It has generally been a decent year for banks, even if their stock prices may not show it. The market has not recognized the fact that banks have, for the most part, been able to generate solid revenue and earnings gains, buoyed by rising interest rates and robust loan activity.

But there is a fairly sharp line drawn between the bigger banks and the regional banks. The larger banks struggled more, as other parts of their business, like investment banking and asset management, have not fared as well as consumer banking. The regional banks have typically outperformed, as they are more reliant on the bread-and-butter of consumer banking.

So when we look at the top-performing bank stocks of 2022, it should come as no surprise that the best performer among large-cap banks in the S&P 500 is a regional bank -- Regions Financial (RF -0.53%).

The best-performing bank in the S&P 500

Regions Financial is the holding company for Regions Bank, which serves customers in 15 states throughout the South and Midwest. The Birmingham, Alabama-based bank is the 26th-largest bank in the United States with about $157 billion in assets under management as of Sept. 30.

The company's stock price is down about 4.5% year to date as of Dec. 16, which is better than any other bank stock on the S&P 500. In just the last two weeks since Dec. 1, the price has tumbled 11%, along with the rest of the market, so it has been in positive territory for most of the year.

The bank benefited from rising interest rates in 2022, as it generated $1.27 billion in net interest income -- a 31% year-over-year increase. It raised its net interest margin to 3.53%, up from 3.30% a year ago. The net interest income was helped by a low deposit beta of just 9%.

Roughly 68% of its revenue came from net interest income. That's because the bank had $94.7 billion in total loans in the quarter, up 4.3% from the second quarter and 13.6% from the third quarter of 2021. Business lending was up 14% year over year while consumer lending was up 13% from the third quarter a year ago.

RF Chart

RF data by YCharts

Earnings were down year over year in the third quarter, largely due to a $50 million fine and $141 million paid to customers to settle charges by the Consumer Financial Protection Bureau (CFPB) over surprise overdraft fees between 2018 and 2021. But the bank has since revamped its overdraft fees to be in line with CFPB regulations.

These one-time charges had the impact of raising its efficiency ratio to 62.3%, but it had been 53.9% the quarter before. Overall, one of the strengths of this bank is its efficiency, so we should see that number come back down.

Why this stock is a buy

There are several reasons why Regions Financial will continue to be a good bear market performer, starting with its valuation, as it has a low forward price-to-earnings (P/E) ratio of 8.5. But beyond that, the bank stands on sound financial footing with about $13 billion in cash and relatively low debt. It also has a common equity tier 1 ratio of 9.3%, which is above its regulatory minimum of 7.8% that includes its stress capital buffer.

The company is using that capital in a multiyear plan to upgrade its core systems, to make it even more efficient, as President and CEO John Turner explained at the Goldman Sachs Financial Services Conference on Dec. 7:

As we began to think beyond three years and out five, seven, and 10 years, what's the business going to look like? ... And so we think that the investment we're making in transformation, as we call it, will help us deliver products and capabilities faster, better to customers, will help drive greater efficiencies and process improvement, which will ultimately allow us to drive the cost of doing business down and ultimately improve profitability and performance.

The strong capital position also allows the company to raise its dividend, as it did in the third quarter by 17% to $0.20 per share. It currently pays a yield of 3.8% and has raised its dividend for 10 straight years. Turner said the firm wants to pay out 35% to 45% of its earnings to dividends next year, and it's currently at 33%, so expect another boost in 2023.

The bank should have another good year in 2023 with the expectation for loan growth, despite what looks like a weaker economy, and net interest income growth as the Fed continues to tighten. The bank expects to see net interest margin of around 3.9%, slightly up from a projected 3.8% this year.

I like where this stock is and where it's going, and it looks like a good buy right now.