Regions Financial Corp (RF) 2009 Q1 法說會逐字稿

Good morning and welcome to the Regions Financial Corporation's quarterly earnings call.

My name is Abigail and I will be your operator for today's call.

I would like to remind everyone that all participant phone lines have been placed on listen-only.

At the end of the call, there will be a question-and-answer session.

(Operator Instructions)

I will now turn the call over to Mr.

List Underwood before or Mr.

Ritter begins the conference call.

Thank you, Abigail, and good morning everyone.

We appreciate your participation on a very busy earnings day.

Our presenters this morning are Dowd Ritter, Chairman, President and Chief Executive Officer; Irene Esteves, our Chief Financial Officer.

Also joining us and available to answer questions are Bill Wells, our Chief Risk Officer; Mike Willoughby, our Chief Credit Officer; and Barb Godin, our Head of Consumer Credit.

Let me quickly mention our presentation format.

We have prepared a short slide presentation to accompany Irene's comments.

It's available under the IR section of Regions.com.

For those of you in the investment community that dialed in by phone, once you are on the investor relations section of our website, just click on live phone player and the slides will automatically advance in sync with the audio of Irene's presentation.

A copy of the slides will be available on our website shortly after the call.

Our presentation this morning will discuss Regions business outlook and includes forward-looking statements.

These statements may include descriptions of management's plans, objectives, or goals for future operations, products or services; forecasts of financial or other performance measures; statements about the expected quality, performance or collectibility of loans; and statements about Regions general outlook for economic and business conditions.

We also may make other forward-looking statements in the question-and-answer period following the discussion.

These forward-looking statements are subject to a number of risks and uncertainties and actual results may differ materially.

Information on the risk factors that could cause actual results to differ is available from today's earnings press, in today's Form 8-K and in our Form 10-K for the year ended December 31, 2008.

As a reminder, forward-looking statements are effective only as of the date they are made and we assume no obligation to update information concerning our expectations.

Finally, let me also mention that our discussions may include the use of non-GAAP financial measures.

A reconciliation of these to the same measures on a GAAP basis can be found in our earnings release and related supplemental financial schedule.

I will now turn it over to Dowd.

Thank you List.

We appreciate all of you joining us for Regions first-quarter earnings conference call.

As we announced a little earlier this morning, Regions earned $0.04 per fully diluted share in the first quarter, a recovery from our fourth-quarter 2008 loss.

We are extremely pleased with this quarter's strong deposit growth and account production as well as our account retention and continued progress on the credit front.

During the quarter, we continued to de-risk the balance sheet, aggressively dealing with problem credits and at the same time improving our tangible common equity to assets ratio to 5.41%.

Our Tier 1 capital ratio remains strong at an estimated 10.37%.

At the same time, we remained firmly focused on serving our customers' needs, making approximately $15.7 billion in new and renewed loan commitments during the first quarter of 2009.

We originated some $2.8 billion in residential mortgages, reaching the highest quarterly level in the Company's history, and resulted in a doubling of mortgage income to $73 million versus the prior quarter.

Additionally, we opened over 243,000 new retail business checking accounts, a record quarterly amount, while the ratio of checking accounts opened to those close improved 26% compared with the same period a year ago.

These results drove a 4% increase in both low-cost and customer deposits.

Morgan Keegan continued to demonstrate growth, adding more than $1 billion in new assets under management during the quarter.

Furthermore, we are providing these and all customers with great service.

In 2008, we focused our quality performance activities on improving the customer experience and the results thus far have been outstanding.

our recent customer satisfaction scores reached an all-time high, well into the top quartile for retail banks, reflecting continued success in meeting the needs of customers and delivering high customer service levels.

There's no doubt that establishing new relationships and at the same time strengthening existing ones will be a key advantage as this economy recovers.

I'm not about to suggest that the tough times are behind us, because they're not.

This economy remains weak, pressuring Regions overall revenues which were disappointing in the first quarter.

And although our net loan losses and provisioning declined sharply from fourth to first quarter, they remain elevated and non-performing loans remain stubbornly high, all of which Irene will discuss in just a few minutes.

It is clear, however, from the underlying business performance that we are taking the necessary actions to ensure that Regions will not only successfully manage through these difficult days, but be prepared to take full advantage of this economic recovery when it does occur.

I'm encouraged by recently announced government programs that are aimed at stabilizing housing, unfreezing securitization markets, removing problem assets from banks' balance sheets and improving liquidity in the mortgage securities markets.

As more information about these plans become available, we will closely assess how or even if we will participate in these programs if they might benefit Regions and our customers.

Meanwhile, our own customer assistance program has already produced benefits for Regions and our customers experiencing difficult times.

To date, we've modified over 5500 mortgages for customers, enabling those customers to remain in their homes; including more than 1100 mortgages in the first quarter alone.

From an economic environment standpoint, although it's too early to say we've bottomed and we recognize that credit quality will obviously lag the recovery as usual, we are beginning to see some positive signs.

For example, the Florida Association of Realtors most recent data shows that existing home sales have risen now for six consecutive months in year-over-year comparisons.

