Regions Financial Corp (NYSE:RF)

CAPS Rating: 4 out of 5

The financial holding company for Regions Bank, Regions Financial offers banking, brokerage, investment, and other financial services.


Player Avatar NetscribeBanking (89.06) Submitted: 1/3/2007 7:42:34 AM : Underperform Start Price: $31.18 RF Score: +120.13

Regions Financial is a bank holding company that operates primarily in the southeastern U.S., with operations consisting of banking, brokerage and investment services, mortgage banking, insurance brokerage, credit life insurance, commercial accounts receivable factoring and specialty financing. The company's banking subsidiaries operate more than 1,300 offices and 1,600 ATMs in 16 states in the South, the Midwest, and Texas.

The third quarter of 2006 saw strong net income earnings of 77 cents per share, 3% higher than the previous quarter of the same year. The net interest income for the same period increased 8.9% compared to third quarter of 2005 primarily due to a favorable balance sheet positioning combined with a favorable shift in the mix of earning assets and interest-bearing liabilities. Morgan Keegan, Regions' investment banking division, had a good quarter contributing 30% of the total non-interest income, but is more volatile due to huge capital market exposure. Though the bank derives 40% of it income from fee-based sources like brokerage and investment banking its fortune greatly depends on the interest rate spread and movements. The credit quality of the bank with NPA’s of 0.52% has improved marginally and is far from satisfactory.

The recent merger with Amsouth Bancorp to form Regions Financial Corporation is an all-stock deal, comes at no premium with expected annualized merger cost saves of $400 million. Moreover the deal is also expected to generate about $1 billion excess capital a year with more opportunities of reinvestment and make it the number four bank in Florida. Though the fundamentals of the bank looks good, the chances of a double-digit growth look dull and with projections of stable growth in the coming year

Member Avatar NetscribeBanking (89.06) Submitted: 4/20/2007 6:35:35 AM
Recs: 0

Historically, the bank had been a serial acquirer with its profitability taking a hit; making its return on equity always below 12%. A lot can be learnt about Regional Financial from its recently concluded two-year integration of Union Planters and what lies ahead. Acquisition of Amsouth comes at a cheap valuation without any premium and would help serve the southeast region. Though the savings are expected to be around $150 million in 2007 and $400 million beyond 2008, these would be temporarily offset by the huge integration cost and not many benefits would arise in 2007. However it has been successful in customer retention while closing branches as in the case of Union Planters and had in fact gained 1.2 customers for every customer lost.

Regions Financial continues to benefit a diversified revenue stream with about 37% derived from non-interest sources making it less vulnerable to the interest rate vagaries. Addition of Amsouth would lessen the asset sensitiveness of its balance sheet and not much clarity is there about how interest rate factor would affect the same. Conservative attitude has helped it keep the asset quality at comfort level. The recent sale of sub prime business EquiFirst to Barclays might help keep the charge off at minimal level. Moreover the year 2007 would see net interest margin dip and face further deposit-pricing pressures. Though the long-term prospects look good, the stock is currently undergoing restructuring and integration process, making it a vulnerable scrip to trade in.

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