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Regions Financial Corporation And Subsidiaries Financial Supplement Second Quarter 2012

Regions Financial Corporation (NYSE:RF) today reported earnings for the quarter ending June 30, 2012.

Key points:
  • Reported net income available to common shareholders of $284 million or $0.20 per diluted share reflecting solid business performance and continued improvement in asset quality metrics
    • Completed the sale of Morgan Keegan and repaid the U.S. Treasury’s Series A preferred stock investment
    • The effect of the acceleration of the accretion related to the Series A preferred stock was $71 million or $0.05 per diluted share 1
  • Pre-tax pre-provision income 1 (“PPI”) from continuing operations totaled $503 million, a 15 percent increase from the prior quarter
    • Net interest income increased $11 million linked quarter and totaled $838 million, while the net interest margin increased 7 basis points to 3.16 percent
    • Non-interest revenue from continuing operations was $507 million, a 3 percent decline on a linked quarter basis primarily related to a decline in service charges; however growth in mortgage income was strong increasing 17 percent
    • Non-interest expenses from continuing operations totaled $842 million, reflecting an 8 percent decrease linked quarter primarily related to lower credit related costs
  • Balance sheet reflects solid commercial loan growth and steady total deposits
    • Loan growth in the middle market commercial and industrial portfolio continued, with average loans up 4 percent linked quarter, while consumer loans declined 1 percent
    • Loan yields were flat linked quarter at 4.29 percent due to a continued low rate environment
    • Funding mix continued to improve and deposit costs declined to 32 basis points down 5 basis points from first quarter and 21 basis points from the prior year
    • Average low cost deposits grew 2 percent linked quarter but were offset by a 10 percent decline in average time deposits, leaving total average deposits steady linked quarter
  • Broad based asset quality improvement continued
    • Non-performing loans, excluding loans held for sale, declined $236 million or 11 percent linked quarter; inflows of non-performing loans declined to $315 million, a decrease of 17 percent from the first quarter and down 48 percent from the peak.
    • Net charge-offs decreased 20 percent linked quarter; loan loss provision of $26 million was $239 million less than net charge-offs and down from first quarter’s $117 million
  • Allowance for loan losses as a percentage of loans declined 29 basis points linked quarter to 3.01 percent, while the coverage ratio of non-performing loans increased 2 basis points to 1.20x
  • Strong capital position with an estimated Tier 1 ratio of 11.0 percent and Tier 1 Common ratio 1 of 10.0 percent at June 30, 2012
  • Liquidity position remains conservative with a loan-to-deposit ratio of 80 percent

Highlights
     

Three Months Ended:
(In millions, except per share data) June 30, 2012     March 31, 2012     June 30, 2011

Amount

Amount

Amount
 

Net Income
Net interest income $838 $827 $856
Provision for loan losses 26 117 398
Securities gains, net 12 12 24
Other non-interest income 495 512 519
Non-interest expense 842   913   956  
Pre-tax income 477 321 45
Income tax expense (benefit) 126   82   (34 )
Income from continuing operations (A) 351 239 79
Income (loss) from discontinued operations, net of tax 4   (40 ) 30  
Net income 355 199 109
Preferred dividends and accretion (B) 71   54   54  
Net income available to common shareholders $284   $145   $55  

Income from continuing operations available to common shareholders (A) – (B)
$280   $185   $25  
 
 
Three Months Ended
June 30, 2012 March 31, 2012 June 30, 2011

Amount/Dil. EPS

Amount/Dil. EPS

Amount/ Dil. EPS

Pre-tax Pre-Provision Income (non-GAAP) 1

Income from continuing operations available to common shareholders (GAAP) (A) – (B)
$280 $185 $25
Plus: Preferred dividends and accretion (GAAP) 71 54 54
Plus: Income tax expense (benefit) (GAAP) 126   82   (34 )
Pre-tax income from continuing operations (GAAP) 477 321 45

Plus: Provision for loan losses (GAAP)
26   117   398  

Pre-tax pre-provision income from continuing operations (non-GAAP) 1
$503   $438   $443  
 
 
Three Months Ended
June 30, 2012 March 31, 2012 June 30, 2011
 

Key ratios*

Net interest margin (FTE)
3.16 % 3.09 % 3.07 %
Tier 1 capital 11.0 % 14.3 % 12.6 %

Tier 1 common 1 risk-based ratio (non-GAAP)
10.0 % 9.6 %

7.9

%

Tangible common stockholders’ equity to tangible assets 1 (non-GAAP)
8.04 % 7.35 % 6.18 %

Tangible common book value per share 1 (non-GAAP)
$6.69 $6.42 $6.15

 

Asset quality

 
Allowance for loan losses as % of net loans 3.01 % 3.30 %

3.84

%
Net charge-offs as % of average net loans~ 1.39 % 1.73 % 2.71 %

Non-accrual loans, excluding loans held for sale, as % of loans
2.51 % 2.80 % 3.43 %

Non-performing assets as % of loans, foreclosed properties and non-performing loans held for sale
3.04 % 3.42 % 4.39 %

Non-performing assets (including 90+ past due) as % of loans, foreclosed properties and non-performing loans held for sale
3.57 % 3.97 % 4.98 %
 

*Tier 1 Common and Tier 1 Capital ratios for the current quarter are estimated.

~Annualized
 

1 Non-GAAP, refer to pages 8 and 16-19 of the financial supplement to this earnings release

 

Focused on prudent, profitable growth

Regions reported second quarter net income available to common shareholders of $284 million or $0.20 per diluted share driven by continued improvement in core business performance. Second quarter income from continuing operations was $280 million or $0.20 per diluted share compared to $185 million or $0.14 per diluted share in the first quarter. Regions reported net income of $4 million from discontinued operations, attributable to the gain on the sale of Morgan Keegan. In connection with the repayment of its Series A preferred stock, the company accelerated the accretion of the discount and coupled with the final preferred stock dividends, reduced net income available to common shareholders by $71 million, or $0.05 per diluted share. 1

Pre-tax pre-provision income 1 totaled $503 million as compared to $438 million in the prior quarter. This improvement of 15 percent linked quarter reflected an increase in net interest income and a decline in non-interest expenses partially offset by a decline in non-interest revenue.

“We continued to make incremental progress on many key fronts and are pleased with the improvement of our financial performance despite considerable economic and political uncertainty, and an uneven economic recovery,” said Grayson Hall, president and chief executive officer. “By focusing on initiatives that we can control, we continue to drive sustainable and prudent growth across our business.”

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