Regions Financial Corporation today reported earnings for the quarter ending March 31, 2012.

Key points:

• Reported net income available to common shareholders of $0.11 per diluted share and $0.14 per diluted share from continuing operations reflecting solid business performance and broad-based improvement in asset quality metrics; a net loss from discontinued operations of $0.03per diluted share is attributable to an increase in professional and legal fees
• Successful completion of an approximate $900 million common equity offering
• Completed the sale of Morgan Keegan & Company, Inc. and related affiliates on April 2, 2012 resulting in total proceeds of approximately $1.2 billion
• Repurchased $3.5 billion of Series A Preferred Stock issued to the U.S. Treasury on April 4, 2012
• Strong capital position with an estimated Tier 1 ratio of 14.3 percent and Tier 1 Common ratio¹ of 9.6 percent at March 31, 2012; adjusted for the redemption of Series A Preferred Stock the Tier 1 ratio is 10.6 percent¹
• Liquidity position remains solid with a loan-to-deposit ratio of 79 percent
• Non-performing loans, excluding loans held for sale, declined $221 million or 9 percent linked quarter; inflows of non-performing loans declined to $381 million from $561 million or 32 percent from the fourth quarter
• Net charge-offs declined $98 million or 23 percent linked quarter; loan loss provision of $117 million was $215 million less than net charge-offs in the quarter
• Allowance for loan losses as a percentage of loans declined 24 basis points linked quarter to 3.30 percent, while the coverage ratio of non-performing loans increased 2 basis points to 1.18x
• Loan growth in the middle market commercial and industrial portfolio continued, with ending loans up 2.3 percent linked quarter, while consumer loans declined 1.8 percent
• Net interest income was down $22 million linked quarter and totaled $827 million, while the net interest margin increased 1 basis point to 3.09 percent
• Loan yields declined 6 basis points linked quarter to 4.29 percent primarily attributable to previously terminated balance sheet hedges
• Funding mix continued to improve while deposit costs declined to 37 basis points down 3 basis points from fourth quarter and down 22 basis points from the prior year
• Adjusted pre-tax pre-provision income ("PPI") from continuing operations totaled $419 million, an 11 percent decline from the prior quarter reflecting an expected seasonal increase in expenses from payroll taxes and a subsidiary's annual dividend payment
• Non-interest revenue from continuing operations was $524 million, a 3 percent improvement on a linked quarter basis as growth in mortgage income more than offset the slight reduction in service charges
• Non-interest expenses from continuing operations totaled $913 million; excluding last quarter's $253 million goodwill impairment charge, non-interest expenses increased 5 percent linked quarter reflecting higher salaries and benefits offset by lower other real estate expense

Disciplined execution of business plans

Regions reported first quarter net income available to common shareholders of $145 million or $0.11 per diluted share, driven by continued execution of the company's business plans. First quarter income from continuing operations was $185 million or $0.14 per diluted share. From discontinued operations, Regions reported a net loss of $40 million or $0.03 per share attributable to an increase in professional and legal fees. Pre-tax pre-provision income totaled $438 million as compared to $485 million in the prior quarter. Excluding fourth quarter's goodwill impairment of $253 million¹, first quarter pre-tax pre-provision income declined $47 million due to lower net interest income and higher expected seasonal expenses partially offset by an increase in mortgage income.

"During the first quarter, we achieved several important milestones that position us well to continue growing profitable customer relationships, expanding our market share and helping our customers become more successful financially," said Grayson Hall, president and chief executive officer. "We are poised to build on Regions' strong foundation to benefit our shareholders, customers and associates."

