Regions Financial shares drop as yields shrink

BIRMINGHAM, Ala. -- Regions Financial Corp. on Tuesday posted sharply higher third-quarter earnings, as the regional bank set aside less cash to cover loan losses. But its shares fell sharply in morning trading after the results showed record-low interest rates cut into interest income from loan and deposits.

Regions reported net income of $301 million, or 21 cents per share, for the three months ended Sept. 30. That was nearly three times the size of the company's earnings in the year-ago period, when net income was $101 million, or 8 cents per share.

Excluding an $11 million loss from a discontinued operation, Regions' adjusted earnings 22 cents per share.

Analysts surveyed by FactSet had expected adjusted earnings of 21 cents per share, on average. Analysts' forecasts typically exclude one-time items.

Regions said its aggregate loan yield was 4.18 percent, down from 4.29 percent in this year's second quarter. Regions, like many other banks, has been pressured by historic low interest rates, which have been driven down in part by the Federal Reserve policies to stimulate the economic recovery and encourage borrowing and investment. Regions also attributed the decline in its loan yield to a greater number of borrowers paying off mortgages early, as well as pricing competition.

Shares of Regions fell 51 cents, or 7.2 percent, to $6.57 in morning trading. The stock has traded in a 52-week range of $3.51 to $7.73, and is still up more than 50 percent since the start of the year.

Regions also reported a decline in its net interest margin, which fell to 3.08 percent from 3.16 percent in this year's second quarter. Net interest margin, considered a key measure of a bank's profitability, is the difference between interest a bank collects on loans and interest it must pay to depositors and other lenders.

Jefferies & Co. analyst Ken Usdin said in a note to clients that the net interest margin performance "will be seen as disappointing." He said the company had indicated it expected that metric to remain stable in the latter half of this year, along with net interest income, or earnings from traditional banking operations like deposits and loans.

Net interest income slipped nearly 4 percent in the latest quarter to $817 million, from $850 million in the year-ago period.

That decline was offset by improved loan performance. Regions' provision for loan losses, or money set aside to cover souring loans, plunged to $33 million from $355 million in the year-ago quarter, although it rose slightly from $26 million in this year's second quarter.

Net charge-offs, or loans that have been written off as uncollectible, declined to 1.38 percent of average net loans from 2.52 percent in the year-ago quarter, and from 1.39 percent in this year's second quarter.

Revenue from Regions' mortgage business increased to a record high of $106 million, up 56 percent from the year-ago period.

Regions reported $12 million in securities gains in the latest quarter, compared with a $1 million securities loss a year ago. Other non-interest income, such as earnings from fees and service charges, rose about 1 percent to $521 million from $514 million.

Separately, Regions said on Tuesday that it expects to consider issuing preferred stock in an underwritten public offering "in the near future." Proceeds would be used for general corporate purposes.

Regions, based in Birmingham, Ala., operates in 16 states across the South, the Midwest and Texas, with about 1,700 branches.