In a recent investor conference, Regions Financial Corp. (NYSE:RF) said that the company expects its charge-offs to peak in the upcoming quarter. The company expects charge-offs near the midpoint of a range of $3.4 billion to $5.9 billion over two years. However, Regions expects no reserve build in the second half of 2010.
Regions also expects net interest margin to climb to 3.00% by year-end 2010. The actions that Regions has been taking on loan and deposit pricing should produce an improving margin throughout 2010.
The first quarter marked the third consecutive period of stabilized net interest margin, which came in at 2.77%. An improving deposit mix fueled by a strong low-cost deposit growth continues to be a significant contributor to the margin stabilization.
Regions’ first quarter loss came in at 21 cents per share, better than the Zacks Consensus Estimate of a loss of 27 cents. Results for the quarter improved due primarily to lower-than-expected provisions for loan losses. Last year, the company reported a profit of 4 cents.
Along with the financial services industry, Regions still faces some near-term credit and economic challenges. The company has a substantial exposure to residential homebuilder portfolio. Though the growth of nonperforming assets has been slowing for the past two quarters, it still remains at an elevated level. While we see an improvement in Regions’ credit quality metrics, we remain wary in our forecast regarding the pace of improvement.
Looking forward into 2010, we expect the margin to gradually improve throughout the year. Organic momentum in the form of deposit repricing and continuous loan spread improvement will be the main drivers.