Regions declined 7.6 percent to $6.54 at 4:15 p.m., the biggest drop since Oct. 31, 2011, after the Birmingham, Alabama- based company identified about $300 million to $400 million of “potential problem” commercial and investor real estate loans.
“That raised a cautionary flag,” said Gerard Cassidy, an analyst at RBC Capital Markets who rates the shares outperform. “This is the first company this quarter that had to address a number of credit quality questions, whereas most of the stocks that have been hit have been hit because of the margin and not credit-related questions.”
The bank, led by Chief Executive Officer Grayson Hall, 55, said additions to non-performing loans climbed to $463 million in the third quarter, the first increase in a year. The net interest margin, a gauge of lending profitability, widened to 3.08 percent from 3.04 percent in the same period last year and narrowed from 3.16 percent in the second quarter.
Regions has cut its bad-loan provision for eight straight quarters and the shares surged 65 percent this year through yesterday, the second-best performer in the 24-company KBW Bank Index. (BKX) The lender set aside $33 million for bad loans during the third quarter, compared with $355 million in the same period last year.
Third-quarter profit almost doubled to $301 million, or 21 cents a share, from $155 million, or 8 cents, a year earlier, the bank said today in a statement. That matched the average estimate of 29 analysts surveyed by Bloomberg.
Regions is considering a preferred stock offering in “the near future” if market conditions are favorable, according to a separate statement today. The proceeds would be used for general corporate purposes, which may include the redemption of certain trust-preferred securities, Regions said.
Total revenue declined 1 percent to $1.35 billion in the third quarter as net interest income fell to $817 million from $850 million. Non-interest income rose 3.9 percent to $533 million as mortgage income climbed to a record $106 million from $68 million last year.
Historically low interest rates and government incentive programs are fueling demand for home loans. JPMorgan Chase & Co. (JPM), the biggest U.S. bank by assets, reported a third-quarter profit increase this month that included a 72 percent surge in mortgage revenue. CEO Jamie Dimon said at the time that the housing market has “turned the corner.”
Bank of America Chief Financial Officer Bruce Thompson said this month that housing prices are “no question” moving in the right direction.
Net charge-offs at Regions declined 49 percent to $262 million. Total loans fell 5.3 percent to $75.3 billion. That was driven by a 12 percent drop in consumer credit-card loans to $901 million and a 27 percent decrease in investor real estate loans to $8.71 billion.
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