UPDATE: Regions Financial Reports 3Q Loss, Loan Sales

Regions Financial Corp.'s (RF) third-quarter loss narrowed as the southern U.S. bank sold troubled loans at a loss and reported a troubling trend in nonperforming loans, auguring continued credit troubles.

"The economic recovery in most of our markets remains slow and uneven," Chief Executive Officer Grayson Hall said in a press release, but "this quarter's actions to dispose of problem assets will help us" return the bank to profitability.

Regions lost $155 million in the third quarter, compared to $377 million a year earlier and $277 million in the second quarter. Revenue was flat at $1.62 billion.

Regions' $108 million loss from selling loans contributed to a larger loss than analysts expected. Shares fell 6.7% in morning trading to $6.56.

Banks' sales of problem assets are in some ways an encouraging sign because they help banks cleanse balance sheets. Shares of Fifth Third Bancorp (FITB) and BB&T Corp. (BBT) also dropped when they reported third-quarter loan sales last week, though shares of Fifth Third subsequently rebounded after management discussed the sales during a conference call with analysts.

But unlike BB&T and Fifth Third, Regions isn't healthy enough to reduce its reserve for future loan losses. Many banks have been able to boost their earnings in recent quarters with such reserve releases, while Regions continued to generate losses tied to real estate loans in beaten-down Southern markets.

Regions also suffered from a rising inflow of nonperforming assets--that is, assets being added to nonperforming loans, which is the opposite of the trend at many other banks.

Stifel, Nicolaus & Co. analyst Christopher Mutascio wrote in a research report, "Given these developments, we believe that loss rates will remain elevated in the near term, and that the company remains several quarters away from meaningful reserve releases."

On a positive note, Regions said that the loss from the Oil spill in the Gulf of Mexico, which hurt coastal communities where the bank lends, would be $20 million at most, considerably less than $100 million it originally estimated.

Regions said it added $1 billion in soured loans to the portfolio it sold or intends to sell. It sold about $350 million in delinquent loans and distressed properties in a bulk sale during the last quarter.

The loan-loss provision was $760 million, down from $1.03 billion a year earlier but up from $651 million in the prior quarter. Net charge-offs, or loans lenders don't think are collectible, rose to 3.52% of average loans from 2.86% and 2.99%, respectively, as a result of the sold loans that needed to be written off.

Regions reported a loss of 13 cents a share, from a year-earlier loss of 32 cents a share, which included charges of $41 million tied to branch consolidation. Analysts polled by Thomson Reuters had most recently forecast a loss of 9 cents on $1.62 billion in revenue.

-By Matthias Rieker, Dow Jones Newswires; 212-416-2471; matthias.rieker@dowjones.com

(Nathan Becker contributed to this article.)

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