Regions Financial (RF) reported a third quarter loss of $437.0 million or 37 cents per diluted share, worse than the Zacks Consensus Estimate of a loss of 26 cents per share. Last year, the company reported a net income of $95 million — a profit of 13 cents per share.

The results suffered mainly due to increased loan loss provisioning, reflective of continued underlying economic weakness and the related loss implications to Regions’ loan portfolio.

Regions reported a net interest margin of 2.73%, up 11 basis points sequentially, benefiting from continued low-cost deposit growth, especially in non-interest bearing products and improving loan spreads due to better pricing discipline. As a result, taxable equivalent net interest income increased 1.7% sequentially to $845.0 million.

According to management, dramatically falling interest rates have worked as a primary headwind for net interest income over the past few quarters. It believes that trends in deposit pricing and loan spreads should continue to support a stable net interest margin during this period of historic low interest rates.

Non-interest revenues were essentially unchanged on a linked quarter basis at $772.0 million, after excluding second quarter’s sizable gains related to a trust preferred exchange, Visa shares and other securities sales, and leveraged lease terminations.

Total non-interest expense of $1.2 billion remained flat on a linked quarter basis. It showed the productivity successes that the company has been achieving through streamlining systems and processes and strengthening performance management.

Net loan charge-offs increased to $680 million or an annualized 2.86% of average loans from 1.68% last year. The increase reflects ongoing stress in housing valuations and continuing strains in the economy as a whole. Provision for loan loss increased to $1.0 billion from $417 million in the prior-year quarter. Asset quality deterioration was generally worse than expected, covering solid core operating performance.

More specifically, the non-performing asset ratio increased 261 basis points year over year to 4.40%, while the net charge-off ratio increased 118 basis points year over year to 2.86%. The sizable increase in both ratios reflects significant deterioration in Regions’ most distressed categories (homebuilder/land/condo) and in regions (Florida/Georgia).

Despite the significant credit costs and their bottomline effect, the results indicate solid core business performance as net interest margin steadied, new accounts opened at a record level for the third consecutive quarter and deposit growth remained strong. Management indicated credit costs are likely to remain elevated into 2010.
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