FINANCIAL UPDATE
Second Quarter 2013
7/25/2013
UnionBanCal Corporation, Investor Relations Department
350 California Street, San Francisco, CA 94104 • (415) 765-2780
Second Quarter 2013
Talking Points
●
We announced that we completed
the acquisition of PB Capital
Corporation’s $3.5 billion
institutional commercial real estate
(CRE) lending portfolio on June 24,
2013 (PB Capital acquisition).
●
Our net income decreased $6
million compared with first quarter.
Higher net interest income and lower
credit costs were offset by lower gains
on the sale securities. Noninterest
expense declined 2 percent compared
with the first quarter.
●
Our second quarter net interest
margin of 3.00 percent was similar
to 3.01 percent in the prior quarter,
as lower yields on total loans and
securities were largely offset by a
better mix of earning assets.
●
We grew total loans (excluding
purchased credit impaired loans)
during the second quarter by $4.6
billion, to $64.4 billion. Loans grew
primarily due to the PB Capital
acquisition and organic growth in the
residential mortgage and commercial
and industrial loan portfolios.
●
Period end total deposits grew $3.3
billion to $77.3 billion, with core
deposits increasing to $65.5 billion,
or 85 percent of total deposits. One
hundred percent of our loans held
for investment were funded by core
deposits at June 30, 2013.
●
We continue to be stronglycapitalized compared with our
peers. Our tangible common equity
ratio and our Tier 1 common capital
ratio were well in excess of peer
averages at June 30, 2013 (see chart
to left). All of our regulatory capital
ratios far exceed “well capitalized”
thresholds. In addition, we have a
very high-quality capital mix,
comprised almost entirely of
common equity.
●
Our asset quality continued to be
superior to peers, as illustrated in
the table to the left. Overall asset
quality remained strong in second
quarter.
●
At June 30, 2013, Union Bank, N.A.,
and UnionBanCal had solid
investment grade credit ratings at
each of the three major rating
agencies.
Profile
●
●
●
UnionBanCal Corporation is the second largest bank holding company
headquartered in California based on assets at June 30, 2013, and is a proud
member of the Mitsubishi UFJ Financial Group (MUFG, NYSE:MTU), one of
the world’s largest financial organizations.
UnionBanCal’s primary subsidiary is Union Bank, N.A., which operates 422
branches and 644 ATMs in California, Washington, Oregon, Texas, Illinois,
and New York, as well as two international offices.
Union Bank serves corporate clients across the country and has a retail
customer base of approximately 1 million households, primarily in the major
metropolitan areas of the U.S. West Coast.
Second Quarter 2013 Financial Highlights
●
●
Compared with first quarter 2013:
● Net income was $141 million, down $6 million from the prior quarter.
● Net interest income increased 3 percent, while net interest margin
declined 1 basis point to 3.00 percent.
● Total loans (excluding purchased credit-impaired loans) grew $4.6 billion
to $64.4 billion at quarter-end.
● Core deposits grew $1.9 billion to $65.5 billion at quarter-end.
Asset quality:
● Total provision for credit losses was a benefit of $5 million.
Union Bank1
Net charge-offs/average total loans,YTD
Nonperforming loans/total loans*,**
Reserve/total loans*
Reserve/nonperforming loans*
0.07%
0.77%
1.18%
153.2%
Peer Banks2
0.53%
1.72%
1.78%
134.4%
*Period-end. **Union Bank represents nonaccrual loans to total loans.
●
Capital strength:
● Capital ratios remained strong during the quarter and compared
favorably to peers:
UnionBanCal
Peer Banks Average
Select Competitors:2
Wells Fargo
Bank of America
JP Morgan Chase
1
Tangible Common
Equity Ratio3
Tier 1 Common
Capital Ratio
8.41%
6.98%
6.20%
10.73%
10.83%
10.40%
9.11%
7.77%
Excluding purchased credit-impaired loans for Union Bank.
Based on SNL data or SNL methodology and company reports.
3
Other companies may apply different methodologies for calculating their tangible common equity ratios.
2
11.47%
10.10%
FINANCIAL UPDATE
Second Quarter 2013
Capital
●
●
●
●
Total UnionBanCal stockholder’s
equity was $12.4 billion at June 30,
2013.Tangible common equity was
$9.0 billion, down 4 percent from
March 31, 2013.
