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For Regions, energy remains a drag but consumer lending solid


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For Regions, energy remains a drag but consumer lending solid

's second-quarterearnings dipped as energy lending charge-offs rose and the bank absorbed a heftycharge tied to a cost-cutting program.

But consumerlending proved an offsetting positive, and the company's ongoing efforts to shutterbranches should bring down costs longer term, executives said.

Regionson July 19 posted second-quarternet income available to common shareholders of $259 million, down from $269 milliona year earlier. Earnings per share of 20 cents was flat and matched the S&PCapital IQ consensus estimate.

The Birmingham, Ala.-based bank, which has a relatively largeenergy book, said its net charge-offs of $72 million increased about 5% during thesecond quarter. Netcharge-offs linked to the company's energy portfolio totaled $17 million in thequarter. Energy borrowers have struggled this year amid a drawn-out slump in oilprices that dates to 2014.

Regionssaid its provision for loan losses matched charge-offs, and its allowance for loan-and-leaselosses held even from the previous quarter at 1.41% of total loans outstanding.But its total allowance for the bank's direct energy loan portfolio increased to9.4% from 8.0% in the first quarter.

Commerciallending overall was essentially flat from the previous quarter and total loans wereup less than 1%. Commercial pipelines are softening some, executives said duringa call with analysts to discuss earnings,as business owners inside and out of the energy sector wrestle with economic uncertainties.

But consumerlending climbed a full percentage point during the quarter and was up nearly 5%from a year earlier, with growth across nearly every category, executives said.They added that consumer credit quality is improving.

The "overall health of the consumer remains a bright spot,"Chairman, President and CEO Grayson Hall Jr. saidon the call.

On the cost side, non-interest expenses climbed more than 5% during the secondquarter. Regions took a $22 million hit inproperty-related expenses tied mostly to a plan to close about 60 branches in thefourth quarter of this year.

Withthose 60 branches, the company has now announced the planned closing of about 90branches in an ongoing effort to cut between 100 and 150 locations through 2018.The company currently has roughly 1,600 branches. Regions is trying to slash $300million in expenses through 2018.

"[W]e are focused on what we can control, and to that end,disciplined expense management is paramount," CFO David Turner Jr. said on the call.

For all of 2016, Turner reiterated that Regions anticipates averageloan growth of 3% to 5%, but he said the bank now expects to be near the lower endof that range. He said netcharge-offs would likely range from 25 basis points to 35 basis points of averageloans, with the bank currently expecting to finish the year at the high end of thatrange. Net charge-offs as a percentage of average loans were 0.35% in the secondquarter.