Regions Financial Corporation (NYSE:RF) today reported financial
results for the quarter ending September 30, 2010.
Key points for the quarter included:
- Loss of 17 cents per diluted share for
the quarter ended September 30, 2010, compared to a loss of 37
cents per diluted share for the quarter ended September 30, 2009.
The current quarter’s loss reflects elevated disposition of problem
assets and continued de-risking of the balance sheet
- Asset dispositions, which include
assets transferred to held for sale, totaled $1.0 billion in the
third quarter, including a $350 million bulk sale of distressed
assets; charge-offs associated with all asset dispositions totaled
$233 million in the quarter
- Total net loan charge-offs increased
$108 million linked quarter to $759 million, or 3.52 percent of
average loans; loan loss provision essentially matched net
charge-offs
- Non-performing loans, excluding loans
held for sale, declined $101 million or 3 percent, driving a 5
percent overall decline in non-performing assets
- Pre-tax pre-provision net revenue
(“PPNR”) totaled $454 million in the third quarter, a $32 million
decline versus the prior quarter’s $486 million, excluding the
regulatory charge. The decline reflects the impact of higher
credit-related costs and the impact of Regulation E; versus the
third quarter of 2009, adjusted PPNR increased 11 percent (see
non-GAAP reconciliation in Financial Supplement).
- Net interest income rose $12 million or
1 percent resulting in a 9 basis point improvement in the net
interest margin to 2.96 percent
- Funding mix continues to improve
resulting in third quarter total deposit costs declining 9 basis
points to 0.70 percent
- On track to open more than one million
new business and consumer checking accounts this year, exceeding
2009’s record level
- Period end loans outstanding declined
approximately $1.5 billion or 2 percent during the quarter,
reflecting the company’s efforts to reduce investor real estate
exposure. Notably, commercial and industrial balances increased
$405 million between quarters.
- Maximum loss potential from Gulf oil
spill now estimated at $20 million, sharply less than the initial
$100 million estimate
- Solid capital with a Tier 1 Capital
ratio estimated at 12.1 percent and a Tier 1 Common ratio estimated
at 7.6 percent
Earnings Highlights
Three months ended:
(In millions. except per share data) September 30, 2010 June
30, 2010 September 30, 2009
Amount Dil.
EPS Amount Dil. EPS Amount
Dil. EPS Earnings Net interest income $868 $856 $845
Non-interest income * 750 756 772 Regulatory charge - 200 -
Non-interest expense, excluding regulatory charge** 1,163 1,126
1,243 Pre-tax pre-provision net revenue 455 286 374 Provision for
loan losses 760 651 1,025 Net income (loss) ($155) ($0.13) ($277)
($0.23) ($377) ($0.32) Preferred dividends and accretion 54 (0.04)
58 (0.05) 60 (0.05) Net income (loss) available to common
shareholders ($209) ($0.17) ($335) ($0.28) ($437) ($0.37)
GAAP to Non-GAAP Reconciliation Net income (loss)
available to common shareholders (GAAP) ($209) ($0.17) ($335)
($0.28) ($437) ($0.37) Regulatory charge*** - - 200 0.17 - - Net
income (loss) available to common shareholders, excluding
regulatory charge (Non-GAAP)*** ($209) ($0.17) ($135) ($0.11)
($437) ($0.37)
Key ratios **** Net interest margin
(FTE) 2.96% 2.87% 2.73% Tier 1 Capital 12.1% 12.0% 12.2% Tier 1
Common risk-based
ratio (non-GAAP)***
7.6% 7.7% 7.9% Tangible common stockholders’ equity to tangible
assets (non-GAAP)*** 6.13% 6.26% 6.56% Tangible common book value
per share (non-GAAP)*** $6.22 $6.45 $7.40
Asset
quality
Allowance for loan losses as % of net
loans
3.77% 3.71% 2.83% Net charge-offs as % of average net loans~ 3.52%
2.99% 2.86% Non-performing assets as % of loans and other real
estate 4.98% 4.94% 4.40% Non-performing assets as % of loans and
other real estate (excluding loans held for sale) 4.52% 4.65% 3.99%
Non-performing assets (including 90+ past due) as % of loans and
other real estate 5.68% 5.65% 5.08% Non-performing assets
(including 90+ past due) as % of loans and other real estate
(excluding loans held for sale) 5.21% 5.35% 4.68%
* Quarter ended September 30, 2009,
reflects $4 million related to leveraged lease transactions, which
was offset by $4 million of incremental tax expense.
