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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934, FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
COMMISSION FILE NUMBER 0-28118.
UNIONBANCAL CORPORATION
(Exact name of registrant as specified in its charter)
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CALIFORNIA 94-1234979
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
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350 CALIFORNIA STREET, SAN FRANCISCO, CA 94104-1476
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (415) 705-7350
Securities registered pursuant to Section 12 (b) of the Act:
None
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock
8 3/8% Noncumulative Preferred Stock, Series A
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.
__X__ Yes ______ No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
As of February 28, 1997, the aggregate market value of voting stock held by
nonaffiliates of the registrant was $633,614,908. The aggregate market value was
computed by reference to the last sales price of such stock.
As of February 28, 1997, the number of shares outstanding of the registrant's
common stock was 54,768,421.
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DOCUMENTS INCORPORATED BY REFERENCE
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LOCATION IN FORM 10-K INCORPORATED DOCUMENT
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Part III Portions of the Proxy Statement for the May
28, 1997 Annual Meeting of Shareholders
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INDEX
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PART I PAGE
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ITEM 1. BUSINESS 2
General 2
Banking 2
Bank and Nonbank Subsidiaries 3
Employees 3
Competition 4
Monetary Policy 4
Supervision and Regulation 4
ITEM 2. PROPERTIES 5
ITEM 3. LEGAL PROCEEDINGS 5
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 5
EXECUTIVE OFFICERS OF THE REGISTRANT 6
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER 9
MATTERS
ITEM 6. SELECTED FINANCIAL DATA 9, F-1
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 9, F-1
RESULTS OF OPERATIONS
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 9, F-25
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND 9
FINANCIAL DISCLOSURE
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 10
ITEM 11. EXECUTIVE COMPENSATION 10
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 10
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 10
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K 11
SIGNATURES II-1
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PART I
ITEM 1. BUSINESS
GENERAL
The combination of Union Bank with BanCal Tri-State Corporation and its
banking subsidiary, The Bank of California, N.A., was completed on April 1,
1996, resulting in UnionBanCal Corporation and its banking subsidiary now known
as Union Bank of California, N.A. ("UBOC" or the "Bank"). At December 31, 1996,
UnionBanCal Corporation and consolidated subsidiaries ("UNBC" or the "Company")
was the third largest bank holding company in California and among the thirty
largest in the United States, based on total assets of $29.2 billion.
UnionBanCal Corporation is 81 percent owned by The Bank of Tokyo-Mitsubishi,
Ltd. ("BTM") and 19 percent owned by other shareholders. Union Bank of
California, N.A., is 94 percent owned by UnionBanCal Corporation and 6 percent
directly owned by The Bank of Tokyo-Mitsubishi, Ltd.
The Company provides a wide range of financial services to consumers, small
businesses, middle market companies and major corporations, primarily in
California, Oregon, and Washington, but nationally and internationally, as well.
BANKING
COMMUNITY BANKING
The Community Banking Group serves consumers, smaller businesses, and
government and nonprofit institutions through its branch offices in California,
Oregon, and Washington. It provides a wide variety of loan products and deposit
services with an emphasis on quality customer service. In addition, its deposit
customers are linked with the greatly expanded automated teller and
point-of-sale debit services through its founding membership in the Star
System-Registered Trademark-, the largest shared ATM network in the Western
United States. The Group established the first telephone deposit and loan
information service of its kind in California, which provides account and
interest information on a 24-hour basis, free of charge. The Group also operates
more than 40 full-service branches within retail establishments, primarily
supermarkets, and provides Priority Banking-Registered Trademark- services to
affluent customers.
COMMERCIAL MARKETS
The Commercial Markets Group provides a variety of financial services to
middle market corporate clients ($10 to $200 million in revenues) throughout
California, Oregon, and Washington. Commercial loans, asset-based financing,
trade financing, and customized cash management services are among the products
tailored to the needs of these clients.
CORPORATE BANKING
The Corporate Banking Group provides commercial banking services, including
lines of credit, cash management, and trade finance to corporations with
revenues of $200 million and over in the western United States and, for selected
industries, nationwide.
REAL ESTATE INDUSTRIES
The Real Estate Industries Group is active in commercial and residential
real estate markets, primarily in the western United States. Mortgage and
construction lending are offered to residential builders and commercial property
developers. Permanent real estate financing is provided for residential,
owner-occupied properties.
SPECIALIZED LENDING
The Specialized Lending Group provides customized credit products and
financial services to major communications, media, entertainment, energy,
utility and environmental services clients nationwide. The Specialized Lending
Group also manages the Company's commercial finance, project finance, and
private equity businesses.
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INSTITUTIONAL AND DEPOSIT MARKETS
The Institutional and Deposit Markets Group offers specialized depository
services to domestic and foreign financial institutions, government agencies,
bankruptcy trustees and other clients with significant deposit volumes. These
deposit services provide the Bank with a low cost source of funds and generate
non-interest income.
INTERNATIONAL BANKING
The International Banking Group is a leader in correspondent banking and
trade services. It extends credit to commercial banks, foreign governments and
their agencies, and domestic and foreign entities engaged in international
business. In addition, it is active in the financing of foreign trade and
international money market transactions.
PACIFIC RIM CORPORATE BANKING
The Pacific Rim Corporate Group offers a full range of financial products
and services to majority-owned subsidiaries, branch offices, joint ventures and
representative offices of Asian companies in the U.S. Customers utilize
asset-based financing, equipment leasing, bond financing, trust and cash
management services. The Group provides guidance on local and regional business
development, as well as cultural matters.
TRUST AND PRIVATE FINANCIAL SERVICES
The Trust and Private Financial Services Group provides fiduciary, banking,
investment, and asset management services for individuals and businesses
globally through selected offices in California, Oregon and Washington. Services
provided for individuals include private banking services; acting as executor or
administrator of estates; investment management; sale of investment products;
and acting as trustee for a broad variety of trusts. Services offered for
businesses and governmental organizations include municipal obligation
underwriting, domestic and global custody services, including securities
lending, sale of investment products, and acting as trustee for bond and
debenture issues and pension, profit sharing and other employee benefit plans.
The Group provides investment management services for individuals, corporations,
and other institutional clients through Pacific Alliance Capital Management and
also markets two proprietary mutual fund families, HighMark Funds and Stepstone
Funds.
TREASURY
The Treasury Group provides financial risk management products and services
including foreign exchange, interest rate derivatives, and non-equity investment
securities to institutional investor clients.
BANK AND NONBANK SUBSIDIARIES
The Company has twelve subsidiaries in addition to the Bank that provide
various types of services to it and its customers. Bankers Commercial
Corporation, UNBC Leasing, Inc. and UnionBanCal Leasing Corporation engage in
equipment leasing and other lease related financing. Cal First Properties, Inc.
holds and manages various properties used by the Company. UnionBanCal Venture
Corporation is a small business investment company licensed under the Small
Business Investment Act of 1958. UnionBanCal Commercial Funding Corporation
sells commercial paper and invests the proceeds in Eurodollar placements with
the Bank. UnionBanCal Equities, Inc. invests in equity securities of other
companies. SBS Realty, Inc. was established to hold and dispose of other real
estate owned ("OREO"). The remaining subsidiaries are mostly inactive.
The Bank has two active subsidiaries. UBOC Investment Services, Inc., a
registered securities broker/ dealer and member of the National Association of
Securities Dealers, offers a wide range of investment products. These products
include a wide range of securities, including publicly traded stocks, treasury
and government agency issues, stock options, corporate and municipal bonds and
mutual funds. In addition, it provides a wholesale investment program to other
financial institutions. Union Bank of California International is an Edge Act
subsidiary supporting the Bank's international correspondent banking business.
EMPLOYEES
At December 31, 1996, the Company and its subsidiaries had 9,538
full-time-equivalent employees.
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COMPETITION
Banking is a highly competitive business. The Company competes actively for
loan, deposit, and other financial services business in California, Oregon, and
Washington, as well as nationally and internationally. The Company's competitors
include a large number of state and national banks and major foreign-affiliated
or foreign banks, as well as many financial and nonfinancial firms which offer
services similar to or competitive with those offered by the Company or its
subsidiaries.
The Company believes that continued emphasis on enhanced services and
distribution systems, an expanded customer base, increased productivity and
upgraded credit quality, together with a strong capital base, will position it
to meet the challenges provided by this competition.
MONETARY POLICY
The operations of bank holding companies and their subsidiaries are affected
by the credit and monetary policies of the Federal Reserve Board (the "FRB").
The FRB influences financial performance through its management of the discount
rate, the money supply, and reserve requirements on bank deposits. Monetary
policies of the FRB have had and will continue to have a significant effect on
the operating results of financial institutions, including the Company.
SUPERVISION AND REGULATION
The Company is subject to regulation under the Bank Holding Company Act of
1956, as amended ("BHCA"), which subjects it to requirements for filing reports
with the Board of Governors of the Federal Reserve System and for undergoing
regular inspections by the Federal Reserve Bank of San Francisco. Generally, the
BHCA restricts any investment that the Company may make to no more than 5% of
the voting shares of any non-banking entity, and the Company may not acquire
more than 5% of the voting shares of any domestic bank without the prior
approval of the bank regulatory authorities. The Company's activities are
limited, with some exceptions, to banking, the business of managing or
controlling banks, and activities which the regulatory authorities deem to be so
closely related to banking as to be a "proper incident thereto."
The Bank and its subsidiaries are regulated by the Office of the Comptroller
of the Currency ("OCC"). The Company's subsidiaries are also subject to
extensive regulation, supervision and examination by various federal and state
regulatory agencies. In addition, the Bank and its subsidiaries are subject to
certain restrictions under the Federal Reserve Act, including restrictions on
affiliate transactions. Dividends payable by the Bank to the Company are subject
to a formula imposed by the OCC unless express approval is given to deviate from
the formula. For more information regarding restrictions on loans and dividends
by the Bank to its affiliates and on transactions with affiliates, see Notes 16
and 19 to the Consolidated Financial Statements included in this Form 10-K.
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
imposed stricter capital requirements on banks. FDICIA requires federal bank
regulatory authorities to take "prompt corrective action" in dealing with
inadequately capitalized banks. FDICIA established five tiers of capital
measurement ranging from "well capitalized" to "critically undercapitalized". It
is the Company's policy to maintain risk-based capital ratios for both the
Company and the Bank above the "well capitalized" levels. At December 31, 1996,
the Company and the Bank met the requirements of a "well capitalized"
institution.
Furthermore, the activities of the broker-dealer subsidiary of the Bank,
UBOC Investment, Inc., are subject to the rules and regulations promulgated by
the Securities and Exchange Commission and the National Association of
Securities Dealers, Inc., as well as other securities regulators at the state
level.
