Regions Financial: Bank Stock Winner

NEW YORK ( TheStreet) -- Regions Financial ( RF) of Birmingham, Ala., was the winner among large U.S. banks on Friday, with shares rising 1.3% to close at $9.30.

The broad indices all ended lower, as investors worried over the latest federal budget deadline on Monday. The federal government's fiscal 2013 ends on Sunday, and many government services will shut down on Monday unless Congress and President Obama agree on a new budget over the weekend. In addition to the lack of a budget, Congress once again needs to worry about the federal "debt ceiling," since U.S. Treasury Secretary Jack Lew in a letter to Speaker of the House John Boehner (R., Ohio) on Wednesday said the "extraordinary measures" the Treasury was taking to maintain its borrowing power will "be exhausted no later than Oct. 17," unless the $16.7 trillion federal debt limit is raised.

In economic news on Thursday, the final September estimate for the University of Michigan Consumer Sentiment Index came in at 77.5, below the average estimate of 78 among economists polled by Thomson Reuters, and considerably lower than the August reading of 82.1.

Also on Thursday, the Bureau of Economic Analysis reported that personal income rose by an as-expected 0.4% in August following an upwardly revised 0.2% gain in July. Personal spending edged up by an as-predicted 0.3% following an upwardly revised 0.2% increase.

Sterne Agee chief economist Lindsey Piegza in an email said "after adjusting for inflation, real personal spending rose 0.2% in August following a 0.1% increase the month prior and 2.0% year-over-year. On an annual basis, consumption has remained stagnant at near 2% since the start of the year, however, on a three-month annualized basis, spending continues to lose momentum falling for the fourth consecutive month to 1.4% in August from a peak of 2.4% in April."

Piegza's conclusion from the personal income and consumer spending numbers was rather bleak: "While consumers are still spending, purchases have become increasingly volatile as shoppers drastically shift the goods consumed each month," she said, adding that "without sustainable job and income growth, consumers will be reluctant to loosen their purse strings. "

The KBW Bank Index ( I:BKX) was down slightly to close at 62.48, with all but nine of the 24 index components showing declines.

Meanwhile, while the U.S. housing market continues its multiyear recovery, the time of bailouts hasn't ended, as the Federal Housing Administration on Friday announced it would require an infusion of $1.7 billion from the U.S. Treasury to cover loan losses. This is the first time FHA in its 79-year history has ever needed to borrow money to stay afloat.

FHA Commissioner Carol Galante in a letter to Congress said the agency was unlikely to need a cash infusion from the Treasury during 2014.

Rep. Jeb Hensarling (R., Texas) -- the Chairman of the House of Representatives Financial Services Committee -- in a statement on Friday said "If the FHA was a private financial institution, likely somebody would be fired, somebody would be fined, or the institution would find itself in receivership. Instead, the FHA is merrily on its way to becoming the recipient of the next great taxpayer bailout."

"The FHA is clearly headed toward financial disaster and taking taxpayers along for the ride," Hensarling added. "Unless Congress enacts sustainable housing finance reform, it's possible taxpayers will be forced to write blank bailout checks to the FHA indefinitely. That is unacceptable, and it is further evidence Congress needs to pass the sustainable housing finance reforms found in the PATH Act."

Regions Financial

This is the time of the quarter when sell-side analysts begin publishing their earnings previews, and analysts expect Regions to show net loan growth, as well as increases in net interest income and an expanded net interest margin.

A big concern for many regional and money center banks is the decline in revenue as mortgage refinancing volume subsidies and spreads on the sale of newly originated mortgage loans to Fannie Mae ( FNMA) and Freddie Mac ( FMCC) decline. Atlantic Equities analyst Richard Staite estimates that for the eight large-cap banks he covers, third-quarter mortgage revenue will be down 55% year-over-year and 40% from the second quarter.

But Regions Financial may see a muted effect this quarter from the mortgage decline. The company's second-quarter mortgage income was $69 million, or 5% of the company's total operating revenue.

Regions will announce its third-quarter results on Oct. 22. Analysts polled by Thomson Reuters on average estimate the company will post earnings of 21 cents a share, compared to 18 cents in the second quarter and 21 cents in the third quarter of 21.

Jefferies analyst Ken Usdin rates Regions a "buy," with a price target of $11, and in his third-quarter earnings preview for regional banks on Thursday wrote that a slight "beat" to the consensus estimate is likely "to be driven by net interest margin expansion." He expects the margin to expand because of redemptions and maturities of debt securities, CD repricing, which is still heading lower, with the federal funds rate stuck in a range of zero to 0.25% since late 2008, and a "positive mix-shift to loans from securities."

Usdin expects Regions Financial's net interest income to increase to $838 million in the third quarter from $821 million the previous quarter, with the bank's net interest margin expanding by seven basis points to 3.23%. Jefferies estimates the company to report third-quarter EPS of 22 cents.

RF Chart RF data by YCharts

Interested in more on Regions Financial? See TheStreet Ratings' report card for this stock.

RELATED STORIES:





-- Written by Philip van Doorn in Jupiter, Fla.

>Contact by Email.

Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.

More from Investing

Trump's 'Space Force' Could Launch a $1 Trillion Industry, Morgan Stanley Says

Trump's 'Space Force' Could Launch a $1 Trillion Industry, Morgan Stanley Says

Abiomed Stock Should Rise Some 12% From Here, Piper Jaffray Analyst Says

Abiomed Stock Should Rise Some 12% From Here, Piper Jaffray Analyst Says

Video: Here Is Why Carvana Isn't Worried About Amazon

Video: Here Is Why Carvana Isn't Worried About Amazon

Video: What Oprah's Content Partnership With Apple Means for the Rest of Tech

Video: What Oprah's Content Partnership With Apple Means for the Rest of Tech

REPLAY: Jim Cramer on the Markets, Oil, Starbucks, Tesla, Okta and Red Hat

REPLAY: Jim Cramer on the Markets, Oil, Starbucks, Tesla, Okta and Red Hat