** Quarter ended September 30, 2009,
reflects $41 million related to branch consolidation costs.
*** See “Use of non-GAAP financial
measures” at the end of this release.
**** Tier 1 Common and Tier 1 Capital
ratios for the current quarter are estimated.
~ Annualized
Fragile economy drives prudent actions to reduce risk; core
business performance improves
Regions’ 2010 third quarter loss available to common
shareholders of $209 million, or 17 cents per diluted share,
reflects actions taken to identify and dispose of problem assets.
Despite elevated credit costs, third quarter results show continued
momentum in the company’s core business performance, as pre-tax
pre-provision net revenue (“PPNR”) rose by 11 percent,
year-over-year, on an adjusted basis (see non-GAAP reconciliation
in Financial Supplement). Additionally, net interest income and the
resulting net interest margin continued to improve, the pace of
loan decline slowed and customers opened new checking accounts at a
record pace.
“Although the economic recovery in most of our markets remains
slow and uneven, we remain committed to returning Regions to
sustainable profitability as quickly and prudently as possible and
believe this quarter’s actions to dispose of problem assets will
help us achieve our goal,” said Grayson Hall, president and chief
executive officer. “However, we remain cautious due to the slow
pace of economic recovery.”
Focus on problem assets; continued de-risking of balance
sheet
The Company’s proactive sales efforts remain a key element of
its risk management strategy. The company sold approximately $350
million in a bulk sale of distressed property in the third quarter,
including both loans and Other Real Estate Owned (“OREO”),
resulting in $108 million of associated charge-offs and $30 million
losses recorded as non-interest expense. Including the bulk sale,
Regions sold or transferred to held for sale assets totaling
approximately $1.0 billion in the quarter ended September 30, 2010,
further contributing to the linked quarter rise in net charge-offs
and non-interest expense.
The provision for loan losses essentially equaled net
charge-offs at $760 million, increasing from $651 million, and was
an annualized 3.52 percent of average loans. The loan loss
allowance coverage of non-performing loans was 0.94x at September
30, 2010 while the allowance for loan losses to net loan ratio
increased to 3.77 percent.
Non-performing loans, excluding loans held for sale, declined
$101 million or 3 percent versus the previous quarter, and were the
primary driver of an overall decline in non-performing assets.
Nevertheless, inflows of non-performing assets were elevated,
reflecting the slow pace of economic recovery. Importantly, an
increasing and substantial portion of new non-performing loan
inflows was attributable to loans that are paying as agreed, and
internally risk-rated problems loans declined on a linked quarter
basis.
Funding mix improves; Net interest margin continues to
expand
Regions’ funding mix and costs continued to improve, driving
third quarter’s net interest income and net interest margin higher.
Net interest income rose $12 million in the third quarter, as
improving deposit costs continued to benefit the net interest
margin, which strengthened 9 basis points linked quarter to 2.96
percent. The company has approximately $11.4 billion of CDs
maturing over the next 9 months which will be re-priced to market
rates as they mature. These CDs currently carry an average 2.10
percent interest rate, enabling a further future reduction in
overall deposit cost. The company’s emphasis on improving deposit
mix and costs is expected to result in additional margin
improvement going forward. In keeping with our overall balance
sheet management strategy, total deposits declined in the third
quarter, as $2.1 billion of higher-interest rate CDs matured and
balance run-off occurred as rates were reduced to market levels.
