Regions Financial (RF 0.05%) is struggling to cope with higher interest rates, and it doesn't expect the situation to turn around any time soon. Investors are running out of patience, sending Region shares down more than 10% on Friday.
Higher rates are squeezing margins
Regions, like many bank stocks, has had a difficult year. The industry has had a hard time adjusting to rising interest rates, and a pair of high-profile failures last spring shook investors in mid-sized institutions like Regions.
The company's latest quarter provided little to get excited about. Regions missed Wall Street earnings expectations, posting net interest income of $1.3 billion for the quarter. That's a 6.5% decline from the second quarter of 2023.
Regions said higher deposit and funding costs are weighing on results and forecasted it to continue into the fourth quarter with a 5% net interest income drop compared to what it just announced.
"While the industry continues to face economic and regulatory uncertainty, we are confident in our ability to adapt to the changing landscape while continuing to deliver top-quartile returns through the cycle," company CEO John Turner said in a statement.
Is Regions a buy following the dip?
The good news is that Regions remains significantly healthier than those banks that failed earlier this year. The bad news is that, as the company notes, the headwinds facing the company -- and the industry -- are unlikely to subside any time soon.
Banks have a playbook for rate-hike cycles, but this is the first upcycle where online options provide numerous alternatives for savers who want to make more on their deposits. As a result, banks like Regions have had to pay more for deposits than they might have in years past.
Regions operates in the Sun Belt, an attractive region for long-term growth, and the company should have a bright future once this cycle is over. But it is becoming clear that it will require patience, and investors on Friday appear to have little interest in waiting out a turnaround.
