M&T, Regions: Financial Winners

Regions Financial

Shares of Regions Financial of Birmingham, Ala., have now returned 76% year-to-date, following a 38% decline during 2011.

The shares trade for 1.1 times their reported June 30 tangible book value of $6.69, and for 9.3 times the consensus 2013 EPS estimate of 81 cents. The consensus 2012 EPS estimate is 72 cents.

The consensus among analysts is for the company to report third-quarter EPS of 21 cents, increasing from 20 cents the previous quarter, and eight cents a year earlier.

Regions went through a major transition during the first half of 2012. During the second quarter, the company redeemed all $3.5 billion in preferred stock held by the government for TARP assistance, after selling its Morgan Keegan subsidiary and raising $900 million in common equity during the first quarter.

Jefferies analyst Ken Usdin rates Regions Financial a "Hold," with an $8.00 price target, and said on Oct. 2 that he expects the company's "pre-provision [for loan losses] earnings to come under higher scrutiny this quarter given that it is harder to impress on credit after last quarter's beat," when the company's provision for loan loss reserves was a very low $26 million, or just 0.14% of total loans.

"This could work against RF," Usdin said, "as 2Q had a number of one-timers that may not be teased out appropriately in Street models."

Guggenheim analyst Marty Mosby last month said that Regions was among the regional banks that were best-positioned to defend their net interest margins at this point in the economic cycle.

The company's second-quarter net interest margin expanded to 3.16%, from 3.09% the previous quarter, and 3.07% a year earlier. Mosby estimates that the margin will expand by another nine basis points through the end of 2013.

Mosby rates Regions a "Buy," with a price target of $9.25 from $9.00. The analyst expects the company to improve its "quarterly earnings run rate to above $0.20 before year-end, pushing potential upside substantially higher."

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-- Written by Philip van Doorn in Jupiter, Fla.

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Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.

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