Company Quick10K Filing
MUFG Americas
Price-0.00 EPS-7
Shares132 P/E0
MCap-0 P/FCF-0
Net Debt4,996 EBIT950
TEV4,996 TEV/EBIT5
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-03-31 Filed 2020-05-15
10-K 2019-12-31 Filed 2020-02-26
10-Q 2019-09-30 Filed 2019-11-08
10-Q 2019-06-30 Filed 2019-08-09
10-Q 2019-03-31 Filed 2019-05-10
10-K 2018-12-31 Filed 2019-02-28
10-Q 2018-09-30 Filed 2018-11-07
10-Q 2018-06-30 Filed 2018-08-08
10-Q 2018-03-31 Filed 2018-05-09
10-K 2017-12-31 Filed 2018-03-02
10-Q 2017-09-30 Filed 2017-11-08
10-Q 2017-06-30 Filed 2017-08-09
10-Q 2017-03-31 Filed 2017-05-10
10-K 2016-12-31 Filed 2017-03-03
10-Q 2016-09-30 Filed 2016-11-14
10-Q 2016-06-30 Filed 2016-08-09
10-Q 2016-03-31 Filed 2016-05-09
10-K 2015-12-31 Filed 2016-02-29
10-Q 2015-09-30 Filed 2015-11-09
10-Q 2015-06-30 Filed 2015-08-10
10-Q 2015-03-31 Filed 2015-05-11
10-K 2014-12-31 Filed 2015-03-02
10-Q 2014-09-30 Filed 2014-11-10
10-Q 2014-06-30 Filed 2014-08-08
10-Q 2014-03-31 Filed 2014-05-09
10-K 2013-12-31 Filed 2014-03-10
10-Q 2013-09-30 Filed 2013-11-12
10-Q 2013-06-30 Filed 2013-08-09
10-Q 2013-03-31 Filed 2013-05-09
10-K 2012-12-31 Filed 2013-03-11
10-Q 2012-09-30 Filed 2012-11-09
10-Q 2012-06-30 Filed 2012-08-14
10-Q 2012-03-31 Filed 2012-05-14
10-K 2011-12-31 Filed 2012-03-26
10-Q 2011-09-30 Filed 2011-11-14
10-Q 2011-06-30 Filed 2011-08-12
10-Q 2011-03-31 Filed 2011-05-13
10-K 2010-12-31 Filed 2011-03-17
10-Q 2010-09-30 Filed 2010-11-12
10-Q 2010-06-30 Filed 2010-08-12
10-Q 2010-03-31 Filed 2010-05-14
10-K 2009-12-31 Filed 2010-03-10
8-K 2020-05-15 Regulation FD, Exhibits
8-K 2020-02-26 Regulation FD, Exhibits
8-K 2019-12-09 Off-BS Arrangement
8-K 2019-11-08 Regulation FD, Exhibits
8-K 2019-09-16 Regulation FD, Exhibits
8-K 2019-08-09 Regulation FD, Exhibits
8-K 2019-05-15 Regulation FD, Exhibits
8-K 2019-03-07 Off-BS Arrangement
8-K 2019-02-27 Regulation FD, Exhibits
8-K 2018-12-12 Off-BS Arrangement, Other Events, Exhibits
8-K 2018-11-07 Regulation FD, Exhibits
8-K 2018-09-11 Amend Bylaw, Exhibits
8-K 2018-08-08 Regulation FD, Exhibits
8-K 2018-05-09 Regulation FD, Exhibits
8-K 2018-03-01 Regulation FD, Exhibits

UB 10Q Quarterly Report

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part I. Financial Information
Item 1. Financial Statements
Note 1 - Summary of Significant Accounting Policies and Nature of Operations
Note 2 - Securities
Note 3 - Loans and Allowance for Loan Losses
Note 4 - Variable Interest Entities
Note 5 - Securities Financing Arrangements
Note 6 - Commercial Paper and Other Short - Term Borrowings
Note 7 - Long - Term Debt
Note 8 - Fair Value Measurement and Fair Value of Financial Instruments
Note 9 - Derivative Instruments and Other Financial Instruments Used for Hedging
Note 10 - Accumulated Other Comprehensive Income
Note 11 - Employee Pension and Other Postretirement Benefits
Note 12 - Commitments, Contingencies and Guarantees
Note 13 - Business Segments
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 6. Exhibits
EX-31.1 muahq12020ex311.htm
EX-31.2 muahq12020ex312.htm
EX-32.1 muahq12020ex321.htm
EX-32.2 muahq12020ex322.htm

MUFG Americas Earnings 2020-03-31

Balance SheetIncome StatementCash Flow
175140105703502012201420172020
Assets, Equity
1.50.90.3-0.2-0.8-1.42012201420172020
Rev, G Profit, Net Income
10.06.02.0-2.0-6.0-10.02012201420172020
Ops, Inv, Fin

10-Q 1 muah10qq12020.htm 10-Q Document
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
 
 
 
 
 
[X]
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
For the quarterly period ended March 31, 2020
 
OR
 
 
 
[ ]
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
For the transition period from                        to                       
Commission File Number: 1-15081
MUFG Americas Holdings Corporation
(Exact name of registrant as specified in its charter)
 
Delaware
 
94-1234979
 
 
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
 
 
 
 
1251 Avenue of the Americas, New York, NY
 
10020
 
 
(Address of principal executive offices)
 
(Zip Code)
 
 
 
 
 
 
 
(Registrant's telephone number, including area code) (212) 782-6800
 
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
 
Trading symbol(s)
 
Name of each exchange on which registered
 
 
None
 
Not Applicable
 
Not Applicable
 
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 x    No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).   Yes x    No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer o
 
Accelerated filer o
 
 
 
 
 
Non-accelerated filer x 
 
Smaller reporting company o
 
 
 
 
 
 
 
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 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 x 
Number of shares of Common Stock outstanding at April 30, 2020: 132,076,912
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.
 



MUFG Americas Holdings Corporation and Subsidiaries
Table of Contents

2


Glossary of Defined Terms
The following acronyms and abbreviations are used throughout this Form 10-Q, particularly in Part I, Item 1. “Financial Statements," Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and Part II, Item 1A. “Risk Factors.”
ALCO
Asset Liability Management Committee
ALM
Asset Liability Management
AOCI
Accumulated other comprehensive income
ARC
Americas Risk Committee
ASU
Accounting Standards Update
BCBS
Basel Committee on Banking Supervision
BHC
U.S. Bank Holding Company
CARES Act
Coronavirus Aid, Relief, and Economic Security Act
CCAR
Comprehensive Capital Analysis and Review
CD
Certificate of deposit
CECL
Current Expected Credit Loss
CLO
Collateralized loan obligation
CMBS
Commercial mortgage-backed security
COVID-19
Coronavirus Disease 2019
Dodd-Frank Act
Dodd-Frank Wall Street Reform and Consumer Protection Act
EAD
Exposure at default
ECA
Executive Committee for the Americas
EGRRCPA
Economic Growth, Regulatory Relief and Consumer Protection Act
ESBP
Executive Supplemental Benefit Plan
EURIBOR
Euro Interbank Offered Rate
Exchange Act
U.S. Securities Exchange Act of 1934
FASB
Financial Accounting Standards Board
FDIC
Federal Deposit Insurance Corporation
Federal Reserve
Board of Governors of the Federal Reserve System
FHLB
Federal Home Loan Bank
FICO
Fair Isaac Corporation
Fitch
Fitch Ratings
GAAP
Accounting principles generally accepted in the United States of America
GSIB
Global systemically important bank
LGD
Loss given default
LHFI
Loans held for investment
LHFS
Loans held for sale
LIBOR
London Inter-bank Offered Rate
LIHC
Low income housing tax credit
LLC
Limited Liability Company
LTV
Loan-to-value
Moody's
Moody's Investors Service
MRM
Market Risk Management
MUAH
MUFG Americas Holdings Corporation
MUB
MUFG Union Bank, N.A.
MUFG
Mitsubishi UFJ Financial Group, Inc.
MUSA
MUFG Securities Americas Inc.
nm
Not meaningful
OCI
Other comprehensive income
OREO
Other real estate owned
PD
Probability of default
PPP
Paycheck Protection Program
RMBS
Residential mortgage-backed security
S&P
Standard & Poor's Global Ratings
SBA
Small Business Administration
SEC
Securities and Exchange Commission
SERP
Supplemental Executive Retirement Plan
TCJA
Tax Cuts and Jobs Act
TDR
Troubled debt restructuring
TLAC
Total Loss Absorbing Capacity
VIE
Variable interest entity

