A sign of a healthier bank involves having confidence to use the fourth quarter as a kitchen sink to address issues head on.
Conditions have improved greatly at many Southeastern banks, including Regions Financial (RF) in Birmingham, Ala., and Synovus Financial (SNV) in Columbus, Ga. The companies have overcome significant credit quality issues and are starting to see signs of loan growth. This rebound paved the way for the companies to take one-time charges during the fourth quarter without overly cutting into their bottom lines.
"You're seeing a trend of companies getting stronger in terms of their credit quality and their earnings profile so that makes you more inclined to take any measures you can to put issues in your rearview mirror," Kevin Fitzsimmons, an analyst at Sandler O'Neill, says. "The general theme is that markets are improving, the economy is getting incrementally better and banks are getting" healthier.
Once one-time charges were stripped out of earnings, Regions and Synovus posted results that were mostly in-line with analysts' expectations.
Regions recorded several charges that reduced quarterly profit by $75 million, or 5 cents a share. Its moves included reclassifying $686 million in troubled-debt restructurings as held for sale.
The $117 billion-asset company had a "couple things working for" it when it decided to put the loans up for sale. "The market for assets is pretty strong," David Turner, Regions' chief financial officer, said during a quarterly conference call Tuesday morning. "If you took a look at the return on capital by holding those in our portfolio, versus how we could improve the return on proceeds from a transaction, we felt that was the best thing for us to do at this time."
Regions' profit fell almost 15% from a year earlier, to $233 million. Excluding one-time items, the results would have surpassed the average estimate of analysts' polled by Bloomberg by a penny, Fitzsimmons wrote in a note to clients.
During its earnings call, Regions' executives noted several positive trends. They forecast 3% to 5% loan growth this year. The net interest margin expanded 16 basis points in the fourth quarter, compared to a year earlier, to 3.26%. Regions had "good strength" in energy and technology lending, along with commercial real estate, Grayson Hall, Regions' chairman, president and CEO, said during the call.
"We had indicated [a quarter ago] that we thought our loan growth on the upside might be as much as 4%," Halls said. "We've raised that slightly to 5%."
Asset quality continued to improve. The bulk of Regions' $79 million loan-loss provision was tied to its loan transfers. Nonperforming loans, excluding those held for sale, fell 36% from a year earlier. The pace of new nonperforming loans fell 50% from a year earlier, to $175 million.
Synovus set aside $10 million for "outstanding legal matters" while also incurring $3.8 million in restructuring costs. The $26 billion-asset company earned $35.8 million in the fourth quarter. A year earlier, it earned $709.3 million because of an $800 million tax benefit tied to recapturing its deferred-tax asset.
Excluding those special items, Synovus matched the average estimate of analysts polled by Bloomberg, at 5 cents a share. Total loans rose more than 2% from a year earlier, to $20.1 billion, due to increased commercial and industrial and retail lending.
"Overall, this was a solid quarter for [Synovus], as stronger core operating trends show clear improvement," Jefferson Harralson, an analyst at Keefe, Bruyette & Woods, wrote in note to clients.
Synovus' "guidance was generally positive, and we expect higher revenues, lower expenses, and more loan growth looking out to 2014," Harralson added. "While we sense that investors are frustrated over timing towards achieving a 1% [return on assets], there is actually a sense of urgency at the company to improve performance.