Regions is Finally In a Position to Talk About Growth

The management team at Regions Financial (RF) offered investors hints of a new growth strategy, based on confidence that the Birmingham, Ala., company has turned the corner in the Southeast.

“Simply put, the first quarter of this year was a quarter of significant accomplishments,” said Grayson Hall, the company’s chief executive, during a presentation Monday at the Deutsche Bank 2012 Global Financial Services Investor Conference. “I would characterize it as a pivotal quarter for our organization and one in which now we’re well positioned to grow our franchise profitability.”

Hall outlined a number of initiatives to increase revenue, including getting heavier into credit card servicing and battling in the war for middle-market business loans.

“Where we’re at right now certainly puts us in stronger position to compete really for talent and for customers,” Hall said in response to an analyst’s question about taking on business loans that Regions couldn’t pursue previously. “We’re in different place today . . . we got a lot accomplished in first quarter but I think we’d be first to say there’s still some hard work due ahead.”

The $128 billion-asset Regions hit a turning point in the first quarter when it posted higher-than-expected earnings and credit quality improvements. The company also made progress last month when it repaid $3.5 billion to exit the Troubled Asset Relief Program Fund, though Regions also sold unit Morgan Keegan. Buoyed by a $900 million capital raise earlier this year, Hall has been singing a more-offensive tune in recent weeks.

“Near term, what you will expect to see from us is just more focused, more intensity on making sure we’re growing our business both prudently and profitably,” he said.

Regions bought a credit card portfolio last year, and management expects to fully integrate and service later this year. Hall also mentioned “prudent growth” coming from the company re-entering indirect auto lending. 

Hall said that the interest rates are expected to “remain low for the foreseeable future,” but he expects more than $11 billion in timed deposits to mature over the next four quarters. This would bring some relief to the net interest margin, which stood at nearly 3.1% at March 31.

Despite questions on how Regions will combat the artificially low interest rates, management said the net interest margin would continue to expand. Part of their strategy includes reducing the percentage of earning assets held in the securities portfolio to 18% from its current level of 25%, said David Turner, Regions’ chief financial officer. The company is also paying off about $1 billion in debt while reducing its $5 billion held with the Federal Reserve in the second quarter.

“We do still have the opportunity to incrementally improve the net interest margin,” Hall said. “We’ve taken a more conservative approach with regards to liquidity” and “making our balance sheet work harder for us.”