Heading South Saves Regions Financial

So far this earnings season, results from the nation's largest banks aren't coming in pretty, but only the biggest bank in the land appears to be really struggling. Trends among smaller, regional players seem mixed, depending on their degrees of exposure to the troubled housing market.

Third-quarter results from Alabama-based Regions Financial (NYSE: RF  ) weren't all that bad, considering the challenging environment for financial institutions these days. The big banks recently proposed a superfund of sorts to soak up the billions of dollars in illiquid mortgage-backed securities. Regions can be commended for its foresight; it sold its EquiFirst subprime unit to Barclays (NYSE: BCS  ) back in April, shortly before the subprime debacle moved into high gear.

Quarterly earnings per share still fell more than 17% when excluding merger-related charges. One-time merger expenses reduced the bottom line another $0.08 per share to $0.56, but the recent acquisition of crosstown rival AmSouth again proved worthwhile. The deal adds clout to a favorable Southeastern marketplace, and it's creating plenty of cost-cutting opportunities.

The ability to wring out costs is helping offset other current operations challenges, which pushed the net interest margin down 47 basis points quarter over quarter -- to 3.74%. Return on equity, another key banking metric, also fell substantially, but managed to stay just above 20%, which is a solid number for any bank.

Management conceded that "business conditions continued to be less than optimal during the quarter, but our conservative operating culture continues to serve us well in this challenging environment." I found this an accurate summary for the quarter. Combined operations that resulted from the merger are offsetting weak loan trends, and a decrease in low-cost deposits as higher interest rates mean consumers have more options for investing their money.

I don't know how much longer Regions will be able to rely on cost cutting, but exposure to fast-growing Sunbelt states bodes well for its long-term outlook. Geographically challenged banks are increasingly looking south; Detroit-based Comerica (NYSE: CMA  ) plans to relocate to Dallas in the near future, and National City (NYSE: NCC  ) of Cleveland has been acquiring Florida rivals.

Throw in a low P/E multiple and 4.9% dividend yield, and Regions is definitely worth a look. Its market capitalization of $20 billion also suggests it has plenty of room to expand internally and acquire other banks.                          

For related Foolishness:

Read/Post Comments (0) | Recommend This Article (6)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 538751, ~/Articles/ArticleHandler.aspx, 10/25/2016 1:24:27 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,178.58 -44.45 -0.24%
S&P 500 2,144.01 -7.32 -0.34%
NASD 5,283.12 -26.71 -0.50%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/25/2016 1:09 PM
RF $10.60 Down -0.01 -0.09%
Regions Financial CAPS Rating: ****
BCS $8.91 Down -0.01 -0.11%
Barclays CAPS Rating: ****
CMA $51.76 Up +0.05 +0.10%
Comerica CAPS Rating: ***
NCC.DL2 $1.81 Down +0.00 +0.00%
National City Corp CAPS Rating: *