On Dec 19, 2013, we maintained our long-term recommendation on Regions Financial Corporation (RF) at Neutral based on the company’s favorable funding mix, improved core business performance and healthy capital deployment initiatives. However, regulatory issues coupled with fundamental pressures on the banking sector might act as deterrents to the company’s fundamentals.
Despite the stressed macroeconomic environment, Regions’ credit quality continues to normalize. Further, we are impressed to see the overall improving trend in delinquencies rates and net charge-offs. The growth is expected to continue, thereby aiding increase in earnings.
We are also encouraged by the company’s measures to cut costs and enhance profitability. Additionally, Regions’ healthy capital position will support the company’s active capital deployment.
Though Regions is taking initiatives to increase revenues, non-interest income has witnessed a downward trend over the last four years. The continuation of such a trend will affect the company’s top-line growth.
We are also concerned about the new and more stringent regulations, which will be a challenge to the company’s growth prospects. Such regulations are likely to limit the rise in fee income, increase compliance costs and subject the company to other restrictions.
For Regions, the Zacks Consensus Estimate for 2013 and 2014 remained at 82 cents and 85 cents, respectively, over the past 30 days. Therefore, Regions’ carries a Zacks Rank #3 (Hold).
Other Banks to Consider
Some Southeast banks that are worth a look include First Bancorp (FBNC), First NBC Bank Holding Company (NBCB) and Simmons First National Corporation (SFNC). All these stocks carry a Zacks Rank #1 (Strong Buy).