Our tangible common equity ratio
was 9.11 percent at June 30, 2013,
which far exceeds the peer average
of 7.77 percent.
We have a sizable capital cushion,
which is available to support
organic growth, as well as growth
through acquisitions.
We adhere to a policy of strong
capital, including a strong tangible
common equity ratio and
regulatory capital ratios above the
●
“well-capitalized” regulatory
thresholds. All of our regulatory
capital ratios were at least 350 basis
points above the “well-capitalized”
regulatory thresholds at June 30,
2013.
We have no government funds in
our capital structure.
Credit Ratings
●
●
Regulatory Capital Ratios
We have solid investment grade
credit ratings at each of the three
major rating agencies. Union Bank’s
long-term rating at Standard &
Poor’s is A+, at Moody’s it is A2, and
at Fitch it is A.
Standard & Poor’s and Fitch assign
Union Bank a stable outlook, while
Estimated for
June 30, 2013
Tier 1 risk-based capital
Total risk-based capital
Leverage
●
11.55%
13.63%
10.36%
●
Requirement for
“Well Capitalized"
6.0%
10.0%
5.0%
Moody’s assigns Union Bank a
negative outlook. Moody’s moved
the outlook from stable to negative
at the same time they affirmed all of
our credit ratings on April 9, 2013,
in order to afford them an extended
time to evaluate our growth strategies.
In general, the rating agencies value
our strong capital position, strong
banking franchise, robust low-cost
deposit base, and asset quality and
reserve positions that compare
favorably to peers.
Moody’s assigns us a Bank Financial
Strength Rating (BFSR) of C+, which
is equivalent to or higher than many
of our competitors, including Wells
Fargo (C+), JPMorgan Chase (C),
and Bank of America (D+).The BFSR
is Moody’s measure of a bank’s
intrinsic safety and soundness – a
measure of standalone strength before
taking into account possible financial
support from third parties, such as its
owners or official institutions like the
U.S. government.
Credit Risk Management & Asset Quality
●
We manage credit risk through portfolio diversification, industry concentration limits, dollar limits, geographic
distribution and type of borrower.
●
Our asset quality has been strong relative to our peer group, with ratios of nonperforming loans and net charge-offs
well below peer averages. (see charts below)
●
Delinquencies of 30+ days in our residential mortgage loan portfolio were 1.6 percent at June 30, 2013, compared
with 5.6 percent for California prime residential mortgages as a whole at March 31, 2013.4
Net Charge-offs/
Average Total Loans5
Nonperforming Loans/
Total Loans5,6
(at period-end)
Peer Average
(full year and annualized for 2Q13)
Peer Average
UnionBanCal
UnionBanCal
4.65%
2.59%
4.05%
2.47%
3.45%
2.96%
2.79%
1.38%
1.02%
1.82%
0.90%
0.79%
1.72%
0.48%
1.12%
0.23%
0.81%
0.53%
0.77%
0.07%
2009
2010
2011
Source: SNL and Company reports
4
2
2012
2Q13
2009
2010
Based on number of loans and includes loans in foreclosure. Most recent data available at time of publication from Mortgage Bankers Association.
Excluding purchased credit-impaired loans for Union Bank.
6
UnionBanCal represents nonaccrual loans to total loans.
5
2011
Source: SNL and Company reports
2012
2Q13
FINANCIAL UPDATE
Second Quarter 2013
Deposits & Liquidity
●
●
●
●
Core deposits were $65.5 billion at June 30, 2013, up
$1.9 billion from $63.6 billion at March 31, 2013,
primarily due to retail deposit growth. This stable,
desirable deposit base comprised 85 percent of our total
deposits at period-end.
Loans
●
We continue to maintain a robust liquidity profile, driven
largely by our strong deposit franchise.
We maintain diverse sources of wholesale funding
capacity well in excess of our anticipated funding needs,
including a portfolio of high-quality securities, the
majority of which can be readily converted to cash via
sale or serve as collateral against borrowings.
●
We maintain highly reliable contingent liquidity in the
form of unused borrowing capacity with both the Federal
Home Loan Bank (FHLB) and the Federal Reserve Bank.
