Along with the strong mortgage revenue, Regions Financial's third-quarter earnings were boosted by a $229 million decline in the company's loan loss reserves.
Stifel Nicolaus analyst Christopher Mutascio wrote after the earnings release that "we were only expecting a release of $185 million. The substantial reserve release came despite the fact that nonaccrual loans (excluding held for sale) decreased only 1.6% ($31 million) during the quarter versus a more substantial 11.0% ($236 million) decrease in 2Q12."
Mutascio added that "total gross nonperforming loan inflows actually increased to $463 million in 3Q12 from $315 million in 2Q12. Finally, net charge-offs of 1.38% of average loans ($262 million) were essentially flat with the 2Q12 level of 1.38% ($265 million)."
CEO Grayson Hall said that "assuming market conditions are favorable, we do expect to consider issuing preferred stock in the near future." Under the Federal Reserve's proposed rules to implement the Basel III capital requirements, most trust preferred equity will be excluded from regulatory Tier 1 capital.Regions had $846 million in trust preferred securities as of Sept. 30, and while the company's executives could not comment on their specific plans to redeem the trust preferred securities, analysts expect the company eventually to issue sufficient noncumulative perpetual preferred shares, to make up the maximum of 150 basis points of the company's Basel III Tier 1 common equity ratio. Usdin said that "RF's announcement that it is looking to issue preferreds could also have a negative drag on EPS. When discussing the net interest margin, Regions CFO David Turner said during the conference call that the company "had guided to 3.13% being kind of the normal recurring margin for the
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