DBRS: UnionBanCal’s 4Q13 Positive Adj. Operating Leverage; Solid Loan & Deposit Growth

Summary:
• Adjusting for securities gains and non-core items, UnionBanCal delivered positive operating leverage sequentially.
• Loans held for investment, excluding PCI loans, increased 2% during the quarter, while total deposit growth was more modest.
• DBRS rates UnionBanCal Corporation Issuer & Senior Debt at ‘A’ with a Stable trend.

DBRS, Inc. (DBRS) considers UnionBanCal Corporation’s (UnionBanCal, UB or the Company) 4Q13 results as improving, reflecting positive operating leverage (adjusted for non-core items including securities gains). Moreover, balance sheet fundamentals continue to support the rating including strong asset quality, robust low-cost core deposit funding, and a strong capital position that was augmented by its parent, The Bank of Tokyo-Mitsubishi UFJ, Ltd. (BTMU).

Overall, UB reported net income of $179 million, down 10% sequentially, reflecting lower securities gains and higher compensation expense, partially offset by net interest revenue growth and a larger reversal of provision for loan losses. Higher adjusted revenues were driven by higher net interest revenue, which benefited from solid loan growth and a stable net interest margin. Moreover, adjusted expenses were down 2% sequentially resulting in positive operating leverage.

Following a $1.2 billion capital infusion from BTMU in 4Q13, UB’s capital metrics got even stronger, positioning the Company well for further growth through either organic growth or acquisitions. Moreover, UB also issued $300 million of sub debt to BTMU, which qualifies as Tier 2 capital.

During the quarter, UB closed on the acquisition of First Bank Association Bank Services, which provides a full range of products to homeowner associations and community management companies. The deal added approximately $550 million of deposits.

DBRS rates UnionBanCal Corporation Issuer & Senior Debt at ‘A’ with a Stable trend.

Notes:
All figures are in U.S. dollars unless otherwise noted.

[Amended on December 23th, 2014 to remove unnecessary disclosures.]