Meanwhile, Regions is aggressively and successfully dealing with pressing problems while preparing for economic recovery.

We are reducing our stressed portfolios of homebuilder, Florida's second lien home equity and condominium credits which declined nearly $340 million in aggregate during the first quarter.

Importantly, we are focusing on what we can control in our businesses such as expenses which declined fourth to first quarter.

We're also building customer relationships as illustrated by first quarter's growth in customer deposits and accounts.

We're taking advantage of opportunities to strengthen our franchise in key markets by way of small FDIC-assisted bank acquisitions such as the February assumption of approximately $285 million of First Bank Financial Services, just outside of Atlanta in Henry County, Georgia.

We're actively managing our balance sheet to ensure liquidity and capital strength.

Let me now turn it over to Irene for greater detail.

Thank you Dowd.

Let's begin with a summary of results for the quarter.

As shown in slide one, first-quarter earnings totaled $0.04 per diluted share, which I will mention were not impacted by the recently announced fair market value accounting rule changes.

In a continuation of a recent trend, customer deposits grew $3.8 billion including a $1.1 billion or 6% rise in non-interest-bearing deposits.

Ending loans were down slightly during the quarter, but I'm glad to report the production of residential mortgages, most of which is sold, hit a record $2.8 billion dollar level this quarter.

In fact, first-quarter mortgage application volume was up 80% from fourth quarter 2008 and was our biggest mortgage application quarter ever.

With respect to credit, net charge-offs were down to 1.64% from the fourth-quarter spike of 3.19%.

As we said at the time, the fourth quarter was largely driven by marks on loans (inaudible) held for sale or sold.

This quarter we recorded a $425 million provision for loan losses, $35 million above net charge-offs.

Reflecting continued weakness in housing, valuations and the overall economy, non-performing loans increased to $589 million in the quarter.

Our average of allowance for loan losses to non-nonperforming loans ended the quarter at a multiple of 1.13 times.

During the quarter, we sold or had paydown on our held-for-sale portfolio of $65 million.

On the sales, we recorded a profit of $4 million, showing that our marks last quarter when we moved them to held for sale were adequate.

Regions net interest margin declined 32 basis points to 2.64%, reflecting the impact of falling rates on our asset-sensitive balance sheet, the effects of the prime LIBOR rate normalization as well as the full quarter impact of fourth-quarter issuance under the TLGP; in essence, an incremental cost of the quiddity.

With a couple of exceptions, non-interest revenues were negatively affected by broad economic pressures.

Importantly, we achieved targeted expense reductions, reducing total non-interest expenses by 10% from the previous quarter excluding fourth-quarter's goodwill and MSR impairment charges.

Lastly, capital remained strong as evidenced by our tangible common ratio of 5.41% and an estimated Tier 1 ratio of 10.37%.

Return to credit, slide two, shows that our most stressed portfolios -- residential homebuilders, home equity second liens in Florida and condominiums -- dropped another $336 million in the first quarter.

Stressed assets currently make up about 9% of their total loan portfolio, down from 13% at the beginning of 2008.

This represents a $3.4 billion decline in the last five quarters.

Slide three highlights the substantial progress we've made over the last several quarters in working down our homebuilder, land and condo portfolios; especially in hard-hit geographies such as Florida and North Georgia where unemployment levels are very high.

For homebuilders, overall exposure has dropped by $3.1 billion or 42% since the beginning of 2008.

Land portfolios, some of which is a subset of the homebuilder balances, has been reduced as well, dropping by $2.6 billion or 41% since the merger.

Condo exposure continues to decline and is now $850 million, of which approximately $460 million is in Florida where the stress is most acute.

However, we have seen some signs of condo stabilization recently.

For example, the Florida Association of Realtors most current data shows a 15% gain in statewide sales of existing condos, continuing a trend in recent months.

The takeaway here is the nature of our problem credits hasn't changed.

We focused on resolving them and we are maintaining a conservative credit discipline.

Let me give you a quick perspective on housing across our footprint.

The government's housing price index is a broad measure of average price changes and repeat sales or refinancing on the same property.

This slide illustrates an important point.

While prices have declined precipitously in Florida as indicated by the red line, prices over the remainder of our footprint are holding relatively steady.

Contributing heavily is Florida's high and rapidly rising unemployment rate which recently stood at 9.4% as compared to 8.5% for the US as a whole.

Slide five is an important one for understanding our loan-loss allowance levels over the last several quarters.

Note that the large increase in the fourth-quarter's allowance level reflects the losses inherent in our loan portfolio at year-end, including the loans which had not yet migrated to non-performing status.

As expected, these loans increased.

From fourth to first quarter, they increased by $589 million excluding loans held for sale.

Also note that the coverage ratio or allowance for loan losses divided by non-performing loans was 1.13 at the end of the first quarter.

Our current period allowance for credit losses of 2.02% of loans incorporates not only up-to-date asset valuations, but our estimate of portfolio loss content using appropriately distressed economic assumptions.

Our next slide gives you some perspective on credit costs which we have defined here as net charge-offs plus other real estate losses plus any provision over net charge-offs.

