DBRS: MUAH’s 3Q Net Income Higher QoQ; Balance Sheet Remains Sound

Summary:
• Net income increased 3% sequentially to $186 million, but adjusted efficiency ratio still high at 70.16%.
• The Company’s asset quality remains strong despite further deterioration seen in the oil and gas sector.
• DBRS rates MUFG Americas Holdings Corporation Issuer & Senior Debt at ‘A’ with a Stable trend.

DBRS, Inc. (DBRS) views MUFG Americas Holdings Corporation’s (MUAH or the Company) 3Q15 financial results as mixed with modest adjusted revenue growth and solid deposit growth. Nonetheless, adjusted expenses trended higher resulting in a modest deterioration in MUAH’s adjusted efficiency ratio of 70.16%. Criticized loans trended higher in the quarter reflecting further deterioration in the oil and gas sector, but overall asset quality remains strong and supportive of the ratings.

Adjusted revenues were up modestly sequentially with higher noninterest income more than offsetting a decline in net interest income. Margin pressure more than offset average earning asset growth, while the increase in noninterest income was primarily driven by higher gain on sale of residential loans and a decrease in FDIC indemnification expense.

Adjusted expenses were higher reflecting higher professional and outside services expense. Given the difficult revenue environment, MUAH remains highly focused on expense control to improve financial results.

Positively, core deposits increased 2% during the quarter with growth primarily coming from the transaction banking segment. Meanwhile, period-end loans held for investment were relatively stable.

Asset quality metrics remain strong even with the uptick in criticized loans seen during the quarter from the oil and gas sector. Indeed, charge-offs declined sequentially and nonperforming assets remain at low levels. Meanwhile, capital also remains strong with a tangible common equity ratio of 10.95%.

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.