There are additional requirements and restrictions in the laws of the United
States and the states of California, Oregon and Washington, as well as other
states in which the Bank and its subsidiaries may conduct operations which may
include restrictions on the amount of loans and the nature and amount of
investments, as well as activities as an underwriter of securities, the opening
and closing of branches and the acquisitions of other financial institutions.
The activities of the Bank in the international arena may be subject to the
laws and regulations of the jurisdiction where business is being conducted which
may change from time to time and affect the business
4
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opportunities and competitiveness of the Bank in these jurisdictions.
Furthermore, due to the controlling ownership of the Company by BTM, regulatory
requirements adopted or enforced by the Government of Japan may have an effect
on the activities and investments of the Company and the Bank in the future.
The trend followed in recent years by the United States Congress has been to
make major legislative changes which, in turn, lead to major regulatory changes,
which affect the Company, the Bank and its subsidiaries, as well as the
financial services industry in general. Such changes can be expected to occur in
the future. Generally, the effect of such changes has been to increase
competition and narrow the functional distinctions amongst different types of
financial institutions. In some cases, these changes create opportunities for
the Company and the Bank, as well as the financial services industry, to compete
in financial markets on a more general basis with less regulation. However,
these changes also lead to new and major competitors in geographic and product
markets which have historically been limited by law and regulation to depository
institutions, such as the Bank.
Changes in the laws, regulations, or policies that impact the Company and
the Bank cannot necessarily be predicted and may have a material affect on the
business and earnings thereof.
ITEM 2. PROPERTIES
At December 31, 1996, the Company operated 238 full service branches and 31
limited service offices in California, 5 full service branches in Oregon and
Washington, and 17 overseas branches and business offices. The Company owns the
property occupied by 71 of the domestic offices and leases the remaining
properties for periods of five to twenty years.
The Company owns 3 administrative facilities in San Francisco and 3 in San
Diego. Other administrative offices in Los Angeles, Portland, Seattle, and New
York operate under long-term leases expiring in three to fifteen years.
Rental expense for branches and administrative premises are included in Note
5 to the Company's Consolidated Financial Statements.
ITEM 3. LEGAL PROCEEDINGS
The Company is subject to various pending and threatened legal actions which
arise in the normal course of business. The Company maintains reserves for
losses from legal actions which are both probable and estimable. In the opinion
of management, the disposition of claims currently pending will not have a
material adverse effect on the Company's financial position or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
5
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EXECUTIVE OFFICERS OF THE REGISTRANT
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EXECUTIVE OFFICER AGE PRINCIPAL OCCUPATIONS FOR THE PAST FIVE YEARS
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Tamotsu Yamaguchi........... 66 Mr. Yamaguchi has served as Chairman of the Company and the Bank since April
1996. He served as Chairman of the former Union Bank from September 1992
until March 1996. He served as Deputy President of the former Bank of Tokyo,
Ltd. from September 1989 through September 1992. He has served as a director
of the Company since September 1992.
Kanetaka Yoshida............ 59 Mr. Yoshida has served as President and Chief Executive Officer of the
Company and the Bank since April 1996. He served as President and Chief
Executive Officer of the former Union Bank from June 1993 until March 1996.
He served as Vice Chairman and Chief Financial Officer of the former Union
Bank from October 1990 until June 1993. He has served as a director of the
Bank of Tokyo-Mitsubishi, Ltd. since April 1996 and as a director of the
former Bank of Tokyo, Ltd. prior thereto. He has served as a director of the
Company since September 1990.
Hiroo Nozawa................ 54 Mr. Nozawa has served as Deputy Chairman and Chief Operating Officer of the
Company and the Bank since April 1996. He served as Chairman, President and
Chief Executive Officer of the former BanCal Tri-State Corporation and the
former Bank of California, N.A. from March 1994 until March 1996. He served
as the General Manager of the Corporate Banking Division 1 of The Mitsubishi
Bank, Limited from June 1992 to December 1993. He served as Executive Vice
President and General Manager for the North American Administration of the
North American Headquarters of The Mitsubishi Bank, Limited from July 1990 to
June 1992. He served as a director of The Mitsubishi Bank, Limited from June
1992 until March 1996. He also served as a director of the former BanCal
Tri-State Corporation and the former Bank of California, N.A. from January
1994 until March 1996. He has been a director of the Bank of
Tokyo-Mitsubishi, Ltd. since April 1996. Mr. Nozawa has served as a director
of the Company since April 1996.
Richard C. Hartnack......... 51 Mr. Hartnack has served as Vice Chairman and head of the Community Banking
Group of the Company and the Bank since April 1996. He served as Vice
Chairman of the former Union Bank from June 1991 until March 1996. He has
served as a director of the Company since June 1991.
Roy A. Henderson............ 54 Mr. Henderson has served as Vice Chairman and head of the Trust & Private
Financial Services Group of the Company and the Bank since April 1996. He
served as Vice Chairman and Director of the former BanCal Tri-State
Corporation and the former Bank of California, N.A. from November 1993 until
March 1996. He was Chairman and Chief Executive Officer of LoPresti Flight
Concepts, Inc. from May 1991 until December 1994. He served as the President
and Chief Operating Officer of Puget Sound Bancorp from September 1988 to
September 1990. He has served as a director of the Company since April 1996.
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EXECUTIVE OFFICER AGE PRINCIPAL OCCUPATIONS FOR THE PAST FIVE YEARS
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Takahiro Moriguchi.......... 53 Mr. Moriguchi has served as Vice Chairman and Chief Financial Officer of the
Company and the Bank since April 1996. He served as Vice Chairman and Chief
Financial Officer of the former Union Bank from June 1993 until March 1996.
He served as General Manager of The Bank of Tokyo, Ltd.'s Capital Markets
Division 2 from May 1992 to May 1993 and as President and Managing Director
of The Bank of Tokyo Capital Markets, Ltd. London, from July 1988 to April
1992. He has served as a director of The Bank of Tokyo-Mitsubishi, Ltd. since
April 1996 and as a director of the former Bank of Tokyo, Ltd. prior thereto.
He has served as a director of the Company since June 1993.
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Minoru Noda................. 50 Mr. Noda has served as Vice Chairman and Chief Credit Officer of the Company
since April 1996. He served as Vice Chairman, Credit and Finance, and
Director of the former BanCal Tri-State Corporation and the former Bank of
California, N.A. from June 1993 until March 1996. He served as Executive Vice
President for Regional Banking of the former BanCal Tri-State Corporation and
the former Bank of California, N.A. from July 1992 through June 1993. He
served as General Manager of the Higashi-Nagasaki Branch of The Mitsubishi
Bank, Limited from October 1990 through July 1992. He has served as a
director of the Company since April 1996.
Robert M. Walker............ 55 Mr. Walker has served as Vice Chairman and head of the Commercial Financial
Services Group for the Company and the Bank since April 1996 and head of the
Corporate and Real Estate Banking Group for the Company and the Bank since
July 1996. He served as Vice Chairman and head of the Commercial Financial
Services Group of the former Union Bank from July 1992 until March 1996. He
served as Vice Chairman of the Boards of Valley National Corporation and
Valley National Bank of Arizona from December 1991 through July 1992. He has
served as a director of the Company since July 1992.
Peter R. Butcher............ 57 Mr. Butcher has served as Executive Vice President, Credit Management Group,
of the Company and the Bank since April 1996. He served as Executive Vice
President and Chief Credit Officer of the former BanCal Tri-State Corporation
and former Bank of California, N.A. from July 1993 until March 1996. He
served as Executive Vice President of Society National Bank from March 1992
to July 1993 and as Chief Credit Officer of Ameritrust Corporation from
September 1990 to March 1992.
David W. Ehlers............. 57 Mr. Ehlers has served as Executive Vice President and Director of Finance of
the Company and the Bank since April 1996. He served as Executive Vice
President and Chief Financial Officer of the former BanCal Tri-State
Corporation and the former Bank of California, N.A. from July 1984 until
March 1996.
Magan C. Patel.............. 59 Mr. Patel has served as Executive Vice President and head of the
International Banking Group of the Company and the Bank since April 1996. He
served as Executive Vice President of the former BankCal Tri-State
Corporation and the former Bank of California, N.A. for more than five years
prior thereto.
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EXECUTIVE OFFICER AGE PRINCIPAL OCCUPATIONS FOR THE PAST FIVE YEARS
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Charles L. Pedersen......... 53 Mr. Pedersen has served as Executive Vice President and head of the Systems,
Technology and Item Processing Group of the Company and the Bank since April
1996. He served as Executive Vice President and head of the Bank Operations &
Automation Group of the former Union Bank from September 1992 until March
1996. He served as Senior Vice President in the same position from November
1988 through September 1992.
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Michael A. C. Spilsbury..... 47 Mr. Spilsbury has served as Executive Vice President and head of the
Operations and Services Group of the Company and the Bank since April 1996.
He served as Executive Vice President, Resources and Services, with the
former BanCal Tri-State Corporation and the former Bank of California, N.A.
from July 1991 through March 1996.
Yuji Taniguchi.............. 50 Mr. Taniguchi has served as Executive Vice President and head of the Pacific
Rim Corporate Group of the Company and the Bank since April 1996. He also has
served as General Manager of the Los Angeles Branch of The Bank of
Tokyo-Mitsubishi, Ltd. since April 1996. He served as Executive Vice
President and head of the Pacific Rim Corporate Group of the former Union
Bank from February 1995 until March 1996. He served as General Manager of the
Los Angeles Agency from February 1995 to March 1996, as General Manager of
the Yokohama-Ekimae Office from February 1993 to February 1995, and as Deputy
General Manager of the Loan Division from March 1990 to February 1993 of the
former Bank of Tokyo, Ltd. He has served as a director of the Company since
1995.
Philip M. Wexler............ 58 Mr. Wexler has served as Executive Vice President and head of the Specialized
Lending Group of the Company and the Bank since April 1996. He served as
Executive Vice President and General Manager of the Specialized Lending Group
of the former Union Bank from October 1987 through March 1996.
Donald A. Brunell, Jr....... 52 Mr. Brunell has served as Executive Vice President and Deputy Director of
Finance of the Company and the Bank since April 1996. He served as Executive
Vice President and Director of Finance of the former Union Bank from February
1995 until March 1996. He served as Senior Vice President and Director of
Finance of the former Union Bank for more than five years prior thereto.
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The term of office of the executive officer extends until the officer
resigns, is removed, retires, or is otherwise disqualified for service. There is
no family relationship among any such officers.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Company's common stock is traded on the Nasdaq National Market under the
symbol UNBC. As of February 28, 1997, the Company's common stock was held of
record by approximately 1,882 shareholders, and approximately 81 percent of the
Company's common stock was held by BTM. During 1996 and 1995, the average daily
trading volume of the Company's common stock was approximately 35,633 shares and
51,228 shares, respectively. At December 31, 1996, 1995 and 1994, the Company's
common stock closed at $53.00 per share, $54.25 per share and $26.75 per share,
respectively. The following table presents stock quotations for each quarterly
period for the two years ended December 31, 1996.
