01—Abstract
Summary
Summary of the 10-K filed February 27, 2008. Cited figures are marked; the original filing is the authoritative source.
Regions Financial Corporation (RF) reported net income of $1.25 billiona for 2007, down from $1.35 billion in 2006, with diluted EPS of $1.76 versus $2.67.
Income from continuing operations was $1.39 billionb ($1.95 diluted EPS), and the EquiFirst sale and wind-down produced a $142.1 million after-tax loss from discontinued operations. Results were weighed down by $217.5 million in after-tax merger-related expenses tied to the November 2006 AmSouth merger. Excluding discontinued operations and merger charges, diluted EPS was $2.26, compared with $2.83 in 2006, as reported in the filing's non-GAAP reconciliation.
Credit quality deteriorated sharply in late 2007. The provision for loan losses rose to $555.0 millionc from $142.4 million, net charge-offs reached $270.5 million (0.29 percent of average loans), and non-performing assets increased to $864.1 million from $379.1 million, driven largely by the residential homebuilder portfolio totaling $7.2 billion. Management expects net loan charge-offs of 0.55 to 0.65 percent of net loans for 2008 and anticipates non-performing assets will continue to rise.
Net interest margin fell to 3.79 percent from 4.17 percent, and the company noted it expects a reduction in net interest income following the 125 basis point federal funds cut in January 2008. Capital remained above well-capitalized standards, with a Tier 1 capital ratio of 7.29 percent and total capital ratio of 11.25 percent at December 31, 2007. The company repurchased 40.8 million shares for $1.4 billiond during 2007 but stated it does not expect significant repurchases in 2008.
Total assets were $141.0 billion, total deposits $94.8 billion, and stockholders' equity $19.8 billion. The filing also discloses class-action lawsuits related to Morgan Keegan Select Funds, for which the company cannot estimate exposure.
02—Key points
Key Highlights
- Diluted EPS of $1.76 for 2007 versus $2.67 in 2006; continuing operations EPS of $1.95 versus $2.71.
- Provision for loan losses rose to $555.0 million from $142.4 million; net charge-offs were $270.5 million (0.29 percent of average loans).
- Non-performing assets increased to $864.1 million (0.90 percent of loans) from $379.1 million, mainly due to the residential homebuilder portfolio.
- Net interest margin declined to 3.79 percent from 4.17 percent, reflecting AmSouth integration, lower low-cost deposits, and the FIN 48 tax-equivalent adjustment.
- Merger-related charges of $350.9 million pre-tax ($217.5 million after tax) in 2007; merger cost savings of $344.5 million realized in 2007, with a run rate above $500 million expected by mid-2008.
- Capital ratios remained above well-capitalized levels: Tier 1 ratio 7.29 percent, Total Capital ratio 11.25 percent, Leverage ratio 6.66 percent.
- Morgan Keegan contributed $165.9 million to net income; the company sold EquiFirst and 52 AmSouth branches in 2007.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2007filed February 27, 2008Financial Statements
| Operating Income | $1.39B |
| Interest Expense | $3.68B |
| Net Income | $1.25B |
| EPS (Basic) | $1.77 |
| EPS (Diluted) | $1.76 |
| Shares Outstanding (Basic) | 708.00M |
| Shares Outstanding (Diluted) | 713.00M |
05—Questions
Frequently Asked Questions
How did Regions perform in 2007 compared with 2006?
Net income was $1.25 billion, or $1.76 per diluted share, versus $1.35 billion, or $2.67 per diluted share, in 2006. Income from continuing operations was $1.39 billion ($1.95 per diluted share). The results include a $142.1 million after-tax loss from discontinued operations (EquiFirst) and $217.5 million in after-tax merger-related charges.
What drove the increase in credit costs?
The provision for loan losses increased to $555.0 million from $142.4 million, reflecting a full year of the AmSouth loan portfolio, higher estimated inherent losses in the residential homebuilder portfolio, and weaker economic conditions, particularly in Florida and Atlanta, Georgia. Management expects non-performing assets and charge-offs to continue rising in 2008.
What does the company expect for 2008?
Management expects net loan charge-offs of 0.55 to 0.65 percent of net loans for 2008, anticipates continued weakness in the homebuilder portfolio through 2008, and expects a reduction in net interest income following the January 2008 federal funds rate cuts totaling 125 basis points. It also expects remaining merger-related costs to be recognized in the first two quarters of 2008.
Is the company's capital position adequate?
At December 31, 2007, Regions' Tier 1 capital ratio was 7.29 percent, its Total Capital ratio was 11.25 percent, and its Leverage ratio was 6.66 percent, all above well-capitalized requirements. The company repurchased 40.8 million shares in 2007 but stated that it does not expect to repurchase a significant number of shares in 2008 given the credit environment.
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