Exhibit 99.2
MUFG Union Bank, N.A.
Consolidated Financial Statements (Unaudited)
As of and for the Nine Months Ended
September 30, 2022
1
MUFG Union Bank, N.A.
Table of Contents
Financial Statements: |
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Consolidated Statement of Income (Unaudited) |
4 | |||
Consolidated Statement of Comprehensive Income (Unaudited) |
5 | |||
Consolidated Balance Sheet (Unaudited) |
6 | |||
Consolidated Statement of Changes in Stockholders Equity (Unaudited) |
7 | |||
Consolidated Statement of Cash Flows (Unaudited) |
8 | |||
Note 1Summary of Significant Accounting Policies and Nature of Operations |
9 | |||
Note 2Securities |
11 | |||
Note 3Loans and Allowance for Loan Losses |
14 | |||
Note 4Variable Interest Entities |
20 | |||
Note 5Commercial Paper and Other Short-Term Borrowings |
22 | |||
Note 6Long-Term Debt |
22 | |||
Note 7Fair Value Measurement and Fair Value of Financial Instruments |
23 | |||
Note 8Derivative Instruments and Other Financial Instruments Used For Hedging |
25 | |||
Note 9Accumulated Other Comprehensive Income |
28 | |||
Note 10Employee Pension and Other Postretirement Benefits |
30 | |||
Note 11Commitments, Contingencies and Guarantees |
30 | |||
Note 12Subsequent Events |
31 |
2
Glossary of Defined Terms
The following acronyms and abbreviations are used throughout these consolidated financial statements.
AOCI | Accumulated other comprehensive income | |
ASU | Accounting Standards Update | |
CLO | Collateralized loan obligation | |
ESBP | Executive Supplemental Benefit Plan | |
FASB | Financial Accounting Standards Board | |
FHLB | Federal Home Loan Bank | |
FICO | Fair Isaac Corporation | |
GAAP | Accounting principles generally accepted in the United States of America | |
LIBOR | London Inter-bank Offered Rate | |
LLC | Limited Liability Company | |
LIHC | Low income housing tax credit | |
LTV | Loan-to-value | |
MUAH | MUFG Americas Holdings Corporation | |
MUB | MUFG Union Bank, N.A. | |
MUFG | Mitsubishi UFJ Financial Group, Inc. | |
OCI | Other comprehensive income | |
SOFR | Secured Overnight Financing Rate | |
TDR | Troubled debt restructuring | |
VIE | Variable interest entity |
3
Financial Statements
MUFG Union Bank, N.A.
Consolidated Statement of Income
(Unaudited)
(Dollars in millions) |
For the Nine Months Ended September 30, 2022 |
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Interest Income |
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Loans |
$ | 2,063 | ||
Securities |
412 | |||
Trading assets |
1 | |||
Other |
83 | |||
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Total interest income |
2,559 | |||
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Interest Expense |
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Deposits |
123 | |||
Commercial paper and other short-term borrowings |
49 | |||
Long-term debt |
109 | |||
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Total interest expense |
281 | |||
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Net Interest Income |
2,278 | |||
Provision for credit losses |
103 | |||
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Net interest income after provision for credit losses |
2,175 | |||
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Noninterest Income |
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Service charges on deposit accounts |
107 | |||
Trust and investment management fees |
77 | |||
Investment banking and syndication fees |
70 | |||
Credit facility fees |
80 | |||
Trading account activities |
73 | |||
Fees from affiliates |
1,360 | |||
Other, net |
254 | |||
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Total noninterest income |
2,021 | |||
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Noninterest Expense |
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Salaries and employee benefits |
2,010 | |||
Net occupancy and equipment |
309 | |||
Professional and outside services |
640 | |||
Software |
267 | |||
Other |
323 | |||
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Total noninterest expense |
3,549 | |||
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Income before income taxes and including noncontrolling interests |
647 | |||
Income tax expense |
129 | |||
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Net Income Including Noncontrolling Interests |
518 | |||
Deduct: Net loss from noncontrolling interests |
10 | |||
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Net Income Attributable to MUB |
$ | 528 | ||
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See accompanying Notes to Consolidated Financial Statements.
4
MUFG Union Bank, N.A.
Consolidated Statement of Comprehensive Income
(Unaudited)
(Dollars in millions) |
For the Nine Months Ended September 30, 2022 |
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Net Income Attributable to MUB |
$ | 528 | ||
Other Comprehensive Income (Loss), Net of Tax: |
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Net change in unrealized gains (losses) on cash flow hedges |
(257 | ) | ||
Net change in unrealized gains (losses) on investment securities |
(1,582 | ) | ||
Pension and other postretirement benefit adjustments |
20 | |||
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Total other comprehensive income (loss) |
(1,819 | ) | ||
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Comprehensive Income (Loss) Attributable to MUB |
(1,291 | ) | ||
Comprehensive income (loss) from noncontrolling interests |
(10 | ) | ||
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Total Comprehensive Income (Loss) |
$ | (1,301 | ) | |
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See accompanying Notes to Consolidated Financial Statements.
5
MUFG Union Bank, N.A.
Consolidated Balance Sheet
(Unaudited)
(Dollars in millions except per share amount) |
September 30, 2022 |
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Assets |
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Cash and due from banks |
$ | 1,400 | ||
Interest bearing deposits in banks |
10,371 | |||
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Total cash and cash equivalents |
11,771 | |||
Trading account assets |
263 | |||
Securities available for sale (includes $2 at September 30, 2022 pledged as collateral that may be repledged) |
12,566 | |||
Securities held to maturity (fair value $10,367 at September 30, 2022) |
12,198 | |||
Loans held for investment |
78,684 | |||
Allowance for loan losses |
(784 | ) | ||
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Loans held for investment, net |
77,900 | |||
Goodwill |
1,252 | |||
Loans held for sale |
869 | |||
Other assets |
7,737 | |||
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Total assets |
$ | 124,556 | ||
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Liabilities |
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Deposits: |
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Noninterest bearing |
$ | 41,200 | ||
Interest bearing |
49,431 | |||
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Total deposits |
90,631 | |||
Commercial paper and other short-term borrowings |
6,456 | |||
Long-term debt |
8,395 | |||
Trading account liabilities |
1,513 | |||
Other liabilities |
2,168 | |||
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Total liabilities |
109,163 | |||
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Commitments, contingencies and guaranteesSee Note 11 |
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Equity |
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MUB stockholders equity: |
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Common stock, par value $1 per share: |
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Authorized 45,000,000 shares, 40,305,115 shares issued and outstanding at September 30, 2022 |
605 | |||
Additional paid-in capital |
9,846 | |||
Retained earnings |
6,965 | |||
Accumulated other comprehensive income (loss) |
(2,103 | ) | ||
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Total MUB stockholders equity |
15,313 | |||
Noncontrolling interests |
80 | |||
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Total equity |
15,393 | |||
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Total liabilities and equity |
$ | 124,556 | ||
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See accompanying Notes to Consolidated Financial Statements.
6
MUFG Union Bank, N.A.
Consolidated Statement of Changes in Stockholders Equity
(Unaudited)
MUB Stockholders Equity | ||||||||||||||||||||||||
(Dollars in millions) |
Common Stock |
Additional Paid-in Capital |
Retained Earnings |
Accumulated Other Comprehensive Income (Loss) |
Noncontrolling Interests |
Total Equity |
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BALANCE DECEMBER 31, 2021 |
$ | 605 | $ | 9,897 | $ | 6,440 | $ | (284 | ) | $ | 89 | $ | 16,747 | |||||||||||
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Net income (loss) |
| | 528 | | (10 | ) | 518 | |||||||||||||||||
Other comprehensive income (loss), net of tax |
| | | (1,819 | ) | | (1,819 | ) | ||||||||||||||||
Compensationrestricted stock units |
| (51 | ) | (3 | ) | | | (54 | ) | |||||||||||||||
Other |
| | | | 1 | 1 | ||||||||||||||||||
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Net change |
| (51 | ) | 525 | (1,819 | ) | (9 | ) | (1,354 | ) | ||||||||||||||
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BALANCE SEPTEMBER 30, 2022 |
$ | 605 | $ | 9,846 | $ | 6,965 | $ | (2,103 | ) | $ | 80 | $ | 15,393 | |||||||||||
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See accompanying Notes to Consolidated Financial Statements.
7
MUFG Union Bank, N.A.
