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Zack’s Bear of the Day: Regions Financial

Based in Birmingham, AL, Regions Financial Corporation (NYSE:RF) is a financial holding company that provides retail and commercial banking, trust, securities brokerage, mortgage and insurance products and services.
The bank missed its fourth quarter earnings estimates recently and negative earnings momentum sent the stock to Zacks Rank # 5 (Strong Sell).
Fourth Quarter Earnings Miss
The bank reported its Q4 2014 results on January 20. Earnings from continuing operations came in at $0.14 per share, missing the Zacks Consensus Estimate by 7 cents. 
Lower revenues and higher non-interest expenses contributed to the miss. Lack of improvement in the mortgage market remained a concern for the bank. Growth in loans and deposits were the positives for the quarter. Income from continuing operations available to common shareholders was $198 million in the quarter, down from $233 million reported in the year ago quarter.
Non-interest income was down to $448 million during the quarter from $526 million in fourth quarter of 2013 due to lower mortgage and capital markets income. However, credit metrics recorded a significant improvement during the quarter with non-performing assets as a percentage of loans, declining to 1.28% from 1.74% in the prior-year quarter.
Provision for loan losses was $8 million, down 89.9% year over year. The bank’s energy related exposure was 4.3% of total loans at the end of the quarter. If oil prices stay low, this portfolio may result in losses and require more provisioning.
Downward Revisions
Analysts have been cutting their estimates for the company after disappointing guidance. Zacks Consensus Estimates for the current and the next year are now $0.81 per share and $0.89 per share respectively, down from $0.86 per share and 0.94 per share, 30 days ago. Declining estimates sent the stock back to Zacks Rank # 5.
The Bottom Line

Continued low interest rate environment and flattening of yield curve is posing challenges for US banks. Further mortgage income has also declined for this bank. Investors looking for a better option among banks in the Southeast region could consider Customer Bancorp, which currently enjoys a Zacks Rank #1 (Strong Buy).

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