01—Abstract
Summary
Summary of the 10-K filed February 24, 2011. Cited figures are marked; the original filing is the authoritative source.
Regions Financial Corporation reported a net loss available to common shareholders of $763 milliona, or $0.62 per diluted share, for 2010, compared with a net loss of $1.3 billion, or $1.27 per diluted share, in 2009.
The primary drivers were an elevated provision for loan losses of $2.9 billionb, a $200 million regulatory charge related to Morgan Keegan & Company, Inc., and elevated other real estate expenses, partially offset by higher net interest income. Net interest income rose to $3.4 billion from $3.3 billion, with the net interest margin improving to 2.90 percent from 2.67 percent as deposit costs fell from 1.35 percent to 0.78 percent. Total assets declined to $132.4 billion at year-end from $142.3 billion, and total deposits fell to $94.6 billion.
Credit quality showed signs of moderation but remained under pressure. Non-performing assets decreased to $3.9 billionc from $4.4 billion, net charge-offs were 3.22 percent of average loans, and the allowance for credit losses was $3.3 billion, or 3.93 percent of loans. Management stated that unemployment remains high and property valuations remain under pressure, and that credit costs are expected to remain elevated compared with historical levels.
Investor real estate loans fell substantially, from $21.7 billion to $15.9 billiond. Capital and regulatory matters remain central to the investment case. Tier 1 capital and Tier 1 common ratios were 12.40 percent and 7.85 percent at year-end.
Credit ratings from Moody's and S&P were below investment grade after 2010 downgrades. The quarterly common dividend was reduced to $0.01 per share, and the U.S. Treasury's $3.5 billion Series A preferred investment remains outstanding under the Capital Purchase Program, restricting dividend increases and share repurchases until November 2011 absent Treasury consent. The filing also describes significant regulatory uncertainty from the Dodd-Frank Act, proposed debit card interchange limits that could reduce debit card income, and pending Basel III requirements.
02—Key points
Key Highlights
- Net loss available to common shareholders of $763 million, or $0.62 per diluted share, in 2010, improved from a $1.3 billion loss in 2009.
- Provision for loan losses fell to $2.9 billion from $3.5 billion, while net charge-offs were $2.8 billion, or 3.22 percent of average loans.
- Net interest margin rose to 2.90 percent from 2.67 percent, driven by deposit costs falling to 0.78 percent from 1.35 percent.
- A $200 million non-deductible regulatory charge related to Morgan Keegan weighed on non-interest expense in 2010.
- Tier 1 capital ratio of 12.40 percent and Tier 1 common ratio of 7.85 percent at December 31, 2010.
- Credit ratings from Moody's and S&P were below investment grade following downgrades in late 2010.
- Proposed debit card interchange rules could reduce Regions Bank's debit card income, which totaled $346 million in 2010, to roughly one quarter of current levels under the 12-cent alternative.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2010filed February 24, 2011Financial Statements
FY2010 against FY2009
| Line item | FY2010FY2009 | Change |
|---|---|---|
| Operating Income | -$468.00M-$1.07B | +56.4% |
| Interest Expense | $1.25B$1.98B | −37.1% |
| Net Income | -$539.00M-$1.03B | +47.7% |
| EPS (Basic) | $-0.62$-1.27 | +51.2% |
| EPS (Diluted) | $-0.62$-1.27 | +51.2% |
| Shares Outstanding (Basic) | 1.23B989.00M | +24.1% |
| Shares Outstanding (Diluted) | 1.23B989.00M | +24.1% |
05—Questions
Frequently Asked Questions
Why did Regions report a net loss in 2010?
The filing attributes the 2010 net loss available to common shareholders of $763 million primarily to an elevated provision for loan losses of $2.9 billion, a $200 million regulatory charge related to Morgan Keegan, and higher other real estate owned expenses. These were partially offset by higher net interest income.
Is credit quality improving?
Management described moderating trends. Non-performing assets fell to $3.9 billion from $4.4 billion, and the provision declined from 2009. However, net charge-offs rose to 3.22 percent of average loans from 2.38 percent, and management expects non-performing assets and charge-offs to remain elevated compared with historical levels.
What is the status of the dividend and TARP investment?
The quarterly common dividend was reduced to $0.01 per share and is not expected to increase for the foreseeable future. Until November 14, 2011, unless the Series A preferred stock is redeemed or transferred, increases above $0.10 per share and share repurchases require U.S. Treasury consent. Preferred dividends are about $175 million annually at the 5 percent rate and increase to 9 percent after November 2013 if not redeemed.
What regulatory changes could affect future earnings?
The Dodd-Frank Act could significantly affect results through proposed debit card interchange restrictions, higher FDIC assessments under the new assessment rule effective April 1, 2011, potential deposit interest rate changes after July 2011, and Basel III capital requirements phased in beginning in 2013. The company says the ultimate impact cannot yet be determined.
06—Continue