UnionBanCal Corporation A n n u a l R e p o r t

Transcription

1 UnionBanCal Corporation A n n u a l R e p o r t

2 UnionBanCal Corporation is the second-largest commercial bank holding company headquartered in California, based on assets of $86 billion at December 31, Its primary subsidiary is Union Bank, N.A., which operates 340 branches in California, Washington, Oregon, and Texas, as well as two international offices, and provides a full array of financial services to individuals, small businesses, middle-market companies, and major corporations. UnionBanCal is a wholly owned subsidiary of The Bank of Tokyo-Mitsubishi UFJ, Ltd., and a member of the Mitsubishi UFJ Financial Group, Inc., one of the world s largest financial organizations.

3 UnionBancal corporation Annual Report To Our Valued Customers & Employees Masaaki Tanaka President & Chief Executive Officer The most severe downturn in the U.S. economy in more than seven decades had a strong and measurable effect on Union Bank s bottom-line results for However, we were still able to achieve progress in other financial areas, gain market share, and introduce innovative new products to keep pace in a competitive banking environment. We also made strategic changes to our organizational structure that will help us take advantage of the eventual economic rebound. 1

4 UnionBancal corporation Annual Report Our guiding values will continue to be confidence and prudence as we work our way through the remaining weaknesses in the economy. Despite the challenges of this financial environment, I have never been more excited about our prospects. For the year, we reported a net loss of $65 million, $59 million of which were expenses directly related to the privatization transaction by The Bank of Tokyo-Mitsubishi UFJ, Ltd. (BTMU) to acquire all outstanding shares of UnionBanCal Corporation common stock. The transaction was completed in November We also increased the provision for credit losses, from $550 million in 2008 to $1.17 billion in 2009, and absorbed increases in regulatory agencies expense. In our principal market, California, the unemployment rate reached a record high, the values of residential and commercial real estate continued to decline, and an increasing number of borrowers faced difficulty meeting their debt obligations. In this challenging environment, we must remain focused on maintaining our strong culture of risk management. This prudent and conservative management philosophy led us to more than double our provisions for credit losses in At the same time, our percentages of nonperforming loans and loan charge-offs continue to be well below peer bank averages. Our 2009 results also demonstrated progress in a number of key areas. Average total deposits grew by 31 percent, the result of successful deposit-gathering initiatives in both the retail and commercial lines of business, as well as notable increases in money market account deposits from institutional investors. Growth of this magnitude clearly signifies the trust that customers have placed in the safety and soundness of our bank. Our revenues for the year were also up by 5 percent from 2008, average total loans increased by 6 percent, and expense management was well within target range. Perhaps the most visible step we took to position our bank for the future was the adoption of the new logo you see on the cover of this report. This exciting new look complements the name change we made late in We shortened our name to Union Bank from Union Bank of California to more accurately reflect our current geographic footprint and our aspirations for national recognition. In 2009, we received a voluntary capital injection of $2 billion from our parent company, BTMU. This sizable contribution immediately increased our capital ratios significantly beyond our peer group averages and served as a clear signal of BTMU s confidence in the potential of Union Bank and the U.S. market. Assuming continued improvement in the economy, we expect to have a considerable amount of excess capital for future deployment. Collaboration with our parent company is an integral part of our strategy. We are an active participant in a newly formed North American Management Committee, which brings together representatives of key BTMU units under the leadership of Tatsuo Tanaka, BTMU Deputy President and Chief Executive, Global Business Unit. Our major objectives are to develop a clear and unified strategy for growth in North America and to take advantage of the many emerging business opportunities that our respective networks afford. We also laid the groundwork for expansion in the United States through the acquisition of a bank charter in Texas and the opening of our first branch in Dallas. The branch is co-located with existing bank operations and provides a significant opportunity to increase commercial deposits outside the bank s current footprint from companies seeking a local Texas bank. 2

