Regions loss smaller than expected

CHARLOTTE, North Carolina (Reuters) - Regions Financial Corp (RF.N) on Tuesday became the latest U.S. regional bank to show signs that its years of credit problems may be easing, as it reported a smaller-than-expected quarterly loss and shares jumped.

The Birmingham-based based bank did not earn a profit for the fifth consecutive quarter, but shares rose as the bank reported its first quarter-to-quarter drop in nonperforming assets since fourth quarter 2008.

Regions shares posted the largest early gains among banks listed in the KBW Bank Index, jumping 4.5 percent to $7.41.

More than its main Southeastern rivals, Regions has been hard hit by commercial real estate-related loan losses throughout the U.S. South, particularly in battered areas like coastal Florida and metro Atlanta. Given its credit woes, the bank has yet to repay $3.5 billion in U.S. government bailout aid granted in fall 2008.

But the bank's latest results, like those of Regions' peers, signal that smaller U.S. banks may finally be turning a corner on loan losses more than two years after the financial crisis began.

The Birmingham, Alabama-based company said its second-quarter net loss had widened to $335 million, or 28 cents per share, from $244 million, or 28 cents per share, a year earlier, when there were fewer outstanding shares.

But excluding a $200 million, one-time charge for a multi-state regulatory investigation into Regions' Morgan Keegan unit, the loss was 11 cents per share. Analysts were expecting a loss of 20 cents, according to Thomson Reuters I/B/E/S.

CREDIT

The bank posted a drop in nonperforming assets, or loans seriously delinquent, which were down 7 percent, or $297 million from the first quarter.

Net chargeoffs -- or defaulted loans the bank is writing off -- declined 15 percent in the second quarter, to $651 million from $700 million in the first quarter.

As Regions' loan problems shrank, so did its total loan portfolio.

The bank's loans, net of unearned income, shrank 10.6 percent to $85.9 billion from $96.1 billion a year prior.

The company, also like its regional rivals, reported an improved net interest margin, as it paid out less in deposit account interest.

Net interest income increased $25 million to $856 million. Net interest margin -- the gap between what the company pays in deposit interest and receives in loan interest payments -- widened 0.1 percent.

MORGAN KEEGAN

On April 7, Regions said the U.S. Securities and Exchange Commission, several state securities regulators, and the Financial Industry Regulatory Authority were beginning administrative proceedings against its Morgan Keegan investment banking and brokerage subsidiary.

The probe is focused on whether Morgan Keegan's sales of certain funds to clients violated state and federal securities laws.

Regions said on Tuesday that the $200 million charge was based on "the current status of settlement negotiations" and that the charge was a reasonable and probable loss estimate for the legal matter.

(Reporting by Joe Rauch; Editing by Lisa Von Ahn, Dave Zimmerman)