Regions Financial (RF)

Q2 2011 Earnings Call

July 26, 2011 11:00 am ET


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

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

M. Underwood - Director of Investor Relations

Barb Godin - EVP and Consumer Credit Executive


Kevin Fitzsimmons - Sandler O'Neill + Partners, L.P.

L. Erika Penala

Christopher Gamaitoni

Jefferson Harralson - Keefe, Bruyette, & Woods, Inc.

Kenneth Usdin - Jefferies & Company, Inc.

Christopher Mutascio - Stifel, Nicolaus & Co., Inc.

Scott Valentin - FBR Capital Markets & Co.

Marty Mosby - Guggenheim Securities, LLC

Christopher Marinac - FIG Partners, LLC

Matthew O'Connor - Deutsche Bank AG


Question-and-Answer Session

O. Hall

Well, this is Grayson. It's going to be an uneven approach by the industry. I think that it's too early to call at this juncture where yet to see in the marketplace what all the participants, what strategies all the participants will deploy. We believe, we put together a good strategy. We stand ready to modify that strategy, though, if the market necessitates that. But I think at this juncture, it's just too early to call what the customer reaction will be. We've certainly done a lot of research. we tested a number of theories and we've had customer groups in and we've listen to and spoke to. But we really got to wait to see what the behavioral changes of our customers turn out to be.


Your next question comes from Christopher Marinac of FIG Partners.

Christopher Marinac - FIG Partners, LLC

I wanted to extend the conversation and questions that Jefferson and Erika both had, it relates to, if you look at the change in classified of the past year, it looks like from the slide that is roughly about $3.4 billion criticized adjustment in the last 12 months. And if I look at the charge-offs you've taken plus the $200 million for the held-for-sale move today, works out about a 40% loss. Is the loss content going forward similar to what you just experienced in the last year in business services or should we be thinking of a number that might be a little less than that given just what's remaining in the classified in criticized bucket?

David Turner

Christopher, this is David. I'll start, Barb, you can add on. Honestly, the marketplace is changing dramatically each and every quarter. You're looking at a lot of history. In some cases, asset values are stabilizing, in some case, there are still challenges there. So when you try to forecast losses that are built in based on that history, it gets difficult to do. I would tell you as you think of our losses, and look at the reductions in our most problematic loan portfolios, Investor Real Estate is down 50% from where we were at the beginning of the cycle, down to $13.4 million. So we expect charge-offs to be there, that's why we have a reserve of 3.84%, and we believe we're adequately reserved for the credit risks that's embedded in the portfolio. When you have dispositions outside of the normal course, if you will, and we've had some of those over time, you introduce a liquidity discount that you have to take. And in some cases, that liquidity discount is worth taking and sometimes it's not. We clearly have disclosed the fair value of our loans, that's assuming we would have a -- sell everyone of our loans, and that's not the case. So predicting those losses will be at that same level is difficult. But we continued to evaluate the best strategy of our portfolio. And like I said today, we don't have any plans to market and sell. And if that changes, then we will take our charges and move on.

Barb Godin

I'd add to that -- this is Barb. I'd add to that, that our land, single family and condos, being our most distressed parts of the portfolio, both balances did fall this quarter, as you see $2.5 billion, down from $4.4 billion just a year ago. Well, they've fallen substantially. The other comment I would add to that is, of that, as we look at the number of customers or the percentage of our customers in nonperforming loans that retained as contractually agreed, that continues to go up each quarter. Compared to a year ago, as well, it's 24% retained is contractually agreed, and now we're at 42%. But that, too, suggests that the quality of what's in the nonperforming loans is a different quality over the last several quarters, and I would expect the same going forward.

Christopher Marinac - FIG Partners, LLC

Okay. Great. And then just a quick follow-up. Is there a rough percentage of the allowance that would be assigned towards the consumer as a broad number?

Barb Godin

I don't have that handy. [indiscernible]

David Turner

We will have to look at the note. We'll get back to you, Chris.


Your final question comes from Chris Gamaitoni of Compass Point.

Christopher Gamaitoni

On a broader level, when you were speaking about credit card cross-selling, were you -- I was unclear, was the strategy to bring customers in with credit cards and then cross sell them or cross-sell existing customers with credit cards?

O. Hall

Understand this portfolio we acquired has been Regions branded for years, and so it's on a Regions card, it's predominantly sold to Regions customers. And our strategy is to cross sell Regions customers with a credit card, not the other way around. As I said in my comments today, when you look at this portfolio, the vast majority of these customers already have banking relationships with Regions Bank. We've got about 2 to 5 products already sold to these customers on average today. So this is really just our ability to control the customer experience around the credit card for our customers, who already have a relationship with Regions and for us to deepen and strengthen that relationship. And you won't see us being most aggressive on a credit card. It's a relationship product from our perspective.

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