5 Expansion must be supported by a strong technological and operational network, and I am pleased to report the flawless migration of our core systems to the bank s Next Generation Data Center in Chandler, Arizona. We also completed the first critical phase of our Integrated Banking Platform project, which will replace 60 separate core computer banking systems with one central coordinated platform. We expect that this very ambitious project, when completed in 2012, will position us well ahead of our competitors in operational flexibility and scalability, both essential factors in our ability to pursue our growth strategies. We welcomed new management capability and experience in John Woods joined Union Bank as Vice Chairman and Chief Financial Officer from JPMorgan Chase, and Masamichi Yasuda came on board as Senior Executive Vice President and Deputy Chief Financial Officer from BTMU in New York. Mark Midkiff joined the company as Senior Executive Vice President and Chief Risk Officer from Wachovia Corporation. We also welcomed Dr. Takeo Hoshi, Professor, Graduate School of International Relations and Pacific Studies at the University of California, San Diego, to the Boards of Directors of UnionBanCal and Union Bank. He will bring key expertise to our discussions and deliberations. For their many accomplishments and years of service, we want to thank three senior officers who have retired: Vice Chairman and Chief Operating Officer Phil Flynn, Vice Chairman and Chief Financial Officer David Matson, and Senior Executive Vice President and Chief Credit Officer Bruce Cabral. As to the future, there are indications that the economy is slowly beginning to demonstrate signs of recovery. The stock market has rallied and the domestic economy has grown for two straight quarters. At the same time, unemployment remains stubbornly high, especially in California, and the challenges of the commercial real estate market will be with us for some time. Our guiding values will continue to be confidence and prudence as we work our way through the remaining weaknesses in the economy. Despite the challenges of this financial environment, I have never been more excited about our prospects. In closing, I express gratitude to the directors and my executive management team for their guidance and hard work. I especially want to thank our employees for their remarkable accomplishments and unwavering dedication during a very turbulent year. I also want to express my deep appreciation to our customers, who continue to place their confidence in us. We will continue to do all we can to exceed your expectations. Masaaki Tanaka President and Chief Executive OfFicer March 10,

6 The 2009 Financial Overview John woods Vice chairman & Chief financial officer In the very difficult economic environment that prevailed during 2009, UnionBanCal Corporation reported a net loss of $65 million. This compared with net income of $269 million for full-year The year-over-year decline was primarily driven by a $615 million increase in provision for credit losses; however, it s important to note that while our provision increased, our asset quality compares very favorably to peers on a wide variety of metrics. Also, the FDIC levied a special assessment of $34 million in 2009 and increased deposit insurance rates for the entire banking industry. In spite of these developments, the core earnings power of our organization remains strong, as we generated pre-tax, pre-provision income of $939 million in Moreover, in fourth quarter 2009, we reported net income of $42 million, so we moved into the new year with positive earnings momentum. Net Income (Loss) ( $ in Millions) Average Core Deposits Composition ( $ in billions) $41.9 $47.8 $36.3 $34.3 $32.7 $32.8 $9.8 $17.0 $80.0 Q1.09 Q2.09 Q3.09 Q N o n i n t e r e s t- b e a r i n g d e p o s i t s S a v i n g s a n d c o n s u m e r t i m e T r a n s a c t i o n a c c o u n t s 4

