MUFG Americas Holdings Corporation Reports Full Year Net Income of $825 Million, Up 24 Percent from 2013

MUFG Americas Holdings Corporation (the Company), parent company of San Francisco-based MUFG Union Bank, N.A. (the Bank), today reported full year 2014 results. Net income for the full year was $825 million, compared with net income of $667 million in 2013. Net income for the quarter was $155 million, compared with $246 million for the prior quarter and $179 million for the year-ago quarter.

Full Year Highlights:

• Net income was $825 million, up $158 million, or 24 percent, from the prior year.
• Pre-tax pre-provision income was $1,064 million, up $265 million, or 33 percent, from the prior year.
• Solid loan and deposit growth:
  • Loans held for investment were $76.8 billion at December 31, 2014, up $8.5 billion, or 12 percent, from the prior year-end.
  • Core deposits were $76.7 billion at December 31, 2014, up $7.5 billion, or 11 percent, from the prior year-end.

• Continued strong capital position:
  • Capital ratios continued to exceed the regulatory thresholds for "well-capitalized" bank holding companies. Basel I Tier 1 and Total risk-based capital ratios were 12.79 percent and 14.73 percent, respectively, at December 31, 2014.
  • In December 2014, the Federal Reserve Board approved the Company's request to opt-out of the advanced approaches methodology under U.S. Basel III regulatory capital rules. The Bank will continue to be subject to the advanced approaches rules.

Fourth Quarter Highlights:

• Net income for the fourth quarter was $155 million, down $91 million from the third quarter due to a decrease in noninterest income and increases in income tax expense and provision for loan losses.
• Core deposits grew 4 percent from September 30, 2014 to $76.7 billion. Loans held for investment grew 3 percent from September 30, 2014 to $76.8 billion.
• Continued disciplined underwriting standards produced strong credit quality with low levels of nonperforming assets and charge-offs.
  • Nonperforming assets were $411 million, or 0.36 percent of total assets, compared with $428 million, or 0.39 percent of total assets at September 30, 2014 and $499 million, or 0.48 percent of total assets, at December 31, 2013.
  • Net loans recovered were $1 million for the quarter, compared with net charge-offs of $12 million for the prior quarter and $11 million in the year-ago quarter.

Business Integration Initiative

Effective July 1, 2014, the U.S. branch banking operations of The Bank of Tokyo-Mitsubishi UFJ, Ltd. (BTMU) were integrated under the Bank's operations. This integration did not involve a legal entity combination, but rather an integration of personnel and certain business and support activities. The Bank and BTMU entered into a master services agreement, which provides for employees of the Bank to perform and make available various business, banking, financial, and administrative and support services (the Services) and facilities to BTMU in connection with the operation and administration of BTMU's businesses in the U.S. (including BTMU's U.S. branches). In consideration for the Services, BTMU pays to the Bank fee income, which reflects market-based pricing. Costs related to the Services performed by the transferred employees are primarily reflected as salaries and employee benefits expense.

For the quarter and year ending December 31, 2014, the Company recorded $168 million and $319 million, respectively, in fee income from this initiative, including $112 million and $206 million, respectively, related to support services provided by the Company to BTMU. Noninterest expense related to the Services was $105 million and $193 million for the quarter and year ending December 31, 2014, respectively, primarily comprised of salaries and employee benefits. The remaining fee income was recognized through revenue sharing agreements with BTMU, with associated costs included within the Company’s results.

Full Year 2014 Results

For the full year 2014, net income was $825 million, compared with net income of $667 million in 2013. Total revenue for the full year 2014 was $4.0 billion, an increase of $0.4 billion, or 11 percent, compared with 2013. Net interest income increased $146 million, or 5 percent, primarily due to loan growth, partially offset by a lower net interest margin. Noninterest income increased $247 million, or 28 percent, primarily due to fee income from affiliates resulting from the business integration initiative. Noninterest expense increased $128 million, or 5 percent, primarily due to increased salaries and employee benefit costs from the business integration initiative. The effective tax rate for full year 2014 was 25.4 percent, compared with an effective tax rate of 23.1 percent for 2013.

Summary of Fourth Quarter Results

Fourth Quarter Total Revenue

For the fourth quarter 2014, total revenue (net interest income plus noninterest income) was $1.1 billion, down $34 million compared with the third quarter of 2014.

Net interest income increased slightly while noninterest income decreased 9 percent. Net interest income for the fourth quarter 2014 was $709 million, up slightly compared with the third quarter of 2014. The increase in net interest income was largely due to growth in loans held for investment. Average total loans held for investment increased $2.4 billion, or 3 percent, compared with the third quarter of 2014 largely due to growth in commercial and industrial loans and residential mortgages. The net interest margin was 2.81 percent, down 6 basis points from the prior quarter substantially due to lower yields on loans held for investment and investment securities reflecting the low interest rate environment, partially offset by lower funding costs. Average total deposits increased $1.8 billion, or 2 percent, during the quarter compared with the third quarter of 2014.

For the fourth quarter 2014, noninterest income was $352 million, down $36 million, or 9 percent, compared with the third quarter of 2014, largely due to higher trading account activities and investment securities gains in the prior quarter.

Compared with the fourth quarter of 2013, total revenue increased $165 million, with net interest income increasing slightly while noninterest income increased 85 percent. Noninterest income increased largely due to fees from affiliates resulting from the business integration initiative. Average total loans held for investment increased $8.2 billion, or 12 percent, compared with the fourth quarter 2013. Average total deposits increased $4.3 billion compared with the fourth quarter of 2013, with average interest bearing deposits up $0.8 billion, or 2 percent, and average noninterest bearing deposits up $3.5 billion, or 13 percent.

