MUFG Americas Holdings Corp - FORM 10-Q - November 10, 2010
Attached files
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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ý |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2010 |
OR |
o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period
from to
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Commission file number 1-15081
UnionBanCal Corporation
(Exact name of registrant as specified in its charter)
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Delaware |
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94-1234979 |
(State of Incorporation) |
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(I.R.S. Employer Identification No.) |
400 California Street, San Francisco, California |
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94104-1302 |
(Address of principal executive offices) |
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(Zip Code) |
Registrant's telephone number: (415) 765-2969 |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
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Large accelerated filer o |
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Accelerated filer o |
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Non-accelerated filer þ (Do not check if a smaller reporting company) |
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Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes o No þ
Number of shares of Common Stock outstanding at October 31, 2010: 136,330,829
THE
REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION H (1) (a) AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH THE REDUCED
DISCLOSURE FORMAT.
Table of Contents
UnionBanCal Corporation and Subsidiaries
Table of Contents
2
Table of Contents
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report includes forward-looking statements, which include forecasts of our financial results and condition, expectations for our
operations and business, and our assumptions for those forecasts and expectations. Do not rely unduly on forward-looking statements. Actual results might differ significantly compared to our forecasts
and expectations. See Part I, Item 1A. "Risk Factors," in our 2009 Annual Report on Form 10-K, Part II, Item 1A. "Risk Factors" in this report, and the
other risks described in this report and in our 2009 Annual Report on Form 10-K for factors to be considered when reading any forward-looking statements in this filing.
This
report includes forward-looking statements, which are subject to the "safe harbor" created by section 27A of the Securities Act of 1933, as amended, and section 21E of
the Securities Exchange Act of 1934, as amended. We may make forward-looking statements in our Securities and Exchange Commission (SEC) filings, press releases, news articles and when we are speaking
on behalf of
UnionBanCal Corporation. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. Often, they include the words "believe," "expect,"
"target," "anticipate," "intend," "plan," "seek," "estimate," "potential," "project," or words of similar meaning, or future or conditional verbs such as "will," "would," "should," "could," "might,"
or "may." These forward-looking statements are intended to provide investors with additional information with which they may assess our future potential. All of these forward-looking statements are
based on assumptions about an uncertain future and are based on information known to our management at the date of these statements. We do not undertake to update forward-looking statements to reflect
facts, circumstances, assumptions or events that occur after the date the forward-looking statements are made.
In
this document, for example, we make forward-looking statements, which discuss our expectations about:
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- Our business objectives, strategies and initiatives, our organizational structure, the growth of our business and our
competitive position and prospects
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- Our assessment of significant factors and developments that have affected or may affect our results
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- Our assessment of economic conditions and trends and credit cycles and their impact on our business
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- The continued weak or uncertain economic outlook for the U.S. and global economy
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- The impact of changes in interest rates and our strategy to manage our interest rate risk profile
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- Our sensitivity to and management of market risk, including changes in interest rates, and the economic outlook for the
U.S. in general and for any particular region of the U.S. including, in particular, California, Oregon, Texas and Washington
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- Our strategies and expectations regarding capital levels and liquidity, our funding base, core deposits and intent to fund
our operations on an independent basis
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- Pending and recent legislative and regulatory actions, and future legislative and regulatory developments, including the
effects of legislation and governmental measures introduced in response to the financial crises affecting the banking system, financial markets and the U.S. economy, the Dodd-Frank Wall
Street Reform and Consumer Protection Act (the Dodd-Frank Act), and changes to the Federal Deposit Insurance Corporation's deposit insurance assessment policies and anticipated costs or
other impacts on our business and operations as a result of these developments
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- Regulatory controls and processes and their impact on our business
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- The costs and effects of legal actions, investigations, regulatory actions, criminal proceedings or similar matters, or
adverse facts and developments related thereto
3
Table of Contents
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- Credit quality and provision for credit losses, including our expectation that elevated levels of charge- offs, which we
began to experience in the latter half of 2008, will continue during the remainder of 2010
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- Our allowance for credit losses, including the conditions we consider in determining the unallocated allowance and our
portfolio credit quality, underwriting standards, risk grade and credit migration trends and loss reserves for FDIC-covered loans
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- Loan portfolio composition and risk grade trends, expected charge-offs, delinquency rates compared to the
industry average, our underwriting standards and our intent to sell or hold loans we originate
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- Our intent to sell or hold, and the likelihood that we would be required to sell, or expectations regarding recovery of
the amortized cost basis of, various investment securities
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- Expected rates of return, maturities, yields, loss exposure and projected results
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- Tax rates and taxes, the possible effect of changes in Mitsubishi UFJ Financial Group, Inc.'s taxable profits on
our California State tax obligations and of expected tax credits or benefits, and tax treatment of FDIC-assisted acquisitions
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- Critical accounting policies and estimates, the impact or anticipated impact of recent accounting pronouncements or change
in accounting principle and future recognition of impairments for the fair value of assets, including goodwill, financial instruments, intangible assets and other assets acquired in our recent
FDIC-assisted acquisitions
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- Decisions to downsize, sell or close units, dissolve subsidiaries, expand our branch network, pursue acquisitions,
purchase banking facilities and equipment, or otherwise restructure, reorganize or change our business mix, and their timing and their impact on our business
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- Our expectations regarding the impact of acquisitions on our business and results of operations and amounts we will
receive from the FDIC, or must pay to the FDIC, under loss share agreements
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- The impact of changes in our credit rating
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- The relationship between our business and that of BTMU and Mitsubishi UFJ Financial Group, Inc., the impact of
their credit ratings, operations or prospects on our credit ratings and actions that may or may not be taken by The Bank of Tokyo-Mitsubishi UFJ, Ltd. (BTMU) and Mitsubishi UFJ Financial
Group, Inc.
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- Descriptions of assumptions underlying or relating to any of the foregoing
There
are numerous risks and uncertainties that could cause actual outcomes and results to differ materially from those discussed in our forward-looking statements. Many of these factors
are beyond our ability to control or predict and could have a material adverse effect on our financial condition and results of operations or prospects. Such risks and uncertainties include, but are
not limited to, those listed in Item 1A "Risk Factors" of Part II and Item 2 "Management's Discussion and Analysis of Financial Condition and Results of Operations" of
Part I of this Form 10-Q.
Readers
of this document should not rely unduly on any forward-looking statements, which reflect only our management's belief as of the date of this report and should consider all
uncertainties and risks disclosed throughout this document and in our other reports to the SEC, including, but not limited to, those discussed below. Any factor described in this report could by
itself, or together with one or more other factors, adversely affect our business, future prospects, results of operations or financial condition.
4
Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
UnionBanCal Corporation and Subsidiaries
Consolidated Statements of Income
(Unaudited)
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For the Three Months
Ended September 30, |
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For the Nine Months
Ended September 30, |
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(Dollars in thousands) |
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2009 |
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2010 |
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2009 |
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2010 |
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Interest Income |
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Loans |
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$ |
576,166 |
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$ |
581,740 |
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$ |
1,762,540 |
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$ |
1,690,166 |
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Securities |
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109,279 |
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131,955 |
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|
310,561 |
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409,882 |
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Interest bearing deposits in banks |
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4,956 |
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1,513 |
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9,406 |
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9,264 |
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Federal funds sold and securities purchased under resale agreements |
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110 |
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146 |
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348 |
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415 |
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Trading account assets |
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250 |
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|
518 |
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610 |
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1,922 |
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|
|
|
|
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|
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Total interest income |
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690,761 |
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715,872 |
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2,083,465 |
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2,111,649 |
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Interest Expense |
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Deposits |
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101,374 |
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69,498 |
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|
306,598 |
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|
233,537 |
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Federal funds purchased and securities sold under repurchase agreements |
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|
41 |
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|
70 |
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|
113 |
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|
148 |
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Commercial paper |
|
|
355 |
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|
398 |
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|
2,901 |
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|
927 |
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Other borrowed funds |
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|
604 |
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|
438 |
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17,697 |
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|
2,812 |
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Long-term debt |
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|
27,351 |
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27,413 |
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84,771 |
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81,424 |
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|
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Total interest expense |
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129,725 |
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|
97,817 |
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|
412,080 |
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318,848 |
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Net Interest Income |
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561,036 |
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|
618,055 |
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|
1,671,385 |
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1,792,801 |
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Provision for loan losses |
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314,000 |
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8,000 |
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923,000 |
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222,000 |
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Net interest income after provision for loan losses |
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247,036 |
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610,055 |
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|
748,385 |
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1,570,801 |
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Noninterest Income |
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|
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|
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Service charges on deposit accounts |
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74,888 |
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62,472 |
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218,053 |
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192,455 |
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Trust and investment management fees |
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34,506 |
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33,209 |
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102,543 |
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|
98,873 |
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Trading account activities |
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|
10,513 |
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|
31,906 |
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|
49,456 |
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|
78,378 |
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Securities gains, net |
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|
12,694 |
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|
10,683 |
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|
12,522 |
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|
71,820 |
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Merchant banking fees |
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14,601 |
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19,011 |
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48,357 |
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54,910 |
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Card processing fees, net |
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8,559 |
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9,877 |
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24,219 |
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31,353 |
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Brokerage commissions and fees |
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8,611 |
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10,195 |
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25,424 |
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29,629 |
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Other |
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19,557 |
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40,590 |
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61,284 |
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|
114,724 |
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Total noninterest income |
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183,929 |
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217,943 |
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|
541,858 |
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672,142 |
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|
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Noninterest Expense |
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|
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|
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|
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|
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Salaries and employee benefits |
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|
233,981 |
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292,736 |
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|
710,601 |
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892,013 |
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Net occupancy and equipment |
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60,984 |
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65,162 |
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|
178,142 |
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187,723 |
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Professional and outside services |
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|
39,866 |
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53,878 |
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117,075 |
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|
143,396 |
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Intangible asset amortization |
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|
40,641 |
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30,774 |
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121,809 |
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|
93,180 |
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Regulatory agencies |
|
|
30,739 |
|
|
29,132 |
|
|
101,513 |
|
|
89,506 |
|
|
(Reversal of) provision for losses on off-balance sheet commitments |
|
|
6,000 |
|
|
(8,000 |
) |
|
47,000 |
|
|
(12,000 |
) |
|
Other |
|
|
93,604 |
|
|
98,937 |
|
|
283,116 |
|
|
277,573 |
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|
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|
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|
|
Total noninterest expense |
|
|
505,815 |
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|
562,619 |
|
|
1,559,256 |
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|
1,671,391 |
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|
|
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Income (loss) before income taxes and including noncontrolling interests |
|
|
(74,850 |
) |
|
265,379 |
|
|
(269,013 |
) |
|
571,552 |
|
|
Income tax expense (benefit) |
|
|
(57,821 |
) |
|
99,388 |
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(162,169 |
) |
|
181,053 |
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|
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Net Income (Loss) including Noncontrolling Interests |
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|
(17,029 |
) |
|
165,991 |
|
|
(106,844 |
) |
|
390,499 |
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Deduct: Net loss from noncontrolling interests |
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|
3,788 |
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10,383 |
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Net Income (Loss) attributable to UNBC |
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$ |
(17,029 |
) |
$ |
169,779 |
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$ |
(106,844 |
) |
$ |
400,882 |
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|
See accompanying notes to consolidated financial statements.
5
Table of Contents
UnionBanCal Corporation and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
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(Dollars in thousands) |
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September 30,
2009 |
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December 31,
2009 |
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September 30,
2010 |
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Assets |
|
|
|
|
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|
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|
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|
Cash and due from banks |
|
$ |
1,155,497 |
|
$ |
1,198,258 |
|
$ |
1,172,194 |
|
Interest bearing deposits in banks (includes $9,538 at September 30, 2010 related to consolidated variable interest entities (VIEs)) |
|
|
2,659,460 |
|
|
6,585,029 |
|
|
2,418,508 |
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Federal funds sold and securities purchased under resale agreements |
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|
437,328 |
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|
442,552 |
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|
595,328 |
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|
|
|
|
|
|
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|
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|
Total cash and cash equivalents |
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4,252,285 |
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8,225,839 |
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4,186,030 |
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Trading account assets: |
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Pledged as collateral |
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60,816 |
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15,168 |
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37,301 |
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Held in portfolio |
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879,734 |
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710,480 |
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1,133,640 |
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Securities available for sale: |
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Pledged as collateral |
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2,500 |
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Held in portfolio |
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18,210,574 |
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22,556,329 |
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|
18,327,048 |
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Securities held to maturity (Fair value: September 30, 2009, $1,269,934; December 31, 2009, $1,457,654; and September 30, 2010,
$1,494,941) |
|
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1,193,337 |
|
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1,227,718 |
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|
1,303,472 |
|
Loans: |
|
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|
|
|
|
|
|
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|
Loans, excluding Federal Deposit Insurance Corporation (FDIC) covered loans |
|
|
48,169,508 |
|
|
47,228,508 |
|
|
46,217,555 |
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|
FDIC covered loans |
|
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|
|
|
|
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|
1,693,554 |
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Total loans |
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48,169,508 |
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|
47,228,508 |
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|
47,911,109 |
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|
|
Allowance for loan losses |
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|
(1,260,307 |
) |
|
(1,357,000 |
) |
|
(1,276,845 |
) |
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|
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|
|
|
|
|
|
|
Loans, net |
|
|
46,909,201 |
|
|
45,871,508 |
|
|
46,634,264 |
|
Due from customers on acceptances |
|
|
12,842 |
|
|
8,514 |
|
|
7,407 |
|
Premises and equipment, net |
|
|
667,005 |
|
|
674,298 |
|
|
674,301 |
|
Intangible assets |
|
|
601,140 |
|
|
561,040 |
|
|
486,688 |
|
Goodwill |
|
|
2,369,326 |
|
|
2,369,326 |
|
|
2,431,583 |
|
FDIC indemnification asset |
|
|
|
|
|
|
|
|
833,939 |
|
Other assets (includes $291,243 at September 30, 2010 related to consolidated VIEs) |
|
|
2,996,947 |
|
|
3,375,408 |
|
|
3,786,404 |
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
78,153,207 |
|
$ |
85,598,128 |
|
$ |
79,842,077 |
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
Noninterest bearing |
|
$ |
14,472,375 |
|
$ |
14,558,989 |
|
$ |
15,425,621 |
|
Interest bearing |
|
|
46,218,993 |
|
|
53,958,664 |
|
|
46,114,925 |
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits |
|
|
60,691,368 |
|
|
68,517,653 |
|
|
61,540,546 |
|
Federal funds purchased and securities sold under repurchase agreements |
|
|
229,268 |
|
|
150,453 |
|
|
139,602 |
|
Commercial paper |
|
|
423,499 |
|
|
888,541 |
|
|
701,135 |
|
Other borrowed funds |
|
|
164,861 |
|
|
591,934 |
|
|
136,441 |
|
Trading account liabilities |
|
|
715,075 |
|
|
538,894 |
|
|
1,009,888 |
|
Acceptances outstanding |
|
|
12,842 |
|
|
8,514 |
|
|
7,407 |
|
Other liabilities (includes $2,001 at September 30, 2010 related to consolidated VIEs) |
|
|
1,306,097 |
|
|
1,096,095 |
|
|
1,441,929 |
|
Long-term debt (includes $7,853 at September 30, 2010 related to consolidated VIEs) |
|
|
5,135,193 |
|
|
4,225,711 |
|
|
4,457,830 |
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
68,678,203 |
|
|
76,017,795 |
|
|
69,434,778 |
|
|
|
|
|
|
|
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|
Commitments, contingencies and guaranteesSee Note 16 |
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Equity |
|
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|
|
|
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|
|
UNBC Stockholder's Equity: |
|
|
|
|
|
|
|
|
|
|
|
Preferred stock: |
|
|
|
|
|
|
|
|
|
|
|
|
Authorized 5,000,000 shares; no shares issued or outstanding |
|
|
|
|
|
|
|
|
|
|
|
Common stock, par value $1 per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Authorized 300,000,000 shares; 136,330,829 shares issued |
|
|
136,331 |
|
|
136,331 |
|
|
136,331 |
|
|
Additional paid-in capital |
|
|
5,195,023 |
|
|
5,195,023 |
|
|
5,195,023 |
|
|
Retained earnings |
|
|
4,857,958 |
|
|
4,899,841 |
|
|
5,295,866 |
|
|
Accumulated other comprehensive loss |
|
|
(714,308 |
) |
|
(650,862 |
) |
|
(492,539 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total UNBC stockholder's equity |
|
|
9,475,004 |
|
|
9,580,333 |
|
|
10,134,681 |
|
Noncontrolling interests |
|
|
|
|
|
|
|
|
272,618 |
|
|
|
|
|
|
|
|
|
|
|
|
Total equity |
|
|
9,475,004 |
|
|
9,580,333 |
|
|
10,407,299 |
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity |
|
$ |
78,153,207 |
|
$ |
85,598,128 |
|
$ |
79,842,077 |
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
6
Table of Contents
UnionBanCal Corporation and Subsidiaries
Consolidated Statements of Changes in Stockholder's Equity
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
Common
stock |
|
Additional
paid-in
capital |
|
Retained
earnings |
|
Accumulated
other
comprehensive
income (loss) |
|
Noncontrolling
interests(1) |
|
Total
stockholder's
equity |
|
BALANCE DECEMBER 31, 2008 |
|
$ |
136,331 |
|
$ |
3,195,023 |
|
$ |
4,964,802 |
|
$ |
(811,851 |
) |
$ |
|
|
$ |
7,484,305 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net lossFor the nine months ended September 30, 2009 |
|
|
|
|
|
|
|
|
(106,844 |
) |
|
|
|
|
|
|
|
(106,844 |
) |
|
Other comprehensive income (loss), net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in unrealized gains on cash flow hedges |
|
|
|
|
|
|
|
|
|
|
|
(34,492 |
) |
|
|
|
|
(34,492 |
) |
|
|
Net change in unrealized losses on securities |
|
|
|
|
|
|
|
|
|
|
|
120,758 |
|
|
|
|
|
120,758 |
|
|
|
Foreign currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
1,085 |
|
|
|
|
|
1,085 |
|
|
|
Net change in pension and other benefits |
|
|
|
|
|
|
|
|
|
|
|
10,192 |
|
|
|
|
|
10,192 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,301 |
) |
|
Capital contribution from Bank of Tokyo-Mitsubishi UFJ, Ltd. |
|
|
|
|
|
2,000,000 |
|
|
|
|
|
|
|
|
|
|
|
2,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change |
|
|
|
|
|
2,000,000 |
|
|
(106,844 |
) |
|
97,543 |
|
|
|
|
|
1,990,699 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE SEPTEMBER 30, 2009 |
|
$ |
136,331 |
|
$ |
5,195,023 |
|
$ |
4,857,958 |
|
$ |
(714,308 |
) |
$ |
|
|
$ |
9,475,004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE DECEMBER 31, 2009 |
|
$ |
136,331 |
|
$ |
5,195,023 |
|
$ |
4,899,841 |
|
$ |
(650,862 |
) |
$ |
|
|
$ |
9,580,333 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect from change in accounting for VIEs(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
271,923 |
|
|
271,923 |
|
Cumulative effect from change in accounting for |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
embedded credit derivatives, net of tax(2) |
|
|
|
|
|
|
|
|
(4,857 |
) |
|
6,472 |
|
|
|
|
|
1,615 |
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)For the nine months ended September 30, 2010 |
|
|
|
|
|
|
|
|
400,882 |
|
|
|
|
|
(10,383 |
) |
|
390,499 |
|
|
Other comprehensive income (loss), net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in unrealized gains on cash flow hedges |
|
|
|
|
|
|
|
|
|
|
|
(49,886 |
) |
|
|
|
|
(49,886 |
) |
|
|
Net change in unrealized losses on securities |
|
|
|
|
|
|
|
|
|
|
|
190,240 |
|
|
|
|
|
190,240 |
|
|
|
Foreign currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
457 |
|
|
|
|
|
457 |
|
|
|
Net change in pension and other benefits |
|
|
|
|
|
|
|
|
|
|
|
11,040 |
|
|
|
|
|
11,040 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
542,350 |
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,078 |
|
|
11,078 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change |
|
|
|
|
|
|
|
|
396,025 |
|
|
158,323 |
|
|
272,618 |
|
|
826,966 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE SEPTEMBER 30, 2010 |
|
$ |
136,331 |
|
$ |
5,195,023 |
|
$ |
5,295,866 |
|
$ |
(492,539 |
) |
$ |
272,618 |
|
$ |
10,407,299 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- (1)
- For
additional information on the consolidated VIEs, refer to Note 7 to these consolidated financial statements.
- (2)
- For
additional information on the change in accounting for embedded derivatives, refer to Note 2 to these consolidated financial
statements.
See accompanying notes to consolidated financial statements.
7
Table of Contents
UnionBanCal Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months
Ended September 30, |
|
(Dollars in thousands) |
|
2009 |
|
2010 |
|
Cash Flows from Operating Activities: |
|
|
|
|
|
|
|
|
Net income (loss) including noncontrolling interests |
|
$ |
(106,844 |
) |
$ |
390,499 |
|
|
Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
|
Provision for loan losses |
|
|
923,000 |
|
|
222,000 |
|
|
|
(Reversal of) provision for losses on off-balance sheet commitments |
|
|
47,000 |
|
|
(12,000 |
) |
|
|
Depreciation, amortization and accretion, net |
|
|
133,428 |
|
|
184,726 |
|
|
|
Deferred income taxes |
|
|
(123,938 |
) |
|
30,823 |
|
|
|
Net gains on sales of securities |
|
|
(12,522 |
) |
|
(71,820 |
) |
|
|
Net decrease (increase) in trading account assets |
|
|
276,229 |
|
|
(445,293 |
) |
|
|
Net increase in prepaid expenses |
|
|
(27,199 |
) |
|
(10,309 |
) |
|
|
Net increase in fees and other receivable |
|
|
(79,607 |
) |
|
(160,811 |
) |
|
|
Net decrease (increase) in other assets |
|
|
(276,914 |
) |
|
237,534 |
|
|
|
Net increase (decrease) in accrued expenses |
|
|
(251,218 |
) |
|
78,378 |
|
|
|
Net increase (decrease) in trading account liabilities |
|
|
(319,588 |
) |
|
456,949 |
|
|
|
Net increase (decrease) in other liabilities |
|
|
(200,736 |
) |
|
104,927 |
|
|
|
Loans originated for resale |
|
|
(65,337 |
) |
|
|
|
|
|
Net proceeds from sale of loans originated for resale |
|
|
37,915 |
|
|
|
|
|
|
Other, net |
|
|
28,211 |
|
|
(778 |
) |
|
|
Discontinued operations, net |
|
|
(6,027 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Total adjustments |
|
|
82,697 |
|
|
614,326 |
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
|
|
(24,147 |
) |
|
1,004,825 |
|
|
|
|
|
|
|
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
Proceeds from sales of securities available for sale |
|
|
3,164,329 |
|
|
3,137,465 |
|
|
Proceeds from matured and called securities available for sale |
|
|
1,738,034 |
|
|
8,217,896 |
|
|
Purchases of securities available for sale and held to maturity |
|
|
(15,882,619 |
) |
|
(6,721,367 |
) |
|
Proceeds from matured securities held to maturity |
|
|
3,768 |
|
|
4,835 |
|
|
Purchases of premises and equipment, net |
|
|
(83,825 |
) |
|
(71,591 |
) |
|
Net decrease in loans |
|
|
1,034,102 |
|
|
900,770 |
|
|
Net cash acquired from acquisitions |
|
|
|
|
|
272,175 |
|
|
Other, net |
|
|
(1,576 |
) |
|
(6,532 |
) |
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities |
|
|
(10,027,787 |
) |
|
5,733,651 |
|
|
|
|
|
|
|
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
Net increase (decrease) in deposits |
|
|
14,641,599 |
|
|
(9,865,055 |
) |
|
Net increase (decrease) in federal funds purchased and securities sold under repurchase agreements |
|
|
56,510 |
|
|
(12,791 |
) |
|
Net decrease in commercial paper and other borrowed funds |
|
|
(7,772,564 |
) |
|
(644,179 |
) |
|
Capital contribution from The Bank of Tokyo-Mitsubishi UFJ, Ltd. (BTMU) |
|
|
2,000,000 |
|
|
|
|
|
Proceeds from issuance of long-term debt |
|
|
1,625,000 |
|
|
1,250,000 |
|
|
Repayment of long-term debt |
|
|
(750,000 |
) |
|
(1,518,535 |
) |
|
Other, net |
|
|
1,085 |
|
|
457 |
|
|
Change in noncontrolling interests |
|
|
|
|
|
11,078 |
|
|
Discontinued operations, net |
|
|
(1,929 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
9,799,701 |
|
|
(10,779,025 |
) |
|
|
|
|
|
|
Net decrease in cash and cash equivalents |
|
|
(252,233 |
) |
|
(4,040,549 |
) |
Cash and cash equivalents at beginning of period |
|
|
4,504,345 |
|
|
8,225,839 |
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
173 |
|
|
740 |
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
4,252,285 |
|
$ |
4,186,030 |
|
|
|
|
|
|
|
Cash Paid During the Period For: |
|
|
|
|
|
|
|
|
Interest |
|
$ |
416,511 |
|
$ |
299,576 |
|
|
Income taxes, net |
|
|
208,972 |
|
|
99,168 |
|
Supplemental Schedule of Noncash Investing and Financing Activities: |
|
|
|
|
|
|
|
|
Acquisitions: |
|
|
|
|
|
|
|
|
|
Fair value of assets acquired |
|
$ |
|
|
$ |
3,227,260 |
|
|
|
Fair value of liabilities assumed |
|
|
|
|
|
3,499,435 |
|
|
Securities available for sale transferred to securities held to maturity |
|
|
1,144,036 |
|
|
|
|
|
Loans transferred to foreclosed assets (OREO) |
|
|
55,367 |
|
|
77,803 |
|
See accompanying notes to consolidated financial statements.
8
Table of Contents
UnionBanCal Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
Note 1Basis of Presentation and Nature of Operations
The unaudited consolidated financial statements of UnionBanCal Corporation and subsidiaries have been prepared in accordance with accounting principles generally accepted in the United
States of America (US GAAP) for interim financial reporting and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X of the
Rules and Regulations of the Securities and Exchange Commission (SEC). However, they do not include all of the disclosures necessary for annual financial statements in conformity with US GAAP.
In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation have been included. The results of operations for the nine months
ended September 30, 2010 are not necessarily indicative of the operating results anticipated for the full year. These unaudited consolidated financial statements should be read in conjunction
with the audited consolidated financial statements included in UnionBanCal Corporation's Annual Report on Form 10-K for the year ended December 31, 2009 (2009
Form 10-K). The preparation of financial statements in conformity with US GAAP also requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expense during the reporting period. Although such estimates contemplate current conditions and management's expectations of how they may change in
the future, it is reasonably possible that actual results could differ significantly from those estimates. This could materially affect the Company's results of operations and financial condition in
the near term. Significant estimates made by management in the preparation of the Company's financial statements include, but are not limited to, the evaluation of
other-than-temporary impairment on investment securities (Note 4), allowance for credit losses (Note 5), purchased credit-impaired loans (Note 5), annual
goodwill impairment analysis (Note 6), pension accounting (Note 9), valuing financial instruments (Note 13), and income taxes.
UnionBanCal
Corporation is a financial holding company and commercial bank holding company whose major subsidiary, Union Bank, N.A. (the Bank), is a commercial bank. UnionBanCal
Corporation and its subsidiaries (the Company) provide a wide range of financial services to consumers, small businesses, middle-market companies and major corporations, primarily in California,
Oregon, Washington, and Texas as well as nationally and internationally.
On
April 16 and April 30, 2010, the Bank entered into Purchase and Assumption Agreements (Agreements) with the Federal Deposit Insurance Corporation (FDIC) to acquire
certain assets and assume certain liabilities of Tamalpais Bank and Frontier Bank, respectively. Pursuant to the Agreements, the Bank acquired $571.9 million and $2.9 billion of assets
at fair value related to Tamalpais Bank and Frontier Bank, respectively. See Note 3 to these consolidated financial statements in this Form 10-Q for additional information
about the transactions.
On
November 4, 2008, the Company became a privately held company (privatization transaction). All of the Company's issued and outstanding shares of common stock are owned by The
Bank of Tokyo-Mitsubishi UFJ, Ltd. (BTMU). Prior to the privatization transaction, BTMU owned approximately 64 percent of the Company's outstanding shares of common stock.
Note 2Recently Issued Accounting Pronouncements
In December 2009, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2009-16, Accounting for Transfers of Financial Assets,
which formally codifies Statement of Financial Accounting Standards (SFAS) No. 166, Accounting for Transfers of Financial Assetsan
9
Table of Contents
UnionBanCal Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 2Recently Issued Accounting Pronouncements (Continued)
amendment of FASB Statement 140, which was issued in June 2009. The guidance eliminates the concept of qualifying special purpose entities (QSPEs) and modifies financial asset
derecognition criteria. The elimination of the exception for QSPEs will likely result in the consolidation of vehicles that were formerly not subject to consolidation as a QSPE. The derecognition
modifications require that companies consider all arrangements made contemporaneously with, or in contemplation of, a transfer by the Company or any of its consolidated affiliates when determining
whether derecognition is appropriate for a transferred financial asset. For a transfer of a portion of a financial asset to be derecognized, it must meet the definition of a participating interest.
The guidance also requires that all beneficial interests retained in transferred financial assets be initially measured at fair value. Additional disclosures are required for transferors with
continuing involvement in a transferred financial asset. The guidance was effective January 1, 2010. At adoption, there was no impact on the Company's financial position or results of
operations.
In December 2009, the FASB issued ASU 2009-17, Improvements to Financial Reporting by Enterprises
Involved with Variable Interest Entities, which formally codifies SFAS No. 167, Amendments to FASB Interpretation
No. 46(R), which was issued in June 2009. The guidance amends the method of analyzing which party should consolidate a variable interest entity (VIE) by providing
revised criteria for determining the primary beneficiary. A company would be required to determine the primary beneficiary of a VIE on an ongoing basis based on a qualitative assessment of which
party, if any, has the power to direct activities that have the most significant economic impact and the right to receive benefits or the obligation to absorb losses, where such rights or obligations
could potentially be significant to the VIE. New disclosures required for continuing involvement with VIEs and judgments used in the consolidation analysis including the method, significant judgments
and assumptions used for determining the primary beneficiary. The guidance was effective January 1, 2010. This guidance did not have a material impact on the Company's results of operations.
Disclosures required under this guidance are included in Note 7 to these consolidated financial statements.
In January 2010, the FASB issued ASU 2010-06, Improving Disclosures about Fair Value
Measurements. This guidance amends FASB Accounting Standards Codification (ASC) 820-10, Fair Value Measurements and
Disclosures, to require the disclosure of transfers in and out of Level 1 and Level 2 and a gross presentation within the Level 3 rollforward. This
guidance also clarifies that the information should be presented by class of financial asset or liability. A discussion of valuation techniques and inputs is required for Level 2 and
Level 3, for both recurring and nonrecurring measurements. The guidance applies only to disclosures and was effective March 31, 2010, except for the gross presentation within the
Level 3 rollforward, which will be effective March 31, 2011. Disclosures required under this guidance are included in Note 13 to these consolidated financial statements.
In March 2010, the FASB issued ASU 2010-11, Scope Exception Related to Embedded
Derivatives. This guidance limits the scope exception for embedded credit derivatives in securitized financial assets and clarifies when embedded credit derivatives should be
evaluated for bifurcation. Upon the July 1, 2010
10
Table of Contents
UnionBanCal Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 2Recently Issued Accounting Pronouncements (Continued)
adoption
of this guidance, the Company recorded a $4.9 million decrease to retained earnings and a related increase to accumulated other comprehensive income of $6.5 million as a
cumulative effect adjustment.
Effect of a Loan Modification When the Loan is Part of a Pool that is Accounted for as a Single Asset
In April 2010, the FASB issued ASU 2010-18, Effect of a Loan Modification When the Loan is Part of
a Pool that is Accounted for as a Single Asset: a Consensus of the FASB Emerging Issues Task Force. This guidance states that troubled debt restructuring accounting cannot be
applied to individual loans within purchased credit-impaired loan pools. This
guidance was effective for modifications of loans accounted for within pools after July 1, 2010. At adoption, there was no impact on the Company's financial position or results of operations.
In July 2010, the FASB issued ASU 2010-20, Disclosures about the Credit Quality of Financing
Receivables and the Allowance for Credit Losses. This guidance requires expanded disclosures related to the credit quality of financing receivables and the related allowance
for credit losses. The new disclosures require an aging of past due receivables and credit quality indicators at the end of each reporting period. This guidance also requires that new and existing
disclosures be disaggregated by portfolio segment or class of financing receivable including existing disclosures related to the allowance for credit losses, nonaccrual status and impairment. The
guidance, related to disclosures as of the end of the reporting period, is effective as of December 31, 2010. The guidance, related to disclosures about activity occurring during the reporting
period, is effective beginning in January 1, 2011.
Note 3Business Combinations
Frontier Bank:
On April 30, 2010, the Bank entered into a purchase and assumption agreement with the FDIC to acquire certain assets and assume
certain liabilities of Frontier Bank
(Frontier), a Washington state-chartered commercial bank headquartered in Everett, Washington. This acquisition increased the Bank's market share in the Pacific Northwest. Frontier operated 50
locations in Washington and Oregon.
Excluding
the effects of purchase accounting adjustments, the Bank acquired total assets of $3.2 billion, including $2.7 billion in loans, $173.9 million of other
real estate owned (OREO) and $78.6 million of securities available for sale. Additionally, the Bank assumed $2.5 billion of deposits and $372.0 million of borrowings and other
liabilities. The assets were acquired at an 11 percent discount to Frontier's book value and the deposits were assumed without a premium. The Bank recorded a payable to the FDIC totaling
$9.4 million, which is included in other liabilities on the consolidated balance sheet, for consideration of the net assets acquired (i.e., the net difference between the assets acquired
and the liabilities assumed). This amount is payable within one year of the acquisition date and is outstanding at September 30, 2010.
In
connection with the acquisition, the Bank also entered into two loss share agreements with the FDICone for single-family residential mortgage loans and one for commercial
loans, the related unfunded commitments and other covered assets. All acquired loans and OREO, totaling $2.9 billion, are covered by loss share agreements (covered assets) between the FDIC and
the Bank. Pursuant to the terms of these loss share
11
Table of Contents
UnionBanCal Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 3Business Combinations (Continued)
agreements,
the FDIC's obligation to reimburse the Bank for losses on the covered assets begins with the first dollar of loss incurred. The terms of the loss share agreements with respect to all
covered assets provide for the FDIC to reimburse the Bank for 80 percent of covered losses, plus three months of foregone interest. Gains and recoveries on covered assets will offset losses, or
be paid to the FDIC, at the loss share percentage at the time of recovery. The covered OREO is included in other assets on the consolidated balance sheet.
The
following table presents the covered assets and the estimated fair value at the acquisition date:
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
Amount
Covered |
|
Fair
Value |
|
Loans held for investment |
|
$ |
2,710,370 |
|
$ |
1,544,269 |
|
OREO |
|
|
173,905 |
|
|
154,566 |
|
|
|
|
|
|
|
Total |
|
$ |
2,884,275 |
|
$ |
1,698,835 |
|
|
|
|
|
|
|
The
amounts covered by the loss share agreements are the pre-acquisition book values of the underlying assets, the contractual balance of unfunded commitments that were
acquired, and certain future expenses associated with managing defaulted loans and OREO. The loss share agreement applicable to single-family residential mortgage loans provides for FDIC loss sharing
and the Bank reimbursement of recoveries to the FDIC, in each case as described above, for ten years. The loss share agreement applicable to commercial loans, the related unfunded commitments, and
other covered assets provides for FDIC loss sharing for five years and the Bank reimbursement of recoveries to the FDIC for eight years, in each case as described above. The agreements with the FDIC
also include a provision that may result in a lump-sum payment to the FDIC approximately ten years from the acquisition date by the Bank if net losses on covered assets are less than the
original loss estimates established by the FDIC at acquisition, subject to certain adjustments.
The
purchase and assumption and loss share agreements have specific and detailed compliance, servicing, notification and reporting requirements. Any failure to comply with the
requirements of the loss share agreements, or to properly service the loans and OREO covered by any loss share arrangement, may cause individual loans or loan pools to lose their eligibility for loss
share payments from the FDIC. The fair value of the loss share agreements was recorded as an indemnification asset at an estimated fair value of $868 million as of the acquisition date and is
included on the consolidated balance sheet. The difference between the present value and the undiscounted cash flows that we expect to collect from the FDIC is accreted into noninterest income over
the life of the FDIC indemnification asset. The FDIC indemnification asset is adjusted for any changes in expected cash flows based on loan performance. Any increases in cash flows of the loans due to
decreases in expected credit losses over those originally expected will lower the accretion rate recorded in noninterest income. Any decreases in cash flows of the loans over those originally expected
will increase the FDIC indemnification asset.
The
contribution of the Frontier transaction to the Company's results of operations for the period May 1 to September 30, 2010 is as follows: revenue (which consists of net
interest income and noninterest income) of $59.9 million, noninterest expense of $33.3 million and income before income taxes of $26.6 million. The contribution during the three
months ended September 30, 2010 is as follows: revenue of $34.3 million, noninterest expense of $22.2 million and income before income taxes of $12.1 million. These amounts
include the accretion related to the covered assets and FDIC indemnification asset recorded during the period ended September 30, 2010.
12
Table of Contents
UnionBanCal Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 3Business Combinations (Continued)
The assets acquired and liabilities assumed were recorded at their estimated, provisional fair values on the acquisition date. During
the third quarter of 2010, management reviewed and, where necessary, adjusted the acquisition date fair values. Management may further adjust the acquisition date fair values for a period of up to one
year from the date of acquisition (defined as the measurement period). The assets and liabilities that continue to be provisional include, but are not limited to, loans, core deposit intangibles,
OREO, the FDIC indemnification asset, the FDIC indemnification liability, and the residual effects that those adjustments would have on goodwill. In addition, the tax treatment of
FDIC-assisted acquisitions is complex and subject to interpretations that may result in future adjustments of deferred taxes as of the acquisition date.
The
following table presents the net assets acquired from Frontier and the estimated purchase accounting adjustments, which include the effects of measurement period adjustments that
were applied to the acquisition date fair values (primarily FDIC covered loans) during the third quarter of 2010. These adjustments resulted in additional goodwill of $11.8 million.
|
|
|
|
|
|
|
(Dollars in thousands) |
|
Acquisition
Date |
|
Net assets acquired |
|
$ |
362,717 |
|
Purchase accounting adjustments: |
|
|
|
|
|
FDIC covered loans |
|
|
(1,166,101 |
) |
|
FDIC indemnification asset |
|
|
868,005 |
|
|
Other assets/liabilities, net |
|
|
(77,648 |
) |
|
|
|
|
|
|
Total purchase accounting adjustments |
|
|
(375,744 |
) |
|
|
|
|
Fair value of net assets acquired |
|
|
(13,027 |
) |
FDIC payable |
|
|
(9,459 |
) |
|
|
|
|
Goodwill |
|
$ |
22,486 |
|
|
|
|
|
The
goodwill arising from the acquisition reflects the increased market share and related synergies that are expected to be gained. The goodwill was assigned to the Company's Retail
Banking and Corporate Banking reportable business segments. See Note 6 to these consolidated financial statements for additional information on the goodwill allocation. All of the goodwill and
core deposit intangible assets recognized are deductible for income tax purposes.
The
Bank did not immediately acquire the banking facilities, including furniture, fixtures, and equipment, as part of the Agreement. However, the Bank had the option to purchase these
assets and assume leases from the FDIC for a term expiring 90 days after the acquisition date, unless extended. The FDIC extended the option to purchase these assets to September 30,
2010. During the third quarter of 2010, the Bank exercised its option and assumed certain premises leases and committed to purchase certain owned properties, furniture and equipment. These commitments
are expected to be finalized during the fourth quarter of 2010. Assets not yet assumed are currently leased from the FDIC on a month-to-month basis.
13
Table of Contents
UnionBanCal Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 3Business Combinations (Continued)
The
following table reflects the estimated fair values of the assets acquired and liabilities assumed for the Frontier transaction on the acquisition date:
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
Assets: |
|
|
|
|
|
Cash and due from banks |
|
$ |
35,953 |
|
|
Interest bearing deposits in banks |
|
|
5,000 |
|
|
Federal funds sold |
|
|
178,395 |
|
|
|
|
|
|
|
|
Total cash and cash equivalents |
|
|
219,348 |
|
|
Securities available for sale |
|
|
78,587 |
|
|
FDIC covered loans |
|
|
1,544,269 |
|
|
Goodwill |
|
|
22,486 |
|
|
Core deposit intangible |
|
|
12,650 |
|
|
FDIC indemnification asset |
|
|
868,005 |
|
|
FDIC covered OREO |
|
|
154,566 |
|
|
Other assets |
|
|
27,593 |
|
|
|
|
|
|
|
Total assets acquired |
|
$ |
2,927,504 |
|
|
|
|
|
Liabilities: |
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
Noninterest bearing |
|
$ |
303,433 |
|
|
|
Interest bearing |
|
|
2,184,304 |
|
|
|
|
|
|
|
|
Total deposits |
|
|
2,487,737 |
|
|
Federal funds purchased and securities sold under repurchase agreement |
|
|
1,940 |
|
|
Advances from FHLB |
|
|
383,359 |
|
|
Other borrowed funds |
|
|
1,280 |
|
|
Other liabilities |
|
|
53,188 |
|
|
|
|
|
|
|
Total liabilities assumed |
|
$ |
2,927,504 |
|
|
|
|
|
The
following is a description of the methods used to determine the acquisition date fair values of significant assets and liabilities presented above.
Loans
Fair values for loans were based on a discounted cash flow methodology that considered factors including the type of loan and related
collateral, risk classification, fixed or variable interest rate, term of loan and whether or not the loan was performing, and current discount rates. Loans were grouped together according to similar
characteristics and were treated in the aggregate when applying various valuation techniques. The discount rates used for loans are based on current market rates for new originations of comparable
loans, where available, and include adjustments for liquidity concerns. To the extent comparable market rates are not readily available, a discount rate was derived based on the assumptions of market
participants' cost of funds, servicing costs, and return requirements for comparable risk assets.
14
Table of Contents
UnionBanCal Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 3Business Combinations (Continued)
Other real estate owned
OREO is measured at the estimated value that management expects to receive when the property is sold, net of related costs of disposal.
FDIC indemnification asset
The FDIC indemnification asset is measured separately from the related covered assets as it is not contractually embedded in the assets
and is not transferable with the assets should the Bank choose to sell them. The fair value was estimated using projected cash flows related to the loss share agreements based on the expected
reimbursements for losses and the applicable loss share percentages. The expected reimbursements do not include reimbursable amounts related to future
covered expenditures. These cash flows were discounted to reflect the uncertainty of the timing and receipt of the loss share reimbursements from the FDIC.
Deposits
The fair values used for the demand, transaction accounts and savings deposits are, by definition, equal to the amount payable on
demand at the reporting date. The fair values for time deposits are estimated using a discounted cash flow calculation that applies interest rates currently being offered to the interest rates
embedded on such time deposits.
Advances from the Federal Home Loan Bank
The advances from FHLB were recorded at their estimated fair value, which was based on quoted prices supplied by the FHLB. Subsequent
to the acquisition dates, all of these advances were repaid in full.
Tamalpais Bank:
On April 16, 2010, the Bank entered into a purchase and assumption agreement with the FDIC to acquire certain assets and assume
certain liabilities of Tamalpais Bank of San Rafael, California (Tamalpais). Tamalpais operated 7 branches in California. Excluding the effects of purchase accounting adjustments, the Bank acquired
total assets of $616.8 million, including $497.8 million in loans, and assumed $421.0 million of deposits. Certain of the assumed deposits were acquired at a premium of
2 percent and the assets were acquired at a discount to Tamalpais' book value of 10 percent.
In
connection with the acquisition, the Bank also entered into two loss share agreements, which have terms similar to those contained in the Frontier transaction with the FDIC. At
Tamalpais' acquisition date, covered assets totaled $506.2 million with a fair value of $378.1 million. The assets acquired and liabilities assumed were recorded at their estimated,
provisional fair values on acquisition date. During the third quarter of 2010, management reviewed and, where necessary, adjusted the acquisition date fair values. Management may further adjust the
acquisition date fair values for a period of up to one year from the date of acquisition (defined as the measurement period).
15
Table of Contents
UnionBanCal Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 4Securities
The amortized cost, gross unrealized gains, gross unrealized losses, and fair values of securities are presented below.
Securities Available for Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009 |
|
(Dollars in thousands) |
|
Amortized
Cost(1) |
|
Gross
Unrealized
Gains |
|
Gross
Unrealized
Losses |
|
Fair
Value |
|
U.S. Treasury |
|
$ |
299,247 |
|
$ |
12 |
|
$ |
|
|
$ |
299,259 |
|
Other U.S. government |
|
|
6,063,641 |
|
|
18,218 |
|
|
3,883 |
|
$ |
6,077,976 |
|
Residential mortgage-backed securitiesagency |
|
|
10,918,439 |
|
|
223,749 |
|
|
3,966 |
|
|
11,138,222 |
|
Residential mortgage-backed securitiesnon-agency |
|
|
492,025 |
|
|
93 |
|
|
60,192 |
|
|
431,926 |
|
State and municipal |
|
|
47,640 |
|
|
2,409 |
|
|
9 |
|
|
50,040 |
|
Asset-backed and debt securities |
|
|
113,017 |
|
|
1,290 |
|
|
8,117 |
|
|
106,190 |
|
Equity securities |
|
|
106,882 |
|
|
415 |
|
|
336 |
|
|
106,961 |
|
|
|
|
|
|
|
|
|
|
|
|
Total securities available for sale |
|
$ |
18,040,891 |
|
$ |
246,186 |
|
$ |
76,503 |
|
$ |
18,210,574 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
(Dollars in thousands) |
|
Amortized
Cost(1) |
|
Gross
Unrealized
Gains |
|
Gross
Unrealized
Losses |
|
Fair
Value |
|
U.S. Treasury |
|
$ |
299,488 |
|
$ |
189 |
|
$ |
|
|
$ |
299,677 |
|
Other U.S. government |
|
|
12,311,626 |
|
|
13,165 |
|
|
47,373 |
|
|
12,277,418 |
|
Residential mortgage-backed securitiesagency |
|
|
9,215,771 |
|
|
171,513 |
|
|
25,161 |
|
|
9,362,123 |
|
Residential mortgage-backed securitiesnon-agency |
|
|
454,646 |
|
|
36 |
|
|
63,243 |
|
|
391,439 |
|
State and municipal |
|
|
43,287 |
|
|
1,830 |
|
|
21 |
|
|
45,096 |
|
Asset-backed and debt securities |
|
|
112,609 |
|
|
1,598 |
|
|
6,072 |
|
|
108,135 |
|
Equity securities |
|
|
74,791 |
|
|
441 |
|
|
291 |
|
|
74,941 |
|
|
|
|
|
|
|
|
|
|
|
|
Total securities available for sale |
|
$ |
22,512,218 |
|
$ |
188,772 |
|
$ |
142,161 |
|
$ |
22,558,829 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
(Dollars in thousands) |
|
Amortized
Cost(1) |
|
Gross
Unrealized
Gains |
|
Gross
Unrealized
Losses |
|
Fair
Value |
|
U.S. Treasury |
|
$ |
150,639 |
|
$ |
35 |
|
$ |
|
|
$ |
150,674 |
|
Other U.S. government |
|
|
8,014,636 |
|
|
140,027 |
|
|
21 |
|
|
8,154,642 |
|
Residential mortgage-backed securitiesagency |
|
|
9,040,356 |
|
|
202,013 |
|
|
1,514 |
|
|
9,240,855 |
|
Residential mortgage-backed securitiesnon-agency |
|
|
564,299 |
|
|
5,811 |
|
|
38,512 |
|
|
531,598 |
|
State and municipal |
|
|
44,930 |
|
|
2,196 |
|
|
8 |
|
|
47,118 |
|
Asset-backed and debt securities |
|
|
117,517 |
|
|
8,270 |
|
|
1,760 |
|
|
124,027 |
|
Equity securities |
|
|
77,592 |
|
|
705 |
|
|
163 |
|
|
78,134 |
|
|
|
|
|
|
|
|
|
|
|
|
Total securities available for sale |
|
$ |
18,009,969 |
|
$ |
359,057 |
|
$ |
41,978 |
|
$ |
18,327,048 |
|
|
|
|
|
|
|
|
|
|
|
- (1)
- Amortized
cost reflects fair value adjustments as a result of the Company's privatization transaction.
