Further Savings for Regions Financial

Birmingham-based Regions Financial (NYSE: RF  ) continues to see near-term benefits from a couple of large acquisitions, and it is still sitting pretty from a long-term perspective.

Second-quarter results released yesterday demonstrated that Regions still has plenty of opportunity to wring costs from the recent purchase of crosstown rival AmSouth. It mentioned $84 million in merger-related savings, putting it more than halfway toward its goal of $150 million by year's end. Unfortunately, adjusted earnings were flat from last year's quarter, as the bank had to spend to divest 52 branches and convert another 600 to the Regions name.

The near-term merger noise is proving to be worth it -- both reported net interest income and non-interest income grew rapidly, and return on equity came in at 22.89%, which is about as high as you'll find in the banking industry. Management also kept net charge-offs low at 0.23% of average loans, and expects headcount reductions for several more quarters as it continues to work through AmSouth employee overlap.

The cost savings should benefit future quarters, and management just detailed that "merger expenses have been lower than expected to date and will likely be less than the $700 million initial forecast." It also expects recent net interest margin compression to slow once the flat/inverted yield curve and subsequent "difficult banking environment" begin to improve.       

A 2004 buyout of another regional rival, Union Planters, solidified Regions' exposure to the southeastern United States, which is benefiting as baby boomers and other consumers move to sunnier locations. This provides Regions an advantage over more geographically challenged rivals such as KeyCorp (NYSE: KEY  ) , National City Corp (NYSE: NCC  ) , and Comerica (NYSE: CMA  ) , though the latter plans to relocate to Dallas by the end of the year and is expanding briskly into Houston.

National City has also been actively acquiring Florida-based banks as of late, demonstrating the appeal of moving to where the action is. In any case, Regions' favorable geographic exposure should make life easier once it has to return to duking it out for organic growth, which few banks, save Wells Fargo (NYSE: WFC  ) or Commerce Bancorp (NYSE: CBH  ) , seem to enjoy these days.       

For related Foolishness:

• Read This Before the Market Crashes
• The 10 Signs of a Great Growth Stock
• Why You Should Beat Wall Street

National City is an Income Investor recommendation. Want to get paid to invest? Analyst James Early can show you how with a free trial of the newsletter service.

Fool contributor Ryan Fuhrmann is longs shares of Wells Fargo but has no financial interest in any other company mentioned. Feel free to email him with feedback or to discuss any companies mentioned further. The Fool has an ironclad disclosure policy.