3


NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report includes forward-looking statements, which include expectations for our operations and business and our assumptions for those expectations. Do not rely unduly on forward-looking statements. Actual results might differ significantly compared to our expectations. See Part I, Item 1A. “Risk Factors,” in our 2019 Form 10-K, Part II, Item 1A. “Risk Factors” in this Form 10-Q, and the other risks described in this Form 10-Q and in our 2019 Form 10-K, for factors to be considered when reading any forward-looking statements in this filing.
Forward-looking statements 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 SEC filings, press releases, news articles and when we are speaking on behalf of MUFG Americas Holdings Corporation and its subsidiaries. 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," "forecast," "outlook," 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 any forward-looking statements are made.
In this document and other reports to the SEC, for example, we make forward-looking statements, which discuss our expectations about:
Our business objectives, strategies and initiatives, organizational structure, business growth, competitive position and prospects, and the effect of competition on our business and strategies
Our assessment of significant factors and developments that have affected or may affect our results
Our assessment of economic conditions and trends, economic and credit cycles and their impact on our business
The economic outlook for the U.S. in general, West Coast states and global economies
The effects of the coronavirus pandemic on the U.S. and global economies and the actions of the government to reduce the spread of the virus and to mitigate the resulting economic consequences, and the effect of the foregoing on our business
The impact of changes in interest rates resulting from changes in Federal Reserve policy or for other reasons, our strategy to manage our interest rate risk profile and other market risks, our outlook for short-term and long-term interest rates and their effect on our net interest margin, our investment portfolio, our balance sheet composition, our borrowers’ ability to service their loans and residential mortgage loans and refinancings
Pending and recent legislative and regulatory actions, and future legislative and regulatory developments, including the effects of legislation and other governmental measures, including the monetary policies of the Federal Reserve, the Dodd-Frank Act, the EGRRCPA, as well as the Federal CARES Act enacted in April 2020 in an effort to mitigate the consequences of the coronavirus pandemic and the governmental actions in response thereto, changes to the deposit insurance assessment policies of the FDIC, the effect on and application of foreign and other laws and regulations to our business and operations, and anticipated fees, costs or other impacts on our business and operations as a result of these developments
Our strategies and expectations regarding capital levels and liquidity, our funding base, deposits, long-term debt, issuance of additional notes under the Bank's unsecured bank note program, our expectations regarding the capital, liquidity and enhanced prudential standards adopted by the U.S. bank regulators as a result of or under the Dodd-Frank Act and the BCBS capital and liquidity standards including the Federal banking agencies' TLAC regulation, and other recently adopted and

4


proposed regulations by the U.S. federal banking agencies, and the effect of the foregoing on our business and expectations regarding compliance
Regulatory and compliance controls and processes and their impact on our business, including our operating costs and revenues
The costs and effects of legal actions, investigations, regulatory actions, criminal proceedings or similar matters, our anticipated litigation strategies, our assessment of the timing and ultimate outcome of legal actions, or adverse facts and developments related thereto
Our allowance for credit losses, including the conditions we consider in determining the unallocated allowance and our portfolio credit quality, probability of default and credit migration trends, and severity of loss upon default, and the expected impact of the adoption of the current expected credit loss model regarding the allowance
Loan portfolio composition and risk rating trends, residential loan delinquency rates compared to the industry average, portfolio credit quality, our strategy regarding TDRs, and our intent to sell or hold loans we originate
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
Our hedging strategies, positions, expectations regarding reclassifications of gains or losses on hedging instruments into earnings; and the sensitivity of our net income to various factors, including customer behavior relating to mortgage prepayments and deposit repricing
Expected rates of return, maturities, yields, loss exposure, growth rates, pension plan strategies, contributions and benefit payments, forecasted balance sheet activity and projected results
Tax rates and taxes, the possible effect of changes in taxable profits of the U.S. operations of MUFG on our state tax obligations and of expected tax credits or benefits
Critical accounting policies and estimates, the impact or anticipated impact of recent accounting pronouncements, guidance or changes in accounting principles and future recognition of impairments for the fair value of assets, including goodwill, financial instruments, intangible assets and other assets
Decisions to downsize, sell or close units, dissolve subsidiaries, expand our branch network, pursue acquisitions, purchase banking facilities and equipment, realign our business model or otherwise restructure, reorganize or change our business mix, or the transfer to MUAH by MUFG of its interests in U.S. subsidiaries, and their timing and impact on our business
Our expectations regarding the impact of acquisitions on our business and results of operations
The impact of changes in our credit ratings including methodology changes adopted by rating agencies
Maintenance of casualty and liability insurance coverage appropriate for our operations
The relationship between our business and that of MUFG Bank, Ltd. and MUFG, the impact of their credit ratings, operations or prospects on our credit ratings and actions that may or may not be taken by MUFG Bank, Ltd. and MUFG
Threats to the banking sector and our business due to cyber-security issues and attacks on financial institutions and other businesses, such as large retailers, and regulatory expectations relating to cyber-security
Technological challenges and our Transformation and Rewiring Programs and our other technology-related programs and initiatives and our expectations regarding their implementation and performance, including the impact and timing of completion of our Transformation and Rewiring programs
Our understanding that MUFG Bank, Ltd. will continue to limit its participation in transactions with Iranian entities and individuals to certain types of transactions

5


The possible risks resulting from the replacement of LIBOR, the Company's exposure to IBOR-based rates, and the Company's LIBOR transition program and expectations regarding its effectiveness
The effect of a possible return of the California drought on its economy and related governmental actions and the potential consequences of recent California wildfires and related electrical power outages or other natural disasters
Descriptions of assumptions underlying or relating to any of the foregoing
    
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. 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, results of operations or prospects. Such risks and uncertainties include, but are not limited to, those described or referred to in Part I, Item 1. “Business” under the captions “Competition” and “Supervision and Regulation” in our 2019 Form 10-K, and in Part II, Item 1A. “Risk Factors” and Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Form 10-Q, and in our other reports to the SEC.
Any factor described in this report or in our other reports could by itself, or together with one or more other factors, adversely affect our business, prospects, results of operations or financial condition.