16
Table of Contents
UnionBanCal Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 4Securities (Continued)
Securities Held to Maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009 |
|
|
|
|
|
Recognized in Other
Comprehensive
Income (OCI)(2) |
|
|
|
Not Recognized in
OCI(2) |
|
|
|
(Dollars in thousands) |
|
Amortized
Cost(1) |
|
Gross
Unrealized
Gains |
|
Gross
Unrealized
Losses |
|
Carrying
Value |
|
Gross
Unrealized
Gains |
|
Gross
Unrealized
Losses |
|
Fair
Value |
|
Collateralized loan obligations (CLOs) |
|
$ |
1,741,408 |
|
$ |
|
|
$ |
548,166 |
|
$ |
1,193,242 |
|
$ |
101,055 |
|
$ |
24,458 |
|
$ |
1,269,839 |
|
Foreign securities |
|
|
95 |
|
|
|
|
|
|
|
|
95 |
|
|
|
|
|
|
|
|
95 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities held to maturity |
|
$ |
1,741,503 |
|
$ |
|
|
$ |
548,166 |
|
$ |
1,193,337 |
|
$ |
101,055 |
|
$ |
24,458 |
|
$ |
1,269,934 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
|
|
|
Recognized in Other
Comprehensive
Income (OCI)(2) |
|
|
|
Not Recognized in
OCI(2) |
|
|
|
(Dollars in thousands) |
|
Amortized
Cost(1) |
|
Gross
Unrealized
Gains |
|
Gross
Unrealized
Losses |
|
Carrying
Value |
|
Gross
Unrealized
Gains |
|
Gross
Unrealized
Losses |
|
Fair
Value |
|
CLOs |
|
$ |
1,758,716 |
|
$ |
|
|
$ |
531,094 |
|
$ |
1,227,622 |
|
$ |
231,135 |
|
$ |
1,199 |
|
$ |
1,457,558 |
|
Foreign securities |
|
|
96 |
|
|
|
|
|
|
|
|
96 |
|
|
|
|
|
|
|
|
96 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities held to maturity |
|
$ |
1,758,812 |
|
$ |
|
|
$ |
531,094 |
|
$ |
1,227,718 |
|
$ |
231,135 |
|
$ |
1,199 |
|
$ |
1,457,654 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
|
|
|
Recognized in Other
Comprehensive
Income (OCI)(2) |
|
|
|
Not Recognized in
OCI(2) |
|
|
|
(Dollars in thousands) |
|
Amortized
Cost(1) |
|
Gross
Unrealized
Gains |
|
Gross
Unrealized
Losses |
|
Carrying
Value |
|
Gross
Unrealized
Gains |
|
Gross
Unrealized
Losses |
|
Fair
Value |
|
CLOs |
|
$ |
1,774,632 |
|
$ |
|
|
$ |
471,258 |
|
$ |
1,303,374 |
|
$ |
195,915 |
|
$ |
4,446 |
|
$ |
1,494,843 |
|
Foreign securities |
|
|
98 |
|
|
|
|
|
|
|
|
98 |
|
|
|
|
|
|
|
|
98 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities held to maturity |
|
$ |
1,774,730 |
|
$ |
|
|
$ |
471,258 |
|
$ |
1,303,472 |
|
$ |
195,915 |
|
$ |
4,446 |
|
$ |
1,494,941 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- (1)
- For
securities transferred to held to maturity from available for sale, amortized cost is defined as the original purchase cost, plus or
minus any accretion or amortization of a purchase discount or premium, less payments and any impairment previously recognized in earnings. The amortized cost reflects fair value adjustments as a
result of the Company's privatization transaction.
- (2)
- The
amount recognized in OCI reflects the unrealized loss at date of transfer to the held to maturity classification, net of amortization,
while the amount not recognized in OCI reflects the incremental change in value after such transfer.
17
Table of Contents
UnionBanCal Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 4Securities (Continued)
The amortized cost, fair value, and carrying value of securities, by contractual maturity, are shown below. Expected maturities may differ from
contractual maturities because borrowers may have the right to call or prepay obligations, with or without call or prepayment penalties.
Maturity Schedule of Securities
Securities Available for Sale(1)
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
(Dollars in thousands) |
|
Amortized
Cost(3) |
|
Fair
Value |
|
Due in one year or less |
|
$ |
744,568 |
|
$ |
748,021 |
|
Due after one year through five years |
|
|
7,683,623 |
|
|
7,829,870 |
|
Due after five years through ten years |
|
|
981,325 |
|
|
1,017,315 |
|
Due after ten years |
|
|
8,522,861 |
|
|
8,653,708 |
|
Equity securities(2) |
|
|
77,592 |
|
|
78,134 |
|
|
|
|
|
|
|
|
Total securities available for sale |
|
$ |
18,009,969 |
|
$ |
18,327,048 |
|
|
|
|
|
|
|
Securities Held to Maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
(Dollars in thousands) |
|
Amortized
Cost(3)(4) |
|
Carrying
Value |
|
Fair
Value |
|
Due in one year or less |
|
$ |
1,745 |
|
$ |
1,745 |
|
$ |
2,499 |
|
Due after one year through five years |
|
|
92,013 |
|
|
70,787 |
|
|
84,767 |
|
Due after five years through ten years |
|
|
1,411,449 |
|
|
1,055,278 |
|
|
1,203,909 |
|
Due after ten years |
|
|
269,523 |
|
|
175,662 |
|
|
203,766 |
|
|
|
|
|
|
|
|
|
|
Total securities held to maturity |
|
$ |
1,774,730 |
|
$ |
1,303,472 |
|
$ |
1,494,941 |
|
|
|
|
|
|
|
|
|
- (1)
- The
remaining contractual maturities of residential mortgage-backed securities are classified without regard to prepayments.The contractual
maturity of these securities is not a reliable indicator of their expected life since borrowers have the right to repay their obligations at any time.
- (2)
- Equity
securities do not have a stated maturity.
- (3)
- Amortized
cost reflects fair value adjustments as a result of the Company's privatization transaction.
- (4)
- For
securities transferred to held to maturity from available for sale, amortized cost is defined as the original purchase cost, plus or
minus any accretion or amortization of a purchase discount or premium, less payments and any impairment previously recognized in earnings.
The proceeds from sales of securities available for sale, gross realized gains and gross realized losses are shown below. The specific
identification method is used to calculate realized gains and losses on sales.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
September 30, |
|
For the Nine Months Ended
September 30, |
|
(Dollars in thousands) |
|
2009 |
|
2010 |
|
2009 |
|
2010 |
|
Proceeds from sales |
|
$ |
3,140,095 |
|
$ |
1,047,322 |
|
$ |
3,164,329 |
|
$ |
3,137,465 |
|
Gross realized gains |
|
|
12,699 |
|
|
13,994 |
|
|
13,304 |
|
|
78,534 |
|
Gross realized losses |
|
|
|
|
|
|
|
|
|
|
|
435 |
|
18
Table of Contents
UnionBanCal Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 4Securities (Continued)
Analysis of Unrealized Losses on Securities
At September 30, 2009, December 31, 2009 and September 30, 2010, the Company's securities with a continuous
unrealized loss position are shown below, separately for periods less than and greater than 12 months.
Securities Available for Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009 |
|
|
|
Less than 12 months |
|
12 months or more |
|
Total |
|
(Dollars in thousands) |
|
Fair
Value |
|
Unrealized
Losses |
|
Count |
|
Fair
Value |
|
Unrealized
Losses |
|
Count |
|
Fair
Value |
|
Unrealized
Losses |
|
Count |
|
Other U.S. government |
|
$ |
3,363,942 |
|
$ |
3,883 |
|
|
48 |
|
$ |
|
|
$ |
|
|
|
|
|
$ |
3,363,942 |
|
$ |
3,883 |
|
|
48 |
|
Residential mortgage-backed securitiesagency |
|
|
295,365 |
|
|
948 |
|
|
12 |
|
|
297,647 |
|
|
3,018 |
|
|
42 |
|
|
593,012 |
|
|
3,966 |
|
|
54 |
|
Residential mortgage-backed securitiesnon-agency |
|
|
|
|
|
|
|
|
|
|
|
399,413 |
|
|
60,192 |
|
|
17 |
|
|
399,413 |
|
|
60,192 |
|
|
17 |
|
State and municipal |
|
|
524 |
|
|
|
|
|
2 |
|
|
685 |
|
|
9 |
|
|
4 |
|
|
1,209 |
|
|
9 |
|
|
6 |
|
Asset-backed and debt securities |
|
|
2,647 |
|
|
839 |
|
|
1 |
|
|
77,687 |
|
|
7,277 |
|
|
10 |
|
|
80,334 |
|
|
8,117 |
|
|
11 |
|
Equity securities |
|
|
|
|
|
|
|
|
|
|
|
119 |
|
|
336 |
|
|
2 |
|
|
119 |
|
|
336 |
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities available for sale |
|
$ |
3,662,478 |
|
$ |
5,670 |
|
|
63 |
|
$ |
775,551 |
|
$ |
70,832 |
|
|
75 |
|
$ |
4,438,029 |
|
$ |
76,503 |
|
|
138 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
|
Less than 12 months |
|
12 months or more |
|
Total |
|
(Dollars in thousands) |
|
Fair
Value |
|
Unrealized
Losses |
|
Count |
|
Fair
Value |
|
Unrealized
Losses |
|
Count |
|
Fair
Value |
|
Unrealized
Losses |
|
Count |
|
Other U.S. government |
|
$ |
8,682,501 |
|
$ |
47,373 |
|
|
106 |
|
$ |
|
|
$ |
|
|
|
|
|
$ |
8,682,501 |
|
$ |
47,373 |
|
|
106 |
|
Residential mortgage-backed securitiesagency |
|
|
2,928,456 |
|
|
24,628 |
|
|
61 |
|
|
232,670 |
|
|
533 |
|
|
28 |
|
|
3,161,126 |
|
|
25,161 |
|
|
89 |
|
Residential mortgage-backed securitiesnon-agency |
|
|
|
|
|
|
|
|
|
|
|
362,471 |
|
|
63,243 |
|
|
17 |
|
|
362,471 |
|
|
63,243 |
|
|
17 |
|
State and municipal |
|
|
760 |
|
|
1 |
|
|
2 |
|
|
1,498 |
|
|
20 |
|
|
6 |
|
|
2,258 |
|
|
21 |
|
|
8 |
|
Asset-backed and debt securities |
|
|
27,325 |
|
|
2,219 |
|
|
3 |
|
|
62,427 |
|
|
3,853 |
|
|
9 |
|
|
89,752 |
|
|
6,072 |
|
|
12 |
|
Equity securities |
|
|
|
|
|
|
|
|
|
|
|
164 |
|
|
291 |
|
|
2 |
|
|
164 |
|
|
291 |
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities available for sale |
|
$ |
11,639,042 |
|
$ |
74,221 |
|
|
172 |
|
$ |
659,230 |
|
$ |
67,940 |
|
|
62 |
|
$ |
12,298,272 |
|
$ |
142,161 |
|
|
234 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
Table of Contents
UnionBanCal Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 4Securities (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
|
Less than 12 months |
|
12 months or more |
|
Total |
|
(Dollars in thousands) |
|
Fair
Value |
|
Unrealized
Losses |
|
Count |
|
Fair
Value |
|
Unrealized
Losses |
|
Count |
|
Fair
Value |
|
Unrealized
Losses |
|
Count |
|
Other U.S. government |
|
$ |
984 |
|
$ |
21 |
|
|
1 |
|
$ |
|
|
$ |
|
|
|
|
|
$ |
984 |
|
$ |
21 |
|
|
1 |
|
Residential mortgage-backed securitiesagency |
|
|
386,552 |
|
|
1,315 |
|
|
35 |
|
|
69,621 |
|
|
199 |
|
|
4 |
|
|
456,173 |
|
|
1,514 |
|
|
39 |
|
Residential mortgage-backed securitiesnon-agency |
|
|
30,641 |
|
|
577 |
|
|
6 |
|
|
154,825 |
|
|
37,935 |
|
|
10 |
|
|
185,466 |
|
|
38,512 |
|
|
16 |
|
State and municipal |
|
|
2,248 |
|
|
1 |
|
|
6 |
|
|
131 |
|
|
7 |
|
|
1 |
|
|
2,379 |
|
|
8 |
|
|
7 |
|
Asset-backed and debt securities |
|
|
17,089 |
|
|
861 |
|
|
1 |
|
|
5,168 |
|
|
899 |
|
|
3 |
|
|
22,257 |
|
|
1,760 |
|
|
4 |
|
Equity securities |
|
|
1,121 |
|
|
3 |
|
|
1 |
|
|
296 |
|
|
160 |
|
|
2 |
|
|
1,417 |
|
|
163 |
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities available for sale |
|
$ |
438,635 |
|
$ |
2,778 |
|
|
50 |
|
$ |
230,041 |
|
$ |
39,200 |
|
|
20 |
|
$ |
668,676 |
|
$ |
41,978 |
|
|
70 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities Held to Maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009 |
|
|
|
Less than 12 months |
|
12 months or more |
|
Total |
|
(Dollars in thousands) |
|
Fair
Value |
|
Unrealized
Losses |
|
Count |
|
Fair
Value |
|
Unrealized
Losses |
|
Count |
|
Fair
Value |
|
Unrealized
Losses |
|
Count |
|
CLOs |
|
$ |
82,208 |
|
$ |
30,199 |
|
|
20 |
|
$ |
1,187,631 |
|
$ |
542,425 |
|
|
201 |
|
$ |
1,269,839 |
|
$ |
572,624 |
|
|
221 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
|
Less than 12 months |
|
12 months or more |
|
Total |
|
(Dollars in thousands) |
|
Fair
Value |
|
Unrealized
Losses |
|
Count |
|
Fair
Value |
|
Unrealized
Losses |
|
Count |
|
Fair
Value |
|
Unrealized
Losses |
|
Count |
|
CLOs |
|
$ |
103,921 |
|
$ |
26,412 |
|
|
21 |
|
$ |
1,353,637 |
|
$ |
505,881 |
|
|
201 |
|
$ |
1,457,558 |
|
$ |
532,293 |
|
|
222 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
|
Less than 12 months |
|
12 months or more |
|
Total |
|
(Dollars in thousands) |
|
Fair
Value |
|
Unrealized
Losses |
|
Count |
|
Fair
Value |
|
Unrealized
Losses |
|
Count |
|
Fair
Value |
|
Unrealized
Losses |
|
Count |
|
CLOs |
|
$ |
|
|
$ |
|
|
|
|
|
$ |
1,479,167 |
|
$ |
475,704 |
|
|
220 |
|
$ |
1,479,167 |
|
$ |
475,704 |
|
|
220 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company's securities are primarily investments in debt securities. Debt securities available for sale and debt securities held to maturity are
subject to quarterly impairment testing when a security's fair value is lower than its amortized cost. Debt securities with unrealized losses are considered
other-than-temporarily impaired if the Company intends to sell the security, if it is more likely than not that the Company will be required to sell the security before
recovery of its amortized cost basis, or the Company does not expect to recover the entire amortized cost basis of the security. Any impairment on securities the Company intends, or is more likely
than not required, to sell is recognized in earnings as the entire difference between the amortized cost and its fair value. Any impairment on securities the Company does not intend, or it is not more
likely than not required, to sell before recovery is separated into an amount representing the credit loss, which is recognized in earnings, and the amount related to all other factors, which is
recognized in other comprehensive income. The credit loss is measured as the difference between the present value of expected cash flows, discounted using the security's effective interest rate, and
the amortized cost of the security.
20
Table of Contents
UnionBanCal Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 4Securities (Continued)
The
following describes the nature of the Company's investments, the causes of impairment, the severity and duration of the impairment, if applicable, and the conclusions reached on the
temporary or other-than-temporary status of the unrealized losses.
At
September 30, 2010, the Company did not have the intent to sell temporarily impaired securities until a recovery of the amortized cost, which may be at maturity, and it is not
more likely than not that the Company will have to sell the securities prior to recovery of amortized cost.
Other U.S. Government securities are securities issued by one of the several Government-Sponsored Enterprises (GSEs) such as Fannie
Mae, Freddie Mac, Federal Home Loan Banks or Federal Farm Credit Banks. They are not backed by the full faith and credit of the United States government. These securities are issued with a stated
interest rate and mature in less than five years. The unrealized losses on other U.S. Government securities resulted from higher interest rates subsequent to purchase and not credit quality. As a
result, the securities were not other-than-temporarily impaired at September 30, 2010.
Agency residential mortgage-backed securities consist of securities guaranteed by a GSE such as Fannie Mae, Freddie Mac, and Ginnie
Mae. These securities are collateralized by residential mortgage loans and may be prepaid at par prior to maturity. The unrealized losses on agency residential mortgage-backed securities resulted from
higher interest rates subsequent to purchase and not credit quality. As a result, the securities were not other-than-temporarily impaired at September 30, 2010.
Non-agency residential mortgage-backed securities are issued by financial institutions with no guarantee from GSEs. These
securities are collateralized by residential mortgage loans and may be prepaid at par prior to maturity. The securities are primarily rated investment grade. The unrealized losses on
non-agency residential mortgage-backed securities resulted from declining credit quality of underlying collateral and additional credit spread widening since purchase. The Company
estimated loss projections for each security by assessing the loans collateralizing each security. The Company estimates the portion of loss attributable to credit based on the expected cash flows of
the underlying collateral using industry consensus estimates of current key assumptions, such as default rates, loss severity and prepayment rates. Based on this assessment of expected credit losses
of each security, an insignificant amount of impairment was recognized on three securities during the nine months ended September 30, 2010. With respect to the remaining portfolio at
September 30, 2010, the Company expects to recover the entire amortized cost basis of these securities.
State and municipal securities are primarily securities issued by state and local governments to finance operating expenses and various
projects. These securities are issued at a stated interest rate and have varying expected maturities ranging up to 30 years. The unrealized losses on the state and municipal securities resulted
from higher interest rates subsequent to purchase and not from credit quality. As a result, the securities were not other-than-temporarily impaired at September 30,
2010.
21
Table of Contents
UnionBanCal Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 4Securities (Continued)
Asset-backed and debt securities in a loss position at September 30, 2010 primarily consist of privately placed debt securities
issued by power and utilities companies. Expected cash flows of these debt securities are assessed to determine if the amortized cost basis of these securities is recoverable. Based on this
assessment, an insignificant amount of impairment was recognized on one commercial mortgage-backed security during the nine months ended September 30, 2010.
The Company's CLOs primarily consist of Cash Flow CLOs. A Cash Flow CLO is a structured finance product that securitizes a diversified
pool of loan assets into multiple classes of notes. Cash Flow CLOs pay the note holders through the receipt of interest and principal repayments from the underlying loans unlike other types of CLOs
that pay note holders through the trading and sale of underlying collateral. During the first quarter of 2009, the Company reclassified its CLOs from available for sale to held to maturity. The
Company considers the held to maturity classification to be more appropriate because the Company has the ability and the intent to hold these securities to maturity.
Certain
of these CLOs are highly illiquid securities for which fair values are difficult to obtain. Unrealized losses arise from widening credit spreads, credit quality of the underlying
collateral, uncertainty regarding the valuation of such securities and the market's opinion of the performance of the fund managers. Cash flow analysis of the underlying collateral provides an
estimate of other-than-temporary impairment, which is performed quarterly when the fair value of a security is lower than its amortized cost. The fair value of the CLO
portfolio was adversely impacted in 2009 and the nine months ended September 30, 2010 by the overall financial market crisis. Based on the analysis performed as of September 30, 2010 to
determine whether any of the unrealized losses related to CLOs were believed to be other-than-temporary, the Company expects to recover the entire amortized cost basis of these
securities.
Transactions involving purchases of securities under agreements to resell (reverse repurchase agreements or reverse repos) or sales of
securities under agreements to repurchase (repurchase agreements or repos) are accounted for as collateralized financings except where the Company does not have an agreement to sell (or purchase) the
same or substantially the same securities before maturity at a fixed or determinable price. The Company's policy is to obtain possession of collateral with a market value equal to or in excess of the
principal amount loaned under resale agreements. Collateral is valued daily, and the Company may require counterparties to deposit additional collateral or return collateral pledged, when appropriate.
The
Company separately identifies in the consolidated balance sheets, securities pledged as collateral in secured borrowings and other arrangements when the secured party can sell or
repledge the securities. If the secured party cannot resell or repledge the securities that have been placed as collateral, those securities are not separately identified. At September 30,
2010, the Company had $5.2 billion of securities available for sale pledged as collateral where the secured party cannot resell or repledge such securities. These available for sale securities
have been pledged to secure borrowings ($0.3 million), to support unrealized losses on derivative transactions reported in trading liabilities ($0.7 million) and to secure public and
trust department deposits ($4.2 billion).
22
Table of Contents
UnionBanCal Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 4Securities (Continued)
At September 30, 2009, December 31, 2009, and September 30, 2010, the Company accepted securities as collateral that it is permitted by contract to sell or repledge
of $294.9 million (none of which has been repledged to secure public agency or bankruptcy deposits or to cover short sales), $442.6 million ($434.6 million of which has been
repledged to secure public agency or bankruptcy deposits and to cover short sales), and $476.9 million ($442.7 million of which has been repledged to secure bankruptcy deposits and to
cover short sales), respectively. These securities were received as collateral for secured lending and to obtain qualified securities to meet the Company's collateral needs.
Note 5Loans and Allowance for Loan Losses
A summary of loans, net of unearned discount and deferred fees (costs) of $46 million, $53 million and $58 million at September 30, 2009 and
December 31, 2009 and September 30, 2010, respectively, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
September 30,
2009 |
|
December 31,
2009 |
|
September 30,
2010 |
|
Loans held for investment, excluding FDIC covered loans: |
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial and industrial |
|
$ |
15,994,997 |
|
$ |
15,258,081 |
|
$ |
14,650,250 |
|
|
Construction |
|
|
2,691,515 |
|
|
2,429,009 |
|
|
1,849,805 |
|
|
Residential mortgage |
|
|
16,576,052 |
|
|
16,716,048 |
|
|
17,295,349 |
|
|
Commercial mortgage |
|
|
8,320,374 |
|
|
8,245,778 |
|
|
7,892,900 |
|
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
Installment |
|
|
2,303,897 |
|
|
2,244,239 |
|
|
2,054,863 |
|
|
|
Revolving lines of credit |
|
|
1,599,112 |
|
|
1,672,842 |
|
|
1,835,376 |
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer |
|
|
3,903,009 |
|
|
3,917,081 |
|
|
3,890,239 |
|
|
Lease financing |
|
|
658,708 |
|
|
653,743 |
|
|
635,267 |
|
|
|
|
|
|
|
|
|
|
|
|
Total loans held for investment, excluding FDIC covered loans |
|
|
48,144,655 |
|
|
47,219,740 |
|
|
46,213,810 |
|
Loans held for sale |
|
|
24,853 |
|
|
8,768 |
|
|
3,745 |
|
|
|
|
|
|
|
|
|
|
|
|
Total loans, excluding FDIC covered loans |
|
|
48,169,508 |
|
|
47,228,508 |
|
|
46,217,555 |
|
FDIC covered loans(1) |
|
|
|
|
|
|
|
|
1,693,554 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
|
48,169,508 |
|
|
47,228,508 |
|
|
47,911,109 |
|
|
|
|
|
Allowance for loan losses |
|
|
1,260,307 |
|
|
1,357,000 |
|
|
1,276,845 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, net |
|
$ |
46,909,201 |
|
$ |
45,871,508 |
|
$ |
46,634,264 |
|
|
|
|
|
|
|
|
|
- (1)
- Represents
the acquired loans that are covered by the loss share agreements with the FDIC.
The Company evaluated loans acquired in the Frontier and Tamalpais transactions in accordance with accounting guidance related to loans acquired
with deteriorated credit quality as of the acquisition date. Acquired loans are considered impaired if there is evidence of deterioration of credit quality since origination and it is probable, at the
acquisition date, that the Company will be unable to collect all contractually required payments receivable. Management elected to account for all acquired loans, except for revolving lines of credit,
23
Table of Contents
UnionBanCal Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 5Loans and Allowance for Loan Losses (Continued)
within
the scope of the accounting guidance using the same methodology. The following table reflects the carrying value of loans, pursuant to accounting standards for purchased credit-impaired loans
and other purchased loans as of September 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
(Dollars in thousands) |
|
Purchased
credit-impaired
loans |
|
Other
purchased
loans |
|
Total |
|
Commercial, financial and industrial |
|
$ |
370,877 |
|
$ |
116,726 |
|
$ |
487,603 |
|
Construction |
|
|
317,664 |
|
|
2,476 |
|
|
320,140 |
|
Residential mortgage |
|
|
87,595 |
|
|
|
|
|
87,595 |
|
Commercial mortgage |
|
|
729,214 |
|
|
20,308 |
|
|
749,522 |
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
Installment |
|
|
24,777 |
|
|
|
|
|
24,777 |
|
|
Revolving lines of credit |
|
|
|
|
|
23,917 |
|
|
23,917 |
|
|
|
|
|
|
|
|
|
|
|
Total consumer |
|
|
24,777 |
|
|
23,917 |
|
|
48,694 |
|
|
|
|
|
|
|
|
|
|
|
|
Total FDIC covered loans |
|
$ |
1,530,127 |
|
$ |
163,427 |
|
$ |
1,693,554 |
|
|
|
|
|
|
|
|
|
The acquired loans are referred to as "covered loans" as the Bank will be reimbursed for a substantial portion of any future losses on them under
the terms of the FDIC loss share agreements. As of acquisition dates, the estimated fair value of the purchased credit-impaired loan portfolio of Frontier and Tamalpais subject to the loss share
agreements was $1.7 billion, which represents the present value of expected cash flows from the portfolio. The difference between the undiscounted contractual cash flows and the undiscounted
expected cash flows is the nonaccretable difference. The nonaccretable difference represents the estimated credit losses in the acquired loan portfolio at the acquisition date.
The
accounting guidance for purchased credit-impaired loans provides that the excess of the cash flows initially expected to be collected over the fair value of the loans at the
acquisition date (i.e., the accretable yield) is accreted into interest income over the estimated remaining life of the purchased credit-impaired loans using the effective yield method,
provided that the timing and amount of future cash flows is reasonably estimable. The initial estimate of cash flows expected to be collected must be updated each subsequent reporting period based on
updated assumptions regarding default rates, loss severities, and other factors that are reflective of current market conditions. Probable decreases in expected cash flows after acquisition result in
the recognition of impairment, which would be recorded as a charge to the provision for loan losses. Probable and significant increases in expected cash flows would first reverse any related allowance
for loan losses and any remaining increases would be recognized prospectively as interest income over the estimated remaining lives of the loans. The impact of changes in variable interest rates are
recognized prospectively as adjustments to interest income.
24
Table of Contents
UnionBanCal Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 5Loans and Allowance for Loan Losses (Continued)
The
following table presents the fair value of loans pursuant to accounting standards for purchased credit-impaired loans as of the respective acquisition dates:
|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
Contractually required payments including interest |
|
$ |
3,789,578 |
|
Nonaccretable difference |
|
|
1,774,301 |
|
|
|
|
|
Cash flows expected to be collected (undiscounted) |
|
|
2,015,277 |
|
Accretable yield |
|
|
296,696 |
|
|
|
|
|
|
Fair value of purchased credit-impaired loans |
|
$ |
1,718,581 |
|
|
|
|
|
The accretable yield for purchased credit-impaired loans was as follows for both the three and nine months ended September 30, 2010:
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
For the Three
Months Ended
September 30, 2010 |
|
For the Nine
Months Ended
September 30, 2010 |
|
Accretable yield, beginning of period |
|
$ |
274,417 |
|
$ |
|
|
|
Additions |
|
|
|
|
|
296,696 |
|
|
Accretion |
|
|
(29,879 |
) |
|
(52,158 |
) |
|
Other |
|
|
218 |
|
|
218 |
|
|
|
|
|
|
|
Accretable yield, end of period |
|
$ |
244,756 |
|
$ |
244,756 |
|
|
|
|
|
|
|
The carrying value and outstanding balance for the purchased credit-impaired loans as of the respective acquisition dates and at
September 30, 2010 were as follows:
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
Acquisition
Date |
|
September 30,
2010 |
|
Total outstanding balance |
|
$ |
3,153,424 |
|
$ |
2,975,932 |
|
|
|
|
|
|
|
Carrying value |
|
$ |
1,718,581 |
|
$ |
1,530,127 |
|
|
|
|
|
|
|
As of the respective acquisition dates, the contractually required payments receivable, including interest, for all other purchased loans was
$270.1 million, the contractual cash flows not expected to be collected was $53.7 million, and the estimated fair value of the loans was $196.3 million. The difference between the
acquisition date fair value and the expected cash flows is being accreted to interest income over the remaining life of the loans for all loans that are currently performing.
All
acquired loans are recorded at fair value at acquisition date, factoring in credit losses expected to be incurred over the life of the loan. Accordingly, an allowance for loan losses
is not carried over or recorded as of the respective acquisition dates. The acquired loans are and will continue to be subject to the Bank's internal credit review. As a result, if credit
deterioration is noted subsequent to the respective acquisition dates, such deterioration will be measured through the Bank's loss reserving methodology and a provision for loan losses will be
recorded. During the third quarter of 2010, there was no provision recorded related to the acquired loans, as there was no incremental credit deterioration identified.
25
Table of Contents
UnionBanCal Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 5Loans and Allowance for Loan Losses (Continued)
Changes
in the allowance for loan losses were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
Ended September 30, |
|
For the Nine Months
Ended September 30, |
|
(Dollars in thousands) |
|
2009 |
|
2010 |
|
2009 |
|
2010 |
|
Allowance for loan losses, beginning of period |
|
$ |
1,081,633 |
|
$ |
1,357,869 |
|
$ |
737,767 |
|
$ |
1,357,000 |
|
Loans charged off |
|
|
143,280 |
|
|
102,129 |
|
|
414,330 |
|
|
349,243 |
|
Recoveries of loans previously charged off |
|
|
6,607 |
|
|
12,689 |
|
|
9,700 |
|
|
46,861 |
|
|
|
|
|
|
|
|
|
|
|
|
Total net loans charged off |
|
|
136,673 |
|
|
89,440 |
|
|
404,630 |
|
|
302,382 |
|
Provision for loan losses |
|
|
314,000 |
|
|
8,000 |
|
|
923,000 |
|
|
222,000 |
|
Other |
|
|
1,347 |
|
|
416 |
|
|
4,170 |
|
|
227 |
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses, end of period |
|
|
1,260,307 |
|
|
1,276,845 |
|
|
1,260,307 |
|
|
1,276,845 |
|
Allowance for losses on off-balance sheet commitments |
|
|
172,374 |
|
|
164,374 |
|
|
172,374 |
|
|
164,374 |
|
|
|
|
|
|
|
|
|
|
|
Allowances for credit losses, end of period |
|
$ |
1,432,681 |
|
$ |
1,441,219 |
|
$ |
1,432,681 |
|
$ |
1,441,219 |
|
|
|
|
|
|
|
|
|
|
|
The provision for loan losses decreased $306 million to $8 million for the third quarter of 2010 from $314 million for the
third quarter of 2009, primarily due to improved credit quality of the loan portfolio, as well as a change in the category mix and lower projected loss component of nonaccrual loans during the third
quarter of 2010 compared to the third quarter of 2009.
Nonaccrual
loans totaled $1.3 billion, at September 30, 2009 and December 31, 2009 and at September 30, 2010, respectively. There were $17.8 million,
$20.8 million, and $173.9 million (of which $1.9 million, $3.8 million and $24.6 million were on accrual status at September 30, 2009, December 31,
2009 and September 30, 2010, respectively) of troubled debt restructured loans at September 30, 2009, December 31, 2009 and September 30, 2010, respectively. Loans
90 days or more past due and still accruing totaled $5.4 million, $5.0 million and $17.5 million at September 30, 2009, December 31, 2009 and
September 30, 2010, respectively.
Note 6Goodwill and Intangible Assets
As a result of the acquisition of certain assets and liabilities of Frontier and Tamalpais, the Company recorded goodwill and core deposit intangible assets totaling $62.3 million
and $14.7 million, respectively. Goodwill of $45.3 million and $17.0 million was assigned to the Company's Retail Banking and Corporate Banking reportable business segments,
respectively. The amount of goodwill recorded represents the residual difference in fair values of the assets acquired net of the liabilities assumed and the payable to the FDIC for the net assets
acquired. The core deposit intangible assets will be amortized over approximately 10 years based upon the total economic benefits received. See Note 3 to these consolidated financial
statements for information on the Company's business combinations.
26
Table of Contents
UnionBanCal Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 6Goodwill and Intangible Assets (Continued)
The changes in the carrying amount of goodwill during the nine months ended September 30, 2009 and 2010 are shown below:
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
2009 |
|
2010 |
|
Balance, January 1, |
|
$ |
2,369,326 |
|
$ |
2,369,326 |
|
Acquisitions |
|
|
|
|
|
62,257 |
|
|
|
|
|
|
|
Balance, September 30, |
|
$ |
2,369,326 |
|
$ |
2,431,583 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
September 30,
2009 |
|
December 31,
2009 |
|
September 30,
2010 |
|
Goodwill by reportable business segment: |
|
|
|
|
|
|
|
|
|
|
|
Retail Banking |
|
$ |
1,152,648 |
|
$ |
1,152,648 |
|
$ |
1,197,914 |
|
|
Corporate Banking |
|
|
1,216,678 |
|
|
1,216,678 |
|
|
1,233,669 |
|
|
|
|
|
|
|
|
|
Goodwill, end of period |
|
$ |
2,369,326 |
|
$ |
2,369,326 |
|
$ |
2,431,583 |
|
|
|
|
|
|
|
|
|
The
Company reviews its goodwill for impairment on an annual basis and whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The annual
goodwill impairment test as of April 1, 2010 was performed during the second quarter of 2010, and no impairment was recognized.
The table below reflects the Company's identifiable intangible assets and accumulated amortization at September 30, 2009,
December 31, 2009 and September 30, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009 |
|
December 31, 2009 |
|
September 30, 2010 |
|
(Dollars in thousands) |
|
Gross
Carrying
Amount |
|
Accumulated
Amortization |
|
Net
Carrying
Amount |
|
Gross
Carrying
Amount |
|
Accumulated
Amortization |
|
Net
Carrying
Amount |
|
Gross
Carrying
Amount |
|
Accumulated
Amortization |
|
Net
Carrying
Amount |
|
Core deposit intangibles |
|
$ |
619,398 |
|
$ |
(194,678 |
) |
$ |
424,720 |
|
$ |
619,398 |
|
$ |
(233,042 |
) |
$ |
386,356 |
|
$ |
637,196 |
|
$ |
(319,724 |
) |
$ |
317,472 |
|
Trade name |
|
|
108,733 |
|
|
(2,744 |
) |
|
105,989 |
|
|
108,733 |
|
|
(3,430 |
) |
|
105,303 |
|
|
108,733 |
|
|
(5,491 |
) |
|
103,242 |
|
Customer relationships |
|
|
53,761 |
|
|
(4,479 |
) |
|
49,282 |
|
|
53,761 |
|
|
(5,531 |
) |
|
48,230 |
|
|
53,761 |
|
|
(8,715 |
) |
|
45,046 |
|
Other |
|
|
9,555 |
|
|
(1,500 |
) |
|
8,055 |
|
|
9,555 |
|
|
(1,498 |
) |
|
8,057 |
|
|
10,585 |
|
|
(2,751 |
) |
|
7,834 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotalintangibles with a definite useful life |
|
$ |
791,447 |
|
$ |
(203,401 |
) |
$ |
588,046 |
|
$ |
791,447 |
|
$ |
(243,501 |
) |
$ |
547,946 |
|
$ |
810,275 |
|
$ |
(336,681 |
) |
$ |
473,594 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other intangibles with an indefinite useful life |
|
|
13,094 |
|
|
|
|
|
13,094 |
|
|
13,094 |
|
|
|
|
|
13,094 |
|
|
13,094 |
|
|
|
|
|
13,094 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangibles |
|
$ |
804,541 |
|
$ |
(203,401 |
) |
$ |
601,140 |
|
$ |
804,541 |
|
$ |
(243,501 |
) |
$ |
561,040 |
|
$ |
823,369 |
|
$ |
(336,681 |
) |
$ |
486,688 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amortization expense for the third quarters of 2009 and 2010 was $40.6 million and $30.8 million, respectively. Total
amortization expense for the nine months ended September 30, 2009 and 2010 was $121.8 million and $93.2 million, respectively.
27
Table of Contents
UnionBanCal Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 6Goodwill and Intangible Assets (Continued)
Estimated
future amortization expense at September 30, 2010 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
Core Deposit
Intangibles (CDI) |
|
Trade Name |
|
Customer
Relationships |
|
Other |
|
Total Identifiable
Intangible Assets
with a Definite
Useful Life |
|
Estimated amortization expense for the years ending: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining 2010 |
|
$ |
28,633 |
|
$ |
686 |
|
$ |
1,061 |
|
$ |
436 |
|
$ |
30,816 |
|
|
2011 |
|
|
90,273 |
|
|
2,747 |
|
|
3,968 |
|
|
1,616 |
|
|
98,604 |
|
|
2012 |
|
|
71,835 |
|
|
2,747 |
|
|
3,679 |
|
|
1,055 |
|
|
79,316 |
|
|
2013 |
|
|
47,459 |
|
|
2,747 |
|
|
3,436 |
|
|
1,071 |
|
|
54,713 |
|
|
2014 |
|
|
34,151 |
|
|
2,747 |
|
|
3,232 |
|
|
771 |
|
|
40,901 |
|
|
Thereafter |
|
|
45,121 |
|
|
91,568 |
|
|
29,670 |
|
|
2,885 |
|
|
169,244 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total estimated amortization expense |
|
$ |
317,472 |
|
$ |
103,242 |
|
$ |
45,046 |
|
$ |
7,834 |
|
$ |
473,594 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 7Variable Interest Entities
Effective January 1, 2010, the Company adopted ASU 2009-17, "Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities." At adoption
of this guidance, the Company recorded increases in total assets of $281 million, liabilities of $9 million and stockholder's equity attributable to noncontrolling interests of
$272 million. The cumulative effect on retained earnings was not significant.
The
Company is involved in various structures that are considered to be VIEs. Generally, a VIE is a corporation, partnership, trust or any other legal structure that has equity investors
that: 1) do not have sufficient equity at risk for the entity to independently finance its activities; 2) lack the power to direct the activities that significantly impact the entity's
economic success; and/or 3) do not have an obligation to absorb the entity's losses or the right to receive the entity's returns. The Company's investments in VIEs primarily consist of equity
investments in low income housing credit (LIHC) structures and renewable energy projects, which are designed to generate a return primarily through the realization of federal tax credits, and private
capital investments.
Consolidated VIEs
The Company is required to consolidate VIEs in which it is the primary beneficiary. The Company is determined to be the primary
beneficiary of a VIE when it has the power to direct matters that most significantly impact the activities of the VIE and has the obligation to absorb losses or the right to receive benefits of the
VIE that could potentially be significant to the VIE.
At
September 30, 2010, $301 million in assets and $10 million in liabilities were consolidated by the Company on its consolidated balance sheet related to two LIHC
investment fund structures because the Company sponsors, manages and syndicates the funds. The assets are included in other assets as well as interest bearing deposits in banks, the liabilities are
primarily included in long-term debt, and third-party investor interests are included in stockholder's equity as noncontrolling interests. Neither creditors nor equity
28
Table of Contents
UnionBanCal Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 7Variable Interest Entities (Continued)
investors
in the LIHC investments have any recourse to the general credit of the Company and the Company's creditors do not have any recourse to the assets of the consolidated LIHC investments.
For
the three months and nine months ended September 30, 2010, the Company recorded $6 million and $17 million of expenses related to its consolidated VIEs,
respectively. The expenses are included in other noninterest expense on the Company's consolidated statements of income.
The Company is a sponsor and syndicator of low-income housing tax credit investments. In these syndication transactions,
the Company creates the investment funds, serves as the managing investor member, and sells limited investor member interests to third parties. The Company receives benefits through income from the
structuring of these funds, servicing fees for managing the funds and, as an investor member, tax benefits and tax credits to reduce the Company's tax liability. As sponsor and managing member of the
funds, the Company's activities include selecting, evaluating, structuring, negotiating and closing the fund investment in operating limited partnerships, as well as oversight of the ongoing
operations of the fund portfolio. There is no single third-party investor with the power to remove the Company as managing member. In this role, the Company directs the activities that most
significantly impact the fund's economic performance and receives benefits from the fund.
The Company also forms limited liability companies (LLCs), which in turn invest in low income housing tax credit operating
partnerships. Interests in these funds are sold to third parties who pay a premium for a guaranteed return. The Company earns structuring fees from the sale of these funds and asset management fees.
The Company also serves as the funds' non-member asset manager and guarantor. As sponsor and non-member asset manager of the funds, the Company's activities include selecting,
evaluating, structuring, negotiating and closing investments in operating limited partnerships, as well as oversight of the ongoing operations of the fund portfolio. As guarantor, the Company
guarantees a minimum rate of return throughout the investment term. There is no single third-party investor with the power to remove the Company as asset manager. In the Company's role as sponsor and
asset manager, it directs the activities that most significantly impact the fund's economic performance. Separately, it has an obligation to absorb losses pertaining to its minimum rate of return
guarantee to investors. For details of the guarantee, see Note 16 to these consolidated financial statements.
Unconsolidated VIEs in Which the Company has a Variable Interest
The Company holds variable interests in other VIEs that it is not required to consolidate as it is not the primary beneficiary. In such
cases, it does not hold the power, through its equity investments or otherwise, to direct the VIE's significant activities. The following table presents the Company's carrying amounts related to the
unconsolidated VIEs and location on the consolidated balance sheet at September 30, 2010. The table also presents the Company's maximum exposure to loss resulting from its involvement with
these VIEs. The
29
Table of Contents
UnionBanCal Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 7Variable Interest Entities (Continued)
maximum
exposure to loss represents the carrying value of the Company's involvement plus any legally binding unfunded commitments in the unlikely event that all of the assets in the VIEs become
worthless.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
(Dollars in thousands) |
|
Total
Assets |
|
Total
Liabilities |
|
Maximum
Exposure to
Loss |
|
LIHC investments |
|
$ |
485,426 |
|
$ |
16,408 |
|
$ |
605,636 |
|
Renewable energy investments |
|
|
301,876 |
|
|
|
|
|
301,876 |
|
Private capital investments |
|
|
167,324 |
|
|
|
|
|
251,146 |
|
|
|
|
|
|
|
|
|
|
Total unconsolidated VIEs |
|
$ |
954,626 |
|
$ |
16,408 |
|
$ |
1,158,658 |
|
|
|
|
|
|
|
|
|
The Company makes equity investments in various private investment partnership funds and limited partnerships that sponsor qualified
affordable housing projects. As a limited partner and non-managing investor member in these operating partnerships, the Company is allocated tax credits and tax deductions from operating
losses associated with the underlying properties. The power to direct the activities of the investments resides with the general partner and/or managing member of these partnerships. As a result, the
Company does not consolidate these investments. These LIHC investments are accounted for under the equity or effective yield method and are reflected in other assets on the Company's consolidated
balance sheet. The Company increases the
LIHC investment carrying amount and recognizes a liability for all unconditional unfunded equity commitments. These liabilities are reflected in other liabilities on the Company's consolidated balance
sheet. In addition, the Company has $120 million in off-balance sheet conditional unfunded commitments that may be drawn when specific conditions are achieved, including the
completion of construction of low income housing units. These unfunded commitments are included in the maximum exposure to loss attributable to LIHC investments in the table above.
The Company makes equity investments in LLCs created to operate and manage renewable energy projects. The managing member or
general partner of the LLC identifies and selects the assets of the entity and provides management and/or oversight of the ongoing operations of the renewable energy project. As a passive and
limited investor member, the Company is allocated production tax credits and taxable income or losses associated with the projects. These renewable energy investments are accounted for under the
equity method with the investments reflected in other assets on the Company's consolidated balance sheet.
The Company makes equity investments in various private capital investment funds either directly in privately held companies or
indirectly through private equity funds. As a passive investor, the Company has no rights that provide the power to direct the activities of the investments. The power to identify and select the
assets of the investments resides with the managing member or general partner of each direct and fund investment. These private capital investments are accounted for under either the cost or equity
method and are reflected in other assets on the Company's consolidated balance sheet. In addition, the Company has
30
Table of Contents
UnionBanCal Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 7Variable Interest Entities (Continued)
off-balance
sheet unfunded commitments of $84 million to provide additional liquidity as required by the funds. These unfunded commitments are reflected in the maximum exposure to
loss attributable to private capital investments in the table above.
Note 8Private Capital and Other Investments
The following table shows the balances of private capital and other investments, which are recorded in other assets, at September 30, 2009, December 31, 2009 and
September 30, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
September 30,
2009 |
|
December 31,
2009 |
|
September 30,
2010 |
|
Private capital and other investments: |
|
|
|
|
|
|
|
|
|
|
|
Private capital investmentscost basis |
|
$ |
174,730 |
|
$ |
119,121 |
|
$ |
117,233 |
|
|
Private capital investmentsequity method |
|
|
|
|
|
46,296 |
|
|
61,863 |
|
|
LIHC investmentsguaranteed |
|
|
198,561 |
|
|
185,779 |
|
|
163,834 |
|
|
LIHC investmentsunguaranteed |
|
|
320,617 |
|
|
319,031 |
|
|
324,203 |
|
|
Consolidated VIEs |
|
|
|
|
|
|
|
|
291,243 |
|
|
Renewable energy investments |
|
|
303,726 |
|
|
305,917 |
|
|
301,876 |
|
|
|
|
|
|
|
|
|
|
|
Total private capital and other investments |
|
$ |
997,634 |
|
$ |
976,144 |
|
$ |
1,260,252 |
|
|
|
|
|
|
|
|
|
The Company invests in the equity instruments of privately held companies with fund managers (general partners) through limited partnership
interests. These investments are made directly in privately held companies (direct investments) or indirectly through private equity funds (fund investments). These investments are accounted for based
on the cost or equity method depending on whether the Company has significant influence over the investee. The investments' fair value is estimated when events or conditions indicate that it is
probable that the carrying value of the investment will not be fully recovered in the foreseeable future. Fair value is estimated based on the company's business model, current and projected financial
performance, liquidity and overall economic and market conditions. As a practical expedient, fair value can also be estimated as the net asset value (NAV) of the fund. If fair value is estimated to be
below cost, an evaluation for other-than-temporary impairment is performed. If any of the factors used to determine fair value indicate that a recovery is unlikely or will not
occur for a reasonable period of time, an other-than-temporary impairment is recorded. Based on this analysis, the Company recorded $5.5 million of
other-than-temporary impairment on its private capital investments during the nine months ended September 30, 2010.
The
Company also invests in limited liability partnerships and other entities operating qualified affordable housing projects. These LIHC investments provide tax benefits to investors in
the form of tax deductions from operating losses and tax credits. The unguaranteed LIHC investments are accounted for under the equity method. As of September 30, 2010, this category also
included $29.7 million of investments in real estate private equity funds that are compliant with the Community Reinvestment Act (CRA investments). These investments are tested quarterly for
impairment. The Company had no other-than-temporary impairment on its unguaranteed LIHC and CRA investments during the nine months ended September 30, 2010.