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1996 1995
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HIGH LOW HIGH LOW
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First quarter............................................................... 57 1/2 50 3/4 35 26 3/4
Second quarter.............................................................. 55 1/2 46 1/2 42 1/4 33 3/4
Third quarter............................................................... 53 1/4 46 1/4 57 3/4 41 1/2
Fourth quarter.............................................................. 56 49 57 1/2 48 1/2
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For the years ended December 31, 1996, 1995 and 1994, the Company declared
quarterly dividends on its common stock at the per share rate of $0.35. The
Company offers a dividend reinvestment plan that allows shareholders to reinvest
dividends in the Company's common stock at five percent below the market price.
At December 31, 1996, BTM was not a participant in the plan.
The availability of retained earnings of the Company for the payment of
dividends is affected by certain legal restrictions. Dividends on the Company's
common stock are further restricted by certain provisions of the Company's
outstanding noncumulative preferred stock. These provisions specify that no
common stock dividend shall be declared, paid or set aside unless and until the
Company has paid full dividends on the preferred stock for the four most recent
quarterly dividend periods.
In addition, see Notes 12 and 16 to the Company's Consolidated Financial
Statements.
ITEM 6. SELECTED FINANCIAL DATA
See page F-1 of this Form 10-K.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
See pages F-1 through F-24 of this Form 10-K.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See pages F-25 through F-65 of this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The selection of Deloitte & Touche LLP as independent auditors for the
Company was ratified by the Board of Directors on May 22, 1996, as previously
reported on Form 8-K dated May 22, 1996, and incorporated by reference herein.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Reference is made to the Company's Proxy Statement for the May 28, 1997,
Annual Meeting of Shareholders for incorporation of information concerning
directors and persons nominated to become directors of the Company. Information
concerning executive officers of the Company as of February 28, 1997, is
included in Part I above in accordance with Instruction 3 to Item 401(b) of
Regulation S-K.
ITEM 11. EXECUTIVE COMPENSATION
Information concerning executive compensation is incorporated by reference
from the text under the caption "Compensation and Other Transactions with
Management and Others" in the Proxy Statement for the May 28, 1997, Annual
Meeting of Shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information concerning ownership of the equity stock of UNBC by certain
beneficial owners and management is incorporated by reference from page 1 and
the text under the caption "Election of Directors" in the Proxy Statement for
the May 28, 1997, Annual Meeting of Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning certain relationships and related transactions with
officers, directors, and BTM is incorporated by reference from the text under
the caption "Transactions with Management and Others" in the Proxy Statement for
the May 28, 1997, Annual Meeting of Shareholders.
10
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS
The consolidated financial statements of the Company, the Management
Statement and the independent auditors' reports are set forth on pages F-26
through F-65. (See index on page F-25).
(a)(2) FINANCIAL STATEMENT SCHEDULES
All schedules to the consolidated financial statements are omitted because
of the absence of the conditions under which they are required or because the
required information is included in the consolidated financial statements or
accompanying notes.
(a)(3) EXHIBITS
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INCORPORATED BY REFERENCE
FROM FILE NO. 0-28118
-------------------------------
REPORT ON FORM
-------------------------------
FILED 8-K EXHIBIT
NO. DESCRIPTION HEREWITH DATED NO.
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2.1 Agreement and Plan of Reorganization, dated as of September 27, 1995, among 4/1/96 2.1
Union Bank, The Bank of California, N.A., and BanCal Tri-State Corporation
2.2 Agreement and Plan of Merger, dated as of September 27, 1995, between Union Bank 4/1/96 2.2
and BanCal Tri-State Corporation
2.3 Purchase and Assumption Agreement, dated as of September 27, 1995, between Union 4/1/96 2.3
Bank and The Bank of California, N.A.
2.4 Special Meeting Proxy Statement dated January 8, 1996 4/1/96 19.1
3(i) Restated Articles of Incorporation of the Registrant, as amended 4/1/96 3.1
3(ii) By-laws of the Registrant, as amended 4/1/96 3.2
4.1 Certificate of Determination of the Preferred Stock of the Registrant 4/1/96 4.1
10.1 Management Stock Plan. (As amended effective February 1, 1991)* 4/1/96 10.3
10.2 Union Bank of California Deferred Compensation Plan. (January 1, 1997, X
Restatement, as amended November 21, 1996)*
10.3 Union Bank of California Senior Management Bonus Plan. (Effective January 1, X
1996)*
10.4 Richard C. Hartnack Employment Agreement (Effective June 4, 1991) and Amendment 4/1/96 10.6
to Employment Agreement (Dated February 24, 1992)*
10.5 Robert M. Walker Employment Agreement. (Effective July 1, 1992)* 4/1/96 10.7
10.6 Roy A. Henderson Employment and Separation Agreement. (Effective August 13, X
1993, as amended December 7, 1995)*
10.7 Union Bank Supplemental Executive Retirement Plan. (Effective January 1, 1988) 4/1/96 10.10
(Amended November 17, 1995)*
10.8 Bank of California Executive Supplemental Benefits Plan (Restated as of January X
1, 1990)*
10.9 Union Bank Executive Wellness Plan. (Effective January 1, 1994)* 4/1/96 10.12
10.10 Union Bank Financial Services Reimbursement Program. (Effective January 1, 4/1/96 10.14
1996)*
12.1 Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock X
Dividend Requirements
16.1 Letter re: change in certifying accountant 5/22/96 16
21.1 Subsidiaries of the Registrant X
23.1 Consent of Deloitte & Touche LLP X
23.2 Consent of Arthur Andersen LLP X
27 Financial Data Schedule X
</TABLE>
- -------------
* Management contract or compensatory plan, contract or arrangement.
(b) REPORTS ON FORM 8-K
None.
11
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
AS OF AND FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 1996 1995 1994 1993 1992
- -------------------------------------------------- ----------- ----------- ----------- ----------- -----------
RESULTS OF OPERATIONS:
Net interest income (1)......................... $ 1,175,302 $ 1,152,777 $ 1,007,789 $ 986,411 $ 1,024,509
Provision for credit losses..................... 40,000 53,250 73,000 151,000 255,500
Noninterest income.............................. 418,676 395,319 359,831 405,965 362,943
Noninterest expense, excluding merger and
integration expense (4)........................ 1,017,440 978,101 1,036,349 1,055,020 985,831
----------- ----------- ----------- ----------- -----------
Income before merger and integration expense and
income taxes (1)(4)............................ 536,538 516,745 258,271 186,356 146,121
Merger and integration expense.................. 117,464 -- -- -- --
----------- ----------- ----------- ----------- -----------
Income before income taxes and cumulative effect
of accounting change (1)(4).................... 419,074 516,745 258,271 186,356 146,121
Taxable-equivalent adjustment................... 6,724 10,444 12,566 14,734 18,071
Income tax expense.............................. 162,892 193,359 120,356 63,966 69,132
----------- ----------- ----------- ----------- -----------
Income before cumulative effect of accounting
change......................................... 249,458 312,942 125,349 107,656 58,918
Cumulative effect of accounting change (5)...... -- -- -- 192,793 --
----------- ----------- ----------- ----------- -----------
Net income...................................... $ 249,458 $ 312,942 $ 125,349 $ 300,449 $ 58,918
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
NET INCOME APPLICABLE TO:
Common stock.................................... $ 225,080 $ 284,196 $ 104,364 $ 251,392 $ 52,248
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Parent direct interest in bank subsidiary....... $ 13,072 $ 17,441 $ 9,681 $ 37,782 $ (2,869)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
PER AVERAGE COMMON SHARE:
Income before cumulative effect of accounting
change (5)..................................... $ 4.11 $ 5.21 $ 1.95 $ 1.72 $ 1.03
Net income...................................... 4.11 5.21 1.95 4.81 1.03
Pro forma earnings, excluding after-tax merger
and integration expense and cumulative effect
of accounting change (4)....................... 5.35 5.21 1.95 1.72 1.03
Dividends (2)................................... 1.40 1.40 1.40 1.40 1.40
Book value (end of period)...................... 40.74 40.04 35.26 34.28 30.77
Common shares outstanding (end of period)....... 54,762,653 54,670,283 53,957,991 53,273,395 50,562,799
Weighted average common shares outstanding...... 54,740,468 54,545,552 53,639,889 52,229,174 50,535,641
BALANCE SHEET (END OF PERIOD):
Total assets.................................... $29,234,059 $27,546,859 $24,569,042 $24,005,530 $25,105,296
Total loans..................................... 20,898,105 20,226,089 18,065,650 17,759,181 19,006,133
Nonperforming assets............................ 156,784 246,871 421,227 1,193,450 1,702,003
Subordinated capital notes and redeemable
preferred stock................................ 517,000 636,369 790,859 860,859 944,567
Common equity................................... 2,231,244 2,189,096 1,902,595 1,826,243 1,555,846
BALANCE SHEET (PERIOD AVERAGE):
Total assets.................................... $27,899,734 $25,564,843 $23,692,560 $23,926,924 $24,828,564
Total loans..................................... 20,524,111 18,974,540 17,616,002 18,219,288 19,787,306
Common equity................................... 2,190,706 2,047,475 1,849,718 1,773,705 1,563,266
Earning assets.................................. 24,717,326 22,849,129 21,046,600 21,176,396 22,423,685
FINANCIAL RATIOS:
Return on average assets........................ 0.89% 1.22% 0.53% 1.26% 0.24%
Pro forma return on average assets, excluding
after-tax merger and integration expense and
cumulative effect of accounting change (4)..... 1.15 1.22 0.53 0.45 0.24
Return on average common equity................. 10.27 13.88 5.64 14.17 3.34
Pro forma return on average common equity,
excluding after-tax merger and integration
expense and cumulative effect of accounting
change (4)..................................... 13.36 13.88 5.64 5.06 3.34
Efficiency ratio (3)............................ 71.02 63.39 70.39 66.92 66.14
Pro forma efficiency ratio, excluding merger and
integration expense (3)(4)..................... 63.65 63.39 70.39 66.92 66.14
Net interest margin (1)......................... 4.75 5.05 4.79 4.66 4.57
Tier 1 risk-based capital ratio................. 9.08 9.35 9.24 8.88 7.24
Total risk-based capital ratio.................. 11.17 11.70 12.03 12.07 10.80
Leverage ratio.................................. 8.41 8.70 8.67 8.26 6.62
Allowance for credit losses to total loans...... 2.51 2.74 3.12 3.90 4.16
Allowance for credit losses to nonaccrual
loans.......................................... 408.48 266.56 161.08 84.82 67.11
Net loans charged off to average total loans.... 0.35 0.32 1.15 1.37 1.25
Nonperforming assets to total loans, real estate
ventures and foreclosed assets................. 0.75 1.22 2.32 6.58 8.72
Nonperforming assets to total assets............ 0.54 0.90 1.71 4.97 6.78
</TABLE>
- ------------------------
(1) Amounts are on a taxable-equivalent basis, using the federal statutory tax
rate of 35 percent.
