Regions Financial Earnings Call Nuggets: ROA, Net Interest Income
Jefferson Harralson – KBW: Could we talk about the ability possibly to have a 1% ROA? You’ve always had a 1% ROA, but you have a balance sheet that’s $19 billion smaller than peak, you got $21 billion less loans than peak. Can you get to a 1.0 ROA on this size balance sheet with this expense run rate?
David J. Turner, Jr. – SEVP, CFO: Jeff, what we’ve kind of guided to is, over time, we believe we can be in that 1% to 1.2% ROA. The question is timing. And clearly, as the economy improves, our ability to attain that level is more achievable. We are continuing to look at credit. We had substantial improvements in credit, but that’s going to be uneven. So, we need to continue to focus on credit as well as having our balance sheet work harder for us, now that we have received our ratings upgrade and we’re outside of TARP. So, we’ll start working towards that range of ROA that I mentioned. It’s just timing.
O. B. Grayson Hall, Jr. – President and CEO: As you look at it, we’ve been in a very defensive posture over the last few quarters from a capital and liquidity perspective and we do believe we are at a point that we can move a little more off of the financial and the off-hands in terms of prudently generating new business. We do see the opportunity starting to increase for us in our markets, obviously our strengthening position will help us from a competitive perspective.
Jefferson Harralson – KBW: My follow-up. David, you mentioned, I think about spread income and margin, does that mean that you think that most likely they’ll both move higher from here throughout the year?
David J. Turner, Jr. – SEVP, CFO: We do believe that because of our deposit repricing opportunities that I mentioned, that our margin will – you’ll see improvement on margin throughout the year.
Net Interest Income
Matthew O’Connor – Deutsche Bank: Just some follow-ups on the net interest income, it seems like the security that you added were done toward the latter part of the quarter, so I’m just wondering what the full run rate benefit that would be, as we think about 2Q and beyond?
David J. Turner, Jr. – SEVP, CFO: Matt, we really haven’t given guidance quarter-to-quarter. What we said is, we expect that, if you look at the year, that goes back to Jefferson’s question early, that we expect our NII and margin to be improvement over where we were in 2011. So that’s backend loaded and it is backend loaded primarily because of the deposit cost, but also to the point that you brought up, getting the balance sheet working harder for us, really didn’t begin and earn us until receiving the ratings upgrade and having the top repayment. So you saw a little bit of that movement in the repositioning of investment portfolio, so it’ll take to the back half before you start seeing any.
Matthew O’Connor – Deutsche Bank: As we think out a little bit longer term, I realized that credit rating boost will help and if more comes out, help more, but if we look at the cost of your long term debt, it’s still pretty high, especially versus your other funding and given your low loan to deposit ratio, like how do you think about remixing the funding over time and what that might mean to the NIM beyond this year?
David J. Turner, Jr. – SEVP, CFO: We have a couple of maturities that are coming up this year and next year. We continue to watch our credit spreads, they are coming in — they are still wider than we expect and hope for over the long term. We do have a pretty low level of long term debt compared to our equity, especially compared to our peers, but we will look for opportunities to take advantage of our tightening of credit spreads and to the extent we see opportunities to refinance, in particular, we have one series of the trust preferreds that are 8.8%, we will be looking at that in particular.
Matthew O’Connor – Deutsche Bank: Just separately if I may, obviously, credit was better than expected pretty much across the board. What struck out to me is the reserve release was quite large and I guess being sense of that the credit metrics can be choppy, you talked about being uneven, yet you are confident enough to bring down a lot of reserves. So, I mean do you feel like we are past the point where you kind of have two or three good quarters of credit and then there is little blip that ends up maybe catching folks off guard, so maybe we will still be choppy on even, but fewer bumps or smaller bumps?
O. B. Grayson Hall, Jr. – President and CEO: So, Matt, I will make a few comments and I will ask Barb Godin to add to this. What we have seen is we had a very good quarter from a credit quality metrics standpoint, our allowance methodology has been a pretty rigorous process that clearly over the last few quarters has been enhanced and strengthened and we are very rigorous about sticking to that. The metrics all look very positive this quarter. We do anticipate some level of unevenness, but clearly what we’re seeing and have seen the unexpected economic shocks that the credit quality trends will continue to be favorable, but we’re going to stick to our process. We’re going to stay disciplined in a way we look at credits, in a way we look at the allowance methodology. Barb?
Barb Godin – EVP and Chief Credit Officer and Head of Credit Operations: Matt, as we think about the allowance as well, as we have been making progress and strides on putting on better quality credits and rolling off those weaker credits that too has a positive impact against their allowance needs. As it relates to what we expect for further quarters, the only guidance I would give you is, just remember that, if you look at the last couple years in the third quarter, we see a seasonal bump. There is no reason I wouldn’t anticipate that this year, albeit I’m hoping it would be muted from prior years, but it will be clearly choppy as we have come out and as Grayson said, we are going to follow what the economy does.
O. B. Grayson Hall, Jr. – President and CEO: Matt, if you look the most problematic segment of our portfolio has been investor commercial real estate, down 32% over a year ago. We ended the quarter at roughly $10.1 billion, but if you get a little more granular into that portfolio, you see that construction is down over 50% in that portfolio and it’s now slightly under $1 billion, $955 million. If you look at some of the more problematic groups, the land, single-family and condominiums down 40% year-over-year, and all of those components, land is down slightly under $800 million, single-family is about $800 million, and condo is down to $130 million. So, as you look at the make-up and composition of that $10.1 billion, it continues to be a stronger story.