31
Table of Contents
UnionBanCal Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 8Private Capital and Other Investments (Continued)
The Company also invests in guaranteed LIHC investments where the availability of tax credits are guaranteed by a creditworthy entity. The investments are initially recorded at cost and
amortized over the period the tax credits are allocated to provide a constant effective yield. These investments are tested quarterly for impairment. The Company had no
other-than-temporary impairment on its guaranteed LIHC investments during the nine months ended September 30, 2010. For details on the consolidated VIEs, see
Note 7 to these consolidated financial statements.
The
Company invests in limited liability partnerships that operate renewable energy projects. Tax credits, taxable income and distributions associated with these renewable energy
projects are allocated to investors according to the terms of the partnership agreements. These investments are accounted for under the equity method, with the initial investment recorded at cost and
the carrying value adjusted for the Company's share of partnership net income and distributions received. These investments are tested annually for impairment, based on projected operating results and
expected realizability of tax credits. The Company had no other-than-temporary impairment on its renewable energy investments during the nine months ended September 30,
2010.
Note 9Employee Pension and Other Postretirement Benefits
The following table summarizes the components of net periodic benefit cost for the three and nine months ended September 30, 2009 and 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits |
|
Other Benefits |
|
Superannuation, SERP(1) and ESBP(2) |
|
|
|
For the Three Months
Ended September 30, |
|
For the Three Months
Ended September 30, |
|
For the Three Months
Ended September 30, |
|
(Dollars in thousands) |
|
2009 |
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
2010 |
|
Components of net periodic benefit cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
13,094 |
|
$ |
12,476 |
|
$ |
1,614 |
|
$ |
2,403 |
|
$ |
256 |
|
$ |
263 |
|
Interest cost |
|
|
20,767 |
|
|
22,646 |
|
|
2,353 |
|
|
3,377 |
|
|
941 |
|
|
556 |
|
Expected return on plan assets |
|
|
(35,153 |
) |
|
(36,501 |
) |
|
(2,501 |
) |
|
(3,092 |
) |
|
|
|
|
|
|
Amortization of prior service cost |
|
|
|
|
|
|
|
|
(16 |
) |
|
(16 |
) |
|
|
|
|
|
|
Amortization of transition amount |
|
|
|
|
|
|
|
|
328 |
|
|
327 |
|
|
|
|
|
|
|
Recognized net actuarial loss |
|
|
3,045 |
|
|
3,642 |
|
|
936 |
|
|
1,522 |
|
|
305 |
|
|
218 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net periodic benefit cost |
|
$ |
1,753 |
|
$ |
2,263 |
|
$ |
2,714 |
|
$ |
4,521 |
|
$ |
1,502 |
|
$ |
1,037 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
Table of Contents
UnionBanCal Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 9Employee Pension and Other Postretirement Benefits (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits |
|
Other Benefits |
|
Superannuation, SERP and ESBP |
|
|
|
For the Nine Months
Ended September 30, |
|
For the Nine Months
Ended September 30, |
|
For the Nine Months
Ended September 30, |
|
(Dollars in thousands) |
|
2009 |
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
2010 |
|
Components of net periodic benefit cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
39,282 |
|
$ |
37,430 |
|
$ |
6,278 |
|
$ |
7,098 |
|
$ |
767 |
|
$ |
789 |
|
Interest cost |
|
|
62,300 |
|
|
67,937 |
|
|
8,462 |
|
|
9,952 |
|
|
2,823 |
|
|
2,424 |
|
Expected return on plan assets |
|
|
(105,458 |
) |
|
(109,502 |
) |
|
(7,500 |
) |
|
(9,277 |
) |
|
|
|
|
|
|
Amortization of prior service cost |
|
|
|
|
|
|
|
|
(47 |
) |
|
(47 |
) |
|
|
|
|
|
|
Amortization of transition amount |
|
|
|
|
|
|
|
|
983 |
|
|
983 |
|
|
|
|
|
|
|
Recognized net actuarial loss |
|
|
9,136 |
|
|
10,927 |
|
|
5,241 |
|
|
4,247 |
|
|
1,476 |
|
|
655 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net periodic benefit cost |
|
$ |
5,260 |
|
$ |
6,792 |
|
$ |
13,417 |
|
$ |
12,956 |
|
$ |
5,066 |
|
$ |
3,868 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- (1)
- Supplemental
Executives Retirement Plan (SERP).
- (2)
- Executive
Supplemental Benefit Plans (ESBP).
Note 10Other Noninterest Expense
The detail of other noninterest expense is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
For the Nine Months Ended |
|
(Dollars in thousands) |
|
September 30,
2009 |
|
September 30,
2010 |
|
September 30,
2009 |
|
September 30,
2010 |
|
Software |
|
$ |
16,502 |
|
$ |
18,266 |
|
$ |
45,745 |
|
$ |
48,824 |
|
Low income housing credit investment amortization |
|
|
13,064 |
|
|
13,251 |
|
|
34,256 |
|
|
41,024 |
|
Advertising and public relations |
|
|
14,562 |
|
|
12,853 |
|
|
36,532 |
|
|
34,495 |
|
Communications |
|
|
9,494 |
|
|
10,323 |
|
|
27,404 |
|
|
29,579 |
|
Other |
|
|
39,982 |
|
|
44,244 |
|
|
139,179 |
|
|
123,651 |
|
|
|
|
|
|
|
|
|
|
|
|
Total other noninterest expense |
|
$ |
93,604 |
|
$ |
98,937 |
|
$ |
283,116 |
|
$ |
277,573 |
|
|
|
|
|
|
|
|
|
|
|
33
Table of Contents
UnionBanCal Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 11Borrowed Funds
The following is a summary of the major categories of borrowed funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
September 30,
2009 |
|
December 31,
2009 |
|
September 30,
2010 |
|
Federal funds purchased and securities sold under repurchase agreements, with weighted average interest rates of 0.12%, 0.07% and 0.16% at
September 30, 2009, December 31, 2009 and September 30, 2010, respectively |
|
$ |
229,268 |
|
$ |
150,453 |
|
$ |
139,602 |
|
Commercial paper, with weighted average interest rates of 0.29%, 0.16%, and 0.24% at September 30, 2009, December 31, 2009 and September 30,
2010, respectively |
|
|
423,499 |
|
|
888,541 |
|
|
701,135 |
|
Other borrowed funds: |
|
|
|
|
|
|
|
|
|
|
|
Term federal funds purchased, with weighted average interest rates of 0.19% at both September 30, 2009 and December 31, 2009, and 0.33% at
September 30, 2010 |
|
|
50,000 |
|
|
505,000 |
|
|
25,000 |
|
|
All other borrowed funds, with weighted average interest rates of 1.45%, 1.75% and 0.71% at September 30, 2009, December 31, 2009 and
September 30, 2010, respectively |
|
|
114,861 |
|
|
86,934 |
|
|
111,441 |
|
|
|
|
|
|
|
|
|
|
|
|
Total borrowed funds |
|
$ |
817,628 |
|
$ |
1,630,928 |
|
$ |
977,178 |
|
|
|
|
|
|
|
|
|
34
Table of Contents
UnionBanCal Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 12Long-Term Debt
The following is a summary of the Company's long-term debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
September 30,
2009 |
|
December 31,
2009 |
|
September 30,
2010 |
|
Senior debt: |
|
|
|
|
|
|
|
|
|
|
|
Fixed rate Federal Home Loan Bank Advances. These notes bear a combined weighted-average rate of 2.19% at September 30, 2009, 2.93% at
December 31, 2009 and 2.19% at September 30, 2010 |
|
$ |
2,901,000 |
|
$ |
2,001,000 |
|
$ |
2,251,000 |
|
|
Floating rate notes due March 2011. These notes, which bear interest at 0.08% above 3-month LIBOR, had a rate of 0.38% at September 30, 2009, 0.33% at
December 31, 2009, and 0.37% at September 30, 2010 |
|
|
500,000 |
|
|
500,000 |
|
|
500,000 |
|
|
Floating rate notes due March 2012. These notes, which bear interest at 0.20% above 3-month LIBOR, had a rate of 0.50% at September 30, 2009, 0.45% at
December 31, 2009 and 0.49% at September 30, 2010 |
|
|
500,000 |
|
|
500,000 |
|
|
500,000 |
|
Note payable: |
|
|
|
|
|
|
|
|
|
|
|
Fixed rate 6.03% notes due July 2014 (related to consolidated VIE) |
|
|
|
|
|
|
|
|
7,853 |
|
Subordinated debt: |
|
|
|
|
|
|
|
|
|
|
|
Fixed rate 5.25% notes due December 2013 |
|
|
437,859 |
|
|
434,362 |
|
|
424,868 |
|
|
Fixed rate 5.95% notes due May 2016 |
|
|
782,694 |
|
|
776,822 |
|
|
760,706 |
|
Junior subordinated debt payable to subsidiary grantor trust: |
|
|
|
|
|
|
|
|
|
|
|
Fixed rate 10.875% notes due March 2030 |
|
|
10,458 |
|
|
10,369 |
|
|
10,310 |
|
|
Fixed rate 10.60% notes due September 2030 |
|
|
3,182 |
|
|
3,158 |
|
|
3,093 |
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt |
|
$ |
5,135,193 |
|
$ |
4,225,711 |
|
$ |
4,457,830 |
|
|
|
|
|
|
|
|
|
As of September 30, 2009, December 31, 2009 and September 30, 2010, the Company had pledged loans and securities of
$38.6 billion, $38.0 billion, and $ 33.5 billion, respectively, as collateral for short-and medium-term advances from the Federal Reserve Bank and Federal Home Loan
Bank.
In
October 2008, the FDIC established the Temporary Liquidity Guarantee (TLG) Program. On March 16, 2009, the Bank issued $1.0 billion principal amount of Senior Floating
Rate Notes under the TLG Program. The proceeds thereof were used for general corporate purposes. Of the $1.0 billion of senior notes, $500 million in principal amount bear interest at a
rate equal to three-month LIBOR plus 0.08 percent per annum and mature on March 16, 2011 (2011 Notes). The remaining $500 million in principal amount bear interest at a rate equal
to three-month LIBOR plus 0.20 percent per annum and mature on March 16, 2012 (2012 Notes). In connection with the FDIC guarantee under the TLG Program, a fee of 1 percent per
annum is
35
Table of Contents
UnionBanCal Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 12Long-Term Debt (Continued)
charged
to the Bank on the $1.0 billion of senior notes. The interest on the 2011 Notes and the 2012 Notes is payable and reset quarterly on the 16th of March, June,
September and December of each year.
Under
the TLG Program, as amended on June 3, 2009, the Bank's senior unsecured debt with a maturity of more than 30 days and issued between October 14, 2008 and
October 31, 2009 is guaranteed by the full faith and credit of the United States. For debt issued prior to April 1, 2009, the FDIC guarantee expires upon the earlier of either the
maturity date of the debt or June 30, 2012. For debt issued on or after April 1, 2009, the FDIC guarantee expires upon the earlier of either the maturity date of the debt or
December 31, 2012.
Note 13Fair Value Measurement and Fair Value of Financial Instruments
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., an exit price)
in an orderly transaction between willing market participants at the measurement date. In determining fair value, the Company maximizes the use of observable market inputs and minimizes the use of
unobservable inputs. Observable inputs reflect market-derived or market-based information obtained from independent sources, while unobservable inputs reflect the Company's estimate about market data.
Based on the observability of the significant inputs used, the Company classifies its fair value measurements in accordance with the three-level hierarchy. This hierarchy is based on the quality and
reliability of the information used to determine fair value.
Level 1:
Valuations are based on quoted prices in active markets for identical assets or liabilities. Since the valuations are based on quoted prices that are readily available in an active
market, they do not entail a significant degree of judgment.
Level 2:
Valuations are based on quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based
valuations for which all significant assumptions are observable or can be corroborated by observable market data.
Level 3:
Valuations are based on at least one significant unobservable input that is supported by little or no market activity and is significant to the fair value measurement. Values are
determined using pricing models and discounted cash flow models that include management judgment and estimation, which may be significant.
In
assigning the appropriate levels, the Company performs a detailed analysis of the assets and liabilities that are measured at fair value. In certain cases, the inputs used to measure
fair value may fall into different levels of the fair value hierarchy. The level within which the fair value measurement is categorized is based on the lowest level input that is significant to the
fair value measurement in its entirety. Therefore, an item may be classified in Level 3 even though there may be many significant inputs that are readily observable.
36
Table of Contents
UnionBanCal Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 13Fair Value Measurement and Fair Value of Financial Instruments (Continued)
The Company has an established and documented process for determining fair value for financial assets and financial liabilities that
are measured at fair value on either a recurring or nonrecurring basis. When available, quoted market prices are used to determine fair value. If quoted market prices are not available, fair value is
based upon valuation techniques that use, where possible, current market-based or independently sourced parameters, such as interest rates, yield curves, foreign exchange rates, volatilities and
credit curves. Valuation adjustments may be made to ensure the financial instruments are recorded at fair value. These adjustments include amounts that reflect counterparty credit quality and that
consider the Company's creditworthiness in determining the fair value of its trading liabilities. A description of the valuation methodologies used for certain financial assets and financial
liabilities measured at fair value is as follows:
Recurring
Fair Value Measurements:
Trading
Account Assets: Trading account assets are recorded at fair value and primarily consist of securities and derivatives held for trading purposes. See discussion below on securities available
for sale, which utilize the same valuation methodology as trading account securities. See also discussion below on derivatives valuation.
Securities
Available for Sale: Securities available for sale are recorded at fair value based on readily available quoted market prices, if available. If such quoted market prices are not available,
management utilizes third-party pricing services and broker quotations from dealers in the specific instruments. If no market prices or broker quotes are available, external pricing models are used.
To the extent possible, these pricing model valuations utilize observable market inputs obtained for similar securities. Typical inputs include LIBOR and U.S. Treasury yield curves, benchmark yields,
consensus prepayment estimates and credit spreads. Level 1 measured securities include U.S. Government and agency securities. Level 2 measured securities include residential
mortgage-backed securities and certain asset-backed securities.
Derivatives:
The Company's derivatives are primarily traded in over-the-counter markets where quoted market prices are not readily available. The Company values its derivatives
using pricing models that are widely accepted in the financial services industry with inputs that are observable in the market or can be derived from or corroborated by observable market data. These
models reflect the contractual terms of the derivatives including the period to maturity and market observable inputs such as yield curves and option volatility.
Valuation adjustments are made to reflect counterparty credit quality and to consider the creditworthiness of the Company. Derivatives, which are included in trading account assets, trading account
liabilities and other assets, are generally measured as Level 2.
Trading
Account Liabilities: Trading account liabilities are recorded at fair value and primarily consist of derivatives and securities sold, not yet purchased. See discussion above on derivatives
valuation. Securities sold, not yet purchased consist of U.S. Government securities and are measured as Level 1.
Nonrecurring
Fair Value Measurements:
Loans
Held for Sale: Residential mortgage and commercial loans held for sale are recorded at the lower of cost or fair value. The fair value of fixed-rate residential loans is based on
whole loan forward prices obtained from GSEs. These loans are classified as Level 2. The fair value of commercial loans held for sale
37
Table of Contents
UnionBanCal Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 13Fair Value Measurement and Fair Value of Financial Instruments (Continued)
may
be based on secondary market offerings for loans with similar characteristics or a valuation methodology utilizing the appraised value to outstanding loan balance ratio. These loan values are
classified as Level 3.
Individually
Impaired Loans: Individually impaired loans are valued at the time the loan is identified as impaired based on the present value of the remaining expected cash flows. Because the discount
factor applied is based on the loan's original effective yield rather than a current market rate, that present value does not represent fair value. However, as a practical expedient, an impaired loan
may be measured based on a loan's observable market price or the underlying collateral securing the loan (provided that the loan is collateral dependent), which does approximate fair value. Collateral
may be real estate or business assets including equipment. The value of collateral is determined based on independent appraisals. Appraised values may be adjusted based on management's historical
knowledge, changes in market conditions from the time of valuation, and management's knowledge of the client and the client's business. The loan's market price is determined using market pricing for
similar assets, adjusted for management judgment. Impaired loans are reviewed and evaluated at least quarterly for additional impairment and adjusted accordingly. Impaired loans that are adjusted to
fair value based on underlying collateral or the loan's market price are classified as Level 3.
Private
Equity and CRA Investments: Private equity and CRA investments are recorded either at cost or using the equity method and are evaluated for impairment. The valuation of these investments
requires significant management judgment due to the absence of quoted market prices, lack of liquidity and the
long-term nature of these assets. When required, the fair value of the investments was estimated using the NAV of the fund or based on the investee's business model, current and projected
financial performance, liquidity and overall economic and market conditions. Private equity and CRA investment measurements are generally classified as Level 3.
OREO:
OREO represents collateral acquired through foreclosure and is initially recorded at fair value, adjusted for disposition costs. Subsequently, OREO is measured at lower of cost or fair value.
OREO values are reviewed on an ongoing basis and any change in value is recorded as a fair value adjustment. The value of OREO is determined based on independent appraisals and is generally classified
as Level 3.
LIHC
Investments: LIHC investments represent guaranteed and unguaranteed funds that are recorded using the effective yield or equity method of accounting, with the investment amortized over the period
the tax credits are allocated. These investments are evaluated for impairment based on the realizability of the tax credits and benefits from operating losses. Realizability of the tax credits is
based on the qualification of low-income status for the underlying properties. These investments are generally classified as Level 3.
38
Table of Contents
UnionBanCal Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 13Fair Value Measurement and Fair Value of Financial Instruments (Continued)
The following tables present financial assets and financial liabilities measured at fair value on a recurring basis as of
September 30, 2009, December 31, 2009 and September 30, 2010, by major category and by valuation hierarchy level.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009 |
|
(Dollars in thousands) |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Netting
Adjustment(1) |
|
Fair Value |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading account assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury |
|
$ |
53,592 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
53,592 |
|
|
|
Other U.S. government |
|
|
50,847 |
|
|
|
|
|
|
|
|
|
|
|
50,847 |
|
|
|
State and municipal |
|
|
|
|
|
46,617 |
|
|
|
|
|
|
|
|
46,617 |
|
|
|
Commercial paper |
|
|
|
|
|
56,519 |
|
|
|
|
|
|
|
|
56,519 |
|
|
|
Derivative contracts |
|
|
471 |
|
|
779,330 |
|
|
|
|
|
(46,826 |
) |
|
732,975 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total trading account assets |
|
|
104,910 |
|
|
882,466 |
|
|
|
|
|
(46,826 |
) |
|
940,550 |
|
|
Securities available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury |
|
|
299,259 |
|
|
|
|
|
|
|
|
|
|
|
299,259 |
|
|
|
Other U.S. government |
|
|
6,077,976 |
|
|
|
|
|
|
|
|
|
|
|
6,077,976 |
|
|
|
Residential mortgage-backed securitiesagency |
|
|
|
|
|
11,138,222 |
|
|
|
|
|
|
|
|
11,138,222 |
|
|
|
Residential mortgage-backed securitiesnon-agency |
|
|
|
|
|
431,926 |
|
|
|
|
|
|
|
|
431,926 |
|
|
|
State and municipal |
|
|
|
|
|
44,813 |
|
|
5,227 |
|
|
|
|
|
50,040 |
|
|
|
Asset-backed and debt securities |
|
|
|
|
|
106,190 |
|
|
|
|
|
|
|
|
106,190 |
|
|
|
Equity securities |
|
|
105,542 |
|
|
|
|
|
1,419 |
|
|
|
|
|
106,961 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities available for sale |
|
|
6,482,777 |
|
|
11,721,151 |
|
|
6,646 |
|
|
|
|
|
18,210,574 |
|
|
Other assets(2) |
|
|
|
|
|
118,666 |
|
|
|
|
|
(55,267 |
) |
|
63,399 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
6,587,687 |
|
$ |
12,722,283 |
|
$ |
6,646 |
|
$ |
(102,093 |
) |
$ |
19,214,523 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading account liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives |
|
$ |
6,560 |
|
$ |
767,183 |
|
$ |
|
|
$ |
(102,093 |
) |
$ |
671,650 |
|
|
|
Securities sold, not yet purchased |
|
|
43,425 |
|
|
|
|
|
|
|
|
|
|
|
43,425 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total trading account liabilities |
|
|
49,985 |
|
|
767,183 |
|
|
|
|
|
(102,093 |
) |
|
715,075 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
$ |
49,985 |
|
$ |
767,183 |
|
$ |
|
|
$ |
(102,093 |
) |
$ |
715,075 |
|
|
|
|
|
|
|
|
|
|
|
|
|
- (1)
- Amounts
represent the impact of legally enforceable master netting agreements between the same counterparties that allow the Company to net
settle all contracts.
- (2)
- Other
assets include nontrading derivatives.
39
Table of Contents
UnionBanCal Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 13Fair Value Measurement and Fair Value of Financial Instruments (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
(Dollars in thousands) |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Netting
Adjustment(1) |
|
Fair Value |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading account assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury |
|
$ |
15,430 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
15,430 |
|
|
|
Other U.S. government |
|
|
28,649 |
|
|
|
|
|
|
|
|
|
|
|
28,649 |
|
|
|
State and municipal |
|
|
|
|
|
24,878 |
|
|
|
|
|
|
|
|
24,878 |
|
|
|
Commercial paper |
|
|
|
|
|
74,594 |
|
|
|
|
|
|
|
|
74,594 |
|
|
|
Derivative contracts |
|
|
1,453 |
|
|
648,227 |
|
|
|
|
|
(67,583 |
) |
|
582,097 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total trading account assets |
|
|
45,532 |
|
|
747,699 |
|
|
|
|
|
(67,583 |
) |
|
725,648 |
|
|
Securities available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury |
|
|
299,677 |
|
|
|
|
|
|
|
|
|
|
|
299,677 |
|
|
|
Other U.S. government |
|
|
12,277,418 |
|
|
|
|
|
|
|
|
|
|
|
12,277,418 |
|
|
|
Residential mortgage-backed securitiesagency |
|
|
|
|
|
9,362,123 |
|
|
|
|
|
|
|
|
9,362,123 |
|
|
|
Residential mortgage-backed securitiesnon-agency |
|
|
|
|
|
391,439 |
|
|
|
|
|
|
|
|
391,439 |
|
|
|
State and municipal |
|
|
|
|
|
39,637 |
|
|
5,459 |
|
|
|
|
|
45,096 |
|
|
|
Asset-backed and debt securities |
|
|
|
|
|
108,135 |
|
|
|
|
|
|
|
|
108,135 |
|
|
|
Equity securities |
|
|
73,522 |
|
|
|
|
|
1,419 |
|
|
|
|
|
74,941 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities available for sale |
|
|
12,650,617 |
|
|
9,901,334 |
|
|
6,878 |
|
|
|
|
|
22,558,829 |
|
|
Other assets(2) |
|
|
|
|
|
97,186 |
|
|
|
|
|
(68,302 |
) |
|
28,884 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
12,696,149 |
|
$ |
10,746,219 |
|
$ |
6,878 |
|
$ |
(135,885 |
) |
$ |
23,313,361 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading account liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives |
|
$ |
1,978 |
|
$ |
630,951 |
|
$ |
|
|
$ |
(101,958 |
) |
$ |
530,971 |
|
|
|
Securities sold, not yet purchased |
|
|
7,923 |
|
|
|
|
|
|
|
|
|
|
|
7,923 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total trading account liabilities |
|
|
9,901 |
|
|
630,951 |
|
|
|
|
|
(101,958 |
) |
|
538,894 |
|
|
Other liabilities(2) |
|
|
|
|
|
12,164 |
|
|
|
|
|
(9,927 |
) |
|
2,237 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
$ |
9,901 |
|
$ |
643,115 |
|
$ |
|
|
$ |
(111,885 |
) |
$ |
541,131 |
|
|
|
|
|
|
|
|
|
|
|
|
|
- (1)
- Amounts
represent the impact of legally enforceable master netting agreements between the same counterparties that allow the Company to net
settle all contracts.
- (2)
- Other
assets and other liabilities include nontrading derivatives.
40
Table of Contents
UnionBanCal Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 13Fair Value Measurement and Fair Value of Financial Instruments (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
(Dollars in thousands) |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Netting
Adjustment(1) |
|
Fair Value |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading account assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury |
|
$ |
37,301 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
37,301 |
|
|
|
Other U.S. government |
|
|
74,253 |
|
|
|
|
|
|
|
|
|
|
|
74,253 |
|
|
|
State and municipal |
|
|
|
|
|
21,983 |
|
|
|
|
|
|
|
|
21,983 |
|
|
|
Commercial paper |
|
|
|
|
|
30,996 |
|
|
|
|
|
|
|
|
30,996 |
|
|
|
Foreign exchange derivative contracts |
|
|
263 |
|
|
32,211 |
|
|
|
|
|
(8,545 |
) |
|
23,929 |
|
|
|
Commodity derivative contracts |
|
|
|
|
|
224,831 |
|
|
|
|
|
(40,712 |
) |
|
184,119 |
|
|
|
Interest rate derivative contracts |
|
|
234 |
|
|
802,261 |
|
|
|
|
|
(32,987 |
) |
|
769,508 |
|
|
|
Equity derivative contracts |
|
|
|
|
|
30,658 |
|
|
|
|
|
(1,806 |
) |
|
28,852 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total trading account assets |
|
|
112,051 |
|
|
1,142,940 |
|
|
|
|
|
(84,050 |
) |
|
1,170,941 |
|
|
Securities available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury |
|
|
150,674 |
|
|
|
|
|
|
|
|
|
|
|
150,674 |
|
|
|
Other U.S. government |
|
|
8,154,642 |
|
|
|
|
|
|
|
|
|
|
|
8,154,642 |
|
|
|
Residential mortgage-backed securitiesagency |
|
|
|
|
|
9,240,855 |
|
|
|
|
|
|
|
|
9,240,855 |
|
|
|
Residential mortgage-backed securitiesnon-agency |
|
|
|
|
|
531,598 |
|
|
|
|
|
|
|
|
531,598 |
|
|
|
State and municipal |
|
|
|
|
|
38,264 |
|
|
8,854 |
|
|
|
|
|
47,118 |
|
|
|
Asset-backed and debt securities |
|
|
|
|
|
124,027 |
|
|
|
|
|
|
|
|
124,027 |
|
|
|
Equity securities |
|
|
76,737 |
|
|
|
|
|
1,397 |
|
|
|
|
|
78,134 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities available for sale |
|
|
8,382,053 |
|
|
9,934,744 |
|
|
10,251 |
|
|
|
|
|
18,327,048 |
|
|
Other assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate hedging contracts |
|
|
|
|
|
3,228 |
|
|
|
|
|
(1,192 |
) |
|
2,036 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other assets |
|
|
|
|
|
3,228 |
|
|
|
|
|
(1,192 |
) |
|
2,036 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
8,494,104 |
|
$ |
11,080,912 |
|
$ |
10,251 |
|
$ |
(85,242 |
) |
$ |
19,500,025 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading account liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange derivative contracts |
|
$ |
293 |
|
$ |
37,018 |
|
$ |
|
|
$ |
(11,197 |
) |
$ |
26,114 |
|
|
|
Commodity derivative contracts |
|
|
|
|
|
222,953 |
|
|
|
|
|
(36,605 |
) |
|
186,348 |
|
|
|
Interest rate derivative contracts |
|
|
1,674 |
|
|
761,512 |
|
|
|
|
|
(53,144 |
) |
|
710,042 |
|
|
|
Equity derivative contracts |
|
|
|
|
|
30,658 |
|
|
|
|
|
|
|
|
30,658 |
|
|
|
Credit derivative contracts |
|
|
|
|
|
|
|
|
14,045 |
|
|
|
|
|
14,045 |
|
|
|
Securities sold, not yet purchased |
|
|
42,681 |
|
|
|
|
|
|
|
|
|
|
|
42,681 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total trading account liabilities |
|
|
44,648 |
|
|
1,052,141 |
|
|
14,045 |
|
|
(100,946 |
) |
|
1,009,888 |
|
|
Other liabilities |
|
|
|
|
|
12,567 |
|
|
40,956 |
|
|
(1,173 |
) |
|
52,350 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
$ |
44,648 |
|
$ |
1,064,708 |
|
$ |
55,001 |
|
$ |
(102,119 |
) |
$ |
1,062,238 |
|
|
|
|
|
|
|
|
|
|
|
|
|
- (1)
- Amounts
represent the impact of legally enforceable master netting agreements between the same counterparties that allow the Company to net
settle all contracts.
41
Table of Contents
UnionBanCal Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 13Fair Value Measurement and Fair Value of Financial Instruments (Continued)
The following tables present a reconciliation of the assets measured at fair value on a recurring basis using significant unobservable inputs
(Level 3) for the three and nine months ended September 30, 2009 and 2010. Level 3 available for sale securities primarily consist of community redevelopment bonds. These bonds
were carried at cost, which approximates fair value.
Securities Available for Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
Ended September 30, |
|
For the Nine Months
Ended September 30, |
|
(Dollars in thousands) |
|
2009 |
|
2010 |
|
2009 |
|
2010 |
|
Balance, beginning of period |
|
$ |
6,308 |
|
$ |
8,643 |
|
$ |
1,203,092 |
|
$ |
6,878 |
|
|
Total gains/(losses) (realized/unrealized): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in income before taxes |
|
|
44 |
|
|
|
|
|
64 |
|
|
|
|
|
|
Included in other comprehensive income (loss) |
|
|
(10 |
) |
|
(1 |
) |
|
(54,721 |
) |
|
(21 |
) |
|
Purchases, sales, issuances and settlements |
|
|
304 |
|
|
1,609 |
|
|
2,025 |
|
|
3,394 |
|
|
Transfers in (out) Level 3(1) |
|
|
|
|
|
|
|
|
(1,143,814 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period |
|
$ |
6,646 |
|
$ |
10,251 |
|
$ |
6,646 |
|
$ |
10,251 |
|
|
|
|
|
|
|
|
|
|
|
Changes in unrealized gains (losses) included in income before taxes for assets and liabilities still held at end of period |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
- (1)
- The
CLO portfolio was transferred out of Level 3 during the first quarter of 2009 as a result of the reclassification from available
for sale to held to maturity. Held to maturity securities are not measured at fair value on a recurring basis and therefore are not subject to this fair value disclosure requirement.
Trading Liabilities
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
Ended September 30, |
|
For the Nine Months
Ended September 30, |
|
(Dollars in thousands) |
|
2010 |
|
2010 |
|
Balance, beginning of period |
|
$ |
|
|
$ |
|
|
|
Cumulative effect from change in accounting for embedded credit derivatives |
|
|
14,045 |
|
|
14,045 |
|
|
|
|
|
|
|
Balance, end of period |
|
$ |
14,045 |
|
$ |
14,045 |
|
|
|
|
|
|
|
Changes in unrealized gains (losses) included in income before taxes for assets and liabilities still held at end of period |
|
$ |
|
|
$ |
|
|
42
Table of Contents
UnionBanCal Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 13Fair Value Measurement and Fair Value of Financial Instruments (Continued)
Other Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
Ended September 30, |
|
For the Nine Months
Ended September 30, |
|
(Dollars in thousands) |
|
2010 |
|
2010 |
|
Balance, beginning of period |
|
$ |
40,799 |
|
$ |
|
|
|
Total gains/(losses) (realized/unrealized): |
|
|
|
|
|
|
|
|
|
Included in income before taxes |
|
|
157 |
|
|
157 |
|
|
|
Purchases, sales, issuances and settlements |
|
|
|
|
|
40,799 |
|
|
|
|
|
|
|
Balance, end of period |
|
$ |
40,956 |
|
$ |
40,956 |
|
|
|
|
|
|
|
Changes in unrealized gains (losses) included in income before taxes for assets and liabilities still held at end of period |
|
$ |
157 |
|
$ |
157 |
|
There were no transfers in or out of the Level 1 and 2 valuation hierarchies during the nine months ended September 30, 2010.
Certain assets may be measured at fair value on a nonrecurring basis. These assets are subject to fair value adjustments that result
from the application of the lower of cost or fair value accounting or write-downs of individual assets. For assets measured at fair value on a nonrecurring basis during the nine months ended
September 30, 2009 and 2010 that were still held on the consolidated balance sheet as of the respective periods ended, the following tables present the carrying value of such financial
instruments by the level of valuation assumptions used to determine each fair value adjustment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009 |
|
|
|
|
|
(Dollars in thousands) |
|
Carrying
Value |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Loss for the
Three Months Ended
September 30, 2009 |
|
Loss for the
Nine Months Ended
September 30, 2009 |
|
Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held to Maturity Investments |
|
$ |
1,670 |
|
$ |
|
|
$ |
|
|
$ |
1,670 |
|
$ |
|
|
$ |
(767 |
) |
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans Held for Sale |
|
|
13,320 |
|
|
|
|
|
4,635 |
|
|
8,685 |
|
|
(5,487 |
) |
|
(5,572 |
) |
|
Impaired Loans |
|
|
590,593 |
|
|
|
|
|
|
|
|
590,593 |
|
|
(74,009 |
) |
|
(189,644 |
) |
Other Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OREO |
|
|
13,082 |
|
|
|
|
|
|
|
|
13,082 |
|
|
(1,529 |
) |
|
(4,413 |
) |
|
CRA Investments |
|
|
7,595 |
|
|
|
|
|
|
|
|
7,595 |
|
|
(1,879 |
) |
|
(7,372 |
) |
|
Private Equity Investments |
|
|
26,769 |
|
|
|
|
|
|
|
|
26,769 |
|
|
(520 |
) |
|
(5,347 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
653,029 |
|
$ |
|
|
$ |
4,635 |
|
$ |
648,394 |
|
$ |
(83,424 |
) |
$ |
(213,115 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43
Table of Contents
UnionBanCal Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 13Fair Value Measurement and Fair Value of Financial Instruments (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
|
|
|
(Dollars in thousands) |
|
Carrying
Value |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Loss for the
Three Months Ended
September 30, 2010 |
|
Loss for the
Nine Months Ended
September 30, 2010 |
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired Loans |
|
$ |
561,376 |
|
$ |
|
|
$ |
|
|
$ |
561,376 |
|
$ |
(55,900 |
) |
$ |
(79,738 |
) |
Other Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OREO |
|
|
51,298 |
|
|
|
|
|
|
|
|
51,298 |
|
|
(10,667 |
) |
|
(12,442 |
) |
|
Private Equity Investments |
|
|
15,796 |
|
|
|
|
|
|
|
|
15,796 |
|
|
(842 |
) |
|
(5,483 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
628,470 |
|
$ |
|
|
$ |
|
|
$ |
628,470 |
|
$ |
(67,409 |
) |
$ |
(97,663 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans include residential mortgage and commercial loans held for sale measured at the lower of cost or fair value and individually impaired loans
that are measured based on the fair value of the underlying collateral or the fair value of the loan. The fair value of fixed-rate residential mortgage loans was determined using whole
loan forward prices obtained from GSEs. The fair value of commercial loans was determined using market pricing for similar assets, adjusted for management judgment. The fair value of impaired loans
was determined based on appraised values of the underlying collateral or market pricing for the loan, adjusted for management judgment.
Other
assets consist of private equity investments that were written down to fair value due to impairment, and OREO that was measured at the lower of cost or fair value, net of cost of
disposal. The fair value of OREO was primarily based on independent appraisals.
Private
equity investments with a total fair value of $15.8 million at September 30, 2010 relate to five funds that invest in the communications and media, middle market
and real estate industries. The fair value of these investments was estimated using NAV. There was $1.1 million in unfunded commitments related to these investments included in the above
nonrecurring fair value table at September 30, 2010.
In addition to financial instruments recorded at fair value in the Company's financial statements, the disclosure of the estimated fair
value of financial instruments that are not carried at fair value is also required. Excluded from this disclosure requirement are lease financing arrangements, investments accounted for under the
equity method, employee pension and other postretirement obligations and all nonfinancial assets and liabilities, including goodwill and other
intangible assets such as long-term customer relationships. The fair values presented are estimates for certain individual financial instruments and do not represent an estimate of the
fair value of the Company as a whole.
Certain
financial instruments that are not recognized at fair value on the consolidated balance sheet are carried at amounts that approximate fair value due to their
short-term nature. These financial instruments include cash and due from banks, interest bearing deposits in banks, federal funds sold and purchased, securities purchased under resale
agreements, securities sold under repurchase agreements and commercial paper. In addition, the fair value of deposits with no stated maturity, such as noninterest bearing demand deposits, interest
bearing checking, and market rate and other savings are deemed to equal their carrying values.
44
Table of Contents
UnionBanCal Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 13Fair Value Measurement and Fair Value of Financial Instruments (Continued)
Private
equity investments including direct investments in privately held companies and indirect investments in private equity funds are carried at amounts that approximate fair value.
Due to the unavailability of quoted market prices, the investments are initially valued based on cost and subsequently valued utilizing available market data to determine if the carrying value of
these investments should be adjusted. Valuations are based on the investee's recent financial performance and future potential, the value of underlying investee's assets, the risks associated with the
particular business, current market conditions, and other relevant factors.
Financial
instruments for which their carrying values do not approximate fair value include loans, interest bearing deposits with stated maturities, other borrowed funds,
long-term debt, and trust notes.
Securities held to maturity: The fair value of CLOs classified as held to maturity was estimated using a pricing model and broker
quotes. The model
is based on internally developed assumptions using available market data obtained from market participants and credit rating agencies.
Loans: The fair value of FDIC covered loans was estimated using a discounted cash flow methodology that considered factors including
the type of loan
and related collateral, risk classification, fixed or variable interest rate, term of loan, performance status and current discount rates. The fair values of mortgage loans were estimated based on
quoted market prices for loans with similar credit and interest rate risk characteristics. The fair values of other types of loans were estimated based upon the type of loan and
maturity. The fair value of these loans was determined by discounting the future expected cash flows using the current origination rates for similar loans made to borrowers with similar credit
ratings.
FDIC indemnification asset: The fair value of the FDIC indemnification asset was estimated using the present value of the cash flows
that the Bank
expects to collect from the FDIC under the loss share agreements.
Interest bearing deposits: The fair values of savings accounts and certain money market accounts were based on the amounts payable on
demand at the
reporting date. The fair value of fixed maturity certificates of deposit was estimated using a discounted cash flow calculation that applies current interest rates being offered on certificates with
similar maturities.
Other borrowed funds: The fair values of Federal Reserve Bank term borrowings, Federal Home Loan Bank borrowings and term federal funds
purchased
were estimated using a discounted cash flow calculation that applies current market rates for applicable maturities. The carrying values of other short-term borrowed funds were assumed to
approximate their fair value due to their limited duration.
Long-term debt: The fair value of senior and subordinated debt was estimated using either a discounted cash flow analysis based on
current market interest rates for debt with similar maturities and credit quality or estimated using market quotes. The fair value of junior subordinated debt payable to subsidiary grant trust was
estimated using market quotes of similar securities.
45
Table of Contents
UnionBanCal Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 13Fair Value Measurement and Fair Value of Financial Instruments (Continued)
The table below presents the carrying value and estimated fair value of certain financial instruments held by the Company as of December 31, 2009 and September 30, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
September 30, 2010 |
|
(Dollars in thousands) |
|
Carrying
Value |
|
Fair
Value |
|
Carrying
Value |
|
Fair
Value |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities held to maturity |
|
$ |
1,227,718 |
|
$ |
1,457,558 |
|
$ |
1,303,472 |
|
$ |
1,494,941 |
|
|
Loans, net of allowance for loan losses(1) |
|
|
45,222,765 |
|
|
44,924,749 |
|
|
46,005,097 |
|
|
46,120,365 |
|
|
FDIC indemnification asset |
|
|
|
|
|
|
|
|
833,939 |
|
|
838,032 |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing deposits |
|
|
53,958,664 |
|
|
53,969,991 |
|
|
46,114,925 |
|
|
46,200,847 |
|
|
Other borrowed funds |
|
|
591,934 |
|
|
591,953 |
|
|
136,441 |
|
|
136,442 |
|
|
Long-term debt |
|
|
4,225,711 |
|
|
4,193,404 |
|
|
4,457,830 |
|
|
4,555,978 |
|
- (1)
- Excludes
lease financing, net of related allowance.
Off-balance sheet commitments, which include commitments to extend credit and standby and commercial letters of credit, are excluded
from the above table. These instruments generate ongoing fees, which are recognized over the term of the commitment period. In situations where the credit quality of the counterparty to a commitment
has declined, the Company records a reserve. A reasonable estimate of the fair value of these instruments is the carrying value of deferred fees plus the related reserve. This totaled
$305.1 million and $291.2 million at December 31, 2009 and September 30, 2010, respectively.
Note 14Derivative Instruments and Other Financial Instruments Used For Hedging
The Company is a party to certain derivative and other financial instruments that are entered into for the purpose of trading, meeting the needs of customers, and changing the impact on
the Company's operating results due to market fluctuations in currency and/or interest rates.
Credit
and market risks are inherent in derivative instruments. Credit risk is defined as the possibility that a loss may occur from the failure of another party to perform in accordance
with the terms of the contract, which exceeds the value of the existing collateral, if any. The Company utilizes master netting and collateral support annex (CSA) agreements in order to reduce its
exposure to credit risk. Master netting agreements mitigate credit risk by permitting the offset of amounts due from and to individual counterparties in the event of default. The CSA requires the
counterparty with derivatives in a net loss position to provide collateral as prescribed by such agreement. Additionally, the Company considers the potential loss in the event of counterparty default
in estimating the fair value amount of the derivative instrument. Market risk is the possibility that future changes in market conditions may make the financial instrument less valuable.
Derivatives
are used to manage exposure to interest rate and foreign currency risk, generate profits from proprietary trading and assist customers with their risk management objectives.
The Company designates derivative instruments as those used for hedge accounting purposes, and those for trading or economic hedge purposes. All derivative instruments are recognized as assets or
liabilities on the consolidated balance sheet at fair value.
46
Table of Contents
UnionBanCal Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 14Derivative Instruments and Other Financial Instruments Used For Hedging (Continued)
The
tables below present the notional amounts, and the location and fair value amounts of the Company's derivative instruments reported on the consolidated balance sheet, segregated
between derivative instruments designated and qualifying as hedging instruments and all other derivative instruments as of September 30, 2009, December 31, 2009 and September 30,
2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009 |
|
|
|
|
|
Asset Derivatives(1) |
|
Liability Derivatives(1) |
|
(Dollars in thousands) |
|
Notional
Amount |
|
Balance
Sheet
Location |
|
Fair
Value |
|
Balance
Sheet
Location |
|
Fair
Value |
|
Total derivatives designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts(2) |
|
$ |
7,050,000 |
|
Other assets |
|
$ |
118,666 |
|
Other liabilities |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
$ |
2,981,215 |
|
Trading account assets |
|
$ |
27,625 |
|
Trading account liabilities |
|
$ |
43,707 |
|
|
|
Commodity contracts |
|
|
3,544,518 |
|
Trading account assets |
|
|
193,972 |
|
Trading account liabilities |
|
|
199,677 |
|
|
|
Interest rate contracts |
|
|
24,941,719 |
|
Trading account assets |
|
|
547,988 |
|
Trading account liabilities |
|
|
520,143 |
|
|
|
Equity contracts |
|
|
193,158 |
|
Trading account assets |
|
|
10,216 |
|
Trading account liabilities |
|
|
10,216 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives not designated as hedging instruments |
|
$ |
31,660,610 |
|
|
|
$ |
779,801 |
|
|
|
$ |
773,743 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
|
|
|
Asset Derivatives(1) |
|
Liability Derivatives(1) |
|
(Dollars in thousands) |
|
Notional
Amount |
|
Balance
Sheet
Location |
|
Fair
Value |
|
Balance
Sheet
Location |
|
Fair
Value |
|
Total derivatives designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts(2) |
|
$ |
8,800,000 |
|
Other assets |
|
$ |
97,186 |
|
Other liabilities |
|
$ |
12,164 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
$ |
2,701,925 |
|
Trading account assets |
|
$ |
22,398 |
|
Trading account liabilities |
|
$ |
27,097 |
|
|
|
Commodity contracts |
|
|
3,405,389 |
|
Trading account assets |
|
|
166,395 |
|
Trading account liabilities |
|
|
167,640 |
|
|
|
Interest rate contracts |
|
|
25,226,564 |
|
Trading account assets |
|
|
446,756 |
|
Trading account liabilities |
|
|
424,060 |
|
|
|
Equity contracts |
|
|
254,372 |
|
Trading account assets |
|
|
14,133 |
|
Trading account liabilities |
|
|
14,133 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives not designated as hedging instruments |
|
$ |
31,588,250 |
|
|
|
$ |
649,682 |
|
|
|
$ |
632,930 |
|
|
|
|
|
|
|
|
|
|
|
|
|
47
Table of Contents
UnionBanCal Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 14Derivative Instruments and Other Financial Instruments Used For Hedging (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
|
|
|
Asset Derivatives(1) |
|
Liability Derivatives(1) |
|
(Dollars in thousands) |
|
Notional
Amount |
|
Balance
Sheet
Location |
|
Fair
Value |
|
Balance
Sheet
Location |
|
Fair
Value |
|
Total derivatives designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts |
|
$ |
5,966,773 |
|
Other assets |
|
$ |
3,228 |
|
Other liabilities |
|
$ |
12,567 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
$ |
2,557,415 |
|
Trading account assets |
|
$ |
32,474 |
|
Trading account liabilities |
|
$ |
37,311 |
|
|
|
Commodity contracts |
|
|
3,550,464 |
|
Trading account assets |
|
|
224,831 |
|
Trading account liabilities |
|
|
222,953 |
|
|
|
Interest rate contracts |
|
|
29,192,499 |
|
Trading account assets |
|
|
802,495 |
|
Trading account liabilities |
|
|
763,186 |
|
|
|
Equity contracts |
|
|
1,011,084 |
|
Trading account assets |
|
|
30,658 |
|
Trading account liabilities |
|
|
30,658 |
|
|
|
Credit contracts |
|
|
60,000 |
|
|
|
|
|
|
Trading account liabilities |
|
|
14,045 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives not designated as hedging instruments |
|
$ |
36,371,462 |
|
|
|
$ |
1,090,458 |
|
|
|
$ |
1,068,153 |
|
|
|
|
|
|
|
|
|
|
|
|
|
- (1)
- Asset
and liability values are presented gross, excluding the impact of legally enforceable master netting and CSA agreements.
- (2)
- The
fair value includes unamortized premium of $4.4 million and $3.0 million related to terminated contracts at
September 30, 2009 and December 31, 2009, respectively.
Certain of the Company's derivative instruments contain provisions that require the Company to maintain a specified credit rating. If the
Company's credit rating was to fall below the specified rating, the counterparties to these derivative instruments could terminate the contract and demand immediate payment or demand immediate and
ongoing full overnight collateralization for those derivative instruments in net liability positions. At September 30, 2010, the aggregate fair value (including net interest payable/receivable)
of all derivative instruments with credit-risk mitigated contingent features that are in a liability position was $24.9 million. At September 30, 2010, the Company had not
pledged any collateral to secure these obligations. If all of the credit-risk-related contingent features underlying these agreements had been triggered on September 30,
2010, the Company would have been required to provide collateral of $24.9 million to settle these contracts.
Derivative instruments are integral components of the Company's asset and liability management activities. The Company uses interest
rate derivatives to manage the Company's net interest income sensitivity to changes in market interest rates. These instruments are used to manage interest rate risk relating to specified groups of
assets and liabilities, primarily LIBOR-based commercial loans, certificates of deposit, borrowings, and fixed rate subordinated debt. The following describes the significant hedging strategies of the
Company.
