DBRS: MUAH’s Improved 2Q Results Reflect Solid Revenue Growth

Summary:
• Net income jumped 32% sequentially to $181 million, reflecting strong revenue growth.
• While financial results improved, both average loans and average deposits declined sequentially.
• DBRS rates MUFG Americas Holdings Corporation Issuer & Senior Debt at ‘A’ with a Stable trend.

DBRS, Inc. (DBRS) considers MUFG Americas Holdings Corporation’s (MUAH or the Company) 2Q15 financial results as improved, but average loans and average deposits both declined during the quarter. Revenues benefited from net interest margin expansion, higher trading account activities, and improved fees from affiliates resulting from the business integration initiative. Both the provision for credit losses and net charge-offs increased in 2Q, but off of very low levels, as credit remains a strength.

Total revenues increased 8% sequentially driven by higher net interest income from net interest margin expansion, improved fees from affiliates, and increased trading account activities. The Company’s margin expanded 14 basis points to 2.84% reflecting higher yields on commercial and industrial loans, purchased credit-impaired loans, and investment securities.

Meanwhile, expenses declined modestly during the quarter driven by seasonality in 1Q. During the quarter, MUAH incurred a $23 million contract termination charge. While improved, the adjusted efficiency ratio remains high at 69.02%.

During the quarter, average loans declined modestly with growth seen only in construction lending. Meanwhile, average deposits also declined.

Despite an uptick in the provision for credit losses and net charge-offs from very low levels, asset quality remains very strong. The increase in charge-offs was mostly related to one commercial and industrial loan and higher losses within the purchased credit-impaired portfolio. To address some deterioration within the oil and gas sector, MUAH increased its provision for credit losses, but provisioning levels remain low.

DBRS rates MUFG Americas Holdings Corporation Issuer & Senior Debt at ‘A’ with a Stable trend.

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