3 Reasons to Buy Regions Financial

Think there's no more value in the market? Think again.

Alabama-based Regions Financial (RF 2.17%) is the fifteenth largest bank in the United States by deposits and while many of its peers steal the front-page headlines (often for all the wrong things), there are three keys reasons why you should invest in this regional powerhouse.

Market leadership
The four biggest banks in the U.S., Bank of America, Wells Fargo, JPMorgan Chase, and Citigroup hold almost 40% of deposits in the United States -- but none of them can make an inroads in Alabama, where Regions Financial is headquartered. According to the most recent data from the FDIC, Regions has roughly 25% of the total deposits in Alabama, as shown in the chart below:

Source: Federal Deposit Insurance Corporation

Yet not only does Regions dominate its own state with more than double the deposits of its closest competitor, but it also comes in second in neighboring Mississippi with 13.8% of the market share (where the other 8 of the top 9 banks by deposits are all headquartered in the state). It also narrowly missed the top spot in its neighbor to the north, Tennessee where it had 14% of the market share and the leader (First Tennessee Bank) had 14.03%.

Those three states represent almost half of the total deposits Regions Financial, and in those three states alone, Regions has almost greater than two and a half times the market share of its closest competitor:

Source: Federal Deposit Insurance Corporation

While those three states aren't powerhouses in the national economic landscape -- the fact that Regions Financial has such a dominant position in them is undoubtedly a good thing for the company.

Growing net interest margin
For the last few quarters, banks have bemoaned declining net interest margins -- which is the principal way banks, especially smaller regional ones, are able to make their money. The net interest margin is the difference between what they pay out on deposits and what they earn on loans.

As you can see in the chart below when compared to its other southeastern competitors SunTrust and BB&T, as well as every bank in the United States, Regions Financial lagged all three by a wide margin when it came to net interest margin in the third quarter of last year:

Source: Company Earnings Reports & St. Louis Federal Reserve

Yet Regions Financial has seen its net interest margin move up over the last five quarters, while all the others (apart from the U.S., because the data hasn't been release yet), have watched their net interest margins fall. Consider the comparison between Regions and Atlanta-based SunTrust. In the third quarter of last year Regions had a net interest margin that was 10% lower, and in the most recent quarter, Regions actually topped SunTrust:

Source: Company Earnings Reports

Anytime a company can improve its most important profit metric while its peers watch theirs dip is a reason for an investment consideration. Regions Financial noted in its most recent earnings announcement that the reason for this increase was that its "asset sensitive balance sheet reacts favorably to increases in both short-term and long-term interest rates," and with rates expected to rise -- this increase could be even greater in the quarters and years to come.

Attractively priced
Although Regions does not disclose its results year-to-date, a little calculation shows through the first nine months of the year, its other two major profit metrics, return on equity and assets each best the aforementioned peers SunTrust and BB&T, and by a wide margin:

Source: Company Earnings Reports

Despite its outperformance in both net interest income, and those two metrics, surprisingly investors simply aren't willing to pay a premium for Regions Financial. Its price-to-tangible book value (a comparison of what investors say the company is worth versus what it accounts itself as being worth), is actually significantly lower than BB&T and even lower than SunTrust, as shown in the chart below:

Knowing that it has a dominant market position, delivers on three key metrics, and is attractively priced are three reasons why you should consider an investment in Regions Financial, and you'll likely be glad you did.