Shares of Regions Financial (NYSE:RF) reached a 52-week high on Tuesday. Let's take a look at how it got here to find out if the aptly named banking group's stock price can move even higher.
How it got here
Up until recently, Regions Financial has been a notoriously troubled lender. It posted net figures that were solidly in the red from 2008 through 2010, a worse track record than even some of the larger crisis-era disaster banks. The TARP bailout money it received and badly needed wasn't paid back until last year; many other recipients had retired their bills two or even three years before.
At this point, it seems investors are simply happy that RF is still alive and breathing. The flow of red ink seems to have been stanched; the company's just-released 4Q 2012 figures are the fourth consecutive set of Regions Financial results that have landed in the black. The $261 million net profit of 4Q was considerably less than the $301 million posted the previous quarter, but it was a darn sight better than the $602 million loss in the same period of 2011.
Underlying that profit was some very tangible and encouraging developments in the bank's fundamentals. Net interest margin grew. OK, not by much, but it still moved upwards. At 3.10%, it was two basis points above that of both 3Q and the year-ago quarter.
This was due to a drop in deposit costs (essentially, net interest margin is the difference between what a bank takes in from loans and what it pays out for its funding base). RF has been, thankfully, shifting away from more financially demanding time deposits toward the cheaper varieties. As a result, overall deposit costs have continued to fall, dropping six basis points quarter on quarter and 18 bps since 4Q 2011. At the end of the most recent quarter, time deposits accounted for just over 14% of total deposits; that figure stood at more than 20% in the year-ago period.
Meanwhile, other key metrics are moving in the right direction, although not dramatically. In spite of an overall decline in overall loan balance (by 5% year over year to $74.6 billion in 4Q), the bank's managed to grow the amount of its outstanding commercial and industrial loans -- these advanced to $26.4 billion, a nearly 10% uptick from one year ago. Costs are dropping, with non-interest expenses getting a $20 million haircut between 3Q and 4Q to end up at $849 million.
Regions Financial should get extra victory points for this, as it doesn't operate in the most lucrative of American geographies. In the post-crisis era, the Southeast has lagged behind the country as a whole and other regions, in particular, in terms of GDP growth. Its full-year advancement in real GDP, for instance, came in at less than 1% in 2011. Overall U.S. GDP moved up 1.5% that year, while the number for the Southwest was 2.7% and the Far West clocked in at 2.1%.
Even so, some of the operators in those other areas aren't maintaining their NIMs as well as Regions Financial. Fifth Third Bancorp (NASDAQ:FITB), essentially a Mid-Atlantic player with a little southern spice mixed in, has seen that metric erode to 3.49% in 4Q 2012 from 3.67% in the year-ago quarter. Western-leaning lender US Bank (NYSE:USB) had a record year in 2012, but nevertheless saw NIM decline over the space of those 12 months, dropping to 3.55% in 4Q from an end-2011 rate that was 5 bps higher.
Regional banks are the flavor of the month in the financial sector. Investors like the fact that, by and large, they're not burdened by crisis-era hangovers -- witness the seemingly unending stream of penalties and sanctions handed down by the Feds to national/global giants Citigroup (NYSE:C) and Bank of America (NYSE:BAC). Not to mention that both banks disappointed with their recently released 4Q results. The market expected Citi to grow its net substantially more than the 25% it did, while few were happy with B of A's steep year-over-year decline in the same line item.
As long as Regions Financial keeps showing improvement, that peak stock price should continue to enjoy support. This was a stock that not long ago was nearly left for dead. These days, it's not only alive but getting close to thriving. That fact alone warrants keeping track of how the bank develops going forward.
Fool contributor Eric Volkman has no position in any stocks mentioned. The Motley Fool owns shares of Bank of America, Citigroup, and Fifth Third Bancorp. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.