Cash Flow Hedges
Hedging Strategies for Variable Rate Loans, Borrowings and Certificates of Deposit and Other Time Deposits
The Company engages in several types of cash flow hedging strategies related to forecasted future interest payments, with the hedged
risk being the variability in those payments due to changes in the designated
48
Table of Contents
UnionBanCal Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 14Derivative Instruments and Other Financial Instruments Used For Hedging (Continued)
benchmark
rate (i.e., U.S. dollar LIBOR). In these strategies, the hedging instruments are matched with groups of similar variable rate instruments such that the reset tenor of the variable
rate instruments and that of the hedging instrument are identical at inception. Cash flow hedging strategies include the utilization of purchased floor, cap, collars and corridor options and interest
rate swaps. At September 30, 2010, the weighted average remaining life of the currently active cash flow hedges was approximately 2.9 years.
In
the third quarter of 2010, the Company entered into $1.0 billion notional amount of interest rate swaps to hedge interest rate variability of a forecasted fixed rate debt
issuance in the first half of 2011. The swaps are accounted for as a cash flow hedge and the Company expects to terminate the swaps
when the debt is issued. Upon termination of the swaps, any unrealized gain or loss on these swaps will be amortized into interest expense over the life of the debt.
The
Company uses purchased interest rate floors to hedge the variable cash flows associated with 1-month or 3-month LIBOR indexed loans. Payments received under
the floor contract offset the decline in loan interest income if the relevant LIBOR index falls below the floor's strike rate.
The
Company uses interest rate floor corridors to hedge the variable cash flows associated with 1-month or 3-month LIBOR indexed loans. Net payments to be
received under the floor corridor contracts offset the decline in loan interest income if the relevant LIBOR index falls below the corridor's upper strike rate but only to the extent the index remains
above the lower strike rate. The corridor will not provide protection from declines in the relevant LIBOR index to the extent it falls below the corridor's lower strike rate.
The
Company uses interest rate collars to hedge the variable cash flows associated with 1-month or 3-month LIBOR indexed loans. Net payments received under the
collar contract offset declines in loan interest income if the relevant LIBOR index falls below the collar's floor strike rate, while net payments paid reduce the increase in loan interest income if
the LIBOR index rises above the collar's cap strike rate.
The
Company uses interest rate swaps to hedge the variable cash flows associated with 1-month or 3-month LIBOR indexed loans. Payments received (or paid) under
the swap contract offset fluctuations in loan interest income caused by changes in the relevant LIBOR index. As such, these instruments hedge all fluctuations in the loans' interest income caused by
changes in the relevant LIBOR index.
The
Company uses purchased interest rate caps to hedge the variable interest cash flows associated with 1-month or 3-month LIBOR indexed borrowings. Payments
received under the cap contract offset the increase in borrowing interest expense if the relevant LIBOR index rises above the cap's strike rate.
The
Company uses purchased interest rate caps to hedge the variable interest cash flows associated with the forecasted issuance and rollover of short-term, fixed rate CDs. In
these hedging relationships, the Company hedges the change in interest rates based on 1-month, 3-month, and 6-month LIBOR, which is consistent with the CDs'
original term to maturity and reflects their repricing frequency. Net payments to be received under the cap contract offset increases in interest expense caused by the relevant LIBOR index rising
above the cap's strike rate.
The
Company uses interest rate cap corridors to hedge the variable cash flows associated with the forecasted issuance and rollover of short-term, fixed rate CDs. In these
hedging relationships, the Company hedges changes in interest rates, either 1-month, 3-month, or 6-month LIBOR, based on the original term to maturity of the CDs.
Net payments received under the cap corridor contract offset increases in deposit interest expense caused by the relevant LIBOR index rising above the corridor's lower strike rate but only to the
extent
49
Table of Contents
UnionBanCal Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 14Derivative Instruments and Other Financial Instruments Used For Hedging (Continued)
the
index does not exceed the upper strike rate. The corridor will not provide protection from increases in the relevant LIBOR index to the extent it rises above the corridor's upper strike rate.
Hedging
transactions are structured at inception so that the notional amounts of the hedging instruments are matched to an equal principal amount of loans, CDs, or borrowings, the index
and repricing frequencies of the hedging instruments match those of the loans, CDs, or borrowings and the period in which the designated hedged cash flows occurs is equal to the term of the hedge
instruments. As such, most of the ineffectiveness in the hedging relationship results from the mismatch between the timing of reset dates on the hedging instruments versus those of the loans, CDs or
borrowings.
For
cash flow hedges, the effective portion of the gain or loss on the hedging instruments is reported as a component of other comprehensive income and reclassified into earnings in the
same period or periods during which the hedged cash flows are recognized in net interest income. Gains and losses representing hedge ineffectiveness or hedge components excluded from the assessment of
hedge effectiveness are recognized in noninterest expense in the period in which they arise. Based upon amounts included in accumulated other comprehensive income at September 30, 2010, the
Company expects to realize approximately $1.3 million in net interest income during the twelve months ending September 30, 2011. This amount could differ from amounts actually realized
due to changes in interest rates and the addition of other hedges subsequent to September 30, 2010.
The
following tables present the amount and location of the net gains and losses recorded in the Company's consolidated statements of income and changes in stockholder's equity for
derivatives designated as cash flow hedges for the three and nine months ended September 30, 2009 and September 30, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain or
(Loss) Recognized in
OCI on Derivative
Instruments
(Effective Portion) |
|
Gain or (Loss) Reclassified
from Accumulated OCI into
Income (Effective Portion) |
|
Gain or (Loss) Recognized in
Income on Derivative
Instruments (Ineffective
Portion and Amount Excluded
from Effectiveness Testing) |
|
|
|
For the Three Months
Ended September 30, |
|
|
|
For the Three Months
Ended September 30, |
|
|
|
For the Three Months
Ended September 30, |
|
(Dollars in thousands) |
|
2009 |
|
2010 |
|
Location |
|
2009 |
|
2010 |
|
Location |
|
2009 |
|
2010 |
|
Derivatives in cash flow hedging relationships |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
34,110 |
|
$ |
15,143 |
|
|
|
|
|
|
|
|
|
|
Interest rate contracts |
|
$ |
6,715 |
|
$ |
(14,945 |
) |
Interest expense |
|
|
|
|
|
|
|
Noninterest expense |
|
$ |
2 |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
6,715 |
|
$ |
(14,945 |
) |
|
|
$ |
34,110 |
|
$ |
15,143 |
|
|
|
$ |
2 |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50
Table of Contents
UnionBanCal Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 14Derivative Instruments and Other Financial Instruments Used For Hedging (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain or
(Loss) Recognized in
OCI on Derivative
Instruments
(Effective Portion) |
|
Gain or (Loss) Reclassified
from Accumulated OCI into
Income (Effective Portion) |
|
Gain or (Loss) Recognized in
Income on Derivative
Instruments (Ineffective
Portion and Amount Excluded
from Effectiveness Testing) |
|
|
|
For the Nine Months
Ended September 30, |
|
|
|
For the Nine Months
Ended September 30, |
|
|
|
For the Nine Months
Ended September 30, |
|
(Dollars in thousands) |
|
2009 |
|
2010 |
|
Location |
|
2009 |
|
2010 |
|
Location |
|
2009 |
|
2010 |
|
Derivatives in cash flow hedging relationships |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
99,446 |
|
$ |
52,524 |
|
|
|
|
|
|
|
|
|
|
Interest rate contracts |
|
$ |
42,372 |
|
$ |
(29,648 |
) |
Interest expense |
|
|
15 |
|
|
|
|
Noninterest expense |
|
$ |
77 |
|
$ |
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
42,372 |
|
$ |
(29,648 |
) |
|
|
$ |
99,461 |
|
$ |
52,524 |
|
|
|
$ |
77 |
|
$ |
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In the third quarter of 2010, the Company began hedging $966.8 million of fixed rate available for sale securities. The company
entered into $966.8 million of interest rate swaps to hedge the changes in fair value of certain fixed rate debt securities held as available for sale. The changes in value of the fixed rate
securities and swaps are recorded to securities gains (losses), net, and any ineffectiveness on the hedge is recorded to noninterest expense.
The
following table presents the amount and location of the net gains and losses as reported in the consolidated statement of income for derivative instruments classified as hedging
instruments and the related hedged item for the three and nine months ended September 30, 2010.
|
|
|
|
|
|
|
|
|
|
Gain or (Loss) Recognized |
|
(Dollars in thousands) |
|
Location |
|
For the Three and Nine Months Ended
September 30, 2010 |
|
|
Fair Value Interest Rate Contract |
|
Securities gains (losses), net |
|
$ |
(6,286 |
) |
|
Fixed Rate Securities |
|
Securities gains (losses), net |
|
|
6,286 |
|
|
Hedge Ineffectiveness |
|
Noninterest expense |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
$ |
|
|
|
|
|
|
|
|
Derivative instruments classified as trading include both derivatives entered into for the Company's own account and as an
accommodation for customers. Derivatives held for trading purposes are included in trading assets or trading liabilities with changes in fair value reflected in trading income or losses. The majority
of the Company's derivative transactions for customers were essentially offset by contracts with third parties that reduce or eliminate market risk exposures.
The
Company offers market-linked certificates of deposit, which allow the client to earn the higher of either a minimum fixed rate of interest or a return tied to either equity,
commodity or currency indices. The
51
Table of Contents
UnionBanCal Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 14Derivative Instruments and Other Financial Instruments Used For Hedging (Continued)
Company
hedges its exposure to the embedded derivative contained in market-linked CDs with a perfectly matched over-the-counter call option. Both the embedded derivative and
call option are recorded at fair value with the realized and unrealized changes in fair value recorded in noninterest income within trading account activities.
The
following tables present the amount and location of the net gains and losses reported in the consolidated statement of income for derivative instruments classified as trading and
derivatives used as economic hedges for the three and nine months ended September 30, 2009 and September 30, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain or (Loss) Recognized in Income on Derivative Instruments |
|
(Dollars in thousands) |
|
Location |
|
For the Three Months Ended
September 30, 2009 |
|
For the Nine Months Ended
September 30, 2009 |
|
Trading Derivatives and Economic Hedges: |
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts |
|
Trading account activities |
|
$ |
(3,972 |
) |
$ |
4,561 |
|
|
|
Foreign exchange contracts |
|
Trading account activities |
|
|
9,171 |
|
|
26,618 |
|
|
|
Commodity contracts |
|
Trading account activities |
|
|
(824 |
) |
|
(371 |
) |
|
|
Equity contracts |
|
Trading account activities |
|
|
659 |
|
|
1,767 |
|
|
|
|
|
|
|
|
|
Total |
|
|
|
$ |
5,034 |
|
$ |
32,575 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain or (Loss) Recognized in Income on Derivative Instruments |
|
(Dollars in thousands) |
|
Location |
|
For the Three Months Ended
September 30, 2010 |
|
For the Nine Months Ended
September 30, 2010 |
|
Trading Derivatives and Economic Hedges: |
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts |
|
Trading account activities |
|
$ |
16,473 |
|
$ |
24,508 |
|
|
|
Foreign exchange contracts |
|
Trading account activities |
|
|
6,311 |
|
|
23,006 |
|
|
|
Commodity contracts |
|
Trading account activities |
|
|
1,206 |
|
|
6,438 |
|
|
|
Equity contracts |
|
Trading account activities |
|
|
3,820 |
|
|
9,941 |
|
|
|
|
|
|
|
|
|
Total |
|
|
|
$ |
27,810 |
|
$ |
63,893 |
|
|
|
|
|
|
|
|
|
52
Table of Contents
UnionBanCal Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 15Accumulated Other Comprehensive Loss
The following table presents the change in each of the components of other comprehensive loss and the related tax effect of the change allocated to each component.
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
Before
Tax
Amount |
|
Tax
Effect |
|
Net of
Tax |
|
For the Nine Months Ended September 30, 2009: |
|
|
|
|
|
|
|
|
|
|
Cash flow hedge activities: |
|
|
|
|
|
|
|
|
|
|
|
Unrealized net gains on hedges arising during the period |
|
$ |
42,372 |
|
$ |
(16,648 |
) |
$ |
25,724 |
|
|
Less: accretion of privatization-related fair value adjustment |
|
|
10,829 |
|
|
(4,088 |
) |
|
6,741 |
|
|
Less: reclassification adjustment for net gains on hedges included in net income |
|
|
(110,290 |
) |
|
43,333 |
|
|
(66,957 |
) |
|
|
|
|
|
|
|
|
Net change in unrealized gains on hedges |
|
|
(57,089 |
) |
|
22,597 |
|
|
(34,492 |
) |
|
|
|
|
|
|
|
|
Securities: |
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains arising during the period on securities available for sale |
|
|
182,191 |
|
|
(71,583 |
) |
|
110,608 |
|
|
Reclassification adjustment for net gains on securities available for sale included in net income |
|
|
(13,303 |
) |
|
5,227 |
|
|
(8,076 |
) |
|
Less: accretion of privatization-related fair value adjustment on securities available for sale |
|
|
(10,567 |
) |
|
4,152 |
|
|
(6,415 |
) |
|
Less: accretion of privatization-related fair value adjustment on held-to-maturity securities |
|
|
(13,021 |
) |
|
5,116 |
|
|
(7,905 |
) |
|
Less: accretion of net unrealized losses on held to maturity securities |
|
|
53,609 |
|
|
(21,063 |
) |
|
32,546 |
|
|
|
|
|
|
|
|
|
Net change in unrealized losses on securities |
|
|
198,909 |
|
|
(78,151 |
) |
|
120,758 |
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
|
1,787 |
|
|
(702 |
) |
|
1,085 |
|
|
|
|
|
|
|
|
|
Reclassification adjustment for pension and other benefits included in net income: |
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior service costs |
|
|
(47 |
) |
|
18 |
|
|
(29 |
) |
|
Amortization of transition amount |
|
|
983 |
|
|
(386 |
) |
|
597 |
|
|
Recognized net actuarial loss |
|
|
15,853 |
|
|
(6,229 |
) |
|
9,624 |
|
|
|
|
|
|
|
|
|
Net change in pension and other benefits |
|
|
16,789 |
|
|
(6,597 |
) |
|
10,192 |
|
|
|
|
|
|
|
|
|
Net change in accumulated other comprehensive loss |
|
$ |
160,396 |
|
$ |
(62,853 |
) |
$ |
97,543 |
|
|
|
|
|
|
|
|
|
For the Nine Months Ended September 30, 2010: |
|
|
|
|
|
|
|
|
|
|
Cash flow hedge activities: |
|
|
|
|
|
|
|
|
|
|
|
Unrealized net losses on hedges arising during the period |
|
$ |
(29,648 |
) |
$ |
11,649 |
|
$ |
(17,999 |
) |
|
Less: accretion of privatization-related fair value adjustment |
|
|
2,377 |
|
|
(934 |
) |
|
1,443 |
|
|
Less: Reclassification adjustment for net gains on hedges included in net income |
|
|
(54,901 |
) |
|
21,571 |
|
|
(33,330 |
) |
|
|
|
|
|
|
|
|
Net change in unrealized gains on hedges |
|
|
(82,172 |
) |
|
32,286 |
|
|
(49,886 |
) |
|
|
|
|
|
|
|
|
Securities: |
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect from change in accounting for embedded credit derivatives |
|
|
10,660 |
|
|
(4,188 |
) |
|
6,472 |
|
|
Unrealized holding gains arising during the period on securities available for sale |
|
|
338,046 |
|
|
(132,818 |
) |
|
205,228 |
|
|
Reclassification adjustment for net gains on securities available for sale included in net income |
|
|
(71,839 |
) |
|
28,226 |
|
|
(43,613 |
) |
|
Less: accretion of privatization-related fair value adjustment on securities available for sale |
|
|
(2,024 |
) |
|
795 |
|
|
(1,229 |
) |
|
Less: accretion of privatization-related fair value adjustment on held to maturity securities |
|
|
(19,643 |
) |
|
7,718 |
|
|
(11,925 |
) |
|
Less: accretion of net unrealized losses on held to maturity securities |
|
|
68,817 |
|
|
(27,038 |
) |
|
41,779 |
|
|
|
|
|
|
|
|
|
Net change in unrealized losses on securities |
|
|
324,017 |
|
|
(127,305 |
) |
|
196,712 |
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
|
752 |
|
|
(295 |
) |
|
457 |
|
|
|
|
|
|
|
|
|
Reclassification adjustment for pension and other benefits included in net income: |
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior service costs |
|
|
(47 |
) |
|
18 |
|
|
(29 |
) |
|
Amortization of transition amount |
|
|
983 |
|
|
(386 |
) |
|
597 |
|
|
Recognized net actuarial loss |
|
|
15,829 |
|
|
(5,357 |
) |
|
10,472 |
|
|
|
|
|
|
|
|
|
Net change in pension and other benefits |
|
|
16,765 |
|
|
(5,725 |
) |
|
11,040 |
|
|
|
|
|
|
|
|
|
Net change in accumulated other comprehensive loss |
|
$ |
259,362 |
|
$ |
(101,039 |
) |
$ |
158,323 |
|
|
|
|
|
|
|
|
|
53
Table of Contents
UnionBanCal Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 15Accumulated Other Comprehensive Loss (Continued)
The following table presents the change in accumulated other comprehensive loss balances.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
Net
Unrealized
Gains (Losses)
on Cash Flow
Hedges |
|
Net
Unrealized
Gains (Losses)
on Securities |
|
Foreign
Currency
Translation
Adjustment |
|
Pension and
Other
Benefits
Adjustment |
|
Accumulated
Other
Comprehensive
Loss |
|
Balance, December 31, 2008 |
|
$ |
73,308 |
|
$ |
(352,710 |
) |
$ |
(1,113 |
) |
$ |
(531,336 |
) |
$ |
(811,851 |
) |
Change during the period |
|
|
(34,492 |
) |
|
120,758 |
|
|
1,085 |
|
|
10,192 |
|
|
97,543 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2009 |
|
$ |
38,816 |
|
$ |
(231,952 |
) |
$ |
(28 |
) |
$ |
(521,144 |
) |
$ |
(714,308 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009 |
|
$ |
19,298 |
|
$ |
(296,309 |
) |
$ |
263 |
|
$ |
(374,114 |
) |
$ |
(650,862 |
) |
Change during the period |
|
|
(49,886 |
) |
|
196,712 |
|
|
457 |
|
|
11,040 |
|
|
158,323 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2010 |
|
$ |
(30,588 |
) |
$ |
(99,597 |
) |
$ |
720 |
|
$ |
(363,074 |
) |
$ |
(492,539 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Note 16Commitments, Contingencies and Guarantees
The following table summarizes the Company's significant commitments.
|
|
|
|
|
(Dollars in thousands) |
|
September 30, 2010 |
|
Commitments to extend credit |
|
$ |
22,491,379 |
|
Standby letters of credit |
|
|
4,891,369 |
|
Standby bond purchase agreements |
|
|
75,838 |
|
Commercial letters of credit |
|
|
51,828 |
|
Commitments to fund principal investments |
|
|
85,572 |
|
Commitments to fund LIHC investments |
|
|
120,209 |
|
Commitments to fund CLO securities |
|
|
11,339 |
|
Commitments
to extend credit are legally binding agreements to lend to a customer provided there are no violations of any condition established in the contract. Commitments have fixed
expiration dates or other termination clauses and may require maintenance of compensatory balances. Since many of the commitments to extend credit may expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash flow requirements.
Standby
and commercial letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. Standby letters of credit generally are
contingent upon the failure of the customer to perform according to the terms of the underlying contract with the third party, while commercial letters of credit are issued specifically to facilitate
foreign or domestic trade transactions. Standby bond purchase agreements are commitments to purchase bonds in the event that our customer's bonds cannot be remarketed. Additionally, the Company enters
into risk participations in bankers' acceptances wherein a fee is received to guarantee a portion of the credit risk on an acceptance of another bank. The majority of these types of commitments have
terms of one year or less. At September 30, 2010, the carrying value of the Company's risk participations in bankers' acceptances, standby bond purchase agreements and standby and commercial
letters of credit totaled $6.4 million. Estimated exposure to loss related to these commitments is covered by the allowance for losses on off-balance sheet commitments. The carrying
value of the standby and
54
Table of Contents
UnionBanCal Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 16Commitments, Contingencies and Guarantees (Continued)
commercial
letters of credit and the allowance for losses on off-balance sheet commitments are included in other liabilities on the consolidated balance sheet.
The
credit risk involved in issuing loan commitments and standby and commercial letters of credit is essentially the same as that involved in extending loans to customers and is
represented by the contractual amount of these instruments. Collateral may be obtained based on management's credit assessment of the customer.
Principal
investments include direct investments in private and public companies and indirect investments in private equity funds. The Company issues commitments to provide equity and
mezzanine capital financing to private and public companies through either direct investments in specific companies or through investment funds and partnerships. The timing of future cash requirements
to fund such commitments is generally dependent on the investment cycle. This cycle, the period over which privately-held companies are funded by private equity investors and ultimately
sold, merged, or taken public through an initial offering, can vary based on overall market conditions as well as the nature and type of industry in which the companies operate.
The
Company invests in either guaranteed or unguaranteed LIHC investments. The guaranteed LIHC investments carry a minimum rate of return guarantee by a creditworthy entity. The
unguaranteed LIHC investments carry partial guarantees covering the timely completion of projects, availability of tax credits and operating deficit thresholds from the issuer. For these LIHC
investments, the Company has committed to provide additional funding as stipulated by its investment participation.
The
Company is a fund manager for limited liability companies issuing LIHC investments. LIHC investments provide tax benefits to investors in the form of tax deductions from operating
losses and tax credits. To facilitate the sale of these LIHC investments, the Company guarantees a minimum rate of return throughout the investment term of over a twelve-year weighted
average period. Additionally, the Company receives guarantees, which include the timely completion of projects, availability of tax credits and operating deficit thresholds, from the limited liability
partnerships/corporations issuing the LIHC investments that reduce the Company's ultimate exposure to loss. As of September 30, 2010, the Company's maximum exposure to loss under these
guarantees is limited to a return of investor capital and minimum investment yield, or $206.3 million. The risk that the Company would be required to pay investors for a yield deficiency is
low, based on the continued satisfactory performance of the underlying properties. At September 30, 2010, the Company had a reserve of $7.4 million recorded related to these guarantees,
which represents the remaining unamortized fair value of the guarantee fees that were recognized at inception. For information on the Company's LIHC investments that were consolidated, refer to
Note 7 to these consolidated financial statements.
The
Company guarantees its subsidiaries' leveraged lease transactions with terms ranging from fifteen to thirty years. Following the original funding of these leveraged lease
transactions, the Company does not have any material obligation to be satisfied. As of September 30, 2010, we had no exposure to loss for these agreements.
The
Company conducts securities lending transactions for institutional customers as a fully disclosed agent. At times, securities lending indemnifications are issued to guarantee that a
security lending customer will be made whole in the event the borrower does not return the security subject to the lending agreement and collateral held is insufficient to cover the market value of
the security. All lending transactions are
55
Table of Contents
UnionBanCal Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 16Commitments, Contingencies and Guarantees (Continued)
collateralized,
primarily by cash. The amount of securities lent with indemnifications was $1.9 billion at September 30, 2010. The market value of the associated collateral was
$2.0 billion at September 30, 2010. As of September 30, 2010, the Company had no exposure that would require it to pay under this securities lending indemnification, since the
collateral market value exceeded the securities lent.
The
Company occasionally enters into financial guarantee contracts where a premium is received from another financial institution counterparty to guarantee a portion of the credit risk
on interest rate swap contracts entered into between the financial institution and its customer. The Company becomes liable to pay the financial institution only if the financial institution is unable
to collect amounts owed to them by their customer. As of September 30, 2010, the maximum exposure to loss under these contracts totaled $48.1 million. The risk that the Company would be
required to perform under these guarantees varies based on the creditworthiness of the other financial institution's customer. Credit risk grades are assigned by the Company based on the estimated
probability of default. The risk of default is considered low for those with superior to good credit ratings, moderate for those with satisfactory to adequate credit ratings, and high for those
considered special mention, substandard, doubtful and loss. Based on these criteria, at September 30, 2010, the Company had a maximum exposure to loss under these contracts with a low,
moderate, and high risk of payment exposure of $1.2 million, $32.9 million, and $14.0 million, respectively. At September 30, 2010, the Company maintained a reserve of
$2.1 million for losses related to these guarantees.
The
Company is subject to various pending and threatened legal actions that arise in the normal course of business. Reserves for losses from legal actions that are both probable and
estimable are recorded at
the time of that determination. Management believes that the disposition of all claims currently pending will not have a material adverse effect on the Company's consolidated financial condition,
operating results or liquidity.
Note 17Business Segments
As a result of a corporate reorganization in the fourth quarter of 2009, the Company reevaluated its business segments. Under the new organizational structure, the Company has three
operating segments: Retail Banking Group, Corporate Banking Group and Pacific Rim Corporate Group. The Corporate Banking Group and Pacific Rim Corporate Group segments have been aggregated together.
The Company has two reportable business segments: Retail Banking and Corporate Banking.
Prior
to this reorganization, the various operating segments were aggregated into two reportable business segments formerly known as "Retail Banking" and "Wholesale Banking." The
Company's new reportable business segment structure is similar to the previous structure. However, the Global and Wealth Markets division, which was previously included in Retail Banking, is now
included in Corporate Banking. Additionally, the goodwill, intangible assets, and related amortization/accretion associated with the privatization transaction, which was previously allocated to the
Company's operating segments, is reported in "Other."
-
- Retail Banking offers a range of banking products and services, primarily to individuals and small businesses, delivered
generally through a network of branches and ATMs located in the western U.S. and telephone and internet access 24-hours-a-day. These products offered include
mortgages, home equity lines of credit, consumer and commercial loans, and deposit accounts.
56
Table of Contents
UnionBanCal Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 17Business Segments (Continued)
-
- Corporate Banking provides credit, depository and cash management services, investment and risk management products to
businesses, individuals and target specialty niches. Services include commercial and project loans, real estate financing, asset-based financing, trade finance and letters of credit, lease financing,
customized cash management services and capital markets products, as well as trust, private banking, investment and asset management services for individuals and institutions. The Pacific Rim
Corporate Group offers a range of credit, deposit, and investment management products and services to companies headquartered in either Japan or the U.S.
"Other"
is comprised of certain non-bank subsidiaries of UnionBanCal Corporation; the transfer pricing center; the amount of the provision for credit losses over/(under) the
risk-adjusted return on capital (RAROC) expected loss for the period; the residual costs of support groups; goodwill, intangible assets, and the related amortization/accretion associated
with the Company's privatization transaction; the elimination of the fully taxable-equivalent basis amount; and the difference between the marginal tax rate and the consolidated effective tax rate. In
addition, "Other" includes Corporate Treasury, which is responsible for Asset-Liability Management (ALM), wholesale funding, and the ALM investment securities and derivatives hedging portfolios.
The
information, set forth in the tables that follow, is prepared using various management accounting methodologies to measure the performance of the individual segments. Unlike
financial accounting, there is no authoritative body of guidance for management accounting equivalent to US GAAP. Consequently, reported results are not necessarily comparable with those
presented by other companies, and they are not necessarily indicative of the results that would be reported by our business units if they were unique economic entities. The management reporting
accounting methodologies, which are enhanced from time to time, measure segment profitability by assigning balance sheet and income statement items to each operating segment. Methodologies that are
applied to the measurement of segment profitability include:
-
- A funds transfer pricing system, which assigns a cost of funds or a credit for funds to assets or liabilities based on
their type, maturity or repricing characteristics. During the first quarter of 2010, the Company refined its transfer pricing methodology with respect to reference rates for deposits and to include
additional assumptions about liquidity premiums, benefits granted for eligible loan collateral and charges for collateral requirements on deposits.
-
- An activity-based costing methodology, in which certain indirect costs, such as operations and technology expense, are
allocated to the segments based on studies of billable unit costs for product or data processing. Other indirect costs, such as corporate overhead, are allocated to an operating segment based on a
predetermined percentage of usage.
-
- A risk-adjusted return on capital methodology, in which credit expense is charged to an operating segment
based upon expected losses arising from credit risk. In addition, the attribution of economic capital is related to unexpected losses arising from credit, market and operational risks.
The
Company reflects a "market view" perspective in measuring the business segments. The market view is a measurement of customer markets aggregated to show all revenues generated and
expenses incurred from all products and services sold to those customers regardless of where product areas organizationally report. Therefore, revenues and expenses are included in both the business
segment that provides the service and the business segment that manages the customer relationship. The duplicative results from this internal management accounting view are reflected in "Reconciling
Items."
57
Table of Contents
UnionBanCal Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 17Business Segments (Continued)
The
business segment results for prior periods have been restated to reflect changes in the transfer pricing methodology, the organizational changes that have occurred and the market
view contribution.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail Banking |
|
Corporate Banking |
|
|
|
As of and for the
Three Months Ended
September 30, |
|
As of and for the
Three Months Ended
September 30, |
|
|
|
2009 |
|
2010 |
|
2009 |
|
2010 |
|
Results of operationsMarket View (dollars in thousands): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (expense) |
|
$ |
220,970 |
|
$ |
272,579 |
|
$ |
353,514 |
|
$ |
380,515 |
|
|
Noninterest income (expense) |
|
|
73,080 |
|
|
67,309 |
|
|
116,817 |
|
|
136,375 |
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
|
294,050 |
|
|
339,888 |
|
|
470,331 |
|
|
516,890 |
|
|
Noninterest expense (income) |
|
|
212,561 |
|
|
235,146 |
|
|
241,541 |
|
|
246,266 |
|
|
Credit expense (income) |
|
|
7,016 |
|
|
6,760 |
|
|
91,512 |
|
|
65,079 |
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes and including noncontrolling interests |
|
|
74,473 |
|
|
97,982 |
|
|
137,278 |
|
|
205,545 |
|
|
Income tax expense (benefit) |
|
|
29,119 |
|
|
38,311 |
|
|
32,191 |
|
|
55,787 |
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) including noncontrolling interests |
|
|
45,354 |
|
|
59,671 |
|
|
105,087 |
|
|
149,758 |
|
|
Less: Net income (loss) from noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to UNBC |
|
$ |
45,354 |
|
$ |
59,671 |
|
$ |
105,087 |
|
$ |
149,758 |
|
|
|
|
|
|
|
|
|
|
|
|
Total assets, end of periodMarket View (dollars in millions): |
|
$ |
22,341 |
|
$ |
23,041 |
|
$ |
32,446 |
|
$ |
30,132 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
Reconciling Items |
|
UnionBanCal Corporation |
|
|
|
As of and for the
Three Months Ended
September 30, |
|
As of and for the
Three Months Ended
September 30, |
|
As of and for the
Three Months Ended
September 30, |
|
|
|
2009 |
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
2010 |
|
Results of operationsMarket View (dollars in thousands): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (expense) |
|
$ |
5,041 |
|
$ |
(18,413 |
) |
$ |
(18,489 |
) |
$ |
(16,626 |
) |
$ |
561,036 |
|
$ |
618,055 |
|
|
Noninterest income (expense) |
|
|
8,939 |
|
|
28,440 |
|
|
(14,907 |
) |
|
(14,181 |
) |
|
183,929 |
|
|
217,943 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
|
13,980 |
|
|
10,027 |
|
|
(33,396 |
) |
|
(30,807 |
) |
|
744,965 |
|
|
835,998 |
|
|
Noninterest expense (income) |
|
|
62,065 |
|
|
93,316 |
|
|
(10,352 |
) |
|
(12,109 |
) |
|
505,815 |
|
|
562,619 |
|
|
Credit expense (income) |
|
|
215,609 |
|
|
(63,654 |
) |
|
(137 |
) |
|
(185 |
) |
|
314,000 |
|
|
8,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes and including noncontrolling interests |
|
|
(263,694 |
) |
|
(19,635 |
) |
|
(22,907 |
) |
|
(18,513 |
) |
|
(74,850 |
) |
|
265,379 |
|
|
Income tax expense (benefit) |
|
|
(110,174 |
) |
|
12,528 |
|
|
(8,957 |
) |
|
(7,238 |
) |
|
(57,821 |
) |
|
99,388 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) including noncontrolling interests |
|
|
(153,520 |
) |
|
(32,163 |
) |
|
(13,950 |
) |
|
(11,275 |
) |
|
(17,029 |
) |
|
165,991 |
|
|
Less: Net income (loss) from noncontrolling interests |
|
|
|
|
|
(3,788 |
) |
|
|
|
|
|
|
|
|
|
|
(3,788 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to UNBC |
|
$ |
(153,520 |
) |
$ |
(28,375 |
) |
$ |
(13,950 |
) |
$ |
(11,275 |
) |
$ |
(17,029 |
) |
$ |
169,779 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets, end of periodMarket View (dollars in millions): |
|
$ |
25,210 |
|
$ |
28,648 |
|
$ |
(1,844 |
) |
$ |
(1,979 |
) |
$ |
78,153 |
|
$ |
79,842 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58
Table of Contents
UnionBanCal Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Note 17Business Segments (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail Banking |
|
Corporate Banking |
|
|
|
As of and for the
Nine Months Ended
September 30, |
|
As of and for the
Nine Months Ended
September 30, |
|
|
|
2009 |
|
2010 |
|
2009 |
|
2010 |
|
Results of operationsMarket View (dollars in thousands): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (expense) |
|
$ |
617,423 |
|
$ |
777,951 |
|
$ |
963,444 |
|
$ |
1,147,410 |
|
|
Noninterest income (expense) |
|
|
212,440 |
|
|
207,757 |
|
|
363,144 |
|
|
398,798 |
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
|
829,863 |
|
|
985,708 |
|
|
1,326,588 |
|
|
1,546,208 |
|
|
Noninterest expense (income) |
|
|
614,598 |
|
|
681,324 |
|
|
654,548 |
|
|
735,727 |
|
|
Credit expense (income) |
|
|
21,353 |
|
|
20,115 |
|
|
246,798 |
|
|
218,020 |
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes and including noncontrolling interests |
|
|
193,912 |
|
|
284,269 |
|
|
425,242 |
|
|
592,461 |
|
|
Income tax expense (benefit) |
|
|
75,820 |
|
|
111,149 |
|
|
101,998 |
|
|
160,868 |
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) including noncontrolling interests |
|
|
118,092 |
|
|
173,120 |
|
|
323,244 |
|
|
431,593 |
|
|
Less: Net income (loss) from noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to UNBC |
|
$ |
118,092 |
|
$ |
173,120 |
|
$ |
323,244 |
|
$ |
431,593 |
|
|
|
|
|
|
|
|
|
|
|
|
Total assets, end of periodMarket View (dollars in millions): |
|
$ |
22,341 |
|
$ |
23,041 |
|
$ |
32,446 |
|
$ |
30,132 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
Reconciling Items |
|
UnionBanCal Corporation |
|
|
|
As of and for the
Nine Months Ended
September 30, |
|
As of and for the
Nine Months Ended
September 30, |
|
As of and for the
Nine Months Ended
September 30, |
|
|
|
2009 |
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
2010 |
|
Results of operationsMarket View (dollars in thousands): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (expense) |
|
$ |
133,791 |
|
$ |
(84,741 |
) |
$ |
(43,273 |
) |
$ |
(47,819 |
) |
$ |
1,671,385 |
|
$ |
1,792,801 |
|
|
Noninterest income (expense) |
|
|
2,385 |
|
|
107,392 |
|
|
(36,111 |
) |
|
(41,805 |
) |
|
541,858 |
|
|
672,142 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
|
136,176 |
|
|
22,651 |
|
|
(79,384 |
) |
|
(89,624 |
) |
|
2,213,243 |
|
|
2,464,943 |
|
|
Noninterest expense (income) |
|
|
317,518 |
|
|
289,754 |
|
|
(27,408 |
) |
|
(35,414 |
) |
|
1,559,256 |
|
|
1,671,391 |
|
|
Credit expense (income) |
|
|
655,323 |
|
|
(15,672 |
) |
|
(474 |
) |
|
(463 |
) |
|
923,000 |
|
|
222,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes and including noncontrolling interests |
|
|
(836,665 |
) |
|
(251,431 |
) |
|
(51,502 |
) |
|
(53,747 |
) |
|
(269,013 |
) |
|
571,552 |
|
|
Income tax expense (benefit) |
|
|
(319,850 |
) |
|
(69,949 |
) |
|
(20,137 |
) |
|
(21,015 |
) |
|
(162,169 |
) |
|
181,053 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) including noncontrolling interests |
|
|
(516,815 |
) |
|
(181,482 |
) |
|
(31,365 |
) |
|
(32,732 |
) |
|
(106,844 |
) |
|
390,499 |
|
|
Less: Net income (loss) from noncontrolling interests |
|
|
|
|
|
(10,383 |
) |
|
|
|
|
|
|
|
|
|
|
(10,383 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to UNBC |
|
$ |
(516,815 |
) |
$ |
(171,099 |
) |
$ |
(31,365 |
) |
$ |
(32,732 |
) |
$ |
(106,844 |
) |
$ |
400,882 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets, end of periodMarket View (dollars in millions): |
|
$ |
25,210 |
|
$ |
28,648 |
|
$ |
(1,844 |
) |
$ |
(1,979 |
) |
$ |
78,153 |
|
$ |
79,842 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 18Subsequent Events
The Company has evaluated the potential disclosure of subsequent events through the filing date of this Form 10-Q and has determined that there are no subsequent
events required to be disclosed.
59
Table of Contents
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
UnionBanCal Corporation and Subsidiaries
Consolidated Financial Highlights
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the
Three Months Ended |
|
|
|
(Dollars in thousands) |
|
September 30,
2009 |
|
September 30,
2010 |
|
Percent
Change |
|
Results of operations: |
|
|
|
|
|
|
|
|
|
|
|
Net interest income(1) |
|
$ |
564,296 |
|
|
620,639 |
|
|
9.98 |
% |
|
Provision for loan losses |
|
|
314,000 |
|
|
8,000 |
|
|
(97.45 |
) |
|
Noninterest income |
|
|
183,929 |
|
|
217,943 |
|
|
18.49 |
|
|
Noninterest expense |
|
|
505,815 |
|
|
562,619 |
|
|
11.23 |
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes and including noncontrolling interests(1) |
|
|
(71,590 |
) |
|
267,963 |
|
|
nm |
|
|
Taxable-equivalent adjustment |
|
|
3,260 |
|
|
2,584 |
|
|
(20.74 |
) |
|
Income tax expense (benefit) |
|
|
(57,821 |
) |
|
99,388 |
|
|
nm |
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) including noncontrolling interests |
|
|
(17,029 |
) |
|
165,991 |
|
|
nm |
|
|
Deduct: Net loss from noncontrolling interests |
|
|
|
|
|
3,788 |
|
|
nm |
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to UnionBanCal Corporation (UNBC) |
|
$ |
(17,029 |
) |
$ |
169,779 |
|
|
nm |
|
|
|
|
|
|
|
|
|
|
Balance sheet (end of period): |
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
78,153,207 |
|
$ |
79,842,077 |
|
|
2.16 |
% |
|
Total securities(2) |
|
|
19,403,911 |
|
|
19,630,520 |
|
|
1.17 |
|
|
Total loans |
|
|
48,169,508 |
|
|
47,911,109 |
|
|
(0.54 |
) |
|
Nonperforming assets |
|
|
1,367,691 |
|
|
1,509,720 |
|
|
10.38 |
|
|
Total deposits |
|
|
60,691,368 |
|
|
61,540,546 |
|
|
1.40 |
|
|
Long-term debt |
|
|
5,135,193 |
|
|
4,457,830 |
|
|
(13.19 |
) |
|
UNBC Stockholder's equity |
|
|
9,475,004 |
|
|
10,134,681 |
|
|
6.96 |
|
Balance sheet (period average): |
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
74,352,649 |
|
$ |
82,265,037 |
|
|
10.64 |
% |
|
Total securities(2) |
|
|
10,774,972 |
|
|
22,486,682 |
|
|
nm |
|
|
Total loans |
|
|
48,764,826 |
|
|
48,104,954 |
|
|
(1.35 |
) |
|
Earning assets |
|
|
68,235,083 |
|
|
74,497,629 |
|
|
9.18 |
|
|
Total deposits |
|
|
59,453,936 |
|
|
64,822,479 |
|
|
9.03 |
|
|
UNBC Stockholder's equity |
|
|
7,358,773 |
|
|
9,912,847 |
|
|
34.71 |
|
Financial ratios: |
|
|
|
|
|
|
|
|
|
|
|
Return on average assets(3) |
|
|
(0.09 |
)% |
|
0.82 |
% |
|
|
|
|
Return on average UNBC stockholder's equity(3) |
|
|
(0.92 |
) |
|
6.80 |
|
|
|
|
|
Core efficiency ratio(4) |
|
|
65.07 |
|
|
63.69 |
|
|
|
|
|
Net interest margin(1)(3) |
|
|
3.31 |
|
|
3.33 |
|
|
|
|
|
Tier 1 risk-based capital ratio |
|
|
11.60 |
|
|
12.27 |
|
|
|
|
|
Total risk-based capital ratio |
|
|
14.42 |
|
|
14.97 |
|
|
|
|
|
Leverage ratio |
|
|
10.39 |
|
|
9.86 |
|
|
|
|
|
Tier 1 common capital ratio(6) |
|
|
11.58 |
|
|
12.25 |
|
|
|
|
|
Tangible common equity ratio(5) |
|
|
8.94 |
|
|
9.59 |
|
|
|
|
|
Allowance for loan losses to total loans(7) |
|
|
2.62 |
|
|
2.67 |
|
|
|
|
|
Allowance for loan losses to nonaccrual loans(7) |
|
|
95.15 |
|
|
96.79 |
|
|
|
|
|
Allowance for credit losses to total loans(8) |
|
|
2.97 |
|
|
3.01 |
|
|
|
|
|
Allowance for credit losses to nonaccrual loans(8) |
|
|
108.16 |
|
|
109.25 |
|
|
|
|
|
Net loans charged off to average total loans(3) |
|
|
1.11 |
|
|
0.74 |
|
|
|
|
|
Nonperforming assets to total loans, OREO and distressed loans held for sale |
|
|
2.84 |
|
|
3.14 |
|
|
|
|
|
Nonperforming assets to total assets |
|
|
2.75 |
|
|
1.89 |
|
|
|
|
|
Nonaccrual loans to total loans |
|
|
1.75 |
|
|
2.75 |
|
|
|
|
Excluding FDIC covered assets(9): |
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses to total loans(7) |
|
|
N/A |
|
|
2.76 |
% |
|
|
|
|
Allowance for loan losses to nonaccrual loans(7) |
|
|
N/A |
|
|
110.48 |
|
|
|
|
|
Allowance for credit losses to total loans(8) |
|
|
N/A |
|
|
3.12 |
|
|
|
|
|
Allowance for credit losses to nonaccrual loans(8) |
|
|
N/A |
|
|
124.70 |
|
|
|
|
|
Net loans charged off to average total loans(3) |
|
|
N/A |
|
|
0.77 |
|
|
|
|
|
Nonperforming assets to total loans, OREO and distressed loans held for sale |
|
|
N/A |
|
|
2.60 |
|
|
|
|
|
Nonperforming assets to total assets |
|
|
N/A |
|
|
1.54 |
|
|
|
|
|
Nonaccrual loans to total loans |
|
|
N/A |
|
|
2.50 |
|
|
|
|
- (1)
- Amounts
are on a taxable-equivalent basis using the federal statutory tax rate of 35 percent.
- (2)
- Total
securities consist of securities available for sale and securities held to maturity.
- (3)
- Annualized.
- (4)
- The
core efficiency ratio is net noninterest expense (noninterest expense excluding foreclosed asset expense (income), the provision for
(reversal of) losses on off-balance sheet commitments, LIHC investment amortization expense, expenses of the consolidated variable interest entities (VIEs) and merger costs related to the
acquisitions of certain assets and liabilities of Frontier and Tamalpais), as a percentage of total revenue (net interest income (taxable-equivalent basis) and noninterest income). Refer to
"Noninterest Expense" in this Form 10-Q for further information.
- (5)
- The
tangible common equity ratio, a non-GAAP financial measure, is calculated as tangible equity divided by tangible assets. The
methodology of determining tangible common equity may differ among companies. The tangible common equity ratio has been included to facilitate the understanding of the Company's capital structure and
for use in assessing and comparing the quality and composition of UNBC's capital structure to other financial institutions. Refer to "Capital" in this Form 10-Q for further
information.
- (6)
- The
Tier 1 common capital ratio is the ratio of Tier 1 capital, less qualifying trust preferred securities, to risk weighted
assets. The Tier 1 common capital ratio, a non-GAAP financial measure, has been included to facilitate the understanding of the Company's capital structure and for use in assessing
and comparing the quality and composition of UNBC's capital structure to other financial institutions. Refer to "Capital" in this Form 10-Q for further information.
- (7)
- The
allowance for loan losses ratios are calculated using the allowance for loan losses against end of period total loans or total nonaccrual
loans, as appropriate.
- (8)
- The
allowance for credit losses ratios are calculated using the sum of the allowances for loan losses and for losses on
off-balance sheet commitments against end of period total loans or total nonaccrual loans, as appropriate.
- (9)
- These
ratios exclude the impact of the acquired loans and OREO, which are covered under loss share agreements between Union Bank, N.A. and
the FDIC. Such agreements are related to the April 2010 acquisitions of certain assets and assumption of certain liabilities of Frontier and Tamalpais.
nm = not meaningful
N/A = not applicable for periods prior to the April 2010 Frontier and Tamalpais transactions.
