Regions Financial Corporation (RF)

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Regions Financial (RF)

Q3 2012 Earnings Call

October 23, 2012 8:00 am ET


M. List Underwood - Director of Investor Relations

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

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

Barbara Godin - Chief Credit Officer, Executive Vice President and Head of Credit Operations - Regions Bank


John G. Pancari - Evercore Partners Inc., Research Division

Ryan M. Nash - Goldman Sachs Group Inc., Research Division

Leanne Erika Penala - BofA Merrill Lynch, Research Division

Matthew D. O'Connor - Deutsche Bank AG, Research Division

Kenneth M. Usdin - Jefferies & Company, Inc., Research Division

Matthew H. Burnell - Wells Fargo Securities, LLC, Research Division

Christopher M. Mutascio - Stifel, Nicolaus & Co., Inc., Research Division

Gerard S. Cassidy - RBC Capital Markets, LLC, Research Division

Marty Mosby - Guggenheim Securities, LLC, Research Division

Jennifer H. Demba - SunTrust Robinson Humphrey, Inc., Research Division

Gregory W. Ketron - UBS Investment Bank, Research Division

Gaston F. Ceron - Morningstar Inc., Research Division



Good morning, and welcome to the Regions Financial Corporation's Quarterly Earnings Call. My name is Paula, and I'll 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

Thank you, operator, and good morning, everyone. We appreciate your participation on our call this morning. Our presenters today are our President and Chief Executive Officer, Grayson Hall; and our Chief Financial Officer, David Turner. Also here and available to answer questions are Matt Lusco, our Chief Risk Officer; and Barb Godin, our Chief Credit Officer.

As 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 on our forward-looking statement that is located in the appendix of the presentation.

Now that that's covered, let me turn it over to Grayson.

O. B. Grayson Hall

Thank you, List, and welcome, everyone. We appreciate your interest in Regions and appreciate you taking the time to participate in our third quarter 2012 earnings conference call.

Regions performed well in the third quarter, growing both fee-based revenue and bottom line profits as we continued to successfully execute our business plans and realize continued asset quality improvement. Earnings per share from continuing operations was $0.22 per diluted share.

Our third quarter performance builds on a solid first half of 2012 and reflects the positive change underway at Regions, a change that is better positioning us for long-term outperformance and change that is enabling us to prudently and profitably grow our business and expand our customer base despite a sluggish and uneven operating environment.

To accomplish this, Regions has been and continues to be focused on diversifying and building our revenue sources, streamlining our processes to better serve our customers, improving our productivity and efficiency and providing new technology that supports our customers' ever-changing needs, ensuring superior risk management and further strengthening our balance sheet.

Turning to third quarter results, you can see earlier evidence of the progress that we're making. Fee income posted strong growth during the third quarter, driven by record mortgage banking revenues. Mortgage continue to benefit from HARP 2 refinancing, and total refinancings improved 15% from the second quarter. Through HARP 2, we have refinanced $1.2 billion of home mortgages through the end of September. Notably, approximately 50% of the applications were for customers new to Regions mortgage.

Total loan production increased 2% linked-quarter, fueled by mortgage and indirect auto. Loans outstanding were down 1% as customers continued to deleverage and political economic uncertainty weighs on demand. However, commercial and industrial loan growth remain healthy, helping to somewhat offset the favorable decline in Investor Real Estate portfolio.

We continue to improve our funding mix, growing our low-cost deposits while reducing our higher-rate time deposits, and there is further opportunity for improvement in deposit cost and funding mix. Let me also point out that according to the FDIC deposit data recently released, we have maintained our top 5 market share position in Alabama, Arkansas, Florida, Louisiana, Mississippi and in Tennessee.

In the third quarter, our net interest margin declined sequentially, partially due to a prolonged low-interest rate environment. David Turner will provide more details in just a moment.

The Federal Reserve's QE3 program announced mid-September calls for purchases of large quantities of mortgage-backed securities for an indefinite period, driving down reinvestment yields and putting greater, longer-lasting pressure on yields than we previously assumed. While the third quarter decline in our net interest margin was disappointed -- disappointing, we are hopeful that we'll be able to hold it and our net interest income reasonably steady over the next several quarters, while improving funding costs, partially offsetting these pressures. Keep in mind that our low loan-to-deposit ratio provides considerable opportunity to add profitable loans to our balance sheet once customers have greater confidence in the economic and political outlook and are more willing to borrow.

Let's move on to expenses. As discussed previously, expense control remains a top priority at Regions, and we are focused daily on identifying opportunities to improve our productivity and cost structure while providing products and services that our customers want and deserve. To that end, in the third quarter, we continued the implementation of new technology in our branches that will not only lower operating costs, but will improve cross-sell capabilities and enhance the overall customer experience in Regions' branches.

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