●
●
Core Deposits Composition at Period End
$65.5
$63.8
$56.6
Average Total Loans, 2Q13
$52.8
$50.1
We maintain a well-diversified portfolio of loans.
● Our portfolio exhibits good geographic dispersion
within our primary market, California.
● Our portfolio outside of California comprises
approximately 33 percent of the total loan portfolio.
No state besides California accounts for more than 5
percent of the total loan portfolio.
● A wide variety of loan types are represented across a
broad spectrum of industries that are not tied to the
California economy.
Our residential mortgage portfolio is very high quality.
● We do not originate subprime or option ARM
residential mortgage loans.
● For second quarter 2013, net loans charged-off in our
residential mortgage portfolio, which averaged $23.4
billion were $3 million, or 0.1 percent annualized.
● As of March 31, 2012, 76 percent of our residential
mortgage, home equity, and other consumer loan
portfolio carried a FICO7 score of 720 or higher.
We hold the vast majority of the loans we originate.
Our conservative underwriting standards and credit
risk management policies have resulted in superior asset
performance versus peers.
($ in billions)
Residential
mortgage,
$23.4
2009
2010
2011
2012
Home equity
& other consumer,
$3.5
2Q13
Noninterest bearing deposits
Domestic time deposits <$250K
Savings
Transaction and money market accounts
Deposits and Wholesale Funding
at June 30, 2013
FHLB,
$1.8
Negotiable
CDs,
$3.3
Governance
●
Fed Funds
Purchased
& Other,
$0.6
Medium- and
Long-term Debt,
$4.3
●
$87.1 billion
7
Credit score provided by Fair Isaacs Corporation (FICO).
Lease financing, $1.1
$63.7 billion
Commercial
Paper,
$3.7
Deposits,
$73.6
Commercial
mortgage, $11.9
Construction, $0.8
Purchased creditimpaired loans, $1.3
●
($ in billions)
Commercial
& industrial,
$21.7
UnionBanCal’s Board of Directors is comprised of 9
outside, independent directors and 4 inside directors.
Our lead director is an independent director.
UnionBanCal Corporation, as a financial holding company
and a bank holding company, and Union Bank, N.A., as a
federally chartered U.S. banking institution, are subject to
oversight by U.S. regulatory agencies, including the
Federal Reserve, the Office of the Comptroller of the
Currency (OCC), the Consumer Financial Protection
Bureau (CFPB), and the Federal Deposit Insurance
Corporation (FDIC).
UnionBanCal Corporation publicly issues quarterly
earnings releases and files quarterly and annual financial
reports (Forms 8-K, 10-Q, 10-K) with the Securities
and Exchange Commission.
3
FINANCIAL UPDATE
Second Quarter 2013
Second
Quarter
2013
Profitability ($ millions)
666
$
Net interest income
205
Noninterest income
871
Total revenue
141
$
Net income
27
Adjustment for merger costs related to acquisitions, net of tax
(8)
Net adjustments related to privatization transaction, net of tax
Net income, excluding impact of privatization transaction and
160
$
merger costs related to acquisitions
Excluding impact of privatization transaction and merger costs related to acquisitions:
0.66%
Return on average assets9
6.12%
Return on average stockholder’s equity9
69.60%
Adjusted efficiency ratio
3.00%
Net interest margin
Credit Quality
0.05%
Net loans charged off to average total loans held for investment9
0.58%
Nonperforming assets to total assets, period-end
Period-end allowance for credit losses to:
1.16%
Total loans held for investment
146.34%
Nonaccrual loans
Excluding PCI loans and FDIC covered OREO8:
0.06%
Net loans charged off to average total loans held for investment9
0.52%
Nonperforming assets to total assets, period-end
Period-end allowance for credit losses to:
1.18%
Total loans held for investment
153.18%
Nonaccrual loans
Capital (at period-end)
9.11%
Tangible common equity ratio
11.47%
Tier 1 common capital ratio10
Risk-based Capital
11.55%
Tier 110
13.63%
Total10
10.36%
Leverage Ratio10
Average Balance Sheet ($ millions)
$ 98,714
Total assets
23,183
Total securities
63,673
Total loans held for investment
75,350
Total deposits
12,599
Stockholder’s equity
Period-End Balance Sheet ($ millions)
$102,261
Total assets
24,415
Total securities
65,843
Total loans held for investment
65,533
Core deposits
77,310
Total deposits
6,058
Long-term debt
12,399
Stockholder’s equity
8
PCI = purchased credit-impaired. OREO = other real estate owned. 9 Annualized.