60
Table of Contents
UnionBanCal Corporation and Subsidiaries
Consolidated Financial Highlights
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the
Nine Months Ended |
|
|
|
(Dollars in thousands) |
|
September 30,
2009 |
|
September 30,
2010 |
|
Percent
Change |
|
Results of operations: |
|
|
|
|
|
|
|
|
|
|
|
Net interest income(1) |
|
$ |
1,680,010 |
|
$ |
1,800,208 |
|
|
7.15 |
% |
|
Provision for loan losses |
|
|
923,000 |
|
|
222,000 |
|
|
(75.95 |
) |
|
Noninterest income |
|
|
541,858 |
|
|
672,142 |
|
|
24.04 |
|
|
Noninterest expense |
|
|
1,559,256 |
|
|
1,671,391 |
|
|
7.19 |
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes and including noncontrolling interests(1) |
|
|
(260,388 |
) |
|
578,959 |
|
|
nm |
|
|
Taxable-equivalent adjustment |
|
|
8,625 |
|
|
7,407 |
|
|
(14.12 |
) |
|
Income tax expense (benefit) |
|
|
(162,169 |
) |
|
181,053 |
|
|
nm |
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) including noncontrolling interests |
|
|
(106,844 |
) |
|
390,499 |
|
|
nm |
|
|
Deduct: Net loss from noncontrolling interests |
|
|
|
|
|
10,383 |
|
|
nm |
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to UNBC |
|
$ |
(106,844 |
) |
$ |
400,882 |
|
|
nm |
|
|
|
|
|
|
|
|
|
|
Balance sheet (end of period): |
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
78,153,207 |
|
$ |
79,842,077 |
|
|
2.16 |
% |
|
Total securities(2) |
|
|
19,403,911 |
|
|
19,630,520 |
|
|
1.17 |
|
|
Total loans |
|
|
48,169,508 |
|
|
47,911,109 |
|
|
(0.54 |
) |
|
Nonperforming assets |
|
|
1,367,691 |
|
|
1,509,720 |
|
|
10.38 |
|
|
Total deposits |
|
|
60,691,368 |
|
|
61,540,546 |
|
|
1.40 |
|
|
Long-term debt |
|
|
5,135,193 |
|
|
4,457,830 |
|
|
(13.19 |
) |
|
UNBC Stockholder's equity |
|
|
9,475,004 |
|
|
10,134,681 |
|
|
6.96 |
|
Balance sheet (period average): |
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
71,000,250 |
|
$ |
84,185,942 |
|
|
18.57 |
% |
|
Total securities(2) |
|
|
9,261,342 |
|
|
23,036,729 |
|
|
nm |
|
|
Total loans |
|
|
49,366,280 |
|
|
47,597,790 |
|
|
(3.58 |
) |
|
Earning assets |
|
|
64,593,827 |
|
|
76,967,666 |
|
|
19.16 |
|
|
Total deposits |
|
|
53,526,802 |
|
|
66,910,632 |
|
|
25.00 |
|
|
UNBC Stockholder's equity |
|
|
7,332,747 |
|
|
9,693,370 |
|
|
32.19 |
|
Financial ratios: |
|
|
|
|
|
|
|
|
|
|
|
Return on average assets(3) |
|
|
(0.20 |
)% |
|
0.64 |
% |
|
|
|
|
Return on average UNBC stockholder's equity(3) |
|
|
(1.95 |
) |
|
5.53 |
|
|
|
|
|
Core efficiency ratio(4) |
|
|
66.34 |
|
|
64.50 |
|
|
|
|
|
Net interest margin(1)(3) |
|
|
3.47 |
|
|
3.12 |
|
|
|
|
|
Tier 1 risk-based capital ratio |
|
|
11.60 |
|
|
12.27 |
|
|
|
|
|
Total risk-based capital ratio |
|
|
14.42 |
|
|
14.97 |
|
|
|
|
|
Leverage ratio |
|
|
10.39 |
|
|
9.86 |
|
|
|
|
|
Tier 1 common capital ratio(6) |
|
|
11.58 |
|
|
12.25 |
|
|
|
|
|
Tangible common equity ratio(5) |
|
|
8.94 |
|
|
9.59 |
|
|
|
|
|
Allowance for loan losses to total loans(7) |
|
|
2.62 |
|
|
2.67 |
|
|
|
|
|
Allowance for loan losses to nonaccrual loans(7) |
|
|
95.15 |
|
|
96.79 |
|
|
|
|
|
Allowance for credit losses to total loans(8) |
|
|
2.97 |
|
|
3.01 |
|
|
|
|
|
Allowance for credit losses to nonaccrual loans(8) |
|
|
108.16 |
|
|
109.25 |
|
|
|
|
|
Net loans charged off to average total loans(3) |
|
|
1.10 |
|
|
0.85 |
|
|
|
|
|
Nonperforming assets to total loans, OREO and distressed loans held for sale |
|
|
2.84 |
|
|
3.14 |
|
|
|
|
|
Nonperforming assets to total assets |
|
|
1.75 |
|
|
1.89 |
|
|
|
|
|
Nonaccrual loans to total loans |
|
|
1.75 |
|
|
2.75 |
|
|
|
|
Excluding FDIC covered assets(9): |
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses to total loans(7) |
|
|
N/A |
|
|
2.76 |
% |
|
|
|
|
Allowance for loan losses to nonaccrual loans(7) |
|
|
N/A |
|
|
110.48 |
|
|
|
|
|
Allowance for credit losses to total loans(8) |
|
|
N/A |
|
|
3.12 |
|
|
|
|
|
Allowance for credit losses to nonaccrual loans(8) |
|
|
N/A |
|
|
124.70 |
|
|
|
|
|
Net loans charged off to average total loans(3) |
|
|
N/A |
|
|
0.87 |
|
|
|
|
|
Nonperforming assets to total loans, OREO and distressed loans held for sale |
|
|
N/A |
|
|
2.60 |
|
|
|
|
|
Nonperforming assets to total assets |
|
|
N/A |
|
|
1.54 |
|
|
|
|
|
Nonaccrual loans to total loans |
|
|
N/A |
|
|
2.50 |
|
|
|
|
- (1)
- Amounts
are on a taxable-equivalent basis using the federal statutory tax rate of 35 percent.
- (2)
- Total
securities consist of securities available for sale and securities held to maturity.
- (3)
- Annualized.
- (4)
- The
core efficiency ratio is net noninterest expense (noninterest expense excluding foreclosed asset expense (income), the provision for
(reversal of) losses on off-balance sheet commitments, LIHC investment amortization expense, expenses of the consolidated VIEs and merger costs related to the acquisitions of certain
assets and liabilities of Frontier and Tamalpais), as a percentage of total revenue (net interest income (taxable-equivalent basis) and noninterest income). Refer to "Nointerest Expense" in this
Form 10-Q for further information.
- (5)
- The
tangible common equity ratio, a non-GAAP financial measure, is calculated as tangible equity divided by tangible assets. The
methodology of determining tangible common equity may differ among companies. The tangible common equity ratio has been included to facilitate the understanding of the Company's capital structure and
for use in assessing and comparing the quality and composition of UNBC's capital structure to other financial institutions. Refer to "Capital" in this Form 10-Q for further
information.
- (6)
- The
Tier 1 common capital ratio is the ratio of Tier 1 capital, less qualifying trust preferred securities, to risk weighted
assets. The Tier 1 common capital ratio, a non-GAAP financial measure, has been included to facilitate the understanding of the Company's capital structure and for use in assessing
and comparing the quality and composition of UNBC's capital structure to other financial institutions. Refer to "Capital" in this Form 10-Q for further information.
- (7)
- The
allowance for loan losses ratios are calculated using the allowance for loan losses against end of period total loans or total nonaccrual
loans, as appropriate.
- (8)
- The
allowance for credit losses ratios are calculated using the sum of the allowance for loan losses and for losses on
off-balance sheet commitments against end of period total loans or total nonaccrual loans, as appropriate.
- (9)
- These
ratios exclude the impact of the acquired loans and OREO, which are covered under loss share agreements between Union Bank, N.A. and
the FDIC. Such agreements are related to the April 2010 acquisitions of certain assets and assumption of certain liabilities of Frontier and Tamalpais.
nm = not meaningful
N/A = not applicable for periods prior to the April 2010 Frontier and Tamalpais transactions.
61
Table of Contents
This report includes forward-looking statements, which include forecasts of our financial results and condition, expectations for our
operations and business, and our assumptions for those forecasts and expectations. Do not rely unduly on forward-looking statements. Actual results might differ significantly compared to our forecasts
and expectations. Please refer to Part II Item 1A "Risk Factors" of our Quarterly Report on Form 10-Q (this Form 10-Q) for a discussion of some
factors that may cause results to differ.
Please
refer to our Consolidated Financial Statements and the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended
December 31, 2009 (2009 Form 10-K) along with the following discussion and analysis of our consolidated financial condition and results of operations for the period ended
September 30, 2010 in this Form 10-Q. Averages, as presented in the following tables, are substantially all based upon daily average balances.
As
used in this Form 10-Q, the term "UnionBanCal" and terms such as "we," "us" and "our" refer to UnionBanCal Corporation, Union Bank, N.A., one or more of their
consolidated subsidiaries, or to all of them together.
Introduction
We are a California-based financial holding company and bank holding company whose major subsidiary, Union Bank, N.A. (the Bank), is a
commercial bank. We provide a wide range of financial services to consumers, small businesses, middle-market companies and major corporations, primarily in California, Oregon, Washington and Texas as
well as nationally and internationally. We had consolidated assets of $79.8 billion at September 30, 2010.
On
November 4, 2008, we became a privately held company (privatization transaction). All of our issued and outstanding shares of common stock are owned by The Bank of
Tokyo-Mitsubishi UFJ, Ltd. (BTMU). Prior to the privatization transaction, BTMU owned approximately 64 percent of our outstanding shares of common stock.
Executive Overview
We are providing you with an overview of what we believe are the most significant factors and developments that impacted our third
quarter 2010 results and that could impact our future results. Further detailed information can be found elsewhere in this Form 10-Q. In addition, we ask that you carefully read
this entire document and any other reports that we refer to in this Form 10-Q for more detailed information that will assist your understanding of trends, events and uncertainties
that impact us.
On April 30, 2010, Union Bank acquired certain assets and assumed certain liabilities of Frontier Bank (Frontier) from the
Federal Deposit Insurance Corporation (FDIC) in an FDIC-assisted transaction. Additionally on April 16, 2010, Union Bank acquired certain assets and assumed certain liabilities of
Tamalpais Bank (Tamalpais) from the FDIC in an
FDIC-assisted transaction. For both acquisitions, we entered into loss share agreements with the FDIC, whereby the FDIC will cover a substantial portion of any future losses on acquired
loans and other real estate owned (OREO). We refer to the acquired assets subject to the loss share agreements collectively as "covered assets."
The
acquisitions have been accounted for under the acquisition method of accounting. The assets acquired and liabilities assumed were recorded at their estimated, provisional fair values
at their respective acquisition dates. See Note 3 to our consolidated financial statements in this Form 10-Q for additional information regarding these acquisitions.
62
Table of Contents
Over the past three years, the U.S. and global economies experienced a serious recession and unprecedented volatility in the financial
markets. There was significant deterioration in sectors of the U.S. consumer and business economy, which continued to present challenges for the banking and financial services industry during the
first nine months of 2010 and are expected to continue to do so for the remainder of 2010, as the economic outlook remains uncertain.
Our
sources of revenue are net interest income (predominantly from loans and deposits, as well as from investment securities and other funding sources) and noninterest income. For the
third quarter of 2010, total revenue was comprised of 74 percent net interest income and 26 percent noninterest income. Changes in interest rates, credit quality, economic trends and the
capital markets are primary factors that impact our revenue sources.
Our
primary sources of liquidity are core deposits and wholesale funding. Core deposits consist of total deposits, excluding brokered deposits and time deposits of $100,000 and over.
Wholesale funding includes unsecured funds raised from interbank and other sources, both domestic and international, and secured funds raised by selling securities under repurchase agreements and by
borrowing from the Federal Home Loan Bank of San Francisco (FHLB). We evaluate and monitor the stability and reliability of our various funding sources to help ensure that we have sufficient liquidity
when adverse situations arise.
In
the third quarter of 2010, our net interest income (on a taxable-equivalent basis) increased 10 percent from the third quarter of 2009 to $620.6 million. Our net
interest margin of 3.33 percent increased 2 basis points compared to the same period last year, primarily due to lower rates paid on interest bearing liabilities and investment securities
growth, partially offset by lower yields on investment securities. The growth in U.S. Government and agency securities was primarily funded by an increase in deposit liabilities.
In
the third quarter of 2010, our noninterest income of $217.9 million increased 19 percent from the third quarter of 2009 primarily due to higher trading account
activities revenue and accretion of income for the acquisition-related indemnification asset. In the third quarter of 2010, our noninterest expense of $562.6 million increased 11 percent
from the third quarter of 2009 primarily due to higher base salaries and incentive compensation accruals and acquisition-related expenses. These increases were partially offset by lower provision for
losses on off-balance sheet commitments and lower privatization-related intangible asset amortization.
Our
effective tax rate was 37.5 percent in the third quarter of 2010, compared to (77.3) percent in the third quarter of 2009. The change in the effective tax rate was primarily
due to pre-tax loss in the prior year compared to pre-tax income in the current year, as well as the impact of tax credits and state income taxes.
Our total assets decreased $5.8 billion, or 7 percent, to $79.8 billion at September 30, 2010 from
December 31, 2009, primarily as a result of our efforts to enhance the composition of our assets and liabilities. Securities available for sale declined $4.2 billion, or
19 percent, to $18.3 billion at September 30, 2010 and lower yielding interest bearing deposits in banks declined $4.2 billion, or 63 percent, to $2.4 billion
at September 30, 2010 from the corresponding balances at December 31, 2009. Offsetting these decreases was a $7.8 billion, or 15 percent, decrease in interest bearing
deposits at September 30, 2010, compared to December 31, 2009, due to a planned deposit runoff resulting from targeted rate reductions. Our stockholder's equity of $10.1 billion
at September 30, 2010 grew $0.7 billion, or 7 percent, from September 30, 2009.
Total
loans increased $0.7 billion, or 1 percent, to $47.9 billion at September 30, 2010, from December 31, 2009, primarily resulting from the Frontier
and Tamalpais acquisitions. Total loans, excluding FDIC covered loans and loans managed by our Special Assets Division, remained relatively flat as compared to December 31, 2009.
63
Table of Contents
In
the third quarter of 2010, our average total loans decreased 1 percent from the third quarter of 2009 to $48.1 billion. This decrease was primarily in the commercial,
financial and industrial sectors, due to tighter underwriting standards, proactive portfolio management, and lower loan demand.
In
the third quarter of 2010, our average total deposits increased 9 percent to $64.8 billion compared to the third quarter of 2009. In the third quarter of 2010, our
average noninterest bearing deposits increased 7 percent to $15.4 billion compared to the third quarter of 2009. In the third quarter of 2010, our average interest bearing deposits
increased by 10 percent to $49.4 billion compared to the third quarter of 2009. These increases reflect the results of targeted retail and corporate deposit-gathering marketing
initiatives throughout Union Bank. Average noninterest bearing deposits represented 24 percent of average total deposits in both of the third quarters of 2010 and 2009. The annualized average
all-in-cost of funds decreased to 0.55 percent in the third quarter of 2010, compared to 0.79 percent in the third quarter of 2009.
During the third quarter of 2010, the total provision for credit losses was zero compared to $320 million in the third quarter
of 2009. The decrease was primarily due to improved credit quality of the loan portfolio, as well as a change in the category mix and lower projected loss component of our nonaccrual loans during the
third quarter of 2010 compared to the third quarter of 2009. See further discussion below in "Allowances for Credit Losses."
Our
nonperforming assets totaled $1.4 billion, $1.3 billion and $1.5 billion at September 30, 2009, December 31, 2009 and September 30, 2010,
respectively. Our nonperforming assets, excluding FDIC covered assets, totaled $1.4 billion, $1.3 billion and $1.2 billion at September 30, 2009, December 31, 2009
and September 30, 2010, respectively. The decrease in nonperforming assets, excluding FDIC covered assets, from September 30, 2009 resulted from lower levels of nonaccrual loans
primarily in our commercial, financial, and industrial portfolio and our construction portfolio as a result of increased sales and charge-offs of problem loans in 2010. Net
charge-offs were $137 million, $95 million and $89 million in the third quarter of 2009, the fourth quarter of 2009 and the third quarter of 2010, respectively.
At
September 30, 2009, December 31, 2009 and September 30, 2010, our allowances for credit losses as a percentage of total loans were 2.97 percent,
3.25 percent and 3.01 percent, respectively. At
September 30, 2009, December 31, 2009 and September 30, 2010, our allowances for credit losses as a percentage of nonaccrual loans were 108 percent, 116 percent and
109 percent, respectively. At September 30, 2009, December 31, 2009 and September 30, 2010, our allowance for loan losses as a percentage of total loans was
2.62 percent, 2.87 percent and 2.67 percent, respectively. At September 30, 2009, December 31, 2009 and September 30, 2010, our allowance for loan losses as a
percentage of nonaccrual loans was 95 percent, 103 percent and 97 percent, respectively.
Critical Accounting Estimates
UnionBanCal Corporation's consolidated financial statements are prepared in accordance with accounting principles generally accepted in
the United States of America (US GAAP) and the general practices of the banking industry, which include management estimates and judgments.
Our
most significant estimates are approved by our Risk & Capital Committee, which is comprised of selected senior officers of the Bank. For each financial reporting period, a
review of these estimates is presented to and discussed with the Risk Committee and Audit & Finance Committee of our Board of Directors.
Understanding
our accounting policies is fundamental to understanding our consolidated financial condition and consolidated results of operations. Accordingly, both our Critical
Accounting Estimates and our significant accounting policies are discussed in detail in our 2009 Form 10-K filed with the Securities and Exchange Commission (the SEC). Other than
the changes discussed below, there have been no material changes to these critical accounting estimates during the nine months ended September 30, 2010.
64
Table of Contents
Acquired loans are recorded at fair value at acquisition date in accordance with the Financial Accounting Standards Board Accounting
Standards Codification (ASC) 805 "Business
Combinations," factoring in credit losses expected to be incurred over the life of the loan. Accordingly, an allowance for loan losses is not carried over or recorded as of the acquisition date.
In
conjunction with the FDIC-assisted acquisitions of Frontier and Tamalpais, we acquired certain loans with evidence of credit quality deterioration subsequent to their
origination and for which it was probable, at acquisition, that we would be unable to collect all contractually required payments receivable. We elected to account for all acquired loans, except for
revolving lines of credit, within the scope of the accounting guidance using the same methodology. In accordance with applicable accounting guidance, we may aggregate loans that have common risk
characteristics into pools and thereby use a composite interest rate and estimate of cash flows expected to be collected for the pools. We have aggregated all of the purchased credit-impaired loans
into pools based on common risk characteristics, which then become the unit of account. Once a pool is assembled, the integrity of the pool must be maintained. Significant judgment is required in
evaluating whether individual loans have common risk characteristics for purposes of establishing pools of loans.
At
the time of the acquisition, all acquired loans were recorded at fair value, including an estimate of losses that are expected to be incurred over the estimated remaining lives of the
loans. Many of the assumptions and estimates underlying the estimation of the initial fair value and the ongoing updates to management's expectation of future cash flows are both significant and
subjective, particularly considering the current economic environment. The economic environment and the lack of market liquidity and transparency are factors that have influenced, and may continue to
affect, these assumptions and estimates.
We
estimated the fair value of acquired loans at the acquisition date based on a discounted cash flow methodology that considered factors including the type of loan and related
collateral, risk classification, fixed or variable interest rate, term of loan and whether or not the loan was amortizing, and current discount rates. Loans were grouped together according to similar
characteristics and were treated in the aggregate when applying various valuation techniques. The discount rates used for loans are based on current market rates for new originations of comparable
loans, where available, and include adjustments for liquidity concerns. To the extent comparable market rates are not readily available, a discount rate was derived based on the assumptions of market
participants' cost of funds, servicing costs and return requirements for comparable risk assets. In either case, the discount rate does not include a factor for credit losses as that has been included
in the estimated cash flows. The initial estimate of cash flows to be collected was derived from assumptions such as default rates and loss severities.
The
accounting guidance for purchased credit-impaired loans provides that the excess of the cash flows initially expected to be collected over the fair value of the loans at the
acquisition date (i.e., the accretable yield) should be accreted into interest income at a level rate of return over the term of the loan, provided that the timing and amount of future cash
flows is reasonably estimable. The initial estimate of cash flows expected to be collected must be updated each subsequent reporting period based on updated assumptions regarding default rates, loss
severities, and other factors that are reflective of current market conditions. Probable decreases in expected loan principal cash flows after acquisition trigger the recognition of impairment,
through the provision and allowance for loan losses, which is then measured based on the present value of the expected principal loss, plus any related foregone interest cash flows discounted at the
loan pool's effective interest rate. Probable and significant increases in expected principal cash flows would first reverse any related allowance for loan losses; any remaining increases must be
recognized prospectively as interest income over the remaining lives of the loans. The impacts of changes in variable interest rates are recognized prospectively as adjustments to interest income. As
described above, the process of estimating cash flows expected to be collected has a significant impact on the initial recorded amount of the purchased credit-impaired loans and on subsequent
recognition of impairment losses and interest income. Estimating these cash flows requires a
65
Table of Contents
significant
level of management judgment. In addition, certain of the underlying assumptions are highly subjective.
In conjunction with the FDIC-assisted acquisitions of Frontier and Tamalpais, we entered into loss share agreements with
the FDIC. The purchase and assumption and loss share agreements have specific compliance, servicing, notification and reporting requirements. Any failure to comply with the requirements of the loss
share agreements, or to properly service the loans and OREO covered by any loss share arrangement, may cause individual loans or loan pools to lose their eligibility for loss share payments from the
FDIC, potentially resulting in material losses that are currently not anticipated. At the date of the acquisition, we recorded amounts receivable under the loss share agreements as an indemnification
asset. Subsequent to the acquisition, the indemnification asset is tied to the loss in the covered loans and is not being accounted for under fair value. The FDIC indemnification asset is accounted
for on the same basis as the related covered loans and is the present value of the cash flows that we expect to collect from the FDIC under the loss share agreements. The difference between the
present value and the undiscounted cash flows that we expect to collect from the FDIC is accreted into noninterest income over the life of the FDIC indemnification asset. The FDIC indemnification
asset is adjusted for any changes in expected cash flows based on the loan performance. Any increases in cash flows of the loans due to decreases in expected credit losses over those originally
expected will lower the accretion rate recorded in noninterest income. Any decreases in cash flows of the loans over those originally expected will increase the FDIC indemnification asset.
66
Table of Contents
Financial Performance
Net Interest Income
The following tables show the major components of net interest income and net interest margin.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
Increase (Decrease) in |
|
|
|
September 30, 2009 |
|
September 30, 2010 |
|
|
|
|
|
Interest
Income/
Expense(1) |
|
|
|
Average Balance |
|
|
|
Average
Balance |
|
Interest
Income/
Expense(1) |
|
Average
Yield/
Rate(1)(2) |
|
Average
Balance |
|
Interest
Income/
Expense(1) |
|
Average
Yield/
Rate(1)(2) |
|
(Dollars in thousands) |
|
Amount |
|
Percent |
|
Amount |
|
Percent |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial and industrial |
|
$ |
16,805,449 |
|
$ |
188,974 |
|
|
4.46 |
% |
$ |
14,628,126 |
|
$ |
176,212 |
|
|
4.78 |
% |
$ |
(2,177,323 |
) |
|
(13 |
)% |
$ |
(12,762 |
) |
|
(7 |
)% |
|
Construction |
|
|
2,772,804 |
|
|
20,828 |
|
|
2.98 |
|
|
1,946,412 |
|
|
15,290 |
|
|
3.12 |
|
|
(826,392 |
) |
|
(30 |
) |
|
(5,538 |
) |
|
(27 |
) |
|
Residential mortgage |
|
|
16,380,014 |
|
|
230,210 |
|
|
5.62 |
|
|
17,196,030 |
|
|
225,937 |
|
|
5.26 |
|
|
816,016 |
|
|
5 |
|
|
(4,273 |
) |
|
(2 |
) |
|
Commercial mortgage |
|
|
8,261,161 |
|
|
88,998 |
|
|
4.31 |
|
|
8,005,988 |
|
|
84,702 |
|
|
4.23 |
|
|
(255,173 |
) |
|
(3 |
) |
|
(4,296 |
) |
|
(5 |
) |
|
Consumer |
|
|
3,882,929 |
|
|
44,042 |
|
|
4.50 |
|
|
3,900,424 |
|
|
43,528 |
|
|
4.43 |
|
|
17,495 |
|
|
0 |
|
|
(514 |
) |
|
(1 |
) |
|
Lease financing |
|
|
662,469 |
|
|
5,462 |
|
|
3.30 |
|
|
638,469 |
|
|
6,013 |
|
|
3.77 |
|
|
(24,000 |
) |
|
(4 |
) |
|
551 |
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans, excluding FDIC covered loans |
|
|
48,764,826 |
|
|
578,514 |
|
|
4.73 |
|
|
46,315,449 |
|
|
551,682 |
|
|
4.75 |
|
|
(2,449,377 |
) |
|
(5 |
) |
|
(26,832 |
) |
|
(5 |
) |
FDIC covered loans |
|
|
|
|
|
|
|
|
|
|
|
1,789,505 |
|
|
32,238 |
|
|
7.17 |
|
|
1,789,505 |
|
|
nm |
|
|
32,238 |
|
|
nm |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
|
48,764,826 |
|
|
578,514 |
|
|
4.73 |
|
|
48,104,954 |
|
|
583,920 |
|
|
4.84 |
|
|
(659,872 |
) |
|
(1 |
) |
|
5,406 |
|
|
1 |
|
Securitiestaxable |
|
|
10,590,200 |
|
|
107,171 |
|
|
4.05 |
|
|
22,441,990 |
|
|
131,368 |
|
|
2.34 |
|
|
11,851,790 |
|
|
nm |
|
|
24,197 |
|
|
23 |
|
Securitiestax-exempt |
|
|
184,772 |
|
|
2,999 |
|
|
6.49 |
|
|
44,692 |
|
|
918 |
|
|
8.21 |
|
|
(140,080 |
) |
|
(76 |
) |
|
(2,081 |
) |
|
(69 |
) |
Interest bearing deposits in banks |
|
|
7,496,380 |
|
|
4,956 |
|
|
0.26 |
|
|
2,406,880 |
|
|
1,513 |
|
|
0.25 |
|
|
(5,089,500 |
) |
|
(68 |
) |
|
(3,443 |
) |
|
(69 |
) |
Federal funds sold and securities purchased under resale agreements |
|
|
282,457 |
|
|
110 |
|
|
0.15 |
|
|
389,999 |
|
|
146 |
|
|
0.15 |
|
|
107,542 |
|
|
38 |
|
|
36 |
|
|
33 |
|
Trading account assets |
|
|
916,448 |
|
|
271 |
|
|
0.12 |
|
|
1,109,114 |
|
|
591 |
|
|
0.21 |
|
|
192,666 |
|
|
21 |
|
|
320 |
|
|
nm |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total earning assets |
|
|
68,235,083 |
|
|
694,021 |
|
|
4.06 |
|
|
74,497,629 |
|
|
718,456 |
|
|
3.85 |
|
|
6,262,546 |
|
|
9 |
|
|
24,435 |
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
|
(1,044,533 |
) |
|
|
|
|
|
|
|
(1,374,656 |
) |
|
|
|
|
|
|
|
(330,123 |
) |
|
(32 |
) |
|
|
|
|
|
|
Cash and due from banks |
|
|
1,135,794 |
|
|
|
|
|
|
|
|
1,184,365 |
|
|
|
|
|
|
|
|
48,571 |
|
|
4 |
|
|
|
|
|
|
|
Premises and equipment, net |
|
|
668,699 |
|
|
|
|
|
|
|
|
671,632 |
|
|
|
|
|
|
|
|
2,933 |
|
|
0 |
|
|
|
|
|
|
|
Other assets |
|
|
5,357,606 |
|
|
|
|
|
|
|
|
7,286,067 |
|
|
|
|
|
|
|
|
1,928,461 |
|
|
36 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
74,352,649 |
|
|
|
|
|
|
|
$ |
82,265,037 |
|
|
|
|
|
|
|
$ |
7,912,388 |
|
|
11 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction and money market accounts |
|
$ |
33,064,944 |
|
$ |
72,837 |
|
|
0.87 |
|
$ |
32,722,785 |
|
$ |
33,335 |
|
|
0.40 |
|
$ |
(342,159 |
) |
|
(1 |
) |
$ |
(39,502 |
) |
|
(54 |
) |
|
Savings and consumer time |
|
|
4,486,545 |
|
|
12,572 |
|
|
1.11 |
|
|
7,944,796 |
|
|
16,605 |
|
|
0.83 |
|
|
3,458,251 |
|
|
77 |
|
|
4,033 |
|
|
32 |
|
|
Large time |
|
|
7,430,960 |
|
|
15,965 |
|
|
0.85 |
|
|
8,722,935 |
|
|
19,558 |
|
|
0.89 |
|
|
1,291,975 |
|
|
17 |
|
|
3,593 |
|
|
23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest bearing deposits |
|
|
44,982,449 |
|
|
101,374 |
|
|
0.89 |
|
|
49,390,516 |
|
|
69,498 |
|
|
0.56 |
|
|
4,408,067 |
|
|
10 |
|
|
(31,876 |
) |
|
(31 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds purchased and securities sold under repurchase agreements |
|
|
169,267 |
|
|
41 |
|
|
0.09 |
|
|
167,652 |
|
|
70 |
|
|
0.17 |
|
|
(1,615 |
) |
|
(1 |
) |
|
29 |
|
|
71 |
|
Commercial paper |
|
|
472,246 |
|
|
355 |
|
|
0.30 |
|
|
661,913 |
|
|
398 |
|
|
0.24 |
|
|
189,667 |
|
|
40 |
|
|
43 |
|
|
12 |
|
Other borrowed funds(4) |
|
|
262,441 |
|
|
604 |
|
|
0.91 |
|
|
196,474 |
|
|
438 |
|
|
0.88 |
|
|
(65,967 |
) |
|
(25 |
) |
|
(166 |
) |
|
(27 |
) |
Long-term debt |
|
|
5,112,517 |
|
|
27,351 |
|
|
2.12 |
|
|
4,527,669 |
|
|
27,413 |
|
|
2.40 |
|
|
(584,848 |
) |
|
(11 |
) |
|
62 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total borrowed funds |
|
|
6,016,471 |
|
|
28,351 |
|
|
1.87 |
|
|
5,553,708 |
|
|
28,319 |
|
|
2.02 |
|
|
(462,763 |
) |
|
(8 |
) |
|
(32 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest bearing liabilities |
|
|
50,998,920 |
|
|
129,725 |
|
|
1.01 |
|
|
54,944,224 |
|
|
97,817 |
|
|
0.71 |
|
|
3,945,304 |
|
|
8 |
|
|
(31,908 |
) |
|
(25 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest bearing deposits |
|
|
14,471,487 |
|
|
|
|
|
|
|
|
15,431,963 |
|
|
|
|
|
|
|
|
960,476 |
|
|
7 |
|
|
|
|
|
|
|
Other liabilities |
|
|
1,523,469 |
|
|
|
|
|
|
|
|
1,697,695 |
|
|
|
|
|
|
|
|
174,226 |
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
66,993,876 |
|
|
|
|
|
|
|
|
72,073,882 |
|
|
|
|
|
|
|
|
5,080,006 |
|
|
8 |
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UNBC Stockholder's equity |
|
|
7,358,773 |
|
|
|
|
|
|
|
|
9,912,847 |
|
|
|
|
|
|
|
|
2,554,074 |
|
|
35 |
|
|
|
|
|
|
|
Noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
278,308 |
|
|
|
|
|
|
|
|
278,308 |
|
|
nm |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity |
|
|
7,358,773 |
|
|
|
|
|
|
|
|
10,191,155 |
|
|
|
|
|
|
|
|
2,832,382 |
|
|
38 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity |
|
$ |
74,352,649 |
|
|
|
|
|
|
|
$ |
82,265,037 |
|
|
|
|
|
|
|
$ |
7,912,388 |
|
|
11 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income/spread (taxable-equivalent basis) |
|
|
|
|
|
564,296 |
|
|
3.05 |
% |
|
|
|
|
620,639 |
|
|
3.14 |
% |
|
|
|
|
|
|
|
56,343 |
|
|
10 |
% |
Impact of noninterest bearing source |
|
|
|
|
|
|
|
|
0.26 |
|
|
|
|
|
|
|
|
0.19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin |
|
|
|
|
|
|
|
|
3.31 |
|
|
|
|
|
|
|
|
3.33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: taxable-equivalent adjustment |
|
|
|
|
|
3,260 |
|
|
|
|
|
|
|
|
2,584 |
|
|
|
|
|
|
|
|
|
|
|
(676 |
) |
|
(21 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
|
|
$ |
561,036 |
|
|
|
|
|
|
|
$ |
618,055 |
|
|
|
|
|
|
|
|
|
|
$ |
57,019 |
|
|
10 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- (1)
- Yields
and interest income are presented on a taxable-equivalent basis using the federal statutory tax rate of 35 percent.
- (2)
- Annualized.
- (3)
- Average
balances on loans outstanding include all nonperforming loans and loans held for sale. The amortized portion of net loan origination
fees (costs) is included in interest income on loans, representing an adjustment to the yield.
- (4)
- Includes
interest bearing trading liabilities.
- nm
- =
not meaningful
67
Table of Contents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended |
|
Increase (Decrease) in |
|
|
|
September 30, 2009 |
|
September 30, 2010 |
|
|
|
|
|
Interest
Income/
Expense(1) |
|
|
|
Average Balance |
|
|
|
Average
Balance |
|
Interest
Income/
Expense(1) |
|
Average
Yield/
Rate(1)(2) |
|
Average
Balance |
|
Interest
Income/
Expense(1) |
|
Average
Yield/
Rate(1)(2) |
|
(Dollars in thousands) |
|
Amount |
|
Percent |
|
Amount |
|
Percent |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial and industrial |
|
$ |
17,737,052 |
|
$ |
577,321 |
|
|
4.35 |
% |
$ |
14,721,915 |
|
$ |
505,667 |
|
|
4.59 |
% |
$ |
(3,015,137 |
) |
|
(17 |
)% |
$ |
(71,654 |
) |
|
(12 |
)% |
|
Construction |
|
|
2,765,178 |
|
|
60,747 |
|
|
2.94 |
|
|
2,132,098 |
|
|
47,750 |
|
|
2.99 |
|
|
(633,080 |
) |
|
(23 |
) |
|
(12,997 |
) |
|
(21 |
) |
|
Residential mortgage |
|
|
16,132,655 |
|
|
694,917 |
|
|
5.74 |
|
|
16,989,812 |
|
|
680,297 |
|
|
5.34 |
|
|
857,157 |
|
|
5 |
|
|
(14,620 |
) |
|
(2 |
) |
|
Commercial mortgage |
|
|
8,256,389 |
|
|
283,076 |
|
|
4.57 |
|
|
8,139,165 |
|
|
256,904 |
|
|
4.21 |
|
|
(117,224 |
) |
|
(1 |
) |
|
(26,172 |
) |
|
(9 |
) |
|
Consumer |
|
|
3,816,050 |
|
|
134,697 |
|
|
4.72 |
|
|
3,911,734 |
|
|
129,386 |
|
|
4.42 |
|
|
95,684 |
|
|
3 |
|
|
(5,311 |
) |
|
(4 |
) |
|
Lease financing |
|
|
658,956 |
|
|
18,713 |
|
|
3.79 |
|
|
642,835 |
|
|
18,408 |
|
|
3.82 |
|
|
(16,121 |
) |
|
(2 |
) |
|
(305 |
) |
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans, excluding FDIC covered loans |
|
|
49,366,280 |
|
|
1,769,471 |
|
|
4.78 |
|
|
46,537,559 |
|
|
1,638,412 |
|
|
4.70 |
|
|
(2,828,721 |
) |
|
(6 |
) |
|
(131,059 |
) |
|
(7 |
) |
|
FDIC covered loans |
|
|
|
|
|
|
|
|
|
|
|
1,060,231 |
|
|
58,034 |
|
|
7.31 |
|
|
1,060,231 |
|
|
nm |
|
|
58,034 |
|
|
nm |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
|
49,366,280 |
|
|
1,769,471 |
|
|
4.78 |
|
|
47,597,790 |
|
|
1,696,446 |
|
|
4.76 |
|
|
(1,768,490 |
) |
|
(4 |
) |
|
(73,025 |
) |
|
(4 |
) |
Securitiestaxable |
|
|
9,166,395 |
|
|
307,165 |
|
|
4.47 |
|
|
22,992,783 |
|
|
408,142 |
|
|
2.37 |
|
|
13,826,388 |
|
|
nm |
|
|
100,977 |
|
|
33 |
|
Securitiestax-exempt |
|
|
94,947 |
|
|
5,040 |
|
|
7.08 |
|
|
43,946 |
|
|
2,727 |
|
|
8.27 |
|
|
(51,001 |
) |
|
(54 |
) |
|
(2,313 |
) |
|
(46 |
) |
Interest bearing deposits in banks |
|
|
4,664,896 |
|
|
9,406 |
|
|
0.27 |
|
|
4,959,386 |
|
|
9,264 |
|
|
0.25 |
|
|
294,490 |
|
|
6 |
|
|
(142 |
) |
|
(2 |
) |
Federal funds sold and securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
purchased under resale agreements |
|
|
227,832 |
|
|
348 |
|
|
0.20 |
|
|
413,946 |
|
|
415 |
|
|
0.13 |
|
|
186,114 |
|
|
82 |
|
|
67 |
|
|
19 |
|
Trading account assets |
|
|
1,073,477 |
|
|
660 |
|
|
0.08 |
|
|
959,815 |
|
|
2,062 |
|
|
0.29 |
|
|
(113,662 |
) |
|
(11 |
) |
|
1,402 |
|
|
nm |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total earning assets |
|
|
64,593,827 |
|
|
2,092,090 |
|
|
4.32 |
|
|
76,967,666 |
|
|
2,119,056 |
|
|
3.67 |
|
|
12,373,839 |
|
|
19 |
|
|
26,966 |
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
|
(865,208 |
) |
|
|
|
|
|
|
|
(1,413,666 |
) |
|
|
|
|
|
|
|
(548,458 |
) |
|
(63 |
) |
|
|
|
|
|
|
Cash and due from banks |
|
|
1,244,981 |
|
|
|
|
|
|
|
|
1,197,159 |
|
|
|
|
|
|
|
|
(47,822 |
) |
|
(4 |
) |
|
|
|
|
|
|
Premises and equipment, net |
|
|
670,884 |
|
|
|
|
|
|
|
|
672,600 |
|
|
|
|
|
|
|
|
1,716 |
|
|
0 |
|
|
|
|
|
|
|
Other assets |
|
|
5,355,766 |
|
|
|
|
|
|
|
|
6,762,183 |
|
|
|
|
|
|
|
|
1,406,417 |
|
|
26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
71,000,250 |
|
|
|
|
|
|
|
$ |
84,185,942 |
|
|
|
|
|
|
|
$ |
13,185,692 |
|
|
19 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction and money market accounts |
|
$ |
28,397,683 |
|
$ |
200,483 |
|
|
0.94 |
|
$ |
36,704,458 |
|
$ |
144,415 |
|
|
0.53 |
|
$ |
8,306,775 |
|
|
29 |
|
$ |
(56,068 |
) |
|
(28 |
) |
|
Savings and consumer time |
|
|
4,394,706 |
|
|
42,057 |
|
|
1.28 |
|
|
7,119,678 |
|
|
43,908 |
|
|
0.82 |
|
|
2,724,972 |
|
|
62 |
|
|
1,851 |
|
|
4 |
|
|
Large time |
|
|
7,090,250 |
|
|
64,058 |
|
|
1.21 |
|
|
8,207,186 |
|
|
45,214 |
|
|
0.74 |
|
|
1,116,936 |
|
|
16 |
|
|
(18,844 |
) |
|
(29 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest bearing deposits |
|
|
39,882,639 |
|
|
306,598 |
|
|
1.03 |
|
|
52,031,322 |
|
|
233,537 |
|
|
0.60 |
|
|
12,148,683 |
|
|
30 |
|
|
(73,061 |
) |
|
(24 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds purchased and securities sold under repurchase agreements |
|
|
194,562 |
|
|
113 |
|
|
0.08 |
|
|
170,413 |
|
|
148 |
|
|
0.12 |
|
|
(24,149 |
) |
|
(12 |
) |
|
35 |
|
|
31 |
|
Commercial paper |
|
|
586,754 |
|
|
2,901 |
|
|
0.66 |
|
|
604,153 |
|
|
927 |
|
|
0.21 |
|
|
17,399 |
|
|
3 |
|
|
(1,974 |
) |
|
(68 |
) |
Other borrowed funds(4) |
|
|
2,472,324 |
|
|
17,697 |
|
|
0.96 |
|
|
529,289 |
|
|
2,812 |
|
|
0.71 |
|
|
(1,943,035 |
) |
|
(79 |
) |
|
(14,885 |
) |
|
(84 |
) |
Long-term debt |
|
|
5,008,468 |
|
|
84,771 |
|
|
2.26 |
|
|
4,610,874 |
|
|
81,424 |
|
|
2.36 |
|
|
(397,594 |
) |
|
(8 |
) |
|
(3,347 |
) |
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total borrowed funds |
|
|
8,262,108 |
|
|
105,482 |
|
|
1.71 |
|
|
5,914,729 |
|
|
85,311 |
|
|
1.93 |
|
|
(2,347,379 |
) |
|
(28 |
) |
|
(20,171 |
) |
|
(19 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest bearing liabilities |
|
|
48,144,747 |
|
|
412,080 |
|
|
1.14 |
|
|
57,946,051 |
|
|
318,848 |
|
|
0.74 |
|
|
9,801,304 |
|
|
20 |
|
|
(93,232 |
) |
|
(23 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest bearing deposits |
|
|
13,644,163 |
|
|
|
|
|
|
|
|
14,879,310 |
|
|
|
|
|
|
|
|
1,235,147 |
|
|
9 |
|
|
|
|
|
|
|
Other liabilities |
|
|
1,878,593 |
|
|
|
|
|
|
|
|
1,448,563 |
|
|
|
|
|
|
|
|
(430,030 |
) |
|
(23 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
63,667,503 |
|
|
|
|
|
|
|
|
74,273,924 |
|
|
|
|
|
|
|
|
10,606,421 |
|
|
17 |
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UNBC Stockholder's equity |
|
|
7,332,747 |
|
|
|
|
|
|
|
|
9,693,370 |
|
|
|
|
|
|
|
|
2,360,623 |
|
|
32 |
|
|
|
|
|
|
|
Noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
218,648 |
|
|
|
|
|
|
|
|
218,648 |
|
|
nm |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity |
|
|
7,332,747 |
|
|
|
|
|
|
|
|
9,912,018 |
|
|
|
|
|
|
|
|
2,579,271 |
|
|
35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity |
|
$ |
71,000,250 |
|
|
|
|
|
|
|
$ |
84,185,942 |
|
|
|
|
|
|
|
$ |
13,185,692 |
|
|
19 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income/spread (taxable-equivalent basis) |
|
|
|
|
|
1,680,010 |
|
|
3.18 |
% |
|
|
|
|
1,800,208 |
|
|
2.93 |
% |
|
|
|
|
|
|
|
120,198 |
|
|
7 |
% |
Impact of noninterest bearing source |
|
|
|
|
|
|
|
|
0.29 |
|
|
|
|
|
|
|
|
0.19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin |
|
|
|
|
|
|
|
|
3.47 |
|
|
|
|
|
|
|
|
3.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: taxable-equivalent adjustment |
|
|
|
|
|
8,625 |
|
|
|
|
|
|
|
|
7,407 |
|
|
|
|
|
|
|
|
|
|
|
(1,218 |
) |
|
(14 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
|
|
$ |
1,671,385 |
|
|
|
|
|
|
|
$ |
1,792,801 |
|
|
|
|
|
|
|
|
|
|
$ |
121,416 |
|
|
7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- (1)
- Yields
and interest income are presented on a taxable-equivalent basis using the federal statutory tax rate of 35 percent.
- (2)
- Annualized.
- (3)
- Average
balances on loans outstanding include all nonperforming loans and loans held for sale. The amortized portion of net loan origination
fees (costs) is included in interest income on loans, representing an adjustment to the yield.
- (4)
- Includes
interest bearing trading liabilities.
- nm
- =
not meaningful
68
Table of Contents
Net interest income in the third quarter of 2010, on a taxable-equivalent basis, increased $56.3 million, or 10 percent, compared to
the third quarter of 2009. Our net interest margin in the third quarter of 2010 increased by 2 basis points to 3.33 percent compared to the third quarter of 2009. These results were primarily
due to the following:
-
- Average earning assets increased $6.3 billion, or 9 percent, primarily due to an increase in average
investment securities, partially offset by a decrease in average interest bearing deposits in banks. As our average interest bearing deposit liabilities grew by $4.4 billion, or
10 percent, which outpaced our loan demand, we expanded our purchases of lower yielding U.S. Government and agency securities, increasing our net average securities by $11.9 billion;
-
- Yields on our average earning assets declined 21 basis points as a result of the decreasing interest rate environment and
included the shift to lower yielding assets primarily due to a decline in loan demand;
-
- Net interest income decreased $4.6 million in the third quarter of 2010 compared to the third quarter of 2009, due
to the accretion of fair value adjustments on loans and securities related to our privatization transaction;
-
- Average noninterest bearing deposits represented 24 percent of average total deposits in both of the third quarters
of 2010 and 2009; and
-
- In the third quarter of 2010, the annualized average all-in cost of funds was 0.55 percent, reflecting
an average loan-to-total deposit ratio of 74 percent. In the third quarter of 2009, the annualized all-in cost of funds was 0.79 percent and our
average loan-to-total deposit ratio was 82 percent.
Our
efforts to enhance the composition of our assets and liabilities are demonstrated in the current quarter as compared to the prior sequential quarter. Net interest income in the third
quarter of 2010, on a taxable equivalent basis, increased $17.9 million, or 3 percent, compared to the second quarter of 2010. Our net interest margin increased 24 basis points to
3.33 percent compared to the second quarter of 2010. Net interest margin increased primarily due to the planned runoff of interest bearing deposits resulting from targeted rate reductions,
lower average deposit rates and higher average loan yields driven primarily by fees.
Net
interest income for the nine months ended September 30, 2010, on a taxable-equivalent basis, increased $120.2 million, or 7 percent, compared to the nine months
ended September 30, 2009. Our net interest margin for the nine months ended September 30, 2010 decreased by 35 basis points to 3.12 percent compared to the nine months ended
September 30, 2009. These results were primarily due to the following:
-
- Average earning assets increased $12.4 billion, or 19 percent, primarily due to an increase in average
investment securities. As our average interest bearing deposit liabilities grew by $12.1 billion, or 30 percent, which far outpaced our loan demand, we expanded our purchases of
securities, increasing our net average investment securities by $13.8 billion;
-
- Yields on our average earning assets declined 65 basis points as a result of the decreasing interest rate environment and
a shift to lower yielding assets primarily due to a decline in loan demand;
-
- Net interest income decreased $29.2 million in the nine months ended September 30, 2010, compared to the
nine months ended September 30, 2009, due to the accretion of fair value adjustments on loans and securities related to our privatization transaction;
-
- Average noninterest bearing deposits represented 22 percent of average total deposits in the nine months ended
September 30, 2010, compared to 25 percent in the nine months ended September 30, 2009; and
-
- For the nine months ended September 30, 2010, the annualized average all-in cost of funds was
0.59 percent and our average loan-to-total deposit ratio was 71 percent. For the nine months ended September 30, 2009, the annualized all-in
cost of funds was 0.89 percent and our average loan-to-total deposit ratio was 92 percent.
69
Table of Contents
Provision for Loan Losses
We recorded a total provision for credit losses of zero ($8 million for loan losses and $8 million reversal of provision
for losses on off-balance sheet commitments) in the third quarter of 2010, compared to a total provision of $320 million in the third quarter of 2009 ($314 million for loan
losses and $6 million for losses on off-balance sheet commitments). We recorded a total provision of $210 million for credit losses ($222 million for loan losses and a
$12 million reversal of provision for losses on off-balance sheet commitments) in the nine months ended September 30, 2010, compared to a total provision of
$970 million ($923 million for loan losses and $47 million for losses on off-balance sheet commitments) in the nine months ended September 30, 2009.
The
provision decreases were primarily due to improved credit quality of the loan portfolio, as well as a change in the category mix and lower projected loss component of our nonaccrual
loans during the three and nine months ended September 30, 2010 compared to the three and nine months ended September 30, 2009.
Noninterest Income and Noninterest Expense
The following tables detail our noninterest income and noninterest expense items that exceeded one percent of our total revenues for
the three and nine months ended September 30, 2009 and 2010.
