Regional Banks’ Profitability Problem

As earnings season unfolds, many market participants are watching regional banks closely for signs of stress. Although the public and private sectors worked together to stem the crisis earlier this year, many of the underlying conditions that contributed to it still exist. As a result, fears are growing that more weakness is ahead for the industry. 😨

Regions Financial, Berkshire Hills Bancorp, and Huntington Bancshares had similar things to say when reporting results today. But we’ll focus on Regions because it fell the most.

The Birmingham, Alabama-based lender saw a 6.5% QoQ decline in net interest income, causing it to miss revenue expectations. It expects another 5% QoQ decline in the fourth quarter. Deposits appear to be stabilizing at $126.2 billion, down marginally from the second quarter’s $127 billion. 🔻

However, the bank is having to pay up to retain its deposits and attract new ones in a highly competitive environment. That’s weighing on its net interest income, its primary profit driver. And investors remain uncertain about these banks’ unrealized losses and potential regulatory changes resulting from this spring’s crisis. 💸

Regions Financial’s President and CEO John Turner tried to reassure the market on the banks’ position, saying, “Our protective hedging strategies position us for success in any rate environment and support our commitment to generating consistent, sustainable long-term performance…” and “While the industry continues to face economic and regulatory uncertainty, we are confident in our ability to adapt to the changing landscape while continuing to deliver top-quartile returns through the cycle.”

With that said, confidence is clearly waning among investors. $RF shares fell 12% today, and all of these stocks’ shares are approaching their spring lows as the industry ETF $KRE breaks down again. As always, we’ll have to wait and see how others fared as earnings come out. But for now, fears are they will be in a similar spot, resulting in more pressure on the industry. 😟

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