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Regions Financial: Earnings Winner

Noninterest expense totaled $842 million in the first quarter, declining from $902 million in the fourth quarter and $913 million in the first quarter of 2012. According to the company, professional and legal expenses returned to "a more normalized level" of $31 million in the first quarter from $15 million in the fourth quarter, when Regions "benefitted from $20 million in lower legal reserves." The biggest factor in the sequential lowering of expenses was $42 million in costs in the fourth quarter to terminate a Real Estate Investment Trust investment.

The bank's expenses to maintain repossessed real estate totaled just $2 million in the first quarter, declining from $6 million the previous quarter and $23 million a year earlier.

Another highlight for Regions was that its net interest margin -- the spread between the average yield on loans and investments and the average cost for deposits and borrowings -- widened to 3.13% in the first quarter from 3.10% in the fourth quarter and 3.09% in the first quarter of 2012.

Despite the margin expansion, net interest income was down to $798 million in the first quarter from $818 million the previous quarter and $827 million a year earlier. The sequential decline reflected a lower number of days in the quarter, but also a decline in average loans to $73.9 million in the first quarter from $74.6 million in the fourth quarter. Continued declines in commercial real estate (CRE) and residential mortgage loans, home equity loans and other consumer loans, were only partially offset by increases in commercial and industrial loans and indirect auto loans.

Average commercial and industrial (C&I) loans were up 2% sequentially to $27.1 billion in the first quarter.

Credit Suisse analyst Craig Siegenthaler rates Regions "outperform," and in a note to clients on Tuesday raised his price target for the shares to $9.50 from $9.00, estimating that the bank would be able to see net loan growth beginning in the second or third quarters of this year, "driven by continued strong C&I and indirect consumer growth, retention of 15Y fixed conforming resi mortgage, and slower income CRE runoff."
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