Regions Loss Narrows, Beats Estimates
BIRMINGHAM, Ala. (
) - Regions Financial
(RF) - Get Report
on Tuesday reported a first-quarter loss of $255 million, or 21 cents a share, narrower than the average estimate of analysts polled by
Thomson Reuters
for a loss of 27 cents per share in the March period.
The latest performance was better than the company's fourth-quarter loss of $606 million, or 51 cents a share, but below its profit of $26 million, or 4 cents a share, in the same period a year earlier.
The latest results reflect the payment of $59 million in dividends to preferred stockholders during the first quarter, including the U.S. government, which provided Regions with $3.5 billion in bailout money in November 2008.
The sequential improvement in results mainly reflects a reduced provision for loan losses of $770 million in the latest quarter, down from $1.18 billion in the December period. The provision was still higher, however, than its provision of $425 million during the first quarter of fiscal 2009. Net charge-offs came in at $700 million for the latest quarter.
While nonperforming assets (including nonaccrual loans and repossessed real estate) continued to increase, the pace of increase was slowing, and the company said it expects problem assets to peak during the second quarter of 2010.
The ratio of nonperforming assets to total assets was 3.15% as of March 31, increasing from 2.88% the previous quarter and 1.36% a year earlier. The annualized ratio of net charge-offs for the first quarter was 3.16%, its highest pace during this credit cycle, but the company's loan loss reserves were sufficient to stay ahead of this pace, covering 3.61% of total loans.
Total assets were $137 billion as of March 31, a decline of 3% over the past year. While Regions has been reducing its balance sheet, deposits have increased 7%, with "low-cost deposits," including checking, savings and money market accounts increasing 16%. This change in the funding mix helped the company improve its net interest margin -- the difference between a bank's average yield on loans and investments and its average cost of funds -- to 2.77% from 2.64% a year earlier.
While industry aggregate numbers are not yet available for the first quarter, the aggregate net interest margin for U.S. banks and thrifts for the fourth quarter was 3.49%. While it clearly lags the industry in this area, Regions expects its net interest margin to improve to 3.00% by year-end.
Noninterest income increased to $812 from $718 million in the fourth quarter, mainly the result of gains of $59 million on the sale of short-duration collateralized mortgage obligations. Excluding this gain and other extraordinary items, noninterest income would have declined slightly from the fourth quarter.
Regions completed its consolidation of 120 branches during the first quarter and expects to save about $21 million annually, beginning in the second quarter.
The company's capital levels are holding up, with a Tier 1 capital ratio of 11.7%, and a total risk-based capital ratio of 15.8%, although of course these include the $3.5 billion in TARP money. Regions reported a Tier 1 common risk-based capital ratio of 7.1%.
On the bright side, while Regions was still losing money, the company's return on average common equity for the first quarter was a negative 12.69%, which was a pretty slow "burn rate" for its capital at this point in the credit cycle.
The market clearly agrees that the company is close to turning a corner, with shares closing at $8.33 Monday, for a year-to-date return of 58%.
CEO Grayson Hall said "Despite the strong fundamentals of our business, we are not satisfied with our financial performance and we remain intensely focused on returning the company to profitability."
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Written by Philip van Doorn in Jupiter, Fla.
Philip W. van Doorn joined TheStreet.com Ratings., Inc., in February 2007. He is the senior analyst responsible for assigning financial strength ratings to banks and savings and loan institutions. He also comments on industry and regulatory trends. Mr. van Doorn has fifteen years experience, having served as a loan operations officer at Riverside National Bank in Fort Pierce, Florida, and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a Bachelor of Science in business administration from Long Island University.