6


Item 2.   Management's Discussion and Analysis of Financial Condition and Results of Operations
MUFG Americas Holdings Corporation and Subsidiaries
Consolidated Financial Highlights
 
 
For the Three Months Ended
 
 
(Dollars in millions)
 
March 31,
2020
 
March 31,
2019
 
Percent
Change
Results of operations:
 
 
 
 
 
 
Net interest income
 
$
774

 
$
783

 
(1
)%
Noninterest income
 
612

 
632

 
(3
)
Total revenue
 
1,386

 
1,415

 
(2
)
Noninterest expense
 
1,201

 
1,170

 
3

Pre-tax, pre-provision (loss) income(1)
 
185

 
245

 
(24
)
(Reversal of) provision for credit losses
 
470

 
38

 
nm

(Loss) income before income taxes and including noncontrolling interests
 
(285
)
 
207

 
(238
)
Income tax expense (benefit)
 
25

 
28

 
(11
)
Net (loss) income including noncontrolling interests
 
(310
)
 
179

 
(273
)
Deduct: Net loss (income) from noncontrolling interests               
 
4

 
5

 
(20
)
Net (loss) income attributable to MUAH
 
$
(306
)
 
$
184

 
(266
)
Balance sheet (period average):
 

 
 
 

Total assets
 
$
168,923

 
$
167,530

 
1
 %
Total securities
 
25,948

 
27,101

 
(4
)
Securities borrowed or purchased under resale agreements
 
21,434

 
22,288

 
(4
)
Total loans held for investment
 
87,645

 
87,136

 
1

Earning assets
 
155,580

 
153,969

 
1

Total deposits
 
96,400

 
90,683

 
6

Securities loaned or sold under repurchase agreements
 
27,163

 
27,148

 

MUAH stockholders' equity
 
16,508

 
16,717

 
(1
)
Performance ratios:
 
 
 
 
 
 
Return on average assets(2)
 
(0.72
)%
 
0.44
%
 
 

Return on average MUAH stockholders' equity(2)
 
(7.41
)
 
4.41

 
 

Return on average MUAH tangible common equity(2)(3)
 
(8.30
)
 
5.76

 
 
Efficiency ratio(4)
 
86.65

 
82.67

 
 

Adjusted efficiency ratio (5)
 
84.23

 
78.96

 
 
Net interest margin(2)(6)
 
2.02

 
2.06

 
 

Net loans charged-off to average total loans held for investment(2)
 
0.29

 
0.08

 
 



7


MUFG Americas Holdings Corporation and Subsidiaries
Consolidated Financial Highlights (Continued)
 
 
 
 
 
 
 
 
 
As of
 
 
 
 
March 31,
2020
 
December 31,
2019
 
Percent
Change
Balance sheet (end of period):
 
 
 
 
 
 
Total assets
 
$
165,696

 
$
170,810

 
(3
)%
Total securities
 
24,008

 
27,210

 
(12
)
Securities borrowed or purchased under resale agreements
 
15,715

 
23,943

 
(34
)
Total loans held for investment
 
89,786

 
88,213

 
2

Nonperforming assets
 
324

 
329

 
(2
)
Total deposits
 
98,475

 
95,861

 
3

Securities loaned or sold under repurchase agreements
 
22,623

 
28,866

 
(22
)
Long-term debt
 
16,686

 
17,129

 
(3
)
MUAH stockholders' equity
 
16,448

 
16,280

 
1

Credit ratios:
 
 
 
 
 
 
Allowance for loan losses to total loans held for investment(7)
 
1.28
%
 
0.61
%
 
 

Allowance for loan losses to nonaccrual loans(7)
 
356.48

 
164.19

 
 

Allowance for credit losses to total loans held for investment(8)
 
1.40

 
0.73

 
 

Allowance for credit losses to nonaccrual loans(8)
 
387.73

 
197.34

 
 

Nonperforming assets to total loans held for investment and OREO
 
0.36

 
0.37

 
 

Nonperforming assets to total assets
 
0.20

 
0.19

 
 

Nonaccrual loans to total loans held for investment
 
0.36

 
0.37

 
 

Capital ratios:
 
 

 
 

 
 
Regulatory(9):
 
 
 
 
 
 
Common Equity Tier 1 risk-based capital ratio
 
13.88
%
 
14.10
%
 
 
Tier 1 risk-based capital ratio
 
13.88

 
14.10

 
 

Total risk-based capital ratio
 
14.79

 
14.73

 
 

Tier 1 leverage ratio
 
8.91

 
8.88

 
 

Other:
 
 
 
 
 
 
Tangible common equity ratio(10)
 
8.84
%
 
8.45
%
 
 



8


MUFG Americas Holdings Corporation and Subsidiaries
Consolidated Financial Highlights (Continued)

 
 

(1)
Pre-tax, pre-provision income (loss) is total revenue less noninterest expense. Management believes that this is a useful financial measure because it enables investors and others to assess the Company's ability to generate capital to cover credit losses through a credit cycle.
(2)
Annualized.
(3)
Return on tangible common equity, a non-GAAP financial measure, is net income (loss) excluding intangible asset amortization divided by average tangible common equity. Management believes that this ratio provides useful supplemental information regarding the Company's business results. The methodology for determining tangible common equity may differ among companies. See "Non-GAAP Financial Measures" in Part I, Item 2. "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this Form 10-Q for additional information.
(4)
The efficiency ratio is total noninterest expense as a percentage of total revenue (net interest income and noninterest income).
(5)
The adjusted efficiency ratio, a non-GAAP financial measure, is adjusted noninterest expense (noninterest expense excluding costs associated with services provided to MUFG Bank, Ltd. branches in the U.S.) as a percentage of adjusted total revenue (net interest income and noninterest income excluding fees from affiliates for services provided to MUFG Bank, Ltd.'s branches in the U.S. and the impact of the TCJA). Management believes adjusting the efficiency ratio for the fees and costs associated with services provided to MUFG Bank, Ltd. branches in the U.S. enhances the comparability of MUAH's efficiency ratio when compared with other financial institutions. Management believes adjusting revenue for the impact of the TCJA enhances comparability between periods. See "Non-GAAP Financial Measures" in Part I, Item 2. "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this Form 10-Q for additional information.
(6)
Yields, interest income and net interest margin are presented on a taxable-equivalent basis using the federal statutory tax rate of 21%.
(7)
The allowance for loan losses ratios are calculated using the allowance for loan losses as a percentage of end of period total loans held for investment or total nonaccrual loans, as appropriate.
(8)
The allowance for credit losses ratios include the allowances for loan losses and for losses on unfunded credit commitments as a percentage of end of period total loans held for investment or total nonaccrual loans, as appropriate.
(9)
These capital ratios are calculated in accordance with the guidelines set forth in the U.S. federal banking agencies' final U.S. Basel III regulatory capital rules and all applicable amendments.
(10)
The tangible common equity ratio, a non-GAAP financial measure, is calculated as tangible common equity divided by tangible assets. The methodology for determining tangible common equity may differ among companies. The tangible common equity ratio facilitates the understanding of the Company's capital structure and is used to assess and compare the quality and composition of the Company's capital structure to other financial institutions. See "Capital Management" in Part I, Item 2. "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this Form 10-Q for additional information.