Noninterest Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
For the Nine Months Ended |
|
|
|
|
|
|
|
Increase
(Decrease) |
|
|
|
|
|
Increase
(Decrease) |
|
(Dollars in thousands) |
|
September 30,
2009 |
|
September 30,
2010 |
|
September 30,
2009 |
|
September 30,
2010 |
|
|
Amount |
|
Percent |
|
Amount |
|
Percent |
|
Service charges on deposit accounts |
|
$ |
74,888 |
|
$ |
62,472 |
|
$ |
(12,416 |
) |
|
(16.6 |
)% |
$ |
218,053 |
|
$ |
192,455 |
|
$ |
(25,598 |
) |
|
(11.7 |
)% |
Trust and investment management fees |
|
|
34,506 |
|
|
33,209 |
|
|
(1,297 |
) |
|
(3.8 |
) |
|
102,543 |
|
|
98,873 |
|
|
(3,670 |
) |
|
(3.6 |
) |
Trading account activities |
|
|
10,513 |
|
|
31,906 |
|
|
21,393 |
|
|
nm |
|
|
49,456 |
|
|
78,378 |
|
|
28,922 |
|
|
58.5 |
|
Securities gains, net |
|
|
12,694 |
|
|
10,683 |
|
|
(2,011 |
) |
|
(15.8 |
) |
|
12,522 |
|
|
71,820 |
|
|
59,298 |
|
|
nm |
|
Merchant banking fees |
|
|
14,601 |
|
|
19,011 |
|
|
4,410 |
|
|
30.2 |
|
|
48,357 |
|
|
54,910 |
|
|
6,553 |
|
|
13.6 |
|
Card processing fees, net |
|
|
8,559 |
|
|
9,877 |
|
|
1,318 |
|
|
15.4 |
|
|
24,219 |
|
|
31,353 |
|
|
7,134 |
|
|
29.5 |
|
Brokerage commissions and fees |
|
|
8,611 |
|
|
10,195 |
|
|
1,584 |
|
|
18.4 |
|
|
25,424 |
|
|
29,629 |
|
|
4,205 |
|
|
16.5 |
|
Other |
|
|
19,557 |
|
|
40,590 |
|
|
21,033 |
|
|
nm |
|
|
61,284 |
|
|
114,724 |
|
|
53,440 |
|
|
87.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income |
|
$ |
183,929 |
|
$ |
217,943 |
|
$ |
34,014 |
|
|
18.5 |
% |
$ |
541,858 |
|
$ |
672,142 |
|
$ |
130,284 |
|
|
24.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70
Table of Contents
Noninterest Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
For the Nine Months Ended |
|
|
|
|
|
|
|
Increase
(Decrease) |
|
|
|
|
|
Increase
(Decrease) |
|
(Dollars in thousands) |
|
September 30,
2009 |
|
September 30,
2010 |
|
September 30,
2009 |
|
September 30,
2010 |
|
|
Amount |
|
Percent |
|
Amount |
|
Percent |
|
Salaries and other compensation |
|
$ |
198,768 |
|
$ |
250,838 |
|
$ |
52,070 |
|
|
26.2 |
% |
$ |
578,095 |
|
$ |
744,987 |
|
$ |
166,892 |
|
|
28.9 |
% |
Employee benefits |
|
|
35,213 |
|
|
41,898 |
|
|
6,685 |
|
|
19.0 |
|
|
132,506 |
|
|
147,026 |
|
|
14,520 |
|
|
11.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
|
233,981 |
|
|
292,736 |
|
|
58,755 |
|
|
25.1 |
|
|
710,601 |
|
|
892,013 |
|
|
181,412 |
|
|
25.5 |
|
Net occupancy and equipment |
|
|
60,984 |
|
|
65,162 |
|
|
4,178 |
|
|
6.9 |
|
|
178,142 |
|
|
187,723 |
|
|
9,581 |
|
|
5.4 |
|
Professional and outside services |
|
|
39,866 |
|
|
53,878 |
|
|
14,012 |
|
|
35.1 |
|
|
117,075 |
|
|
143,396 |
|
|
26,321 |
|
|
22.5 |
|
Intangible asset amortization |
|
|
40,641 |
|
|
30,774 |
|
|
(9,867 |
) |
|
(24.3 |
) |
|
121,809 |
|
|
93,180 |
|
|
(28,629 |
) |
|
(23.5 |
) |
Regulatory agencies |
|
|
30,739 |
|
|
29,132 |
|
|
(1,607 |
) |
|
(5.2 |
) |
|
101,513 |
|
|
89,506 |
|
|
(12,007 |
) |
|
(11.8 |
) |
Software |
|
|
16,502 |
|
|
18,266 |
|
|
1,764 |
|
|
10.7 |
|
|
45,745 |
|
|
48,824 |
|
|
3,079 |
|
|
6.7 |
|
Low income housing credit investment amortization |
|
|
13,064 |
|
|
13,251 |
|
|
187 |
|
|
1.4 |
|
|
34,256 |
|
|
41,024 |
|
|
6,768 |
|
|
19.8 |
|
Advertising and public relations |
|
|
14,562 |
|
|
12,853 |
|
|
(1,709 |
) |
|
(11.7 |
) |
|
36,532 |
|
|
34,495 |
|
|
(2,037 |
) |
|
(5.6 |
) |
Communications |
|
|
9,494 |
|
|
10,323 |
|
|
829 |
|
|
8.7 |
|
|
27,404 |
|
|
29,579 |
|
|
2,175 |
|
|
7.9 |
|
(Reversal of) provision for losses on off-balance sheet commitments |
|
|
6,000 |
|
|
(8,000 |
) |
|
(14,000 |
) |
|
nm |
|
|
47,000 |
|
|
(12,000 |
) |
|
(59,000 |
) |
|
nm |
|
Other |
|
|
39,982 |
|
|
44,244 |
|
|
4,262 |
|
|
10.7 |
|
|
139,179 |
|
|
123,651 |
|
|
(15,528 |
) |
|
(11.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense |
|
$ |
505,815 |
|
$ |
562,619 |
|
$ |
56,804 |
|
|
11.2 |
% |
$ |
1,559,256 |
|
$ |
1,671,391 |
|
$ |
112,135 |
|
|
7.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table shows the calculation of our core efficiency ratio for the three months and nine months ended September 30, 2009 and
2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
For the Nine Months Ended |
|
(Dollars in thousands) |
|
September 30,
2009 |
|
September 30,
2010 |
|
September 30,
2009 |
|
September 30,
2010 |
|
Noninterest Expense |
|
$ |
505,815 |
|
$ |
562,619 |
|
$ |
1,559,256 |
|
$ |
1,671,391 |
|
|
Less: Foreclosed asset expense (income) |
|
|
(144 |
) |
|
5,898 |
|
|
4,024 |
|
|
6,571 |
|
|
Less: Provision for (reversal of) losses on off-balance sheet commitments |
|
|
6,000 |
|
|
(8,000 |
) |
|
47,000 |
|
|
(12,000 |
) |
|
Less: Low income housing credit investment amortization expense |
|
|
13,064 |
|
|
13,251 |
|
|
34,256 |
|
|
41,024 |
|
|
Less: Expenses of the consolidated VIEs |
|
|
|
|
|
6,238 |
|
|
|
|
|
17,102 |
|
|
Less: Merger costs related to acquisitions |
|
|
|
|
|
11,177 |
|
|
|
|
|
23,996 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net noninterest expense (a) |
|
$ |
486,895 |
|
$ |
534,055 |
|
$ |
1,473,976 |
|
$ |
1,594,698 |
|
|
|
|
|
|
|
|
|
|
|
Total Revenue (b) |
|
$ |
748,225 |
|
$ |
838,582 |
|
$ |
2,221,868 |
|
$ |
2,472,350 |
|
Core efficiency ratio (a)/(b) |
|
|
65.07 |
% |
|
63.69 |
% |
|
66.34 |
% |
|
64.50 |
% |
The primary contributors to the changes in our noninterest income and noninterest expense for the third quarter of 2010
compared to the third quarter of 2009 are presented below.
The
increase in our noninterest income was the result of several factors:
-
- Trading
account income increased primarily due to a $20.4 million increase from interest rate derivatives trading; and
-
- Other
revenue increased due to indemnification asset accretion of $13.0 million; and
71
Table of Contents
-
- Merchant
banking fees increased primarily due to an increase in syndication fees; partially offset by
-
- Service
charges on deposit accounts decreased primarily due to lower overdraft fees resulting from a change in the overdraft fee pricing, changes
in customer behavior, and the impact of changes to fee-related regulations.
The
increase in our noninterest expense was the result of several factors:
-
- Salaries
and other compensation expenses increased due to higher base salaries, number of employees, in part due to our acquisitions, and
incentive compensation accruals; and
-
- Merger
costs related to our acquisitions totaled $11.2 million in the third quarter of 2010, mostly pertaining to professional and outside
service expense; and
-
- Other
expenses related to consolidated variable interest entities (VIEs) increased $6.2 million, as a result of the adoption of a new
accounting standard on January 1, 2010; and
-
- Other
expenses related to OREO expense increased by $6.0 million partially due to acquisition-related property taxes and OREO writedowns;
partially offset by
-
- Provision
for losses on off-balance sheet commitments decreased $14.0 million; and
-
- Privatization-related
intangible asset amortization decreased $10.2 million primarily due to the use of the accelerated amortization
methodology.
The primary contributors to the changes in noninterest income and noninterest expense for the nine months ended September 30, 2010 compared to the nine
months ended September 30, 2009 are presented below.
The
increase in our noninterest income was the result of several factors:
-
- Securities
gains increased primarily due to $78.1 million in gains on the sales of mortgage-backed securities and U.S. Government
securities in 2010;
-
- Trading
account income increased primarily due to a $20.0 million increase in interest rate derivatives trading and an increase of
$8.2 million in equity derivative income; and
-
- Other
revenue increased primarily due to indemnification asset accretion of $21.3 million; partially offset by
-
- Service
charges on deposit accounts decreased primarily due to lower overdraft fees resulting from a change in overdraft fee pricing, changes in
customer behavior, and the impact of changes to fee-related regulations.
The
increase in our noninterest expense was the result of several factors:
-
- Salaries
and other compensation expenses increased due to higher base salaries, number of employees and incentive compensation accruals; and
-
- Merger
costs related to our acquisitions totaled $24.0 million in 2010, mostly pertaining to professional and outside service expense; and
-
- Other
expenses related to consolidated VIEs increased $17.1 million, as a result of the adoption of a new accounting standard on
January 1, 2010; partially offset by
-
- Provision
for losses on off-balance sheet commitments decreased $59.0 million, primarily due to improved credit quality of our
commitments during the nine months ended September 30, 2010, compared to the nine months ended September 30, 2009; and
72
Table of Contents
-
- Expenses
related to our privatization transaction included a $28.9 million decrease in amortization of intangible assets and a decrease in
other privatization related costs of $34.9 million, primarily due to higher amortization of bridge award compensation for the nine months ended September 30, 2009.
Income Tax Expense
Our effective tax rate in the third quarter of 2010 was 37.5 percent, compared to (77.3) percent for the third quarter of 2009.
Our effective tax rate in the nine months
ended September 30, 2010 was 31.7 percent, compared to (60.3) percent for the nine months ended September 30, 2009. A negative effective tax rate indicates a net income tax
benefit. The change in the effective tax rate was primarily due to a pre-tax loss in the prior year compared to pre-tax income in the current year, as well as the impact of tax
credits, state income taxes, and an adjustment to our unrecognized tax benefits.
Our
quarterly effective tax rate for the third quarters of 2009 and 2010 was computed on an individual quarterly basis, and therefore may not be indicative of the effective tax rate for
future quarters and the full year.
For
further information regarding income tax expense, see "Management's Discussion and Analysis of Financial Condition and Results of OperationsIncome Tax Expense"and
"Changes in our tax rates could affect our future results" in "Risk Factors" in Part II, Item 1A of this Form 10-Q and
Note 11 to the consolidated financial statements in our 2009 Form 10-K.
Loans
The following table shows loans outstanding by loan type at the end of each period presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (Decrease)
September 30, 2010 From: |
|
|
|
|
|
|
|
|
|
September 30, 2009 |
|
December 31, 2009 |
|
|
|
September 30,
2009 |
|
December 31,
2009 |
|
September 30,
2010 |
|
(Dollars in thousands) |
|
Amount |
|
Percent |
|
Amount |
|
Percent |
|
Loans held for investment, excluding FDIC covered loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial and industrial |
|
$ |
15,994,997 |
|
$ |
15,258,081 |
|
$ |
14,650,250 |
|
$ |
(1,344,747 |
) |
|
(8.4 |
)% |
$ |
(607,831 |
) |
|
(4.0 |
)% |
|
Construction |
|
|
2,691,515 |
|
|
2,429,009 |
|
|
1,849,805 |
|
|
(841,710 |
) |
|
(31.3 |
) |
|
(579,204 |
) |
|
(23.8 |
) |
|
Residential mortgage |
|
|
16,576,052 |
|
|
16,716,048 |
|
|
17,295,349 |
|
|
719,297 |
|
|
4.3 |
|
|
579,301 |
|
|
3.5 |
|
|
Commercial mortgage |
|
|
8,320,374 |
|
|
8,245,778 |
|
|
7,892,900 |
|
|
(427,474 |
) |
|
(5.1 |
) |
|
(352,878 |
) |
|
(4.3 |
) |
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Installment |
|
|
2,303,897 |
|
|
2,244,239 |
|
|
2,054,863 |
|
|
(249,034 |
) |
|
(10.8 |
) |
|
(189,376 |
) |
|
(8.4 |
) |
|
|
Revolving lines of credit |
|
|
1,599,112 |
|
|
1,672,842 |
|
|
1,835,376 |
|
|
236,264 |
|
|
14.8 |
|
|
162,534 |
|
|
9.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer |
|
|
3,903,009 |
|
|
3,917,081 |
|
|
3,890,239 |
|
|
(12,770 |
) |
|
(0.3 |
) |
|
(26,842 |
) |
|
(0.7 |
) |
|
Lease financing |
|
|
658,708 |
|
|
653,743 |
|
|
635,267 |
|
|
(23,441 |
) |
|
(3.6 |
) |
|
(18,476 |
) |
|
(2.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans held for investment, excluding FDIC covered loans |
|
|
48,144,655 |
|
|
47,219,740 |
|
|
46,213,810 |
|
|
(1,930,845 |
) |
|
(4.0 |
) |
|
(1,005,930 |
) |
|
(2.1 |
) |
Loans held for sale |
|
|
24,853 |
|
|
8,768 |
|
|
3,745 |
|
|
(21,108 |
) |
|
(84.9 |
) |
|
(5,023 |
) |
|
(57.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans, excluding FDIC covered loans |
|
|
48,169,508 |
|
|
47,228,508 |
|
|
46,217,555 |
|
|
(1,951,953 |
) |
|
(4.1 |
) |
|
(1,010,953 |
) |
|
(2.1 |
) |
FDIC covered loans(1) |
|
|
|
|
|
|
|
|
1,693,554 |
|
|
1,693,554 |
|
|
100.0 |
|
|
1,693,554 |
|
|
100.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
|
48,169,508 |
|
|
47,228,508 |
|
|
47,911,109 |
|
|
(258,399 |
) |
|
(0.5 |
) |
|
682,601 |
|
|
1.4 |
|
|
|
|
|
Allowance for loan losses |
|
|
1,260,307 |
|
|
1,357,000 |
|
|
1,276,845 |
|
|
16,538 |
|
|
1.3 |
|
|
(80,155 |
) |
|
(5.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, net |
|
$ |
46,909,201 |
|
$ |
45,871,508 |
|
$ |
46,634,264 |
|
$ |
(274,937 |
) |
|
(0.6 |
)% |
$ |
762,756 |
|
|
1.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- (1)
- Represents
the acquired loans that are covered by the loss share agreements with the FDIC.
73
Table of Contents
Commercial, Financial and Industrial Loans
Commercial, financial and industrial loans represent one of the largest categories in our loan portfolio. These loans are extended
principally to corporations, middle-market businesses and small businesses, with no industry concentration exceeding 10 percent of total loans.
Our
commercial market lending originates primarily through our commercial banking offices. These offices, which rely extensively on relationship-oriented banking, provide a variety of
services including cash management services, lines of credit, accounts receivable and inventory financing. Separately, we originate or participate in a wide variety of financial services to major
corporations. These services include traditional commercial banking and specialized financing tailored to the needs of each customer's specific industry. We are active in, among other sectors, the oil
and gas, communications, entertainment, healthcare, retailing, power and utilities, and financial services industries.
The
commercial, financial and industrial loan portfolio decreases from September 30, 2009 to September 30, 2010 and from December 31, 2009 to September 30,
2010 are mainly due to a decline in
the utilization rate of revolving credit lines by existing customers, our proactive portfolio management, our tighter underwriting standards, and a decline in loan demand in many sectors as a result
of the difficult economic environment.
We engage in real estate lending that includes commercial mortgage loans and construction loans secured by deeds of trust.
Construction
loans are extended primarily to commercial property developers and to residential builders. As of September 30, 2010, the construction loan portfolio consisted of
approximately 87 percent in the commercial income producing real estate industry and 13 percent with residential homebuilders. The construction loan portfolio decreased 31 percent
from September 30, 2009 to September 30, 2010 due to declines of approximately $204 million, or 48 percent, in the homebuilder portfolio and $638 million, or
30 percent, in the income property portfolio. The income property portfolio reductions were concentrated mostly in the office and apartment property types. The construction loan portfolio
decreased 24 percent from December 31, 2009 to September 30, 2010 due to reductions primarily in the income property portfolio with the largest reductions occurring in the office
and apartment property types.
Geographically,
the outstanding construction loan portfolio was concentrated 43 percent in California and 57 percent out of state as of September 30, 2010. The
largest out-of-state concentration was 11 percent in Washington. The California outstandings are distributed as follows: 46 percent in the Los Angeles/Orange
County region, including the Inland Empire, 22 percent in the San Francisco Bay Area, 13 percent in Sacramento and the Central Valley, 12 percent in San Diego, and
7 percent in the Central Coast region.
The
commercial mortgage loan portfolio consists of loans secured by commercial income properties primarily in California. The commercial mortgage portfolio decreased from
September 30, 2009 to September 30, 2010 due primarily to disposition of problem loans; early repayments; and normal loan paydowns partially offset by moderate new originations.
We originate residential mortgage loans, secured by one-to-four family residential properties, through our
multiple channel network (including branches, private bankers, mortgage brokers, and
loan-by-phone) throughout California, Oregon and Washington, and we periodically purchase loans in our market area.
At
September 30, 2010, 72 percent of our residential mortgage loans were interest only, none of which are negative amortizing. At origination, these interest only loans had
relatively high credit scores and had
74
Table of Contents
weighted
average loan-to-value (LTV) ratios of approximately 67 percent. The remainder of the portfolio consists of a small amount of balloon loans and regular
amortizing loans.
We
do not have a program for originating or purchasing subprime loan products. "Low doc" and "no doc" loans (which we discontinued making in 2008) comprise less than half of our
residential loan portfolio, and the delinquency rates remain low compared to the industry average for California prime loans. At September 30, 2010, the total amount of "no doc" and "low doc"
loans past due 30 days or more was $180 million, compared to $153 million at September 30, 2009. The total amount of residential mortgages delinquent 30 days or more
was $359 million at September 30, 2010, compared to $312 million at September 30, 2009. Although delinquencies have risen since September 30, 2009 as a result of the
declining real estate market and downturn in the economy, the delinquency rate remains low compared to the industry average for California prime loans. We believe that our underwriting standards
remain conservative, and as described above, programs with higher risk have been discontinued.
We
hold most of the loans we originate. However, we do sell some of our 30-year, fixed rate loans, except for Community Reinvestment Act (CRA) qualifying loans.
We originate consumer loans, such as home equity loans and lines, through our branch network and Private Banking Offices. The increase
in consumer loans from September 30, 2009 was primarily in our FlexEquity line/loan product. The FlexEquity line/loan allows our customers the flexibility to manage a line of credit with as
many as four fixed rate loans under a single product. When customers convert all or a portion of their FlexEquity lines to fixed rate loans, these new loans are classified as installment loans. As a
result of the continuing decline in the overall property values in California, we have reduced our maximum loan to value limits on all second trust deed programs we offer. At origination, these loans
had relatively high credit scores and had weighted-average LTV ratios of approximately 60 percent. Our total home equity loans and lines delinquent 30 days or more were
$45 million at September 30, 2010, compared to $42 million at September 30, 2009. Our annual review program reviews all equity secured lines with a commitment amount of
$200,000 or more and an origination date from 2004 and forward, and includes obtaining an updated credit report as well as an
updated value on the property to reassess our LTV position. Action is taken to reduce or freeze limits, as applicable and pursuant to applicable laws and regulations, to minimize additional exposure
in a declining market.
We offer two types of leases to our customers: direct financing leases, where the assets leased are acquired without additional
financing from other sources; and leveraged leases, where a substantial portion of the financing is provided by debt with no recourse to us. At September 30, 2010, we had leveraged leases of
$547 million, which were net of non-recourse debt of approximately $1.1 billion. We utilize a number of special purpose entities for our leveraged leases. These entities do
not function as vehicles to shift liabilities to other parties or to deconsolidate affiliates for financial reporting purposes. As allowed by US GAAP and by law, the gross lease receivable is
offset by the qualifying non-recourse debt. In leveraged lease transactions, the third-party lender may only look to the collateral value of the leased assets for repayment in the event of
lessee default.
We acquired loans as part of the FDIC-assisted acquisitions of certain assets and assumption of certain liabilities of
Frontier and Tamalpais during the second quarter of 2010. All of the acquired loans are covered under loss share agreements with the FDIC and are referred to as "covered loans." We will be reimbursed
for a substantial portion of any future losses on the covered loans under the terms of the FDIC loss share agreements. Total covered loans outstanding at September 30, 2010 were
$1.7 billion, which consisted of
75
Table of Contents
$750 million
of commercial mortgage loans, $488 million of commercial, financial and industrial loans, $320 million of construction loans, and $136 million of other loans.
Cross-Border Outstandings
Our cross-border outstandings reflect certain additional economic and political risks that are not reflected in domestic outstandings.
These risks include those arising from exchange rate fluctuations and restrictions on the transfer of funds. Our total cross-border outstandings as of September 30 and December 31, 2009
for Canada, the only country where such outstandings exceeded one percent of total assets, were $931 million and $925 million, respectively. As of September 30, 2010, there were
no countries where such cross-border outstandings exceeded one percent of total assets. The cross-border outstandings were compiled based upon category and domicile of ultimate risk and are comprised
of balances with banks, trading account assets, securities available for sale, securities purchased under resale agreements, loans, accrued interest receivable, acceptances outstanding and investments
with foreign entities. For Canada, any significant local currency outstandings are funded by local currency borrowings.
Provision for Credit Losses
We recorded a provision for loan losses of $314 million and $8 million in the third quarters of 2009 and 2010,
respectively. We recorded a provision for losses on off-balance sheet commitments of $6 million in the third quarter of 2009 and a reversal of provision for off-balance
sheet commitments of $8 million in the third quarter of 2010. The provisions for loan losses and for losses on off-balance sheet commitments are charged to income to bring our total
allowances for credit losses to a level deemed appropriate by management based on the factors discussed under "Allowances for Credit Losses" below.
Allowances for Credit Losses
We maintain allowances for credit losses (defined as both the allowance for loan losses and the allowance for off-balance
sheet commitment losses) to absorb losses inherent in the loan portfolio as well as for leases and off-balance sheet commitments. Understanding our policies on the allowances for credit
losses is fundamental to understanding our consolidated financial condition and consolidated results of operations. Accordingly, our significant policies and methodology on the allowances for credit
losses are discussed in detail in Note 1 to our consolidated financial statements and in the section "Allowances for Credit Losses" included in our "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in our 2009 Form 10-K. Unless otherwise noted, all ratios that follow in this section include covered loans.
Comparison of the Total Allowances and Related Provision for Credit Losses Compared to December 31, 2009
At September 30, 2010, our total allowances for credit losses were $1,441 million, which consisted of
$1,277 million for loan losses and $164 million for losses on off-balance sheet commitments. The allowances for credit losses consisted of $1,118 million and
$323 million of allocated and unallocated allowance, respectively. At September 30, 2010, our allowances for credit loss coverage ratios were 3.01 percent of total loans and
109 percent of total nonaccrual loans, including FDIC covered loans. At December 31, 2009, our total allowances for credit losses were $1,533 million, or 3.25 percent of
total loans, and 116 percent of total nonaccrual loans.
At
September 30, 2010, our allowance for credit losses did not include an allowance for FDIC covered loans. Acquired loans are recorded at fair value at acquisition date in
accordance with applicable accounting guidance, factoring in credit losses expected to be incurred over the life of the loan. Accordingly, an allowance for loan losses is not carried over or recorded
as of the acquisition date. The acquired loans are and will continue to be subject to the Bank's internal credit review. As a result, if credit deterioration is noted
76
Table of Contents
subsequent
to the respective acquisition dates, such deterioration will be measured through the Bank's loss reserving methodology and a provision for loan losses will be charged to earnings with a
partially offsetting noninterest income amount reflecting the increase to the FDIC indemnification asset for covered loans. There was no provision recorded for FDIC covered loans during the third
quarter of 2010, as there was no incremental credit deterioration identified.
In
addition, the allowances incorporate the results of measuring impairment for specifically-identified impaired loans utilizing a methodology based on the present value of the remaining
expected cash flows or as a practical expedient, the loan's observable market price or the underlying collateral securing the loan (provided that the loan is collateral dependent). At
September 30, 2010 and December 31, 2009, total impaired loans (excluding FDIC covered loans) were $1.2 billion and $1.3 billion, respectively, and the associated
allowances were $166 million and $223 million, respectively.
At
September 30, 2010 and December 31, 2009, the allowance for losses on off-balance sheet commitments included within our total allowances for credit losses
was $164 million and $176 million, respectively. In determining the adequacy of our allowances for credit losses, we consider both the allowance for loan losses and for
off-balance sheet commitment losses. Net charge-offs were $89 million in the third quarter of 2010, compared to $137 million in the third quarter of 2009. We
expect the current elevated level of charge-offs, which we began to experience in the latter half of 2008, to continue during the remainder of 2010.
As
a result of management's assessment of the relevant factors, including the credit quality of our loan portfolio, the negative impact from the economic slowdown on our lending
portfolios (especially our real estate portfolios), we recorded a provision for loan losses of $8 million in the third quarter of 2010, compared to a provision for loan losses of
$314 million in the third quarter of 2009. The decrease in provision, which excludes FDIC covered loans, was primarily attributable to improved credit quality of the loan portfolio, as well as
a change in the category mix and lower projected loss component of our nonaccrual loans, partially offset by higher loss content in the residential real estate.
Consistent
with our quarterly practice of reviewing and refining our estimates and assumptions regarding the effects of economic and business conditions on borrowers and other factors
used for assessing the appropriateness of the formula and specific or unallocated allowances for credit losses, during the second quarter of 2010, we updated the periods that are included in the
calculation of loss factors (the look-back period) and quantitative and qualitative factors, as described below.
By
assessing the probable estimated losses inherent in the loan portfolio on a quarterly basis, we are able to adjust specific and inherent loss estimates based upon the most recent
information that has become available. During the second quarter of 2010, this included reducing the look-back period and adjusting the quantitative and qualitative factors to be more
representative of the economic cycle that we expect will impact the portfolio. Management determined that a shorter and more recent look-back period used to determine loss factors for risk
graded credits would better represent the current business cycle and more accurately estimate losses inherent in the current portfolio. Additionally, management updated the qualitative factor
adjustment in line with heightened emphasis on qualitative factors, such as the economic conditions, credit concentrations, portfolio trends, and other external factors.
Other
than the above changes, there were no other significant changes in estimation methods or assumptions that affected our methodology for assessing the appropriateness of the formula
and specific or unallocated allowances for credit losses.
77
Table of Contents
At September 30, 2010, the formula allowance decreased to $944 million, compared to $1,110 million at
December 31, 2009. The net decrease was primarily due to improved credit quality of the loan portfolio, as well as a change in the category mix, and lower projected loss component of the
nonaccrual loans during the third quarter of 2010. At September 30, 2010, the specific allowance was $174 million, compared to $232 million at December 31, 2009.
At September 30, 2010, the unallocated allowance increased to $323 million, compared to $191 million at
December 31, 2009, primarily due to the negative impact of high unemployment, in particular in California, and foreclosures on residential real estate, the effect of continued fiscal challenges
for the State of California and California local governments, the effect of commercial real estate property devaluations, the effect of the weak economy on retailers, and the continued effect of
volatile natural gas prices and crude oil prices on energy companies.
78
Table of Contents
The following table sets forth a reconciliation of changes in our allowances for credit losses.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
Ended September 30, |
|
Increase (Decrease) |
|
For the Nine Months
Ended September 30, |
|
Increase (Decrease) |
|
(Dollars in thousands) |
|
2009 |
|
2010 |
|
Amount |
|
Percent |
|
2009 |
|
2010 |
|
Amount |
|
Percent |
|
Balance, beginning of period |
|
$ |
1,081,633 |
|
$ |
1,357,869 |
|
$ |
276,236 |
|
|
25.5 |
% |
$ |
737,767 |
|
$ |
1,357,000 |
|
$ |
619,233 |
|
|
83.9 |
% |
Loans charged off: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial and industrial |
|
|
77,996 |
|
|
37,277 |
|
|
(40,719 |
) |
|
(52.2 |
) |
|
259,634 |
|
|
134,207 |
|
|
(125,427 |
) |
|
(48.3 |
) |
|
Construction |
|
|
13,892 |
|
|
1,897 |
|
|
(11,995 |
) |
|
(86.3 |
) |
|
39,361 |
|
|
27,808 |
|
|
(11,553 |
) |
|
(29.4 |
) |
|
Residential mortgage |
|
|
13,960 |
|
|
24,883 |
|
|
10,923 |
|
|
78.2 |
|
|
28,893 |
|
|
46,566 |
|
|
17,673 |
|
|
61.2 |
|
|
Commercial mortgage |
|
|
26,298 |
|
|
27,780 |
|
|
1,482 |
|
|
5.6 |
|
|
54,167 |
|
|
110,306 |
|
|
56,139 |
|
|
nm |
|
|
Consumer |
|
|
11,134 |
|
|
10,292 |
|
|
(842 |
) |
|
(7.6 |
) |
|
32,275 |
|
|
30,356 |
|
|
(1,919 |
) |
|
(5.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans charged off |
|
|
143,280 |
|
|
102,129 |
|
|
(41,151 |
) |
|
(28.7 |
) |
|
414,330 |
|
|
349,243 |
|
|
(65,087 |
) |
|
(15.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoveries of loans previously charged off: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial and industrial |
|
|
6,129 |
|
|
4,328 |
|
|
(1,801 |
) |
|
(29.4 |
) |
|
8,405 |
|
|
25,753 |
|
|
17,348 |
|
|
nm |
|
|
Construction |
|
|
|
|
|
6,630 |
|
|
6,630 |
|
|
100.0 |
|
|
150 |
|
|
16,257 |
|
|
16,107 |
|
|
nm |
|
|
Residential mortgage |
|
|
30 |
|
|
1,244 |
|
|
1,214 |
|
|
nm |
|
|
255 |
|
|
3,179 |
|
|
2,924 |
|
|
nm |
|
|
Commercial mortgage |
|
|
2 |
|
|
89 |
|
|
87 |
|
|
nm |
|
|
22 |
|
|
374 |
|
|
352 |
|
|
nm |
|
|
Consumer |
|
|
446 |
|
|
396 |
|
|
(50 |
) |
|
(11.2 |
) |
|
868 |
|
|
1,296 |
|
|
428 |
|
|
49.3 |
|
|
Lease financing |
|
|
|
|
|
2 |
|
|
2 |
|
|
nm |
|
|
|
|
|
2 |
|
|
2 |
|
|
nm |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recoveries of loans previously charged off |
|
|
6,607 |
|
|
12,689 |
|
|
6,082 |
|
|
92.1 |
|
|
9,700 |
|
|
46,861 |
|
|
37,161 |
|
|
nm |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans charged off |
|
|
136,673 |
|
|
89,440 |
|
|
(47,233 |
) |
|
(34.6 |
) |
|
404,630 |
|
|
302,382 |
|
|
(102,248 |
) |
|
(25.3 |
) |
Provision for loan losses |
|
|
314,000 |
|
|
8,000 |
|
|
(306,000 |
) |
|
(97.5 |
) |
|
923,000 |
|
|
222,000 |
|
|
(701,000 |
) |
|
(75.9 |
) |
Adjustments related to privatization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,108 |
|
|
|
|
|
(2,108 |
) |
|
(100.0 |
) |
Other |
|
|
1,347 |
|
|
416 |
|
|
(931 |
) |
|
(69.1 |
) |
|
2,108 |
|
|
227 |
|
|
(1,881 |
) |
|
(89.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance of allowance for loan losses |
|
$ |
1,260,307 |
|
$ |
1,276,845 |
|
$ |
16,538 |
|
|
1.3 |
% |
$ |
1,260,353 |
|
$ |
1,276,845 |
|
$ |
16,492 |
|
|
1.3 |
% |
Allowance for losses on off-balance sheet commitments |
|
|
172,374 |
|
|
164,374 |
|
|
(8,000 |
) |
|
(4.6 |
) |
|
172,374 |
|
|
164,374 |
|
|
(8,000 |
) |
|
(4.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowances for credit losses |
|
$ |
1,432,681 |
|
$ |
1,441,219 |
|
$ |
8,538 |
|
|
0.6 |
% |
$ |
1,432,727 |
|
$ |
1,441,219 |
|
$ |
8,492 |
|
|
0.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses to total loans(1) |
|
|
2.62 |
% |
|
2.67 |
% |
|
|
|
|
|
|
|
2.62 |
% |
|
2.67 |
% |
|
|
|
|
|
|
Allowances for credit losses to total loans(2) |
|
|
2.97 |
|
|
3.01 |
|
|
|
|
|
|
|
|
2.97 |
|
|
3.01 |
|
|
|
|
|
|
|
Provision for loan losses to net loans charged off |
|
|
229.75 |
|
|
8.94 |
|
|
|
|
|
|
|
|
228.11 |
|
|
73.42 |
|
|
|
|
|
|
|
Net loans charged off to average loans outstanding for the period(4) |
|
|
1.11 |
|
|
0.74 |
|
|
|
|
|
|
|
|
1.10 |
|
|
0.85 |
|
|
|
|
|
|
|
Excluding FDIC covered loans(3): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses to total loans(1) |
|
|
N/A |
|
|
2.76 |
% |
|
|
|
|
|
|
|
N/A |
|
|
2.76 |
% |
|
|
|
|
|
|
Allowances for credit losses to total loans(2) |
|
|
N/A |
|
|
3.12 |
|
|
|
|
|
|
|
|
N/A |
|
|
3.12 |
|
|
|
|
|
|
|
Net loans charged off to average loans outstanding for the period(4) |
|
|
N/A |
|
|
0.77 |
|
|
|
|
|
|
|
|
N/A |
|
|
0.87 |
|
|
|
|
|
|
|
- (1)
- The
allowance for loan losses ratios are calculated using the allowance for loan losses against end of period total loans or total
nonperforming loans, as appropriate.
- (2)
- The
allowance for credit losses ratios are calculated using the sum of the allowances for loan losses and for losses on
off-balance sheet commitments against end of period total loans or total nonperforming loans, as appropriate.
- (3)
- These
ratios exclude the impact of the acquired loans and OREO, which are covered under loss share agreements between Union Bank, N.A. and
the FDIC. Such agreements are related to the April 2010 acquisitions of certain assets and the assumption of certain liabilities of Frontier and Tamalpais.
- (4)
- Annualized.
- nm
- =
not meaningful
- N/A
- =
not applicable for periods prior to the April 2010 Frontier and Tamalpais transactions.
79
Table of Contents
Nonperforming Assets
Nonperforming assets consist of nonaccrual loans, restructured loans that are nonperforming and OREO. Nonaccrual loans are those for
which management has discontinued accrual of interest because there exists significant uncertainty as to the full and timely collection of either principal or interest or such loans have become
contractually past due 90 days with respect to principal or interest. For a more detailed discussion of the accounting for nonaccrual loans, see Note 1 to our consolidated financial
statements included in the Company's 2009 Form 10-K.
Restructured
loans are loans in which the Bank has formally restructured all or a significant portion of the loan and provided a concession in the form of debt forgiveness, a
modification of interest rate or payment terms. Any impairment, not previously recorded, is accounted for at the time of restructuring. Restructured loans are separately disclosed as nonperforming
assets for the calendar year of restructuring. If a restructured loan was negotiated at a market rate at the date of restructuring and performs under the modified terms for a sustained period, it may
be disclosed as performing assets in the subsequent calendar year.
OREO
includes property where the Bank acquired title through foreclosure or "deed in lieu" of foreclosure.
80
Table of Contents
The
following table sets forth an analysis of nonperforming assets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (Decrease)
September 30, 2010 From: |
|
|
|
|
|
|
|
|
|
September 30,
2009 |
|
December 31,
2009 |
|
|
|
September 30,
2009 |
|
December 31,
2009 |
|
September 30,
2010 |
|
(Dollars in thousands) |
|
Amount |
|
Percent |
|
Amount |
|
Percent |
|
Commercial, financial and industrial |
|
$ |
380,117 |
|
$ |
335,581 |
|
$ |
150,161 |
|
$ |
(229,956 |
) |
|
(60.5 |
)% |
$ |
(185,420 |
) |
|
(55.3 |
)% |
Construction |
|
|
387,523 |
|
|
335,085 |
|
|
243,767 |
|
|
(143,756 |
) |
|
(37.1 |
) |
|
(91,318 |
) |
|
(27.3 |
) |
Residential mortgage |
|
|
164,683 |
|
|
194,482 |
|
|
201,387 |
|
|
36,704 |
|
|
22.3 |
|
|
6,905 |
|
|
3.6 |
|
Commercial mortgage |
|
|
354,815 |
|
|
414,429 |
|
|
384,272 |
|
|
29,457 |
|
|
8.3 |
|
|
(30,157 |
) |
|
(7.3 |
) |
Consumer |
|
|
21,385 |
|
|
20,492 |
|
|
26,889 |
|
|
5,504 |
|
|
25.7 |
|
|
6,397 |
|
|
31.2 |
|
Lease financing |
|
|
108 |
|
|
108 |
|
|
|
|
|
(108 |
) |
|
(100.0 |
) |
|
(108 |
) |
|
(100.0 |
) |
Restructurednonaccrual |
|
|
15,962 |
|
|
16,954 |
|
|
149,273 |
|
|
133,311 |
|
|
nm |
|
|
132,319 |
|
|
nm |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonaccrual loans, excluding FDIC covered loans |
|
|
1,324,593 |
|
|
1,317,131 |
|
|
1,155,749 |
|
|
(168,844 |
) |
|
(12.7 |
) |
|
(161,382 |
) |
|
(12.3 |
) |
|
FDIC covered nonaccrual loans |
|
|
|
|
|
|
|
|
163,427 |
|
|
163,427 |
|
|
100.0 |
|
|
163,427 |
|
|
100.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonaccrual loans |
|
|
1,324,593 |
|
|
1,317,131 |
|
|
1,319,176 |
|
|
(5,417 |
) |
|
(0.4 |
) |
|
2,045 |
|
|
0.2 |
|
OREO, excluding FDIC covered OREO |
|
|
34,392 |
|
|
32,662 |
|
|
47,350 |
|
|
12,958 |
|
|
37.7 |
|
|
14,688 |
|
|
45.0 |
|
FDIC covered OREO |
|
|
|
|
|
|
|
|
143,194 |
|
|
143,194 |
|
|
100.0 |
|
|
143,194 |
|
|
100.0 |
|
Distressed loans held for sale |
|
|
8,706 |
|
|
|
|
|
|
|
|
(8,706 |
) |
|
(100.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonperforming assets |
|
$ |
1,367,691 |
|
$ |
1,349,793 |
|
$ |
1,509,720 |
|
$ |
142,029 |
|
|
10.4 |
% |
$ |
159,927 |
|
|
11.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonperforming assets, excluding FDIC covered assets |
|
$ |
1,367,691 |
|
$ |
1,349,793 |
|
$ |
1,203,099 |
|
$ |
(164,592 |
) |
|
(12.0 |
)% |
$ |
(146,694 |
) |
|
(10.9 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructured loans that continue to accrue interest |
|
$ |
1,867 |
|
$ |
3,811 |
|
$ |
24,604 |
|
$ |
22,737 |
|
|
nm |
|
$ |
20,793 |
|
|
nm |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
$ |
1,260,307 |
|
$ |
1,357,000 |
|
$ |
1,276,845 |
|
$ |
16,538 |
|
|
1.3 |
% |
$ |
(80,155 |
) |
|
(5.9 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowances for credit losses |
|
$ |
1,432,681 |
|
$ |
1,533,374 |
|
$ |
1,441,219 |
|
$ |
8,538 |
|
|
0.6 |
% |
$ |
(92,155 |
) |
|
(6.0 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonaccrual loans to total loans |
|
|
2.75 |
% |
|
2.79 |
% |
|
2.75 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses to nonaccrual loans(1) |
|
|
95.15 |
|
|
103.03 |
|
|
96.79 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowances for credit losses to nonaccrual loans(2) |
|
|
108.16 |
|
|
116.42 |
|
|
109.25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming assets to total loans, OREO and distressed loans held for sale |
|
|
2.84 |
|
|
2.86 |
|
|
3.14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming assets to total assets |
|
|
1.75 |
|
|
1.58 |
|
|
1.89 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Excluding FDIC covered assets:(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonaccrual loans to total loans |
|
|
N/A |
|
|
N/A |
|
|
2.50 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming assets to total loans, OREO and distressed loans held for sale |
|
|
N/A |
|
|
N/A |
|
|
2.60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming assets to total assets |
|
|
N/A |
|
|
N/A |
|
|
1.54 |
|
|
|
|
|
|
|
|
|
|
|
|
|
- (1)
- The
allowance for loan losses ratios are calculated using the allowance for loan losses against end of period total loans or total
nonperforming loans, as appropriate.
- (2)
- The
allowances for credit losses ratios are calculated using the sum of the allowances for loan losses and for losses on
off-balance sheet commitments against end of period total loans or total nonaccrual loans, as appropriate.
- (3)
- These
ratios exclude the impact of the acquired loans and foreclosed assets, which are covered under loss share agreement between Union Bank,
N.A. and the FDIC. Such agreements are related to the April 2010 acquisitions of certain assets and the assumption of certain liabilities of Frontier and Tamalpais.
- nm
- =
not meaningful
- N/A
- =
not applicable for periods prior to the April 2010 Frontier and Tamalpais transactions.
The decrease in nonaccrual loans, excluding FDIC covered loans, from September 30, 2009 to September 30, 2010 was primarily due to
commercial, financial and industrial and construction nonaccrual loans. During the third quarters of 2009 and 2010, we had $13.3 million and $84.0 million in sales of nonperforming
loans, respectively. Losses from these sales of $2.8 million and $19.7 million for the third quarters of 2009 and 2010, respectively, were reflected in charge-offs.
81
Table of Contents
Covered
nonperforming assets totaled $306.6 million, representing 0.38 percent of total assets, at September 30, 2010. Covered nonperforming assets are subject to
loss share agreements with the FDIC.
Loans 90 Days or More Past Due and Still Accruing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (Decrease)
September 30, 2010 From: |
|
|
|
|
|
|
|
|
|
September 30,
2009 |
|
December 31,
2009 |
|
|
|
September 30,
2009 |
|
December 31,
2009 |
|
September 30,
2010 |
|
(Dollars in thousands) |
|
Amount |
|
Percent |
|
Amount |
|
Percent |
|
Commercial, financial and industrial |
|
$ |
3,958 |
|
$ |
4,393 |
|
$ |
7,345 |
|
$ |
3,387 |
|
|
85.6 |
% |
$ |
2,952 |
|
|
67.2 |
% |
Construction |
|
|
659 |
|
|
|
|
|
|
|
|
(659 |
) |
|
(100 |
) |
|
|
|
|
nm |
|
Residential mortgage(1) |
|
|
421 |
|
|
|
|
|
|
|
|
(421 |
) |
|
(100 |
) |
|
|
|
|
nm |
|
Commercial mortgage |
|
|
|
|
|
413 |
|
|
9,840 |
|
|
9,840 |
|
|
nm |
|
|
9,427 |
|
|
nm |
|
Consumer and other(1) |
|
|
359 |
|
|
229 |
|
|
267 |
|
|
(92 |
) |
|
(25.6 |
) |
|
38 |
|
|
16.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans 90 days or more past due and still accruing(2) |
|
$ |
5,397 |
|
$ |
5,035 |
|
$ |
17,452 |
|
$ |
12,055 |
|
|
nm |
% |
$ |
12,417 |
|
|
nm |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- (1)
- Effective
January 1, 2009, the Company changed its nonaccrual accounting policy to place consumer home equity loans and
one-to-four single family residential loans on nonaccrual status when these loans are delinquent 90 days or more, or in foreclosure.
- (2)
- Excludes
loans totaling $325.7 million that are 90 days or more past due and still accruing at September 30, 2010, which
consisted of FDIC covered loans accounted for in accordance with the accounting standards for acquired impaired loans.
- nm
- =
not meaningful
Securities
Management of the securities portfolio involves the maximization of return while maintaining prudent levels of credit quality, market
risk and liquidity. At September 30, 2010, approximately 96 percent of our securities, based upon carrying value, were investment grade. The amortized cost, gross unrealized gains, gross
unrealized losses and fair values of securities are detailed in Note 4 to our consolidated financial statements included in this Form 10-Q.
Our
securities available for sale are recorded at fair value with the change in fair value recognized in accumulated other comprehensive income. Our Asset and Liability Management (ALM)
Securities portfolio, which consists of available for sale U.S. Government, state and municipal, and mortgage-backed securities held for ALM purposes, totaled $18 billion at
September 30, 2010. ALM Securities are valued at fair value by a pricing service whose prices can be corroborated by recent security trading activities.
Our
asset-backed securities primarily consist of collateralized loan obligations (CLO) securities, which are known as Cash Flow CLOs. A Cash Flow CLO is a structured finance product that
securitizes a diversified pool of loan assets into multiple classes of notes from the cash flows generated by such loans. Cash Flow CLOs pay the note holders through the receipt of interest and
principal repayments from the underlying loans unlike other types of CLOs that pay note holders through the trading and sale of underlying collateral. During the first quarter of 2009, we reclassified
our CLOs from available for sale to held to maturity. We consider the held to maturity classification to be more appropriate because we have the ability and the intent to hold these securities to
maturity.
At
September 30, 2010, the fair value of our CLO securities had increased by approximately $37.3 million from December 31, 2009, primarily due to an increase in
liquidity in the marketplace. We estimate the fair value of our CLOs using a pricing model, as well as broker quotes. The model is based on internally-developed assumptions, utilizing market data
derived from market participants and credit rating agencies. These assumptions include, but are not limited to, estimated default rates, recovery rates, prepayment rates and reinvestment rates.
82
Table of Contents
We conduct a formal review of our securities available for sale and securities held to maturity portfolios on a quarterly basis for the presence of
other-than-temporary impairment. We recognized an insignificant amount of impairment on three non-agency residential mortgage-backed securities and one commercial
mortgage-backed security during the nine months ended September 30, 2010. Based on the review performed as of September 30, 2010, we expect to recover the entire amortized cost basis of
our securities available for sale and securities held to maturity portfolios.
Analysis of Securities
The following tables show the remaining contractual maturities and expected yields of the securities based upon amortized cost at
September 30, 2010.
Securities Available For Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
|
|
|
|
|
Maturity |
|
|
|
|
|
|
|
One Year or Less |
|
Over One Year
Through
Five Years |
|
Over Five Years
Through
Ten Years |
|
Over Ten Years |
|
Total Amortized Cost |
|
(Dollars in thousands) |
|
Amount |
|
Yield |
|
Amount |
|
Yield |
|
Amount |
|
Yield |
|
Amount |
|
Yield |
|
Amount |
|
Yield |
|
U.S. Treasury |
|
$ |
150,331 |
|
|
0.21 |
% |
$ |
|
|
|
|
% |
$ |
308 |
|
|
2.75 |
% |
$ |
|
|
|
|
% |
$ |
150,639 |
|
|
0.22 |
% |
Other U.S. government |
|
|
590,493 |
|
|
1.12 |
|
|
7,423,339 |
|
|
1.60 |
|
|
804 |
|
|
7.80 |
|
|
|
|
|
|
|
|
8,014,636 |
|
|
1.57 |
|
Residential mortgage-backed securitiesagency(1)(2) |
|
|
1 |
|
|
4.41 |
|
|
230,569 |
|
|
3.82 |
|
|
931,310 |
|
|
3.80 |
|
|
7,878,476 |
|
|
3.87 |
|
|
9,040,356 |
|
|
3.86 |
|
Residential mortgage-backed securitiesnon-agency(1)(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,397 |
|
|
5.15 |
|
|
547,902 |
|
|
4.58 |
|
|
564,299 |
|
|
4.60 |
|
State and municipal |
|
|
3,743 |
|
|
6.47 |
|
|
5,986 |
|
|
6.19 |
|
|
15,819 |
|
|
3.47 |
|
|
19,382 |
|
|
5.73 |
|
|
44,930 |
|
|
5.06 |
|
Asset-backed and debt securities |
|
|
|
|
|
|
|
|
23,729 |
|
|
7.25 |
|
|
16,687 |
|
|
4.68 |
|
|
77,101 |
|
|
6.76 |
|
|
117,517 |
|
|
6.56 |
|
Equity securities(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77,592 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities available for sale |
|
$ |
744,568 |
|
|
0.96 |
% |
$ |
7,683,623 |
|
|
1.69 |
% |
$ |
981,325 |
|
|
3.84 |
% |
$ |
8,522,861 |
|
|
3.95 |
% |
$ |
18,009,969 |
|
|
2.84 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities Held to Maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
|
|
|
|
|
Maturity |
|
|
|
|
|
|
|
One Year or Less |
|
Over One Year
Through
Five Years |
|
Over Five Years
Through
Ten Years |
|
Over Ten Years |
|
Total Amortized Cost(4) |
|
(Dollars in thousands) |
|
Amount |
|
Yield |
|
Amount |
|
Yield |
|
Amount |
|
Yield |
|
Amount |
|
Yield |
|
Amount |
|
Yield |
|
Collateralized loan obligations |
|
$ |
1,647 |
|
|
6.79 |
% |
$ |
92,013 |
|
|
1.94 |
% |
$ |
1,411,449 |
|
|
1.19 |
% |
$ |
269,523 |
|
|
1.19 |
% |
$ |
1,774,632 |
|
|
1.23 |
% |
Foreign securities |
|
|
98 |
|
|
0.25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
98 |
|
|
0.25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities held to maturity |
|
$ |
1,745 |
|
|
6.42 |
% |
$ |
92,013 |
|
|
1.94 |
% |
$ |
1,411,449 |
|
|
1.19 |
% |
$ |
269,523 |
|
|
1.19 |
% |
$ |
1,774,730 |
|
|
1.23 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- (1)
- Although
the residential mortgage-backed securities have been ascribed to periods based upon their contractual maturities, principal payments
are received prior to maturity because borrowers have the right to repay their obligations at any time.
