If you follow the financial sector as I do, there are certain banks and financial companies you you tend to keep an eye on. A lot of the focus in the media gravitates toward the "too big to fail" banks like JPMorgan Chase (NYSE: JPM ) and Bank of America (NYSE: BAC ) , but there are also a lot of smaller banks at the regional level that warrant attention.
One regional bank that garners a lot of attentions is Alabama-based Regions Financial (NYSE: RF ) . A bank like Regions helps illustrate that there are often great opportunities outside of the megabanks, and this article will provide you with three reasons why I think you should consider adding Regions to your portfolio.
1. Performance this year
It has been quite the year for Regions Financial. This time last year, Regions made the list as one of the worst regional banks of 2011. It was a year that the bank -- as well as investors -- wanted to put behind them as soon as possible, watching the stock shed 43% of its value during the year. Nevertheless, there were signs that 2012 would be a much better year for the bank, and thus far, it looks as if that was the case.
Back in October, I compared the bank's return versus everyone's favorite tech company, Apple (NASDAQ: AAPL ) . Back then, it outperformed the tech giant by nearly 50%. Since then, however, Apple has narrowed the gap considerably, though Regions is still slightly ahead:
RF data by YCharts.
Perhaps more impressive is Regions' performance versus megabanks JPMorgan Chase and Wells Fargo (NYSE: WFC ) , as well as the S&P 500 (SNPINDEX: ^GSPC ) . Whether or not Regions can continue this performance going forward is something worth watching, but even growing at a quarter of last year's pace would be a welcome sight for investors.
2. Improving results
A stock doesn't usually post a 60% return without reason, and there are a couple of primary reasons that led to the strong performance of the bank over the past year. The first is its dramatic improvement in nonperforming loans. At the end of its most recent quarter, nonperforming loans declined to a total of 2.74% of assets, a ratio on par with many banks that are viewed as "more successful."
With fewer "bad loans," Regions has strengthened its capitalization position, ending the third quarter with a healthy Tier 1 common ratio of 10.5%. This is higher than some of its much larger peers, with SunTrust Banks (NYSE: STI ) at 9.8%, Wells Fargo at 10.1%, and US Bancorp (NYSE: USB ) at 9%. Continued improvement in both of these metrics would point to a successful 2013 and beyond for Regions.
3. Strong leadership at the top
A strong CEO can have a dramatic impact on the performance of a company, and Regions is no exception. Grayson Hall has led the bank admirably, especially over the past year, prompting my colleague Sean Williams to nominate him as a finalist for CEO of the Year for 2012. While he won't walk away with the title this year -- he ran into the buzz saw that was Arena Pharmaceuticals (NASDAQ: ARNA ) CEO Jack Leif -- it wasn't for lack of effort. The year started off well with the sale of its troubled investment banking unit, Morgan Keegan, to Raymond James Financial (NYSE: RJF ) , for nearly $1 billion.
The proceeds from this sale, as well as the improved performance mentioned previously, enabled the bank to repay $3.5 billion in TARP funds back in April, shortly after the bank passed the Federal Reserve stress tests. All these actions were spearheaded by the man at the top, who used a return to less-risky traditional banking -- deposits, loans, and fees -- to place the bank back on the road to success.
Just one Fool's opinion
While I may like what Regions Financial has to offer for investors, my opinion is but one of many that you should consider if you are thinking about adding the bank to your portfolio. I do hope that I've given you a starting point as you delve deeper into your research.
With big finance firms still trading at deep discounts to their historic norms, investors everywhere are wondering if this is the new normal, or whether finance stocks are a screaming buy today. The answer depends on the company, so to go beyond by reasons on whether Regions Financial is a buy today, I invite you to read our premium research report on the company today. Click here now for instant access!