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Analyst Blog

On Jul 1, 2013, we reiterated our long-term recommendation on Regions Financial Corp. (RF - Analyst Report) at Outperform based on its favorable funding mix, improved core business performance, its expansion mode and strategies along with the encouraging capital deployment activities. Additionally, significant improvement in its credit quality and control over non-interest expenses acted as positive catalysts.

Why Outperform?

Despite the macro pressure, Regions’ credit quality continues to normalize. In spite of the slow and uneven pace of the economic recovery, the company experienced significant improvement in both 2011 and 2012 and thereafter. Further, the overall improving trend in delinquency rates and net charge-offs is impressive and the same is expected in the coming quarters.

Regions is in a relatively good shape from the capital perspective. As of Mar 31, 2013, the company’s Tier 1 capital ratio was 12.38%, Tier 1 common ratio was 11.23% and leverage ratio was 10.1%, well above the regulatory requirements.

We view Regions as a sound asset for yield-seeking investors. In Apr 2013, the company increased its quarterly common stock dividend by 200% to 3 cents per share, following the Federal Reserve’s approval. Further, it announced a share repurchase program under which it would be able to buy back shares worth up to $350 million through Mar 31, 2014.

Moreover, Regions’ first-quarter 2013 earnings from continuing operations came in at 23 cents per share, marginally beating the Zacks Consensus Estimate by 3 cents. Results benefited from a fall in non-interest expenses, reflecting effective cost control measures.

For Regions, the Zacks Consensus Estimate for 2013 jumped 7.4% to 87 cents per share, over the last 90 days. For 2014, the Zacks Consensus Estimate advanced 4.8% to 88 cents per share, over the same time frame. Hence, Regions carries a Zacks Rank #2 (Buy).

Other Major Banks to Consider

Some other Southeast banks that are worth considering include Ameris Bancorp (ABCB - Snapshot Report), Home Bancshares, Inc. (Conway, AR) (HOMB - Snapshot Report) and Farmers Capital Bank Corporation (FFKT - Snapshot Report). All the 3 banks carry a Zacks Rank #1 (Strong Buy).

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