(2) Amounts prior to the merger are based on Union Bank only and do not include
the dividend of $145 million paid to The Mitsubishi Bank, Limited in the
first quarter of 1996 by BanCal Tri-State Corporation and The Bank of
California, N.A.
(3) The efficiency ratio is noninterest expense, excluding foreclosed asset
expense, as a percentage of net interest income (taxable-equivalent) and
noninterest income. Foreclosed asset expense was $2.9 million, $(3.2)
million, $73.7 million, $123.3 million, and $68.2 million for 1996 through
1992, respectively.
(4) See page F-2 "Merger Accounting" for a description of merger accounting and
pro forma earnings presentation.
(5) 1993 net income includes the cumulative effect of the adoption of Statement
of Financial Accounting Standard No. 109, "Accounting for Income Taxes".
F-1
<PAGE>
Management's discussion and analysis ("MD&A") of the consolidated financial
condition and results of operations of the Company for the years ended December
31, 1996, 1995, and 1994, should be read in conjunction with the Company's
consolidated financial statements and accompanying notes. Averages as presented
in the following tables are daily average balances.
THIS DOCUMENT MAY CONTAIN FORWARD-LOOKING STATEMENTS THAT ARE SUBJECT TO
RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
FROM THOSE INDICATED. FOR A DISCUSSION OF FACTORS THAT COULD CAUSE ACTUAL
RESULTS TO DIFFER, PLEASE SEE THE DISCUSSION CONTAINED HEREIN AND IN THE
COMPANY'S PUBLICLY AVAILABLE SECURITIES AND EXCHANGE COMMISSION FILINGS AND
PRESS RELEASES.
MERGER ACCOUNTING
The combination of Union Bank with BanCal Tri-State Corporation and its
banking subsidiary, The Bank of California, N.A., was completed on April 1,
1996, resulting in UnionBanCal Corporation and its banking subsidiary now known
as Union Bank of California, N.A.
The combination was accounted for as a reorganization of entities under
common control (similar to a pooling of interests). Accordingly, all historical
financial information has been restated as if the combination had been in effect
for all periods presented.
To facilitate the discussion of the results of operations, the Selected
Financial Data table on page F-1 includes certain pro forma earnings disclosures
and ratios. These presentations supplement the Consolidated Statements of Income
on page F-26 (which are prepared in accordance with generally accepted
accounting principles), primarily with respect to the treatment of merger and
integration expense. Management believes that it is meaningful to understand the
operating results and trends excluding these expenses and, therefore, has
included information in this table and in the MD&A that follows which presents
income before merger and integration expense and income taxes and related pro
forma ratios and per share calculations.
OVERVIEW
Net income in 1996 was $249 million, including $72 million (after-tax) of
merger and integration related expense recorded in connection with the April 1,
1996, combination of Union Bank and BanCal Tri-State Corporation. Net income in
1995 was $313 million. Net income applicable to common stock was $225 million,
or $4.11 per common share, in 1996, compared with $284 million, or $5.21 per
common share, in 1995. Excluding after-tax merger and integration expense, pro
forma earnings for 1996 were $321 million. Pro forma earnings applicable to
common stock were $293 million, or $5.35 per common share, an increase of 3
percent over the comparable figures for 1995. Pro forma earnings were higher due
to a 2 percent increase in net interest income, a 6 percent increase in
noninterest income, and a $13 million reduction in the provision for credit
losses, partially offset by a 4 percent increase in noninterest expense
(excluding merger and integration expense) and an increase in the effective
income tax rate.
The return on average assets for 1996 was 0.89 percent, compared to 1.22
percent for 1995. The pro forma return on average assets (excluding after-tax
merger and integration expense) was 1.15 percent for 1996. The return on average
common equity for 1996 was 10.3 percent, compared with 13.9 percent for 1995.
The pro forma return on average common equity (excluding after-tax merger and
integration expense) was 13.4 percent for 1996.
On a taxable-equivalent basis, net interest income was $1,175 million in
1996, an increase of $23 million, or 2 percent, over 1995. Average loans
increased $1,550 million, or 8 percent, while the net interest margin declined
30 basis points to 4.75%.
Noninterest income was $419 million in 1996, an increase of $23 million, or
6 percent, over 1995. Service charges on deposit accounts and trust fees were
the largest components of noninterest income, and each grew 7 percent during
1996.
Excluding merger and integration expense, noninterest expense in 1996 was
$39 million, or 4 percent, higher than in 1995. Increases in salaries and
benefits and occupancy expense (due to a $12 million charge
F-2
<PAGE>
related to former banking facilities) were partially offset by reductions in
federal deposit insurance expense and other expense. The efficiency ratio in
1996 was 71.0 percent, compared with 63.4 percent in 1995. Excluding merger and
integration expense, the efficiency ratio was 63.6 percent in 1996.
Merger and integration expense in 1996 was $117 million, including $54
million in facilities expense, $40 million in employee-related expense, $8
million in professional fees, and $16 million in other expense.
The provision for credit losses was $40 million in 1996, compared with $53
million in 1995, reflecting improvement in the quality of the Company's loan
portfolio and a reduction in nonaccrual loans. Net loans charged off in 1996
were $71 million, or 0.35% of average loans outstanding, compared with $61
million, or 0.32% of average loans outstanding, in 1995.
Total loans at December 31, 1996, were $20.9 billion, an increase of $672
million, or 3 percent, over year-end 1995, primarily due to growth in both the
residential and commercial mortgage portfolios.
Total nonperforming assets at December 31, 1996, were $157 million, a
decline of $90 million, or 36 percent, from one year earlier. Total nonaccrual
loans were $128 million at December 31, 1996, compared with $208 million at
year-end 1995, resulting in a reduction in the ratio of nonaccrual loans to
total loans from 1.03% at December 31, 1995 to 0.61% at year-end 1996. The
allowance for credit losses was $524 million, or 408% of total nonaccrual loans,
at December 31, 1996, compared with $555 million, or 267% of total nonaccrual
loans, at December 31, 1995.
At December 31, 1996, the Tier 1 risk-based capital ratio was 9.1% and the
total risk-based capital ratio was 11.2%, exceeding the minimum regulatory
guidelines for bank holding companies of 4% and 8%, respectively. The Tier 1 and
total risk-based capital ratios for the Bank at December 31, 1996, exceeded the
regulatory guidelines for "well-capitalized" banks. The Company's leverage ratio
was 8.4% at December 31, 1996, exceeding the minimum regulatory guideline for
bank holding companies.
F-3
<PAGE>
NET INTEREST INCOME
AVERAGE BALANCES, AVERAGE RATES, AND NET INTEREST MARGIN
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1996 1995
-------------------------------------- ---------------------------------------
<CAPTION>
INTEREST AVERAGE INTEREST AVERAGE
AVERAGE INCOME/ YIELD/ RATE AVERAGE INCOME/ YIELD/ RATE
(DOLLARS IN THOUSANDS) BALANCE EXPENSE (1) (1) BALANCE EXPENSE (1) (1)
- ---------------------------------------------- ------------ ----------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Loans: (2)
Domestic.................................. $ 19,323,118 $ 1,604,430 8.30% $ 17,783,993 $ 1,540,694 8.66%
Foreign................................... 1,200,993 73,054 6.08 1,190,547 76,723 6.44
Investment securities -- taxable (3).......... 2,138,282 133,170 6.23 2,055,504 120,210 5.85
Investment securities -- tax-exempt (3)....... 151,970 15,451 10.17 185,934 18,984 10.21
Interest bearing deposits in banks............ 911,575 52,709 5.78 930,999 58,201 6.25
Federal funds sold and securities purchased
under resale agreements...................... 547,547 30,246 5.52 368,684 22,247 6.03
Trading account securities.................... 443,841 24,968 5.63 333,468 20,578 6.17
------------ ----------- ------------ -----------
Total earning assets...................... 24,717,326 1,934,028 7.82 22,849,129 1,857,637 8.13
----------- -----------
Allowance for credit losses................... (544,806) (573,648)
Cash and due from banks....................... 1,926,050 1,617,715
Premises and equipment, net................... 425,943 411,794
Other assets.................................. 1,375,221 1,259,853
------------ ------------
Total assets.............................. $ 27,899,734 $ 25,564,843
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits in domestic offices:
Interest bearing............................ $ 5,001,060 135,821 2.72 $ 4,955,750 129,860 2.62
Savings and consumer time................... 2,837,198 105,350 3.71 2,738,588 99,215 3.62
Large time.................................. 4,095,222 218,959 5.35 2,474,685 128,974 5.21
Deposits in foreign offices................... 1,504,067 71,437 4.75 1,806,820 96,109 5.32
------------ ----------- ------------ -----------
Total interest bearing deposits........... 13,437,547 531,567 3.96 11,975,843 454,158 3.79
------------ ----------- ------------ -----------
Federal funds purchased and securities sold
under repurchase agreements.................. 933,433 47,095 5.05 1,384,762 78,908 5.70
Subordinated capital notes.................... 458,966 30,104 6.56 615,868 42,538 6.91
Other borrowed funds.......................... 2,739,138 149,960 5.47 2,180,498 129,256 5.93
------------ ----------- ------------ -----------
Total borrowed funds...................... 4,131,537 227,159 5.50 4,181,128 250,702 6.00
------------ ----------- ------------ -----------
Total interest bearing liabilities........ 17,569,084 758,726 4.32 16,156,971 704,860 4.36
----------- -----------
Demand deposits............................... 6,663,997 5,994,129
Other liabilities............................. 1,206,216 1,081,267
------------ ------------
Total liabilities......................... 25,439,297 23,232,367
SHAREHOLDERS' EQUITY.......................... 2,460,437 2,332,476
------------ ------------
Total liabilities and shareholders'
equity................................... $ 27,899,734 $ 25,564,843
------------ ------------
------------ ------------
Net interest income/margin (taxable-equivalent
basis)....................................... 1,175,302 4.75% 1,152,777 5.05%
Less: taxable-equivalent adjustment........... 6,724 10,444
----------- -----------
Net interest income....................... $ 1,168,578 $ 1,142,333
----------- -----------
----------- -----------
<CAPTION>
<S> <C> <C> <C>
1994
---------------------------------------
INTEREST AVERAGE
AVERAGE INCOME/ YIELD/ RATE
(DOLLARS IN THOUSANDS) BALANCE EXPENSE (1) (1)
- ---------------------------------------------- ------------ ----------- ------------
<S> <C> <C> <C>
ASSETS
Loans: (2)
Domestic.................................. $ 16,518,199 $ 1,256,427 7.61%
Foreign................................... 1,097,803 61,668 5.62
Investment securities -- taxable (3).......... 1,678,686 80,492 4.79
Investment securities -- tax-exempt (3)....... 216,639 23,220 10.72
Interest bearing deposits in banks............ 1,036,866 46,859 4.52
Federal funds sold and securities purchased
under resale agreements...................... 305,325 13,517 4.43
Trading account securities.................... 193,082 8,923 4.62
------------ -----------
Total earning assets...................... 21,046,600 1,491,106 7.08
-----------
Allowance for credit losses................... (642,059)
Cash and due from banks....................... 1,505,758
Premises and equipment, net................... 398,704
Other assets.................................. 1,383,557
------------
Total assets.............................. $ 23,692,560
------------
------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits in domestic offices:
Interest bearing............................ $ 5,230,657 113,198 2.16
Savings and consumer time................... 2,862,574 86,505 3.02
Large time.................................. 1,538,505 58,391 3.80
Deposits in foreign offices................... 1,326,266 52,730 3.98
------------ -----------
Total interest bearing deposits........... 10,958,002 310,824 2.84
------------ -----------
Federal funds purchased and securities sold
under repurchase agreements.................. 1,249,278 53,680 4.30
Subordinated capital notes.................... 698,160 36,355 5.21
Other borrowed funds.......................... 1,876,311 82,458 4.39
------------ -----------
Total borrowed funds...................... 3,823,749 172,493 4.51
------------ -----------
Total interest bearing liabilities........ 14,781,751 483,317 3.27
-----------
Demand deposits............................... 5,868,441
Other liabilities............................. 926,791
------------
Total liabilities......................... 21,576,983
SHAREHOLDERS' EQUITY.......................... 2,115,577
------------
Total liabilities and shareholders'
equity................................... $ 23,692,560
------------
------------
Net interest income/margin (taxable-equivalent
basis)....................................... 1,007,789 4.79%
Less: taxable-equivalent adjustment........... 12,566
-----------
Net interest income....................... $ 995,223
-----------
-----------
</TABLE>
- ------------------------------
(1) Yields and interest income are presented on a taxable-equivalent basis
using the federal statutory tax rate of 35 percent.