7 UnionBancal corporation Union Bank Annual Report During 2009, we significantly enhanced our capital position and finished the year as one of the best-capitalized large banks in the United States. We enter 2010 with very high liquidity levels, positioning us well to seize a variety of opportunities likely to arise as the year unfolds. Our core operating strength for the year was exemplified by average loan growth of 6 percent and average core deposit growth of 46 percent. The robust core deposit growth we generated further reduced our reliance on wholesale funding and improved our already strong liquidity position. For example, we were able to reduce our use of wholesale funding from $16.4 billion at December 31, 2008, to $8.9 billion at December 31, We have historically adhered to a policy of strong capital. Given the difficult economic environment that prevailed throughout 2009, it has been to our advantage to maintain strong capital levels and a high-quality mix of capital with a large proportion of common equity in our total capital. Our tangible common equity ratio was 8.3 percent at December 31, 2009, compared with 6.5 percent for peer banks. Our Tier 1 common capital ratio was 11.8 percent at December 31, 2009, compared with 7.5 percent for peer banks. In addition, at December 31, 2009, our regulatory capital ratios were all at least four percentage points above levels defined as well capitalized by regulators. Finally, due to our capital position and other competitive strengths, the four major credit rating agencies have accorded us solid, investment-grade ratings. Standard & Poor s rates Union Bank A+, and Moody s rates Union Bank A2. We enter 2010 with solid business momentum, a sizable capital cushion, and healthy liquidity. Furthermore, we enjoy the financial flexibility and other unique advantages afforded us as a member of the Mitsubishi UFJ Financial Group, one of the world s largest financial organizations. Average Deposits and Wholesale Funding ( $ in billions) D e p o s i t s W h o l e s a l e f u n d i n g * Capital Ratios at December 31, $ A v e r a g e d e p o s i t s $16.4 $42.1 $45.7 $11.9 $55.6 $56.3 $8.90 $8.9 $ A v e r a g e w h o l e s a l e f u n d i n g R e g u l at o r y r at i o s : 0 0 Q4.08 Q1.09 Q2.09 Q3.09 Q4.09 *Includes selected time deposits 5

8 Corporate Banking John Erickson VICE Chairman & CHIEF corporate Banking officer Businesses facing unprecedented challenges in 2009 turned to Union Bank for innovative financial solutions, personalized service, and in-depth industry expertise to help them compete at home and abroad. Our stability and focus have allowed us to work with our customers to plan for their futures while navigating through the current environment. As a result, our commercial deposits increased dramatically and our corporate banking strengths were recognized at the national level. Ernst & Young ranked Union Bank among the nation s Top 10 banks in cash management. Meanwhile, the American Banker newspaper s 2009 Greenwich Excellence Awards recognized the high quality of service that has led many companies to partner with Union Bank for a half century or more. Responsiveness, a key element of customer service, proved to be a hallmark for the bank in 2009, as we developed new products and services that responded to market conditions and our clients needs. Among the innovations that set Union Bank apart were two highly successful new products: Products & Services Union Bank provides a complete range of wholesale banking products and services through five business units:. Commercial Banking provides senior debt and asset-based financing for small to large businesses.. Corporate Deposits and Global Treasury Management is focused on depositintensive niche businesses and offers a wide array of domestic and international solutions for companies of all sizes.. Real Estate Industries finances commercial real estate transactions and is active in affordable housing markets.. Global and Wealth Markets has a broad-based product offering, including private banking, personal trust, asset management, foreign exchange, derivatives, custody, corporate trust, capital markets, and investment and life insurance brokerage solutions.. Specialized Financial Services supports a wide variety of specialized industries with dedicated teams. 6

9 UnionBancal corporation Annual Report With our 146-year tradition of responsible lending practices and the strong backing of our parent company, Union Bank is a reliable partner and a powerful resource for businesses in today s challenging marketplace. a one-stop Global Treasury Service that makes it convenient for corporate treasurers to manage accounts around the world, and an FDIC-protected, market-linked certificate of deposit that allows investors to diversify and take advantage of potential stock, currency, and commodity market opportunities while safeguarding their principal. One of the nation s biggest challenges in 2009 was the downturn in commercial real estate the most severe crisis we ve seen in this industry in 35 years. Union Bank has a long history of serving this sector, and we are committed to maintaining a high level of support for our clients as the market finds its bearings. We also continue to invest in other client sectors, including our wealth management, asset management, and broker dealer networks. We opened our first branch in Dallas and created a new division to provide expansion opportunities in Asia for our U.S. customers. Our Corporate Banking team excels in many areas because we focus, above all, on understanding what our customers need in good times and bad. Corporate Banking ( $ in billions) a v e r a g e T o ta l l o a n s a n d l e a s e s A v e r a g e T o ta l d e p o s i t s 7