9


Please refer to our Consolidated Financial Statements and the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2019 (2019 Form 10-K) along with the following discussion and analysis of our consolidated financial position and results of operations for the period ended March 31, 2020 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, terms such as the "Company,” “we,” “us” and “our” refer to MUFG Americas Holdings Corporation (MUAH), one or more of its consolidated subsidiaries, or to all of them together. As permitted by General Instruction H(2) of Form 10-Q, we have abbreviated Management's Discussion and Analysis into a management's narrative analysis of the results of operations.
Introduction
We are a financial holding company, bank holding company and intermediate holding company whose principal subsidiaries are MUFG Union Bank, N.A. (MUB or the Bank) and MUSA. We are owned by MUFG Bank, Ltd. and MUFG. MUFG Bank, Ltd. is a wholly-owned subsidiary of MUFG.
The Company has four reportable segments: Regional Bank, Global Corporate & Investment Banking - U.S., Transaction Banking and MUSA. We service Global Corporate & Investment Banking - U.S., certain Transaction Banking, and MUSA customers through the MUFG brand and serve Regional Bank and Transaction Banking customers through the Union Bank brand. We provide a wide range of financial services to consumers, small businesses, middle-market companies and major corporations, both nationally and internationally.
The Company also provides various business, banking, financial, administrative and support services, and facilities for MUFG Bank, Ltd. in connection with the operation and administration of MUFG Bank, Ltd.'s business in the U.S. (including MUFG Bank, Ltd.'s U.S. branches). The Bank and MUFG Bank, Ltd. are parties to a master services agreement whereby the Bank earns fee income in exchange for services and facilities provided.
The Company’s leadership team is bicoastal with Regional Bank and Transaction Banking leaders on the West Coast while Global Corporate & Investment Banking - U.S. and MUSA leaders are based in New York City. The corporate headquarters (principal executive office) for MUB, MUSA and MUAH is in New York City. MUB's main banking office is in San Francisco. The Company had consolidated assets of $165.7 billion at March 31, 2020.
Executive Overview
We are providing you with an overview of what we believe are the most significant factors and developments that affected our first quarter 2020 results and that could influence our future results. Further detailed information can be found elsewhere in this Form 10-Q. In addition, you should carefully read this entire document and any other reports that we refer to in this Form 10-Q for more detailed information to assist your understanding of trends, events and uncertainties that impact us.
Our sources of revenue are net interest income and noninterest income (collectively “total revenue”). Net interest income is generated predominantly from interest earned from loans, investment securities, securities borrowed or purchased under resale agreements, trading account assets and other interest-earning assets, less interest incurred on deposits and borrowings, securities loaned or sold under repurchase agreements and other interest-bearing liabilities. The primary sources of noninterest income are revenues from investment banking and syndication fees, service charges on deposit accounts, trust and investment management fees, trading account activities, credit facility fees, and fees from affiliates. Changes in interest rates, credit quality, economic trends and the capital markets are primary factors that affect our revenue sources. In the first quarter of 2020, revenue was comprised of 56% net interest income and 44% noninterest income. A summary of our financial results is discussed below.
Our primary sources of liquidity are core deposits, securities and wholesale funding. Core deposits exclude brokered deposits, foreign time deposits, domestic time deposits greater than $250,000, and certain other deposits not considered to be core customer relationships. Wholesale funding includes unsecured funds raised from MUFG Bank, Ltd. and affiliates, interbank and other sources, both domestic and international, funding secured by certain assets, or 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 when adverse situations arise.

10


In order to better serve our clients and reduce our cost base, we have launched two multi-year initiatives that we believe are critical to our success: our technology-focused Transformation Program and our continuous improvement, cost-reduction focused Rewiring Program. The Transformation Program is based on three pillars: transformation of our core banking systems, data analytics and functionality, and technology modernization. The Rewiring Program targets four areas: workforce geographic distribution, organizational design, procurement, and process simplification and automation.
Performance Highlights
Net loss attributable to MUAH was $306 million for the three months ended March 31, 2020, largely due to the provision for credit losses of $470 million. The provision for credit losses in the first quarter of 2020 was largely driven by the impact of COVID-19 and the corresponding deterioration in the economic environment. The global pandemic from the spread of COVID-19 has significantly impacted the U.S. and California economies and caused significant ongoing economic uncertainty, which may affect our critical accounting estimates, including our assumptions used to estimate the allowance for credit losses and used in our goodwill impairment analysis, and may adversely affect our business and results of operations in many other ways, the ultimate impact of which cannot be predicted at this time. See "Critical Accounting Estimates” in this Management's Discussion and Analysis of Financial Condition and Results of Operations and "Risk Factors" in Part II. Item 1A in this Form 10-Q.

On January 1, 2020, the Company adopted ASU 2016-13, Measurement of Credit Losses on Financial Instruments, which provides new guidance on the accounting for credit losses for instruments that are within its scope. This new guidance, commonly referred to as the CECL model, primarily impacts the Company's loans and certain off-balance sheet credit exposures and requires an entity to recognize its estimate of credit losses expected over the life of the financial instrument or exposure by incorporating forward-looking information, such as reasonable and supportable forecasts, in the entity's assessment of the collectability of financial assets. Incorporating forward-looking information into the estimate of credit losses may result in more volatility in the allowance for credit losses and related provision, particularly when the economic environment is more uncertain, such as during the first quarter of 2020. Upon adoption, the Company recorded an increase to the allowance for credit losses of $199 million, primarily due to an increase in the allowance for consumer loans. The Company elected to calculate its regulatory capital ratios using the CECL five-year transition option as prescribed by the U.S. regulatory banking agencies. See "Risk Management - Credit Risk Management" in this Management's Discussion and Analysis of Financial Condition and Results of Operations and Note 1 and Note 3 to our Consolidated Financial Statements in this Form 10-Q.

Capital Ratios
The Company's capital ratios continued to exceed all well-capitalized and minimum regulatory thresholds for BHCs, as applicable. The U.S. Basel III Common Equity Tier 1, Tier 1 and Total risk-based capital ratios were 13.88%, 13.88% and 14.79%, respectively, at March 31, 2020. The Tier 1 leverage ratio was 8.91% at March 31, 2020.
    

11


Financial Performance
Net Interest Income
The following table shows the major components of net interest income and net interest margin.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the Three Months Ended
 
 
March 31, 2020
 
March 31, 2019
 
 
 
 
Average
Balance
 
Interest
Income/
Expense(1)
 
Average
Yield/
Rate(1)(2)
 
Average
Balance
 
Interest
Income/
Expense(1)
 
Average
Yield/
Rate(1)(2)
(Dollars in millions)
 
Assets
 
 
 
 
 
 
 
 
 
 
 
 
Loans held for investment:(3)
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
$
26,592

 
$
260

 
3.96
%
 
$
25,268

 
$
280

 
4.49
%
Commercial mortgage
 
16,992

 
152

 
3.58

 
15,355

 
161

 
4.21

Construction
 
1,539

 
16

 
4.21

 
1,605

 
21

 
5.19

Lease financing
 
1,005

 
11

 
4.53

 
1,231

 
13

 
4.11

Residential mortgage and home equity
 
37,070

 
320

 
3.46

 
40,644

 
372

 
3.67

Other consumer
 
4,447

 
101

 
9.22

 
3,033

 
64

 
8.53

Total loans held for investment
 
87,645

 
860

 
3.95

 
87,136

 
911

 
4.20

Securities
 
25,948

 
122

 
1.88

 
27,101

 
165

 
2.44

Securities borrowed or purchased under resale agreements
 
21,434

 
124

 
2.34

 
22,288

 
334

 
6.08

Interest bearing deposits in banks
 
8,795

 
28

 
1.27

 
6,065

 
36

 
2.41

Federal funds sold
 

 