(2) Average balances on loans outstanding include all nonperforming and
renegotiated loans. Included in interest income on loans is the amortized
portion of net loan origination fees (costs), representing an adjustment to
the yield.
(3) Yields on investment securities available for sale are based on fair value.
The difference between these yields and those based on amortized cost was
not significant.
F-4
<PAGE>
Net interest income is interest earned on loans and investments less
interest expense on deposit accounts and borrowings. Primary factors affecting
the level of net interest income include the margin between the yield earned on
interest earning assets and the rate paid on interest bearing liabilities, as
well as the volume and composition of average interest earning assets and
interest bearing liabilities.
Net interest income before the provision for credit losses on a
taxable-equivalent basis was $1,175 million in 1996, compared with $1,153
million in 1995. The increase of $23 million was primarily attributable to an
increase in average loans, partly offset by the effect of a decrease in the net
interest margin from 5.05% in 1995 to 4.75% in 1996. The decrease in net
interest margin was primarily attributable to a decrease in the proportion of
funding provided by noninterest bearing and lower cost (interest bearing and
savings and consumer time deposits) sources of funds and to an increase in the
cost of such funding sources while rates earned on assets declined. The average
proportion of funding provided by noninterest bearing and other lower cost
sources of funds decreased from 63 percent in 1995 to 61 percent in 1996,
primarily due to a higher growth rate for loans than for noninterest bearing and
other lower cost sources of funds.
ANALYSIS OF CHANGES IN NET INTEREST INCOME
The following table shows the changes in the components of net interest
income on a taxable-equivalent basis. The changes in net interest income between
periods have been reflected as attributable either to volume or rate changes.
For purposes of this table, changes which are not solely due to volume or rate
changes are allocated to rate.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1996 COMPARED TO 1995 1995 COMPARED TO 1994
-------------------------------- ----------------------------------
<CAPTION>
INCREASE (DECREASE) DUE TO INCREASE (DECREASE) DUE TO CHANGE
CHANGE IN IN
-------------------------------- ----------------------------------
(DOLLARS IN THOUSANDS) VOLUME RATE TOTAL VOLUME RATE TOTAL
- ------------------------------------------- ---------- --------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
CHANGES IN INTEREST INCOME:
Loans:
Domestic................................. $ 133,288 $ (69,552) $ 63,736 $ 96,327 $ 187,940 $ 284,267
Foreign.................................. 682 (4,351) (3,669) 5,212 9,843 15,055
Investment securities -- taxable........... 4,843 8,117 12,960 18,050 21,668 39,718
Investment securities -- tax-exempt........ (3,427) (106) (3,533) (3,292) (944) (4,236)
Interest bearing deposits in banks......... (1,214) (4,278) (5,492) (4,785) 16,127 11,342
Federal funds sold and securities purchased
under resale agreements................... 10,785 (2,786) 7,999 2,807 5,923 8,730
Trading account securities................. 6,810 (2,420) 4,390 6,486 5,169 11,655
---------- --------- --------- ---------- ---------- ----------
Total earning assets................... 151,767 (75,376) 76,391 120,805 245,726 366,531
---------- --------- --------- ---------- ---------- ----------
CHANGES IN INTEREST EXPENSE:
Deposits in domestic offices:
Interest bearing......................... 1,187 4,774 5,961 (5,938) 22,600 16,662
Savings and consumer time................ 3,572 2,563 6,135 (3,744) 16,454 12,710
Large time............................... 84,458 5,527 89,985 35,575 35,008 70,583
Deposits in foreign offices................ (16,104) (8,568) (24,672) 19,126 24,253 43,379
---------- --------- --------- ---------- ---------- ----------
Total interest bearing deposits........ 73,113 4,296 77,409 45,019 98,315 143,334
---------- --------- --------- ---------- ---------- ----------
Federal funds purchased and securities sold
under repurchase agreements............... (25,718) (6,095) (31,813) 5,826 19,402 25,228
Subordinated capital notes................. (10,837) (1,597) (12,434) (4,287) 10,470 6,183
Other borrowed funds....................... 33,115 (12,411) 20,704 13,354 33,444 46,798
---------- --------- --------- ---------- ---------- ----------
Total borrowed funds................... (3,440) (20,103) (23,543) 14,893 63,316 78,209
---------- --------- --------- ---------- ---------- ----------
Total interest bearing liabilities..... 69,673 (15,807) 53,866 59,912 161,631 221,543
---------- --------- --------- ---------- ---------- ----------
Changes in net interest income......... $ 82,094 $ (59,569) $ 22,525 $ 60,893 $ 84,095 $ 144,988
---------- --------- --------- ---------- ---------- ----------
---------- --------- --------- ---------- ---------- ----------
</TABLE>
Interest income on a taxable-equivalent basis increased $76 million in 1996,
primarily due to growth in interest income from domestic loans, which reflected
higher average balances outstanding, partially offset by a lower average yield.
Interest expense increased $54 million in 1996 due to higher interest
expense on interest bearing deposits, primarily reflecting higher average
deposit balances. Interest expense on borrowed funds declined $24 million in
1996, reflecting slightly lower volumes and a 50 basis point decrease in the
average rate paid.
F-5
<PAGE>
NONINTEREST INCOME
<TABLE>
<CAPTION>
INCREASE (DECREASE)
------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
YEARS ENDED DECEMBER 31,
------------------------------------------------
<CAPTION>
YEARS ENDED DECEMBER 31, 1996/1995 1995/1994
---------------------------------- ---------------------- ------------------------
(DOLLARS IN THOUSANDS) 1996 1995 1994 AMOUNT PERCENT AMOUNT PERCENT
- ------------------------------------ ---------- ---------- ---------- --------- ----------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Service charges on deposit
accounts........................... $ 101,975 $ 95,177 $ 94,226 $ 6,798 7% $ 951 1%
Trust fees.......................... 93,479 87,743 84,531 5,736 7 3,212 4
International commissions and
fees.............................. 66,108 68,621 64,798 (2,513) (4) 3,823 6
Credit card merchant fees........... 49,778 45,767 40,677 4,011 9 5,090 13
Merchant banking fees............... 23,929 24,483 16,099 (554) (2) 8,384 52
Investment services................. 19,380 16,899 12,319 2,481 15 4,580 37
Foreign exchange.................... 13,255 19,043 13,754 (5,788) (30) 5,289 38
Investment securities gains
(losses), net...................... 4,502 (702) (2,612) 5,204 741 1,910 73
Other............................... 46,270 38,288 36,039 7,982 21 2,249 6
---------- ---------- ---------- --------- ---------
Total noninterest income........ $ 418,676 $ 395,319 $ 359,831 $ 23,357 6% $ 35,488 10%
---------- ---------- ---------- --------- ---------
---------- ---------- ---------- --------- ---------
</TABLE>
Noninterest income in 1996 was $418.7 million, an increase of $23.4 million,
or 6 percent, over 1995. This included a $6.8 million increase in revenue from
service charges on deposit accounts, a $5.7 million increase in trust fees, a
$5.2 million increase in securities gains, a $4.0 million increase in bank card
fees, and a $2.5 million increase in investment services fees, partially offset
by an $8.3 million decrease in international fees and foreign exchange income.
Revenue from service charges on deposit accounts was $102.0 million in 1996,
an increase of 7 percent over 1995. The increase was primarily attributable to
an increase in the volume of non-credit services provided.
Trust fees were $93.5 million in 1996, 7 percent higher than in 1995,
primarily due to a larger amount of assets under management, which resulted in
higher mutual fund management fees and personal trust fees.
International commissions and fees declined 4 percent to $66.1 million in
1996. The decline was primarily attributable to a reduction in the volume of
letters of credit.
Credit card merchant fees were $49.8 million in 1996, an increase of 9
percent over 1995. The increase was primarily due to an increase in the volume
of credit card drafts deposited by merchants.
Foreign exchange revenue declined $5.8 million, or 30 percent, in 1996,
primarily due to less volatility in the foreign exchange markets in 1996.
Other noninterest income in 1996 was $8.0 million, or 21 percent, higher
than in 1995. A substantial portion of the increase consisted of items of a
nonrecurring nature.