Consolidated Statement of Cash Flows
(Unaudited)
(Dollars in millions) |
For the Nine Months Ended September 30, 2022 |
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Cash Flows from Operating Activities: |
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Net income including noncontrolling interests |
$ | 518 | ||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
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(Reversal of) provision for credit losses |
103 | |||
Depreciation, amortization and accretion, net |
158 | |||
Stock-based compensationrestricted stock units |
45 | |||
Deferred income taxes |
(45 | ) | ||
Net decrease (increase) in trading account assets |
786 | |||
Net decrease (increase) in other assets |
22 | |||
Net increase (decrease) in trading account liabilities |
1,217 | |||
Net increase (decrease) in other liabilities |
(563 | ) | ||
Loans originated for sale |
(6,493 | ) | ||
Net proceeds from sale of loans originated for sale |
6,363 | |||
Pension and other benefits adjustment |
(58 | ) | ||
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Total adjustments |
1,535 | |||
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Net cash provided by (used in) operating activities |
2,053 | |||
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Cash Flows from Investing Activities: |
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Proceeds from sales of securities available for sale |
9 | |||
Proceeds from paydowns and maturities of securities available for sale |
1,106 | |||
Purchases of securities available for sale |
(1,556 | ) | ||
Proceeds from paydowns and maturities of securities held to maturity |
1,254 | |||
Proceeds from sales of loans |
173 | |||
Net decrease (increase) in loans |
412 | |||
Purchases of other investments |
(116 | ) | ||
Other, net |
(49 | ) | ||
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Net cash provided by (used in) investing activities |
1,233 | |||
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Cash Flows from Financing Activities: |
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Net increase (decrease) in deposits |
(10,851 | ) | ||
Net increase (decrease) in commercial paper and other short-term borrowings |
6,448 | |||
Proceeds from issuance of long-term debt |
3,200 | |||
Repayment of long-term debt |
(1,569 | ) | ||
Other, net |
(104 | ) | ||
Change in noncontrolling interests |
1 | |||
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Net cash provided by (used in) financing activities |
(2,875 | ) | ||
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Net change in cash, cash equivalents and restricted cash |
411 | |||
Cash, cash equivalents and restricted cash at beginning of period |
$ | 11,386 | ||
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Cash, cash equivalents and restricted cash at end of period |
$ | 11,797 | ||
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Cash Paid During the Period For: |
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Interest |
$ | 294 | ||
Income taxes, net |
83 | |||
Supplemental Schedule of Noncash Investing and Financing Activities: |
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Net transfer of loans held for investment to (from) loans held for sale |
$ | 32 | ||
Securities available for sale transferred to securities held to maturity |
6,486 | |||
Reconciliation of Cash, Cash Equivalents and Restricted Cash: |
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Cash and cash equivalents |
$ | 11,771 | ||
Restricted cash included in other assets |
26 | |||
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Total cash, cash equivalents and restricted cash per consolidated statement of cash flows |
$ | 11,797 | ||
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See accompanying Notes to Consolidated Financial Statements.
8
Notes to Consolidated Financial Statements
Note 1Summary of Significant Accounting Policies and Nature of Operations
Introduction
MUFG Union Bank, N.A. (MUB) is a wholly-owned subsidiary of MUFG Americas Holdings Corporation (MUAH). MUAH is owned by MUFG Bank, Ltd. and MUFG. MUFG Bank, Ltd. is a wholly-owned subsidiary of MUFG. As used in these consolidated financial statements, terms such as the Bank, we, us and our refer to MUB, one or more of its consolidated subsidiaries, or to all of them together. MUB provides a wide range of corporate and retail banking and wealth management services which include investment banking, personal and corporate trust, transaction banking, capital markets, and other services. As of September 30, 2022, the Bank operated 297 branches, consisting primarily of retail banking branches in the West Coast states.
In September 2021, MUAH and MUFG entered into an agreement to sell all the issued and outstanding shares of common stock of MUB to U.S. Bancorp. U.S. Bancorp is not acquiring MUBs Global Corporate & Investment BankU.S. business, certain middle and back office functions, and certain other assets and liabilities (including Intrepid Investment Bankers LLC and Union Bank of California Leasing, Inc.), which will be transferred to MUAH and MUFG prior to the sale of MUB stock to U.S. Bancorp. For further information on the sale, see Note 12 to these consolidated financial statements.
All of MUBs issued and outstanding shares of common stock are owned by MUAH. The unaudited consolidated financial statements of MUB, its subsidiaries, and its consolidated variable interest entities have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial reporting. However, they do not include all of the disclosures necessary for annual financial statements. In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation have been included. The results of operations for the nine months ended September 30, 2022 are not necessarily indicative of the operating results anticipated for the full year. These unaudited consolidated financial statements should be read in conjunction with MUBs 2021 audited annual financial statements.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reporting period. Although such estimates contemplate current conditions and managements expectations of how they may change in the future, it is reasonably possible that actual results could differ significantly from those estimates. This could materially affect the Companys results of operations and financial condition in the near term. Critical estimates made by management in the preparation of the Companys financial statements include, but are not limited to, the allowance for credit losses (Note 3 Loans and Allowance for Loan Losses), income taxes, and transfer pricing.
Recently Adopted Accounting Pronouncements
Reference Rate Reform
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848)Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. This ASU applies only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. This guidance is effective upon issuance and generally can be applied through December 31, 2022. In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848) Scope, which clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform. The adoption of this guidance has not had, and is expected to continue to not have, a material impact on the Banks financial statements.
9
Note 1Summary of Significant Accounting Policies and Nature of Operations (Continued)
Recently Issued Accounting Pronouncements
Fair Value HedgingPortfolio Layer Method
In March 2022, the FASB issued ASU 2022-01, Derivatives and Hedging (Topic 815)Fair Value HedgingPortfolio Layer Method, related to fair value hedge accounting of portfolios of financial assets. This ASU expands the current single-layer method to allow multiple hedge layers of a single closed portfolio of qualifying assets, which include prepayable and non-prepayable assets. The guidance is effective for fiscal years beginning January 1, 2023 and early adoption is permitted. The Bank is evaluating the impact that ASU 2022-01 will have on its consolidated financial statements.
Troubled Debt Restructurings and Vintage Disclosures
In March 2022, the FASB issued ASU 2022-02, Financial InstrumentsCredit Losses (Topic 326)Troubled Debt Restructurings and Vintage Disclosures. The ASU removes the recognition and measurement guidance for troubled-debt restructurings by creditors, enhances disclosure requirements for certain loan refinancings and restructurings by creditors, and requires that an entity disclose current-period gross write-offs by year of origination for financing receivables. The guidance is effective January 1, 2023 and early adoption is permitted. The Bank is evaluating the impact that ASU 2022-02 will have on its consolidated financial statements.
Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions
In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. ASU 2022-03 clarifies that a contractual sale restriction should not be considered in measuring fair value. It also requires entities with investments in equity securities subject to contractual sale restrictions to disclose certain qualitative and quantitative information about these securities. This guidance is effective January 1, 2024 for public entities and January 1, 2025 for all other entities with early adoption permitted. The Bank is evaluating the impact that ASU 2022-02 will have on its consolidated financial statements.
10
Note 2Securities
Securities Available for Sale
The amortized cost, gross unrealized gains, gross unrealized losses and fair value of securities available for sale for September 30, 2022 are presented below.
September 30, 2022 | ||||||||||||||||
(Dollars in millions) |
Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value |
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U.S. Treasury and government agencies |
$ | 4,370 | $ | | $ | 375 | $ | 3,995 | ||||||||
Mortgage-backed: |
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U.S. agencies |
3,937 | | 473 | 3,464 | ||||||||||||
Residentialnon-agency |
368 | | 62 | 306 | ||||||||||||
Commercialnon-agency |
3,630 | | 438 | 3,192 | ||||||||||||
Collateralized loan obligations |
1,218 | | 39 | 1,179 | ||||||||||||
Direct bank purchase bonds |
454 | 9 | 33 | 430 | ||||||||||||
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Total securities available for sale |
$ | 13,977 | $ | 9 | $ | 1,420 | $ | 12,566 | ||||||||
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The Banks securities available for sale with a continuous unrealized loss position at September 30, 2022 are shown below, identified for periods less than 12 months and 12 months or more.
September 30, 2022 | ||||||||||||||||||||||||
Less Than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||
(Dollars in millions) |
Fair Value |
Unrealized Losses |
Fair Value |
Unrealized Losses |
Fair Value |
Unrealized Losses |
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U.S. Treasury and government agencies |
$ | 1,573 | $ | 141 | $ | 2,422 | $ | 234 | $ | 3,995 | $ | 375 | ||||||||||||
Mortgage-backed: |
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U.S. agencies |
2,769 | 352 | 684 | 121 | 3,453 | 473 | ||||||||||||||||||
Residentialnon-agency |
151 | 22 | 157 | 40 | 308 | 62 | ||||||||||||||||||
Commercialnon-agency |
2,778 | 337 | 414 | 101 | 3,192 | 438 | ||||||||||||||||||
Collateralized loan obligations |
855 | 26 | 324 | 13 | 1,179 | 39 | ||||||||||||||||||
Direct bank purchase bonds |
90 | 15 | 138 | 18 | 228 | 33 | ||||||||||||||||||
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Total securities available for sale |
$ | 8,216 | $ | 893 | $ | 4,139 | $ | 527 | $ | 12,355 | $ | 1,420 | ||||||||||||
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At September 30, 2022, the Bank did not have the intent to sell any securities in an unrealized loss position before a recovery of the amortized cost, which may be at maturity. The Bank also believes that it is more likely than not that it will not be required to sell the securities prior to recovery of amortized cost.
