Regions Shares Decline as Fourth-Quarter Profit Depends on One-Time Gain

Regions Financial Corp., the Alabama lender that holds $3.5 billion in government bailout funds, fell as much as 4.5 percent in New York trading after the bank reported earnings that depended on a one-time gain from a securities sale.

Regions declined 28 cents, or 3.8 percent, to $7.02 at 4 p.m. in New York Stock Exchange composite trading after falling to $6.97 earlier today. Fourth-quarter net income was $89 million, or 3 cents per diluted share, compared with a net loss of $543 million, or 51 cents, in the year-earlier period.

The results included a $333 million gain that reflected the sale of $8.1 billion of agency mortgage-backed securities, Birmingham-based Regions said in a financial supplement on its website. Without the sale, Regions would have reported a net loss of about 14 cents a share, said Marty Mosby, a Nashville, Tennessee-based analyst for Guggenheim Securities LLC.

“That’s the big moving piece,” Mosby said in an interview. “When you take that back, you’re pretty much in line” with analysts’ earnings estimates, he said.

The average estimate of 26 analysts surveyed by Bloomberg was for a loss of 13 cents. Regions hasn’t posted an annual profit since 2007.

Provisions for loan losses dropped to $682 million in the fourth quarter from $1.18 billion in the same period a year earlier.

Credit Improvement

“Versus some of the other banks that reported this week, the pace of credit improvement was slower,” said Al Savastano, a New York-based analyst at Macquarie Group Ltd.

Net charge-offs fell 1.4 percent to $682 million in the fourth quarter, matching the provision for loan losses.

“The provision went down, but because they matched net charge-offs, they’re not reducing the size of the cushion they have for bad loans, or the allowance for loan losses,” said Kevin Fitzsimmons, an analyst at Sandler O’Neill & Partners LP.

Regions’ net interest margin, the different between what the bank pays for funds and what it gets for loans, increased to 3 percent in the fourth quarter from 2.72 percent in the year- earlier period.

“It’s relatively low versus peers at 3 percent, and they indicated that it was going to be going lower by 5 to 10 basis points,” Fitzsimmons said. “That’s a big driver of profitability for banks.”

By changing the mix of their loan portfolio, which is “largely concentrated” in business lending, and by placing additional emphasis on consumer loans, Regions will be able to lift its net interest margin, Chief Financial Officer David Turner said on a conference call with analysts.

“By emphasizing getting a bigger mix of consumer loans, they can help their loan yields,” Fitzsimmons said. “They indicated that they need loan yields to expand before we see real improvement in the margin.”

To contact the reporter on this story: Laura Marcinek in New York at lmarcinek3@bloomberg.net.

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net.

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