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Regions Financial (NYSE: RF ) CEO Grayson Hall said after the bank's first-,quarter earnings that it was "fundamentally stronger, strategically focused and well positioned to grow our franchise profitably." Let's find out what makes him say so.
Helped by a solid improvement in its credit quality, first-quarter profits nearly doubled for the regional bank. Regions reported net income of $199 million this quarter, considerably up from $69 million a year ago.
At the same time, Regions' earnings from its traditional banking business declined this quarter. Net interest income declined to $827 million from $863 million a year ago. This fall possibly stemmed from the fact that the bank's loan yields fell this quarter as a result of some balance-sheet hedges that were cancelled earlier. However, its net interest margin rose slightly to 3.09% -- suggesting that the bank is managing its funds better.
What really helped the bank grow its profits was its reduction in credit losses, which has been the general trend for some of its peers as well. Regions' provision for loan losses fell by 76% to $117 million from the year-ago period. Interestingly, this is the lowest loan-loss provision the bank has set aside to cover for bad loans in more than four years.
Midwest regional bank Huntington Bancshares (Nasdaq: HBAN ) posted a 22% surge in profits during its first quarter, helped by a 30% fall in its loan-loss provisions. Similarly, US Bancorp's (NYSE: USB ) earnings rose by a whopping 28%, yet again helped by a 36% fall in loan-loss provisions. This overall trend points to an improving economy and, more importantly, the fact that banks may be finally leaving the lows of the financial crisis behind them.
Improving credit quality
To add to the fall in loan-loss provisions, Regions' net charge-offs also declined by 23% on a sequential basis. Nonperforming loans (apart from those kept aside for sale) fell by 9% from the previous quarter. This is indicative of an improvement in the bank's asset quality, which bodes well for the future.
Under the new rules, Regions ended the quarter with a Tier 1 capital ratio of 12.5%, well above the minimum 8.5% requirement, which means the bank is in a pretty strong capital position. Plus, the bank's loan-to-deposits ratio declined to 79% from 84.4% a year ago -- meaning its liquidity position has improved as well.
Regions' total production of loans was worth $12.6 billion during this quarter, with $10.3 billion worth of commercial loans driving the bulk of the production. Growth in Regions' middle-market commercial and industrial customers carried on during this quarter, with average loans in this segment rising by 8.1% from a year ago. This builds on the fact that in its last quarter, loans in the same segment grew by $2.4 billion, or 11% from the year-ago period. Growing loans is definitely a positive improvement for the bank, specially when viewed against the prevailing low interest rates.
Uncle Sam repaid
Perhaps the biggest win for Regions Financial is that it finally managed to repay $3.5 billion it had received from the government as part of the Troubled Asset Relief Program. To repay the government, the bank sold Morgan Keegan, its investment-banking wing, to Raymond James Financial (NYSE: RJF ) . The sale reportedly helped the bank raise $1.18 billion. To add to that, Regions also raised around $900 million through the sale of its stock to help repay the bailout money. Exiting the government's bailout program is definitely a massive weight off its shoulders.
Having repaid the government, Regions can now move forward and it has a pretty solid quarter to build up on, going forward. Follow Regions with the help of the Fool's free My Watchlist service.
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