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Regions Financial Struggles With Homebuilder Loan Losses

Posted: Oct 27, 2009 10:07 AM by Greg Sushinsky

Tickers in this Article: PNC, MTB, STI, BBT, RF

Regions Financial Corp.(NYSE: RF), located in Birmingham, Alabama, reported third-quarter earnings amid a slew of large regional bank earnings reports, and came in with a sizable loss. The quarter was marred by continuing difficulties with bad real estate loans, as homebuilder loans remain the problem for Regions and some of the similar sized banks.

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Loan Losses Lead The Way
Regions posted a $437 million loss for the third quarter, compared with a $79.5 million profit the same quarter a year ago. This is a loss of 37 cents per share versus per share versus a profit of 11 cents a share in last year's quarter. The Street expected a 25 cents-a-share loss, so Regions came in a bit worse than expected. Charge-offs were $680 million, at an annualized rate of 2.86%, up from 2.06% the previous quarter. Non-performing loans grew by $662 million, but this was less than the increase of $1.1 billion last quarter.

Home Construction Woes
The bulk of the problem is mostly home construction loans in Florida and Georgia. So with homebuilders still floundering, the real estate construction blues continued to weigh on Regions, whose provisions for loan losses grew to $1.03 billion, up from $917 million. The hopeful news is that the losses in this area are slowing and that Regions has been aggressively writing these down. On the consumer side of banking, Regions is doing much better with retail accounts and deposits, though their net interest income was down slightly to $845 million from $922 million.

Other Regionals Report
BB & T (NYSE:BBT), based in Winston-Salem, North Carolina, had its profits sliced by a difficult housing market in the south, to $158 million this quarter from $358 million in last year's third quarter. Sun Trust Banks (NYSE:STI) headquartered in Atlanta, had a third-quarter loss of $377 million versus a third quarter profit of $304 million last year, due to residential mortgage and construction loan losses. While Regions Financial and Sun Trust showed losses, with BB & T still showing a profit, M & T Bank (NYSE:MTB), based in Buffalo, New York, had a 25% income increase, to $113.9 million up from $91.2 million in last year's third quarter, as interest and fee income was the star. Despite its profits, M & T also had some problems with credit losses. PNC Financial Services Group (NYSE:PNC), on the other hand, blew The Street away with its $559 million in profits. It is managed astutely, with a conservative approach to consumer lending, and has showed faster digestion for its acquisition of National City than was projected.

The Bottom Line: Thinking Locally, Acting Regionally
Regions and the other banks are wedded to the consumer loan business, even indirectly in the case of what are commercial loans on homebuilding. As the housing situation bottoms out, that should provide the onset of relief for Regions and the other large regionals, some of which are already doing better: BB & T, M & T, and of course the star of the group, PNC.

But Regions and the other regionals that have loan losses are not and were not in the far end of the derivative universe crafting SIVs and such exotica, so their problems, though real, look far more solvable long-term than the big banks' issues. Regions is a tough investment to make now, but give it several quarters to work through the real estate situation, and it will likely do much better. Right now, some of its regional kin are ahead of it, though. (Read Analyzing a Bank's Financial Statements to learn more tools to enhance your financial analysis.)

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By Greg Sushinsky

Greg Sushinsky is a passionate independent investor, who has done his own research, analysis and investing for 20 years. One of his earliest investing memories was when he first saved and bought U.S. Savings Bonds with his own money as a small child. From there, he studied investing on his own and made small stock purchases as he grew as an investor.

Sushinsky still follows the markets, studies and reads widely in financial literature, and has written over 75 articles on investing. He is also a professional editor, whose work is published extensively in large-circulation magazines, digests and across the internet. In other pursuits, Sushinsky writes fiction and has a university degree in philosophy. To see more of Sushinsky's literary work, see http://writing.gregsushinsky.com/.

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