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Lending / The Ticker

Regions Financial 4Q earnings fall

Bank continues to feel the impact of mortgage issues

squeeze money
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[Update 1: Specifies effect of trouble debt restructurings, denotes a benefit/not a loss resulted from lease terminations]

Regions Financial Corp. (RF) reported a 16% annual profit decline in the fourth-quarter of 2013, as the institution took a hit from the transfer of loans classified as troubled debt restructurings, a one-time charge from the consolidation of 30 branches and a $58 million expense stemming from a five-year federal probe into the company’s classification of loans. (WSJ has more on the 2009 probe here).

The company is currently in talks with federal officials to end a long-term investigation into the above mentioned accounting item. The bank did manage to benefit from the termination of leases, resulting in an after-tax impact of $6 million, according to the report.

There were a number of notable items in the fourth quarter, detailed above, which had the combined effect of reducing fourth-quarter net income available to common shareholders by $75 million and diluted earnings per share by $0.05.

Taking into account every outlier expense, Regions still squeezed out a profit of $219 million, or 16 cents a share, in the fourth quarter of 2013. That compares to earnings of $261 million, or 19 cents a share, in the fourth quarter of 2012. Still, analysts polled by Thomson Reuters expected higher EPS of 20 cents for 4Q.

Regions 4Q profit also declined from third-quarter earnings of $285 million, or 20 cents a share.

In addition, the bank recorded income of $1.1 billion for the 2013 fiscal year, a sharp 10% jump from 2012.

Were it not for the above mentioned items reducing earnings by $75 million, Regions would have posted a much stronger 4Q profit.

One of the major items impacting earnings was Region's transfer of predominately first-lien home loans valued at $686 million. The loans in question are classified as troubled debt restructurings, and the transfer created an after-tax charge of $46 million for the bank. A troubled debt restructuring is an initiative used by banks to modify or relax loan terms to reduce any eventual loss by accommodating borrowers struggling financially.

Consumer lending overall took a hit from declining mortgage production in 4Q. 

"Mortgage loan balances declined $693 million sequentially; however, $686 million of this decline was attributable to the loans transferred to held-for-sale," the company explained.

"Excluding the loan transfers, mortgage balances remained steady from the previous quarter. The home equity loan portfolio, which consists of home equity loans and lines of credit, declined modestly from the previous quarter. Pay downs on home equity lines of credit have been offset by the results of our increased focus on our home equity loan product."

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