Agency residential and commercial mortgage-backed securities consist of securities guaranteed by a U.S. government corporation, such as Ginnie Mae, or a government-sponsored agency such as Freddie Mac or Fannie Mae. These securities are collateralized by residential and commercial mortgage loans and may be prepaid at par prior to maturity. The unrealized losses on agency residential mortgage-backed securities resulted from changes in interest rates and not from changes in credit quality. At September 30, 2022, the Bank expected to recover the entire amortized cost basis of these securities because the Bank determined that the strength of the issuers guarantees through direct obligations or support from the U.S. government is sufficient to protect the Bank from losses.
Residential mortgage-backed securities are collateralized by residential mortgage loans and may be prepaid at par prior to maturity. Commercial mortgage-backed securities are collateralized by commercial mortgage loans and are generally subject to prepayment penalties. The unrealized losses on residential and commercial mortgage-backed securities resulted from higher market yields since purchase. Cash flow analysis of the underlying collateral provides an estimate of recoverability and is performed quarterly when the fair value of a security is lower than its amortized cost. Based on the analysis performed as of September 30, 2022, the Bank expects to recover the entire amortized cost basis of these securities.
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Note 2Securities (Continued)
The Banks CLOs consist of Cash Flow CLOs. A Cash Flow CLO is a structured finance product that securitizes a diversified pool of loan assets into multiple classes of notes. Cash Flow CLOs pay the note holders through the receipt of interest and principal repayments from the underlying loans unlike other types of CLOs that pay note holders through the trading and sale of underlying collateral. Unrealized losses typically arise from widening credit spreads and deteriorating credit quality of the underlying collateral. Cash flow analysis of the underlying collateral provides an estimate of recoverability and is performed quarterly when the fair value of a security is lower than its amortized cost. Based on the analysis performed as of September 30, 2022, the Bank expects to recover the entire amortized cost basis of these securities.
Direct bank purchase bonds are not rated by external credit rating agencies. The unrealized losses on these bonds resulted from a higher return on capital expected by the secondary market compared with the return on capital required at the time of origination when the bonds were purchased. The Bank estimates the unrealized loss for each security by assessing the underlying collateral of each security. The Bank estimates the portion of loss attributable to credit based on the expected cash flows of the underlying collateral using estimates of current key assumptions, such as probability of default and loss severity. Cash flow analysis of the underlying collateral provides an estimate of recoverability and is performed quarterly when the fair value of a security is lower than its amortized cost and potential impairment is identified. Based on the analysis performed as of September 30, 2022, the Bank expects to recover the entire amortized cost basis of these securities.
The fair value of debt securities available for sale by contractual maturity are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to prepay obligations with or without prepayment penalties.
September 30, 2022 | ||||||||||||||||||||
(Dollars in millions) |
One Year or Less |
Over One Year Through Five Years |
Over Five Years Through Ten Years |
Over Ten Years |
Total Fair Value |
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U.S. Treasury and government agencies |
$ | 1,462 | $ | 1,130 | $ | 1,403 | $ | | $ | 3,995 | ||||||||||
Mortgage-backed: |
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U.S. agencies |
6 | 41 | 740 | 2,677 | 3,464 | |||||||||||||||
Residentialnon-agency |
| | 2 | 304 | 306 | |||||||||||||||
Commercialnon-agency |
| 46 | 1,098 | 2,048 | 3,192 | |||||||||||||||
Collateralized loan obligations |
| | 575 | 604 | 1,179 | |||||||||||||||
Direct bank purchase bonds |
6 | 169 | 214 | 41 | 430 | |||||||||||||||
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Total securities available for sale |
$ | 1,474 | $ | 1,386 | $ | 4,032 | $ | 5,674 | $ | 12,566 | ||||||||||
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Note 2Securities (Continued)
Securities Held to Maturity
At September 30, 2022, the amortized cost, gross unrealized gains and losses recognized in OCI, carrying amount, gross unrealized gains and losses not recognized in OCI, and fair value of securities held to maturity are presented below. Management has asserted the positive intent and ability to hold these securities to maturity.
September 30, 2022 | ||||||||||||||||||||||||||||
Recognized in OCI | Not Recognized in OCI | |||||||||||||||||||||||||||
(Dollars in millions) |
Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Carrying Amount |
Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value |
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U.S. Treasury and government agencies |
$ | 5,799 | $ | | $ | 205 | $ | 5,594 | $ | | $ | 1,200 | $ | 4,394 | ||||||||||||||
Mortgage-backed: |
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U.S. agencies |
6,139 | | 545 | 5,594 | | 522 | 5,072 | |||||||||||||||||||||
Residentialnon-agency |
487 | | 53 | 434 | | 49 | 385 | |||||||||||||||||||||
Commercialnon-agency |
625 | | 49 | 576 | | 60 | 516 | |||||||||||||||||||||
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Total securities held to maturity |
$ | 13,050 | $ | | $ | 852 | $ | 12,198 | $ | | $ | 1,831 | $ | 10,367 | ||||||||||||||
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Amortized cost is defined as the original purchase cost, adjusted for any accretion or amortization of a purchase discount or premium, less principal payments and any impairment previously recognized in earnings. The carrying amount is the difference between the amortized cost and the amount recognized in OCI. The amount recognized in OCI primarily reflects the unrealized gain or loss at date of transfer from available for sale to the held to maturity classification, net of amortization, which is recorded in interest income on securities.
The Banks securities held to maturity with a continuous unrealized loss position at September 30, 2022 are shown below, separately for periods less than 12 months and 12 months or more.
September 30, 2022 | ||||||||||||||||||||||||||||||||||||
Less Than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||||||||||||||
Unrealized Losses | Unrealized Losses | Unrealized Losses | ||||||||||||||||||||||||||||||||||
(Dollars in millions) |
Fair Value |
Recognized in OCI |
Not Recognized |
Fair Value |
Recognized in OCI |
Not Recognized |
Fair Value |
Recognized in OCI |
Not Recognized |
|||||||||||||||||||||||||||
U.S. Treasury and government agencies |
$ | 600 | $ | 2 | $ | 122 | $ | 3,794 | $ | 203 | $ | 1,078 | $ | 4,394 | $ | 205 | $ | 1,200 | ||||||||||||||||||
Mortgage-backed: |
||||||||||||||||||||||||||||||||||||
U.S. agencies |
2,137 | 164 | 200 | 2,935 | 381 | 322 | 5,072 | 545 | 522 | |||||||||||||||||||||||||||
Residentialnon-agency |
164 | 20 | 20 | 221 | 33 | 29 | 385 | 53 | 49 | |||||||||||||||||||||||||||
Commercialnon-agency |
224 | 7 | 22 | 292 | 42 | 38 | 516 | 49 | 60 | |||||||||||||||||||||||||||
|
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|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|||||||||||||||||||
Total securities held to maturity |
$ | 3,125 | $ | 193 | $ | 364 | $ | 7,242 | $ | 659 | $ | 1,467 | $ | 10,367 | $ | 852 | $ | 1,831 | ||||||||||||||||||
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|
|
|
13
Note 2Securities (Continued)
The carrying amount and fair value of securities held to maturity by contractual maturity are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to prepay obligations with or without prepayment penalties.
September 30, 2022 | ||||||||||||||||||||||||||||||||||||||||
Within One Year | Over One Year Through Five Years |
Over Five Years Through Ten Years |
Over Ten Years | Total | ||||||||||||||||||||||||||||||||||||
(Dollars in millions) |
Carrying Amount |
Fair Value |
Carrying Amount |
Fair Value |
Carrying Amount |
Fair Value |
Carrying Amount |
Fair Value |
Carrying Amount |
Fair Value |
||||||||||||||||||||||||||||||
U.S. Treasury and government agencies |
$ | | $ | | $ | | $ | | $ | 2,109 | $ | 1,873 | $ | 3,485 | $ | 2,521 | $ | 5,594 | $ | 4,394 | ||||||||||||||||||||
Mortgage-backed: |
||||||||||||||||||||||||||||||||||||||||
U.S. agencies |
| | 67 | 63 | 363 | 342 | 5,164 | 4,667 | 5,594 | 5,072 | ||||||||||||||||||||||||||||||
Residentialnon-agency |
| | | | | | 434 | 385 | 434 | $ | 385 | |||||||||||||||||||||||||||||
Commercialnon-agency |
5 | 5 | 84 | 79 | 168 | 151 | 319 | 281 | 576 | $ | 516 | |||||||||||||||||||||||||||||
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|
|
|
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|
|
|
|
|
|
|||||||||||||||||||||
Total securities held to maturity |
$ | 5 | $ | 5 | $ | 151 | $ | 142 | $ | 2,640 | $ | 2,366 | $ | 9,402 | $ | 7,854 | $ | 12,198 | $ | 10,367 | ||||||||||||||||||||
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|
|
Securities Pledged and Received as Collateral
At September 30, 2022, the Bank pledged $1.0 billion of available for sale securities as collateral to secure public and trust department deposits and for derivative liability positions of which none was permitted to be sold or repledged.
