More Signs of Hope for Regions Financial

Despite swinging to a large loss this quarter, Regions Financial (NYSE: RF  ) shareholders have reason to think positively. The loss, a one-time charge attributed to Morgan Keegan -- the investment arm recently sold to Raymond James Financial (NYSE: RJF  ) -- dug EPS into a $0.48 hole. Without it, Regions would have earned $0.09 per share from its continuing operations. This would have bested analyst estimates of $0.03 per share, and the market took the loss in stride.

Breaking down the numbers
Divesting itself of Morgan Keegan will raise $1.18 billion for Regions and should close before the next quarter begins to help Regions trim its riskier assets. The rest of Regions' operations continue to improve, tracking the broader banking sector's rebirth:

  • Regions had an 11.3% Basel III capital ratio in the fourth quarter, well north of the 8.5% minimum requirement, and a 7.7% common ration, clear of the 7% minimum.
  • Non-performing loan volumes continue their steep decline, down $800 million from the year-ago quarter. Total non-performing assets are now 24% lower than they were a year ago.
  • Other loan segments improved, led by commercial and industrial loans, which saw $357 million worth of new business in the fourth quarter.
  • Average commercial and industrial loan value is up an impressive 11%, and total new commitments are up 14% for the year.
  • Regions continues to improve the cost of its deposits while maintaining stable total balances. Costs are down 24 basis points from the year-ago quarter, and total deposits are up about $500 million.
  • Service charge revenues took a hit from the Durbin Amendment that lowered interchange fees, down $47 million from the third quarter. Mortgage income also declined by $9 million.

Making sense of things
Though Regions did post its first quarterly loss in a year, it seems likely to resume profitability in the next quarter as it digests its gain from the Morgan Keegan sale. Its improved continuing operations profits place it in good company with fellow regional Synovus (NYSE: SNV  ) , which also bested analyst estimates  along with other regional banks showing signs of renewed vigor.

Huntington Bancshares (Nasdaq: HBAN  ) and BB&T (NYSE: BBT  ) also delivered solid results for the banking sector last week. BB&T saw even steeper drops in its non-performing loan volumes than Regions, and Huntington earned nearly double in 2011 what it made in 2010. Regions must still contend with the $3.5 billion it owes the Troubled Assets Relief Program, but with its financial picture improving, there's no reason why that can't be paid down … eventually.

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Fool contributor Alex Planes holds no financial position in any company mentioned here. Add him on Google+ or follow him on Twitter for more news and insights. The Motley Fool owns shares of Huntington Bancshares. 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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  • Report this Comment On January 27, 2012, at 11:02 AM, Teacherman1 wrote:

    Alex

    Good post, providing "food for thought".

    I like Regions for the longer term, have owned it in the past, and sold it not too long ago for a small profit, but for now, I am waiting for a "reasonable" drop before I could consider it a buy.

    Your statement ,

    "Regions must still contend with the $3.5 billion it owes the Troubled Assets Relief Program, but with its financial picture improving, there's no reason why that can't be paid down … eventually",

    that word "eventually" is the reason I am currently out and waiting.

    I think that sometime in 2012, they will do a new share issue to take care of that problem (after posting one or two profitable quarters to have a high enough offer price to keep from diluting too much).

    That is likely the time I will buy back in for a longer term hold. I expect that the price will take a dip on dilution fears, providing a better entry price, as well as taking care of the TARP problem.

    Of course, given enough time, they should be able to pay it from earnings, but I would be very surprised if they go that route.

    They might also do some combination of new shares, prefered shares, convertible notes, and earnings to achieve this, but I think they will address it in some form, sooner, rather than later.

    JMO and worth exactly what I am charging for it.

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