Regions Financial Corp. (RF) filed Quarterly Report for the period ended 2009-09-30.
Regions Financial Corporation is a regional bank holding company and hasbanking-related subsidiaries engaged in mortgage banking credit life insurance leasing and securities brokerage activities with offices in various Southeastern states. Through its subsidiaries Regions offers a broad range of banking and banking-related services. Regions Financial Corp. has a market cap of $5.75 billion; its shares were traded at around $4.84 with and P/S ratio of 0.6. The dividend yield of Regions Financial Corp. stocks is 0.8%. Regions Financial Corp. had an annual average earning growth of 1.2% over the past 10 years.
Highlight of Business Operations:
Regions reported a net loss available to common shareholders of $437 million, or $0.37 loss per diluted share in the third quarter of 2009, compared to third quarter 2008 per diluted share income of $0.11. High credit costs, primarily the result of focused efforts to identify and address loan portfolio stress, as well as increasing unemployment and ongoing deterioration in real estate values, continued to negatively impact pre-tax earnings. During the third quarter, Regions recorded a $1.025 billion provision for loan losses, $608 million higher than the third quarter of 2008. Additionally, several other significant items, which are discussed later in this section, affected net income for the third quarter of 2009.
Net interest income on a fully taxable-equivalent basis for the third quarter of 2009 was $853 million compared to $931 million in the third quarter of 2008. The net interest margin (taxable-equivalent basis) was 2.73% in the third quarter of 2009, compared to 3.10% during the third quarter of 2008. The decline in the net interest margin was impacted primarily by factors directly and indirectly associated with the erosion of economic and industry conditions since late 2007. These factors include an unfavorable variation in the general level and shape of the yield curve, Regions’ asset sensitive balance sheet, rate increases for new debt issuances, and rising non-performing asset levels. Additionally, declining loan yields have not been offset by similar declines in deposit rates due to the competitive demand for deposits within the industry. Recent increases in non-interest bearing deposit balances as well as the benefits of improving spreads on newly originated and renewed loans should help promote a stable net interest margin going forward.
Net charge-offs totaled $680 million, or an annualized 2.86% of average loans, in the third quarter of 2009, compared to 1.68% for the third quarter of 2008. Commercial real estate and commercial and industrial net charge-offs drove the increase, reflecting ongoing stress in housing valuations and continued strains in the economy as a whole. The provision for loan losses totaled $1.025 billion in the third quarter of 2009 compared to $417 million during the third quarter of 2008. The allowance for loan losses at September 30, 2009 was 2.83% of total loans, net of unearned income, compared to 1.87% at December 31, 2008 and 1.49% at September 30, 2008. Total non-performing assets, including loans held for sale, at September 30, 2009 were $4.1 billion, compared to $1.7 billion at December 31, 2008 and $1.8 billion at September 30, 2008. Residential homebuilder and condominium loans, as well as foreclosed properties, were the primary contributors to the increase since December 31, 2008. Additionally, income-producing commercial real estate, including multi-family and retail, significantly contributed to the third quarter inflows. Also included in non-performing assets were $380 million of loans held for sale at September 30, 2009 compared to $423 million at December 31, 2008 and $129 million at September 30, 2008.
Non-interest income for the third quarter of 2009 increased by $53 million compared to the third quarter of 2008. Mortgage income was the primary driver of the increase, increasing $43 million for the third quarter of 2009 as compared to the same period in 2008. The increase was primarily due to customers taking advantage of historically low mortgage rates and the corresponding impact on mortgage originations. Mortgage servicing rights and related hedging valuation adjustments also contributed to the increase in mortgage income. Brokerage, investment banking and capital markets income increased in the third quarter of 2009 by $11 million as compared to the same period in 2008. The increase was primarily due to increases in fixed income capital markets revenue. These increases were partially offset by a decrease of $17 million in trust department income for the quarter ended September 30, 2009 as compared to the same period in 2008. This decrease was driven primarily by the impact of lower asset valuations on trust fees. Also, trust department income for the 2008 period included fees from energy-related brokered transactions, which did not repeat in 2009.
Total non-interest expense, excluding merger-related charges, was $1.243 billion and $1.103 billion in the third quarter of 2009 and 2008, respectively. Pre-tax merger charges of $25 million were incurred in the third quarter of 2008 (see Table 14 “GAAP to Non-GAAP Reconciliation”). The Company’s third quarter decision to consolidate 121 branches into other existing branches and resulting charges of $41 million contributed to the increase. The increase in non-interest expense was also attributable to increased professional fees, other real estate owned (“OREO”) expense, and FDIC insurance premiums. Additionally, salaries and employee benefits, excluding merger charges, were higher in the third quarter of 2009 as compared to the corresponding 2008 period.
During late 2007, the residential homebuilder portfolio came under significant stress. In Table 1 “Loan Portfolio”, the majority of these loans are reported in the construction—non owner-occupied loan category, while a smaller portion is reported as commercial real estate—non owner-occupied. This portfolio has decreased by approximately $1.0 billion from December 31, 2008 to September 30, 2009, and approximately $3.8 billion since the beginning of 2008. The Company has placed a moratorium on new originations in this portfolio.
RF is in the portfolios of Michael Price of MFP Investors LLC, John Paulson of Paulson & Co., Arnold Schneider of Schneider Capital Management, HOTCHKIS & WILEY of HOTCHKIS & WILEY Capital Management LLC, Charles Brandes of Brandes Investment, David Tepper of APPALOOSA MANAGEMENT LP, Jean-Marie Eveillard of Arnhold & S. Bleichroeder Advisers, LLC.
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