DBRS: Regions Earnings Up QoQ on Lwr Expenses & Provisions; Revenue Contracts Reflecting Seasonality

Summary:
• 1Q14 earnings to common shareholders of $311 million, up from $219 million for 4Q13, yet down from $327 million for 1Q13.
• On an adjusted basis, excluding non-core items, the Company’s income before provisions and taxes declined, QoQ, mostly due to seasonally lower revenues, primarily capital markets fees and deposit service charges.
• DBRS, Inc. rates Regions Financial Corporation Issuer & Senior debt at BBB with a Stable trend.

Like many banks, revenue growth for Regions Financial Corporation (Regions or the Company) remains a challenge. On a linked-quarter basis, core revenues declined moderately, mostly due to seasonally lower levels of capital markets fees and deposit service charges. Meanwhile, spread income contracted modestly due to fewer days in the quarter and lower loan yields. Spread income benefitted, however, from some sequential loan growth (period-end), primarily reflecting higher levels of commercial & industrial loans, commercial investor real estate construction exposures, and indirect auto loans. Core expenses declined moderately, partially offsetting these headwinds, reflecting the impact of branch consolidations and other efficiency initiatives. Indeed, lower quarter-on-quarter (QoQ) core expenses primarily reflected lower levels of salaries and employee benefits, and professional and legal expenses. Overall, management anticipates that full year 2014 adjusted expenses will be less than adjusted 2013 expenses.

Although lagging its similarly sized peers, Regions’ asset quality continues to stabilize, reflecting lower levels of non-accrual loans, classified loans, and net charge-offs (NCOs). Of note, linked-quarter NCOs were down materially due to a sizable 4Q13 mark related to the transfer of troubled debt restructurings into the held-for-sale category. DBRS considers the Company’s loan loss reserve level as satisfactory at 1.7% of total loans.

Regions’ funding and capital profiles remain sound. DBRS notes that the Federal Reserve did not object to the Company’s capital plan as submitted in the Comprehensive Capital Analysis and Review process, including increasing the quarterly dividend to $0.05 per share from $0.03 per share, and the repurchase of up to $350 million in common shares, based on Board approval.

Despite sustained pressured earnings, DBRS considers the Company’s sequential loan growth (period-end), relatively sound asset quality, and solid funding and capital profiles as supportive of its current rating level.

DBRS rates Regions Financial Corporation’s Issuer & Senior debt at BBB with a Stable trend.

Notes:
All figures are in U.S. Dollars unless otherwise noted.

[Amended on December 23th, 2014 to remove unnecessary disclosures.]