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Regions Financial (NYSE: RF ) closed 2011 with a loss of $215 million. That marks four consecutive years that the company hasn't reported profits. However, don't read too much into Regions' losses. I'd like to point out three things that make me optimistic about this stock's prospects, especially now that the banking industry is on the cusp of a turnaround.
1. Improved loan growth
A major problem with commercial banks has been their bleak top-line growth. There's clear blame for that problem: a sluggish economy and low interest rates.
But as fellow Fool Ilan Moscovitz pointed out, loan growth at regional banks has actually been reasonably strong lately. US Bancorp (NYSE: USB ) , which saw its earnings rise by 39% last quarter, reported that its lending increased by 6%, whereas peer PNC Financial's (NYSE: PNC ) loan books grew by 3%, despite a 43% fall in profits. Regions also fared well in this regard, as its loans in the middle market and industrial customer segment rose by $2.4 billion, increasing 11% from the previous year.
This is a good trend for Regions, as higher loans mean higher revenue.
2. Improved credit quality
Regions has seen its non-performing loans decline for the seventh straight quarter. In addition to that, as the situation eases in the U.S., its provision for loan losses fell by a staggering 57% from a year earlier. This also reflects the bank's confidence in improving loan quality.
To add to that, Regions also sports a fairly strong capital position. Its Tier 1 capital ratio rose to 13.2% from 12.4% when compared to the year-ago period. All these factors point to a strong balance sheet -- a definite green flag.
3. Repaying Uncle Sam
This brings me to my last point. The housing crisis that began in 2007 hit Regions pretty badly, much like its peers; the regional player had to be bailed out. The $3.5 billion that it borrowed in 2008 is yet to be repaid.
But the bank has been making efforts and recently sold its investment banking arm Morgan Keegan to Raymond James Financial (NYSE: RJF ) , which reportedly helped Regions raise $1.2 billion. That's not all. On March 14 it offered 152.9 million shares at a price of $5.90 each -- close to its tangible book value per share -- raising close to $900 million. The purpose, of course, was to help pay off its bailout loans.
Those are my three reasons why Regions may be a good bet. What say you, Fools? Leave your comments below.
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