Low cost deposits increased $854 million during the quarter and the
loan to deposit ratio was 89 percent at September 30, 2010.
Continued emphasis on the customer; lending remains a primary
focus
Customer focus is the top priority within the company’s
strategic growth plan. The company’s success has been validated by
Gallup, which has identified Regions as a top-decile performer in
customer loyalty. Attention to service quality and loyalty
continued to pay off in the third quarter, as demonstrated by new
checking account sales. The company is on track to open more than
one million new business and consumer checking accounts this year,
exceeding 2009’s record level.
While maintaining a clear focus on reducing the overall cost of
deposits during late 2009 and into 2010, Regions was successful in
improving its market position. According to the data provided in
the Federal Deposit Insurance Corporation’s recently released
Summary of Deposits analysis, Regions’ deposit growth ranked 1st
amongst its peer group and 7th among the 25 largest U.S. banks.
Further, the company grew market share in 6 of the 16 states in
which it operates and in 15 of the company’s top 25 MSAs.
Total average loans declined 2 percent versus the second quarter
– a slower decline as compared to recent quarters - attributed to
portfolio de-risking efforts, particularly involving investor real
estate. However, the company remains focused on generating quality,
profitable loans for businesses and consumers as evidenced by the 2
percent growth in the company’s middle market commercial and
industrial loan portfolio.
Regions’ investment in commercial and industrial segments, such
as energy, healthcare, franchise restaurant and transportation, is
generating new lending opportunities. In addition, Regions is
leveraging its broad branch network and its number 3 national small
business lender ranking, per the Small Business Administration, to
grow relationships to small businesses, which represent an
important segment of the economy. As for consumers, the company is
continuing to emphasize mortgage and direct lending, leveraging the
strength of its extensive branch network.
The company has also continued to assist borrowers in need with
its Customer Assistance Program. Since inception, approximately
16,500 consumer real estate loans have been restructured while more
than 30,000 homeowners have received some type of assistance. As a
result, Regions’ foreclosure rate is less than half the national
average.
In addition, Regions has remained an active lender in the
current environment, having made new or renewed loan commitments
totaling $15.5 billion during the third quarter of 2010, primarily
driven by residential first mortgage production and lending to
commercial customers, including those operating small
businesses.
- 35,478 home loans and other lending to
consumers totaling $2.9 billion
- 10,597 commitments totaling $1.9
billion to small businesses and $10.7 billion to other commercial
customers
Steady non-interest revenue
Non-interest revenues decreased 1 percent on a linked quarter
basis, primarily driven lower by implementation of Regulation E.
However, the actual impact from Regulation E changes, previously
estimated at $72 million for the second half of 2010, will be less
adverse than previously projected. This impact is now expected to
be between $50 million and $60 million, with approximately $16
million being reflected in the current quarter. This performance
and the continued adoption of overdraft protection services
indicate customers find value in these services.
Heavy refinancing activity was the primary source of mortgage
revenue this quarter, a result of the low interest rate
environment. Of the total $2.4 billion in originations, 67 percent
represented refinance activity, up from second quarter’s 41
percent.
Morgan Keegan’s brokerage revenues were solid, up 6 percent
versus the previous quarter, reflecting continued private client
and fixed income strength. Fixed income revenue was especially
strong, increasing 13 percent linked quarter, driven higher by
customers’ increasing demand for short-term securities.
Increase in non-interest expenses driven by credit-related
costs
Excluding prior quarter’s regulatory charge, total non-interest
expense increased $37 million or 3 percent versus the second
quarter. This increase was driven by a $31 million linked quarter
rise in OREO expense and held-for-sale costs, $30 million of which
was attributable to the previously described bulk asset sales.
Credit-related headwinds such as these are expected to continue to
impact the bottom-line for the foreseeable future. Despite these
costs, the company continues to control discretionary expenses and
work to improve its operating efficiency.
