Regions Financial Corporation (RF)

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Regions Financial (RF)

Q1 2011 Earnings Call

April 19, 2011 11:00 am ET


O. Hall - Vice Chairman, Chief Executive Officer, President, Chief Executive Officer of Regions Bank, President of Regions Bank and Director of Regions Bank

Barb Godin - EVP and Consumer Credit Executive

David Turner - Chief Financial Officer, Senior Executive Vice President, Member of the Executive Council, Chief Financial Officer of Regions Bank and Senior Executive Vice President of Regions Bank

M. Underwood - Director of Investor Relations


Craig Siegenthaler - Crédit Suisse AG

Brian Foran - Nomura Securities Co. Ltd.

Betsy Graseck - Morgan Stanley

Christopher Gamaitoni

Jefferson Harralson - Keefe, Bruyette, & Woods, Inc.

Kenneth Usdin - Jefferies & Company, Inc.

John Pancari - Evercore Partners Inc.

Erika Penala - Merrill Lynch

Marty Mosby - Guggenheim Securities, LLC

Scott Valentin - FBR Capital Markets & Co.

Gregory Ketron - Citigroup Inc

Matthew O'Connor - Deutsche Bank AG



Good morning, and welcome to the Regions Financial Corp. Quarterly Earnings Call. My name is Melissa, 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. Underwood

Thank you, Melissa. Good morning, everyone. We appreciate your participation in our call this morning. Our presenters today are our President and Chief Executive Officer, Grayson Hall; our Chief Financial Officer, David Turner; and also, we have available to answer questions, Matt Lusco, our Chief Risk Officer and Barb Godin, our Chief Credit Officer.

In the part of our earnings call, we will be referencing a slide presentation that is available under the Investor Relations section of With that said, let me 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 in our forward-looking statement that is located in the appendix of the presentation. With that covered, I'll turn it over to Grayson

O. Hall

Thank you, List, and good morning to all participants. We appreciate your time and interest in today's discussion of Regions first quarter 2011 results and the progress we're making in a number of key areas, all of which are contributing towards restoring Regions to sustainable profitability.

I'll begin by covering highlights and business results, and David will provide additional details on the financials a little later. Regions reported first quarter earnings of $0.01 from fully diluted share or $17 million, marking a second consecutive quarter of profitability, while still elevated, credit related costs, which include our provision, OREO expense and losses on halt or sell, declined to the lowest level in almost two years. On an after-tax basis, these combined costs were an estimated $0.26 per share. Additionally, we had $0.04 per share benefit from security gains. Core business performance continues to improve with adjusted pretax pre-provision net revenue up 16% year-over-year. Sequentially, expenses adjusted to exclude prior quarters’ debt extinguishment loss dropped 4%. The net interest margin rose 7 basis points. Average commercial and industrial loans outstanding grew 4%. Average low cost deposits increased 1% and our regulatory capital ratios improved incrementally.

From an earnings perspective, we're clearly not performing at a level that we want or need to be, but we are making continuous progress. The pace of economic recovery is slow especially in our southeastern markets, but our focus on core business and customers is paying off. We're gaining share of market, adding new customers and expanding existing relationships. According to a recent report issued by Temkin Group, Regions ranked as the top bank of customer experience and is one of the top companies in America for customer service across all industries. We also received national awards from Greenwich Associates for overall client satisfaction in middle market and for relationship managed performance in the company's small business lending. We are clearly starting to distinguish Regions as one of the most customer-friendly banks in the industry. And at the same time, we're improving productivity and efficiency in taking steps to expediently and prudently deal with credit challenges still present in our more stressed portfolios.

Turning to Slide 2. We're especially encouraged with first quarter's sharply lower net loan charge-offs and provision since improvement in credit quality and related costs is a primary key to restoring Regions to sustainable profitability. Net charge-offs and provision dropped $200 million or 29% linked quarter. Our provision, covered net charge-offs and although is likely to remain elevated, it is expected to trend down throughout 2011. As credit quality metrics continue to improve, we'll continue to evaluate reserve levels and be very disciplined in our reserve methodology process.

Gross nonperforming loan inflows were down for a second consecutive quarter or over $200 million less than in the fourth quarter. Delinquencies fell for a fifth consecutive quarter, and criticized and classified loans declined. Nonperforming assets steady for the first quarter, reflecting less sales activity and fewer pay downs.

Again, this quarter, the mix of profit loan inflows was increasingly income producing commercial real estate, which has a lower potential loss severity, and based on the cash flows, has the potential for restructure. Also, we continue to be very disciplined and cautious in our credit quality reviews; causing us to classify a number of credits as nonperforming when we see signs of weakness even though these customers may be current and paying as agreed.

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