Fourth Quarter Noninterest Expense

Noninterest expense for the fourth quarter 2014 was $807 million, up slightly compared with the third quarter 2014 and up $118 million from the fourth quarter 2013. The increase from the fourth quarter 2013 was largely due to increased employee costs as a result of the business integration initiative. The effective tax rate for the fourth quarter of 2014 was 38.9 percent, compared with an effective tax rate of 21.7 percent for the third quarter of 2014. Income tax expense recorded in the fourth quarter includes an adjustment to align estimated expense with actual full year 2014 results.

Balance Sheet

At December 31, 2014, total assets were $113.7 billion, up $2.8 billion compared with September 30, 2014, primarily reflecting loan growth. Total loans held for investment increased 3 percent compared with the third quarter of 2014 reflecting growth in core customer segments within the commercial and industrial loan portfolio and continuing growth in residential mortgage lending in our geographic footprint, with credit quality attributes consistent with the existing portfolio.

Total liabilities were $98.5 billion, up $2.9 billion compared with September 30, 2014, primarily due to an increase in deposit growth. At December 31, 2014, total deposits were $86.0 billion, up $3.6 billion compared with September 30, 2014. Core deposits at December 31, 2014 were $76.7 billion compared with $73.6 billion at September 30, 2014.

Credit Quality

Credit quality remained strong in the fourth quarter 2014 reflected by continued low levels of nonperforming assets and a net recovery of loans previously charged off.

Nonperforming assets as of December 31, 2014 were $411 million, or 0.36 percent of total assets, compared with $428 million, or 0.39 percent of total assets, at September 30, 2014, and $499 million, or 0.48 percent of total assets at December 31, 2013.

Net loans recovered were $1 million for the fourth quarter of 2014 compared with net loans charged off of $12 million for the third quarter 2014 and $11 million for the fourth quarter 2013.

The allowance for credit losses as a percentage of total loans was 0.90 percent at December 31, 2014, compared with 0.92 percent at September 30, 2014, and 1.02 percent at December 31, 2013. The allowance for credit losses as a percentage of nonaccrual loans was 184 percent at December 31, 2014, compared with 171 percent at September 30, 2014 and 158 percent at December 31, 2013. In the fourth quarter of 2014, the overall provision for credit losses was a net reversal of $1 million, compared with a provision of $1 million for the third quarter of 2014 and a net reversal of $21 million for the fourth quarter of 2013.

Capital

The Company’s stockholder’s equity was $15.0 billion at December 31, 2014 compared with $15.1 billion at September 30, 2014.

In December 2014, the Federal Reserve Board approved the Company's request to opt-out of the advanced approaches methodology under U.S. Basel III regulatory capital rules. As required, the Company will calculate its regulatory capital ratios under the standardized approach of the U.S. Basel III rules beginning in the first quarter of 2015, with certain provisions subject to phase-in periods. The Bank will continue to be subject to the advanced approaches rules.

The Company's Tier 1 and Total risk-based capital ratios, calculated in accordance with U.S. Basel I regulatory capital rules, were 12.79 percent and 14.73 percent, respectively, at December 31, 2014. The Tier 1 common capital and tangible common equity ratios were 12.73 percent and 10.54 percent at December 31, 2014, respectively.

The Company’s estimated Common Equity Tier 1 risk-based capital ratio under U.S. Basel III regulatory capital rules (standardized approach, fully phased in) was 12.57 percent at December 31, 2014.

Non-GAAP Financial Measures

This press release contains certain references to financial measures identified as privatization transaction impact, fees from affiliates - support services and associated staff costs, foreclosed asset expense, other credit costs, (reversal of) provision for losses on unfunded credit commitments, productivity initiative costs and gains, low income housing credit (LIHC) investment amortization expense, expenses of the LIHC consolidated variable interest entities, merger and business integration costs, or intangible asset amortization, which are adjustments from comparable measures calculated and presented in accordance with accounting principles generally accepted in the United States of America (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 press release identifies the specific items excluded from the comparable GAAP financial measure in the calculation of each non-GAAP financial measure. Management believes that financial presentations excluding the impact of these items provide useful supplemental information which is important to a proper understanding of the Company’s business results. This press release also includes additional capital ratios (Tier 1 common capital, tangible common equity and Common Equity Tier 1 capital (calculated under the Basel III standardized approach on a transitional and fully phased-in basis)) to facilitate the understanding of the Company’s capital structure and for use in assessing and comparing the quality and composition of the Company's capital structure to other financial institutions. These presentations should not be viewed as a substitute for results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP financial measures presented by other companies.

Headquartered in New York, MUFG Americas Holdings Corporation is a financial holding company and bank holding company with assets of $113.7 billion at December 31, 2014. Its principal subsidiary, MUFG Union Bank, N.A., provides an array of financial services to individuals, small businesses, middle-market companies, and major corporations. As of December 31, 2014, MUFG Union Bank, N.A. operated 414 branches, comprised primarily of retail banking branches in the West Coast states, along with commercial branches in Texas, Illinois, New York and Georgia, as well as two international offices. MUFG Americas Holdings Corporation is a wholly-owned subsidiary of The Bank of Tokyo-Mitsubishi UFJ, Ltd. which is a wholly-owned subsidiary of Mitsubishi UFJ Financial Group, Inc., one of the world’s largest and most diversified financial groups. Visit www.unionbank.com for more information.