In total, net charge-offs were an annualized 1.64% of average loans, down from fourth quarter's 3.19% level which was inflated by our decision to sell or move to held for sale over $1 billion of NPAs.

It's noteworthy to remind everyone that our marks on transfers to held for sale have been validated to some extent since the first-quarter sales from our held-for-sale portfolio were closed at a $4 million net gain to carrying value.

Stressed portfolios continue to explain the bulk of loan losses, accounting for $143 million or 37% of first-quarter charge-offs, while the assets account for only 9% of our portfolio.

Notably, there was an increase in home-equity charge-offs to an annualized 2.38%.

The deterioration was largely centered in our Florida portfolio, which is being negatively affected by Florida's near double-digit unemployment rate and significant housing price depreciation.

And if you exclude Florida from our results, all other net charge-offs for home equity were less than 1%.

Looking ahead, net loan charge-offs are likely to remain at elevated levels over the next several quarters given a weak economy, housing price pressures and rising unemployment.

Slide seven shows that while total NPAs rose, inflows of new NPAs remained relatively stable due to the aggressive moves in the fourth quarter to sell assets or move them to held for sale.

There was a dip in non-performing assets.

While NPAs rose in the first quarter, it's important to note that the increase was not due to significantly higher inflows, but from a decrease in the linked quarter levels of loans sold or moved to held for sale.

While the bulk of charge-offs and problem assets are still concentrated in our stressed portfolios, we're closely monitoring our entire portfolio especially commercial real estate.

But thus far, we haven't seen substantial deterioration even in segments such as retail and hospitality.

And as detailed in our earnings supplement, Regions commercial real estate portfolio is well diversified by product type.

If I move now to our loan balances, they were down 3% linked quarter or $2.5 billion.

As Dowd pointed out, we were actively lending; nonetheless we've experienced a $1 billion drop in commercial industrial loans, largely reflecting re-marketing of [VRDN] balances early in the first quarter.

We also realized a $1.6 billion reduction in construction loans as projects were completed and converted to completed real estate loans.

On the consumer side, residential first mortgage production activity was up significantly, spurred by the favorable rate environment.

However, most of this production is sold in the secondary market.

Slide nine shows the change in our funding base since last quarter.

Of note, total customer deposits grew a solid 4% on average in the first quarter, reflecting strong checking and money market growth.

Positive results for these categories were driven by the introduction of new consumer and business checking products and money market rate offers.

Importantly, interest-free deposits grew this quarter by $1.1 billion or 6%.

Savings balances were up as well as we expect this trend to continue since we have seen pick-up in new checking customers who are also opening a savings account, allowing us to leverage a growing culture of savings.

Turning to revenues, our net interest income declined $116 million fourth to first quarter, primarily due to the net interest margin dropping 32 basis points.

To a large extent, the drop reflects the impact to our asset-sensitive balance sheet, declines in short-term interest rates, which cost us about six basis points, as well as normalization of the prime LIBOR spread, the equivalent of 15 basis points.

These two items explain 21 of the 32 basis points decline.

Another seven basis points is due to the full-quarter impact of TLGP issuance in December of 2008.

The remaining four basis point variance is due to lower loan volumes and growth in lower spread deposit categories, partially offset by better loan spreads on new and renewed loans.

Our non-interest revenues were $364 million higher than in the fourth quarter.

However, excluding the first-quarter [silo] transaction related income and securities gains, non-interest revenues were down slightly quarter to quarter.

In the securities sale, we sold $656 million of treasuries at a $53 million gain and we reinvested the sales proceeds in US government agency mortgage-backed securities.

There was minimal net duration change resulting from these transactions.

The unwinding of SILO leveraged lease transactions had little impact to net income.

The accounting results in a large increase in non-interest revenue, about $323 million, and almost as large offset in taxes or $315 million.

While partly seasonal, non-interest revenues certainly reflect the general economic downturn.

Nonetheless certain categories did reflect relative strength, including mortgage income which was up $39 million or 114% since versus the fourth quarter level.

Conversely service charges dropped $19 million or 7%, largely reflecting lower customer transaction volumes, spending levels and seasonality.

Brokerage income declined about 10% linked quarter.

As a driver of brokerage income, let's look at Morgan Keegan in more depth.

There's not doubt that the brokerage business is feeling pressure, but Morgan Keegan is weathering the conditions well.

The fixed income capital markets division followed up last quarter's strong showing with its second consecutive quarter of revenue in excess of $100 million.

And in a testament to this strength, this division moved up to the eighth spot in a national ranking of municipal bond underwriters this quarter.

Other areas such as private client, equity capital markets and trust reflect environmental conditions including the effects of lower asset valuation.

Offsetting the impact of market-driven value declines, we're pleased with the influx of over $1 billion of net new customer assets, mainly associated with the recent addition of 60 new financial advisors.

In addition, we are keeping our eye on the ball with respect to efficiency.

While we have added new financial advisors, we have reduced other staff.

Lastly, let me give you an update on recent arbitrations involving Morgan Keegan.

To date, almost 90% sign of the arbitrations have been resolved or dismissed with no claims paid.

