1 capital ratios
were 7.7% and 11.3%, above the respective 7% and 8.5% minimum
requirements. The company’s loan-to-deposit ratio was 83.0% as of
the same date.
Outlook
Based on the Federal Reserve Board of Governors’ final rule on
debit card interchange fees mandated by the Durbin Amendment to the
Dodd-Frank Act, effective from October 1, 2011, Regions projects
that the impact on annual debit interchange revenue will be around
$170 million before any mitigation efforts.
Recent Developments
During the quarter, Regions completed the purchase of the credit
card portfolio of $1 billion from FIA Card Services, a subsidiary
of Bank of America Corporation (BAC), effective
June 30, 2011. Through the acquisition, Regions re-entered the
credit card business, which it exited a decade ago. Prior to the
agreement, Regions used to sell customers credit cards held and
serviced by BofA's card business.
With a focus on the affluent segment, in late June, Regions
announced the formation of a new Wealth Management Group,
integrating its Trust, Private Banking and Insurance units within a
single business line.
Our Take
Regions’ favorable funding mix, improved core business
performance, its expansion mode and strategies will continue to
yield profitable earnings in the upcoming quarters. Improvement in
credit quality is also encouraging.
Though de-risking measures are encouraging at Regions, the
upfront costs of such initiatives cannot be ignored. Additionally,
regulatory issues also remain.
Regions retain 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.
BANK OF AMER CP (BAC): Free Stock Analysis Report
REGIONS FINL CP (RF): Free Stock Analysis Report
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