Regions Financial (RF) Profitable - Good Last Week; Bad This Week?

Submitted By Trader Mark
Wait, I thought everything was fine with financials??? ;)

It is funny how the same news one week has such a different perception the next week; Regions Financial (RF) reported this morning and like every bank it's benefiting from yield curve and refinance boom but this is being offset by larger loss provisions. This is one volatile name, didn't I just sell off a good portion of this Friday at $7.50? Now it's back below $5.00. A few other banks I like such as Northern Trust (NTRS) [not a traditional commercial bank] and US Bancorp (USB) are being slaughtered today in similar fashion. Because as we all know (all together kids!) its student body left (or right) trading - everything is bad in a sector or everything is good.

I'll add some RF at $5.00 and use this as my proxy on commercial banking similar to how I used Excel Maritime (EXM) as my proxy on dry bulk shipping over the past few months. (speaking of which I had a limit buy order at $6.00 and EXM went to $6.05 this morning before rebounding 10% - sigh) I am still looking at one of those regional banking ETFs we discussed last week [Apr 16: Three Banking ETFs to Play your Taxpayer Money Funneled into Financials], but since I have the very volatile RF I will focus on it for now.

Via Reuters

Regions Financial Corp (RF) said first-quarter profit dropped 92 percent, but the lender reported record mortgage production and strong deposit growth. Low mortgage rates led to an upswing in loan production, and mortgage income doubled from the 2008 fourth quarter, reaching $73 million, the lender said on Tuesday. Total customer deposits and low-cost deposits grew 4 percent.
Nonperforming assets as a percentage of loans and other real estate increased to 2.43 percent from 1.76 percent in the 2008 fourth quarter.
Net income attributable to common shareholders declined to $26 million, or 4 cents a share, from $337 million, or 48 cents per share, a year earlier.
The first quarter's provision for loan losses was $425 million, down from $1.15 billion in the prior quarter. (that strikes me as strange) The Birmingham, Alabama-based lender said its most stressed portfolios continue to be residential homebuilders, home equity second liens in Florida, and condominiums. Those stressed assets currently amount to $8.7 billion, or about 9 percent of the total loan portfolio.
Net loans charge-offs (actual loan losses) for the first quarter were $390 million, compared to $796 million in the fourth quarter and $126 million in the first quarter of 2008.
Morgan Keegan continued to demonstrate growth, adding over $1 billion in new assets under management during the quarter
Regions said on Tuesday that its capital ratios remain strong, with a Tier 1 ratio of 10.37 percent. Tangible common equity ratio of 5.41 percent.

My main concern here is the smallish loan loss provision; RF DID say they sold off some of their commercial loan portfolio in last week's pre-announcement so depending on how material that exposure was (how much they sold off), this loss provision may or may not be in line. It is also interesting to see their charge offs were lower this quarter than the previous quarter - if that somehow continues that would be great news.

Full report can be found here.

This is one of the top 19 banks in the country so it will be part of the (cough) stress test.

Regions Financial Corporation, with $142 billion in assets, is a member of the S&P 100 Index and one of the nation’s largest full-service providers of consumer and commercial banking, trust, securities brokerage, mortgage and insurance products and services. Regions serves customers in 16 states across the South, Midwest and Texas. Its investment and securities brokerage trust and asset management division, Morgan Keegan & Company Inc., provides services from over 300 offices.

Long Regions Financial in fund and personal account

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