Gulf oil spill
The company continues to monitor the situation in the Gulf coast
area and its potential financial impact to the company. Based on
updated stress testing conducted this quarter and discussions with
our borrowers, the company has lowered its estimate of potential
future losses to be a maximum of $20 million, significantly less
than its initial estimate of $100 million.
Regulatory reform
The passage of the Dodd-Frank Wall Street Reform and Consumer
Protection Act has to a large extent reshaped the financial
services industry landscape. As final regulations for implementing
this reform are written, providing greater clarity, the company
will make appropriate adjustments to its business model. These are
likely to include changes in pricing services and products, taking
into account both value provided and related costs. As a result,
the company expects there will be material price adjustments on its
services and products going forward.
With respect to the new Consumer Financial Protection Bureau,
Regions believes the bureau has the opportunity to simplify
consumer disclosures and provide customers with an easier way to
understand costs and compare products and services among both banks
and non-bank financial services companies. The company supports
changes that bring non-bank competitors under the same regulations
it adheres to, reduces the complexity of required disclosures, and
results in customers receiving information that is clear and
concise.
Strong capital position
As of September 30, 2010, Tier 1 Capital stands at an estimated
12.1 percent, while the estimated Tier 1 Common ratio is 7.6
percent, compared to 12.0 percent and 7.7 percent, respectively,
for the previous quarter (see non-GAAP discussion).
Recently proposed Basel III rules, which will be phased in over
the next several years beginning in 2013, will impact the entire
financial services industry, including Regions. Basel III is
expected to have minimal impact on the company, as the company’s
Tier 1 common ratio is projected to be above Basel III’s minimum 7
percent guideline. Regions is also expected to be well positioned
with respect to the Liquidity Coverage Ratio. However, there is
still need for some clarification of the Basel III rules and
implementation by U.S. banking regulators, so the ultimate impact
on Regions is not completely known at this point.
About Regions Financial Corporation
Regions Financial Corporation, with $133 billion in assets, is a
member of the S&P 100 Index and one of the nation’s largest
full-service providers of consumer and commercial banking, trust,
securities brokerage, mortgage and insurance products and services.
Regions serves customers in 16 states across the South, Midwest and
Texas, and through its subsidiary, Regions Bank, operates
approximately 1,800 banking offices and 2,200 ATMs. Its investment
and securities brokerage trust and asset management division,
Morgan Keegan & Company Inc., provides services from over 300
offices. Additional information about Regions and its full line of
products and services can be found at www.regions.com.
Forward-looking statements
This press release may include forward-looking statements which
reflect Regions’ current views with respect to future events and
financial performance. The Private Securities Litigation Reform Act
of 1995 (“the Act”) provides a “safe harbor” for forward-looking
statements which are identified as such and are accompanied by the
identification of important factors that could cause actual results
to differ materially from the forward-looking statements. For these
statements, we, together with our subsidiaries, claim the
protection afforded by the safe harbor in the Act. Forward-looking
statements are not based on historical information, but rather are
related to future operations, strategies, financial results or
other developments. Forward-looking statements are based on
management’s expectations as well as certain assumptions and
estimates made by, and information available to, management at the
time the statements are made. Those statements are based on general
assumptions and are subject to various risks, uncertainties and
other factors that may cause actual results to differ materially
from the views, beliefs and projections expressed in such
statements. These risks, uncertainties and other factors include,
but are not limited to, those described below:
- The Dodd-Frank Wall Street Reform and
Consumer Protection Act became law on July 21, 2010, and a number
of legislative, regulatory and tax proposals remain pending.
Additionally, the U.S. Treasury and federal banking regulators
continue to implement, but are also beginning to wind down, a
number of programs to address capital and liquidity in the banking
system. All of the foregoing may have significant effects on
Regions and the financial services industry, the exact nature of
which cannot be determined at this time.
