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Regions Financial (RF)

Q4 2010 Earnings Call

January 25, 2011 11:00 am ET


David Turner - Chief Financial Officer, Senior Executive Vice President and Member of the Executive Council

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

Barb Godin - EVP and Consumer Credit Executive

M. Underwood - Director of Investor Relations


Kevin Fitzsimmons - Sandler O'Neill

Craig Siegenthaler - Crédit Suisse AG

Christopher Gamaitoni

Betsy Graseck - Morgan Stanley

Kevin St. Pierre - Bernstein Research

Kenneth Usdin - Jefferies & Company, Inc.

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Marty Mosby - Guggenheim Securities, LLC

Scott Valentin - FBR Capital Markets & Co.

Heather Wolf - UBS Investment Bank

Matthew O'Connor - Deutsche Bank AG



Good morning, and welcome to the Regions Financial Corp.'s Quarterly Earnings Call. My name is Melissa, and I will be your operator for today's call. [Operator Instructions] I will now turn the call over to Mr. List Underwood to begin.

M. Underwood

Good morning, everyone, and we appreciate very much your participation today. Our presenters are our President and Chief Executive Officer, Grayson Hall; our Chief Financial Officer, David Turner; and also here and available to answer questions is Barb Godin, our Chief Credit Officer.

Let me quickly touch on our presentation format. We have prepared a short slide presentation to accompany David's comments. It's available under the Investor Relations section at For those of you in the investment community that dialed in by phone, once you are on the Investor Relations section of our website, just click on Live Phone Player, and the slides will automatically advance in sync with the audio of the presentation. A copy of the slides is available on our website. With that said, I'll direct your attention to the forward-looking statements slide that should be on the screen right now, and then I'll turn it over to Grayson.

O. Hall

Thank you, List. Good morning, everyone, and thank you for your interest in Regions Financial. Fourth quarter results reflected continued progress towards achieving our primarily goal of returning Regions to sustainable profitability. In the quarter, Regions' reported earnings were $36 million, up $0.03 per share profit, which included elevated credit costs that were partially offset by our decision to preserve our capital position by recognizing approximately $333 million of investment security gains. On an after-tax basis, the impact of security gains amounted to approximately $0.16 per share. Credit costs, including provisioning, OREO and marks on loans held-for-sale were an estimated $0.37 per share after tax. Notably, our core business performance this quarter included solid growth in the middle-market C&I loans of $1 billion or 5%. Strong low-cost or positive growth of $1.1 billion or 2% and an increase in our net interest income and margin and a $47 million or 6% rise in adjusted non-interest income. Additionally, non-loss provision matched net charge-offs of $682 million. Although challenges remain, we are encouraged by signs of economic recovery, generally improving credit quality metrics, and our continued success in properly expanding our customer base. We are recognizing an improving economy in most of our markets, but we expect the southeastern economy to recover at a somewhat slower space, particularly in Florida, where housing remains a serious concern and unemployment continues to stubbornly hover at 12%.

We expect to continue make-steady progress towards our goal of returning Regions to sustainable profitability, while also aggressively working through problem assets and reducing our more distressed loan portfolios. We did sell $405 million in distressed loans and foreclosed property in the fourth quarter in our investor real estate loans at period totaled $15.9 billion. We have taken a strong stance and subjected our loan portfolios to rigorous internal and external reviews. We have a solid understanding of the risk of our portfolio and are confident in our ability to successfully resolve the remaining problem assets.

Furthermore, our early and late stage delinquencies are down again and internally risk-rated problem loans have now declined for the fourth quarter in row, a precursor we think to additional improvements in non-performing loan inflows. In fact, fourth quarter gross non-performing loan inflows, while still elevated, were down approximately $400 million or 29% from the third quarter low. Total non-performing assets declined over $300 million linked-quarter or 7% marking the third consecutive quarterly decrease.

Investor real estate continues to drive non-performing loan inflows at 56% of the total non-performing loan inflow this quarter. As a result, we remained disciplined and cautious in our continuous assessment of credit quality, which has led us to classify a number of credits as non-performing due to identified weaknesses even though they are current and paying as agreed.

With that in mind, approximately 37% of business services and non-performing loans at year-end were current and paying as agreed, an increase from 36% at September 30. Income-producing investor real estate accounted for 29% of fourth quarter total non-performing loan inflows compared to 23% a year ago. Although we are devoting considerable time and resources to working through credit issues, the majority of our associates' focus is on profitable growth in our core business.

In the fourth quarter alone, average low-cost deposits grew $1.4 billion, bringing the full-year 2010 increase to nearly $7 billion. This further improved our deposit mix and lowered our overall deposit cost. And for the second consecutive year, I'm proud to say that we, again, achieved a strong year in new Checking Account openings, with 996,000 open, right at our goal of 1 million new accounts. At year-end, CDs represented 24% of total deposits, down from 32% in the same period last year. Our overall cost deposits have declined 51 basis points from 115 basis points a year ago and a total 64 basis points for the fourth quarter of this year from last year.

During 2011, we expect our deposit mix and cost to continue to improve. As to loans, commercial loan production totaled $14.4 billion, of which $4.9 billion was new loan production, a 50% increase over the same period in the prior year. We experienced solid C&I loan growth in the fourth quarter, C&I period loans primarily middle-market, up 5% or $1 billion linked-quarter. Notably, C&I increases were more broadly distributed across our footprint as 14 of 20 markets increased C&I outstandings in the quarter and at the top of the company, we had increased C&I outstandings overall for six straight months.

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