Regions Financial (RF)

Q2 2010 Earnings Call

July 27, 2010 11:00 am ET

Executives

John Owen - Head of Consumer Services, Head of Consumer Services Group -Regions Bank and Senior Executive Vice President-Regions Bank

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

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

M. Underwood - Director of Investor Relations

William Wells - Chief Risk Officer, Senior Executive Vice President, Head of Risk Management Group, Chief Risk Officer-Regions Bank, Senior Executive Vice President -Regions Bank and Head of Risk Management Group-Regions Bank

Analysts

Albert Savastano - Macquarie Research

Kevin Fitzsimmons - Sandler O'Neill

Craig Siegenthaler - Crédit Suisse AG

Ryan Nash

Brian Foran - Goldman Sachs Group Inc.

Betsy Graseck - Morgan Stanley

Paul Miller - FBR Capital Markets & Co.

Christopher Marinac - FIG Partners, LLC

Marty Mosby - Guggenheim Securities, LLC

Heather Wolf - UBS Investment Bank

Matthew O'Connor - Deutsche Bank AG

Presentation

Operator

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

M. Underwood

Thank you, operator, and good morning, everyone. We appreciate your participation. Our presenters today are our President and Chief Executive Officer, Grayson Hall; and our Chief Financial Officer, David Turner; also here and available to answer questions are Bill Wells, our Chief Risk Officer; Tom Neely, our Director of Risk Analytics; and Barb Godin, our head of Consumer Credit.

Let me quickly touch on our presentation format. We prepared a short slide presentation which will accompany David's comments. It's available under the Investor Relations section of regions.com. 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.

Our presentation this morning will discuss Regions' business outlook and includes forward-looking statements. These statements may include descriptions of management's plans, objectives or goals for future operations, products or services, forecast of financial or other performance measures, statements about the expected quality, performance or collectibility of loans and statements about Regions' general outlook for economic and business conditions. We also may make other forward-looking statements in the question-and-answer period following the discussion.

These forward-looking statements are subject to a number of risks and uncertainties, and actual results may differ materially. Information on the risk factors that could cause actual results to differ is available from today's earnings press release and presentation in today's Form 8-K, in our Form 10-Q for the quarter ended March 31, 2010, and in our Form 10-K for the year ended December 31, 2009.

As a reminder, forward-looking statements are effective only as of the date they are made, and we assume no obligation to update information concerning our expectations. Let me also mention that our discussions may include the use of non-GAAP financial measures. A reconciliation of these to the same measures on a GAAP basis can be found in our earnings release and related supplemental financial schedules.

Now I will turn it over to Grayson.

O. Hall

Good morning, and thanks for taking the time to join our conference call. As announced earlier today, Regions reported a second quarter loss of $0.28 per share, which included a charge related to Morgan Keegan regulatory proceedings. Concerning this charge, as you may recall, administrative proceedings are brought against Morgan Keegan and Morgan Asset Management on April 7 by the SEC, FINRA and a joint state task force of security regulators. Although we have not reached final settlement, based on the current status of negotiations, we recorded a nontax deductible $200 million charge representing the estimate of probable loss.

Excluding this charge, second quarter's loss was $0.11 per share, representing an improvement from first quarter's $0.21 per share loss, giving us additional confidence that we have the right strategy in place to return Regions to sustainable level of profitability. It just requires that we continue to focus on execution of our plans.

Although we are making progress, and we are even slightly ahead of our own internal forecast, we are clearly not satisfied. The economic environment, while slowly improving, is challenging and fragile and it is too soon to know the ultimate impact of the Gulf oil spill and regulatory reform legislation. But our focus is to improve our credit metrics, while managing aggressively our expenses. The slow nature of the economy requires that we remain cautious and prudent with our actions. We are encouraged by second quarter's core improvement. On a linked-quarter basis, total adjusted revenues grew 3%, adjusted noninterest expenses declined 4%, and our net interest margin and credit metrics both improved.

Balance sheet risk was further reduced, and we continue to see solid low-cost deposit growth. Credit-related cost, while moderating, clearly remain elevated, with loan loss provision and OREO expenses having a $0.36 per share negative effect on second quarter's earnings. However, we believe that the earnings that are burdened from the elevated provision expense should begin to moderate going forward.

Our proactive efforts to recognize and resolve problem assets are providing a favorable impact. We are not anticipating nor are we forecasting a double dip recession for the economy, but the nature of the slow economic improvement has resulted in a much more conservative low-growth forecast for our business and requires that we exercise extreme care in the management of our credit risk. As many of you are aware, our focus on customers and cross-sell opportunities, along with strong customer service, has resulted in strong growth and new checking accounts and low-cost deposits. This continued in the second quarter. Average low-cost deposits rose 4% versus the second quarter, and we are on track to open approximately 1 million new business in consumer checking accounts again this year, matching or exceeding 2009's record level.

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