Regions Financial Is Bouncing Back

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On the back of lower loan loss provisions and an improved credit quality, Regions Financial (NYS: RF) reported estimate-beating numbers in its second quarter.

With the economic recovery ever-so-slowly gaining traction, the performance of regional banks has also shown improvement. First Horizon (NYS: FHN) and KeyCorp   (NYS: KEY) have recorded higher profits because of improvements in credit quality. Regions has been no different. Let's now take a closer look at Regions' second quarter.

A look at the numbers
Revenues remained relatively flat, falling marginally to $1.64 billion from $1.66 billion a year ago. Many regional banks have struggled to boost their top lines since loan demand has been low. Regions' net interest income rose by 1%, while non-interest income saw a 4% dip.

The bank's provision for loan losses fell to $398 million from $651 million a year ago. Total non-interest expense declined 10% to $1.19 billion. This fall came from a reduction in credit-related personnel expenses and lower professional and legal fees. The company also paid out less in employee benefits and salaries in the last quarter.

These factors helped Regions post a profit of $109 million compared with a loss of $277 million in the year-ago period. This is the third straight quarter in which Regions recorded profits after a string of disappointing quarters.

Credit quality and capital ratios
Credit quality improved on a year-on-year basis, with credit costs reaching a two-year low this quarter. Total net chargeoffs declined to $548 million, whereas non-performing loans dropped 24% sequentially to $555 million, the lowest in three years. The company's capital strength improved on a year-on-year basis as its Tier 1 capital ratio increased to 12.6% from 12.0% a year ago.

Growth plans
The company recently entered into an agreement with Western Union (NYS: WU) to provide money transfers and faster bill-pay services. This is part of its Now Banking services plan designed to provide financial services to more affluent customers. It also purchased Bank of America's (NYS: BAC) FIA Card Services unit for $1.2 billion to help strengthen its Regions-branded credit card services. These initiatives should help bolster revenues going ahead.

The Foolish bottom line
Regions Financial posted strong overall numbers this quarter despite a relatively flat top line. Though low market interests still pose a threat, at least in the short run, Regions' expansion initiatives and improving market conditions should help boost revenues in the long run. Investors should take note.

At the time this article was published Fool contributor Shubh Datta doesn't own any shares in the companies mentioned above. The Fool owns shares of and has opened a short position on Bank of America. Motley Fool newsletter services have recommended buying shares of and creating a covered strangle position in Western Union. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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