Among all claims resolved or withdrawn to date, resolutions of these arbitrations have averaged only $0.135 for every dollar claimed.

And importantly, all judgements to date have been based on individual brokerage sales practices and not against fund management.

As regards to class-action suits, two have already been dismissed and none have been certified.

As I mentioned, mortgage activity has been especially strong of late.

Here's a monthly picture of what rates and mortgage application volumes have done since September.

Driven largely by government purchases of mortgage-backed securities, rates have been very attractive since December, leading to record close volumes of $2.8 billion in the first quarter, driving a doubling of mortgage income to $73 million versus the previous quarter.

While market share data is difficult to come by in real time, we know we picked up strong market share in 2008 and we believe that trend will continue for 2009.

Non-interest expenses declined 10% linked quarter excluding fourth quarter's goodwill impairment and mortgage servicing [rate] charges.

During the first quarter of 2009 we began accounting for MSRs at fair value and hedging this volatility.

Therefore beginning this quarter, there are no MSR impairment recapture related amortization expenses.

The impact of the fair value charge and the related hedge now flow through the mortgage income and was less than $1 million for the quarter.

Notably, salary and benefit costs were down $23 million or 4% as lower commissions and incentives more than offset the annual seasonal rise in FICA and benefit expenses.

Expenses also reflect lower professional fees and a $4 million net gain on the sale of non-performing loans held for sale.

Improving our operating efficiency remains a priority.

All-in, we continue to target a 2 to 4% reduction in total non-interest expenses before any special assessments by the FDIC.

I will also remind you that we recorded a full quarter's worth of dividend expense on our CPP preferred stock this quarter, equivalent to $0.07 per share compared to $0.04 for the seven weeks it was outstanding in the fourth quarter.

Switching to capital, our regulatory ratios remain comfortably well above the well-capitalized minimum with our Tier 1 ratio of 10.37%.

On a tangible basis, we picked up 18 basis points to 5.41%.

Also you may have seen last week we just reduced our dividend to $0.01 per quarter which will conserve an additional $250 million of capital annually.

We're also in very good shape from a funding and liquidity standpoint as detailed on slide 16.

For example, customer core deposits are growing and now fund 66% of total assets, up from fourth quarter's 59%.

And although we're not reliant on the overnight funding markets, this source is certainly available if there is a need for short-term funds.

Liquidity continues to be strong, totaling $42 billion, including $22 billion of secured lines.

Wrapping up, these are clearly challenging times.

However, we're confident in Regions ability to deal with today's challenges as well as take advantage of future opportunities.

We continue to de-risk our balance sheet, maintain strong capital allowance levels, keep liquidity healthy, proactively manage operating expenses and focus on strengthening customer relationships through superior service and product enhancement.

And with that, I will ask Abigail if we could open it up for questions.

(Operator Instructions) Chris Mtascio, Stifel Nicholas.

I was just looking at -- going over your slide seven and I appreciate the input on the inflows of non-performing assets, especially given the sales you took down in fourth quarter.

I want to try to get a little more flavor.

When you look at the reserve, I guess your argument would be that you've written down some of these things enough and that's why the reserve build this quarter was only $35 million, with NPAs up over $600 million.

When I look at that chart though for non-performing you also -- as it relates to reserve builds, do you also take into consideration increases in things like the loans that were 90-days past due and the restructured loans that occurred in the quarter?

Because I think if I look at those two numbers, they were up sequentially about $510 million or so in the quarter.

Should that go into the reserve calculation?

In other words, should we have built the reserves a bit more than we did given the fact not just NPAs were up but also maybe a pipeline of NPAs could be coming in the future with restructured loans and 90-days past due?

Chris, this is Bill Wells.

There are several questions in there and I will try to help answer them as best I can.

First thing, I always think about some of the [facts].

As Irene had mentioned, there are really three portfolios that have given us trouble over the past 16 months.

Remember, we're 16 months into this.

That's residential, condo and home equity; and two geographies, Florida and Georgia.

So we always keep that in mind as we are looking through our portfolio.

When you do that, think about this.

Our Atlanta residential condo portfolio has gone -- decreased from about $1.3 billion to a little over $700 million.

So you have to factor in how your exposures have come down over time.

Also remember that as Irene had mentioned, during the fourth quarter, we did make a large provision in anticipation of these non-performing loans coming through.

And when I look at the large non-performings, they are really coming out of those two product lines of residential and condo, the majority of them.

Also remember that our reserve methodology that you spoke of is really a very conservative view and it's been consistent over -- really since about the four years that I have been at the Company.

The other thing is we look at it, we look at our ratios, we look at large problem credits, we look our different pools.

On the restructured loans that you are talking about, mainly those were coming out of our customer assistance program in the residential mortgage area.

So as we do factor that in, as we look at our methodology, we feel comfortable about where the reserve is.

That's when we went through the analysis and we thought that based on what we are seeing in exposures, on problem asset migration, that we felt good about our coverage ratios with the additional $35 million.

And I would also add we always had third-party reviews coming after us, looking over us, including our external accounts.