 

 
3

 

 
5.49

Trading account assets
 
10,922

 
91

 
3.39

 
10,832

 
93

 
3.47

Other earning assets
 
836

 
5

 
2.57

 
544

 
5

 
3.48

Total earning assets
 
155,580

 
1,230

 
3.19

 
153,969

 
1,544

 
4.04

Allowance for loan losses
 
(761
)
 
 

 
 
 
(473
)
 
 
 
 
Cash and due from banks
 
2,122

 
 

 
 
 
1,739

 
 
 
 
Other assets(4)
 
11,982

 
 

 
 
 
12,295

 
 
 
 
Total assets
 
$
168,923

 
 

 
 
 
$
167,530

 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
Interest bearing deposits:
 
 
 
 
 
 
 
 
 
 
 
 
Transaction and money market accounts
 
$
40,218

 
$
76

 
0.77
%
 
$
37,092

 
$
86

 
0.94
%
Savings
 
8,953

 
15

 
0.66

 
9,623

 
24

 
1.00

Time
 
15,014

 
81

 
2.20

 
12,900

 
74

 
2.33

Total interest bearing deposits
 
64,185

 
172

 
1.09

 
59,615

 
184

 
1.25

Commercial paper and other short-term borrowings
 
5,591

 
27

 
1.93

 
9,248

 
56

 
2.46

Securities loaned or sold under repurchase agreements
 
27,163

 
119

 
1.78

 
27,148

 
355

 
5.30

Long-term debt
 
16,565

 
109

 
2.63

 
17,051

 
131

 
3.07

Total borrowed funds
 
49,319

 
255

 
2.08

 
53,447

 
542

 
4.10

Trading account liabilities
 
3,492

 
24

 
2.76

 
3,886

 
29

 
2.99

Total interest-bearing liabilities
 
116,996

 
451

 
1.56

 
116,948

 
755

 
2.61

Noninterest bearing deposits
 
32,215

 
 

 
 

 
31,068

 
 

 
 

Other liabilities(5)
 
3,119

 
 

 
 

 
2,727

 
 

 
 

Total liabilities
 
152,330

 
 

 
 

 
150,743

 
 

 
 

Equity
 
 
 
 
 
 
 
 
 
 
 
 
MUAH stockholders' equity
 
16,508

 
 

 
 

 
16,717

 
 

 
 

Noncontrolling interests
 
85

 
 

 
 

 
70

 
 

 
 

Total equity
 
16,593

 
 

 
 

 
16,787

 
 

 
 

Total liabilities and equity
 
$
168,923

 
 

 
 

 
$
167,530

 
 

 
 

Net interest income/spread (taxable-equivalent basis)
 
 

 
779

 
1.63
%
 
 
 
789

 
1.43
%
Impact of noninterest bearing deposits
 
 

 


 
0.34

 
 

 
 
 
0.55

Impact of other noninterest bearing sources
 
 

 
 

 
0.05

 
 

 
 
 
0.08

Net interest margin
 
 

 
 

 
2.02

 
 

 
 
 
2.06

Less: taxable-equivalent adjustment
 
 

 
5

 
 
 
 

 
6

 
 
Net interest income               
 
 

 
$
774

 
 

 
 

 
$
783

 
 

 
 
(1)
Yields, interest income and net interest margin are presented on a taxable-equivalent basis using the federal statutory tax rate of 21%.
(2)
Annualized.
(3)
Average balances of loans held for investment include nonaccrual loans. The amortized portion of net loan origination fees (costs) is included in interest income on loans, representing an adjustment to the yield.
(4)
Other assets include noninterest bearing trading account assets.
(5)
Other liabilities include noninterest bearing trading account liabilities.

12


Net interest income for the three months ended March 31, 2020 decreased compared with the same period in 2019 due to a decline in the net interest margin partially offset by an increase in earning assets. The net interest margin decreased 4 basis points, primarily due to a decrease in yields on earning assets partially offset by a decrease in funding costs. Earning assets increased largely due to increases in interest bearing deposits in banks, and commercial and industrial and commercial mortgage loans, partially offset by decreases in securities and residential mortgage and home equity loans.
Noninterest Income and Noninterest Expense    
The following tables display our noninterest income and noninterest expense for the three months ended March 31, 2020 and 2019.
Noninterest Income
 
 
For the Three Months Ended
 
 
 
 
 
 
Increase
(Decrease)
 
 
March 31,
2020
 
March 31,
2019
 
(Dollars in millions)
 
 
Amount
 
Percent
Service charges on deposit accounts
 
$
41

 
$
42

 
$
(1
)
 
(2
)%
Trust and investment management fees
 
29

 
29

 

 

Trading account activities
 
(36
)
 
19

 
(55
)
 
(289)
Securities gains, net
 
53

 
1

 
52

 
nm
Credit facility fees
 
24

 
23

 
1

 
4

Brokerage commissions and fees
 
18

 
20

 
(2
)
 
(10
)
Card processing fees, net
 
14

 
13

 
1

 
8

Investment banking and syndication fees
 
120

 
124

 
(4
)
 
(3
)
Fees from affiliates
 
361

 
342

 
19

 
6

Other, net
 
(12
)
 
19

 
(31
)
 
(163
)
Total noninterest income
 
$
612

 
$
632

 
$
(20
)
 
(3
)
Noninterest income decreased during the three months ended March 31, 2020 compared with the same period in 2019 primarily due to a decrease in trading account activities which included certain counterparty valuation adjustments, partially offset by increases in gains on sale of securities and fees from affiliates from services provided to MUFG Bank, Ltd. under the master services agreement. The decline in other, net was largely due to a decrease in the fair value of mortgage servicing rights. The Company uses derivatives to offset changes in the fair value of mortgage servicing rights. Changes in the fair value of these derivatives were included in trading account activities.

13


Noninterest Expense
 
 
For the Three Months Ended
 
 
 
 
 
 
Increase
(Decrease)
 
 
March 31,
2020
 
March 31,
2019
 
(Dollars in millions)
 
 
Amount
 
Percent
Salaries and employee benefits
 
$
676

 
$
685

 
$
(9
)
 
(1
)%
Net occupancy and equipment
 
116

 
112

 
4

 
4

Professional and outside services
 
172

 
160

 
12

 
8

Software
 
90

 
80

 
10

 
13

Regulatory assessments
 
13

 
16

 
(3
)
 
(19
)
Intangible asset amortization
 
7

 
7

 

 

Other
 
127

 
110

 
17

 
15

Total noninterest expense
 
$
1,201


$
1,170

 
$
31

 
3


The increase in noninterest expense for the three months ended March 31, 2020 compared with 2019 was largely driven by impairment of a retail credit card intangible and increases in costs associated with services provided to MUFG Bank, Ltd. under the master services agreement.