F-6
<PAGE>
NONINTEREST EXPENSE
<TABLE>
<CAPTION>
INCREASE (DECREASE)
-----------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
YEARS ENDED DECEMBER 31,
-----------------------------------------------
<CAPTION>
YEARS ENDED DECEMBER 31, 1996/1995 1995/1994
----------------------------------- ---------------------- -----------------------
(DOLLARS IN THOUSANDS) 1996 1995 1994 AMOUNT PERCENT AMOUNT PERCENT
- -------------------------------- ----------- --------- ----------- --------- ----------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Salaries and other
compensation................... $ 461,061 $ 443,953 $ 420,066 $ 17,108 4% $ 23,887 6%
Employee benefits............... 96,186 92,718 89,229 3,468 4 3,489 4
----------- --------- ----------- --------- ---------
Personnel-related expense..... 557,247 536,671 509,295 20,576 4 27,376 5
Occupancy....................... 103,335 92,863 101,413 10,472 11 (8,550) (8)
Equipment....................... 55,942 55,056 51,926 886 2 3,130 6
Credit card processing.......... 37,091 31,288 26,503 5,803 19 4,785 18
Communications.................. 31,740 29,261 27,358 2,479 8 1,903 7
Advertising and public
relations...................... 28,788 20,911 18,511 7,877 38 2,400 13
Printing and office supplies.... 27,085 22,626 17,660 4,459 20 4,966 28
Professional services........... 24,342 26,197 30,929 (1,855) (7) (4,732) (15)
Data processing................. 22,140 18,557 17,374 3,583 19 1,183 7
Armored car..................... 21,689 20,337 19,419 1,352 7 918 5
Software........................ 15,895 13,839 11,307 2,056 15 2,532 22
Travel.......................... 14,936 12,183 10,219 2,753 23 1,964 19
Intangible asset amortization... 13,335 13,353 13,259 (18) -- 94 1
Regulatory authority
assessments.................... 4,048 23,431 43,296 (19,383) (83) (19,865) (46)
Foreclosed asset expense
(income)....................... 2,889 (3,213) 73,668 6,102 190 (76,881) (104)
Other........................... 56,938 64,741 64,212 (7,803) (12) 529 1
----------- --------- ----------- --------- ---------
Noninterest expense, excluding
merger and integration
expense...................... 1,017,440 978,101 1,036,349 39,339 4 (58,248) (6)
Merger and integration
expense........................ 117,464 -- -- 117,464 -- -- --
----------- --------- ----------- --------- ---------
Total noninterest expense... $ 1,134,904 $ 978,101 $ 1,036,349 $ 156,803 16% $ (58,248) (6)%
----------- --------- ----------- --------- ---------
----------- --------- ----------- --------- ---------
</TABLE>
Noninterest expense, excluding merger and integration expense, was $1,017.4
million in 1996, an increase of $39.3 million, or 4 percent, over 1995. The
increase included a $12.0 million charge in 1996 related to former banking
facilities.
Personnel-related expense was $557.2 million in 1996, an increase of $20.6
million, or 4 percent, compared with 1995. Although full-time-equivalent staff
decreased by 4 percent during 1996, the impact of the decrease was more than
offset by higher salaries and an increase of $6.6 million in outside contractor
expense (included in salaries and other compensation).
Occupancy expense was $103.3 million in 1996, $10.5 million, or 11 percent,
higher than the previous year. Excluding the $12.0 million charge noted earlier,
occupancy expense in 1996 declined 2 percent due to the closure of 20 branches
late in the third quarter of 1996.
Credit card processing expense was $37.1 million in 1996, an increase of
$5.8 million, or 19 percent, over 1995 due to higher merchant volumes.
Advertising and public relations expense was $28.8 million in 1996, an
increase of $7.9 million, or 38 percent, over 1995. The bulk of the increase was
attributable to expanded activities in 1996 to increase awareness of Union Bank
of California, following the April 1, 1996, combination of Union Bank and BanCal
Tri-State Corporation and its banking subsidiary.
F-7
<PAGE>
In 1996 regulatory authority assessments expense declined to $4 million, a
decrease of $19.4 million, or 83 percent, compared with 1995. The decline was
primarily attributable to the decision of the Federal Deposit Insurance
Corporation to eliminate deposit insurance assessments for all of 1996.
Foreclosed asset expense increased $6.1 million in 1996, from income of $3.2
million in 1995 to expense of $2.9 million in 1996. Gains on sales in 1996 were
insufficient to offset writedowns, operating costs, and losses.
MERGER AND INTEGRATION EXPENSE
The table that follows summarizes merger and integration expense recorded in
1996 by major category, the cash and noncash utilization of those expense
provisions during the year, and the resulting liability balances by category as
of December 31, 1996.
<TABLE>
<CAPTION>
SEVERANCE,
RETENTION AND
OTHER EMPLOYEE FACILITIES PROFESSIONAL
(DOLLARS IN THOUSANDS) RELATED COSTS COSTS FEES OTHER TOTAL
- --------------------------------------------------- --------------- --------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C>
Provision for merger and integration costs......... $ 39,960 $ 53,628 $ 8,225 $ 15,651 $ 117,464
Utilization for 1996:
Cash............................................. 17,619 1,658 8,225 12,653 40,155
Noncash.......................................... -- 20,931 -- 2,034 22,965
------- --------- ----------- --------- ----------
Total utilization for 1996................... 17,619 22,589 8,225 14,687 63,120
------- --------- ----------- --------- ----------
Liability balance, December 31, 1996............... $ 22,341 $ 31,039 $ -- $ 964 $ 54,344
------- --------- ----------- --------- ----------
------- --------- ----------- --------- ----------
</TABLE>
The Company recorded charges totaling $40.0 million in 1996 for severance,
retention and other employee related costs stemming from the merger. During
1996, $17.6 million in payments were charged against the resulting liability
balance.
Facilities costs of $53.6 million were primarily comprised of charges to
accrue the net cost of disposing of surplus bank branches and administrative
offices and properties. Noncash utilization of the facilities liability during
1996 consisted primarily of writedowns on certain administrative properties.
Professional fees of $8.2 million primarily reflects the cost of legal,
accounting, and investment banking services rendered in connection with the
merger transaction. In addition, the Company incurred consulting expense in
connection with various integration activities.
It is expected that additional merger-related expenses which do not qualify
for current recognition will be incurred in the first quarter of 1997. These
expenses will also be classified as merger and integration expense when incurred
and will be significantly lower in total than the $117.5 million in expense
recognized in 1996.
INCOME TAX EXPENSE
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
<S> <C> <C> <C>
(DOLLARS IN THOUSANDS) 1996 1995 1994
- ----------------------------------------------------------------------------- ---------- ---------- ----------
Income before income taxes................................................... $ 412,350 $ 506,301 $ 245,705
Income tax expense........................................................... 162,892 193,359 120,356
Effective tax rate........................................................... 40% 38% 49%
</TABLE>
The Company's effective tax rate in 1996 was 40%, compared with 38% in 1995.
The increase in the effective rate was primarily due to a benefit recognized in
1995 from a favorable settlement of an Internal Revenue Service examination of
1989 and 1990.
CREDIT RISK MANAGEMENT
The Company's principal business activity is the extension of credit in the
form of loans or other credit substitutes to individuals and businesses. The
Company's policies and applicable laws and regulations
F-8
<PAGE>
governing the extension of credit require risk analysis as well as ongoing
portfolio and credit management through loan product diversification, lending
limit constraints, credit review and approval policies, and extensive internal
monitoring.
The Company manages and controls credit risk through diversification of the
portfolio by type of loan, industry concentration, dollar limits on multiple
loans to the same borrower, geographic distribution and type of borrower.
Geographic diversification of loans originated through the Company's branch
network is generally within California, Oregon and Washington, which the Company
considers to be its principal markets. In addition, the Company will continue to
originate and participate in lending activities outside these states, as well as
internationally.
In analyzing the Company's existing loan portfolios, the Company applies
specific monitoring policies and procedures which vary according to the relative
risk profile and other characteristics of the loans within the various
portfolios. The Company's residential and consumer loans are relatively
homogeneous and no single loan is individually significant in terms of its size
or potential risk of loss. Therefore, the Company reviews its residential and
consumer portfolios by analyzing their performance as a pool of loans. In
contrast, the Company's monitoring process for the commercial, financial and
industrial; construction; commercial mortgage; and foreign loan portfolios
includes a periodic review of individual loans. Loans that are performing but
have shown some signs of weakness are subjected to more stringent reporting and
oversight. The Company reviews these loans to assess the ability of the
borrowing entity to continue to service all of its interest and principal
obligations and as a result may adjust the risk grade accordingly. In the event
that the Company believes that full collection of principal and interest is not
reasonably assured, the loan will be appropriately downgraded and, if warranted,
placed on nonaccrual status, even though the loan may be current as to principal
and interest payments.
The Company has a Credit Policy Forum, composed of the Chief Credit Officer,
senior credit officers, and appropriate line officers who establish policy,
credit quality criteria, portfolio guidelines and other controls. Credit
Administration together with a series of loan committees, have the
responsibility for administering the credit approval process, as well as the
implementation and administration of the Company's credit policies and lending
practices and procedures. These policies require an extensive evaluation of
credit requests and continuing review of existing credits in order to promptly
identify, monitor and quantify evidence of deterioration of asset credit quality
or potential loss.
As another part of the control process, an independent internal credit
review and examination function provides quality assurance that loans and
commitments are made and maintained as prescribed by the Company's credit
policies and that the assets are appropriately and timely risk graded. This
includes a review of compliance with the Company's underwriting policies when
the loan is initially extended and subsequent on-site examinations to ensure
continued compliance.
F-9
<PAGE>
LOANS
The table that follows shows loans outstanding at year-end by loan type.
Loans outstanding by loan type as a percentage of total loans is shown for 1996
and 1995.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------------
(DOLLARS IN MILLIONS) 1996 1995 1994 1993
- ---------------------------------------------------- ---------------------- ---------------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Domestic:
Commercial, financial and industrial.............. $ 9,492 45% $ 9,680 48% $ 8,547 $ 8,136
Construction...................................... 358 2 370 2 464 877
Mortgage:
Residential..................................... 2,961 14 2,642 13 2,253 1,964
Commercial...................................... 2,598 13 2,143 11 1,778 2,088
--------- --- --------- --- --------- ---------
Total mortgage................................ 5,559 27 4,785 24 4,031 4,052
Consumer:
Installment..................................... 2,063 10 1,812 9 1,644 1,351
Home equity..................................... 1,113 5 1,222 6 1,222 1,302
Credit card and other lines of credit........... 303 1 309 1 219 207
--------- --- --------- --- --------- ---------
Total consumer................................ 3,479 16 3,343 16 3,085 2,860
Lease financing................................... 800 4 845 4 829 831
--------- --- --------- --- --------- ---------
Total loans in domestic offices............... 19,688 94 19,023 94 16,956 16,756
Loans originated in foreign branches................ 1,210 6 1,203 6 1,110 1,004
--------- --- --------- --- --------- ---------
Total loans................................... $ 20,898 100% $ 20,226 100% $ 18,066 $ 17,760
--------- --- --------- --- --------- ---------
--------- --- --------- --- --------- ---------
<CAPTION>
(DOLLARS IN MILLIONS) 1992
- ---------------------------------------------------- ---------
<S> <C>
Domestic:
Commercial, financial and industrial.............. $ 8,221
Construction...................................... 1,636
Mortgage:
Residential..................................... 2,119
Commercial...................................... 2,265
---------
Total mortgage................................ 4,384
Consumer:
Installment..................................... 1,410
Home equity..................................... 1,326
Credit card and other lines of credit........... 210
---------
Total consumer................................ 2,946
Lease financing................................... 867
---------
Total loans in domestic offices............... 18,054
Loans originated in foreign branches................ 952
---------
Total loans................................... $ 19,006
---------
---------
</TABLE>
The Company's lending activities are predominantly domestic, with such loans
comprising approximately 94 percent of the portfolio at December 31, 1996. Total
loans at December 31, 1996, were $20.9 billion, an increase of $672 million, or
3 percent from one year earlier. The increase was primarily attributable to the
commercial and residential mortgage portfolios, which grew by $774 million.
