Regions Financial's Stock Was Clobbered by 2011

The year is coming to a close, so it's a great time to take a look back at the companies you own and how they fared in 2011.

For Regions Financial (NYSE: RF  ) , 2011 was a year to forget -- at least from a stock perspective. But the performance of a company's stock doesn't always tell the full story when it comes to how the company fared. So let's dig in and take a closer look at the key developments for Regions in 2011.

A quick look at Regions Financial

Source: Yahoo! Finance.

Market Capitalization $5 billion
Total Stock Return Year to Date (43%)
One-Year Net Income Growth NM
Book Value Multiple 0.36
CAPS Rating (out of 5) **

Source: S&P Capital IQ.
NM = Not meaningful. Regions posted a loss a year ago.

What went down in 2011
It was a rebuilding year for Regions. Like just about every bank in the U.S., Regions took it on the chin during the financial crisis, but as a regional bank based in and focused on the U.S. Southeast region -- where the downturn hit harder than in many other areas -- it fared worse than most.

Management touted progress during the year and preached about the bank's focus on proving a great customer experience, particularly for its business customers. Whether it was actually due to the bank's customer relationships or just an improving banking environment, the numbers for the bank did show steps in the right direction during 2011.

One obvious sign is that the company was not only profitable but also showed increasing profits through the first three quarters of the year. Pre-provision revenue -- that is, revenue before accounting for provisions for loan losses -- fell as the company's loan book shrank. However, loan loss provisions also shrank, which helped buoy total revenue. The bank slimmed down on costs, too, which helped boost profitability as well.

Non-performing loans as a percentage of total loans rose in the first quarter for Regions but then fell in both the second and third quarter, finishing at 3.8% versus 4.1% at the end of last year. That's progress, but to put it in context, the ratio is much lower at comparable regional banks. Fifth Third Bancorp (Nasdaq: FITB  ) finished the third quarter at 2.2%, while BB&T (NYSE: BBT  ) was at 1.9% and Huntington Bancshares (Nasdaq: HBAN  ) was at 1.4%.

In other words, Regions appears to be moving in the right direction, but there's still a lot more that needs to be done.

It's also notable that if the improving environment was a tailwind behind Regions' improvements for much of a year, it was looking questionable by the time the third quarter rolled around. During the quarter, the bank reported a rise in gross non-performing loans. CEO Grayson Hall chalked it up to management's taking "an increasingly cautious and disciplined stance on credit quality." That could be roughly translated as: "We wanted to get more conservative so we don't get caught with our pants down if things get worse."

Finally, 2011 brought the potential for a windfall for the bank as it started looking for a buyer for its Morgan Keegan investment banking arm. A successful sale -- which has been slow in coming -- could fetch around $1 billion.

Buying into banking
As Regions' valuation suggests, investors are skittish about the Birmingham, Ala.-based bank. Regions isn't alone, though, as many investors are shunning banks broadly. But not all investors are steering clear of banks -- in fact, many of the smartest investors are jumping in. You can find out why these investing luminaries are keen on banks by grabbing a free copy of The Motley Fool's special report "The Stocks Only the Smart Investors Are Buying."

The Motley Fool owns shares of Huntington Bancshares and Fifth Third Bancorp. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Fool contributor Matt Koppenheffer has no financial interest in any of the companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter, @KoppTheFool, or on Facebook. The Fool's disclosure policy prefers dividends over a sharp stick in the eye.


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