If I could just mention -- this is Mike Willoughby -- on the TDRs, the recidivism there is about 12% which is, as you know, as compared to others' restructured consumer loans is extremely good.

The other comment I would make is that on the over 90, the business services increase in particular, which is about half of that, relates to a couple of large credits that are going to be current this quarter.

So when you look at business services increases, our policy is to put loans on non-accrual when they hit 90 days unless they are well secured and in the process of collection.

So when you look at the business services piece, those are not what we would expect to migrate to non-performing.

The consumer part has a lot to do with judicial foreclosure in Florida and some other states.

So I hope that helps.

Very good.

Thank you so much for the extra color.

Kevin St.

Pierre, Bernstein.

Just maybe dig a little bit further, get a little more specific to follow up on Chris's questions.

Could you tell us of the $1.6 billion or so of non-accrual loans, what the portion that is being treated with FAS114 is and the cumulative impairment charges on those loans and if we could get even more specific about the 959 and CRE loans?

Let me first -- all right, on the FAS114, what we do is we look at everything over $2.5 million and go through a very detailed process about looking at our portfolio and determining what is the valuation and what is the appropriate reserve along those lines.

Mike, if you might want to add a little bit more?

As you would expect this quarter, our FAS114 number is up.

And that has to do, as you might expect -- last quarter it was down just because of the asset sales or marks and moving to held for sale.

So we are about $200 million approximately in FAS114s.

I can't give you the mark, but let me explain to you how that works.

We get appraisals on non-accrual loans.

You are required under regulations and I think GAAP as well to get them at least annually.

We get them every six months.

So every six months, we actually will mark our non-performing loans to market which is relatively aggressively.

Most of our peers do it annually.

The second thing would be that we take in addition to that, a FAS114 reserve.

So when you look at the mark answer, you have got to go back and look at the legal balance.

You can't get look at book balance.

Because we're much more aggressive than some other -- than some of our peers on taking losses relative to these.

So in addition to that, we are also looking at what we would expect the holding period to be.

We will look at what we would expect other costs to be and we will add those and then discount it and that's how we come up with our FAS114.

I also think you have to give that consideration how we handle our held for sale also too; kind of tell you about where we are on some of the 114 valuations.

Last quarter, we took a -- we had a very significant strategy of disposing a lot of problem assets, well over $1 billion.

And that mark was roughly about $0.50 on that portfolio.

We're looking at loans coming through now.

We have about 30 to 35% marked.

That tells you a little bit about what we are seeing expectation of quality.

I know they are non-performing loans,but we don't see the severe loss side that we had seen earlier and that shows what we have been able to sell, a little bit of these problem assets, for gain.

Okay, thank you.

So that $200 million then is $200 million of the $1.6 billion in non-accruals has been impaired?

The way I look at it, Kevin, is we have got about $1.6 billion in non-performing loans.

Part of that, we go through as FAS114 allowance of review that you have to look at.

Then we have about another $280 million in OREO or repossessions and then about another 300 to 400 million -- about $400 million in held for sale.

So that is our total non-performing assets and everything has a different way of looking at it.

The reserve is really with the non-performing loan piece.

Brian Foran, Goldman Sachs.

I guess there's a lot of questions about what the appropriate level for capital for a bank is and I guess we'll find out what the stress test results, to some extent.

But if you are asked to strengthen your capital ratios, when you look across the different options for how you might do that from business sales to equity issuance to the cap program to other options you might have, deleveraging; what option in your mind is the most attractive or the most likely if you were required to strengthen capital ratios?

As you might imagine, we will tell you that our capital levels are strong and the quality is very good with our high TCE.

So we feel we have a strong capital starting point.

And if there is a need coming out of the regulatory reviews, we will work with our regulators on determining a course of action.

But we are not ready at this point to say that we -- what we would do under those scenarios.

Understood.

And then I guess secondly, one of your competitors was pretty explicit about feeling like Florida and Atlanta were bottoming or at least stabilizing and potentially have hit a bottom already.

You made some comments about Florida, but I guess more explicitly, do you feel like Florida and Atlanta are at a bottom right now or do you think there's still more deterioration to come in those markets, from a housing -- kind of overall health of the real estate housing market?

I'll start on that one, Brian.

You know we are still seeing some stress come through Florida and Georgia.

Some might say glimmers of hope, but we are talking about some of the credits that are coming in, when we look at it, that has potential to restructure or work through those.

So that is a positive sign.

But I will say that you are going to continue to see stress.

For us in Florida, think of it this way.

Whether you are seeing some more stress or not in the next couple of quarters, we have gone from a homebuilder and condo portfolio of the first part of 2008 of $3 billion down to a little over $1.4 billion.

I mean we have worked that portfolio down significantly and that's one thing I really don't think we have been given credit for.

If you go back to one of Irene's slides, is really talking about how we worked the exposures down in a very difficult environment.

And for us, Brian, what I would say is we have got some of our most troubled assets behind us.

We've got to phrase it as the worst of the worst.

And these are some condo projects that were half completed.

We worked through our most troubled problem.

I'm going to let Barb guard and Barb Godin talk a little bit about what they're seeing in the housing.

