Regions' Ratings Reiterated by Moody's, Outlook Upgraded

Ratings of Regions Financial Corporation RF and its bank subsidiary, Regions Bank, were recently confirmed by Moody’s Investors Service. Moreover, the outlook has been upgraded from stable to positive.

Also, Moody’s affirmed the Bank's baa1 standalone baseline credit assessment (BCA) and A2/Prime-1 for deposits ratings for Regions Bank. Also, Regions has a senior unsecured rating of Baa2.

Reasons Behind Ratings Affirmation

The ratings agency is of opinion that the company will be able to maintain a strong balance sheet position, with enough liquidity to continue engaging in operations. Further, the company’s diversified loan portfolio, safe risk-taking approach along with a favorable U.S. economy have helped improve its asset risk.

Notably, the ratio of problem loans to gross loans remained as low as 1.5% as of Sep 30, 2018, which reflects its strong asset quality. Problem loans consist of nonaccruals that are due for more than 90 days and accruing troubled debt restructured loans.

Regions’ capital position is expected to remain sound for another 1-1.5 years, in spite of the company’s goal to reduce common equity tier 1 (CET1) capital ratio to 9.5% from 10.2% reported at the end of third-quarter 2018. However, Moody's notes that capitalization is a relative weakness compared to Regions' other rating factors.

What Made Moody’s Upgrade Outlook?

Per Moody’s, the change in rating outlook reflects improvement in Regions’ asset mix and risk management capabilities over the years. Also, the ratings agency feels that the company will be able to sustain its growing profitability. These positive characteristics have placed Regions among its higher-rated competitors.

Further, Moody’s feels that Regions’ management of loan portfolio in the recent years is commendable. The company has reduced commercial real estate lending and indirect auto loan originations exposure matching the weakening markets scenario. Also, its management of oil & gas loan portfolio indicates effectiveness of risk management oversight in controlling concentrations and losses.

Moody’s also found the ratio of net income from continuing operations to tangible assets for the nine months ended September 2018 to be strong. Also, the company is seen to take advantage of low deposit beta compared to regional bank peers, which resulted in a considerable expansion in net interest margin for third-quarter 2018. Lastly, the company’s operating efficiency is seen to have improved.

Factors That Might Trigger Change in Ratings

An upward ratings change can be brought if Regions continues to improve operational efficiency and maintain low credit costs.

On the other hand, signs of weakening in underwriting discipline or rebuilding of asset concentrations, such as commercial real estate could result in a downward rating movement. Also, deterioration of capital position beyond current expectations will also impact ratings.

Shares of the company have lost 25.3% year to date compared with 20.3% decline recorded by the industry it belongs to.

The stock currently carries a Zacks Rank #3 (Hold).

Stocks to Consider

A few better-ranked stocks from the finance space are mentioned below.

City Holding Company CHCO Zacks Consensus Estimate for the current year has increased 3.3% over the past 60 days. Its share price has increased 1.6% over the past two years. The stock currently has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Popular BPOP currently carries a Zacks Rank #2. Over the past 60 days, the stock has witnessed upward earnings estimate revision of 3.8% for the current year. In the past two years, shares of the company have gained 5.1%.

Reliant Bancorp RBNC Zacks Consensus Estimate for the current year has been revised slightly upward over the past 60 days. Its shares gained 12.2% in the last 24 months. Currently, it carries a Zacks Rank of 2.

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