On the back of lower loan loss provisions and an improved credit quality, Regions Financial (NYSE: 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 (NYSE: FHN) and KeyCorp (NYSE: 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 (NYSE: 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 (NYSE: 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.
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