- (2)
- See
discussion of expected duration in "Quantitative and Qualitative Disclosures About Market Risk."
- (3)
- Equity
securities do not have a stated maturity and are included in the total column only.
- (4)
- Amortized
cost is defined as the original purchase cost, plus or minus any accretion or amortization of a purchase. Amortized cost reflects
fair value adjustments as a result of the Company's privatization transaction.
- (5)
- For
securities transferred to held to maturity from available for sale, amortized cost is defined as the original purchase cost, plus or
minus any accretion or amortization of a purchase discount or premium, less payments and any impairment previously recognized its earnings. Amortized cost reflects fair value adjustments as a result
of the Company's privatization transaction.
Our securities available for sale portfolio at September 30, 2010 included ALM Securities with an fair value of $18 billion. These
securities had an expected weighted average maturity of 2.7 years.
83
Table of Contents
Deposits
The table below provides information on our deposits as of September 30, 2009, December 31, 2009 and September 30,
2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (Decrease) September 30, 2010 From December 31, 2009 |
|
|
|
September 30, 2009 |
|
December 31, 2009 |
|
September 30, 2010 |
|
(Dollars in thousands) |
|
Amount |
|
Percent |
|
Interest checking |
|
$ |
816,588 |
|
$ |
849,283 |
|
$ |
689,171 |
|
$ |
(160,112 |
) |
|
(19 |
)% |
Money market |
|
|
32,561,224 |
|
|
39,952,337 |
|
|
28,992,676 |
|
|
(10,959,661 |
) |
|
(27 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest bearing transaction accounts |
|
|
33,377,812 |
|
|
40,801,620 |
|
|
29,681,847 |
|
|
(11,119,773 |
) |
|
(27 |
) |
Savings |
|
|
2,706,344 |
|
|
3,716,566 |
|
|
4,521,957 |
|
|
805,391 |
|
|
22 |
|
Time |
|
|
10,134,837 |
|
|
9,440,478 |
|
|
11,911,121 |
|
|
2,470,643 |
|
|
26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest bearing deposits(1) |
|
|
46,218,993 |
|
|
53,958,664 |
|
|
46,114,925 |
|
|
(7,843,739 |
) |
|
(15 |
) |
Noninterest bearing deposits |
|
|
14,472,375 |
|
|
14,558,989 |
|
|
15,425,621 |
|
|
866,632 |
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits |
|
$ |
60,691,368 |
|
$ |
68,517,653 |
|
$ |
61,540,546 |
|
$ |
(6,977,107 |
) |
|
(10 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)Total interest bearing deposits include: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brokered deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing transaction accounts |
|
$ |
2,510,406 |
|
$ |
5,340,452 |
|
$ |
2,363,065 |
|
$ |
(2,977,387 |
) |
|
(56 |
)% |
|
|
Time |
|
|
1,470,146 |
|
|
979,352 |
|
|
1,533,557 |
|
|
554,205 |
|
|
57 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total brokered deposits |
|
|
3,980,552 |
|
|
6,319,804 |
|
|
3,896,622 |
|
|
(2,423,182 |
) |
|
(38 |
) |
|
Nonbrokered deposits |
|
|
42,238,441 |
|
|
47,638,860 |
|
|
42,218,303 |
|
|
(5,420,557 |
) |
|
(11 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest bearing deposits |
|
$ |
46,218,993 |
|
$ |
53,958,664 |
|
$ |
46,114,925 |
|
$ |
(7,843,739 |
) |
|
(15 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Core Deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits |
|
$ |
60,691,368 |
|
$ |
68,517,653 |
|
$ |
61,540,546 |
|
$ |
(6,977,107 |
) |
|
(10 |
)% |
|
Less: Total interest bearing brokered deposits |
|
|
3,980,552 |
|
|
6,319,804 |
|
|
3,896,622 |
|
|
(2,423,182 |
) |
|
(38 |
) |
|
Less: Total noninterest bearing brokered deposits |
|
|
|
|
|
|
|
|
19 |
|
|
19 |
|
|
nm |
|
|
Less: Total nonbrokered time deposits of $100,000 and over |
|
|
6,601,161 |
|
|
6,510,741 |
|
|
7,047,604 |
|
|
536,863 |
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total core deposits |
|
$ |
50,109,655 |
|
$ |
55,687,108 |
|
$ |
50,596,301 |
|
$ |
(5,090,807 |
) |
|
(9 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
84
Table of Contents
Fair Value of Financial Instruments
The following table reflects financial instruments measured at fair value on a recurring basis as of September 30, 2009,
December 31, 2009 and September 30, 2010. For additional information on the fair value of financial instruments, see Note 13 to the consolidated financial statements in this
Form 10-Q.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009 |
|
December 31, 2009 |
|
September 30, 2010 |
|
(Dollars in thousands) |
|
Fair Value |
|
Percentage
of Total |
|
Fair Value |
|
Percentage
of Total |
|
Fair Value |
|
Percentage
of Total |
|
Financial instruments recorded at fair value on a recurring basis |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1 |
|
$ |
6,587,687 |
|
|
34 |
% |
$ |
12,696,149 |
|
|
55 |
% |
$ |
8,494,104 |
|
|
44 |
% |
|
Level 2 |
|
|
12,722,283 |
|
|
67 |
|
|
10,746,219 |
|
|
46 |
|
|
11,080,912 |
|
|
57 |
|
|
Level 3 |
|
|
6,646 |
|
|
|
|
|
6,878 |
|
|
|
|
|
10,251 |
|
|
|
|
|
Netting Adjustment(1) |
|
|
(102,093 |
) |
|
(1 |
) |
|
(135,885 |
) |
|
(1 |
) |
|
(85,242 |
) |
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
19,214,523 |
|
|
100 |
% |
$ |
23,313,361 |
|
|
100 |
% |
$ |
19,500,025 |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a percentage of total Company assets |
|
|
|
|
|
25 |
% |
|
|
|
|
27 |
% |
|
|
|
|
24 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1 |
|
$ |
49,985 |
|
|
7 |
% |
$ |
9,901 |
|
|
2 |
% |
$ |
44,648 |
|
|
4 |
% |
|
Level 2 |
|
|
767,183 |
|
|
107 |
|
|
643,115 |
|
|
119 |
|
|
1,064,708 |
|
|
101 |
|
|
Level 3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55,001 |
|
|
5 |
|
|
Netting Adjustment(1) |
|
|
(102,093 |
) |
|
(14 |
) |
|
(111,885 |
) |
|
(21 |
) |
|
(102,119 |
) |
|
(10 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
715,075 |
|
|
100 |
% |
$ |
541,131 |
|
|
100 |
% |
$ |
1,062,238 |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a percentage of total Company liabilities |
|
|
|
|
|
1 |
% |
|
|
|
|
1 |
% |
|
|
|
|
2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- (1)
- Amounts
represent the impact of legally enforceable master netting agreements between the same counterparties that allow the Company to net
settle all contracts.
Quantitative and Qualitative Disclosures About Market Risk
Our exposure to market risk primarily exists in interest rate risk in our non-trading balance sheet and, to a much lesser
degree, in price risk in our trading portfolio. The objective of market risk management is to mitigate any undue adverse impact on earnings and capital arising from changes in interest rates and other
market variables and to ensure the Bank has adequate sources of liquidity. This risk management objective supports our broad objective of enhancing shareholder value, which encompasses stable earnings
growth over time and capital stability.
The
Board of Directors, directly or through its appropriate committee, approves our Asset and Liability Management, Investment and Derivatives Policy (ALM Policy), which governs the
management of market
and liquidity risks and guides our investment, derivatives, trading and funding activities. The ALM Policy establishes the Bank's risk tolerance guidelines by outlining standards for measuring market
and liquidity risks, creates Board-level limits for specific market risks, establishes guidelines for reporting market and liquidity risk and requires independent review and oversight of market and
liquidity risk activities.
The
Risk & Capital Committee (RCC), comprised of selected senior officers of the Bank, among other things, strives to ensure that the Bank has an effective process to identify,
measure, monitor, and manage market risk as required by the ALM Policy. The RCC provides the broad and strategic guidance of market risk management by formulating high-level strategies for
market risk management and defining the risk/return direction for the Bank, and by approving the investment, derivatives and trading policies that govern the Bank's activities. The Asset Liability
Management Committee (ALCO) as instructed by the RCC is responsible for the management of market risk and approves specific risk management programs to be recommended to the RCC
85
Table of Contents
for
approval, including those related to interest rate hedging, investment securities, wholesale funding and trading activities. The RCC may delegate to ALCO various decisions pertaining to market
risk management as it deems appropriate.
The
Treasurer is primarily responsible for the implementation of risk management strategies approved by the RCC and for operational management of market risk through the funding,
investment and derivatives hedging activities of Corporate Treasury. The manager of the Global Capital Markets Division is responsible for operational management of price risk through the trading
activities conducted in their respective divisions. The Market Risk Management (MRM) unit is responsible for the monitoring of market risk and MRM functions independently of all operating and
management units.
We
have separate and distinct methods for managing the market risk associated with our asset and liability management activities and our trading activities, as described below. For
additional information about our market risk management, please see "Quantitative and Qualitative Disclosures about Market Risk" in "Management's Discussion and Analysis of Financial Condition and
Results of Operations" in our 2009 Form 10-K.
In
order to measure the sensitivity of the Bank's financial position to interest rate risk, parallel rate shocks and gradual ramps over 12 months in both up and down scenarios are
compared to current rates to generate earnings and economic value of equity impacts. During the first quarter of 2010, under RCC delegated authority to approve temporary changes to risk measurement,
the -200 basis point parallel scenario was replaced with a -100 basis point parallel scenario. This change reflects the low probability associated with rate reductions of 200
basis points in the current extremely low rate environment, and the acceptance of a scenario that better reflects historically low rate levels achieved in the past. The +200 basis point scenario was
not changed. The RCC will monitor the rate environment and will consider restoring the -200 basis point measure in the future when deemed appropriate.
At September 30, 2010, Economic NII sensitivity was asset sensitive to parallel rate shifts. A +200 basis point parallel shift
in rates would increase 12-month Economic NII by 3.61 percent, while a -100 basis point downward shift in rates would decrease it by 2.06 percent. At
December 31, 2009, a +200 basis point parallel shift in rates would increase 12-month Economic NII by 0.03 percent, while a -100 basis point downward shift in
rates would reduce it by 1.65 percent. We caution that significant low levels of current interest rates and ongoing enhancements to our interest rate risk modeling may make prior year
comparisons of Economic NII less meaningful. Economic NII adjusts our reported NII for the effect of certain noninterest bearing deposit related fee and expense items. Those adjustment items are
innately liability sensitive, meaning that reported NII is less liability sensitive than Economic NII.
Economic NII
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions) |
|
September 30,
2009 |
|
December 31,
2009 |
|
September 30,
2010 |
|
+200 basis points |
|
$ |
44.0 |
|
$ |
0.9 |
|
$ |
86.0 |
|
as a percentage of base case NII |
|
|
1.69 |
% |
|
0.03 |
% |
|
3.61 |
% |
-100 basis points |
|
|
N/A |
|
$ |
(44.7 |
) |
$ |
(49.0 |
) |
as a percentage of base case NII |
|
|
N/A |
|
|
(1.65 |
)% |
|
(2.06 |
)% |
Generally, our short-term assets re-price faster than short-term non-maturity liabilities. As a
result, higher short-term rates would improve Economic NII. Alternatively, gradually lower short-term rates would contract Economic NII. Regarding the curve shape, curve
steepening would improve Economic NII while curve flattening has a negative marginal impact on NII.
86
Table of Contents
During the first nine months of 2010, the Bank increased its asset sensitivity to position the Bank to benefit from rising rates in the
future by the termination of positions in receive fixed interest rate swaps and floor derivative portfolios, the repositioning of mortgage securities from longer to shorter durations and the execution
of term funding. Additionally, increased deposit balances, cash holdings and the effect of lower rates on the forecasted risk from mortgages and deposits contributed to the asset sensitive position.
In managing the interest rate sensitivity of our balance sheet, we use the ALM investment securities portfolio and derivatives positions as the primary tools to adjust our interest rate risk profile,
if necessary.
At each of September 30, 2009 and 2010, our available for sale securities portfolio included $18.0 billion of securities
for ALM purposes. At September 30, 2010, approximately $5.2 billion of the portfolio was pledged to secure trust and public deposits and for other purposes as required or permitted by
law. During the third quarter of 2010, we purchased $2.5 billion and sold $1.0 billion par value of securities, as part of our investment portfolio strategy, while $5.1 billion
par value of ALM securities matured or were called.
Based
on current prepayment projections, the estimated ALM Securities portfolio's effective duration was 1.3 at September 30, 2010, compared to 1.8 at September 30, 2009.
Effective duration is a measure of price sensitivity of a bond portfolio to immediate parallel shifts in interest rates. An effective duration of 1.3 suggests an expected price decrease of
approximately 1.3 percent for an immediate 1.0 percent parallel increase in interest rates.
During the first nine months of 2010, the ALM derivatives portfolio decreased by $2.8 billion notional amount due to
terminations of receive fixed interest rate swaps and LIBOR floor contracts and the offset by the addition of pay fixed interest rate swaps.
The
fair value of the ALM derivatives portfolio decreased primarily due to the termination of LIBOR floor contracts and the impact of a decline in interest rates on cap contracts and pay
fixed swaps, which benefit from the expectation of higher future interest rates. The decrease was partially offset by the termination of receive fixed interest rate swaps. For additional discussion of
derivative instruments and our hedging strategies, see Note 14 to our consolidated financial statements in this Form 10-Q and Note 18 to our consolidated financial
statements included in our 2009 Form 10-K.
87
Table of Contents
The following table provides the notional value and the fair value of our ALM derivatives portfolio as of September 30, 2009, December 31, 2009 and
September 30, 2010 and the change in fair value between December 31, 2009 and September 30, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
September 30,
2009 |
|
December 31,
2009 |
|
September 30,
2010 |
|
Increase (Decrease)
From December 31, 2009
to September 30, 2010 |
|
Total gross notional amount of positions held for purposes other than trading: |
|
$ |
7,050,000 |
|
$ |
8,800,000 |
|
$ |
5,966,773 |
|
$ |
(2,833,227 |
) |
|
|
of which, interest rate swaps pay fixed rates of interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of positions held for purposes other than trading: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross positive fair value |
|
$ |
118,166 |
|
$ |
97,186 |
|
$ |
3,228 |
|
$ |
(93,958 |
) |
|
|
Gross negative fair value |
|
|
|
|
|
12,164 |
|
|
12,567 |
|
|
403 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Positive (negative) value of positions, net |
|
$ |
118,166 |
|
$ |
85,022 |
|
$ |
(9,339 |
) |
$ |
(94,361 |
) |
|
|
|
|
|
|
|
|
|
|
Trading Activities
We enter into trading account activities primarily as a financial intermediary for customers and, to some extent, for our own account.
By acting as a financial intermediary, we are able to provide our customers with access to a range of products supporting the securities, foreign exchange and derivatives markets. In acting for our
own account, we may take positions in certain securities, foreign exchange and interest rate instruments, subject to various limits in amount, tenor and other respects, with the objective of
generating trading profits.
As
of September 30, 2010, we had approximately $29.2 billion notional amount of interest rate derivative contracts. We enter into these agreements for customer
accommodations and for our own account, accepting risks up to management approved Value-at-Risk levels.
We
market energy derivative contracts to existing energy industry customers, primarily oil and gas producers, in order to meet their hedging needs. All transactions are fully matched to
offsetting (mirror) derivative contracts with third parties to remove our exposure to market risk, with income earned on the credit spread. As of September 30, 2010, we had approximately
$3.6 billion notional amount of energy derivative contracts with approximately half of these energy derivative contracts entered into as an accommodation for customers and the remaining half
entered into as matching contracts to remove our exposure to market risk on our customer accommodation transactions.
88
Table of Contents
The
following table provides the notional value and the fair value of our trading derivatives portfolio as of September 30, 2009, December 31, 2009 and September 30,
2010 and the change in fair value between December 31, 2009 and September 30, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
September 30,
2009 |
|
December 31,
2009 |
|
September 30,
2010 |
|
Increase (Decrease)
From December 31, 2009
to September 30, 2010 |
|
Total gross notional amount of positions held for trading purposes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts |
|
$ |
24,941,719 |
|
$ |
25,226,564 |
|
$ |
29,192,499 |
|
$ |
3,965,935 |
|
|
|
Foreign exchange contracts(1) |
|
|
2,644,418 |
|
|
2,407,178 |
|
|
2,149,295 |
|
|
(257,883 |
) |
|
|
Equity contracts |
|
|
193,158 |
|
|
254,372 |
|
|
1,011,084 |
|
|
756,712 |
|
|
|
Commodity contracts |
|
|
3,544,518 |
|
|
3,405,389 |
|
|
3,550,464 |
|
|
145,075 |
|
|
|
Credit contracts |
|
|
|
|
|
|
|
|
60,000 |
|
|
60,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
31,323,813 |
|
$ |
31,293,503 |
|
$ |
35,963,342 |
|
$ |
4,669,839 |
|
|
|
|
|
|
|
|
|
|
|
Fair value of positions held for trading purposes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross positive fair value |
|
$ |
779,376 |
|
$ |
649,300 |
|
$ |
1,089,928 |
|
$ |
440,628 |
|
|
|
Gross negative fair value |
|
|
773,471 |
|
|
632,426 |
|
|
1,067,972 |
|
|
435,546 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Positive fair value of positions, net |
|
$ |
5,905 |
|
$ |
16,874 |
|
$ |
21,956 |
|
$ |
5,082 |
|
|
|
|
|
|
|
|
|
|
|
- (1)
- Excludes
spot contracts with notional amounts of $0.3 billion, $0.3 billion and $0.4 billion at September 30,
2009, December 31, 2009 and September 30, 2010, respectively.
Liquidity Risk
Liquidity risk is the risk that the Bank's financial condition or overall safety and soundness is adversely affected by an inability,
or perceived inability, to meet its contractual obligations. The objective of liquidity risk management is to maintain a sufficient amount of liquidity and diversity of funding sources to allow the
Bank to meet expected and unexpected obligations in both stable and adverse conditions.
The
management of liquidity risk is governed by the ALM Policy under the oversight of the RCC and the Audit & Finance Committee of the Board. ALCO oversees liquidity risk
management activities. Corporate Treasury formulates the Bank's liquidity and contingency planning strategies and is responsible for identifying, monitoring and reporting on liquidity risk. Market
Risk Management, which is part of the Enterprise Wide Risk Reporting and Analysis unit, partners with Corporate Treasury to establish sound policy and effective risk controls. RCC and ALCO also
maintain a Contingency Funding Plan that identifies actions to be taken to help ensure adequate liquidity if an event should occur that disrupts or adversely affects the Bank's normal funding
activities.
Liquidity
risk is managed using a total balance sheet perspective that analyzes all sources and uses of liquidity including loans, investments, deposits and borrowings, as well as
off-balance sheet exposures. Various tools are used to measure and monitor liquidity, including pro-forma forecasting of the sources and uses of cash flows over a
12-month time horizon, stress testing of the pro-forma forecast and assessment of the Bank's capacity to raise incremental unsecured and secured funding. Stress testing, which
incorporates both bank-specific and systemic market scenarios that would adversely affect the Bank's liquidity position, facilitates the identification of appropriate remedial measures to
help ensure that the Bank maintains adequate liquidity in adverse conditions. Such measures may include extending the maturity profile of liabilities, optimizing liability levels through pricing
strategies, adding new funding sources, altering dependency on certain funding sources and/or selling assets.
89
Table of Contents
In
March 2010, the federal bank regulators adopted (effective May 21, 2010) an Interagency Policy Statement on Funding and Liquidity Risk Management, which sets forth the
regulators' supervisory expectations for all insured depository institutions for management of funding and liquidity risk. Under the guidance of this policy statement, banks are expected, among other
measures, to adopt and observe sound practices for liquidity risk management, ensure oversight through the board of directors or appropriate committees, conduct regular stress testing, monitor and
effectively manage collateral
positions, ensure diversification in funding sources, to develop a formal contingency funding plan that clearly sets out the institution's strategies for addressing liquidity shortfalls in emergency
situations and to establish a monitoring framework for contingent events by using early-warning indicators and event triggers. The Bank's Board of Directors has approved a number of measures aimed at
assuring compliance with the policy statement, including a formal ALM Policy with specific governance on liquidity risk management.
Our
primary sources of liquidity are core deposits (described below), securities portfolio and wholesale funding. Wholesale funding includes unsecured funds raised from interbank and
other sources, both domestic and international. Also included are secured funds raised by selling securities under repurchase agreements and by borrowing from the FHLB. We evaluate and monitor the
stability and reliability of our various funding sources to help ensure that we have sufficient liquidity in adverse circumstances. We generally view our core deposits to be relatively stable. Secured
borrowings via repurchase agreements and advances from the FHLB are also recognized as highly reliable funding sources, and we therefore maintain these sources primarily to meet our contingency
funding needs.
The
acquisitions of certain assets and assumption of certain liabilities of Frontier and Tamalpais in the second quarter of 2010 resulted in the assumption of FHLB advances (including
accrued interest) of $135 million from the FHLB of San Francisco and $385 million from the FHLB of Seattle, including prepayment fees payable of $4 million and $23 million,
respectively. Shortly after the respective acquisition dates, the Bank repaid in full all outstanding FHLB advances assumed in connection with these acquisitions.
Total
deposits declined $7.0 billion from $68.5 billion at December 31, 2009 to $61.5 billion at September 30, 2010 largely due to planned deposit run
off resulting from targeted rate reductions. The decline in deposits was coupled with a decrease in wholesale funding of $1.5 billion from $8.9 billion at December 31, 2009 to
$7.4 billion at September 30, 2010.
Core
deposits, which consist of total deposits excluding brokered deposits and time deposits of $100,000 and over, provide us with a sizable source of relatively stable and
low-cost funds. At September 30, 2010, our core deposits totaled $50.6 billion and our loan-to-total deposit ratio was 78 percent.
The
Bank maintains a variety of other funding sources, secured, and unsecured, which management believes will be adequate to meet the Bank's liquidity needs, including the
following:
-
- The Bank has pledged collateral under secured borrowing facilities with the FHLB and the Federal Reserve Bank (FRB). As of
September 30, 2010, the Bank had $2.3 billion of borrowings outstanding with the FHLB and the Bank had a remaining combined unused borrowing capacity of $18.0 billion from the
FHLB and the FRB.
-
- Our securities portfolio provides liquidity through either securities sales or repurchase agreements. Capacity under
repurchase agreements declined to $14.0 billion at September 30, 2010 from $17.1 billion at December 31, 2009, consistent with ongoing efforts to diversify the Bank's
investment portfolio.
-
- The Bank has a $4.0 billion unsecured Bank Note Program. As of September 30, 2010, the remaining available
funding under the Bank Note Program was approximately $2.6 billion. We do not have any firm commitments in place to sell securities under the Bank Note Program.
-
- In addition to the funding provided by the Bank, we raise funds at the holding company level. UnionBanCal Corporation has
in place a shelf registration with the SEC permitting ready access to the
90
Table of Contents
public
debt markets. As of September 30, 2010, $1.5 billion of debt or other securities were available for issuance under this shelf registration. We do not have firm commitments in
place to sell securities under this shelf registration.
We
believe that these sources, in addition to our core deposits and equity capital, provide a stable funding base. Management does not rely on any one source of liquidity and manages
availability in response to changing balance sheet needs.
Our
costs and ability to raise funds in the capital markets are influenced by our credit ratings. Our credit ratings could be impacted by changes in the credit ratings of BTMU and MUFG.
The following table provides our credit ratings as of September 30, 2010.
|
|
|
|
|
|
|
|
|
|
|
Union Bank, N.A. |
|
UnionBanCal
Corporation |
Standard & Poor's |
|
Long-term |
|
A+ |
|
A |
|
|
Short-term |
|
A-1 |
|
A-1 |
Moody's |
|
Long-term |
|
A2 |
|
|
|
|
Short-term |
|
P-1 |
|
|
Fitch |
|
Long-term |
|
A |
|
A |
|
|
Short-term |
|
F1 |
|
F1 |
DBRS |
|
Long-term |
|
A (high) |
|
A |
|
|
Short-term |
|
R-1 (middle) |
|
R-1 (low) |
91
Table of Contents
Capital
The following tables summarize our risk-based capital, risk-weighted assets, and risk-based capital
ratios.
UnionBanCal Corporation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
September 30,
2009 |
|
|
|
December 31,
2009 |
|
|
|
September 30,
2010 |
|
|
|
|
|
|
|
|
|
Capital Components |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 capital |
|
$ |
7,416,069 |
|
|
|
|
$ |
7,484,516 |
|
|
|
|
$ |
7,861,362 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 2 capital |
|
|
1,804,532 |
|
|
|
|
|
1,718,807 |
|
|
|
|
|
1,730,495 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total risk-based capital |
|
$ |
9,220,601 |
|
|
|
|
$ |
9,203,323 |
|
|
|
|
$ |
9,591,857 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk-weighted assets |
|
$ |
63,956,189 |
|
|
|
|
$ |
63,298,173 |
|
|
|
|
$ |
64,079,581 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarterly average assets |
|
$ |
71,384,950 |
|
|
|
|
$ |
79,226,967 |
|
|
|
|
$ |
79,718,783 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2009 |
|
December 31,
2009 |
|
September 30,
2010 |
|
Minimum
Regulatory
Requirement |
|
|
|
|
|
(Dollars in thousands) |
|
Amount |
|
Ratio |
|
Amount |
|
Ratio |
|
Amount |
|
Ratio |
|
Amount |
|
Ratio |
|
|
|
|
|
Capital Ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital (to risk-weighted assets) |
|
$ |
9,220,601 |
|
|
14.42 |
% |
$ |
9,203,323 |
|
|
14.54 |
% |
$ |
9,591,857 |
|
|
14.97 |
% |
³$ |
5,126,366 |
|
|
8.0 |
% |
|
|
|
|
|
|
Tier 1 capital (to risk-weighted assets) |
|
|
7,416,069 |
|
|
11.60 |
|
|
7,484,516 |
|
|
11.82 |
|
|
7,861,362 |
|
|
12.27 |
|
|
³ 2,563,213 |
|
|
4.0 |
|
|
|
|
|
|
|
Leverage(1) |
|
|
7,416,069 |
|
|
10.39 |
|
|
7,484,516 |
|
|
9.45 |
|
|
7,861,362 |
|
|
9.86 |
|
|
³ 3,188,751 |
|
|
4.0 |
|
|
|
|
|
|
|
- (1)
- Tier 1
capital divided by quarterly average assets (excluding certain intangible assets).
Union Bank, N.A.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
September 30,
2009 |
|
|
|
December 31,
2009 |
|
|
|
September 30,
2010 |
|
|
|
|
|
|
|
|
|
Capital Components |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 capital |
|
$ |
6,906,944 |
|
|
|
|
$ |
7,207,264 |
|
|
|
|
$ |
7,253,252 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 2 capital |
|
|
1,484,451 |
|
|
|
|
|
1,478,697 |
|
|
|
|
|
1,483,837 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total risk-based capital |
|
$ |
8,391,395 |
|
|
|
|
$ |
8,685,961 |
|
|
|
|
$ |
8,737,089 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk-weighted assets |
|
$ |
63,915,458 |
|
|
|
|
$ |
63,272,931 |
|
|
|
|
$ |
63,554,751 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarterly average assets |
|
$ |
71,484,168 |
|
|
|
|
$ |
79,609,326 |
|
|
|
|
$ |
79,382,411 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2009 |
|
December 31,
2009 |
|
September 30,
2010 |
|
Minimum
Regulatory
Requirement |
|
"Well-Capitalized"
Regulatory
Requirement |
|
(Dollars in thousands) |
|
Amount |
|
Ratio |
|
Amount |
|
Ratio |
|
Amount |
|
Ratio |
|
Amount |
|
Ratio |
|
Amount |
|
Ratio |
|
Capital Ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital (to risk-weighted assets) |
|
$ |
8,391,395 |
|
|
13.13 |
% |
$ |
8,685,961 |
|
|
13.73 |
% |
$ |
8,737,089 |
|
|
13.75 |
% |
³$ |
5,084,380 |
|
|
8.0 |
% |
³$ |
6,355,475 |
|
|
10.0 |
% |
Tier 1 capital (to risk-weighted assets) |
|
|
6,906,944 |
|
|
10.81 |
|
|
7,207,264 |
|
|
11.39 |
|
|
7,253,252 |
|
|
11.41 |
|
|
³ 2,542,190 |
|
|
4.0 |
|
|
³ 3,813,285 |
|
|
6.0 |
|
Leverage(1) |
|
|
6,906,944 |
|
|
9.66 |
|
|
7,207,264 |
|
|
9.05 |
|
|
7,253,252 |
|
|
9.14 |
|
|
³ 3,175,296 |
|
|
4.0 |
|
|
³ 3,969,121 |
|
|
5.0 |
|
- (1)
- Tier 1
capital divided by quarterly average assets (excluding certain intangible assets).
We and Union Bank are subject to various regulations of the federal banking agencies, including minimum capital requirements. We are required to
maintain minimum ratios of Total and Tier 1 capital to risk-weighted assets and of Tier 1 capital to quarterly average assets (the Leverage ratio).
As
of September 30, 2010, management believes the capital ratios of Union Bank met all regulatory requirements of "well-capitalized" institutions, which are
10 percent for the Total risk-based capital ratio, 6 percent for the Tier 1 risk-based capital ratio and 5 percent for the Leverage ratio.
92
Table of Contents
In
addition to capital ratios determined in accordance with regulatory requirements, we consider various other measures when evaluating capital utilization and adequacy. These
non-regulatory capital ratios are viewed by management, and presented below, to further facilitate the understanding of our capital structure and for use in assessing and comparing the
quality and composition of UNBC's capital structure to other financial institutions. These ratios are not defined by US GAAP or federal banking regulations. Therefore, these
non-regulatory capital ratios disclosed are considered to be non-GAAP financial measures. Our calculation methods may differ from those used by other financial services
companies. Also, there may be limits as to the usefulness of these measures. As a result, consider the consolidated financial statements and other financial information contained in this report in its
entirety, and do not rely on any single financial measure.
The
following table summarizes the calculation of our tangible common equity ratio and Tier 1 common capital ratio as of September 30, 2009, December 31, 2009 and
September 30, 2010.
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
September 30,
2009 |
|
December 31,
2009 |
|
September 30,
2010 |
|
Total UNBC stockholder's equity |
|
$ |
9,475,004 |
|
$ |
9,580,333 |
|
$ |
10,134,681 |
|
Goodwill |
|
|
(2,369,326 |
) |
|
(2,369,326 |
) |
|
(2,431,583 |
) |
Intangible assets |
|
|
(601,140 |
) |
|
(561,040 |
) |
|
(486,688 |
) |
Deferred tax liabilities related to goodwill and intangible assets |
|
|
231,449 |
|
|
215,847 |
|
|
179,818 |
|
|
|
|
|
|
|
|
|
Tangible common equity (a) |
|
$ |
6,735,987 |
|
$ |
6,865,814 |
|
$ |
7,396,228 |
|
|
|
|
|
|
|
|
|
Tier 1 capital, determined in accordance with regulatory requirements |
|
$ |
7,416,069 |
|
$ |
7,484,516 |
|
$ |
7,861,362 |
|
Trust preferred securities |
|
|
(13,000 |
) |
|
(13,000 |
) |
|
(13,000 |
) |
|
|
|
|
|
|
|
|
Tier 1 common equity (b) |
|
$ |
7,403,069 |
|
$ |
7,471,516 |
|
$ |
7,848,362 |
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
78,153,207 |
|
$ |
85,598,128 |
|
$ |
79,842,077 |
|
Goodwill |
|
|
(2,369,326 |
) |
|
(2,369,326 |
) |
|
(2,431,583 |
) |
Intangible assets |
|
|
(601,140 |
) |
|
(561,040 |
) |
|
(486,688 |
) |
Deferred tax liabilities related to goodwill and intangible assets |
|
|
192,569 |
|
|
179,589 |
|
|
179,818 |
|
|
|
|
|
|
|
|
|
Tangible assets (c) |
|
$ |
75,375,310 |
|
$ |
82,847,351 |
|
$ |
77,103,624 |
|
|
|
|
|
|
|
|
|
Risk-weighted assets, determined in accordance with regulatory requirements (d) |
|
$ |
63,956,189 |
|
$ |
63,298,173 |
|
$ |
64,079,581 |
|
|
|
|
|
|
|
|
|
Tangible common equity ratio (a)/(c) |
|
|
8.94 |
% |
|
8.29 |
% |
|
9.59 |
% |
Tier 1 common capital ratio (b)/(d) |
|
|
11.58 |
% |
|
11.80 |
% |
|
12.25 |
% |
Business Segments
As a result of a corporate reorganization in the fourth quarter of 2009, we reevaluated our business segments. Under the new
organizational structure, we have three operating segments: Retail Banking Group, Corporate Banking Group and Pacific Rim Corporate Group. The Corporate Banking Group and Pacific Rim Corporate Group
segments have been aggregated together. We have two reportable business segments: Retail Banking and Corporate Banking.
Prior
to this reorganization, the various operating segments were aggregated into two reportable business segments formerly known as "Retail Banking" and "Wholesale Banking." Our new
reportable business segment structure is similar to the previous structure. However, the Global and Wealth Markets Division, which was previously included in Retail Banking, is now included in
Corporate Banking. Additionally, the goodwill, intangible assets, and related amortization/accretion associated with our privatization transaction, which was previously allocated to our operating
segments, is reported in "Other."
93
Table of Contents
We
recorded $62.3 million of goodwill as a result of our second quarter 2010 FDIC-assisted acquisitions of certain assets and assumption of certain liabilities of
Frontier and Tamalpais. Goodwill of $45.3 million and $17.0 million was assigned to the Retail Banking and Corporate Banking reportable business segments, respectively.
The
risk-adjusted return on capital (RAROC) methodology used seeks to attribute economic capital to business units consistent with the level of risk they assume. These risks
are primarily credit and operational, given that most of the market risk is not assumed by the business unit. Credit risk is the potential loss in economic value due to the likelihood that the obligor
will not perform as agreed. Operational risk is the potential loss due to all other factors, such as failures in internal control, system failures or external events. Market risk is the potential loss
in fair value due to changes in interest rates, currency rates and equity prices. RAROC may be one of several measures that is used to measure business unit compensation.
We
reflect a "market view" perspective in measuring our business segments. The market view is a measurement of our customer markets aggregated to show all revenues generated and expenses
incurred from all products and services sold to those customers regardless of where product areas organizationally report. Therefore, revenues and expenses are included in both the business segment
that provides the service and the business segment that manages the customer relationship. The duplicative results from this internal management accounting view are reflected in "Reconciling Items."
The market view approach fosters cross-selling with a total profitability view of the products and services being managed. For example, the Institutional Brokerage unit within the Global and Wealth
Markets Division is a business unit that manages the fixed income securities activities for all retail and corporate customers throughout the Bank. This unit retains and also allocates revenues and
expenses to divisions responsible for such retail and commercial customer relationships.
Unlike
financial accounting, there is no authoritative body of guidance for management accounting equivalent to US GAAP. Consequently, reported results are not necessarily
comparable with those presented by other companies, and they are not necessarily indicative of the results that would be reported by our business units if they were unique economic entities.
The
table that follows reflects the condensed income statements, selected average balance sheet items, and selected financial ratios, including changes from the prior year, for each of
our reportable business segments. Business unit results are prepared using various management accounting methodologies to measure the performance of the individual units. Our management accounting
methodologies, which are enhanced from time to time, measure segment profitability by assigning balance sheet and income statement items for each business unit. Methodologies that are applied to the
measurement of segment profitability include:
-
- A funds transfer pricing system, which assigns a cost of funds to assets or a credit for funds to liabilities and capital,
based on their type, maturity or repricing characteristics. During the first quarter of 2010, we refined our transfer pricing methodology with respect to reference rates for deposits and to include
additional assumptions about liquidity premiums, benefits granted for eligible loan collateral and charges for collateral requirements on deposits.
-
- An activity-based costing methodology, in which certain indirect costs, such as operations and technology expense, are
allocated to the segments based on studies of billable unit costs for product or data processing. All other corporate expenses (overhead) are allocated to the business units based on a predetermined
percentage of usage.
-
- A RAROC methodology, in which credit expense is charged to an operating segment based upon expected losses arising from
credit risk. In addition, the attribution of economic capital is related to unexpected losses arising from credit, market and operational risks. As a result of the methodology used in the RAROC model
to calculate expected losses, differences between the provision for credit losses and credit expense in any one period could be significant. However, over an economic cycle, the cumulative provision
for credit losses and credit expense for expected losses should be substantially the same.
The
reportable business segment results for the prior periods have been adjusted to reflect changes in the transfer pricing methodology, the organizational changes that have occurred and
the market view contribution.
94
Table of Contents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail Banking |
|
|
|
|
|
Corporate Banking |
|
|
|
|
|
|
|
As of and for the
Three Months Ended
September 30, |
|
Increase/(Decrease) |
|
As of and for the
Three Months Ended
September 30, |
|
Increase/(Decrease) |
|
|
|
2009 |
|
2010 |
|
Amount |
|
Percent |
|
2009 |
|
2010 |
|
Amount |
|
Percent |
|
Results of operationsMarket View (dollars in thousands): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (expense) |
|
$ |
220,970 |
|
$ |
272,579 |
|
$ |
51,609 |
|
|
23 |
% |
$ |
353,514 |
|
$ |
380,515 |
|
$ |
27,001 |
|
|
8 |
% |
|
Noninterest income (expense) |
|
|
73,080 |
|
|
67,309 |
|
|
(5,771 |
) |
|
(8 |
) |
|
116,817 |
|
|
136,375 |
|
|
19,558 |
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
|
294,050 |
|
|
339,888 |
|
|
45,838 |
|
|
16 |
|
|
470,331 |
|
|
516,890 |
|
|
46,559 |
|
|
10 |
|
|
Noninterest expense (income) |
|
|
212,561 |
|
|
235,146 |
|
|
22,585 |
|
|
11 |
|
|
241,541 |
|
|
246,266 |
|
|
4,725 |
|
|
2 |
|
|
Credit expense (income) |
|
|
7,016 |
|
|
6,760 |
|
|
(256 |
) |
|
(4 |
) |
|
91,512 |
|
|
65,079 |
|
|
(26,433 |
) |
|
(29 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes and including noncontrolling interests |
|
|
74,473 |
|
|
97,982 |
|
|
23,509 |
|
|
32 |
|
|
137,278 |
|
|
205,545 |
|
|
68,267 |
|
|
50 |
|
|
Income tax expense (benefit) |
|
|
29,119 |
|
|
38,311 |
|
|
9,192 |
|
|
32 |
|
|
32,191 |
|
|
55,787 |
|
|
23,596 |
|
|
73 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) including noncontrolling interests |
|
|
45,354 |
|
|
59,671 |
|
|
14,317 |
|
|
32 |
|
|
105,087 |
|
|
149,758 |
|
|
44,671 |
|
|
43 |
|
|
Less: Net loss from noncontrolling interests(2) |
|
|
|
|
|
|
|
|
|
|
|
na |
|
|
|
|
|
|
|
|
|
|
|
na |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to UNBC |
|
$ |
45,354 |
|
$ |
59,671 |
|
$ |
14,317 |
|
|
32 |
% |
$ |
105,087 |
|
$ |
149,758 |
|
$ |
44,671 |
|
|
43 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average balancesMarket View (dollars in millions): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
$ |
21,297 |
|
$ |
22,028 |
|
$ |
731 |
|
|
3 |
|
$ |
29,453 |
|
$ |
26,299 |
|
$ |
(3,154 |
) |
|
(11 |
) |
|
Total assets |
|
|
22,108 |
|
|
22,937 |
|
|
829 |
|
|
4 |
|
|
32,990 |
|
|
30,088 |
|
|
(2,902 |
) |
|
(9 |
) |
|
Total deposits |
|
|
19,812 |
|
|
24,516 |
|
|
4,704 |
|
|
24 |
|
|
38,032 |
|
|
39,096 |
|
|
1,064 |
|
|
3 |
|
Financial ratiosMarket View |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk adjusted return on capital(1) |
|
|
32 |
% |
|
41 |
% |
|
|
|
|
|
|
|
12 |
% |
|
19 |
% |
|
|
|
|
|
|
|
Return on average assets(1) |
|
|
0.81 |
|
|
1.03 |
|
|
|
|
|
|
|
|
1.26 |
|
|
1.97 |
|
|
|
|
|
|
|
|
Efficiency ratio(3) |
|
|
72.34 |
|
|
69.10 |
|
|
|
|
|
|
|
|
48.58 |
|
|
44.70 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
Reconciling Items |
|
UnionBanCal Corporation |
|
|
|
|
|
|
|
As of and for the
Three Months Ended
September 30, |
|
Increase/(Decrease) |
|
As of and for the
Three Months Ended
September 30, |
|
As of and for the
Three Months Ended
September 30, |
|
Increase/(Decrease) |
|
|
|
2009 |
|
2010 |
|
Amount |
|
Percent |
|
2009 |
|
2010 |
|
2009 |
|
2010 |
|
Amount |
|
Percent |
|
Results of operationsMarket View (dollars in thousands): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (expense) |
|
$ |
5,041 |
|
$ |
(18,413 |
) |
$ |
(23,454 |
) |
|
nm |
% |
$ |
(18,489 |
) |
$ |
(16,626 |
) |
$ |
561,036 |
|
$ |
618,055 |
|
$ |
57,019 |
|
|
10 |
% |
|
Noninterest income (expense) |
|
|
8,939 |
|
|
28,440 |
|
|
19,501 |
|
|
nm |
|
|
(14,907 |
) |
|
(14,181 |
) |
|
183,929 |
|
|
217,943 |
|
|
34,014 |
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
|
13,980 |
|
|
10,027 |
|
|
(3,953 |
) |
|
(28 |
) |
|
(33,396 |
) |
|
(30,807 |
) |
|
744,965 |
|
|
835,998 |
|
|
91,033 |
|
|
12 |
|
|
Noninterest expense (income) |
|
|
62,065 |
|
|
93,316 |
|
|
31,251 |
|
|
50 |
|
|
(10,352 |
) |
|
(12,109 |
) |
|
505,815 |
|
|
562,619 |
|
|
56,804 |
|
|
11 |
|
|
Credit expense (income) |
|
|
215,609 |
|
|
(63,654 |
) |
|
(279,263 |
) |
|
(130 |
) |
|
(137 |
) |
|
(185 |
) |
|
314,000 |
|
|
8,000 |
|
|
(306,000 |
) |
|
(97 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes and including noncontrolling interests |
|
|
(263,694 |
) |
|
(19,635 |
) |
|
244,059 |
|
|
93 |
|
|
(22,907 |
) |
|
(18,513 |
) |
|
(74,850 |
) |
|
265,379 |
|
|
340,229 |
|
|
nm |
|
|
Income tax expense (benefit) |
|
|
(110,174 |
) |
|
12,528 |
|
|
122,702 |
|
|
111 |
|
|
(8,957 |
) |
|
(7,238 |
) |
|
(57,821 |
) |
|
99,388 |
|
|
157,209 |
|
|
nm |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) including noncontrolling interests |
|
|
(153,520 |
) |
|
(32,163 |
) |
|
121,357 |
|
|
79 |
|
|
(13,950 |
) |
|
(11,275 |
) |
|
(17,029 |
) |
|
165,991 |
|
|
183,020 |
|
|
nm |
|
|
Less: Net loss from noncontrolling interests(2) |
|
|
|
|
|
(3,788 |
) |
|
(3,788 |
) |
|
nm |
|
|
|
|
|
|
|
|
|
|
|
(3,788 |
) |
|
(3,788 |
) |
|
nm |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to UNBC |
|
$ |
(153,520 |
) |
$ |
(28,375 |
) |
$ |
125,145 |
|
|
82 |
% |
$ |
(13,950 |
) |
$ |
(11,275 |
) |
$ |
(17,029 |
) |
$ |
169,779 |
|
$ |
186,808 |
|
|
nm |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average balancesMarket View (dollars in millions): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
$ |
(201 |
) |
$ |
1,710 |
|
$ |
1,911 |
|
|
nm |
|
$ |
(1,784 |
) |
$ |
(1,932 |
) |
$ |
48,765 |
|
$ |
48,105 |
|
$ |
(660 |
) |
|
(1 |
) |
|
Total assets |
|
|
21,056 |
|
|
31,189 |
|
|
10,133 |
|
|
48 |
|
|
(1,801 |
) |
|
(1,949 |
) |
|
74,353 |
|
|
82,265 |
|
|
7,912 |
|
|
11 |
|
|
Total deposits |
|
|
2,956 |
|
|
2,962 |
|
|
6 |
|
|
0 |
|
|
(1,346 |
) |
|
(1,751 |
) |
|
59,454 |
|
|
64,823 |
|
|
5,369 |
|
|
9 |
|
Financial ratiosMarket View |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk adjusted return on capital(1) |
|
|
na |
|
|
na |
|
|
|
|
|
|
|
|
na |
|
|
na |
|
|
na |
|
|
na |
|
|
|
|
|
|
|
|
Return on average assets(1) |
|
|
na |
|
|
na |
|
|
|
|
|
|
|
|
na |
|
|
na |
|
|
(0.09 |
)% |
|
0.82 |
% |
|
|
|
|
|
|
|
Efficiency ratio(3) |
|
|
na |
|
|
na |
|
|
|
|
|
|
|
|
na |
|
|
na |
|
|
65.07 |
|
|
63.69 |
|
|
|
|
|
|
|
- (1)
- Annualized.
- (2)
- Reflects
net loss attributed to noncontrolling interest related to our consolidated variable interest entities (VIE).