10 Retail Banking Tim Wennes senior executive vice president & chief Retail Banking officer Safety. Stability. Superior service. These are among the strengths that enabled Union Bank to generate remarkable growth in retail business in The Union Bank way of banking customer-focused, responsible, balanced resulted in a 15.9 percent increase in retail deposits for the full year and an 11.2 percent increase in loans. Early in 2009, we refined our retail vision and made significant investments throughout our branch network to build our leadership team, enhance training, open new offices, and introduce innovative products and services. We also increased the number of relationship managers for our Priority Banking program, which delivers customized financial solutions that are tailored to our clients personal and business goals. The bank s asset quality and financial stability made it possible to maintain an active residential lending program in a very tight credit market. While residential loan delinquency rates based on the number of loans averaged percent for the industry as a whole, ours was significantly lower at 2.55 percent. Our disciplined underwriting policies over Retail Banking ( $ in billions) A v e r a g e t o ta l L o a n s a v e r a g e t o ta l D e p o s i t s 8

11 UnionBancal corporation Annual Report Our highly skilled Retail Banking team is dedicated to making a difference in our customers lives and in the communities we serve. We have earned an asset that is hard to come by in this difficult economic environment trust. many years put us in a position to grow our mortgage and home equity loan portfolios while the home lending industry as a whole was still in crisis. Among the many customers who have benefited from Union Bank s credit strength are small business owners. We realigned our organization in 2009 in ways that have allowed us to handle more complex credit requirements for our retail branch business customers, while providing greater access to depository management solutions, treasury management services, and other areas of special expertise. Our efforts to meet the needs of small businesses, as well as the needs of the communities where we do business, earned the bank its second consecutive rating of Outstanding from the Office of the Comptroller of the Currency for our Community Reinvestment Act activities. This is an important acknowledgement of the bank s commitment to support low- and moderate-income communities through charitable contributions, lending, investment, and service. What all of this adds up to is a way of banking that takes our customers and the trust they have placed in us very seriously. As the preferred provider of financial solutions to a growing number of consumers and small businesses, we are always exploring ways to do more for our customers and our communities. We look forward to demonstrating this commitment through a consistently superior level of service today and in the years to come. Products & Services. Checking accounts, money market accounts, savings accounts, and time deposits for consumers and small businesses. Mortgages, home equity lines of credit, vehicle loans, personal loans, and credit cards. Investment and brokerage services, including IRAs and college savings plans. Merchant services, cash management services, and credit products for small businesses. Financial planning experts and online planning tools 9

12 Risk Management Mark Midkiff Senior Executive Vice President & Chief Risk Officer Union Bank s emphasis on credit and asset quality has enabled us to meet the ongoing credit needs of our clients, and we now find ourselves in a strong position to help fund the opportunities that a recovery should bring. At the end of 2009, our nonperforming loans stood at 2.79 percent of our total loans, compared with a peer bank average of 4.29 percent. During the year, we charged off 1.02 percent of average total loans, compared to a peer bank average of 2.63 percent. Delinquencies in our residential mortgage portfolio based on amount outstanding 2.2 percent at the end of the year were well below the average for all California prime residential mortgages. We ve never engaged in subprime lending and hold the vast majority of the loans we make in our portfolio, so we are very aware of the importance of making sound credit decisions. While we noted some stabilization in the level of nonperforming loans during fourth quarter 2009, we continued to add to our reserves, which are maintained to absorb estimated losses inherent in our loan portfolio. At the end of the year, the ratio of our allowance for loan losses to nonperforming loans stood at 103 percent, well above our peer bank average of about 89 percent. Nonperforming Loans/ Total Loans ( At period - e n d ) U n i o n B a n C a l P e e r av e r a g e Net Loans Charged Off/ Average Total Loans U n i o n B a n C a l p e e r av e r a g e 4.29% 2.63% 2.29% 1.43% 2.79% 1.10% 0.54% 1.02% 0.38% 0.46% 0.84% 0.38% 0.33% 0.37% 0.18% 0.11% 0.14% -0.01% 0.04% 0.03% Source: SNL and Company reports Source: SNL and Company reports 10

