O.B. Grayson Hall has his work cut out for him as the incoming chief executive of struggling Regions Financial Corp.

Hall is to succeed C. Dowd Ritter on March 31, but he drew the spotlight early as Ritter turned over most of the fourth-quarter results conference call Tuesday to the current chief operating officer. Though Hall vowed no major change in strategy, he did outline a three-part plan for returning to profitability.

Recovering from three straight quarters of losses hinges on addressing continued credit issues, controlling costs and adding "discipline around loan and deposit pricing," Hall said. And judging by its quarterly results, the $142.3 billion-asset Birmingham, Ala., company and its incoming CEO face an uphill journey on most of those tasks, analysts said.

"They have made a gallant effort, but the overhang from credit is still there," said Marty Mosby, an analyst at First Horizon National Corp.'s FTN Equity Capital.

Regions struggled on several fronts in reporting a $543 million loss for the quarter, 44% deeper than in the previous quarter. It was far less than the eye-popping $6.2 billion hit the company took a year earlier after absorbing a big goodwill impairment charge and a hefty dose of chargeoffs.

Analysts said many of Hall's challenges, including credit quality and the lack of easy cost-cutting targets, stem from Regions' 2005 acquisition of its Birmingham competitor AmSouth Bancorp. This deal gave it a heavy exposure to the troubled Florida market and required major cost-cutting soon after the closing.

Regions continues to grapple with deteriorating credit quality as problems shift from residential to commercial real estate. Its loan-loss provision rose 15% from the third quarter and 2.5% from a year earlier, to $1.18 billion. At $692 million, net chargeoffs edged up 1.7% from the third quarter, though they were down 13% from a year earlier.

Regions' problem loans kept rising at a time when a number of regionals, such as Fifth Third Bancorp and Comerica Inc., said they are nearing a peak in bad assets. Its nonperforming assets grew 7.6% from a quarter earlier, to $4.41 billion, and were nearly triple those of a year earlier.

Greg Ketron, an analyst at Citigroup Inc., warned that, in addition to a "significantly" expanded loan-loss reserve, consumer loans remained a problem for Regions as accruing restructured loans rose 14% from the third quarter, to $1.6 billion.

Hall warned that nonperforming assets may not peak or decline at Regions until midyear. "Credit-related costs, while remaining elevated, should begin to decline in 2010 given our proactive stance toward credit loss recognition and prudent reserve build," he said.

Chief Risk Officer William Wells tried to highlight positives, noting that nonperforming-asset growth decelerated in the fourth quarter and telling analysts that the market for distressed commercial properties is improving. "We are seeing more buyers come into the market looking at income-producing properties," he said, estimating that the pool of buyers had tripled in the last year, helping valuations.

Regions harnessed noninterest expenses, off 1.9% from the third quarter and 4.2% from a year earlier, excluding the 2008 goodwill charge of $1.2 billion. The company cut 2,300 jobs in 2009, including 500 during the fourth quarter.

Hall said more job cuts are to be expected this year, though he did not specify a number. The company also plans to close 121 branches this quarter.

Mosby said it will become increasingly difficult for Regions to cut costs in a way that will not harm revenue down the line. "They are now getting into the tough decisions about markets and the overall size of their franchise," he said.

Regions continued to see revenue shrink in its balance sheet during the fourth quarter. Revenue from loans fell 6.3% from the third quarter and 26% from a year earlier, to $981 million. Service charges on deposit accounts fell 0.3% from a quarter earlier and ticked up 3.8% from a year earlier, to $299 million.

Regions Chief Financial Officer Irene Esteves outlined steps taken to position the company's balance sheet for an expected "modest" rise in interest rates by yearend. It took a $96 million hit during the fourth quarter after selling $1.3 billion in investment securities. Regions will let a hedge expire in the third quarter, she said, which will make the company more sensitive to a rise in rates.

Hall said Regions has adopted rate floors for new variable-rate loans and that only 12% of the company's business loans are priced at the minimum.

"My only hope is that the change you see is incremental improvement over the next several quarters … and more-aggressive action to return" to profitability, Hall said. "We plan on increasing intensity and focus on those issues."

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