In the housing portfolio, what we're seeing in Florida is that peak to trough, the peak being in the (inaudible) data, the fourth quarter of 2006 to where we sit now, we're already down almost 31% in value.

So if one would suggest that the credit cycle potentially has 40% peak to trough to go, we think that will happen relatively soon.

So we are seeing some activity in the markets in Florida.

We are seeing some markets in fact that are showing signs of recovery.

This is Mike Willoughby.

I just want to follow up on Bill's comments because when you look at homebuilder, we have been really talking about Florida and the Atlanta and North Georgia area.

And in condos, we have been talking primarily about Florida, but we have some exposure in Atlanta, North Georgia as well.

If you were to take the condos and homebuilder in North Georgia, you would have a portfolio of a little over $700 million, down from $1.3 billion back at the beginning of 2008.

And you'd also find that of that $700 million, $77 million are past credits.

What that means is that we are all over and have been all over the remaining portion of that portfolio.

In Florida, it's a similar story where homebuilder is just under $1 billion, condos are under $500 million and we expect them to be under $300 million by the end of the third quarter.

The total, if you add them together in Florida, is about $1.4 billion and about half of that is currently looked at as past loans.

And so I think to Bill's point, we've really worked these portfolios starting in condos, it was in 2007; in homebuilders, 2008.

And we're making good progress and we're going to end up where we don't have anything to work on.

Thank you.

I appreciate all that detail.

Scott Valentin, FBR Capital Markets.

There's been some rumbling about shared national credits and I was just curious maybe if you could disclose the dollar amount of shared national credits you have in the portfolio?

And if you have it handy, maybe by industry or geography and potentially even by the seasoning, maybe how old the loans are.

Let me comment on that.

We have got about $7 billion in shared national credits.

You have got to remember that a shared national credit is defined as three banks, total credit is $20 million and above.

So a lot of our shared national credits are -- they can be real estate deals where there are three lenders.

They can be public companies.

They can be [club] deals that would be 20, $50 million, maybe up to $100 million would probably be our sweet spot.

And what I would tell you about that is -- because I think your question is really about the larger portion of that -- we have had as a policy going back to the merger and we have done some work around this to make sure that our shared national credit book is high-quality.

We do any of the covenant-light deals.

We haven't done any of the highly leveraged transactions.

And so to your question, we merged in November of 2006 and we have taken a very conservative approach to our shared national credit portfolio since that time and are not experiencing any difficulties there other than commercial real estate is just part of the numbers that you see.

That's very helpful, thank you.

And then in terms of you mentioned before about you make certain assumptions regarding the macro outlook for the economy and part of it -- I guess what I'm getting at is you've seen an increasing trend in non-accruals and past dues and with the economy forecast, unemployment forecast to go higher, I'm just curious to kind of figure out what your assumption is on unemployment.

You mentioned Florida unemployment picking up or increasing to almost double digits and maybe the knock-on effect that would have on C&I and commercial real estate and how that factors into reserving.

This is Barb Barb Godin.

Let me go ahead and start with the consumer portfolios.

We do look at double-digit unemployment in Florida and several of our other markets perhaps i.e.

the Carolinas.

Having said that, that's one of the reasons that we have a very active customer assistance program.

As an example, last month alone we helped over 2000 customers.

Some of those customers simply needed a short-term deferment, a forbearance.

Other customers needed modification of their loans.

But again, we're trying to get ahead of that.

So working with customers daily, customers who want to stay in their homes, customers who want to keep their vehicles or other tangible assets, we have been very successful in that as Mike mentioned in terms of recidivism rates of only 12%.

So while the unemployment rate -- we do expect it will go up.

We're also very actively trying to get in front of that, including making outbound phone calls to customers who are not yet delinquent to ensure that they're able to weather any issues that they have and if they need assistance that we are in front of that problem.

I'll turn it over to Mike.

I'll take it.

This is Bill.

On the C&I and CRE side, we've listen to a lot of what Barb is saying and seeing it in the consumer portfolio and how that affects us in the C&I and commercial real estate portfolio.

And I will tell you on the C&I, we just have not seen the pressure or stress come through that portfolio.

We've seen a few dealer lines that have come through.

I think that would be expected by what you are seeing in the economy.

But all the lines are appropriately monitored and we think we can liquidate out of those.

When I look down the list of our large problem classified credits, I don't see any particular stress point in the C&I.

On commercial real estate, a very diversified portfolio.

We may have seen a couple of apartment projects come through, but nothing really to speak of.

So even though we start to look at what unemployment may do, we have not seen it come through our portfolio yet.

And remember now, we've been talking about contagion from almost a year now and just have not seen it.

That doesn't mean that we're looking at those portfolios of commercial real estate, retail and keeping a watch on those.

We just haven't seen it spread in past dues as well as charge-offs or non-accruals come through at this time.

Okay and just one final question, if I may.

Your deposit growth was extremely strong.

Just wondering is that -- obviously the marketing campaign involved, but are you seeing it in any specific markets or is it being M&A driven, some of your competition being merged away?

It's happening across our footprint and it was a -- part of a concerted strategic effort that we started last fall to focus on building deposits, particularly low-cost deposits.

