DBRS: RF 2Q NI Up: Improved Fee Income Includes Insurance Settlement; Sustained Loan Growth

Summary:
• Regions reported 2Q15 earnings to common shareholders of $269 million, up 23.4% from $218 million for 1Q15, reflecting in part several non-core items including $90 million of proceeds from an insurance settlement related to a previously disclosed class action lawsuit which was accrued in 4Q14.
• Regions’ adjusted income before provisions and taxes (IBPT; DBRS’ core earnings metric, which excludes non-core items) improved quarter-on-quarter (QoQ), driven by a broad-based increase in fee income, and improved spread income due to loan growth.
• DBRS, Inc. rates Regions Financial Corporation Issuer & Senior debt at BBB with a Stable trend.

DBRS, Inc. (DBRS) considers Regions Financial Corporation’s (Regions or the Company) 2Q15 results as sound, reflecting solid core fee income growth and diversification of revenues. Overall, Regions reported earnings to common shareholders of $269 million for the quarter, up 23.4% from $218 million for 1Q15, reflecting in part $90 million of proceeds from an insurance settlement. On an adjusted basis, IBPT was improved QoQ, driven by broad-based fee income growth and sustained loan growth. Overall, Regions’ balance sheet fundamentals remain solid, including sound asset quality, and solid funding and capital profiles.

Reflective of its focus on growing and diversifying its revenues, Regions’ adjusted fee income improved sequentially, driven by increased levels of capital market fees, mortgage banking income, deposit service charges, and card and ATM fees. DBRS notes that the QoQ improvement in capital market fees was attributable to the placement of permanent financing for real estate customers, an increase in corporate fixed income underwriting revenues, and the completion of the Company’s first mergers and acquisitions advisory engagement. Meanwhile, spread income increased sequentially, driven by sustained loan growth, especially commercial and industrial loans, residential mortgages, and home equity exposures (first lien).

Although adjusted expenses remain high, and in part reflect continuing investments in businesses and technology, they were well managed sequentially. DBRS notes that Regions remains focused on reducing its non-interest expenses through several initiatives, including branch consolidations, and space rationalization.

Balance sheet fundamentals remain solid. Indeed, Regions’ asset quality remains sound, reflecting declining levels of non-performing assets, and low net charge-offs. Meanwhile, despite the repurchase of $172 million of its common stock in 2Q15, capital remains strong, as reflected by the Company’s estimated Basel III common equity Tier 1 ratio of 11.0% (fully phased-in basis).

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

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