This Bank is Coming off a Strong Year: Is it Time to Buy?

"Overall, we are pleased and encouraged by our achievements and results in 2013" - Grayson Hall, Chairman, President and CEO Regions Financial (NYSE: RF).

There's a lot to like about the progress Regions made in 2013. A year that included: a 10% increase in net income, a greater dividend, improved debt and capital structure, all while lowering overall funding costs.

The question is, however, with so many regional banks out there – for instance, Keycorp (NYSE: KEY) and Huntington Bancshares (NASDAQ: HBAN) -- has Regions done enough to earn investment consideration?

Grayson Hall suggested during the company's fourth quarter conference call that the year's focus was on growing loans, building customer relationships, and managing expenses. Today, I'll dig into just how well Regions was able to follow through on its goals.

Source: Billy Hathorn

1. Growing loans
"For the year, total new and renewed loan production increased $4.5 billion, or approximately 8%."

The growth in loans came primarily from business lending, which was led by its commercial and industrial segments. Regions also experienced especially strong growth in auto lending. Which was driven by an expanded dealer network and more accepted loans per dealer. 

Keycorp and Huntington saw similar drivers in 2013, though both grew loans at a much more moderate pace.

With that said, I'm rarely impressed by a bank's ability to grow its loan book -- however, if it's able to do so while improving net interest margin (NIM), that's a different story.

Keycorp and Huntington's NIM were 3% and 3.4% in 2013, respectively. Both companies were down slightly from 2012. Regions, however, saw a slight improvement year-over-year to 3.3%. 

2. Building customer relationships
In 2013, Regions launched "Regions 360", an initiative created to deepen relationships with customers. This mainly involves new training programs to teach customer-facing employees to better cross-sell products.

This is a page taken right out of Huntington Bank's playbook. The company has been using its Optimal Customer Relationship (OCR) program to better cross-sell customers for years, so it's about time other banks take notice of the extraordinary results.

Keycorp, similar to most banks, doesn't have a named program for cross-selling customers. While I personally love named programs, Keycorp has nonetheless suggested its seen progress in expanding and cross-selling its customer base. 

Huntington Bank, ultimately, is still the king when it comes to building and maintaining customer relationships. In an environment that has been all about cost cutting, though, it's nice to see Regions make an investment in its employees. It's something, at least in this investor's opinion, will pay huge dividends in the long run.

3. Prudently manage expenses
"We will continue to rigorously manage all expense in a disciplined manner."

After the financial crisis, the banking industry as a whole was a complete mess. Some banks, like Wells Fargo and US Bancorp, seemed to recover in no time at all. Others, however, are still in the process of sorting out the pieces.

Regions is one of those banks still sorting out the pieces. The good news, though, is that the company suggested its real estate segment is close to stabilization. In fact, Regions has classified over $680 million in residential mortgages as troubled debt and is planning to sell off the loans in early 2014. 

Branch closings have also been theme of 2013. Regions announced that it will consolidate 30 branches sometime in early 2014. Keycorp, similarly, closed 81 branches in 2013 that hadn't been performing up to par. 

Huntington Bank spent about $7 million in the fourth quarter on branch closures and restructuring costs – which is a far cry from the moving and shaking Keycorp and Regions have been involved in. 

Is it time to buy Regions?
Current shareholders of Regions should, as Hall mentioned, be encouraged by the company's progress. The company has increased its net income year-over-year despite a very tough revenue environment – which is a testament to Region's focus on managing expenses.

With that said, Huntington is still the best buy of the bunch. As for Regions and Keycorp, depending on your appetite for risk, may prove to be strong investments -- though, at the present moment, there seems to be a better option available. 


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