Note 3Loans and Allowance for Loan Losses
The following table provides the outstanding balances of loans held for investment at September 30, 2022.
(Dollars in millions) |
September 30, 2022 |
|||
Loans held for investment: |
||||
Commercial and industrial |
$ | 31,799 | ||
Commercial mortgage |
14,544 | |||
Construction |
1,296 | |||
Lease financing |
81 | |||
|
|
|||
Total commercial portfolio |
47,720 | |||
|
|
|||
Residential mortgage and home equity(1) |
29,416 | |||
Other consumer(2) |
1,548 | |||
|
|
|||
Total consumer portfolio |
30,964 | |||
|
|
|||
Total loans held for investment(3) |
78,684 | |||
Allowance for loan losses |
(784 | ) | ||
|
|
|||
Loans held for investment, net |
$ | 77,900 | ||
|
|
(1) | Includes home equity loans of $1,279 million at September 30, 2022. |
(2) | Other consumer loans substantially include unsecured consumer loans and consumer credit cards. |
(3) | Includes $171 million at September 30, 2022, for net unamortized (discounts) and premiums and deferred (fees) and costs. |
Accrued interest receivable on loans held for investment totaled $290 million at September 30, 2022 and is included in other assets on the consolidated balance sheet.
14
Note 3Loans and Allowance for Loan Losses (Continued)
Allowance for Loan Losses
For the nine months ended September 30, 2022, the commercial loan segment had a provision for loan losses of $100 million and the consumer loan segment had a reversal of provision for loan losses of $2 million. The commercial loan segment provision and increase in the allowance for loan losses were due to increasing economic uncertainty, increasing interest rates, expected loss estimate impacts, and incrementally higher reserves on loans individually evaluated for impairment.
For the Nine Months Ended September 30, 2022 | ||||||||||||
(Dollars in millions) |
Commercial | Consumer | Total | |||||||||
Allowance for loan losses, beginning of period |
$ | 486 | $ | 271 | $ | 757 | ||||||
(Reversal of) provision for loan losses |
100 | (2 | ) | 98 | ||||||||
Loans charged-off |
(48 | ) | (53 | ) | (101 | ) | ||||||
Recoveries of loans previously charged-off |
11 | 19 | 30 | |||||||||
|
|
|
|
|
|
|||||||
Allowance for loan losses, end of period |
$ | 549 | $ | 235 | $ | 784 | ||||||
|
|
|
|
|
|
Nonaccrual and Past Due Loans
The following table presents nonaccrual loans as of September 30, 2022. The nonaccrual loans all have a related allowance for loan losses recorded as of September 30, 2022.
(Dollars in millions) |
September 30, 2022 |
|||
Commercial and industrial |
$ | 163 | ||
Commercial mortgage |
59 | |||
|
|
|||
Total commercial portfolio |
222 | |||
|
|
|||
Residential mortgage and home equity |
132 | |||
|
|
|||
Total consumer portfolio |
132 | |||
|
|
|||
Total nonaccrual loans |
$ | 354 | ||
|
|
|||
Troubled debt restructured loans that continue to accrue interest |
$ | 302 | ||
|
|
|||
Troubled debt restructured nonaccrual loans (included in total nonaccrual loans above) |
$ | 131 | ||
|
|
The following table shows the aging of the balance of loans held for investment by class as of September 30, 2022.
September 30, 2022 | ||||||||||||||||||||
Aging Analysis of Loans | ||||||||||||||||||||
(Dollars in millions) |
Current | 30 to 89 Days Past Due |
90 Days or More Past Due |
Total Past Due |
Total | |||||||||||||||
Commercial and industrial |
$ | 31,765 | $ | 63 | $ | 52 | $ | 115 | $ | 31,880 | ||||||||||
Commercial mortgage |
14,412 | 82 | 50 | 132 | 14,544 | |||||||||||||||
Construction |
1,285 | | 11 | 11 | 1,296 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total commercial portfolio |
47,462 | 145 | 113 | 258 | 47,720 | |||||||||||||||
|
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|
|
|
|
|
|
|
|
|||||||||||
Residential mortgage and home equity |
29,287 | 93 | 36 | 129 | 29,416 | |||||||||||||||
Other consumer |
1,523 | 16 | 9 | 25 | 1,548 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total consumer portfolio |
30,810 | 109 | 45 | 154 | 30,964 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total loans held for investment |
$ | 78,272 | $ | 254 | $ | 158 | $ | 412 | $ | 78,684 | ||||||||||
|
|
|
|
|
|
|
|
|
|
15
Note 3Loans and Allowance for Loan Losses (Continued)
Loans held for investment 90 days or more past due and still accruing interest totaled $49 million at September 30, 2022. The following table presents the loans that are 90 days or more past due, but are not on nonaccrual status, by loan class.
(Dollars in millions) |
September 30, 2022 |
|||
Commercial and industrial |
$ | 29 | ||
Construction |
11 | |||
|
|
|||
Total commercial portfolio |
40 | |||
|
|
|||
Other consumer |
9 | |||
|
|
|||
Total consumer portfolio |
9 | |||
|
|
|||
Total loans that are 90 days or more past due and still accruing |
$ | 49 | ||
|
|
Credit Quality Indicators
Management analyzes the Banks loan portfolios by applying specific monitoring policies and procedures that vary according to the relative risk profile and other characteristics within the various loan portfolios. Loans within the commercial portfolio segment are classified as either pass or criticized. Criticized credits are those that have regulatory risk ratings of special mention, substandard or doubtful; classified credits are those that have regulatory risk ratings of substandard or doubtful. Special mention credits are potentially weak, as the borrower has begun to exhibit deteriorating trends, which, if not corrected, may jeopardize repayment of the loan and result in further downgrade. Substandard credits have well-defined weaknesses, which, if not corrected, could jeopardize the full satisfaction of the debt. A credit classified as doubtful has critical weaknesses that make full collection improbable on the basis of currently existing facts and conditions.
16
Note 3Loans and Allowance for Loan Losses (Continued)
The following table summarizes the loans in the commercial portfolio segment monitored for credit quality based on regulatory risk ratings.
September 30, 2022 | ||||||||||||||||||||||||||||||||
Non-Revolving Loans at Amortized Cost by Origination Year | Revolving Loans |
Total | ||||||||||||||||||||||||||||||
(Dollars in millions) |
2022 | 2021 | 2020 | 2019 | 2018 | Prior | ||||||||||||||||||||||||||
Commercial and industrial: |
||||||||||||||||||||||||||||||||
Pass |
$ | 3,077 | $ | 3,534 | $ | 1,860 | $ | 869 | $ | 577 | $ | 1,360 | $ | 19,187 | $ | 30,464 | ||||||||||||||||
Criticized: |
||||||||||||||||||||||||||||||||
Special Mention |
104 | 22 | 75 | 128 | 8 | 73 | 314 | 724 | ||||||||||||||||||||||||
Classified |
74 | 66 | 70 | 82 | 82 | 14 | 223 | 611 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total |
3,255 | 3,622 | 2,005 | 1,079 | 667 | 1,447 | 19,724 | 31,799 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Commercial mortgage: |
||||||||||||||||||||||||||||||||
Pass |
1,402 | 2,036 | 1,413 | 3,263 | 1,904 | 3,796 | 83 | 13,897 | ||||||||||||||||||||||||
Criticized: |
||||||||||||||||||||||||||||||||
Special Mention |
| 1 | 13 | 12 | 8 | 110 | | 144 | ||||||||||||||||||||||||
Classified |
| 51 | 7 | 118 | 254 | 73 | | 503 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total |
1,402 | 2,088 | 1,433 | 3,393 | 2,166 | 3,979 | 83 | 14,544 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Construction: |
||||||||||||||||||||||||||||||||
Pass |
145 | 430 | 378 | 202 | 57 | 1 | 77 | 1,290 | ||||||||||||||||||||||||
Criticized: |
||||||||||||||||||||||||||||||||
Special Mention |
| | | | | | | | ||||||||||||||||||||||||
Classified |
1 | 2 | 3 | | | | | 6 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total |
146 | 432 | 381 | 202 | 57 | 1 | 77 | 1,296 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Lease financing: |
||||||||||||||||||||||||||||||||
Pass |
| | | | | 81 | | 81 | ||||||||||||||||||||||||
Criticized: |
||||||||||||||||||||||||||||||||
Special Mention |
| | | | | | | | ||||||||||||||||||||||||
Classified |
| | | | | | | | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total |
| | | | | 81 | | 81 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total commercial portfolio |
$ | 4,803 | $ | 6,142 | $ | 3,819 | $ | 4,674 | $ | 2,890 | $ | 5,508 | $ | 19,884 | $ | 47,720 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Percentage of total |
10 | % | 13 | % | 8 | % | 10 | % | 6 | % | 11 | % | 42 | % | 100 | % |
17
Note 3Loans and Allowance for Loan Losses (Continued)
The Bank monitors the credit quality of its consumer portfolio segment based primarily on payment status. The following tables summarize the loans in the consumer portfolio segment at September 30, 2022.