Income Tax Expense
In the first quarter of 2020, income tax expense was $25 million and the effective tax rate was negative 9% due to excess tax credits that will be recognized during the year. In the first quarter of 2019, income tax expense was $28 million and the effective tax rate was 13%.
For additional information regarding income tax expense, see "Income Tax Expense" in Part II, Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations", “The changes in the U.S. tax laws, the majority of which were effective January 1, 2018, will impact our business and results of operations in a variety of ways, some of which are expected to be positive and others which may be negative” and “Our effective tax rates and our future results can also be affected by our participation for state income tax purposes as a member of MUFG’s unitary group in the U.S. and by other factors” in Part I, Item 1A. "Risk Factors" and Note 17 "Income Taxes" to our Consolidated Financial Statements in Part II, Item 8. “Financial Statements and Supplementary Data” in our 2019 Form 10-K.

14


Balance Sheet Analysis
Securities
Our securities portfolio is primarily used for liquidity and interest rate risk management purposes, to invest cash resulting from excess liquidity, and to a lesser extent, to support our business development objectives. We strive to maximize total return while managing this objective within appropriate risk parameters. Securities available for sale are substantially comprised of U.S. Treasury securities, U.S. government-sponsored agency securities, RMBSs, CMBSs, Cash Flow CLOs, and direct bank purchase bonds. Direct bank purchase bonds are instruments that are issued in bond form, accounted for as securities, but underwritten as loans with features that are typically found in commercial loans, and are subject to national bank regulatory lending authority standards. These instruments typically are not issued in bearer form, nor are they registered with the SEC or the Depository Trust Company. Additionally, these instruments generally contain certain transferability restrictions and are not assigned external credit ratings. Securities held to maturity consist of U.S. Treasury securities, U.S. government-sponsored agency securities and U.S. government-sponsored agency RMBSs and CMBSs.
The amortized cost, gross unrealized gains, gross unrealized losses and fair value of securities, and securities pledged as collateral, are detailed in Note 2 to our Consolidated Financial Statements in Part I, Item 1. "Financial Statements" in this Form 10-Q.
Loans Held for Investment
The following table shows loans held for investment outstanding by loan type at the end of each period presented.
 
 
 
 
 
 
Increase (Decrease)
 
 
March 31,
2020
 
December 31,
2019
 
(Dollars in millions)
 
Amount
 
Percent
Loans held for investment:
 
 
 
 
 
 
 
 
Commercial and industrial
 
$
29,872

 
$
26,338

 
$
3,534

 
13
 %
Commercial mortgage
 
16,943

 
16,895

 
48

 

Construction
 
1,583

 
1,511

 
72

 
5

Lease financing
 
980

 
1,001

 
(21
)
 
(2
)
Total commercial portfolio
 
49,378

 
45,745

 
3,633

 
8

Residential mortgage and home equity (1)
 
36,036

 
38,018

 
(1,982
)
 
(5
)
Other consumer (2)
 
4,372

 
4,450

 
(78
)
 
(2
)
Total consumer portfolio
 
40,408

 
42,468

 
(2,060
)
 
(5
)
Total loans held for investment
 
$
89,786

 
$
88,213

 
$
1,573

 
2

 
 
(1)
Includes home equity loans of $2,006 million and $2,049 million at March 31, 2020 and December 31, 2019, respectively.
(2)
Other consumer loans substantially include unsecured consumer loans and consumer credit cards.

Loans held for investment increased from December 31, 2019 to March 31, 2020, primarily due to growth in the commercial and industrial and construction portfolios, partially offset by a decrease in the residential mortgage and home equity and other consumer loan portfolios.

15


Deposits
The table below presents our deposits as of March 31, 2020 and December 31, 2019.
 
 
 
 
 
 
Increase (Decrease)
 
 
March 31,
2020
 
December 31,
2019
 
(Dollars in millions)
 
Amount
 
Percent
Interest checking
 
$
2,384

 
$
4,725

 
$
(2,341
)
 
(50
)%
Money market
 
38,958

 
35,002

 
3,956

 
11

Total interest bearing transaction and money market accounts
 
41,342

 
39,727

 
1,615

 
4

Savings
 
8,875

 
8,962

 
(87
)
 
(1
)
Time
 
14,157

 
15,651

 
(1,494
)
 
(10
)
Total interest bearing deposits
 
64,374

 
64,340

 
34

 

Noninterest bearing deposits
 
34,101

 
31,521

 
2,580

 
8

Total deposits
 
$
98,475

 
$
95,861

 
$
2,614

 
3


Total deposits increased $2.6 billion from December 31, 2019 to March 31, 2020 due largely to an increase in Transaction Banking noninterest bearing deposits and interest bearing transaction and money market accounts. This increase was partially offset by a decrease in Regional Bank time deposits, including PurePoint Financial, the direct banking division of the Bank.

Securities Financing Arrangements
The Company enters into securities purchased under agreements to resell, securities sold under agreements to repurchase, and securities borrowing and lending transactions to facilitate customer match-book activity, cover short positions and to fund the Company's trading inventory. These balances are almost entirely attributable to MUSA. See Note 5 "Securities Financing Arrangements" to our Consolidated Financial Statements in Part I, Item 1. "Financial Statements" in this Form 10-Q for additional information.


Capital Management
Both MUAH and MUB are subject to various capital adequacy regulations issued by the U.S. federal banking agencies, including requirements to complete an annual capital plan and to maintain minimum regulatory capital ratios. As of March 31, 2020, management believes the capital ratios of MUAH and MUB exceeded all regulatory requirements of “well-capitalized” institutions.
MUAH is subject to regulatory requirements to develop and maintain a capital plan which must be reviewed and approved by its Board of Directors (or designated subcommittee thereof). The Board of Directors approved the Company's annual capital plan in March 2020. Under the Tailoring Rules, MUAH, as a Category IV firm, is subject to CCAR supervisory capital planning requirements and stress testing submission requirements on an every other year basis in even years (e.g. MUAH is subject to the 2020 CCAR cycle). The Company timely filed its annual capital plan under the Federal Reserve's CCAR program in April 2020. See "Supervision and Regulation - Dodd-Frank Act and Related Regulations" and "Supervision and Regulation - Regulatory Capital and Liquidity Standards - Capital Planning and Comprehensive Capital Analysis and Review Program" in Part I, Item 1. "Business" of our 2019 Form 10-K.
MUAH and MUB are required to maintain minimum capital ratios under the standardized approach in accordance with the BCBS capital guidelines for U.S. banking organizations issued by the U.S. federal banking agencies (U.S. Basel III Rules). Among other requirements, the U.S. Basel III Rules require a minimum Common Equity Tier 1 capital ratio of 4.5% and a capital conservation buffer of 2.5% (for a total minimum Common Equity Tier 1 capital ratio of 7.0%) and a Tier 1 leverage ratio of 4.0%. For purposes of calculating its risk-based capital ratios, the Company has elected to phase-in the impact of adopting ASU 2016-13, Measurement of Credit Losses on Financial Instruments, over a five-year period as permitted by the U.S. regulatory banking agencies. The impact is reflected in the March 31, 2020 capital ratios presented below.