- The impact of compensation and other
restrictions imposed under the Troubled Asset Relief Program
(“TARP”) until Regions repays the outstanding preferred stock and
warrant issued under the TARP, including restrictions on Regions’
ability to attract and retain talented executives and
associates.
- Possible additional loan losses,
impairment of goodwill and other intangibles, and adjustment of
valuation allowances on deferred tax assets and the impact on
earnings and capital.
- Possible changes in interest rates may
increase funding costs and reduce earning asset yields, thus
reducing margins.
- Possible changes in general economic
and business conditions in the United States in general and in the
communities Regions serves in particular, including any prolonging
or worsening of the current unfavorable economic conditions,
including unemployment levels.
- Possible changes in the
creditworthiness of customers and the possible impairment of the
collectability of loans.
- Possible changes in trade, monetary and
fiscal policies, laws and regulations, and other activities of
governments, agencies, and similar organizations, including changes
in accounting standards, may have an adverse effect on
business.
- The current stresses in the financial
and real estate markets, including possible continued deterioration
in property values.
- Regions' ability to manage fluctuations
in the value of assets and liabilities and off-balance sheet
exposure so as to maintain sufficient capital and liquidity to
support Regions' business.
- Regions' ability to expand into new
markets and to maintain profit margins in the face of competitive
pressures.
- Regions' ability to develop competitive
new products and services in a timely manner and the acceptance of
such products and services by Regions' customers and potential
customers.
- Regions' ability to keep pace with
technological changes.
- Regions' ability to effectively manage
credit risk, interest rate risk, market risk, operational risk,
legal risk, liquidity risk, and regulatory and compliance
risk.
- Regions’ ability to ensure adequate
capitalization which is impacted by inherent uncertainties in
forecasting credit losses.
- The cost and other effects of material
contingencies, including litigation contingencies and any adverse
judicial, administrative or arbitral rulings or proceedings.
- The effects of increased competition
from both banks and non-banks.
- The effects of geopolitical instability
and risks such as terrorist attacks.
- Possible changes in consumer and
business spending and saving habits could affect Regions' ability
to increase assets and to attract deposits.
- The effects of weather and natural
disasters such as floods, droughts and hurricanes, and the effects
of the Gulf of Mexico oil spill.
- Regions’ ability to maintain favorable
ratings from rating agencies.
- Potential dilution of holders of shares
of Regions’ common stock resulting from the U.S. Treasury’s
investment in TARP.
- Possible changes in the speed of loan
prepayments by Regions’ customers and loan origination or sales
volumes.
- The effects of problems encountered by
larger or similar financial institutions that adversely affect
Regions or the banking industry generally.
- Regions’ ability to receive dividends
from its subsidiaries.
- The effects of the failure of any
component of Regions’ business infrastructure which is provided by
a third party.
- The effects of any damage to Regions’
reputation resulting from developments related to any of the items
identified above.
The words "believe," "expect," "anticipate," "project," and
similar expressions often signify forward-looking statements. You
should not place undue reliance on any forward-looking statements,
which speak only as of the date made. We assume no obligation to
update or revise any forward-looking statements that are made from
time to time.
The foregoing list of factors is not exhaustive. For discussion
of these and other factors that may cause actual results to differ
from expectations, look under the captions “Forward-Looking
Statements” and “Risk Factors” in Regions’ Annual Report on Form
10-K for the year ended December 31, 2009 and Quarterly Report
on Forms 10-Q for the quarters ended June 30, 2010 and March 31,
2010, as on file with the Securities and Exchange Commission.
Use of non-GAAP financial measures
Page two of this earnings release presents computation of
earnings and certain other financial measures excluding regulatory
charge (non-GAAP), tier 1 common risk-based ratio and tangible
common equity. Page seven of the financial supplement shows
additional ratios based on return on average assets, tangible
common stockholders equity, as well as the Tier 1 common risk-based
ratio. Tangible common stockholders’ equity ratios have become a
focus of some investors, and management believes they may assist
investors in analyzing the capital position of the company absent
the effects of intangible assets and preferred stock.