13 UnionBancal corporation Union Bank Annual Report The bank s strong risk-management culture has served it well during an unprecedented period of portfolio deterioration for financial institutions. Our emphasis on soundness first, then profitability and growth, helped distinguish us among our peer banks. Our insistence on maintaining the safety of bank assets has allowed us to avoid a number of serious emerging issues. Nevertheless, we realize that true risk management is a very active and constantly evolving process. For this reason, we have added to our management team, strengthened a number of business practices, and made organizational adjustments. We have also made investments in new systems, tools, and personnel to solidify our performance in the areas of credit, market, operational, and compliance risk. We made significant progress toward this goal in 2009 especially in the area of identifying and reporting operating losses and expect to qualify under Basel II by These standards align with our drive to practice advanced risk management at all levels of the organization and to identify and manage new risks as they emerge. A major objective of the bank is to become compliant with Basel II, the international framework of risk-management standards designed to strengthen banks around the world. Allowance for Credit Losses/ Nonperforming Assets U n i o n B a n C a l P e e r av e r a g e Allowance for Credit Losses / Annualized Net Charge-Offs * U n i o n B a n C a l P e e r av e r a g e 426% 2923% 280% 1293% 227% 198% 174% 156% 139% 133% 122% 109% 109% 98% 105% 92% 114% 96% 319% 245% 632% 212% 508% 217% 372% 185% 316% 159% 305% 138% 307% 134% Q1.08 Q2.08 Q3.08 Q4.08 Q1.09 Q2.09 Q3.09 Q4.09 Q1.08 Q2.08 Q3.08 Q4.08 Q1.09 Q2.09 Q3.09 Q4.09 *Rolling four-quarter net charge-offs 11

14 Directors & Executive Committee Members At December 31, 2009 B oa rd o f Direc tors Aida M. Alvarez Former Administrator, U.S. Small Business Administration David R. Andrews (Lead Director) Founder and Co-Chair, MetaJure, Inc. Nicholas B. Binkley General Partner, Forrest Binkley & Brown L. Dale Crandall President, Piedmont Corporate Advisors, Inc. Murray H. Dashe Retired Chairman, President, and Chief Executive Officer, Cost Plus, Inc. Christine Garvey Real Estate Consultant Michael J. Gillfillan Partner, Meriturn Partners, LLC Mohan S. Gyani Vice Chairman, Roamware, Inc. Dr. Takeo Hoshi Professor, International Economic Relations at the Graduate School of International Relations and Pacific Studies, University of California, San Diego Yoshiaki Kawamata Senior Managing Executive Officer and Chief Executive Officer for the Americas of The Bank of Tokyo-Mitsubishi UFJ, Ltd., and Resident Managing Officer for the United States of Mitsubishi UFJ Financial Group, Inc. Nobuo Kuroyanagi* Chairman of The Bank of Tokyo-Mitsubishi UFJ, Ltd., and President and Chief Executive Officer of Mitsubishi UFJ Financial Group, Inc. J. Fernando Niebla President, International Technology Partners, LLC Kyota Omori Chairman of UnionBanCal Corporation and Union Bank and Deputy President and Chief Compliance Officer of Mitsubishi UFJ Financial Group, Inc. Barbara L. Rambo Vice Chair, Nietech Corporation Masaaki Tanaka President and Chief Executive Officer of UnionBanCal Corporation and Union Bank Dean A. Yoost Retired Partner, PricewaterhouseCoopers E xecutive Commit tee Masaaki Tanaka President and Chief Executive Officer John C. Erickson Vice Chairman and Chief Corporate Banking Officer John F. Woods Vice Chairman and Chief Financial Officer David I. Matson** Vice Chairman, Financial Management Group Grant K. Ahearn Senior Executive Vice President, Specialized Financial Services JoAnn M. Bourne Senior Executive Vice President, Corporate Deposits and Global Treasury Management Robert C. Dawson Senior Executive Vice President, Commercial Banking Paul E. Fearer Senior Executive Vice President and Director of Human Resources Morris W. Hirsch Senior Executive Vice President and General Counsel Mark W. Midkiff Senior Executive Vice President and Chief Risk Officer J. Michael Stedman Senior Executive Vice President, Real Estate Industries Timothy H. Wennes Senior Executive Vice President and Chief Retail Banking Officer John M. Wied Senior Executive Vice President, Independent Risk Monitoring Group Johannes H. Worsoe Senior Executive Vice President, Global and Wealth Markets Masamichi Yasuda Senior Executive Vice President, Chief Liaison Officer and Deputy Chief Financial Officer James Yee Senior Executive Vice President and Chief Information Officer * UnionBanCal Director only. Effective April 1, 2010, Mr. Kuroyanagi will retire as President and Chief Executive Officer of Mitsubishi UFJ Financial Group, Inc. He will continue to serve as Chairman of The Bank of Tokyo- Mitsubishi UFJ, Ltd., and as a Director of UnionBanCal Corporation. ** Retired February

