Financial Supplement
BIRMINGHAM, Ala. (BUSINESS WIRE) – Oct. 13, 2006 – Regions Financial Corporation (NYSE:RF) today reported highlights for the quarter ended Sept. 30, 2006, including:
- Record earnings of 77 cents per diluted share
- Increased net interest income
- Steady loan growth
- Reduced operating expenses
- Lower net loan charge-offs
- On-schedule merger planning
Repeats Record-Level Profit Performance
"Regions sustained record-level, high-quality earnings in the third quarter, resulting from associates' hard work and commitment to implement revenue enhancement and cost containment initiatives," said Regions Chairman, President and Chief Executive Officer Jackson W. Moore. "We reduced operating expenses and achieved higher net interest income, solid fee revenues and lower credit-related costs, all of which contributed to our third quarter's bottom-line strength.
"We have a strong, solid earnings base to build on and believe the soon-to-be completed AmSouth merger offers significant new opportunities to boost Regions' profits and shareholder returns over the long term. We are firmly committed to successfully executing on these opportunities, while providing superior products and services to our customers and creating a rewarding work environment for associates," Moore noted.
"There was also good merger planning progress in the third quarter," according to Moore. "And, on October 3, AmSouth and Regions shareholders approved our planned merger, which paves the way for an on-target fourth quarter completion, pending regulatory approvals.
"I am extremely proud of Regions' significant accomplishments and overall excellent performance since the mid-2004 merger of equals with Union Planters. Nonetheless, I believe the best is yet to come--with the merger of AmSouth and Regions."
EPS Up 26 Percent Year-Over-Year Before Merger and Other Charges
Third quarter 2006 net income was $352 million, or 77 cents per diluted share, an increase from second quarter 2006's record 75 cents per diluted share and up sharply from year-ago third quarter's 55 cents per share, including 6 cents of merger-related and other charges. Thus, per share earnings increased 26 percent year-over-year third quarter, excluding merger and other charges.
For the first nine months of 2006, net income totaled $992 million, or $2.16 per diluted share compared to $1.60 per diluted share, including 18 cents of merger and other charges, reported in the first nine months of 2005. The 21 percent annual rise, excluding merger and other charges, was the result of good revenue growth, realization of merger-related cost saves, and improved credit-related expenses.
Banking Franchise Delivers Good Results
Taxable equivalent net interest income increased $15 million in the third quarter to $806 million vs. second quarter's strong $791 million. Modest asset growth and an extra day in the third quarter more than offset a three basis point dip in the net interest margin to 4.21 percent. Year-over-year third quarter, taxable equivalent net interest income rose 9 percent, largely due to 28 basis point net interest margin expansion. Regions continues to take a very disciplined approach to balance sheet management which should minimize the effect of future interest rate shifts on net interest income levels.
Average total loans grew at a relatively steady pace second-to-third quarter, or an annualized 4 percent. Commercial and construction lending accounted for the bulk of the gain.
Regions' money market campaign was successful, generating approximately $1.5 billion of deposits since its inception in mid-June. The increase in money market deposits was offset by a decline in interest-free and other low-cost deposit accounts, as customers continued to shift funds into higher-yielding instruments. Nonetheless, average total deposits grew 7 percent linked-quarter, annualized. Regions remains focused on carefully managing funding costs while sustaining a strong core deposit base.
Fee-Based Revenues Make Solid Contribution
Service charges on deposit accounts increased an annualized 8 percent from second quarter's robust level, primarily as a result of seasonally higher NSF fees on strong underlying base levels of service charge fees. Compared to a year-ago third quarter, service charges were up 13 percent, largely due to increased NSF fee levels.
Mortgage originations were down to a still strong $4 billion in the third quarter contributing to a good third-quarter showing by Regions Mortgage. Gains on sale of mortgage loans were down as non-conforming mortgage premiums declined and early payment defaults increased. As a result, total mortgage-related profits, excluding mortgage servicing rights impairment and recapture, declined to $2.6 million in third quarter 2006 from $10.3 million in 2Q06, as weaker industry fundamentals pressured EquiFirst's revenues and earnings. Regions continues to manage the cost structure and efficiency of the mortgage business.
Regions sold $310 million dollars of securities during the quarter at an approximate $8 million gain.
Morgan Keegan Set for Record Full-Year 2006 Profits
"Given continued strength in third quarter results, 2006 should mark another record earnings year for Morgan Keegan," Moore stated.
Morgan Keegan earned $30.6 million in the third quarter, 27 percent above the comparable 2005 period. Profits declined 6 percent from second quarter's very strong $32.7 million, reflecting both seasonality and less favorable capital markets conditions.
Morgan Keegan revenue totaled $231 million, rising 16 percent from third quarter 2005's $199 million but declining 3 percent compared to second quarter 2006's $239 million. The linked-quarter revenue pullback was largely due to less robust fixed income and equity capital markets business flows relative to a very strong second quarter.
Operating Expenses Decline
Non-interest expenses dipped to $715 million from second quarter's $727 million, helped by cost control initiatives rolled out earlier this year. Linked-quarter expense comparisons are impacted by an $8 million mortgage servicing rights impairment charge in the third quarter of 2006 and $10 million of mortgage servicing rights reserve recapture in the second quarter of 2006. Excluding these items, non-interest expenses declined $30 million or 4 percent linked-quarter.
Regions experienced positive operating leverage in the third quarter of 2006 as the operating efficiency ratio improved to 55.9 percent compared to 57.5 percent in the second quarter. Since third quarter 2005, Regions' operating efficiency ratio has improved 364 basis points, reflecting success in growing revenue while controlling expenses.