So it's not geographic specific.

It's across our footprint.

Christopher Marinac, FIG Partners.

I just want to get some more clarity on the non-performing assets held for sale.

The $65 million that was sold in the quarter, that was directly from this account, correct?

It was.

Yes, it was.

Were there any other transfers or out of that to get us down to 395?

Yes, let me kind of walk through because it does -- you kind of have to think about how the inflows and outflows are.

We start at about $427 million in the held for sale account.

We had either sales or payments come in of about $65 million.

That is the part that we talked about that we had a sale or a gain.

Then we had about $29 million that we transferred to OREO and that's just the process that you went through to move it to other real estate owned and then we had new additions that we moved from the loan portfolio into the held for sale of about $60 million and it was an average of a discount of 30 to 35% on that pool.

That ends up to about $393 million in our held for sale.

And also to let you know, Christopher, that since this time, we have sold about 10 or $11 million for a little bit of a gain.

And what that shows is we have been in this -- a lot of banks are talking about getting into this position of problem assets.

You go back and look, we started really in the second quarter of 2008, started to ramp up pretty heavy in the third quarter, did a very big sale in fourth quarter and we're continuing that process and we look as though we will continue to sell, dispose of, sell or mark, dispose of problem assets.

We think we have a very good program in place.

That's great and helpful.

So if you relate the $4 million gain that you had back to those related loans, what is the net (inaudible) at the end of the day on that experience?

I think we probably took an average of 50% mark.

You'll be a little bit shy of that.

I don't know the number but it would probably be in the 45%, 48% change.

And what I would say is what was interesting though is you say that, but as we moved assets into held for sale, we were averaging that 30 to 35% mark.

So you hate to say it about a non-performing loan or a credit you're moving to held for sale is better, but the marks are a little bit better than what we have seen in the past.

And we haven't changed our process one bit.

It's the same process that we have had over the past almost one year now.

On what we have put into held for sale this quarter, most of it -- half of it was under purchase from sale as of the end of the quarter and all of it will be under purchase from sale within two weeks.

So that activity we would expect to have out of the portfolio by the end of the quarter.

Greg Ketron, Citigroup.

I just have a couple of brief ones.

One, any color you can provide on the early stage delinquency trends, the 30 to 89 day past dues in the first quarter compared to the fourth?

And then the other would be, any outlook, reviews you can provide on the net interest margin, if you think the worst is behind you in terms of the asset sensitivity or LIBOR prime basis normalization and what your outlook may be for the rest of this year?

Let me start on the past dues.

On the 30 days, I look at our trend quarter over quarter and they are about stabilized.

But you will see some movement up and down within particular quarters.

What I would tell you is we have a very active credit servicing program from the C&I and commercial real estate and our geographies work very very hard to constantly work on our past dues.

On the 90 days what I will tell you is of the inquiries, about roughly in my mind, about half of it comes from the C&I and commercial real estate side and it really deals with some large credits that we are in the process of working through some type of structure and we will bring those back up under 90 days.

The other half has really dealt with the judicial process, the slowdown dealing with Florida and I'll let Barb talk more about the consumer past dues.

Yes, the consumer past dues, the 90 plus for residential mortgage made up the bulk of the $16 million quarter over quarter increase.

And as Bill mentioned, that was due to the backup in the Florida court system.

And in addition to that, any repayment plans we enter with customers under customer assistance program or any forbearance programs, we do not (inaudible) that customer current.

We allow them to stay in the 90-day bucket or greater and as they make their payments, they will automatically move to a current status at that time.

Greg, on your question on the net interest margin, we think most of the impact of the asset sensitivity and the LIBOR GAAP [gapping] out has pretty much flown through our statement.

So we're expecting we will be relatively stable in the second quarter.

Jennifer Demba, Suntrust Robinson Humphrey.

You mentioned earlier in your commentary that you really haven't seen evidence of contagion spreading to other commercial loan categories in any meaningful way.

I'm curious what particular loan bucket you may have more concern about as we go through 2009 and into 2010.

Would it be retail centers or hotel/motel or is there anything else you're particularly focused on?

Jennifer, I'll start and let Mike or Barb comment on.

For us, I would say we continue to watch retail, commercial real estate, strip center boxes.

We have been doing that for a while (inaudible) been on a moratorium list for us.

But we have been saying that for about two quarters now, watching it and just haven't seen the level of problem assets come through.

You will have one or two come through, but even in the good times, you're going to have a problem credit come through.

We watch hospitality is one, but it's a relatively small portfolio for us.

Anything, any C&I customer that is tied to the housing, we will watch very closely to watch for trends in that.

But really we just haven't seen the pressure that we have been expecting.

It doesn't mean that we're not going to continue to watch and address.

I think that goes back to, to me, is the very solid program we put in about two years ago where we were really focused on credit servicing.

For us, we start to look at principal reductions, try to make sure our collateral values match up with our loan balance.

We're always working with our customers too.

And again, I think that's a significant piece of why we haven't seen a lot of this contagion or some of the problems spread to other parts of the portfolio.