COMMERCIAL, FINANCIAL AND INDUSTRIAL LOANS
Commercial, financial and industrial loans represent the largest category in
the loan portfolio. These loans are principally to major corporations, middle
market businesses, and small businesses, with no industry concentration
exceeding ten percent of total commercial, financial and industrial loans.
The Company's commercial market lending is primarily originated through its
banking office network. These offices, which rely extensively on relationship
oriented banking, provide many services including cash management services,
lines of credit, accounts receivable and inventory financing. Separately, the
Company originates or participates in a wide variety of financial services to
major corporations. These services include traditional commercial banking and
specialized financing tailored to the needs of each customer's specific
industry. Presently, the Company is active in the communications and media,
energy related services, retailing and financial services industries.
At December 31, 1996, the commercial, financial and industrial loan
portfolio was $9,492 million or 45 percent of the total loan portfolio. The
decrease of $188 million, or 2 percent, from the previous year-end was primarily
attributable to planned reductions due to portfolio overlap arising from the
merger and to a reduction in certain low margin lending.
CONSTRUCTION AND COMMERCIAL MORTGAGE LOANS
The Company engages in nonresidential real estate lending which includes
commercial mortgage loans and construction loans secured by deeds of trust.
Construction loans are made primarily to residential builders and to commercial
property developers.
At December 31, 1996, construction loans were $358 million, $12 million
lower than at the end of the previous year. Commercial mortgage loans were
$2,598 million, an increase of $455 million, or 21 percent,
F-10
<PAGE>
from a year earlier. This increase reflected the continuing improvement in the
West Coast economy, particularly in the real estate sector. It was primarily
attributable to new originations of mini-perm loans ranging in size from $1
million to $10 million, resulting from a vigorous marketing program.
RESIDENTIAL MORTGAGE LOANS
The Company originates residential loans through its branch network in
California, Oregon, and Washington, and periodically purchases loans in its
market area.
At December 31, 1996, residential loans were $2,961 million, an increase of
$319 million, or 12 percent, from a year ago as the favorable interest rate
environment and a stronger housing market continued to generate significant
opportunities for residential mortgage lenders.
CONSUMER LOANS
Through its branch network the Company originates consumer loans, such as
vehicle secured installment loans, home equity lines, where advances are
generally secured by second deeds of trust on residential real estate, and
credit card loans.
At December 31, 1996, consumer loans were $3,479 million, an increase of
$136 million, or 4 percent, from one year earlier. The increase was primarily
attributable to increases in direct and indirect auto loans for used vehicles,
partially offset by a decrease in home equity balances.
LEASE FINANCING
The Company enters into direct financing and leverage leases through an
agreement with a subsidiary of BTM. In addition, the Company originates auto
leases.
At December 31, 1996, lease financing outstandings were $800 million, a
decrease of $45 million from the end of 1995. In recent years, management has
not pursued expansion of the tax advantaged portion of its portfolio.
LOANS ORIGINATED IN FOREIGN BRANCHES
The Company's foreign loans consist primarily of short-term credit
extensions to banks and other financial institutions located primarily in Asia,
and commercial and industrial loans to major Japanese, Korean, and Taiwanese
corporations.
At December 31, 1996, foreign loans totaled $1,210 million, or 6 percent of
the total loan portfolio, compared with $1,203 million, or 6 percent of total
loans, at December 31, 1995.
FOREIGN OUTSTANDINGS
The following table sets forth foreign outstandings (loans, acceptances,
deposits placed and other earning assets) not funded by local borrowings by
country and borrower type for those countries where outstandings exceeded 0.75
percent of total assets at the dates indicated.
<TABLE>
<CAPTION>
PUBLIC CORPORATIONS
FINANCIAL SECTOR AND OTHER TOTAL
(DOLLARS IN THOUSANDS) INSTITUTIONS ENTITIES BORROWERS OUTSTANDINGS
- -------------------------------------------------------------- ----------- --------- ------------ ------------
<S> <C> <C> <C> <C>
December 31, 1996
Korea......................................................... $ 385,583 $ 7,969 $ 196,215 $ 589,767
Thailand...................................................... 274,937 -- -- 274,937
December 31, 1995
Korea......................................................... 443,656 282 32,861 476,799
Thailand...................................................... 214,483 -- -- 214,483
December 31, 1994
Korea......................................................... 270,915 2,604 27,069 300,588
Thailand...................................................... 194,961 -- -- 194,961
</TABLE>
At December 31, 1996, none of the Company's foreign outstandings were on
nonaccrual status.
F-11
<PAGE>
ALLOWANCE FOR CREDIT LOSSES
The allowance for credit losses is maintained at a level considered
appropriate by management and is based on an ongoing assessment of the risks
inherent in the credit and lease portfolio, including commitments to provide
financing. The allowance is increased by the provision for credit losses, which
is charged against current period operating results, and is decreased by the
amount of net loans charged off during the period. In evaluating the adequacy of
the allowance for credit losses, management incorporates such factors as
collateral value, portfolio composition and concentration, and trends in local
and national economic conditions and the related impact on the financial
strength of the Company's borrowers. While the allowance is segmented by broad
portfolio categories to analyze its adequacy, the allowance is general in nature
and is available for the portfolio in its entirety. Although management believes
that the allowance for possible credit losses is adequate, future provisions
will be subject to continuing evaluation of inherent risk in the loan portfolio.
F-12
<PAGE>
The following table sets forth the allocation of the allowance for credit
losses. The percentages reflect the allowance allocated to each respective loan
category at period end, as a percentage of the total period end balance of that
loan category, as set forth in the Loans Outstanding table.
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------------
(DOLLARS IN THOUSANDS) 1996 1995 1994
- --------------------------------------------------- --------------------- --------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Domestic:
Commercial, financial and industrial............. $ 166,100 1.75% $ 174,146 1.80% $ 146,784 1.72%
Construction..................................... 5,700 1.59 24,752 6.69 69,787 15.06
Mortgage:
Residential.................................... 4,000 0.14 5,466 0.21 23,581 1.05
Commercial..................................... 39,000 1.50 59,931 2.80 70,130 3.94
---------- ---------- ----------
Total mortgage............................... 43,000 0.77 65,397 1.37 93,711 2.32
Consumer:
Installment.................................... 10,400 0.50 13,200 0.73 12,500 0.76
Home equity.................................... 4,900 0.44 5,532 0.45 7,143 0.58
Credit card and other lines of credit.......... 34,000 11.21 32,799 10.62 17,101 7.81
---------- ---------- ----------
Total consumer............................... 49,300 1.42 51,531 1.54 36,744 1.19
Lease financing.................................. 5,300 0.66 1,300 0.15 10,000 1.21
---------- ---------- ----------
Total allowance for domestic offices......... 269,400 1.37 317,126 1.67 357,026 2.11
Loans originated in foreign branches............... 9,394 0.78 13,968 1.16 15,330 1.38
Unallocated........................................ 245,152 224,055 190,786
---------- ---------- ----------
Total allowance for credit losses............ $ 523,946 2.51% $ 555,149 2.74% $ 563,142 3.12%
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------
(DOLLARS IN THOUSANDS) 1993 1992
- ------------------------------------------------------------------------ --------------------- ---------------------
<S> <C> <C> <C> <C>
Domestic:
Commercial, financial and industrial.................................. $ 205,398 2.52% $ 269,711 3.28%
Construction.......................................................... 106,398 12.13 242,703 14.83
Mortgage:
Residential......................................................... 31,409 1.60 6,889 0.33
Commercial.......................................................... 139,303 6.67 114,749 5.07
---------- ----------
Total mortgage.................................................... 170,712 4.21 121,638 2.77
Consumer:
Installment......................................................... 13,100 0.97 12,700 0.90
Home equity......................................................... 6,062 0.47 4,080 0.31
Credit card and other lines of credit............................... 15,171 7.33 17,657 8.41
---------- ----------
Total consumer.................................................... 34,333 1.20 34,437 1.17
Lease financing....................................................... 12,500 1.50 12,500 1.44
---------- ----------
Total allowance for domestic offices.............................. 529,341 3.16 680,989 3.77
Loans originated in foreign branches.................................... 14,293 1.42 15,663 1.64
Unallocated............................................................. 148,950 93,827
---------- ----------
Total allowance for credit losses................................. $ 692,584 3.90% $ 790,479 4.16%
---------- ----------
---------- ----------
</TABLE>
F-13
<PAGE>
The following table sets forth a reconciliation of changes in the Company's
allowance for credit losses.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------
(DOLLARS IN THOUSANDS) 1996 1995 1994 1993 1992
- ------------------------------------------------------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance, beginning of year................................... $ 555,149 $ 563,142 $ 692,584 $ 790,479 $ 783,252
Loans charged off:
Commercial, financial and industrial..................... 42,134 47,524 105,774 99,280 144,007
Construction............................................. 3,249 9,401 32,151 58,835 100,754
Mortgage................................................. 13,483 29,330 100,613 113,791 16,838
Consumer................................................. 56,361 44,627 31,806 39,576 34,134
Lease financing.......................................... 2,623 2,422 2,940 11,432 8,325
Loans originated in foreign branches..................... 1,377 342 533 201 175
---------- ---------- ---------- ---------- ----------
Total loans charged off................................ 119,227 133,646 273,817 323,115 304,233
Recoveries of loans previously charged off:
Commercial, financial and industrial..................... 22,341 39,178 39,177 41,552 39,960
Construction............................................. 132 3,195 5,868 2,955 2,910
Mortgage................................................. 12,277 18,500 16,228 6,201 888
Consumer................................................. 12,906 10,924 8,915 8,872 8,246
Lease financing.......................................... 368 311 435 3,353 455
Loans originated in foreign branches..................... -- 295 752 11,287 3,501
---------- ---------- ---------- ---------- ----------
Total recoveries of loans previously charged off....... 48,024 72,403 71,375 74,220 55,960
---------- ---------- ---------- ---------- ----------
Net loans charged off.................................. 71,203 61,243 202,442 248,895 248,273
Provision for credit losses.................................. 40,000 53,250 73,000 151,000 255,500
---------- ---------- ---------- ---------- ----------
Balance, end of year......................................... $ 523,946 $ 555,149 $ 563,142 $ 692,584 $ 790,479
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Allowance for credit losses to total loans................... 2.51% 2.74% 3.12% 3.90% 4.16%
Provision for credit losses to net loans
charged off................................................. 56.18 86.95 36.06 60.67 102.91
Recoveries of loans to loans charged off in the previous
year........................................................ 35.93 26.44 22.09 24.40 20.88
Net loans charged off to average loans outstanding........... 0.35 0.32 1.15 1.37 1.25
</TABLE>
At December 31, 1996, the Company's allowance for credit losses was $524
million or 2.51 percent of the total loan portfolio and 408 percent of total
nonaccrual loans. This compares with an allowance for credit losses of $555
million or 2.74 percent of the total loan portfolio and 267 percent of total
nonaccrual loans at December 31, 1995. At year-end 1996, the unallocated portion
of the allowance for credit losses was $245 million, compared with $224 million
at the end of 1995.