16


The following tables summarize the calculation of MUAH’s risk-based capital ratios in accordance with the U.S. Basel III Rules as of March 31, 2020 and December 31, 2019.
MUFG Americas Holdings Corporation
 
 
U.S. Basel III
(Dollars in millions)
 
March 31,
2020
 
December 31,
2019
Capital Components
 
 
 
 
Common Equity Tier 1 capital
 
$
14,967

 
$
15,086

Tier 1 capital
 
$
14,967

 
$
15,086

Tier 2 capital
 
983

 
683

Total risk-based capital
 
$
15,950

 
$
15,769

Risk-weighted assets
 
$
107,852

 
$
107,023

Average total assets for leverage capital purposes
 
$
168,044

 
$
169,807

 
 
U.S. Basel III
 
Minimum Capital Requirement with Capital Conservation Buffer (1)
(Dollars in millions)
 
March 31, 2020
 
December 31, 2019
 
March 31, 2020
Capital Ratios
 
Amount
 
Ratio
 
Amount
 
Ratio
 
Amount
 
Ratio
Common Equity Tier 1 capital (to risk-weighted assets)
 
$
14,967

 
13.88
%
 
$
15,086

 
14.10
%
 
 
$
7,550

 
7.00
%
Tier 1 capital (to risk-weighted assets)
 
14,967

 
13.88

 
15,086

 
14.10

 
 
9,167

 
8.50

Total capital (to risk-weighted assets)
 
15,950

 
14.79

 
15,769

 
14.73

 
 
11,324

 
10.50

Tier 1 leverage(2)
 
14,967

 
8.91

 
15,086

 
8.88

 
 
6,722

 
4.00

 
 
(1)The minimum capital requirement includes a capital conservation buffer of 2.5%.
(2)Tier 1 capital divided by quarterly average assets (excluding certain disallowed assets, primarily goodwill and other intangibles).


17


The following tables summarize the calculation of MUB’s risk-based capital ratios in accordance with the guidelines set forth in the U.S. Basel III Rules as of March 31, 2020 and December 31, 2019.
MUFG Union Bank, N.A.
 
 
U.S. Basel III
(Dollars in millions)
 
March 31,
2020
 
December 31,
2019
Capital Components
 
 
 
 
Common Equity Tier 1 capital
 
$
13,984

 
$
14,115

Tier 1 capital
 
$
13,984

 
$
14,115

Tier 2 capital
 
931

 
631

Total risk-based capital
 
$
14,915

 
$
14,746

Risk-weighted assets
 
$
98,982

 
$
97,563

Average total assets for leverage capital purposes
 
$
131,626

 
$
132,590

 
 
U.S. Basel III
 
Minimum Capital Requirement with Capital Conservation Buffer (1)
 
To Be Well-Capitalized Under Prompt Corrective Action Provisions
(Dollars in millions)
 
March 31, 2020
 
December 31, 2019
 
March 31, 2020
Capital Ratios
 
Amount
 
Ratio
 
Amount
 
Ratio
 
Amount
 
Ratio
 
Amount
 
Ratio
Common Equity Tier 1 capital (to risk-weighted assets)
 
$
13,984

 
14.13
%
 
$
14,115

 
14.47
%
 
 
$
6,929

 
7.00
%
 
 
$
6,434

 
6.50
%
Tier 1 capital (to risk-weighted assets)
 
13,984

 
14.13

 
14,115

 
14.47

 
 
8,413

 
8.50

 
 
7,919

 
8.00

Total capital (to risk-weighted assets)
 
14,915

 
15.07

 
14,746

 
15.11

 
 
10,393

 
10.50

 
 
9,898

 
10.00

Tier 1 leverage(2)
 
13,984

 
10.62

 
14,115

 
10.65

 
 
5,265

 
4.00

 
 
6,581

 
5.00

 
 
(1)The minimum capital requirement includes a capital conservation buffer of 2.5%.
(2)Tier 1 capital divided by quarterly average assets (excluding certain disallowed assets, primarily goodwill and other intangibles).


18


In addition to capital ratios determined in accordance with regulatory requirements, we consider the tangible common equity ratio when evaluating capital utilization and adequacy. This capital ratio is monitored 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 the Company’s capital structure to other financial institutions. This ratio is not codified within GAAP or federal banking regulations in effect at March 31, 2020. Therefore, it is considered a non-GAAP financial measure. Our tangible common equity ratio calculation method may differ from those used by other financial services companies.
The following table summarizes the calculation of the Company's tangible common equity ratio as of March 31, 2020 and December 31, 2019.
 
 
March 31,
2020
 
December 31,
2019
(Dollars in millions)
 
Total MUAH stockholders' equity
 
$
16,448

 
$
16,280

Less: Goodwill
 
1,764

 
1,764

Less: Intangible assets, except mortgage servicing rights
 
227

 
261

Less: Deferred tax liabilities related to goodwill and intangible assets
 
(19
)
 
(17
)
Tangible common equity (a)
 
$
14,476

 
$
14,272

Total assets
 
$
165,696

 
$
170,810

Less: Goodwill
 
1,764

 
1,764

Less: Intangible assets, except mortgage servicing rights
 
227

 
261

Less: Deferred tax liabilities related to goodwill and intangible assets
 
(19
)
 
(17
)
Tangible assets (b)
 
$
163,724

 
$
168,802

Tangible common equity ratio (a)/(b)
 
8.84
%
 
8.45
%
 
 
 
 
 
For additional information regarding our regulatory capital requirements, see "Supervision and Regulation – Regulatory Capital and Liquidity Standards" in Part I, Item 1. "Business" in our 2019 Form 10-K.


Risk Management
All financial institutions must manage and control a variety of business risks that can significantly affect their financial condition and performance. Some of the key risks that the Company must manage include credit, market, liquidity, operational, interest rate, compliance, reputation and strategic risks. The Board, directly or through its appropriate committees, provides oversight and approves our various risk management policies. Management has established a risk management structure that is designed to provide a comprehensive approach for identifying, measuring, monitoring, controlling and reporting on the significant risks faced by the Company. For additional information regarding our risk management structure and framework, see “Risk Management” in Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2019 Form 10-K. For additional information regarding risks related to our business, please refer to Part I, Item 1A. "Risk Factors" in our 2019 Form 10-K, and "Risk Factors" in Part II, Item 1A. in this Form 10-Q.
Credit Risk Management

One of our principal business activities is the extension of credit to individuals and businesses. Our policies and the applicable laws and regulations governing the extension of credit require risk analysis, including an extensive evaluation of the purpose of the request and the borrower’s ability and willingness to repay as scheduled. Our process also includes ongoing portfolio and credit management through portfolio diversification, lending limit constraints, credit review and approval policies, and extensive internal monitoring. For additional information regarding our credit risk management policies, see “Credit Risk Management” in Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2019 Form 10-K.


19


Allowance for Credit Losses
Allowance Policy and Methodology
     We maintain an allowance for credit losses (defined as both the allowance for loan losses and the allowance for losses on unfunded credit commitments) to absorb expected losses on the loan portfolio as well as for unfunded credit commitments. On January 1, 2020, the Company adopted ASU 2016-13, Measurement of Credit Losses on Financial Instruments, which provided new guidance on the accounting for credit losses for instruments that are within its scope. This new guidance, commonly referred to as the CECL model, requires an entity to recognize its estimate of credit losses expected over the life of the financial instrument or exposure by incorporating forward-looking information in the entity's assessment of the collectability of financial assets. Accordingly, the Company's methodology for estimating the allowance balance uses relevant available information, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made over a forecast period to account for differences between current and expected future conditions and those reflected in historical loss information. Beyond the forecast period, estimated expected credit losses revert to historical loss experience.

Management establishes the allowance by first dividing its portfolio into two segments - the commercial segment and consumer segment. The allowance is measured on a collective basis when similar risk characteristics exist. Loans that do not share risk characteristics are evaluated on an individual basis. While the Company's methodology attributes portions of the allowance to specific portfolio segments, the allowance estimate is provided to cover all credit losses expected in the loan portfolio.