Payment Status | September 30, 2022 | |||||||||||||||||||||||||||||||
Non-Revolving Loans at Amortized Cost by Origination Year | Revolving Loans |
Total | ||||||||||||||||||||||||||||||
(Dollars in millions) |
2022 | 2021 | 2020 | 2019 | 2018 | Prior | ||||||||||||||||||||||||||
Residential mortgage and home equity: |
||||||||||||||||||||||||||||||||
Accrual |
$ | 7,122 | $ | 9,542 | $ | 2,297 | $ | 1,524 | $ | 890 | $ | 6,978 | $ | 931 | $ | 29,284 | ||||||||||||||||
Nonaccrual |
| 4 | 1 | 4 | 8 | 111 | 4 | 132 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total |
7,122 | 9,546 | 2,298 | 1,528 | 898 | 7,089 | 935 | 29,416 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Other consumer: |
||||||||||||||||||||||||||||||||
Accrual |
82 | 787 | 133 | 208 | 38 | 5 | 295 | 1,548 | ||||||||||||||||||||||||
Nonaccrual |
| | | | | | | | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total |
82 | 787 | 133 | 208 | 38 | 5 | 295 | 1,548 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total consumer portfolio |
$ | 7,204 | $ | 10,333 | $ | 2,431 | $ | 1,736 | $ | 936 | $ | 7,094 | $ | 1,230 | $ | 30,964 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Percentage of total |
23 | % | 33 | % | 8 | % | 6 | % | 3 | % | 23 | % | 4 | % | 100 | % |
The Bank also monitors the credit quality for substantially all of its consumer portfolio segment using credit scores provided by FICO and refreshed LTV ratios. FICO credit scores are refreshed at least quarterly to monitor the quality of the portfolio. Refreshed LTV measures the principal balance of the loan as a percentage of the estimated current value of the property securing the loan. Home equity loans are evaluated using combined LTV, which measures the principal balance of the combined loans that have liens against the property (including unused credit lines for home equity products) as a percentage of the estimated current value of the property securing the loans. The LTV ratios are refreshed on a quarterly basis, using the most recent home pricing index data available for the property location.
The following tables summarize the loans in the consumer portfolio segment based on refreshed FICO scores and refreshed LTV ratios at September 30, 2022.
FICO Scores | September 30, 2022 | |||||||||||||||||||||||||||||||
Non-Revolving Loans by Origination Year | Revolving Loans |
Total | ||||||||||||||||||||||||||||||
(Dollars in millions) |
2022 | 2021 | 2020 | 2019 | 2018 | Prior | ||||||||||||||||||||||||||
Residential mortgage and home equity: |
||||||||||||||||||||||||||||||||
720 and Above |
$ | 6,200 | $ | 8,786 | $ | 2,096 | $ | 1,331 | $ | 710 | $ | 5,705 | $ | 779 | $ | 25,607 | ||||||||||||||||
Below 720 |
619 | 730 | 172 | 175 | 168 | 1,087 | 145 | 3,096 | ||||||||||||||||||||||||
No FICO Available(1) |
303 | 30 | 30 | 22 | 20 | 297 | 11 | 713 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total |
7,122 | 9,546 | 2,298 | 1,528 | 898 | 7,089 | 935 | 29,416 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Other consumer loans: |
||||||||||||||||||||||||||||||||
720 and Above |
48 | 418 | 82 | 122 | 24 | 3 | 154 | 851 | ||||||||||||||||||||||||
Below 720 |
35 | 369 | 51 | 87 | 14 | 1 | 122 | 679 | ||||||||||||||||||||||||
No FICO Available(1) |
| | | | | 16 | 2 | 18 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total |
83 | 787 | 133 | 209 | 38 | 20 | 278 | 1,548 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total consumer portfolio |
$ | 7,205 | $ | 10,333 | $ | 2,431 | $ | 1,737 | $ | 936 | $ | 7,109 | $ | 1,213 | $ | 30,964 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Percentage of total |
23 | % | 33 | % | 8 | % | 6 | % | 3 | % | 23 | % | 4 | % | 100 | % |
(1) | Represents loans for which management was not able to obtain an updated FICO score (e.g., due to recent profile changes). |
18
Note 3Loans and Allowance for Loan Losses (Continued)
LTV Ratios | September 30, 2022 | |||||||||||||||||||||||||||||||
Non-Revolving Loans by Origination Year | Revolving Loans |
Total | ||||||||||||||||||||||||||||||
(Dollars in millions) |
2022 | 2021 | 2020 | 2019 | 2018 | Prior | ||||||||||||||||||||||||||
Residential mortgage and home equity: |
||||||||||||||||||||||||||||||||
80% or below |
$ | 6,043 | $ | 9,497 | $ | 2,291 | $ | 1,526 | $ | 889 | $ | 7,076 | $ | 922 | $ | 28,244 | ||||||||||||||||
80% to 100% |
1,079 | 48 | 7 | 2 | 1 | 4 | 9 | 1,150 | ||||||||||||||||||||||||
100% or more |
| | | | | | | | ||||||||||||||||||||||||
No LTV Available(1) |
| 1 | | | | 17 | 4 | 22 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total |
7,122 | 9,546 | 2,298 | 1,528 | 890 | 7,097 | 935 | 29,416 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total consumer portfolio |
$ | 7,122 | $ | 9,546 | $ | 2,298 | $ | 1,528 | $ | 890 | $ | 7,097 | $ | 935 | $ | 29,416 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Percentage of total |
24 | % | 33 | % | 8 | % | 5 | % | 3 | % | 24 | % | 3 | % | 100 | % |
(1) | Represents loans for which management was not able to obtain refreshed property values. |
Troubled Debt Restructurings
The following table provides a summary of the Banks recorded investment in TDRs as of September 30, 2022. The summary includes those TDRs that are on nonaccrual status and those that continue to accrue interest. The Bank had no commitments to lend additional funds to borrowers with loan modifications classified as TDRs at September 30, 2022.
(Dollars in millions) |
September 30, 2022 |
|||
Commercial and industrial |
$ | 102 | ||
Commercial mortgage |
134 | |||
|
|
|||
Total commercial portfolio |
236 | |||
|
|
|||
Residential mortgage and home equity |
196 | |||
Other consumer |
1 | |||
|
|
|||
Total consumer portfolio |
197 | |||
|
|
|||
Total restructured loans |
$ | 433 | ||
|
|
For the nine months ended September 30, 2022, TDR modifications in the commercial portfolio segment were substantially composed of term extension and a combination of term extension and interest rate concession. In the consumer portfolio segment, modifications were largely composed of term extension and interest rate concession. There were approximately $12 million in charge-offs related to TDR modifications in the consumer portfolio for the nine months ended September 30, 2022. For the commercial and consumer portfolio segments, the allowance for loan losses for TDRs was measured on an individual loan basis or in pools with similar risk characteristics.
19
Note 3Loans and Allowance for Loan Losses (Continued)
The following table provides the pre- and post-modification outstanding recorded investment amounts of TDRs as of the date of the restructuring that occurred for the nine months ended September 30, 2022.
For the Nine Months Ended September 30, 2022 |
||||||||
(Dollars in millions) |
Pre-Modification Outstanding Recorded Investment(1) |
Post- Modification Outstanding Recorded Investment(2) |
||||||
Commercial and industrial |
$ | 56 | $ | 56 | ||||
Commercial mortgage |
50 | 50 | ||||||
|
|
|
|
|||||
Total commercial portfolio |
106 | 106 | ||||||
|
|
|
|
|||||
Residential mortgage and home equity |
33 | 33 | ||||||
|
|
|
|
|||||
Total consumer portfolio |
33 | 33 | ||||||
|
|
|
|
|||||
Total |
$ | 139 | $ | 139 | ||||
|
|
|
|
(1) | Represents the recorded investment in the loan immediately prior to the restructuring event. |
(2) | Represents the recorded investment in the loan immediately following the restructuring event. It includes the effect of paydowns that were required as part of the restructuring terms. |
There were no TDRs for which there was a payment default during the nine months ended September 30, 2022, and where the default occurred within the first twelve months after modification into a TDR. A payment default is defined as the loan being 60 days or more past due. For loans in the consumer portfolio in which impairment is measured using the present value of expected future cash flows discounted at the loans effective interest rate, historical payment defaults and the propensity to redefault are some of the factors considered when determining the allowance for loan losses.
Note 4Variable Interest Entities
In the normal course of business, the Bank has certain financial interests in entities which have been determined to be VIEs. Generally, a VIE is a corporation, partnership, trust or other legal structure where the equity investors do not have substantive voting rights, an obligation to absorb the entitys losses or the right to receive the entitys returns, or the ability to direct the significant activities of the entity. The following discusses the Banks consolidated and unconsolidated VIEs.
Consolidated VIEs
The following table presents the assets and liabilities of consolidated VIEs recorded on the Banks consolidated balance sheet at September 30, 2022.
