Regions Financial Corp. swung to a loss in the second quarter on surging loan-loss provisions as the Southeast regional bank continues to see its credit quality suffer.
Shares fell 5.94% premarket to $3.80 as the loss was wider than analysts expected. The stock through Monday is up by nearly three-quarters since it hit its lowest level in a quarter-century last February. Shares, though, were still down 49% this year.
Regions, which is struggling with impaired real estate loans, received $3.5 billion in funding through the Troubled Asset Relief Program and was told to raise $2.5 billion in the government's stress test. Although its offer to swap $700 million in securities for common stock got a tepid response, it has sold at least $1.85 billion in stock.
In the past couple of months, all three major credit ratings agencies have cut Regions' ratings. Both Moody's Investors Service and Fitch Ratings cited credit costs that would lead to increasing losses and the company's exposure to real estate, especially in Florida.
Chairman and Chief Executive Dowd Ritter said, "While we do not want to downplay the impact of the increase in credit costs, this should not overshadow the strong performance of our core business, particularly our sustained growth in households and customer deposits and the stabilization of the net interest margin." That margin, or the difference between what a bank pays and receives in interest, was 2.62% compared with the first quarter's 2.64%. The prior year was 3.36%.
Meanwhile Regions posted a loss of $188 million, or 28 cents a share, compared with a year-earlier profit of $206 million, or 30 cents a share. A survey of analysts by Thomson Reuters predicted a 22-cent loss.
Loan-loss provisions surged to $912 million from $425 million in the previous quarter and $309 million a year earlier. Net charge-offs - loans the bank doesn't expect to collect - jumped to 2.06% of average net loans from 1.64% and 0.86%, respectively. Nonperforming assets, which are seen near default, climbed to 3.55% from 2.43% and 1.65%.
Deposits rose 3% in the quarter amid an 8% climb in noninterest accounts. A record 491,000 retail and business checking accounts were opened in the first half of the year. Meanwhile, loan balances fell 1% as demand was weak.