Thursday, May 7, 2015

RF-Q1 2015

Regions Financial (RF) released Q1 2015 financial statements and reported earnings of $218M, .08% increase YOY. Also the company reported diluted EPS of $.16, 27.3% lower compared to Q1 2014. The revenue results reflect the successful strategic planning of the executive board. The company continues to focus on diversifying the streams of income, creating operating leveraging and efficiently using capital. This past quarter, the company grew loans and deposits; their main sources of revenue. Their loans part of the business was 22.8M, a 1% increase YOY. Deposits balance grew by 3% YOY to 97.5M, exceeding the management expectation. Their Wealth management division posted impressive results as well, representing an 8% growth and an increase of AUM by 5% to 2.9B. The section of Wealth Management that show the best growth was insurance, showing a 13% growth.

In terms of the energy lending portfolio. The company continues to monitors the market in order to stop any impact that the oil’s price can have on their loan portfolio. Despite the ongoing risk profile that the volatility of the oil market has placed on the portfolio, the firm has not seen any financial stress within their customers. As it turns out, RF’s customers are beginning to benefit from lower oil prices. Net charge-offs for Q1 2015 were $54M, -34.15% YOY. This figure represents total net charge-offs to average loans of 28bps, the lowest level that the company has experienced in more than seven years. However, the firm continues to work with clients to find efficient ways to mitigate risk.

After updating the valuation portion of the model, the stock has 8-10% upside left, however, the upside can be higher if the Federal Reserve decides to increase interest rates. The rise in interest rates can increase RF’s net interest margins, thus generating more profit that would enhance the overall value of the firm. In regards to this, the fed is still hesitant on when the spike will take place due to fears of stagnant economic growth. I believe that the company has moved to more revenue generating vehicles that in the long run, will enhance the overall value of the stock.

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