Turley Muller

Is Regions Financial Due for a Bounce?

I can't really speak to the underwriting since I worked in secondary marketing.

The underwriting depends on who is securitizing or buying the mortgage. Majority of the mortgages were sold, and some of the short-term ARMS went to the bank's portfolio. Those mortgages, as management has said, aren't the subprime no doc, or exotic types that we see with CFC, WM, WB, etc. Looking back at the situation now, It seems the bank was pretty diligent in portfolio-ing loans.

Some of the programs from other lenders were pretty laughable A Large portion of our production we pooled into agency MBS and sold to the Street.

Overall, Regions has been conservative. If you look back, you will see in 2005, RF Mortgage sold its wholesale lending division. This was nationwide and accounted for around 50% or more of total production. The wholesale channel is one thing killing WM and WFC, Wells CEO was griping on a cc how almost the NPL were 3rd-party originations. Many on these banks did home equity through wholesale/corresponden... network.

Regions home equity & construction loans weren't originated through the mortgage company. These were done in-house through the bank's consumer lending dept. According to management, these are "relationship" loans , manually underwritten, high quality borrowers.

In 2006, the Amsouth merger was announced, and essentially the combination resulted in downsizing mortgage segment and in 2007 I saw that RF disbanded the mortgage company and migrated mortgage lending to the bank's treasury area.

Even though the Amsouth merger was at peak of cycle, RF acquired at a discount to market price. That was pretty crazy. Never seen that before.

Regions has a diversified loan portfolio and revenue streams. The retail banking is quite poor, JD Power gave RF bad ratings which is no surprise, Been hearing that for a while. Don't know if it's just because all the mergers - UPC-RF in '04 then ASO in '06 and all the subsequent turnover has been holding RF back, or if it's something that will never get better. The positive is that have significant room for improvement, but that also means RF is at a competitive disadvantage right now.

One problem is the corporate governance. I believe this deters a lot of institutional investors. If this was significantly improved, the stock would rise just from removing the corp/gov discount.

I would never be inclined to invest in RF besides the current moment. A bank I would be interested in is FHN, great franchise but horrible loan portfolio and is in some trouble, so I wouldn't touch it now. Maybe down the road I'll take a closer look when some of this stuff is behind us.

Is Regions Financial Due for a Bounce?

Author left Regions Mortgage more than 18 months ago and since has no relationship/interests with RF. I guess it should have been disclosed for the sake of transparency.

Is Regions Financial Due for a Bounce?

I agree with what you are saying. I am not mistaking this for value, just that it's possible that expectations are overdone as well as being reflected in the stock price. I am not sure that it truly is. But, what has changed at RF to warrant such recent price declines? There has been nothing RF specific, however there has been a host of negative news from its peers.

Regions is not an exception, however. But, management has seemed pretty upbeat the last several conference calls compared with more negative comments coming from peer banks.

The thing that strikes me is FHN- First Horizon, who has significant construction loans in Florida, has experienced deterioration much sooner than Regions has. I don't why there would be a 6 month or so lag, unless management has been real slow to give the true story.FHN is an example of a regional bank having severe issues.

You raise good points, and I am not all bullish on the industry, but short-term, I think it's possible that much downside risk has been priced in. Regions has Morgan Keegan and an insurance business that generates a good amount of revenue, as does the bank. I expect so big write-downs and losses, but I do think RF can sustain it's earnings enough to pay a 5% dividend at its current share price.

Is Regions Financial Due for a Bounce?

I know they have significant exposure to Florida, and that their construction loan portfolio is a complete mess. But you miss my point. Much, if not all of this information is priced into the stock, in my opinion.

Sentiment is horrible for a reason, I agree, and I think is hard to get much worse, thus easier to improve.

Regions has 144B in assets and 96B loan portfolio, thus the loans in question are a very small portion.