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The Alabama lender says it intends to lower fees and relax repayment terms in response to customer feedback, not criticism from consumer groups.
September 20 -
Regions has retooled its wealth management operations, an effort that was partly spurred by the company's sale of Morgan Keegan earlier this year.
September 12 -
Industry observers are advising more community banks with trust-preferred securities to raise capital now before Basel III puts them at odds with regulators.
August 22
Regions Financial continues to find ways to make money even as it suffers from ongoing pressure on its net interest margin.
The Birmingham, Ala., company's management team focused on their ability to produce revenue at a time when opportunities seem scarce during a conference call Tuesday. "Our third-quarter performance … reflects the positive change underway at Regions," Grayson Hall, Regions' president and chief executive, said during the call.
Changes are "better positioning us for long-term outperformance and enabling us to prudently and profitably grow our business and expand our customer base despite a sluggish and uneven operating environment," Hall said.
For Regions' management, the main evidence of their success was the company's quarterly performance. Net income nearly doubled from a year earlier, to $301 million, largely because of a sizeable reduction in its loan-loss provision. Earnings slid 15% from a quarter earlier; noninterest expenses ticked up 3% from the second quarter, to $869 million.
Analysts zeroed in on the company's shrinking margin during the conference call. The margin contracted by 8 basis points from a quarter earlier, to 3.08%, as Regions battled against lower yields in its loan and securities portfolios. Regions' stock also remained under pressure throughout the day.
Regions still has some levers left to lift its bottom line, including plans to sell preferred stock to replace existing trust-preferred securities. In addition to address a caveat of the Dodd-Frank Act that no longer allows trust-preferred securities to count toward Tier 1 capital, redeeming those shares will also provide incremental support to the net interest margin.
In a separate press release Tuesday, the $122 billion-asset Regions said it would sell preferred stock "if market conditions are favorable." It would follow the lead of regional banks such as BB&T (BBT), Fifth Third Bancorp (FITB) and Huntington Bancshares (HBAN) that have already repurchased their trust-preferred securities.
Regions also lagged other regionals when it came to exiting the Troubled Asset Relief Program, eventually selling its Morgan Keegan investment bank to fund its repurchase of Tarp shares. Analysts, however, say that the company actually has more wiggle room to improve its results, compared to several regionals.
Still, some analysts noted that investors should eventually warm up to Regions, which they characterized as a fixer upper with potential for improvement over the long-term.
"From a risk-reward perspective, I view the story as pretty compelling because there are some potential levers to pull," Michael Rose, an analyst at Raymond James, said. "Because it's a turnaround story, there's nowhere to go but up."
A key lever the remains involves the release of loan-loss reserves, Chris Marinac, an analyst at FIG Partners, wrote in a Tuesday note to clients. He wrote that reserve release could account for nearly a third of the company's earnings per share in 2013, or more than quadruple what could come from most other regional banks.
Regions said its increase in noninterest expenses reflected a focus on diversification and expansion in areas such as wealth management and credit cards. Total loans fell 1% from the second quarter, to $75.3 billion, as balances in commercial real estate, residential mortgages and home equity lines declined.
"Customers continue to deleverage and political and economic uncertainty weighs on demand," Hall said during the conference call.
Still, Regions reported a record high for mortgage revenue, which rose 18% from a quarter earlier, to $106 million. And Hall said that Regions would continue to improve "deposit costs and funding mix" and that expense control remained a "top priority."