Key milestones position the company for profitable growth

On January 9, 2012, the company submitted a capital plan to the Federal Reserve as part of the comprehensive capital analysis and review. After review by the Federal Reserve, Regions received permission to execute on its plan which demonstrates the strength of the company's capital plan and process. As the analysis shows, execution of the company's capital plan — including the sale of Morgan Keegan and the capital raise — positions Regions among the top large U.S. banks in terms of key capital ratios under the stress scenario. In executing the plan, the company has already taken several important steps to ensure its long term financial strength:

• March 13 — completed a highly successful approximate $900 million common equity raise, yielding $875 million in net proceeds
• April 2 — completed the sale of Morgan Keegan to Raymond James Financial resulting in proceeds of approximately $1.2 billion
• April 4 — repaid the U.S. Treasury Department's $3.5 billion preferred stock investment

Strong capital and solid liquidity

Tier 1 and Tier 1 common¹ capital ratios remained strong, ending the first quarter at an estimated 14.3 percent and 9.6 percent, respectively. On a Basel III basis¹, they were estimated to be 12.5 percent and 8.9 percent, which are above the 8.5 percent and 7 percent minimum requirements, respectively. Adjusted to exclude the government's preferred stock investment, which was repaid shortly after the quarter's end, the Tier 1 ratio stood at 10.6 percent¹. The company's liquidity position at both the bank and the holding company remains solid as well. As of March 31, 2012, the company's loan-to-deposit ratio was 79 percent.

Asset quality improvement continues

First quarter resulted in significant asset quality improvement. The provision for loan losses totaled $117 million or $215 million less than net charge-offs; the lowest quarterly loan loss provision in more than four years. Total net charge-offs declined $98 million or 23 percent linked quarter. The company's loan loss allowance to non-performing loan coverage ratio increased from 1.03x to 1.18x year-over-year and the allowance for loan losses as a percent of loans was 3.30 percent as of March 31, 2012.

Non-performing loans, excluding loans held for sale, were down $221 million or 9 percent linked quarter. Inflows of non-performing loans declined to$381 million or 32 percent from the fourth quarter. In addition, 49 percent or nearly half of ending Business Services' non-performing loans were current and paying as agreed as of March 31, 2012, up from 38 percent in the prior year. Business Services criticized loans also declined 6 percent in the quarter and are down 35 percent year-over-year.

Focused on growing profitable customer relationships

With a strong financial and customer service foundation in place, Regions is focused on profitable growth across all lines of business to advance its strategic priorities and improve its performance.

Total loan production for the quarter was $12.6 billion. Commercial loan production (including renewals) constituted the majority of that total at $10.3 billion, of which $4 billion was new loan production. Growth in lending to middle market commercial and industrial customers continued, with average loans in this category up 8.1 percent compared to prior year. Total commercial and industrial commitments grew $872 million, or 3 percent linked quarter. This growth was driven primarily by broad based geographic growth and continued momentum in our specialized industries. Consumer loan production totaled $2.3 billion in first quarter 2012, which reflected strength in mortgage and indirect auto.

Overall, ending loans declined 1 percent linked quarter reflecting a further $616 million decline in the investor real estate portfolio. The company's aggregate loan yield decreased 6 basis points linked quarter to 4.29 percent, primarily due to the impact of previously terminated balance sheet hedges. Ending earning assets increased 2 percent attributable to growth in the securities portfolio.

Improving funding mix

The company's funding mix continued to improve during the quarter, as average low-cost deposits as a percentage of total deposits rose to 80 percent compared to 76 percent last year. This positive mix shift resulted in deposit costs declining to 37 basis points for the quarter, down 3 basis points from fourth quarter and a 3 basis points decline in total funding costs to 65 basis points.

Net interest income from continuing operations was $827 million, a $22 million decline linked quarter, driven by a $1.2 billion decline in average earning assets and higher mortgage prepayments. The net interest margin was up slightly linked quarter at 3.09 percent. The net interest margin benefited from lower deposit costs and a $530 million decrease in average cash reserves at the Federal Reserve as well as lower non-accrual levels. These benefits were partially offset by the impact of previously terminated balance sheet hedges.

The securities portfolio increased $2.7 billion during the quarter and now totals $27 billion as part of the strategic decision to deploy excess cash into earning assets.

Growing fee income and expanding services

Non-interest revenues from continuing operations totaled $524 million, up 3 percent linked quarter as a result of higher mortgage income. Excluding security gains and leveraged lease termination gains, adjusted non-interest revenue¹ increased $15 million or 3 percent reflecting higher mortgage income partially offset by lower service charges. Mortgage revenue increased 35 percent linked quarter or $20 million, as customers took advantage of the extended Home Affordable Refinance Program, or HARP II.