Regions Financial Misses on 4Q2014 Earnings; Banks Struggle to Grow Revenue

On January 15^th Regions Financial reported 4Q2014 earnings of $0.14 per share against estimates of $0.21 per share- a disappointing surprise of -33.33%. Regions reported total revenue of $1.27bb for the quarter, again missing estimates of $1.30bb and down ~6% YoY. Despite falling to around $8.60 in intraday trading after earnings release, the stock has started to rebound and is currently trading at $9.08.

Although missing revenue and eps for the year, Regions’ loan and deposit growth, strategic management of expenses, and strong balance sheet through improved asset quality and credit quality may act as catalysts moving forward.

Deposits for the year grew 2%. As a result of successful execution of Regions360, Region’s relationship-banking initiative, the number of checking, saving, credit card, and wealth management accounts all increased. Total loans for 2014 grew 4%, largely driven by a strong year for commercial lending. Regions commercial and industrial loan balance increased 3% from the previous quarter.

Regions also continues to strengthen its balance sheet, ending the quarter with stronger capital and liquidity ratios from the prior quarter. Continuing credit quality led to a decline in nonperforming loans, total delinquencies, and troubled debt restructurings. Net charge-offs totals approximately .42% of average loans.

Overall, a persistent low interest rate environment has constricted top line growth for most banks. As a result, many financial institutions, including Regions have turned to expense management and maintaining cheap sources of funds. CEO Grayson Hall foresees improved growth in the U.S. economy for 2015 but does not expect short-term rates to increase until the end of 2015. Still he plans to continue a strategy of “remaining diligent with respect to expense control, but opportunistically investing in talent and technology to further accelerate momentum to grow revenue.”

We will continue to closely monitor Regions Financial in the future. The current stop-loss is set at $8.37.