- (3)
- The
efficiency ratio is net noninterest expense (noninterest expense excluding foreclosed asset expense (income), the provision for (reversal
of) losses on off-balance sheet commitments, LIHC investment amortization expense, expenses of the consolidated VIEs and merger costs related to the acquisitions of certain assets and
liabilities of Frontier and Tamalpais) as a percentage of total revenue (net interest income (taxable-equivalent basis) and noninterest income.)
na = not applicable
nm = not meaningful
95
Table of Contents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail Banking |
|
|
|
|
|
Corporate Banking |
|
|
|
|
|
|
|
As of and for the
Nine Months Ended
September 30, |
|
Increase/(Decrease) |
|
As of and for the
Nine Months Ended
September 30, |
|
Increase/(Decrease) |
|
|
|
2009 |
|
2010 |
|
Amount |
|
Percent |
|
2009 |
|
2010 |
|
Amount |
|
Percent |
|
Results of operationsMarket View (dollars in thousands): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (expense) |
|
$ |
617,423 |
|
$ |
777,951 |
|
$ |
160,528 |
|
|
26 |
% |
$ |
963,444 |
|
$ |
1,147,410 |
|
$ |
183,966 |
|
|
19 |
% |
|
Noninterest income (expense) |
|
|
212,440 |
|
|
207,757 |
|
|
(4,683 |
) |
|
(2 |
) |
|
363,144 |
|
|
398,798 |
|
|
35,654 |
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
|
829,863 |
|
|
985,708 |
|
|
155,845 |
|
|
19 |
|
|
1,326,588 |
|
|
1,546,208 |
|
|
219,620 |
|
|
17 |
|
|
Noninterest expense (income) |
|
|
614,598 |
|
|
681,324 |
|
|
66,726 |
|
|
11 |
|
|
654,548 |
|
|
735,727 |
|
|
81,179 |
|
|
12 |
|
|
Credit expense (income) |
|
|
21,353 |
|
|
20,115 |
|
|
(1,238 |
) |
|
(6 |
) |
|
246,798 |
|
|
218,020 |
|
|
(28,778 |
) |
|
(12 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes and including noncontrolling interests |
|
|
193,912 |
|
|
284,269 |
|
|
90,357 |
|
|
47 |
|
|
425,242 |
|
|
592,461 |
|
|
167,219 |
|
|
39 |
|
|
Income tax expense (benefit) |
|
|
75,820 |
|
|
111,149 |
|
|
35,329 |
|
|
47 |
|
|
101,998 |
|
|
160,868 |
|
|
58,870 |
|
|
58 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) including noncontrolling interests |
|
|
118,092 |
|
|
173,120 |
|
|
55,028 |
|
|
47 |
|
|
323,244 |
|
|
431,593 |
|
|
108,349 |
|
|
34 |
|
|
Less: Net loss from noncontrolling interests(2) |
|
|
|
|
|
|
|
|
|
|
|
na |
|
|
|
|
|
|
|
|
|
|
|
na |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to UNBC |
|
$ |
118,092 |
|
$ |
173,120 |
|
$ |
55,028 |
|
|
47 |
% |
$ |
323,244 |
|
$ |
431,593 |
|
$ |
108,349 |
|
|
34 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average balancesMarket View (dollars in millions): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
$ |
21,029 |
|
$ |
21,835 |
|
$ |
806 |
|
|
4 |
|
$ |
30,208 |
|
$ |
26,703 |
|
$ |
(3,505 |
) |
|
(12 |
) |
|
Total assets |
|
|
21,836 |
|
|
22,719 |
|
|
883 |
|
|
4 |
|
|
33,906 |
|
|
30,354 |
|
|
(3,552 |
) |
|
(10 |
) |
|
Total deposits |
|
|
19,264 |
|
|
22,613 |
|
|
3,349 |
|
|
17 |
|
|
33,009 |
|
|
42,644 |
|
|
9,635 |
|
|
29 |
|
Financial ratiosMarket View |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk adjusted return on capital(1) |
|
|
29 |
% |
|
41 |
% |
|
|
|
|
|
|
|
13 |
% |
|
18 |
% |
|
|
|
|
|
|
|
Return on average assets(1) |
|
|
0.72 |
|
|
1.02 |
|
|
|
|
|
|
|
|
1.27 |
|
|
1.90 |
|
|
|
|
|
|
|
|
Efficiency ratio(3) |
|
|
73.98 |
|
|
69.03 |
|
|
|
|
|
|
|
|
46.76 |
|
|
44.85 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
Reconciling Items |
|
UnionBanCal Corporation |
|
|
|
|
|
|
|
As of and for the
Nine Months Ended
September 30, |
|
Increase/(Decrease) |
|
As of and for the
Nine Months Ended
September 30, |
|
As of and for the
Nine Months Ended
September 30, |
|
Increase/(Decrease) |
|
|
|
2009 |
|
2010 |
|
Amount |
|
Percent |
|
2009 |
|
2010 |
|
2009 |
|
2010 |
|
Amount |
|
Percent |
|
Results of operationsMarket View (dollars in thousands): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (expense) |
|
$ |
133,791 |
|
$ |
(84,741 |
) |
$ |
(218,532 |
) |
|
nm |
% |
$ |
(43,273 |
) |
$ |
(47,819 |
) |
$ |
1,671,385 |
|
$ |
1,792,801 |
|
$ |
121,416 |
|
|
7 |
% |
|
Noninterest income (expense) |
|
|
2,385 |
|
|
107,392 |
|
|
105,007 |
|
|
nm |
|
|
(36,111 |
) |
|
(41,805 |
) |
|
541,858 |
|
|
672,142 |
|
|
130,284 |
|
|
24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
|
136,176 |
|
|
22,651 |
|
|
(113,525 |
) |
|
(83 |
) |
|
(79,384 |
) |
|
(89,624 |
) |
|
2,213,243 |
|
|
2,464,943 |
|
|
251,700 |
|
|
11 |
|
|
Noninterest expense (income) |
|
|
317,518 |
|
|
289,754 |
|
|
(27,764 |
) |
|
(9 |
) |
|
(27,408 |
) |
|
(35,414 |
) |
|
1,559,256 |
|
|
1,671,391 |
|
|
112,135 |
|
|
7 |
|
|
Credit expense (income) |
|
|
655,323 |
|
|
(15,672 |
) |
|
(670,995 |
) |
|
(102 |
) |
|
(474 |
) |
|
(463 |
) |
|
923,000 |
|
|
222,000 |
|
|
(701,000 |
) |
|
(76 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes and including noncontrolling interests |
|
|
(836,665 |
) |
|
(251,431 |
) |
|
585,234 |
|
|
70 |
|
|
(51,502 |
) |
|
(53,747 |
) |
|
(269,013 |
) |
|
571,552 |
|
|
840,565 |
|
|
nm |
|
|
Income tax expense (benefit) |
|
|
(319,850 |
) |
|
(69,949 |
) |
|
249,901 |
|
|
78 |
|
|
(20,137 |
) |
|
(21,015 |
) |
|
(162,169 |
) |
|
181,053 |
|
|
343,222 |
|
|
nm |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) including noncontrolling interests |
|
|
(516,815 |
) |
|
(181,482 |
) |
|
335,333 |
|
|
65 |
|
|
(31,365 |
) |
|
(32,732 |
) |
|
(106,844 |
) |
|
390,499 |
|
|
497,343 |
|
|
nm |
|
|
Less: Net loss from noncontrolling interests(2) |
|
|
|
|
|
(10,383 |
) |
|
(10,383 |
) |
|
nm |
|
|
|
|
|
|
|
|
|
|
|
(10,383 |
) |
|
(10,383 |
) |
|
nm |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to UNBC |
|
$ |
(516,815 |
) |
$ |
(171,099 |
) |
$ |
345,716 |
|
|
67 |
% |
$ |
(31,365 |
) |
$ |
(32,732 |
) |
$ |
(106,844 |
) |
$ |
400,882 |
|
$ |
507,726 |
|
|
nm |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average balancesMarket View (dollars in millions): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
$ |
(283 |
) |
$ |
962 |
|
$ |
1,245 |
|
|
nm |
|
$ |
(1,588 |
) |
$ |
(1,902 |
) |
$ |
49,366 |
|
$ |
47,598 |
|
$ |
(1,768 |
) |
|
(4 |
) |
|
Total assets |
|
|
16,866 |
|
|
33,033 |
|
|
16,167 |
|
|
96 |
|
|
(1,608 |
) |
|
(1,920 |
) |
|
71,000 |
|
|
84,186 |
|
|
13,186 |
|
|
19 |
|
|
Total deposits |
|
|
2,473 |
|
|
3,300 |
|
|
827 |
|
|
33 |
|
|
(1,219 |
) |
|
(1,646 |
) |
|
53,527 |
|
|
66,911 |
|
|
13,384 |
|
|
25 |
|
Financial ratiosMarket View |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk adjusted return on capital(1) |
|
|
na |
|
|
na |
|
|
|
|
|
|
|
|
na |
|
|
na |
|
|
na |
|
|
na |
|
|
|
|
|
|
|
|
Return on average assets(1) |
|
|
na |
|
|
na |
|
|
|
|
|
|
|
|
na |
|
|
na |
|
|
(0.20 |
)% |
|
0.64 |
% |
|
|
|
|
|
|
|
Efficiency ratio(3) |
|
|
na |
|
|
na |
|
|
|
|
|
|
|
|
na |
|
|
na |
|
|
66.34 |
|
|
64.50 |
|
|
|
|
|
|
|
- (1)
- Annualized.
- (2)
- Reflects
net loss attributed to noncontrolling interest related to our consolidated variable interest entities (VIE).
- (3)
- The
efficiency ratio is net noninterest expense (noninterest expense excluding foreclosed asset expense (income), the provision for (reversal
of) losses on off-balance sheet commitments, LIHC investment amortization expense, expenses of the consolidated VIEs and merger costs related to the acquisitions of certain assets and
liabilities of Frontier and Tamalpais) as a percentage of total revenue (net interest income (taxable-equivalent basis) and noninterest income.)
na = not applicable
nm = not meaningful
96
Table of Contents
Retail Banking provides deposit and lending products delivered through our branches and relationship managers to individuals and small
businesses. Retail Banking is focused on executing a strategy that will identify targeted opportunities within the consumer and small business markets, and develop product, marketing and sales
strategies to attract new customers in these identified target markets.
During
the nine months ended September 30, 2010, net income of Retail Banking increased compared to the same period in 2009, resulting from a 26 percent increase in net
interest income, partially offset by an 11 percent increase in noninterest expense. The increase in net interest income was primarily due to increased margin combined with the growth in loans
and interest bearing deposits.
Average
asset growth for the nine months ended September 30, 2010 compared to the same period in 2009 was primarily driven by a 4 percent growth in average loans, mainly in
residential mortgages.
Average
deposits increased 17 percent during the nine months ended September 30, 2010 compared to the same period in 2009. This increase was primarily due to Retail
Banking's strategy, which continues to focus on marketing activities to attract new consumer and small business deposits, customer cross-sell, relationship management, sales resources, and
new products and locations. We expect that a larger branch network, combined with this Retail Banking strategy will improve growth prospects.
Noninterest
income decreased by 2 percent during the nine months ended September 30, 2010 compared to the same period in 2009. Noninterest expense increased by
11 percent during the nine months ended September 30, 2010 compared to the same period in 2009. This increase was primarily due to increased staff costs, acquisition related expenses,
and overhead allocation costs.
Retail Banking is comprised of the following major divisions: Community Banking and Consumer Lending.
-
- the Community Banking Division serves its customers through 342
full-service branches in California and 54 full-service branches in Oregon and Washington. Customers may also access our services 24 hours-a-day
by telephone or through our website at www.unionbank.com. In addition, the branches offer automated teller and point-of-sale merchant services.
The
Community Banking Division is organized geographically. We serve our customers in the following ways:
-
- through
conveniently located banking branches and ATMs which serve consumers and businesses with checking and deposit products and services, as
well as various types of consumer financing and investment services; and
-
- through
our call center and internet banking services, which augment our physical delivery channels by providing an array of customer transaction,
bill payment and loan payment services.
-
- the Consumer Lending Division provides the centralized origination,
underwriting, processing, servicing, collection and administration for consumer assets including residential mortgages.
Through
alliances with other financial institutions, the Consumer Lending Division offers additional products and services, such as credit cards and merchant services.
Our
Community Banking and Consumer Lending Divisions compete with larger banks by attempting to provide service quality superior to that of our major competitors. The primary means of
competing with community banks include our branch network and our technology to deliver banking services. We also offer convenient banking hours to consumers through our drive-through banking
locations and selected branches that are open seven days a week.
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Table of Contents
These
divisions compete with a number of commercial banks, internet banks, savings associations and credit unions, as well as more specialized financial service providers such as
investment brokerage companies, consumer finance companies, and residential real estate lenders.
Corporate Banking offers a wide array of financial products to both middle market and corporate businesses headquartered throughout the
United States. Corporate Banking focuses its activities on specific specialized industries, such as power and utilities, petroleum, real estate, healthcare, equipment leasing and commercial finance as
well as general corporate and middle-market lending in regional markets throughout the United States. Corporate Banking relationship managers provide credit services including commercial loans,
accounts receivable and inventory financing, project financing, trade financing and real estate financing. In addition to credit services, Corporate Banking offers its customers a broad range of
noncredit services, which include global treasury management solutions, foreign exchange and various interest rate risk and energy risk management products. These products are delivered through
deposit managers and product specialists with significant industry expertise and experience in businesses of all sizes including numerous vertical industry niches such as U.S. correspondent banks and
certain government entities. One of the primary strategies of our Corporate Banking business units is to target industries and companies for which we can reasonably expect to be one of a customer's
primary banks. Consistent with this strategy, Corporate Banking business units attempt to serve a large part of the targeted customers' credit and depository needs. The Corporate Banking business
units compete with other banks primarily on the basis of the quality of our relationship managers, the level of industry expertise, the delivery of quality customer service, and our reputation as a
"commercial bank." We also compete with a variety of other financial services companies as well as non-bank companies. Competitors include other major California banks, as well as
regional, national and international banks. In addition, we compete with investment banks, commercial finance companies, leasing companies and insurance companies. Competition in our principal markets
may further intensify as a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act), which, among other things, permits de novo branching
into California by national banks, state banks and foreign banks from other states (see Part II, Item IA, "Risk FactorsSubstantial competition could
adversely affect us" in this Form 10-Q for additional information about the Dodd-Frank Act).
During
the nine months ended September 30, 2010, net income of Corporate Banking increased 34 percent, compared to the same period of 2009, resulting from a
19 percent increase in net interest income mainly from higher margins on deposits and a 10 percent increase in noninterest income, partially offset by a 12 percent increase in
noninterest expense. During the nine months ended September 30,
2010, average loans decreased 12 percent compared to the same period of 2009 primarily due to decreases in our commercial and industrial loan portfolio and real estate construction portfolio.
During
the nine months ended September 30, 2010, average deposits increased 29 percent compared to the same period of 2009. Money market deposits experienced significant
growth as a result of long-term corporate deposit-gathering strategies, a "flight to quality" and entry into new business niches. These new niches provided funding from large institutional
accounts, including brokerage firms. These relationships reflect execution of a business strategy to obtain deposits from brokerage and institutional clients. In addition, state and local government
and Corporate Banking deposits experienced significant growth.
Noninterest
income increased 10 percent during the nine months ended September 30, 2010, compared to the same period of 2009, primarily due to higher amortized fees on
standby letters of credit, trading income, merchant banking fees, gain on private capital investments, partially offset by lower trust and deposit fees. Noninterest expense increased 12 percent
during the nine months ended September 30, 2010 compared to the same period of 2009 primarily due to increased staff costs and low income housing amortization expense.
Corporate
Banking initiatives continue to include expanding commercial and loan relationship strategies that include originating, underwriting and syndicating loans in core competency
markets, such as in our West
98
Table of Contents
Coast
commercial lending markets, as well as our national specialty markets including real estate, energy, equipment leasing and commercial finance.
Corporate Banking is comprised of the following main divisions:
-
- the Commercial Banking Division, which includes the following operating
units:
-
- Commercial
Banking, which provides commercial lending products and treasury management services to middle market and corporate companies in
California, Oregon and Washington;
-
- Power
and Utilities, which provides treasury management products and commercial lending products including commercial lines of credit and project
financing to independent power producers as well as regulated utility companies;
-
- Petroleum,
which provides commercial lending products including reserve-based lines of credit, commercial lines of credit as well as treasury
management products to oil and gas companies; and
-
- National
Banking and Specialized Industries, which provides commercial lending and treasury management products to corporate clients in certain
defined industries, such as healthcare, entertainment and waste industries.
-
- the Real Estate Industries Division, which provides real estate lending
products such as construction loans, commercial mortgages and bridge financing;
-
- the Corporate Deposit and Global Treasury Management Division targets
numerous industry relationship markets with deep industry and product expertise. The Corporate Deposit and Global Treasury Management Division provides working capital solutions to meet deposit,
investment and global treasury management services to businesses of all sizes. This division also manages Union Bank's web strategies for retail, small business, wealth management and commercial
clients, as well as commercial product development;
-
- the Global and Wealth Markets Division consists of the following operating
units:
-
- The
Private Bank focuses primarily on delivering financial services to high net worth individuals with sophisticated financial needs as well as to
professional service firms, foundations and endowments. Specific products and services include trust and estate services, financial planning, investment account management services, and deposit and
credit products;
-
- UnionBanc
Investment Services LLC (UBIS) is a subsidiary of Union Bank and is our registered broker-dealer and registered investment
advisor. UBIS provides services to retail and institutional clients in several core products areas, including annuities, mutual funds, and fixed income products. Retail services are delivered through
dedicated investment specialists located throughout the Bank's geographical footprint. Institutional services are delivered through a dedicated trading desk and sales force specializing in fixed
income products;
-
- Asset
Management, which consists of HighMark Capital Management, Inc., a subsidiary of Union Bank and a registered investment advisor,
provides investment management and advisory services to institutional clients as well as investment advisory, administration and support services to our proprietary mutual funds, the affiliated
HighMark Funds. It also provides investment management services to Union Bank with respect to most of its trust and agency clients, including corporations, pension funds and individuals. HighMark
Capital Management, Inc.'s strategy is to expand distribution, to broaden its client base and to increase its assets under management;
-
- Global
Capital Markets helps to serve our customers with their foreign exchange, interest rate and energy risk management needs in addition to
facilitating merchant and investment banking related transactions. The operating unit takes market risk when buying and selling securities,
99
Table of Contents
interest
rate derivatives and foreign exchange contracts for its own account and accepts limited market risk when providing energy and equity derivative contracts, since a significant portion of the
market risk for these products is offset with third parties. Additionally, the group's Equipment Leasing arm provides lease financing services to corporate customers;
-
- Institutional
Services provides custody, corporate trust, and retirement plan services. Custody Services provides both domestic and international
safekeeping/settlement services in addition to securities lending. Corporate Trust acts as trustee for corporate and municipal debt issues, and provides escrow services and trustee services for
project finance. Institutional Services provides defined benefit services, including trustee services and investment management. The client base of Institutional Services includes financial
institutions, corporations, government agencies, unions, insurance companies, mutual funds, investment managers and non-profit organizations.
-
- the Pacific Rim Corporate Group, which offers a range of credit, deposit,
and investment management products and services to companies headquartered in either Japan or the U.S.
Our net loss decreased by $345.7 million in the nine months ended September 30, 2010, compared to the same period in
2009, primarily due to lower loan loss provision, and higher noninterest income; partially offset by lower net interest income.
"Other"
includes the following items:
-
- the funds transfer pricing results for our entire company, which allocates to the other business segments their cost of
funds on all asset categories and credit for funds on all liability categories;
-
- Corporate Treasury, which is responsible for our ALM, wholesale funding and the ALM investment and derivatives hedging
portfolios. These Treasury management activities are carried out to counter-balance the residual risk positions of our balance sheet and to manage those risks within the guidelines established by
ALCO. For additional discussion regarding these risk management activities, see "Quantitative and Qualitative Disclosures About Market Risk";
-
- the adjustment between the credit expense under RAROC and the provision for credit losses under US GAAP;
-
- the residual costs of support groups;
-
- corporate activities that are not directly attributable to one of the two business segments. Included in this category are
certain other items such as the results of operations of certain non-bank subsidiaries of UnionBanCal and the elimination of the fully taxable-equivalent basis amount;
-
- goodwill, intangible assets, and related amortization/accretion associated with our privatization transaction; and
-
- the adjustment between the tax expense calculated using the RAROC effective rate of 39.1 percent and our
consolidated effective tax rate.
The
financial results for the nine months ended September 30, 2010 were impacted by the following factors:
-
- credit income of $15.7 million was due to the difference between the $222.0 million provision for loan
losses calculated under our US GAAP methodology and the $237.7 million in expected losses for the reportable business segments, which utilizes the RAROC methodology;
-
- net interest income (expense) decreased $218.5 million to $(84.7) million compared to the same period in
2009 primarily due to a decrease in our average loans to deposits ratio from 92 percent to 71 percent. The transfer pricing credit paid on deposits presumes that the funds are fully
invested in
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Table of Contents
The
financial results for the nine months ended September 30, 2009 were impacted by the following factors:
-
- credit expense of $655.3 million was due to the difference between the $923.0 million provision for loan
losses calculated under our US GAAP methodology and the $267.7 million in expected losses for the reportable business segments, which utilizes the RAROC methodology;
-
- net interest income (expense) of $133.8 million;
-
- noninterest income (expense) of $2.4 million;
-
- noninterest expense of $317.5 million related to residual costs of support groups and corporate activities not
directly related to either of the two reportable business segments. The increase in noninterest expense includes a $34.7 million increase in privatization-related expenses and a
$26.0 million increase in provision for losses on off-balance sheet commitments; and
-
- income tax expense (benefit) of $(319.9) million was due to the difference between the ($162.2) million or a
(60.3) percent effective tax rate for our consolidated results and the actual tax expense calculated for reportable segments (including reconciling items) of $157.7 million using the
RAROC effective rate.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
A discussion of our market risk exposure is incorporated by reference to Part I, Item 2 of this
Form 10-Q under the caption "Quantitative and Qualitative Disclosures About Market Risk" and to Part II, Item 1A of this Form 10-Q under the caption
"Risk Factors."
Item 4. Controls and Procedures
Our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer)
have concluded that the design and operation of our disclosure controls and procedures are effective as of September 30, 2010. This conclusion is based on an evaluation conducted under the
supervision and with the participation of management. Disclosure controls and procedures are those controls and procedures which ensure that information required to be disclosed in this filing is
accumulated and communicated to management and is recorded, processed, summarized and reported in a timely manner and in accordance with Securities and Exchange Commission rules and regulations.
During
the quarter ended September 30, 2010, there were no changes in our internal controls over financial reporting that materially affected, or are reasonably likely to
materially affect, our internal controls over financial reporting.
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Table of Contents
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Cynthia Larsen v. Union Bank, N.A.: This putative class action was filed on July 15, 2009 by Union Bank customer Cynthia Larsen.
In October of
2009, the action was transferred from the Northern District of California to the Multidistrict Litigation action (MDL) in the Southern District of Florida. Omnibus motions to dismiss the complaints in
many of the suits included in the MDL, including Larsen, were denied on March 12, 2010. Plaintiffs allege that, by posting charges to their
accounts in order from highest to lowest amount, the Bank charged them more overdraft fees than it would have charged them had the Bank posted items to their accounts in chronological order.
Plaintiffs'
complaint asserts common-law causes of action for: breach of contract/breach of duty of an implied duty of good faith, unconscionability, conversion, and unjust
enrichment, and statutory violation of the California Business & Professions Code section 17200 et seq. Plaintiffs seek unspecified
damages, return or refund of all improper overdraft fees, disgorgement of profits derived from the Bank's alleged conduct, injunctive relief, and attorneys' fees and costs. Plaintiffs seek to
represent a putative class of other Union Bank customers who were charged overdraft charges as a result of "re-sequencing" within the applicable statute of limitations period. Union Bank
intends to vigorously defend the case. Trial is currently scheduled for March 2012.
We
are subject to various pending and threatened legal actions that arise in the normal course of business. We maintain reserves for losses from legal actions that are both probable and
estimable. In addition, we believe the disposition of all claims currently pending will not have a material adverse effect on our consolidated financial condition, operating results or liquidity.
Item 1A. Risk Factors
For a discussion of risk factors relating to our business, please refer to Item 1A of Part I of our 2009
Form 10-K, which is incorporated by reference herein, in addition to the following information.
Industry Factors
U.S. and global economies have experienced a serious recession, unprecedented volatility in the financial
markets, and significant deterioration in sectors of the U.S. consumer and business economy, all of which continue to present challenges for the banking and financial services industry and for
UnionBanCal Corporation; the U.S. Government has responded to
these circumstances with a variety of measures; there can be no assurance that these measures will successfully address these circumstances.
Over
the past three years, adverse financial and economic developments have impacted the U.S. and global economies and financial markets and present challenges for the banking and
financial services industry and for UnionBanCal Corporation. These developments include a general recession both globally and in the U.S. and have contributed to substantial volatility in the
financial markets.
In
response, various significant economic and monetary stimulus measures were enacted by the U.S. Congress. Refer to "Supervision and Regulation" in Item 1 of our 2009
Form 10-K for discussion of these measures.
It
cannot be predicted whether the U.S. Governmental actions in the past two years will result in lasting improvement in financial and economic conditions affecting the U.S. banking
industry and the U.S. economy. It also cannot be predicted whether and to what extent the efforts of the U.S. Government to combat the recessionary conditions will continue. If, notwithstanding the
government's fiscal and monetary measures, the U.S. economy were to remain in a recessionary condition for an extended period, this would present additional significant challenges for the U.S. banking
and financial services industry and for our company. In addition, as a wholly-owned subsidiary of a foreign bank, we have not been eligible to participate in some federal programs
102
Table of Contents
such
as the Department of Treasury's Capital Purchase Program and may not qualify for participation in future federal programs.
Recently,
certain sovereign borrowers have encountered difficulties in financing renewals of their indebtedness. If this trend continues or worsens, it could have adverse impacts on
costs in the global debt markets which could increase funding costs for banks generally. Further, European regulators have recently announced findings from capital stress tests on many European banks.
The confidence in the transparency and robustness in these stress tests remains unclear. These combined factors, if continuing to worsen, could further increase the uncertainty in global markets.
Difficult market conditions have adversely affected the U.S. banking industry
Dramatic declines in the housing market in the U.S. in general, and in California in particular, during 2008 and continuing in 2009 and 2010, with falling or
sluggish home prices and increasing foreclosures, unemployment and under-employment, have negatively impacted the credit performance of mortgage loans and resulted in significant write-downs of asset
values by financial institutions, including government-sponsored entities as well as commercial and investment banks. These write-downs, initially
of mortgage-backed securities but spreading to credit default swaps and other derivative securities, residential and commercial real estate loans and small business and other commercial loans, in
turn, have caused many financial institutions to seek additional capital, to merge with larger and stronger institutions and, in some cases, to fail. These adverse economic conditions have led to an
increased level of commercial and consumer delinquencies, reduced consumer confidence, increased market volatility and widespread reduction of business activity generally. The resulting economic
pressure on consumers and lack of confidence in the financial markets adversely affected our business, financial condition and results of operations in 2009 and this effect has continued, although to
a lessened degree, in 2010. In addition, turbulent political and economic conditions in foreign countries have negatively impacted the U.S. financial markets and economy in general. A worsening of
these conditions would likely exacerbate the adverse effects of these difficult market conditions on us and others in the financial institutions industry. In particular, we may face the following
risks in connection with these events:
-
- Our ability to assess the creditworthiness of our customers and counterparties may be impaired if the models and
approaches we use to select, manage, and underwrite our customers and counterparties become less predictive of future behaviors.
-
- We may not be able to accurately estimate credit exposure losses because the process we use to estimate these losses
requires difficult, subjective, and complex judgments with respect to predictions which may not be amenable to precise estimates, including forecasts of economic conditions and how these economic
predictions might impair the ability of our borrowers to repay their loans.
-
- Our ability to borrow from other financial institutions on favorable terms or at all could be adversely affected by
further disruptions in the capital markets or other events, including actions by rating agencies and deteriorating investor expectations.
-
- Significant fluctuations in the prices of equity and fixed income securities could adversely impact the revenues of our
asset management and trust business. Fees charged are based upon asset values and declines in values proportionately reduce fees charged.
-
- A period of deflation could adversely impact our results of operations by depressing loan demand, reducing the rates of
interest we can charge on our loans which may reduce our net interest margin, decreasing the value of collateral for loans which may increase charge-off levels, increasing unemployment,
and impairing the ability of our borrowers to repay their loans.
-
- Competition in our industry could intensify as a result of the increasing consolidation of financial services companies in
connection with current market conditions and the enhanced ability of banks to
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Table of Contents
The effects of changes of or increases in, or supervisory enforcement of, banking or other laws and regulations or governmental fiscal or monetary policies could
adversely affect us
We are subject to significant federal and state regulation and supervision, which is primarily for the benefit and protection of our customers and the Deposit
Insurance Fund and not for the benefit of investors in our securities. In the past, our business has been materially affected by these regulations. This will continue and likely intensify in the
future. Laws, regulations or policies, including accounting standards and interpretations, currently affecting us and our subsidiaries may change at any time. Regulatory authorities may also change
their interpretation of these statutes and regulations. Therefore, our business may be adversely affected by changes in laws, regulations, policies or interpretations or regulatory approaches to
compliance and enforcement, as well as by supervisory action or criminal proceedings taken as a result of noncompliance which could result in the imposition of significant civil money penalties or
fines. Changes in laws and regulations may also increase our expenses by imposing additional fees or taxes or restrictions on our operations. Compliance with laws and regulations, especially new laws
and regulations, increases our expenses and diverts management attention from our business operations.
On
July 21, 2010, President Obama signed into law the Dodd-Frank Act. This new legislation will affect U.S. financial institutions, including Union Bank, in many ways,
some of which will likely increase the cost of doing business and present other challenges to the financial services industry. Many of the new law's provisions will be implemented by rules and
regulations of the federal banking agencies over the coming months, the scope and impact of which cannot yet be determined. The new law contains many provisions
104
Table of Contents
which
may have particular relevance to the business of Union Bank. While the effect of these provisions of the Dodd-Frank Act on Union Bank cannot be predicted at this time, they may
result in increased FDIC deposit insurance premiums, increased capital and liquidity requirements, increased regulatory and compliance costs and other operational costs and expenses, reduced
fee-based revenues and restrictions on some aspects of our operations, increased interest expense on our demand deposits (after July 2011), any or all of which may be material.
International
laws, regulations and policies affecting us, our subsidiaries and the business we conduct may change at any time and affect our business opportunities and competitiveness
in these jurisdictions. Due to our ownership by BTMU, laws, regulations, policies, fines and other supervisory actions adopted or enforced by the Government of Japan and the Federal Reserve Board may
adversely affect our activities and investments and those of our subsidiaries in the future. In September 2010, the Basel Committee on Banking Supervision ("the Basel Committee") announced that new
liquidity risk metrics would become minimum standards in January 2015 (the "Liquidity Coverage Ratio") and January 2018 (the "Net Stable Funding Ratio") after observation periods that would commence
in January 2011 and January 2012, respectively. The announcement was preceded by a consultative document issued for comment in December 2009 and an annex in July 2010 that revised some of the
definitions in the original consultative document. Many aspects of the standards are uncertain and are subject to interpretation. Also in September 2010, the Basel Committee announced new, higher
capital standards that increase minimum capital ratios plus add a capital conservation buffer. The revised standards call for a fully phased-in minimum common equity ratio of 4.5% plus a
capital conservation buffer of 2.5%, and also introduce new deductions from allowable equity capital. As with the liquidity risk metrics, many aspects of the standards are uncertain and are subject to
interpretation, with further clarification required by U.S. regulators. The new standards are to be fully phased-in by January 2019, with observation periods beginning in January 2011. It
is expected that clarifying guidance for U.S. banks will be provided by the U.S. bank regulatory agencies through customary rulemaking procedures. Refer to "Supervision and Regulation" in
Item 1 of our 2009 Form 10-K for additional information regarding the Basel Committee capital standards.
We
maintain systems and procedures designed to comply with applicable laws and regulations. However, some legal/regulatory frameworks provide for the imposition of criminal or civil
penalties (which can be substantial) for noncompliance. In some cases, liability may attach even if the noncompliance was inadvertent or unintentional and even if compliance systems and procedures
were in place at the time. There may be other negative consequences from a finding of noncompliance, including restrictions on certain activities and damage to our reputation.
Additionally,
our business is affected significantly by the fiscal and monetary policies of the U.S. federal government and its agencies. We are particularly affected by the policies of
the Federal Reserve Board, which regulates the supply of money and credit in the U.S. Under long-standing policy of the Federal Reserve Board, a bank holding company is expected to act as
a source of financial and managerial strength for its subsidiary banks. As a result of that policy, we may be required to commit financial and other resources to our subsidiary bank in circumstances
where we might not otherwise do so. Among the instruments of monetary policy available to the Federal Reserve Board are (a) conducting open market operations in U.S. Government securities,
(b) changing the discount rates on borrowings by depository institutions and the federal funds rate, and (c) imposing or changing reserve requirements against certain borrowings by banks
and their affiliates. These methods are used in varying degrees and combinations to directly affect the availability of bank loans and deposits, as well as the interest rates charged on loans and paid
on deposits. The policies of the Federal Reserve Board may have a material effect on our business, prospects, results of operations and financial condition.
Refer
to "Supervision and Regulation" in Item 1 of our 2009 Form 10-K for discussion of certain recently enacted and proposed laws and regulations that may
affect our business.
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Our deposit customers may pursue alternatives to bank deposits or seek higher yielding deposits, which may increase our funding costs and adversely affect our
liquidity position
Checking and savings account balances and other forms of deposits can decrease when our deposit customers perceive alternative investments, such as the stock
market, other non-depository investments or higher yielding deposits, as providing superior expected returns. Technology and other changes have made it more convenient for bank customers
to transfer funds into alternative investments or other deposit accounts, including products offered by other financial institutions or non-bank service providers. Future increases in
short-term interest rates could increase such transfers of deposits to higher yielding deposits or other investments either with us or with external providers. In addition, our level of
deposits may be affected by lack of consumer confidence in financial institutions, which have caused fewer depositors to be willing to maintain deposits that are not fully insured by the FDIC.
Depositors may withdraw certain deposits from Union Bank and place them in other institutions or invest uninsured funds in investments perceived as being more secure, such as securities issued by the
U.S. Treasury. These consumer preferences may force us to pay higher interest rates or reduce fees to retain certain deposits and may constrain liquidity as we seek to meet funding needs caused by
reduced deposit levels.
In
addition, we have benefited from a "flight to quality" by consumers and businesses seeking the relative safety of bank deposits over the past two years. As interest rates rise from
historically low levels during the current period, our newly acquired deposits may not be as stable or as interest rate insensitive as similar deposits may have been in the past, and as a recovery in
the economy ensues, some existing
or prospective deposit customers of banks generally, including Union Bank, may be inclined to pursue other investment alternatives.
Efforts
and initiatives we undertake to retain and increase deposits, including deposit pricing, can increase our costs. When bank customers move money out of bank deposits in favor of
alternative investments or into higher yielding deposits, we can lose a relatively inexpensive source of funds, increasing our funding cost.
Substantial competition could adversely affect us
Banking is a highly competitive business. We compete actively for loan, deposit, and other financial services business in California, Oregon and Washington, as
well as nationally and internationally. Our competitors include a large number of state and national banks, thrift institutions, credit unions and major foreign-affiliated or foreign banks, as well as
many financial and nonfinancial firms that offer services similar to those offered by us, including many large securities firms. Some of our competitors are community or regional banks that have
strong local market positions. Other competitors include large financial institutions that have substantial capital, technology and marketing resources that are well in excess of ours. Competition in
our industry may further intensify as a result of the recent and increasing level of consolidation of financial services companies, including in our principal markets resulting from adverse economic
and market conditions. Such large financial institutions may have greater access to capital at a lower cost than us, which may adversely affect our ability to compete effectively. Competition in our
principal markets may further intensify as a result of the Dodd-Frank Act, which, among other things, permits de novo branching into California by national banks, state banks and foreign
banks from other states. We also experience competition, especially for deposits, from internet-based banking institutions, which have grown rapidly in recent years.
Adverse economic factors affecting certain industries we serve could adversely affect our business
We are subject to certain industry-specific economic factors. For example, a significant portion of our total loan portfolio is related to residential real
estate, especially in California. Increases in residential mortgage loan interest rates could have an adverse effect on our operations by depressing new mortgage loan originations, and could
negatively impact our title and escrow deposit levels. Additionally, a continued or further downturn
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in
the residential real estate and housing industries in California could have an adverse effect on our operations and the quality of our real estate loan portfolio. These factors could adversely
impact the quality of our residential construction and residential mortgage portfolios in various ways, including by decreasing the value of the collateral for our mortgage loans. These factors could
also negatively affect the economy in general and thereby our overall loan portfolio.
We
provide financing to businesses in a number of other industries that may be particularly vulnerable to industry-specific economic factors and are impacting the performance of our
commercial real estate and commercial and industrial portfolios. The commercial real estate industry in the U.S., and in California in particular, has been increasingly adversely impacted by the
recessionary environment and lack of liquidity in the financial markets. The home building and mortgage industry in California has been especially adversely impacted by the deterioration in
residential real estate markets. Poor economic conditions and financial access for commercial real estate developers and homebuilders could continue to adversely affect property values, resulting in
higher nonperforming assets and charge-offs in this sector. Our commercial and industrial portfolio, and the communications and media industry, the retail industry, the energy industry and
the technology industry in particular, are also being impacted by recessionary market conditions. Continued volatility in fuel prices and energy costs could adversely affect businesses in several of
these industries. Conditions and credit markets remain uncertain and are expected to continue producing elevated charge-offs. Industry-specific risks are beyond our control and could
adversely affect our portfolio of loans, potentially resulting in an increase in nonperforming loans or charge-offs and a slowing of growth or reduction in our loan portfolio.
Adverse California economic conditions could adversely affect our business
The government of the State of California currently faces economic and fiscal challenges, the long-term impact of which on the State's economy cannot
be predicted with any certainty. A substantial majority of our assets, deposits and fee income are generated in California. As a result, poor economic conditions in California may cause us to incur
losses associated with higher default rates and decreased collateral values in our loan portfolio. Economic conditions in California are subject to various uncertainties at this time, including
significant deterioration in the residential real estate sector and the California state government's budgetary and fiscal difficulties.
Governor
Schwarzenegger declared a fiscal emergency on January 8, 2010, calling the State legislature into special session to begin taking action on the State's
$19.1 billion reported deficit. On October 8, 2010, after 100 days past the state's statutory deadline without a budget, Governor Schwarzenegger
signed into law a 2010-2011 budget plan which had been approved by the California Legislature. The budget includes $7.5 billion in spending cuts to services and program eliminations
(less than the $12.4 billion in cuts in Governor Schwarzenegger's proposed budget plan). The budget assumes that California will receive $5.3 billion in federal assistance (more than the
$3.4 billion in federal assistance assumed in all three of the proposed budget plans); however, there have been no assurances from the federal government that such amount will be furnished to
California. If such funds are not awarded, California may be forced to further cut state services or raise taxes or fees. The approved budget also reduces the State's deficit by $1.4 billion by
using more optimistic tax revenue forecasts, limits some business tax breaks, and assumes $1.2 billion in revenues from the required sale of certain State-owned office buildings. The financial
and economic consequences of this situation cannot be predicted with any certainty at this time.
If
the California state government's budgetary and fiscal difficulties continue or economic conditions in California decline further, we expect that our level of problem assets could
increase and our prospects for growth could be impaired.
Risks associated with potential acquisitions or divestitures or restructurings may adversely affect us
We have in the past, and may in the future, seek to expand our business by acquiring other businesses which we believe will enhance our business. We cannot
predict the frequency, size or timing of our
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acquisitions,
as this will depend on the availability of prospective target opportunities at valuation levels we find attractive and the competition for such opportunities from other parties. There
can be no assurance that our acquisitions will have the anticipated positive results, including results related to: the total cost of integration; the time required to complete the integration; the
amount of longer-term cost savings; continued growth; or the overall performance of the acquired company or combined entity. We also may encounter difficulties in obtaining required
regulatory approvals and unexpected contingent liabilities can arise from the businesses we acquire. Our purchase and assumption and loss share agreements with the FDIC relating to our Frontier Bank
and Tamalpais Bank transactions have specific compliance, servicing, notification and reporting requirements. Any failure to comply with the requirements of the loss share agreements, or to properly
service the loans and OREO covered by any loss share arrangement, may cause individual loans or loan pools to lose their eligibility for loss share payments from the FDIC, potentially resulting in
material losses that are currently not anticipated.
Integration
of an acquired business can be complex and costly. If we are not able to integrate successfully past or future acquisitions, there is a risk that results of operations could
be adversely affected.
In
addition, we continue to evaluate the performance of all of our businesses and may sell or restructure a business. Any divestitures or restructurings may result in significant
write-offs, including
those related to goodwill and other intangible assets, which could have a material adverse effect on our business, results of operations and financial condition and may involve additional risks
including difficulties in obtaining any required regulatory approvals, the diversion of management's attention from other business concerns, the disruption of our business and the potential loss of
key employees.
We
may not be successful in addressing these or any other significant risks encountered in connection with any acquisition, divestiture or restructuring we might make.
Our business could suffer if we fail to attract, retain and successfully integrate skilled personnel
Our success depends, in large part, on our ability to attract and retain key personnel, including executives. Any of our current employees, including our senior
management, may terminate their employment with us at any time. Competition for qualified personnel in our industry can be intense. We may not be successful in attracting and retaining sufficient
qualified personnel. We may also incur increased expenses and be required to divert the attention of other senior executives to recruit replacements for the loss of any key personnel.
In
the past few years, we have experienced significant turnover among members of management, primarily due to retirement. We must successfully integrate any new management personnel that
we bring into the organization in order to achieve our operating objectives as new management becomes familiar with our business.
In
2010, the federal banking agencies jointly adopted new guidance relating to incentive compensation policies at insured depository institutions. In general, the new guidance is
principles-based and requires insured depository institutions to seek to assure that their incentive compensation policies do not encourage undue risk-taking by management officials and
other employees. Over time, these guidelines could have the effect of making it more difficult for banks to attract and retain skilled personnel.
The challenging operating environment and current operational initiatives may strain our available resources
There are an increasing number of matters in addition to our core operations which require our attention and resources. These matters include implementation of
our integrated banking platform, adoption of the Basel II capital guidelines, various strategic initiatives, integration of the operations of our recent FDIC-assisted acquisitions, a
disruptive economic environment, a challenging regulatory environment, including the possible effects of the Dodd-Frank Act and regulations adopted thereunder, and integration of new
employees, including key members of management. Our ability to execute our core operations and to implement other important
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initiatives
may be adversely affected if our resources are insufficient or if we are unable to allocate available resources effectively. Also, our ability to constrain or reduce operating expense
levels may be limited by the costs of increasing regulatory requirements and expectations.
We rely on third parties for important products and services
Third-party vendors provide key components of our business infrastructure such as internet connections, network access and mutual fund distribution and we do not
control their actions. Among other services provided by these vendors, third-party vendors play a key role in the design and implementation of our integrated banking platform. Any problems caused by
these third parties, including those as a result of their not providing us their services for any reason or their performing their services poorly, could adversely affect our ability to deliver
products and services to our customers, implement our integrated banking platform and otherwise to conduct our business. In addition, any such performance issues with our vendors could result in
delays in implementing our initiatives, as well as cost overruns, and, if it should become necessary to discontinue or significantly modify a project, there could be charges arising from the
write-off of previous investments that would adversely affect our results of operations. Replacing these third-party vendors could also entail significant delay and expense.
We are subject to operational risks
We are subject to many types of operational risks throughout our organization. Operational risk is the potential loss from our operations due to factors, such as
failures in internal control, systems failures or external events, that do not fall into the market risk or credit risk categories described in "Management's Discussion and Analysis of Financial
Condition and Results of OperationsBusiness Segments." Operational risk includes execution risk related to operational initiatives, including implementation of our integrated banking
platform, reputational risk, legal and compliance risk, the risk of fraud or theft by employees, customers or outsiders, unauthorized transactions by employees or operational errors, including
clerical or record-keeping errors or those resulting from faulty or disabled computer or telecommunications systems. A discussion of risks associated with regulatory compliance appears above under the
caption "The effects of changes in, or supervisory enforcement of, banking or other laws and regulations or governmental fiscal or monetary policies could adversely affect us."
We
depend on the continued efficacy of our technical systems, operational infrastructure, relationships with third parties and our employees in our day-to-day and
ongoing operations. Our dependence upon automated systems to record and process transactions may further increase the risk that technical system flaws or employee tampering or manipulation of those
systems will result in losses that are difficult to detect. Changes in our automated systems also may involve complex technical challenges that could be difficult to overcome, potentially resulting in
unexpected expense and ongoing issues with the functionality of our systems. Failures in our internal control or operational systems could impair our ability to operate our business and result in
potential liability to customers, reputational damage and regulatory intervention, any of which could harm our operating results and financial condition.
We
may also be subject to disruptions of our operating systems arising from events that are wholly or partially beyond our control, such as computer hacking or viruses, electrical or
telecommunications outages or unexpected difficulties with the implementation of our integrated banking platform, which may give rise to disruption of service to customers and to financial loss or
liability. Our business recovery plan may not work as intended or may not prevent significant interruptions of our operations.
Changes in our tax rates could affect our future results
Under an election we have made, we are required to file our California franchise tax returns as a member of a unitary group that includes MUFG's U.S. operations,
including its branch activities and its U.S. affiliates. Increases or decreases in the taxable profits of MUFG's U.S. operations could increase or decrease our effective
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tax
rate. We review MUFG's financial information on a quarterly basis to determine the rate at which to recognize our California income taxes. However, all of the information relevant to determining
the effective California tax rate may not be available until after the end of the period to which the tax relates, primarily due to MUFG's March 31 fiscal year-end. Our California
effective tax rate can change during the calendar year, or between calendar years, as additional information becomes available. If we understate our tax obligations, we could be subject to penalties.
Our effective tax rates also could be affected by valuation changes in our deferred tax assets and liabilities, changes in tax laws or their interpretation and by the outcomes of examinations of our
income tax returns by the tax authorities.
We may take actions to maintain client satisfaction that may result in losses or adversely affect our earnings
We may find it necessary to take actions or incur expenses in order to maintain client satisfaction even though we are not required to do so by law. The risk that
we will need to take such actions and incur the resulting losses or reductions in earnings is greater in periods when financial markets and the broader
economy are performing poorly or are particularly volatile. As a result, such actions may adversely affect our business, financial condition, results of operations or prospects, perhaps materially.
We may be adversely affected by the soundness of other financial institutions
As a result of trading, clearing or other relationships, we have exposure to many different counterparties and routinely execute transactions with counterparties
in the financial services industry, including commercial banks, brokers, dealers and investment banks. Many of these transactions expose us to credit risk in the event of a default by a counterparty.
In addition, our credit risk may be exacerbated when the collateral we hold cannot be realized upon or is liquidated at prices not sufficient to recover the full amount of the credit or derivative
exposure due to us. Any such losses could have a material adverse effect on our business, results of operations, financial condition or prospects.
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Item 6. Exhibits
|
|
|
|
No. |
|
Description |
|
31.1 |
|
Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(1) |
|
31.2 |
|
Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(1) |
|
32.1 |
|
Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002(1) |
|
32.2 |
|
Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002(1) |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
|
|
|
|
|
|
|
UNIONBANCAL CORPORATION (Registrant) |
Date: November 10, 2010 |
|
By: |
|
/s/ MASASHI OKA
Masashi Oka President and Chief Executive Officer
(Principal Executive Officer) |
Date: November 10, 2010 |
|
By: |
|
/s/ JOHN F. WOODS
John F. Woods Vice Chairman and Chief Financial Officer
(Principal Financial Officer) |
Date: November 10, 2010 |
|
By: |
|
/s/ DAVID A. ANDERSON
David A. Anderson Executive Vice President and Controller
(Chief Accounting Officer) |
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EXHIBIT INDEX
|
|
|
|
No. |
|
Description |
|
31.1 |
|
Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(1) |
|
31.2 |
|
Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(1) |
|
32.1 |
|
Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002(1) |
|
32.2 |
|
Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002(1) |
113