An expected loss approach is used to estimate the collectively-assessed allowance for both the commercial and consumer portfolio segments. Expected loss is calculated as the product of PD, LGD, and EAD modeled parameters that are projected on a monthly basis over the assets’ remaining contractual lives. The sum of each month’s expected loss calculation results in the collectively-assessed allowance estimate. Expected loss models use historical loss information and economic assumptions to estimate PD, LGD, and EAD. These models are tailored to different loan segments, classes and products by changing the economic variables or their weighting in the calculation used to estimate expected losses.

The CECL adoption impact was estimated using a 36-month forecast period. The forecast period was shortened to 24-months in the first quarter of 2020 due to heightened volatility and uncertainty in the economy from the emergence of COVID-19. Beyond the economic forecast, the allowance methodology reverts to average historical loss experience on a straight-line basis over a 24-month period. These timeframes are regularly reviewed and approved by management and may be adjusted if economic conditions warrant. Expected prepayments are incorporated into the estimation of the EAD for each asset over the asset’s remaining term. Contractual term is not adjusted for expected extensions, renewals, and modifications unless we have a reasonable expectation that a TDR will be executed with a borrower.

Management implements qualitative adjustments to the collectively-assessed allowance to account for risks not incorporated in the model between current conditions and those reflected in the historical loss information used to estimate the models. These qualitative factors include changes in credit policies, problem loan trends, identification of new risks not incorporated into the modeling framework, credit concentrations, changes in lending management and other external factors. Qualitative adjustments are also used to adjust the collectively-assessed allowance to account for risks attributed to imprecision in the economic forecast and when risks emerge that impact specific portfolio components (i.e., natural disasters).
    
Loans that do not share risk characteristics are evaluated individually to determine the allowance balance. Loans assessed individually include larger nonaccruing loans within the commercial portfolio, TDRs, reasonably expected TDRs and collateral-dependent loans. The allowance for individually assessed loans is generally determined using either discounted cash flow analyses or collateral valuations to determine if loan carrying values exceed what the Company expects to collect.


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For additional information on the allowance for loan losses and the allowance for credit losses, see "Critical Accounting Estimates" in this "Management's Discussion and Analysis of Financial Conditions and Results of Operations", Note 1 "Summary of Significant Accounting Policies and Nature of Operations" and Note 3 "Loans and Allowance for Loan Losses" to our Consolidated Financial Statements in this Form 10-Q.
Allowance and Related Provision for Credit Losses
The Company recorded an increase to the allowance for credit losses of $199 million upon the January 1, 2020 adoption of ASU 2016-13, Measurement of Credit Losses on Financial Instruments, primarily due to an increase in the allowance for consumer loans. This increase consisted of a $229 million increase in the allowance for loan losses and a $30 million decrease in the allowance for losses on unfunded credit commitments.

The provision for loan losses was $448 million for the three months ended March 31, 2020, largely due to the impact of COVID-19 and the corresponding deterioration in the economic environment on the collectively-assessed allowance for credit losses. The provision for loan losses was $274 million and $174 million for the commercial and consumer loan segments, respectively, largely due to economic deterioration observed late in the first quarter of 2020. Downgrades of several obligors also contributed to the increase in the commercial segment allowance. The economic forecast incorporated management's expectations at March 31, 2020, which included declining gross domestic product, unemployment approaching double digits by June 2020 and lower stock prices in 2020, with a modest recovery emerging in the fourth quarter of 2020 and continuing into subsequent years. The collectively-assessed allowance for credit losses estimate also incorporated management’s qualitatively-determined model adjustment overlays that reflect the anticipated loss mitigating impact of monetary and fiscal stimulus policies and loan modification programs, and additional qualitative adjustments largely driven by estimated impacts of COVID-19 that are not otherwise incorporated into the collectively-assessed modeling methodology.

The allowance for loan losses was $1,152 million at March 31, 2020, compared with $538 million at December 31, 2019. Our ratio of allowance for loan losses to total loans held for investment was 1.28% as of March 31, 2020 and 0.61% as of December 31, 2019. Net loans charged off to average total loans held for investment were 0.29% for the three months ended March 31, 2020, compared with 0.08% for the three months ended March 31, 2019.


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Change in the Allowance for Loan Losses
The following table sets forth a reconciliation of changes in our allowance for loan losses.
 
 
For the Three Months Ended March 31,
(Dollars in millions)
 
2020
 
2019
Allowance for loan losses, beginning of period
 
$
538

 
$
474

Cumulative effect from adoption of ASU 2016-13 (1)

 
229

 

Allowance for loan losses, beginning of period, adjusted for adoption of ASU 2016-13 (1)

 
767

 
474

(Reversal of) provision for loan losses
 
448

 
59

Loans charged off:
 
 
 
 
Commercial and industrial
 
(32
)
 
(2
)
Commercial and industrial - transfer to held for sale
 

 
(8
)
Commercial mortgage
 

 
(1
)
Total commercial portfolio
 
(32
)
 
(11
)
Residential mortgage and home equity
 
1

 

Other consumer
 
(42
)
 
(17
)
Total consumer portfolio
 
(41
)
 
(17
)
Total loans charged-off
 
(73
)
 
(28
)
Recoveries of loans previously charged-off:
 
 
 
 
Commercial and industrial
 
6

 
9

Construction
 
1

 

Total commercial portfolio
 
7

 
9

Other consumer

 
3

 
2

Total consumer portfolio
 
3

 
2

Total recoveries of loans previously charged-off
 
10

 
11

Net loans recovered (charged-off)
 
(63
)
 
(17
)
Ending balance of allowance for loan losses
 
1,152

 
516

Allowance for losses on unfunded credit commitments          
 
101

 
118

Total allowance for credit losses
 
$
1,253

 
$
634

 
 
(1)
For further information see Note 1 "Summary of Significant Accounting Policies and Nature of Operations" to our Consolidated Financial Statements in Part I, Item 1. "Financial Statements" in this Form 10-Q.


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Nonperforming Assets
Nonperforming assets consist of nonaccrual loans 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. OREO includes property where the Bank acquired title through foreclosure or “deed in lieu” of foreclosure. For a more detailed discussion of the accounting for nonaccrual loans, see Note 1 "Summary of Significant Accounting Policies and Nature of Operations" to our Consolidated Financial Statements in Part II, Item 8. “Financial Statements and Supplementary Data” in our 2019 Form 10-K.

The following table sets forth the components of nonperforming assets, TDRs, criticized assets and certain credit ratios.

 
 
March 31,
2020
 
December 31,
2019
 
Increase (Decrease)
(Dollars in millions)
 
Amount
 
Percent
Nonaccrual loans:
 
 
 
 
 
 
 
 
Commercial and industrial
 
$
103

 
$
175

 
$
(72
)
 
(41
)%
Commercial mortgage
 
16

 
15

 
1

 
7

Construction
 
55

 

 
55

 
100

Total commercial portfolio
 
174

 
190

 
(16
)
 
(8
)
Residential mortgage and home equity
 
146

 
137

 
9

 
7

Other consumer
 
3

 
1

 
2

 
200

Total consumer portfolio
 
149

 
138

 
11

 
8

Total nonaccrual loans
 
323

 
328

 
(5
)
 
(2
)
OREO
 
1

 
1

 

 

Total nonperforming assets
 
$
324