Regions' quarterly profit rises 11% and beats forecasts, while its tangible book value falls 8%

Regions Financial Corp. said third-quarter profit available to common shareholders rose 11% to $611 million and adjusted earnings per share of $0.73 beat analysts' forecasts, as fee income rose and loan losses fell, but the Birmingham, Alabama-based lender's tangible book value per share fell about 8% in the quarter as losses recorded in its equity grew.

Earnings rose and beat forecasts

Regions Financial Corp. reported third-quarter net income available to common shareholders of $611 million, up from $548 million a year earlier and $549 million in the second quarter. Diluted earnings per share were $0.71, compared with $0.61 a year earlier. Adjusted earnings per share, a non-GAAP measure, were $0.73, up from $0.63. The company said both reported and adjusted earnings rose 11% from a year earlier and earnings per share rose 16%.

The adjusted figure topped the $0.66 a share that analysts polled by FactSet expected, CNBC reported. Zacks Investment Research put the consensus at $0.67 and said total revenue of $1.97 billion fell just short of its $1.98 billion consensus.

Total revenue was $1.973 billion, up 3.5% from the second quarter and 3% from a year earlier. Net interest income rose 1.6% from the second quarter to $1.298 billion, and the net interest margin widened to 3.68% from 3.66% in the second quarter and 3.59% a year earlier. The release credited fixed-rate asset turnover, loan growth, higher hedging income, credit interest recoveries and one extra day in the quarter, partly offset by higher non-deposit funding costs.

Non-interest income rose 7% from the second quarter to $675 million. Capital markets income climbed 27% to $107 million, which the company called a record, citing mergers and acquisitions advisory fees, securities underwriting and placement fees, commercial swap income and loan syndications. Non-interest expense was $1.118 billion, little changed from the second quarter, and the efficiency ratio improved to 56.2% from 58.3%.

Tangible book value fell as an equity loss widened

Regions' tangible common book value per share, a non-GAAP measure, fell to $12.65 at Sept. 30 from $13.78 at June 30, a drop of about 8%, and was down about 6% from $13.49 a year earlier. Common book value per share fell to $19.38 from $20.48, and total shareholders' equity declined to $17.85 billion from $18.84 billion. The ratio of tangible common equity to tangible assets, also a non-GAAP measure, fell to 6.83% from 7.55%.

The decline coincided with a wider accumulated other comprehensive loss, the part of shareholders' equity where unrealized losses on available-for-sale securities and some hedges are recorded. That loss widened to $3.20 billion at Sept. 30 from $1.92 billion at June 30, according to the financial supplement. The release does not explain the change. Over the same three months, the 10-year Treasury yield rose to 5.29% from 4.44%, according to Treasury Department data. Higher market yields reduce the market value of fixed-rate bonds a bank already holds.

The bank's estimated common equity Tier 1 ratio, a regulatory capital measure, rose to 10.8% from 10.7% in the second quarter. Share repurchases totaled $95 million in the quarter, covering about 3 million shares, and Regions declared $255 million in common dividends.

Credit improved while deposits slipped

Net charge-offs fell to $72 million, an annualized 0.29% of average loans, from 0.42% in the second quarter and 0.55% a year earlier. The provision for credit losses was $68 million, unchanged from the second quarter. Non-performing loans fell to 0.59% of loans from 0.67%, and business services criticized loans fell to 4.71% of business loans from 5.01%. The allowance for credit losses was 1.61% of loans.

Average loans rose 0.5% from the second quarter to $99.18 billion, led by commercial and industrial lending, while average consumer loans edged lower. The release said elevated long-term interest rates have slowed permanent financing in multifamily real estate, which increased demand for bridge loans. Average deposits fell 1.2% to $129.14 billion. Regions attributed the drop in corporate deposits mainly to a limited number of large commercial clients that moved interest-bearing balances into off-balance-sheet investment products offered through the bank.

"Strong credit quality, continued momentum in fee-based businesses, and economically vibrant markets throughout our footprint all contributed to our third quarter results," Chairman, President and Chief Executive John Turner said in the release.

How the shares traded

Regions shares closed at $27.45 on the New York Stock Exchange on Friday, up 0.5% from Thursday's close of $27.31, according to market data. They rose as high as $28.15 during the session. CNBC reported at midday that the stock had gained nearly 2% on the results.