15 About Union Bank, N.A. Design: ARGUS, LLC, San Francisco / ARGUSSF.com. Photography: Chris Duffey, Alain McLaughlin, Keith Skelton For nearly 150 years, our company has been a steadfast presence in the state of California. The bank s earliest roots trace back to The Bank of California, which was one of the first banks founded after the Gold Rush in the late 19th century. Union Bank has grown steadily and substantially over the years, establishing a deep footprint in communities across California, as well as in Washington and Oregon. With a heritage of service, prudence, and stability, the company has withstood recent economic difficulties and enjoys strong capital and liquidity positions, as well as solid, investment-grade credit ratings from the major rating agencies. Union Bank maintains a robust banking franchise in the United States and a network of 340 branches in California, Washington, Oregon, and Texas, as well as two international offices. It operates as a full-service commercial bank, providing a broad array of financial services to retail customers, investors, small businesses, middle-market companies, and major corporations. C AU T I O N A RY N OTE REG A R D IN G FO R WA R D - LO O K IN G INFO R M AT I O N Union Bank is the primary subsidiary of UnionBanCal Corporation, the second-largest commercial bank holding company headquartered in California, based on assets of $86 billion at December 31, UnionBanCal is a wholly owned subsidiary of The Bank of Tokyo-Mitsubishi UFJ, Ltd., and a member of the Mitsubishi UFJ Financial Group, Inc., one of the world s largest financial organizations. As a prominent corporate citizen, Union Bank works hard to foster economic, social, and environmental sustainability within the scope of its business reach. The company promotes financial prosperity for its customers and the community; sociocultural equity and diversity; and the conservation of natural resources to preserve and improve the environment for the welfare of present and future generations. This publication includes forward-looking statements, which include statements regarding UnionBanCal Corporation s financial results and condition, expected benefits of the company s capital position, the company s loan portfolio, the company s vision and strategies, and the expected benefits of its strategies, the company s competitive position, the company s timeline for Basel II compliance, plans and expectations for the company s operations, business, and growth, and assumptions for those expectations. Do not rely unduly on forward-looking statements. Actual results might differ significantly from the company s forecasts and expectations. Please refer to item 1A, Risk Factors, in the Form 10-K for a discussion of some factors that may cause results to differ. All forward-looking information is based on information available as of the date of this report. UnionBanCal Corporation assumes no obligation to update any forward-looking information.

16 A member of MUFG, a global financial group 400 California Street San Francisco, CA UnionBanCal Corporation Cert no. SCS-COC Printed on Recycled Paper