On Sep 15, 2014, we issued an updated research report on Regions Financial Corporation (RF). Shares of this Alabama-based bank have gained 5.9% year to date. We believe this growth story has been aided by the company’s continued focus on expense management apart from several other positives including a strong capital position, steady capital deployment activities and improving credit quality.
Amid a competitive banking environment and stringent regulatory landscape, expense management has become a priority in the banking space. Regions have been undertaking cost control measures for the past few years to drive operational efficiency and profitability.
Full-year 2012 expenses (excluding goodwill impairment in 2011) were down 2% but in line with expectations. Although expenses inched up 0.9% to $3.6 billion in 2013, the company expects adjusted expenses in 2014 to decline from the 2013 level. It also aims to achieve its target efficiency ratio, which is in the low 60s range. Notably, during first-half 2014, adjusted non-interest expenses remained almost stable year over year while adjusted efficiency ratio stood at 65.49%.
Further, in line with its expansion goals, the company recently joined the Fannie Mae Delegated Underwriting and Servicing (‘DUS’) lenders network. The company also acquired a DUS servicing portfolio of around $1 billion. It will enable the bank to provide effective financing solution to support multifamily housing client base. The company views multifamily housing as a promising sector in the real estate market.
We remain optimistic on the efforts being taken by the company and believe it possesses better growth prospects in the long run. However, a shrinking non-interest income, lingering lawsuits, and the prevailing stringent regulatory landscape will continue to mar Regions’ growth.
Over the past 30 days, the Zacks Consensus Estimate remained stable at 86 cents and 90 cents for 2014 and 2015, respectively.
Regions currently carries a Zacks Rank #3 (Hold).
Stocks that Warrant a Look
Farmers Capital Bank Corp. (FFKT), First Community Bancshares, Inc. (FCBC) and Cardinal Financial Corp. (CFNL) are among the better-ranked stocks in the southeast banking space. All these stocks sport a Zacks Rank #1 (Strong Buy).
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