Regions Financial Corp.'s stock plunged after the company reported ongoing losses due to fraud during the third quarter.
The Birmingham, Ala.-based company's third-quarter results included $53 million in losses related to a check fraud scheme that began in the second quarter, but the company was unaware of, President and CEO John Turner Jr. said during the company's earnings call. The loss follows an $82 million loss in the second quarter from another unrelated check fraud scheme. The company expects its fraud losses to normalize above historic levels at about $25 million per quarter, executives said.
The news sent the company's stock price tumbling, down 11.86% as of 1:16 p.m. ET.
"Fraud has increased dramatically in the industry," CFO David Turner Jr. said. "It's hit us very hard."
Both fraud schemes the company fell victim to occurred in the second quarter but the one that resulted in third-quarter losses took longer to catch.
"You don't know about it until the banks on which the checks are written notify you that that's not a good item," the CFO said. "It takes about 50 to 60 days before you know that."
The company has adopted new countermeasures to identify fraud and the volume of new fraud has slowed, but the company still expects continued fraud losses to remain elevated as the issue plagues the industry, the executives said.
"It's affecting all of us, but it seems to have gotten us in a kind of concentrated [way] in these two quarters," the CFO said. But "I feel confident we put in controls, and we'll be putting in more [and] monitoring it going forward."
Those increased controls and monitoring will weigh on expenses, which the company expects to be up 9.5% for 2023, or 6% excluding $135 million in operational losses from the last two quarters, the CFO said. Looking ahead, Regions will have to "double down" on expense management in 2024 and the company should be able to achieve lower expenses than in 2023, he added.
"In this particular quarter, unfortunately, we had some things that — the fraud, engine settlement, we had some equipment software costs — that won't repeat at the level that we had," the CFO said.
Aside from the fraud losses, Regions' other third-quarter earnings metrics came under pressure. Earnings per share fell to 43 cents from 59 cents in the linked quarter, net interest income fell to $1.29 billion from $1.38 billion and its net interest margin fell to 3.73% from 4.04%, according to its earnings release.