10
A2
A+
A
$
$
$
Second
Quarter
2012
$
648
255
903
147
24
(1)
$
170
0.72%
6.62%
67.76%
3.01%
0.10%
0.63%
$
646
188
834
187
2
7
196
0.90%
8.22%
66.18%
3.23%
0.22%
0.75%
Year to Date
June,
2012
2013
$ 1,314
460
1,774
288
$
51
(9)
$
330
0.69%
6.39%
68.66%
3.00%
0.07%
0.58%
$ 1,287
402
1,689
$ 382
2
13
397
$
0.91%
8.47%
67.38%
3.28%
0.31%
0.75%
1.27%
149.24%
1.45%
142.20%
1.16%
146.34%
1.45%
142.20%
1.30%
157.75%
1.46%
152.64%
1.18%
153.18%
1.46%
152.64%
12.54%
14.02%
10.70%
13.78%
15.54%
11.58%
11.55%
13.63%
10.36%
13.78%
15.54%
11.58%
0.08%
0.54%
10.05%
12.45%
$ 96,649
21,824
60,553
74,256
12,584
0.21%
0.62%
11.04%
13.78%
$ 89,479
24,223
54,937
64,499
11,905
$ 87,939
22,890
54,291
53,378
63,443
6,444
12,076
$ 96,959
22,816
60,882
63,585
73,990
5,314
12,594
0.07%
0.52%
9.11%
11.47%
$ 97,687
22,507
62,122
74,807
12,591
$102,261
24,415
65,843
65,533
77,310
6,058
12,399
0.31%
0.62%
11.04%
13.78%
$ 89,464
24,244
54,543
64,462
11,763
$ 87,939
22,890
54,291
53,378
63,443
6,444
12,076
Estimated for June 30, 2013.
Union Bank, N.A., Credit Ratings (as of June 30, 2013)
Long-Term Issuer
Rating
Outlook
Moody’s
Standard & Poor’s
Fitch
First
Quarter
2013
Negative
Stable
Stable
Short-Term Issuer
Rating
Outlook
P-1
A-1
F1
Negative
Stable
Stable
Please refer to UnionBanCal’s press release dated July 25, 2013, and UnionBanCal’s filings with the Securities and Exchange Commission, available online at http://www.sec.gov. This
financial update contains certain references to financial measures identified as excluding PCI loans, FDIC covered OREO, privatization transaction impact, foreclosed asset expense and
other credit costs, (reversal of) provision for losses on off-balance sheet commitments, productivity initiative costs, low income housing credit (LIHC) investment amortization expense,
expenses of the LIHC consolidated variable interest entities, merger costs related to acquisitions, debt termination fees from balance sheet repositioning, and intangible asset amortization,
which are adjustments from comparable measures calculated and presented in accordance with GAAP. These financial measures, as used herein, differ from financial measures reported
under GAAP in that they exclude unusual or non-recurring charges, losses, or credits. This financial update also includes additional capital ratios (the tangible common equity and Tier 1
common capital ratios) to facilitate the understanding of the Company’s capital structure and for use in assessing and comparing the quality and composition of UnionBanCal’s capital
structure to other financial institutions. Please refer to the July 25, 2013, press release for information regarding the use of non-GAAP financial measures. This financial update contains
forward-looking statements within the meaning of the Private Securities Litigation Reform Act, including those related to the Company's capital, growth, and funding, which are subject to
risks and uncertainties that could cause results to differ materially. Please refer to UnionBanCal’s SEC filings at http://www.sec.gov for a discussion of related risks and uncertainties. All
forward-looking statements are based on information available at the date of this update, and UnionBanCal assumes no obligation to update any forward-looking statement.
For further information, please contact Michelle Crandall, Investor Relations, 415-765-2780.
806017 (7/13)