September 30, 2022 | ||||||||||||||||||||
Consolidated Assets | Consolidated Liabilities | |||||||||||||||||||
(Dollars in millions) |
Loans Held for Investment, Net |
Other Assets | Total Assets | Other Liabilities |
Total Liabilities |
|||||||||||||||
LIHC investments |
$ | | $ | 58 | $ | 58 | $ | | $ | | ||||||||||
Leasing investments |
81 | 104 | 185 | 3 | 3 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total consolidated VIEs |
$ | 81 | $ | 162 | $ | 243 | $ | 3 | $ | 3 | ||||||||||
|
|
|
|
|
|
|
|
|
|
LIHC Investments
The Bank sponsors, manages and syndicates two LIHC investment fund structures. These investments are designed to generate a return primarily through the realization of U.S. federal tax credits and deductions.
20
Note 4Variable Interest Entities (Continued)
The Bank is considered the primary beneficiary and has consolidated these investments because the Bank has the power to direct activities that most significantly impact the funds economic performances and also has the obligation to absorb losses of the funds that could potentially be significant to the funds. Neither creditors nor equity investors in the LIHC investments have any recourse to the general credit of the Bank, and the Banks creditors do not have any recourse to the assets of the consolidated LIHC investments.
Unconsolidated VIEs
The following table presents the Banks carrying amounts related to the unconsolidated VIEs at September 30, 2022. The table also presents the Banks maximum exposure to loss resulting from its involvement with these VIEs. The maximum exposure to loss represents the carrying amount of the Banks involvement plus any legally binding unfunded commitments in the unlikely event that all of the assets in the VIEs become worthless. During the nine months ended September 30, 2022, the bank had noncash increases in unfunded commitments on LIHC investments of $15M, included within other liabilities.
September 30, 2022 | ||||||||||||||||||||||||||||
Unconsolidated Assets | Unconsolidated Liabilities | |||||||||||||||||||||||||||
(Dollars in millions) |
Securities Available for Sale |
Loans Held for Investment, Net |
Other Assets |
Total Assets |
Other Liabilities |
Total Liabilities |
Maximum Exposure to Loss |
|||||||||||||||||||||
LIHC investments |
$ | 21 | $ | 263 | $ | 637 | $ | 921 | $ | 92 | $ | 92 | $ | 921 | ||||||||||||||
Renewable energy investments |
| | 111 | 111 | | | 131 | |||||||||||||||||||||
Other investments |
| | 124 | 124 | | | 228 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total unconsolidated VIEs |
$ | 21 | $ | 263 | $ | 872 | $ | 1,156 | $ | 92 | $ | 92 | $ | 1,280 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIHC Investments
The Bank makes investments in partnerships and funds formed by third parties. The primary purpose of the partnerships and funds is to invest in low-income housing units and distribute tax credits and tax benefits associated with the underlying properties to investors. The Bank is a limited partner investor and is allocated tax credits and deductions, but has no voting or other rights to direct the activities of the funds or partnerships, and therefore is not considered the primary beneficiary and does not consolidate these investments.
The following table presents the impact of the unconsolidated LIHC investments on our consolidated statements of income for the nine months end September 30, 2022.
(Dollars in millions) |
For the Nine Months Ended September 30, 2022 |
|||
Losses from LIHC investments included in other noninterest expense |
$ | 2 | ||
Amortization of LIHC investments included in income tax expense |
99 | |||
Tax credits and other tax benefits from LIHC investments included in income tax expense |
124 |
Other Investments
The Bank has other investments in structures formed by third parties. The Bank has no voting or other rights to direct the activities of the investments that would most significantly impact the entities performance, and therefore is not considered the primary beneficiary and does not consolidate these investments.
21
Note 5Commercial Paper and Other Short-Term Borrowings
The following table is a summary of the Banks commercial paper and other short-term borrowings:
(Dollars in millions) |
September 30, 2022 |
|||
Commercial paper, with a weighted average interest rate of 3.07% at September 30, 2022 |
$ | 556 | ||
Federal Home Loan Bank advances, with a weighted average interest rate of 3.11% at September 30, 2022 |
5,900 | |||
|
|
|||
Total commercial paper and other short-term borrowings |
$ | 6,456 | ||
|
|
At September 30, 2022, commercial paper had a weighted average remaining maturity of 102 days and Federal Home Loan Bank advances had a weighted average maturity of 71 days.
Long-term debt consists of borrowings having an original maturity of one year or more. The following is a summary of the Banks long-term debt.
(Dollars in millions) |
September 30, 2022 |
|||
Senior debt due to MUAH: |
||||
Floating rate debt due October 2023. This note, which bears interest at 0.81% above 3-month LIBOR, had a rate of 3.88% at September 30, 2022 |
$ | 5,557 | ||
Senior debt: |
||||
Fixed rate 2.10% notes due December 2022. |
700 | |||
Floating rate debt due December 2022. These notes, which bear interest at 0.71% above SOFR, had a rate of 3.69% at September 30, 2022 |
300 | |||
Fixed rate FHLB of San Francisco advances due between March 2026 and September 2026. These notes bear a combined weighted average rate of 2.29% at September 30, 2022 |
1,826 | |||
Other |
12 | |||
|
|
|||
Total long-term debt |
$ | 8,395 | ||
|
|
A summary of maturities for the Banks long-term debt at September 30, 2022 is presented below.
(Dollars in millions) |
Debt issued by MUB |
|||
2022 |
$ | 1,000 | ||
2023 |
5,558 | |||
2024 |
1 | |||
2025 |
1 | |||
2026 |
1,827 | |||
Thereafter |
8 | |||
|
|
|||
Total long-term debt |
$ | 8,395 | ||
|
|
The Company uses derivative instruments to manage interest rate risk by converting a portion of its fixed rate debt to variable rate debt. The effective rate adjustments related to these hedges are included in interest expense on long-term debt. For additional information on these derivative instruments, see Note 8 Derivative Instruments and Other Financial Instruments Used For Hedging to these consolidated financial statements.
22
Note 7Fair Value Measurement and Fair Value of Financial Instruments
Valuation Methodologies
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., an exit price) in an orderly transaction between willing market participants at the measurement date. The Bank has an established and documented process for determining fair value for financial assets and liabilities that are measured at fair value on either a recurring or nonrecurring basis. When available, quoted market prices are used to determine fair value. If quoted market prices are not available, fair value is based upon valuation techniques that use, where possible, current market-based or independently sourced parameters, such as yield curves, foreign exchange rates, credit spreads, commodity prices and implied volatilities. Valuation adjustments may be made to ensure the financial instruments are recorded at fair value. These adjustments include amounts that reflect counterparty credit quality and that consider the Banks own creditworthiness in determining the fair value of its trading assets and liabilities. For additional information related to the valuation methodologies used for certain financial assets and financial liabilities measured at fair value, and information about the Banks valuation processes, see Note 9 Fair Value Measurement and Fair Value of Financial Instruments in MUBs 2021 audited annual financial statements.
In determining fair value, the Bank maximizes the use of observable market inputs and minimizes the use of unobservable inputs. Observable inputs reflect market-derived or market-based information obtained from independent sources, while unobservable inputs reflect the Banks estimate about market data. Based on the observability of the significant inputs used, the Bank classifies its fair value measurements in accordance with the three-level hierarchy as defined by GAAP. This hierarchy is based on the quality, observability, and reliability of the information used to determine fair value. For additional information related to the fair value hierarchy, see Note 9 Fair Value Measurement and Fair Value of Financial Instruments in MUBs 2021 audited annual financial statements.
23
Note 7Fair Value Measurement and Fair Value of Financial Instruments (Continued)
Fair Value Measurements on a Recurring Basis
The following table presents financial assets and financial liabilities measured at fair value on a recurring basis by major category and by valuation hierarchy level at September 30, 2022.
