Regions Financial Beats as Credit Costs Plunge

• Regions Financial reports first-quarter earnings from continued operations of 14 cents a share.
• The consensus EPS estimate was eight cents.
• Transitional quarter with sale of Morgan Keegan and common equity raise, preparing for April TARP repayment.
• Reserve release of $215 million fuels beat.

NEW YORK (TheStreet) - Regions Financial (RF) on Tuesday reported that its first-quarter provision for loan losses declined 60% sequentially and 76% year-over-year, fueling operating results that far exceeded analysts' expectations.

The Birmingham, Ala., lender reported first-quarter earnings from continuing operations available to common shareholders of $185 million, or 14 cents a share, improving from losses of $135 million, or 11 cents a share, in the fourth quarter, and a loss of $2 million, or less than a penny a share, in the first quarter of 2011.

The consensus among analysts polled by Thomson Reuters was for Regions to post first-quarter operating EPS of 8 cents.

On a GAAP basis, Regions reported first-quarter net income available to common shareholders of $145 million, or 11 cents a share, compared to a fourth-quarter loss of $602 million, or 11 cents a share, mainly from write-downs associated with the then-pending sale of the company's Morgan Keegan subsidiary, which was completed during the first quarter. During the first quarter of 2011, GAAP net income to common shareholders was $17 million, or a penny a share.

The first quarter represented quite a transition for Regions, with not only the Morgan Keegan sale, but also a $900 million common equity raise, in preparation for the company's the full repayment in early April of $3.5 billion in federal bailout funds received through the Troubled Assets Relief Program, or TARP, in November 2008.

The main factor in the first-quarter earnings beat was a sharp decline in credit costs, with a first-quarter provision for loan losses of $117 million, declining from $295 million the previous quarter, and $482 million a year earlier. Loan loss reserves declined by $215 million, directly boosting operating earnings.

Average loan balances declined 2% sequentially and 6% year-over-year, to $77.2 billion during the first quarter, with all real estate loan categories seeing declines.

A highlight for Regions was that average non-real estate commercial and industrial loan balances increased 2% sequentially and 8% year-over-year, to $24.7 billion during the first quarter.