Regions Financial (RF)
Q4 2011 Earnings Call
January 24, 2012 11:00 am ET
Matthew Lusco -
Barbara Godin - Chief Credit Officer, Executive Vice President and Head of Credit Operations - Regions Bank
Previous Statements by RF
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M. List Underwood - Director of Investor Relations
David J. Turner - Chief Financial Officer, Senior Executive Vice President, Member of the Executive Council, President of Central Region, Chief Financial Officer of Regions Bank and Senior Executive Vice President of Regions Bank
Craig Siegenthaler - Crédit Suisse AG, Research Division
Gerard S. Cassidy - RBC Capital Markets, LLC, Research Division
Jefferson Harralson - Keefe, Bruyette, & Woods, Inc., Research Division
Christopher W. Marinac - FIG Partners, LLC, Research Division
Leanne Erika Penala - BofA Merrill Lynch, Research Division
Gregory W. Ketron - UBS Investment Bank, Research Division
Matthew D. O'Connor - Deutsche Bank AG, Research Division
John G. Pancari - Evercore Partners Inc., Research Division
Matthew H. Burnell - Wells Fargo Securities, LLC, Research Division
Marty Mosby - Guggenheim Securities, LLC, Research Division
Kenneth M. Usdin - Jefferies & Company, Inc., Research Division
Brian Foran - Nomura Securities Co. Ltd., Research Division
Kevin Fitzsimmons - Sandler O'Neill + Partners, L.P., Research Division
Good morning, and welcome to the Regions Financial Corp.'s Quarterly Earnings Call. My name is Kelly, and I will be your operator for today's call. [Operator Instructions] I will now turn the call over to Mr. List Underwood to begin.
M. List Underwood
Good morning, everyone. We appreciate your participation in our call this morning. Our presenters today are Grayson Hall, our President and Chief Executive Officer; and David Turner, our Chief Financial Officer. Also here with us this morning and available to answer questions are Matt Lusco, our Chief Risk Officer; and Barb Godin, our Chief Credit Officer. As part of our call, we will be referencing a slide presentation that is available under the Investor Relations section of regions.com.
Let me also remind you that in this call, we may make forward-looking statements which reflect our current views with respect to future events and financial performance. Forward-looking statements are not based on historical information but rather are related to future operations, strategies, financial results or other developments. 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. Additional information regarding these factors can be found on our forward-looking statement that is located in the appendix of the presentation.
I'll now turn it over to Grayson.
O. B. Grayson Hall
Thank you, List, and welcome to everyone to Regions' Fourth Quarter and Full Year 2011 Earnings Conference Call. We appreciate your interest in Regions and are pleased to have this opportunity to update you on the solid progress we made this past year in executing our business plans and building a stronger core franchise, as well as our expectations for continued progress in 2012.
Although the environment has clearly remained challenged, our 2011 results demonstrated that our disciplined business plans and focus on the customer is working. Total loan production for the year was a solid $60 billion. Of that, Business Services accounted for $51 billion or 83%, including $15 billion of new loan production, a 14% increase over last year. Consumer banking loan production accounted for $9 billion in 2011, driven by strength in mortgage, indirect auto and credit card. Loan growth was fueled by commercial and industrial loan balances, which on average increased 11% for the full year. Offsetting this growth was the Investor Real Estate loan portfolio, which favorably declined over $5 billion in 2011 or 33% of outstandings, as we continued to consistently and aggressively de-risk our balance sheet.
Average low cost deposits for the full year grew more than $4 billion in 2011 or nearly 6%, which led to a 29-basis-point decline in total deposit cost as a result of this favorable shift in deposit mix. Credit quality metrics meaningfully improved in 2011 as demonstrated by 29% decline in net charge-offs, a 24% decrease in nonperforming assets, a 40% decrease in inflows of nonperforming loans and a 35% reduction in Business Services criticized loans, which are our earliest indicator of problem loans for the future.
We also sharply reduced our credit-related costs in 2011, with full year provision down $1.3 billion or 47% for 2010, while continuing to maintain a solid reserve level to net loans of 3.54%.
Although 2011 revenues were down due to lower security gains, excluding these securities transactions, our revenues held relatively steady despite legislative, regulatory and interest rate challenges. Total expenses were higher due to fourth quarter's goodwill impairment charge associated with Morgan Keegan. However, excluding the goodwill impairment charge and last year's regulatory charge and related tax benefit as a result of our continued focus on cost, full year noninterest expenses from continuing operations were down 5%, aided by a 4% reduction in headcount and the elimination of 700,000 square feet of excess facility space. Additionally, we further strengthened our capital base, increasing our Tier 1 common equity ratio by approximately 65 basis points to an estimated 8.5%.
As recently announced, we reached an agreement to sell our broker-dealer operation, Morgan Keegan, to Raymond James for $930 million. As part of the transaction, Morgan Keegan is also expected to pay Regions a dividend of $250 million before closing, providing total consideration of $1.18 billion. As disclosed, Morgan Asset Management and Regions Morgan Keegan Trust are not included in the sale and remain part of Regions Wealth Management organization. To reiterate, the transaction reduces our overall risk profile, provides substantial liquidity at the holding company and modestly improves key capital ratios. It also establishes a strong long-term partnership with Raymond James, which we anticipate will provide incremental revenue opportunities and a source of low cost deposits while also enhancing our ability to serve our existing customers. Importantly, we also expect going forward that we will maintain important business relationships with Morgan Keegan associates that have developed over many years of working together to serve our customers' needs. The divestiture will strengthen Regions' overall focus and discipline on our core banking franchise. Although it's been less than 2 weeks since the announcement, we have been working productively and urgently to achieve a first quarter close of this transaction.