Net Loan Charge-offs Drop
Credit quality trends were broadly favorable in the third quarter. Net loan charge-offs declined to $24 million, or an annualized 0.16 percent of average loans, from second quarter's $31 million (annualized 0.21 percent of average loans). Net charge-offs were down 34 percent from a year-ago third quarter's $37 million (annualized 0.25 percent of average loans).
Regions' third quarter 2006 provision for loan losses was $25 million and the loan loss allowance was $778 million at both June 30 and Sept. 30, 2006. The allowance-to-loans ratio was 1.31 percent compared to mid-year's 1.32 percent.
Non-performing assets dropped $8 million linked quarter, or to $312 million at Sept. 30, 2006--0.52 percent of loans and foreclosed real estate. By comparison, non-performing assets were $441 million (0.75 percent of loans and foreclosed real estate) at Sept. 30, 2005. Loans greater than 90 days past due were steady linked quarter at $79 million.
Share Buybacks Remain Part of Active Capital Management Policy
During the third quarter, Regions repurchased 1.4 million common shares at an average cost of $35.46 per share. Year-to-date Sept. 30, buybacks totaled 8.7 million shares, leaving an additional 18.9 million shares that can be repurchased under the company's current authorization.
At Sept. 30, 2006, Regions maintained a strong capital position, or tangible shareholders' equity-to-tangible assets of 7.08 percent. This compared to 6.69 percent at mid-2006.
Merger with AmSouth Expected to Close Fourth Quarter 2006
On Oct. 3, 2006, AmSouth and Regions shareholders voted to approve the merger of the two companies, meaning the transaction is likely to be completed in the fourth quarter pending regulatory approvals. Upon completion of the merger, AmSouth shareholders will receive 0.7974 Regions shares for each AmSouth share. The combined company will retain the name Regions Financial Corporation.
The merger planning process is proceeding on schedule. Over 600 senior leadership positions have been announced and preliminary integration timelines have been laid out.
About Regions Financial Corporation
Regions Financial Corporation (NYSE: RF), headquartered in Birmingham, Ala., is a full-service provider of retail and commercial banking, trust, securities brokerage, mortgage and insurance products and services. Regions had $87.0 billion in assets as of Sept. 30, 2006, making it one of the nation's top 15 banks. Regions' banking subsidiary, Regions Bank, operates some 1,300 offices and a 1,600-ATM network across a 16-state geographic footprint in the South, Midwest and Texas. Its investment and securities brokerage, trust and asset management division, Morgan Keegan & Company Inc., provides services from over 300 offices. Additional information about Regions, which is a member of both the Forbes and Fortune 500, can be found at www.regions.com.
Financial Highlights (Unaudited)
(Dollar amounts in thousands, except per share amounts)
Three Months Ended Nine Months Ended
September 30 September 30
--------------------- ---------------------
2006 2005 Change 2006 2005 Change
------------------------------------------------------
Earnings
Net income $351,657 $256,556 37% $991,594 $746,548 33%
Per share:
Net income $0.77 $0.56 38% $2.18 $1.61 35%
Net income-
diluted $0.77 $0.55 40% $2.16 $1.60 35%
Cash dividends
declared $0.35 $0.34 3% $1.05 $1.02 3%
September 30
------------------------------
Financial
Condition 2006 2005 Change
------------ ---------------------
Total assets $86,980,091 $84,594,614 3%
Loans, net of
unearned income $59,477,905 $58,355,886 2%
Securities $12,455,588 $11,945,077 4%
Total earning
assets $76,730,222 $74,379,986 3%
Total deposits $62,169,545 $59,465,175 5%
Stockholders'
equity $11,042,903 $10,645,055 4%
Stockholders'
equity per
share $24.27 $23.23 4%
As of and for nine months
ended September 30
------------------------------
Selected Ratios 2006 2005
------------ ------------
Return on
average
tangible
equity(a) 24.35% 18.63%
Return on
average
stockholders'
equity(a) 12.34% 9.30%
Return on
average total
assets(a) 1.54% 1.17%
Stockholders'
equity to total
assets 12.70% 12.58%
Allowance for
loan losses as
a percentage of
loans, net of
unearned income 1.31% 1.34%
Loans, net of
unearned
income, to
total deposits 95.67% 98.13%
Net charge-offs
to average
loans(a) 0.19% 0.22%
(a) Annualized
For additional information, including supplemental financial information, refer to Regions' Form 8-K furnished to the Securities and Exchange Commission on October 13, 2006, or visit Regions' Web site at www.regions.com. Regions' Investor Relations contact is Jenifer Goforth Kimbrough at 205/244-2823; Regions' Media contact is Sonya L. Smith at 205/244-2859.
Statements made in this press release, other than those containing historical information, are forward-looking statements made pursuant to the safe-harbor provisions of the Private Securities Litigation Act of 1995. Such statements involve risks and uncertainties that may cause results to differ materially from those set forth in these statements. Regions cautions readers that results and events subject to forward-looking statements could differ materially due to the following factors: possible changes in economic and business conditions; the existence or exacerbation of general geopolitical instability and uncertainty; the ability of Regions to integrate recent acquisitions and attract new customers; possible changes in monetary and fiscal policies, and laws and regulations; the effects of easing of restrictions on participants in the financial services industry; the cost and other effects of legal and administrative cases; possible changes in the credit worthiness of customers and the possible impairment of collectibility of loans; the effects of changes in interest rates and other risks and factors identified in the company's filings with the Securities and Exchange Commission.
CONTACT:
Regions Financial Corporation Investor Relations:
Jenifer Goforth Kimbrough, 205/244-2823
or
Media:
Sonya L. Smith, 205/244-2859
www.regions.com
SOURCE: Regions Financial Corporation
