Two years ago, I wrote about why I disliked regional bank stocks using Regions Financial (NYSE: RF) as a glaring example. Two years later, the stock is 18% lower since despite slow but noticeable improvements in the U.S. economy and repair in the financial sector. Most banks have had enough time to adapt to the regulatory environment. So why the poor performance?

I drilled down into Regions’ numbers and those of its peers and pulled out a comparison between CEO compensation growth versus stock performance. Here’s what I found.

Regions’ CEO, O.B. Grayson Hall got paid the most for the worst performance. Granted, Wells Fargo (NYSE: WFC) is a much bigger institution and plays at a different level than Regions, which is strictly a regional entity. But Wells Fargo handsomely rewarded shareholders while keeping executive compensation in line. SunTrust (NYSE: STI) is a closer comparison, but as you can see, its CEO actually took a steady pay cut (I’m sure he’ll figure out how to get by on $7.9 million) while the stock delivered a decent return on a five year basis. 

#-ad_banner-#Am I blaming bloated executive pay for Regions’ poor performance? Not necessarily — but it doesn’t help. The biggest problem is the bank’s business mix. Some 65% of RF’s revenues come from mortgage banking — which is what got the company, and most of the economy, into trouble in 2007-2008. And while the housing market has improved since the crash of 2007-2008, tighter lending standards and regulatory burdens have impeded growth in that particular business line.

The result is an uninspiring flat to negative earnings and revenue trend with annual earnings per share (EPS) averaging 77 cents a share over the last four years and annual revenues of $5.6 billion for the same period. Sure, the trend is positive after years of losses due to fallout from the financial crisis, but Regions still looks like a zombie.

There are positive trends in Regions’ numbers, though. Demand deposits (checking and savings accounts) have grown at an average annual rate of 20% over the last five years. I have a hunch that if the bank actually lent some of that money out, on which they are paying depositors very little, if anything, the company might actually earn a couple dollars.

However, management seems unwilling to put some of that $56.7 billion to work. I certainly don’t know what they’re waiting for and I could guess that no one else does either. In the meantime, expect the stock to continue looking like this:

Going forward, analysts do have an optimistic outlook for RF shares, forecasting EPS of 82 cents for this year. That’s a 7.8% bump over 2015’s yearend number of 76 cents per share. That growth still doesn’t keep pace with the growth in Region’s CEO’s compensation, though. Also, in the company’s most recent earnings call, management indicated that loan growth will come in at the lower end of their original guidance of 3% to 5% and non-interest income growth will also come in at the lower end of their 2% to 4% growth guidance. 

I just don’t see any real catalysts for this stock any time soon. Investors seeking exposure to the financial sector have better alternatives.

The Blackstone Group LP (NYSE: BX) is one of the biggest players in the publicly traded asset management space, especially non-equity correlated assets such as real estate and private equity. Units trade at an attractive 32% discount to their 52-week high and have a generous trailing twelve month yield of 9.6%.

The John Hancock Financial Opportunities Fund (NYSE: BTO) is a closed end fund whose objective mandates investing in what the manager deems undervalued regional banks and thrifts. For investors looking for action in the regional bank space, this is a great basket approach. Shares trade at a 15% discount to their 52-week high with a 5.8% dividend yield.

Risks To Consider: The regional bank sector is cheaply valued and one of the best positioned spaces to benefit from U.S. economic growth as it continues to pick up. Regions is one of the largest players in regional banking with over 1,700 branches across 16 states mostly the Sunbelt. The upside to the stock could be significant due to the size of the company’s footprint. But based on its operating history, management’s success at execution is mediocre at best.

Action To Take: Investors with losses in RF shares should use rallies in the stock to pare those losses or use them to offset gains if their tax situation dictates. If you were lucky enough to buy low and are sitting on some nice gains, the market has given you a gift. Take it, say thank you, and move on to the next idea.

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