Regions: Financial Winner

NEW YORK ( TheStreet) -- Regions Financial ( RF) was the big winner among the largest U.S. financial names on Wednesday, with shares rising 5% to close at $7.65.

The broad indexes rose after the National Association of Realtors reported that total existing home sales during August rose 7.8% during August, to a seasonally adjusted annual rate of 4.82 million, from 4.47 million in July, and had risen 9.3% from a year earlier.

NAR chief economist Lawrence Yun said "the housing market is steadily recovering with consistent increases in both home sales and median prices," and that "Inventories in many parts of the country are broadly balanced, favoring neither sellers nor buyers," but "the West and Florida markets are experiencing inventory shortages, which are placing pressure on prices."

Following a on Thursday by the National Association of Home Builders reported that the NAHB/Wells Fargo Housing Market Index rose for a fifth consecutive month, to a level of 40, which was "its highest reading since June of 2006," Deutsche Bank said early Wednesday that "Housing is one of the rare bright spots in the economy at present; as we have highlighted recently, both manufacturing and exports appear to be foundering, and unless the labor market up-shifts relatively soon, the outlook for consumers may come under pressure as well."

The KBW Bank Index ( I:BKX) rose 0.5% to close at 50.79, with all but seven of the 24 index components showing gains for the session.

Regions Financial has seen its stock return 79% year-to-date, following a 38% decline during 2011.

The company 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 bailout assistance received in 2008 through the Troubled Assets Relief Program (TARP), after selling its Morgan Keegan subsidiary and raising $900 million in common equity during the first quarter.

The company reported second-quarter earnings available to common shareholders of $284 million, or 20 cents a share, increasing from $145 million, or 11 cents a share during the first quarter, and $55 million, or four cents a share, during the second quarter of 2011. The second-quarter earnings were reduced by $71 million, or five cents a share, from the accelerated discount accretion on the redeemed TARP preferred shares.

The company's second-quarter net interest margin -- the difference between the average yield on loans and investments and the average cost for deposits and borrowings -- expanded to 3.16%, from 3.09% the previous quarter, and 3.07% a year earlier. The margin expansion ran counter to the trend for most large regional U.S. banks, which have been seeing their margins squeezed as the Federal Reserve has continued making large purchases of long-term securities, in an attempt to bring long-term rates down even further, from historically low levels.

Regions felt the margin squeeze earlier than many other banks, and Guggenheim Analyst Marty Mosby says that the company "has the opportunity to continue to expand the margin as they refinance some of their debt and CDs mature at lower rates, and as they see their ratings from the ratings agencies improve."

Mosby estimates that Regions Financial's margin will expand by another nine basis points through the end of 2013.

The analyst rates Regions a "Buy," and on Monday raised his price target for the shares to $9.25 from $9.00, saying he expected the company to improve its "quarterly earnings run rate to above $0.20 before year-end, pushing potential upside substantially higher."

RF Chart RF data by YCharts

Interested in more on Regions Financial? See TheStreet Ratings' report card for this stock.

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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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