September 30, 2022 | ||||||||||||||||||||
(Dollars in millions) |
Level 1 | Level 2 | Level 3 | Netting(1) | Fair Value | |||||||||||||||
Assets |
||||||||||||||||||||
Trading account assets: |
||||||||||||||||||||
U.S. Treasury and government agencies |
$ | | $ | 105 | $ | | $ | | $ | 105 | ||||||||||
Other debt |
| 3 | | | 3 | |||||||||||||||
Derivative contracts |
5 | 1,490 | | (1,340 | ) | 155 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total trading account assets |
5 | 1,598 | | (1,340 | ) | 263 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Securities available for sale: |
||||||||||||||||||||
U.S. Treasury and government agencies |
| 3,995 | | | 3,995 | |||||||||||||||
Mortgage-backed: |
||||||||||||||||||||
U.S. agencies |
| 3,464 | | | 3,464 | |||||||||||||||
Residentialnon-agency |
| 306 | | | 306 | |||||||||||||||
Commercialnon-agency |
| 3,192 | | | 3,192 | |||||||||||||||
Collateralized loan obligations |
| 1,179 | | | 1,179 | |||||||||||||||
Direct bank purchase bonds |
| | 430 | | 430 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total securities available for sale |
| 12,136 | 430 | | 12,566 | |||||||||||||||
Other assets: |
||||||||||||||||||||
Mortgage servicing rights |
| | 164 | | 164 | |||||||||||||||
Derivative contracts |
| 8 | | (5 | ) | 3 | ||||||||||||||
Equity securities |
27 | | | | 27 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total other assets |
27 | 8 | 164 | (5 | ) | 194 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total assets |
$ | 32 | $ | 13,742 | $ | 594 | $ | (1,345 | ) | $ | 13,023 | |||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Percentage of total |
| % | 105 | % | 5 | % | (10 | )% | 100 | % | ||||||||||
Percentage of total Bank assets |
| % | 11 | % | | % | (1 | )% | 10 | % | ||||||||||
Liabilities |
||||||||||||||||||||
Trading account liabilities: |
||||||||||||||||||||
Derivative contracts |
$ | 1 | $ | 1,777 | $ | | $ | (265 | ) | $ | 1,513 | |||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total trading account liabilities |
1 | 1,777 | | (265 | ) | 1,513 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Other liabilities: |
||||||||||||||||||||
Derivative contracts |
| 7 | 7 | (5 | ) | 9 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total other liabilities |
| 7 | 7 | (5 | ) | 9 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total liabilities |
$ | 1 | $ | 1,784 | $ | 7 | $ | (270 | ) | $ | 1,522 | |||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Percentage of total |
| % | 117 | % | 1 | % | (18 | )% | 100 | % | ||||||||||
Percentage of total Bank liabilities |
| % | 1 | % | | % | | % | 1 | % |
(1) | Amounts represent the impact of legally enforceable master netting agreements between the same counterparties that allow the Bank to net settle all contracts. |
Level 3 assets at September 30, 2022 were substantially made up of direct bank purchase bonds, which are included in securities available for sale, and mortgage servicing rights, which are included in other assets. In the nine months ended September 30, 2022, the Bank purchased $2 million and $10 million of direct bank purchase bonds and mortgage servicing rights, respectively. There were no sales of direct bank purchase bonds or mortgage servicing rights during the nine months ended September 30, 2022. There were also no transfers in or out of level 3 assets or liabilities during the nine months ended September 30, 2022.
24
Note 7Fair Value Measurement and Fair Value of Financial Instruments (Continued)
Fair Value Measurement on a Nonrecurring Basis
Certain assets may be measured at fair value on a nonrecurring basis. These assets are subject to fair value adjustments that result from the application of the lower of cost or fair value accounting or write-downs of individual assets. For assets measured at fair value on a nonrecurring basis during the nine months ended September 30, 2022 that were still held on the consolidated balance sheet as of period end, the following table presents the fair value of such assets by the level of valuation assumptions used to determine each fair value adjustment.
September 30, 2022 | For the Nine Months Ended September 30, 2022 |
|||||||||||||||||||
(Dollars in millions) |
Fair Value | Level 1 | Level 2 | Level 3 | Gains (Losses) | |||||||||||||||
Loans held for investment |
$ | 40 | $ | | $ | | $ | 40 | $ | (11 | ) | |||||||||
Other assets |
139 | | | 139 | (33 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 179 | $ | | $ | | $ | 179 | $ | (44 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|
Note 8Derivative Instruments and Other Financial Instruments Used For Hedging
The Bank enters into certain derivative and other financial instruments primarily to assist customers with their risk management objectives and to manage the Banks exposure to interest rate risk. When entering into derivatives on behalf of customers, the Bank generally acts as a financial intermediary by offsetting a significant portion of the market risk for these derivatives with third parties. The Bank may also enter into derivatives for other risk management purposes. All derivative instruments are recognized as assets or liabilities on the consolidated balance sheet at fair value.
Counterparty credit risk is inherent in derivative instruments. In order to reduce its exposure to counterparty credit risk, the Bank utilizes credit approvals, limits, monitoring procedures and master netting and credit support annex agreements. Additionally, the Bank considers counterparty credit quality and the creditworthiness of the Bank in estimating the fair value of derivative instruments.
25
Note 8Derivative Instruments and Other Financial Instruments Used For Hedging (Continued)
The table below presents the notional amounts and fair value amounts of the Banks derivative instruments reported on the consolidated balance sheet, segregated between derivative instruments designated and qualifying as hedging instruments and derivative instruments not designated as hedging instruments as of September 30, 2022. Asset and liability values are presented gross, excluding the impact of legally enforceable master netting and credit support annex agreements. The fair value of asset and liability derivatives designated and qualifying as hedging instruments and derivatives designated as other risk management are included in other assets and other liabilities, respectively. The fair value of asset and liability trading derivatives are included in trading account assets and trading account liabilities, respectively.
September 30, 2022 | ||||||||||||
Fair Value | ||||||||||||
(Dollars in millions) |
Notional Amount |
Asset Derivatives |
Liability Derivatives |
|||||||||
Derivative instruments |
||||||||||||
Cash flow hedges: |
||||||||||||
Interest rate contracts |
$ | 4,500 | $ | | $ | | ||||||
Fair value hedges: |
||||||||||||
Interest rate contracts |
2,050 | | | |||||||||
Not designated as hedging instruments: |
||||||||||||
Trading: |
||||||||||||
Interest rate contracts |
177,984 | 247 | 1,000 | |||||||||
Foreign exchange contracts |
22,524 | 1,248 | 778 | |||||||||
|
|
|
|
|
|
|||||||
Total Trading |
200,508 | 1,495 | 1,778 | |||||||||
Other risk management |
524 | 8 | 14 | |||||||||
|
|
|
|
|
|
|||||||
Total derivative instruments |
$ | 207,582 | $ | 1,503 | $ | 1,792 | ||||||
|
|
|
|
|
|
The Bank recognized net losses of $9 million on other risk management derivatives in the nine months ended September 30, 2022, which are included in other noninterest income.
Derivatives Designated and Qualifying as Hedging Instruments
The Bank uses interest rate derivatives to manage the financial impact on the Bank from changes in market interest rates. These instruments are used to manage interest rate risk relating to specified groups of assets and liabilities, primarily LIBOR-based commercial loans and debt issuances. Derivatives that qualify for hedge accounting are designated as either fair value or cash flow hedges.
Cash Flow Hedges
From time to time, the Bank uses interest rate derivatives to hedge the risk of changes in cash flows attributable to changes in the designated interest rate on LIBOR indexed loans, and to a lesser extent, to hedge interest rate risk on rollover debt.
The Bank used interest rate derivatives with an aggregate notional amount of $4.5 billion at September 30, 2022 to hedge the risk of changes in cash flows attributable to changes in the designated interest rates from variable rate loans. At September 30, 2022, the weighted average remaining life of the active cash flow hedges was 2.4 years.
For cash flow hedges, changes in the fair value of the hedging instruments are reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged cash flows are recognized in net interest income. At September 30, 2022, the Bank expects to reclassify approximately $125 million of losses from AOCI as a reduction to net interest income during the twelve months ending September 30, 2023. This amount could differ from amounts actually realized due to changes in interest rates, hedge terminations and the addition of other hedges subsequent to September 30, 2022.
26
Note 8Derivative Instruments and Other Financial Instruments Used For Hedging (Continued)
The following table presents the amount and location of the net gains and losses recorded in the Banks consolidated statement of income and changes in stockholders equity for derivative instruments designated as cash flow hedges in the nine months ended September 30, 2022.
Gains (Losses) Recognized in OCI |
Gains (Losses) Reclassified from AOCI into Income |
|||||||||||
(Dollars in millions) |
For the Nine Months Ended September 30, 2022 |
Location | For the Nine Months Ended September 30, 2022 |
|||||||||
Derivatives in cash flow hedging relationships |
||||||||||||
Interest income | $ | 41 | ||||||||||
Interest rate contracts |
$ | (307 | ) | Interest expense | | |||||||
|
|
|
|
|||||||||
Total |
$ | (307 | ) | $ | 41 | |||||||
|
|
|
|
Fair Value Hedges
The Bank engaged in an interest rate hedging strategy in which interest rate derivatives were associated with specified interest bearing liabilities, in order to convert the liabilities from fixed rate to floating rate instruments. This strategy mitigated the changes in fair value of the hedged liabilities caused by changes in the designated interest rate.
The Bank includes gains or losses on the hedging derivatives and the offsetting changes in the fair values of the hedged liabilities attributable to their designated benchmark interest rate in the same line item in the consolidated statement of income. The following table presents the gains (losses) recognized on fair value hedges in the consolidated statement of income.
Location and Amount of Gains (Losses) Recorded in Income |
||||
(Dollars in millions) |
Interest Expense - Long-term debt | |||
For the Nine Months Ended September 30, 2022 |
||||
Gains (losses) on fair value hedges recognized on: |
||||
Hedged items |
$ | 190 | ||
Derivativesinterest rate contracts |
(191 | ) | ||
Decrease (increase) in interest expense related to interest settlements on derivatives |
39 |
The following table shows the carrying amount and the cumulative basis adjustment related to the application of hedge accounting that is included in the carrying amount of the hedged liabilities in fair value hedging relationships as of September 30, 2022.
