Regions Financial Corp. surprised investors with good news Thursday, saying it expects to report a profit for the first quarter when most analysts had predicted a significant loss.
Shares shot up 34 percent, adding $1.70 to end regular trading at $6.70. At the close of trading Wednesday, the stock was down 37 percent this year.
Echoing trends reported at other big banks like JPMorgan Chase & Co. and Wells Fargo & Co., Regions said it has experienced solid deposit growth and a surge in mortgage application volume. The Birmingham, Ala.-based regional bank also said it hopes to repay a $3.5 billion investment from the government as soon as possible.
The updated guidance was provided during the company's annual stockholders meeting on Thursday and in presentation slides filed with the Securities and Exchange Commission.
Analysts had been calling for a loss of 42 cents per share, according to a poll by Thomson Reuters.
The news was a welcome relief for investors who have been fearful that regional banks might not be able to bounce back from the financial crisis as quickly as some of their larger peers.
The announcement helped pull up the shares of other struggling regional banks, including Huntington Bancshares, which gained more than 8 percent, and Fifth Third Bancorp, which rose nearly 7 percent.
Separately, Regions said it would cut its quarterly dividend to a penny per share from 10 cents a share — a move that will help the company save $250 million a year.
Regions, which operates nearly 2,000 branches in the Southeast and Midwest, has suffered like nearly all other banks under the weight of rising loan losses. Its large mortgage and commercial real estate portfolios in some of the more distressed areas of the country, like Florida, have been especially troublesome.
Many analysts were quick to warn that the bank's credit problems are far from over, despite the positive disclosure about first-quarter results.
"This should not be interpreted as a sign that credit is improving," said Christopher Marinac, managing principal and director of research at FIG Partners LLC in Atlanta. "I think there is a belief that just because the company says they can make money that everything is wonderful. That is not true."
Still, Marinac said other regional banks with large mortgage operations, like SunTrust Banks Inc., also stand to benefit from the improving mortgage trends.
Marty Mosby, a senior banking analyst at FTN Equity Capital Markets, said he still expects credit costs to be higher in 2009 than last year, but the news is nonetheless favorable.
"It's a parting of the clouds at least for an interim period of time and that in of itself is a positive development," he said.
Also encouraging was the bank's desire to repay a $3.5 billion government loan it received late last year. Regions got the funding as part of the Treasury Department's program to invest directly in hundreds of banks to help spur more normal lending after the credit markets froze.
Regions said it was well capitalized prior to getting the aid, and that its participation in the program had been "strongly encouraged" by the Treasury.
Many banks have expressed desire to return the capital they received from the government last year, chafing under the many restrictions that come with participation, including limits on executive compensation.
Marinac, however, said the bank's capital issues have not disappeared, and that it may have to seek a private capital raise if repays the government.
Regions reported a bigger-than-expected loss of $6.24 billion in the fourth quarter, mainly due to a $6 billion goodwill impairment charge to reflect declining value in its banking reporting unit.
Regions will report full first-quarter results on Tuesday.