Regions' Delayed Gratification: Is It Safe?

"Is It Safe?" is a feature by TheStreet.com that looks at a company's risk-and-reward potential. Find out if your stocks are safe Tuesday and Thursday mornings at 4.

BIRMINGHAM, Ala. (TheStreet) -- Regions Financial(RF Quote) faces an increase in credit losses for the next year and a half. That's the bad news.

The good news is the Birmingham, Ala.-based bank now has sufficient capital and deposit growth to ride out the rest of the credit crisis, making it an attractive investment over the next five years.

Because of a surge in the company's nonperforming loans during the first half of this year, its shares have lagged behind most of the other 17 publicly traded holding companies that underwent the government's stress tests. (Deutsche Bank has cut Regions' rating to "hold" from "buy.")

The S&P 500 Financials Index jumped 48% from a low on March 6 through last Friday. Shares of FifthThird Bancorp(FITB Quote) returned a whopping 721% over that period.

Banks Get Better Source: Bloomberg

The group of 18 enjoyed triple-digit gains for the period, save Bank of New York Mellon(BK Quote), up 58%; Morgan Stanley(MS Quote), up 74%; KeyCorp(KEY Quote), up 24%; and Regions, which nearly doubled.

Regions shares also lagged because of chatter making hay of the company's fair-value estimate for its loan portfolio as of June 30. With a carrying amount of $90.9 billion, the estimate of the loan portfolio's fair value was only $68.1 billion.

While bank holding companies report outstanding loan balances as the carrying value of loans held for investment on their balance sheets, they're required to disclose a fair-value estimate according to accounting rules. While the result can be scary, the fact is that Regions isn't trying to sell the vast majority of the loans, so an estimate of their market value is meaningless.