Carrying Amount of the Hedged Liabilities |
Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Liabilities |
|||||||
(Dollars in millions) |
September 30, 2022 | September 30, 2022 | ||||||
Balance sheet line item in which the hedge item is included |
||||||||
Long-term debt |
$ | 1,827 | $ | 223 | ||||
|
|
|
|
|||||
Total |
$ | 1,827 | $ | 223 | ||||
|
|
|
|
27
Note 8Derivative Instruments and Other Financial Instruments Used For Hedging (Continued)
Derivatives Not Designated as Hedging Instruments
Trading Derivatives
Derivative instruments classified as trading include derivatives entered into as an accommodation for customers and for certain economic hedging activities at MUB. Trading derivatives are included in trading assets or trading liabilities with changes in fair value reflected in income from trading account activities.
The following table presents the amount of the net gains and losses for derivative instruments classified as trading reported in the consolidated statement of income under the heading trading account activities for the nine months ended September 30, 2022:
Gains (Losses) Recognized in Income on Trading Derivatives |
||||
(Dollars in millions) |
For the Nine Months Ended September 30, 2022 |
|||
Trading derivatives |
||||
Interest rate contracts |
$ | 4 | ||
Foreign exchange contracts |
61 | |||
|
|
|||
Total |
$ | 65 | ||
|
|
Offsetting Financial Assets and Liabilities
The Bank primarily enters into derivative contracts with counterparties utilizing standard International Swaps and Derivatives Association Master Agreements and Credit Support Annex Agreements. These agreements generally establish the terms and conditions of the transactions, including a legal right to set-off amounts payable and receivable between the Bank and a counterparty, regardless of whether or not such amounts have matured or have contingency features.
The following table presents the offsetting of financial assets and liabilities as of September 30, 2022.
September 30, 2022 | ||||||||||||||||||||||||
Gross Amounts Not Offset in Balance Sheet |
||||||||||||||||||||||||
(Dollars in millions) |
Gross Amounts of Recognized Assets/Liabilities |
Gross Amounts Offset in Balance Sheet |
Net Amounts Presented in Balance Sheet |
Financial Instruments |
Cash Collateral Received/Pledged |
Net Amount |
||||||||||||||||||
Financial Assets: |
||||||||||||||||||||||||
Derivative assets |
$ | 1,503 | $ | 1,345 | $ | 158 | $ | 2 | $ | | $ | 156 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 1,503 | $ | 1,345 | $ | 158 | $ | 2 | $ | | $ | 156 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Financial Liabilities: |
||||||||||||||||||||||||
Derivative liabilities |
$ | 1,792 | $ | 270 | $ | 1,522 | $ | 2 | $ | | $ | 1,520 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 1,792 | $ | 270 | $ | 1,522 | $ | 2 | $ | | $ | 1,520 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Note 9Accumulated Other Comprehensive Income
The following table presents the change in each of the components of accumulated other comprehensive income and the related tax effect of the change allocated to each component.
28
Note 9Accumulated Other Comprehensive Income (Continued)
(Dollars in millions) |
Before Tax Amount |
Tax Effect |
Net of Tax |
|||||||||
For the Nine Months Ended September 30, 2022 |
||||||||||||
Cash flow hedge activities: |
||||||||||||
Unrealized net gains (losses) on hedges arising during the period |
$ | (307 | ) | $ | 80 | $ | (227 | ) | ||||
Reclassification adjustment for net (gains) losses on hedges included in interest income for loans |
(41 | ) | 11 | (30 | ) | |||||||
|
|
|
|
|
|
|||||||
Net change |
(348 | ) | 91 | (257 | ) | |||||||
|
|
|
|
|
|
|||||||
Securities: |
||||||||||||
Unrealized holding gains (losses) arising during the period on securities available for sale |
(2,204 | ) | 578 | (1,626 | ) | |||||||
Amortization of net unrealized (gains) losses on held to maturity securities |
60 | (16 | ) | 44 | ||||||||
|
|
|
|
|
|
|||||||
Net change |
(2,144 | ) | 562 | (1,582 | ) | |||||||
|
|
|
|
|
|
|||||||
Pension and other benefits: |
||||||||||||
Amortization of prior service credit(1) |
(20 | ) | 5 | (15 | ) | |||||||
Recognized net actuarial (gain) loss(1) |
47 | (12 | ) | 35 | ||||||||
|
|
|
|
|
|
|||||||
Net change |
27 | (7 | ) | 20 | ||||||||
|
|
|
|
|
|
|||||||
Net change in AOCI |
$ | (2,465 | ) | $ | 646 | $ | (1,819 | ) | ||||
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(1) | These amounts are included in the computation of net periodic pension cost. For additional information, see Note 10 to these consolidated financial statements. |
The following table presents the change in accumulated other comprehensive loss balances.
(Dollars in millions) |
Net Unrealized Gains (Losses) on Cash Flow Hedges |
Net Unrealized Gains (Losses) on Securities |
Pension and Other Postretirement Benefits Adjustment |
Accumulated Other Comprehensive Income (Loss) |
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Balance, December 31, 2021 |
$ | 55 | $ | (89 | ) | $ | (250 | ) | $ | (284 | ) | |||||
Other comprehensive income (loss) before reclassifications |
(227 | ) | (1,626 | ) | | (1,853 | ) | |||||||||
Amounts reclassified from AOCI |
(30 | ) | 44 | 20 | 34 | |||||||||||
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Balance, September 30, 2022 |
$ | (202 | ) | $ | (1,671 | ) | $ | (230 | ) | $ | (2,103 | ) | ||||
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Note 10Employee Pension and Other Postretirement Benefits
The following table summarizes the components of net periodic benefit cost for the nine months ended September 30, 2022. The components of net periodic benefit cost other than the service cost component are included in other noninterest expense in the income statement.
For the Nine Months Ended September 30, 2022 | ||||||||||||
(Dollars in millions) |
Pension Benefits | Other Postretirement Benefits |
ESBPs | |||||||||
Components of net periodic benefit cost: |
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Service cost |
$ | 71 | $ | | $ | | ||||||
Interest cost |
64 | 3 | 1 | |||||||||
Expected return on plan assets |
(200 | ) | (16 | ) | | |||||||
Amortization of prior service credit |
(20 | ) | | | ||||||||
Recognized net actuarial loss |
43 | | 4 | |||||||||
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Total net periodic benefit cost |
$ | (42 | ) | $ | (13 | ) | $ | 5 | ||||
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Note 11Commitments, Contingencies and Guarantees
The following table summarizes the Banks commitments:
(Dollars in millions) |
September 30, 2022 | |||
Commitments to extend credit |
$ | 35,729 | ||
Issued standby and commercial letters of credit |
3,683 | |||
Other commitments |
9 |
Commitments to extend credit are legally binding agreements to lend to a customer provided there are no violations of any condition established in the contract. Commitments have fixed expiration dates or other termination clauses and may require maintenance of compensatory balances. Since many of the commitments to extend credit may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash flow requirements.
Standby and commercial letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. Standby letters of credit are generally contingent upon the failure of the customer to perform according to the terms of the underlying contract with the third party, while commercial letters of credit are issued specifically to facilitate foreign or domestic trade transactions. The majority of these types of commitments have remaining terms of 1 year or less. At September 30, 2022, the carrying amount of the Banks standby and commercial letters of credit totaled $3 million. Estimated exposure to loss related to these commitments is covered by the allowance for losses on unfunded commitments. The carrying amounts of the standby and commercial letters of credit and the allowance for losses on unfunded credit commitments are included in other liabilities on the consolidated balance sheet.
The credit risk involved in issuing loan commitments and standby and commercial letters of credit is essentially the same as that involved in extending loans to customers and is represented by the contractual amount of these instruments. Collateral may be obtained based on managements credit assessment of the customer.
The Bank is subject to various pending and threatened legal actions that arise in the normal course of business. The Bank maintains liabilities for losses from legal actions that are recorded when they are determined to be both probable in their occurrence and can be reasonably estimated. Management believes the disposition of all claims currently pending, including potential losses from claims that may exceed the liabilities recorded, and claims for loss contingencies that are considered reasonably possible to occur, will not have a material effect, either individually or in the aggregate, on the Banks consolidated financial condition, results of operations or liquidity.
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Note 12Subsequent Events
The Bank has evaluated these September 30, 2022 consolidated financial statements for subsequent events through February 16, 2023, the date the consolidated financial statements were available to be issued, and determined that no events have occurred that require disclosure, except as noted below.
On December 1, 2022, MUAH sold all the issued and outstanding shares of common stock of MUB to U.S. Bancorp. Prior to the sale of MUB stock to U.S. Bancorp, MUBs Global Corporate & Investment BankU.S. business (including loans of approximately $19.5 billion), certain middle and back office functions, and certain other assets and liabilities (including Intrepid Investment Bankers LLC and Union Bank of California Leasing, Inc.) were transferred to MUAH and MUFG. Senior debt due to MUAH was repaid and a dividend of $4.6 billion was paid to MUAH prior to sale.
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