Traditionally, the Federal Reserve and other banking regulatory
bodies have assessed a bank’s capital adequacy based on Tier 1
capital, the calculation of which is codified in federal banking
regulations. In connection with the Supervisory Capital Assessment
Program, these regulators began supplementing their assessment of
the capital adequacy of a bank based on a variation of Tier 1
capital, known as Tier 1 common equity. While not codified,
analysts and banking regulators have assessed Regions’ capital
adequacy using the tangible common stockholders’ equity and/or the
Tier 1 common equity measure. Because tangible common stockholders’
equity and Tier 1 common equity are not formally defined by GAAP or
codified in the federal banking regulations, these measures are
considered to be non-GAAP financial measures and other entities may
calculate them differently than Regions’ disclosed calculations.
Since analysts and banking regulators may assess Regions’ capital
adequacy using tangible common stockholders’ equity and Tier 1
common equity, we believe that it is useful to provide investors
the ability to assess Regions’ capital adequacy on these same
bases.
Tier 1 common equity is often expressed as a percentage of
risk-weighted assets. Under the risk-based capital framework, a
bank’s balance sheet assets and credit equivalent amounts of
off-balance sheet items are assigned to one of four broad risk
categories. The aggregated dollar amount in each category is then
multiplied by the risk weighted category. The resulting weighted
values from each of the four categories are added together and this
sum is the risk-weighted assets total that, as adjusted, comprises
the denominator of certain risk-based capital ratios. Tier 1
capital is then divided by this denominator (risk-weighted assets)
to determine the Tier 1 capital ratio. Adjustments are made to Tier
1 capital to arrive at Tier 1 common equity. Tier 1 common equity
is also divided by the risk-weighted assets to determine the Tier 1
common equity ratio. The amounts disclosed as risk-weighted assets
are calculated consistent with banking regulatory requirements.
Non-GAAP financial measures have inherent limitations, are not
required to be uniformly applied and are not audited. To mitigate
these limitations, Regions has policies and procedures in place to
identify and address expenses that qualify for non-GAAP
presentation, including authorization and system controls to ensure
accurate period to period comparisons. Although these non-GAAP
financial measures are frequently used by stakeholders in the
evaluation of a company, they have limitations as analytical tools,
and should not be considered in isolation, or as a substitute for
analyses of results as reported under GAAP. In particular, a
measure of earnings that excludes the regulatory charge does not
represent the amount that effectively accrues directly to
stockholders (i.e. the regulatory charge is a reduction in earnings
and stockholders’ equity).
See page 10 of the supplement to this earnings release for
computation of pre-tax pre-provision net revenue (GAAP) to adjusted
pre-tax pre-provision net revenue (non-GAAP). See pages 27 and 28
of the supplement to this earnings release for 1) computation of
GAAP net income (loss) available to common shareholders, earnings
(loss) per common share and return on average assets to non-GAAP
financial measures, 2) a reconciliation of average and ending
stockholders’ equity (GAAP) to average and ending tangible common
stockholders’ equity (non-GAAP), 3) a reconciliation of
stockholders’ equity (GAAP) to Tier 1 capital (regulatory) and to
Tier 1 common equity (non-GAAP), 4) a reconciliation of
non-interest expense (GAAP) to adjusted non-interest expense
(non-GAAP) 5) a reconciliation of total revenue (GAAP) to adjusted
total revenue (non-GAAP) and 6) a computation of the efficiency
ratio (non-GAAP).
Photos/Multimedia Gallery Available:
http://www.businesswire.com/cgi-bin/mmg.cgi?eid=6482087&lang=en
Regions Financial (NYSE:RF)
Historical Stock Chart
From Jun 2024 to Jul 2024
Regions Financial (NYSE:RF)
Historical Stock Chart
From Jul 2023 to Jul 2024