I'll let Barb talk about the consumer side.

Yes, on the consumer side, clearly we are watching the unemployment trends that are happening right across our footprint.

But again, back to our customer assistance program and back to the fact that our geographies, our branches are reaching out to customers on a monthly basis, customers that are not delinquent and doing a financial checkup just to make sure if they need help, we're dressing that early.

On our mortgage portfolio, we're calling all of our adjustable rate mortgages six months in advance of their reset date and making sure we have that conversation with the customer at the time that if they're not able to make the new payment or they're going to have any difficulties, again we're ahead of that problem.

So I wouldn't want to say there won't be any contagion or some increase in delinquency; but again, we're pretty aggressive about reaching out ahead of the problem, making sure we are in advance of it.

Just a follow-on comment on the commercial piece of this, one of the things we've noticed is that when we have seen a -- let's say a commercial real estate retail project experience difficulties, that unlike our experience in the homebuilder business where often there is not liquidity and staying power; with these credits, there is cash flow and that allows for workouts that are different from the homebuilder workout approach.

And as you know, homebuilders, when they are no longer functioning, you have lots, you have land, you have spec houses and it's a question of what can you get for that.

So the loss on those kinds of credits, once they default, is materially higher than the loss you've got to find on retail.

Also, Jennifer, just to remind you how we started off; we have been in this for about 16 months now and it really has been a Florida/Georgia issue.

It's been a residential, condo and a home equity and really a second lien home equity issue in Florida.

And for us, you know we always have to keep in mind for our Company, we sold our subprime operation early in 2007.

We don't have any credit card portfolios.

We don't do the broker mortgages.

None of those have been in what we would do as products.

Mike had mentioned (inaudible) we just don't do highly leveraged transactions.

We don't have the (inaudible).

We don't have the CDOs.

So it kind of goes back to the first question.

When you really think about our Company, you have to look at our allowance methodology and the problems that we have addressed and that we've been working through these portfolio for almost 16 months now.

And so that is what I would say is our focus has been and we continue to do that.

Okay, thank you very much.

I do have one follow-up question.

You mentioned the loss severities have been lower in first quarter than they were in the fourth quarter when you did the big loan sale.

Are you just seeing more bidders or the pricing getting better or a combination of the two?

What is going on there?

Well, what I was really talking about is what we saw in the held for sale.

I think it's just the type of property that's coming through.

Remember, when we took the 50% mark, you might have a couple of uncompleted condos in there or maybe a particularly large piece of land.

I don't know if I could say the pricing has really changed dramatically.

I would say it's more about the type of property that we are seeing moving to non-performing status.

And again, I go back to, Jennifer, what we had said is our fourth quarter strategy that we tried to put in place was to get some of the worst problem credits behind us.

That's very helpful.

Thank you very much.

Ken Usdin, Banc of America-Merrill Lynch.

Thanks.

Just to follow up on the question about reserving methodology and the fact that you have been working through a lot of these books for a while.

I know that the comment is that directionally, credit should continue to go the wrong way -- directionally deteriorate.

But any color can you can help us out on understanding potential magnitude of over-provisioning that you still might have to do as the inflows are still building and the trend of NPAs is still moving higher?

Thanks.

Ken, it's one thing, kind of in all my years, you've got to watch over-providing as well as under-providing.

What we try to do, the best way for our methodology is be very consistent and have a very conservative methodology.

And that's kind of our basis, our cornerstone.

We're not saying that we're not going to continue to see stress.

I think for us it's going to be those three primary products of residential, condo and home equity.

And for us, as Barb will always say, home equity and first residential, while it seemed to stabilize a little bit, there's always a trailer based on what you see in the consumer side.

So again, what I go back to is we have this very conservative, consistent methodology.

You have to look at what we think is our expected run rate which has pretty much come in line this quarter.

We are looking at our exposures coming down.

We go through the methodology, looking at our FAS114 allowances.

We look at our FAS5 pools and we come out with what we think is a proper and adequate reserve for what we think the risk is within the portfolio.

And that's what we've maintained over the last four years since I have been at the Company.

The fact that additions are going up as far as incremental non-performing assets is somewhat being -- am I right in saying that it's somewhat being helped by the deletions and that's bringing down some of the reserve that you might have had to have built in prior quarters as far as kind of what we saw this quarter?

I'm just wondering why the magnitude of reserve build was so small even though we did see -- and understanding that you did take partial -- you're moving down to realizable value on those 114s and the pools.

But it would seem that the incremental growth of the NPAs would still speak to a larger amount of over-provisioning.

And also too, remember that in the fourth quarter we made a sizable provision with the expectation we would start to see some of these non-performings come through.

So I think Irene has a pretty good slide in her deck, slide five, that talks about our reserving as well as matching up to our non-performing loans.

So again, you have to take in, I would say, over a year's period of time and look at our methodology and look at our reserving and keep that in mind and not so much focus on the $35 million and the rise in the non-performing loans in this quarter.

That's what you have to do.

Great, thanks a lot for that color.

This concludes today's Regions Financial Corporation's quarterly earnings call.

You may now disconnect your lines.

Thank you for joining us.