During 1996, the Company recorded a provision for credit losses of $40
million, a decrease of $13 million from 1995. The decline in the provision for
credit losses reflected the improvement in the quality of the Company's loan
portfolio, including a 38 percent reduction in nonaccrual loans.
During 1996, the Company had net loans charged off of $71 million, compared
to net loans charged off of $61 million in 1995. Recoveries of loans previously
charged off decreased by $24 million, despite an increase in the percentage of
current year recoveries to loans charged off in the previous year from 26
percent in 1995 to 36 percent in 1996. Loans charged off in 1996 decreased by
$14 million due to a reduction in new nonperforming assets in 1996 and a
reduction in nonaccrual and underperforming loans, partly offset by a $12
million increase in consumer loans charged off, primarily attributable to credit
card loans.
NONPERFORMING ASSETS
Nonperforming assets consist of nonaccrual loans, renegotiated loans, and
foreclosed assets. 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. (For a more detailed discussion of the accounting for nonaccrual
loans, see Note 1 to the Company's Consolidated Financial Statements included in
this Form 10-K.)
F-14
<PAGE>
Renegotiated loans are those accruing loans for which, for reasons related
to the borrower's financial difficulties, the Company has amended the terms of
the original loan agreement and the borrower is performing according to the
renegotiated terms.
Foreclosed assets includes property where the Company acquired title through
foreclosure or "deed in lieu" of foreclosure. On an ongoing basis, foreclosed
asset values are reviewed and any decline in value is recognized as noninterest
expense in the current period.
The following table sets forth an analysis of nonperforming assets.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS) 1996 1995 1994 1993 1992
- ------------------------------------------------- ---------- ---------- ---------- ------------ ------------
Nonaccrual loans:
Commercial, financial and industrial......... $ 56,864 $ 84,336 $ 106,447 $ 145,907 $ 349,122
Construction................................. 7,349 40,026 73,643 231,148 437,984
Mortgage:
Residential................................ 11,214 19,220 17,020 61,809 38,926
Commercial................................. 52,593 63,836 145,207 367,072 330,613
---------- ---------- ---------- ------------ ------------
Total mortgage........................... 63,807 83,056 162,227 428,881 369,539
Other........................................ 247 849 7,285 7,288 17,391
Loans originated in foreign branches......... -- -- -- 3,331 3,914
---------- ---------- ---------- ------------ ------------
Total nonaccrual loans................... 128,267 208,267 349,602 816,555 1,177,950
Renegotiated loans............................... -- 1,612 14,843 4,617 1,868
Nonperforming real estate ventures............... -- -- -- 23,256 48,016
Foreclosed assets................................ 28,517 36,992 56,782 349,022 474,169
---------- ---------- ---------- ------------ ------------
Total nonperforming assets............... $ 156,784 $ 246,871 $ 421,227 $ 1,193,450 $ 1,702,003
---------- ---------- ---------- ------------ ------------
---------- ---------- ---------- ------------ ------------
Allowance for credit losses...................... $ 523,946 $ 555,149 $ 563,142 $ 692,584 $ 790,479
---------- ---------- ---------- ------------ ------------
---------- ---------- ---------- ------------ ------------
Nonaccrual loans to total loans (1).............. 0.61% 1.03% 1.94% 4.60% 6.20%
Nonaccrual loans to allowance for credit losses
(1)............................................. 24.48 37.52 62.08 117.90 149.02
Nonperforming assets to total loans, real estate
ventures and foreclosed assets (1).............. 0.75 1.22 2.32 6.58 8.72
Nonperforming assets to total assets (1)......... 0.54 0.90 1.71 4.97 6.78
Loans 90 days past due and still accruing:
Commercial, financial and industrial......... $ 4,527 $ 3,752 $ 3,690 $ 12,116 $ 48,257
Construction................................. -- 1,063 5,735 10,711 83,691
Mortgage:
Residential................................ 8,969 8,479 2,123 14,602 28,063
Commercial................................. 168 3,592 -- 35,071 48,875
---------- ---------- ---------- ------------ ------------
Total mortgage........................... 9,137 12,071 2,123 49,673 76,938
Consumer and other........................... 10,028 8,854 8,573 8,481 12,560
---------- ---------- ---------- ------------ ------------
Total loans 90 days past due and still
accruing................................ $ 23,692 $ 25,740 $ 20,121 $ 80,981 $ 221,446
---------- ---------- ---------- ------------ ------------
---------- ---------- ---------- ------------ ------------
</TABLE>
- ---------------
(1) Loans 90 days past due and still accruing are not included as a component
of this ratio.
F-15
<PAGE>
At December 31, 1996, nonaccrual loans totaled $128 million, a decrease of
$80 million, or 38 percent, from year-end 1995. The decline was primarily
attributable to a $27 million reduction in nonaccrual commercial, financial and
industrial loans and a $33 million reduction in nonaccrual construction loans,
due to a combination of note sales, payoffs, and upgrades. Foreclosed assets,
primarily other real estate owned, decreased by $8 million, due to sales of
individual assets.
Nonaccrual loans as a percentage of total loans was 0.61 percent at December
31, 1996, compared with 1.03 percent one year earlier. Nonperforming assets as a
percentage of total loans, real estate ventures and foreclosed assets improved
to 0.75 percent at year-end 1996 from 1.22 percent at December 31, 1995. At
December 31, 1996, approximately 55 percent of nonaccrual loans were real estate
related; none of the individual nonaccrual loans exceeded $6 million.
Total loans 90 days past due and still accruing were $24 million at December
31, 1996, compared with $26 million at December 31, 1995.
At December 31, 1996, impaired loans were $114 million and the associated
impairment allowance was $21 million, compared with $173 million and $16
million, respectively, at December 31, 1995.
INTEREST FOREGONE
Interest foregone during 1996 and 1995 for loans that were on nonaccrual
status at December 31, 1996 and 1995, was $9 million and $18 million,
respectively. The Company received interest income during 1996 and 1995 for
loans that were on nonaccrual status at December 31, 1996 and 1995, of $5
million and $10 million, respectively.
LIQUIDITY
Liquidity refers to the Company's ability to adjust its future cash flows to
meet the needs of depositors and borrowers and to fund operations on a timely
and cost-effective basis. The Asset & Liability Management Policy approved by
the Board of Directors requires quarterly reviews of the Company's liquidity by
the Asset & Liability Management Committee ("ALCO") composed of bank executives.
The Company's liquidity draws upon the strengths of its extensive retail and
commercial market business franchise, coupled with the ability to obtain funds
for various terms in a variety of domestic and international money markets.
Liquidity is managed through the funding and investment functions of the
Treasury Division.
Core deposits provide the Company with a sizable source of relatively stable
and low-cost funds. The Company's average core deposits, which include demand
deposits, money market demand accounts, and savings and consumer time deposits,
combined with average common shareholder's equity, funded 56 percent of average
total assets of $27.9 billion for the year ended December 31, 1996. Most of the
remaining funding was provided by short-term borrowings in the form of
negotiable certificates of deposit, foreign deposits, federal funds purchased
and securities sold under repurchase agreements, commercial paper and other
borrowings.
Liquidity may also be provided by the sale or maturity of assets. Such
assets include interest bearing deposits, federal funds sold and securities
purchased under resale agreements, and trading account securities. The aggregate
of these assets averaged $1.9 billion during 1996. Additional liquidity may be
provided by investment securities available for sale which amounted to $2.2
billion at December 31, 1996, and by loan maturities. At December 31, 1996, $6.5
billion of loans were scheduled to mature within one year.
INTEREST RATE SENSITIVITY
The management of interest rate risk relates to the timing and magnitude of
the repricing of assets compared to liabilities. The objective of interest rate
risk management is to generate stable net interest income and to control risks
associated with movements in interest rates.
The Asset & Liability Management Policy approved by the Board of Directors
requires monthly monitoring of interest rate risk by ALCO. As part of the
management of the Company's interest rate risk, ALCO may direct changes in the
mix of assets and liabilities and the use of derivative instruments such as
interest rate swaps, floors and caps.
F-16
<PAGE>
One method of analyzing interest rate risk is by measuring the interest rate
sensitivity gap, which is the difference between earning assets and liabilities
maturing or repricing within specified periods. The table on the following page
presents such an analysis, which reflects certain assumptions made by ALCO as to
the rate sensitivity of deposits without contractual maturities or repricing
dates. Such deposits include demand deposits, money market demand accounts, and
savings deposits. Additional assumptions such as prepayment estimates for
residential mortgages and mortgage-backed securities are made to reflect the
probable behavior of those assets. The effects of derivatives used for hedging,
such as interest rate swaps and floors, must also be taken into account in
determining the interest rate sensitivity gap.
The table that follows shows that the Company's assets that were rate
sensitive within one year exceeded liabilities and shareholders' equity that
were rate sensitive within one year by $3.8 billion at December 31, 1996.
Adjusted for the effects of derivatives used for hedging, this cumulative gap
was $2.1 billion or 8.3 percent of earning assets. Generally, an asset sensitive
gap indicates that the net interest margin would increase in a rising rate
environment and decrease in a falling rate environment.
Gap analysis has significant limitations as a method for measuring interest
rate risk since changes in interest rates do not affect all categories of assets
and liabilities in the same way. To address these limitations the Company uses a
simulation model to quantify the impact of changing interest rates on net
interest income ("NII"). While this approach is also subject to a number of
assumptions, it provides a dynamic assessment of the impact, as compared to the
static nature of gap analysis. A frequency distribution of simulated 12-month
NII outcomes based on rate scenarios produced through a Monte Carlo rate
generation process is prepared monthly to determine statistically the mean NII.
The amount of Earnings at Risk, defined as the potential negative change in NII,
is measured at a 97.5% confidence level and is managed within a limit
established by the ALCO as a percentage of mean NII. At December 31, 1996, the
Company was within this limit.
F-17
<PAGE>
The following table summarizes the Company's interest rate sensitivity based
on expected repricings in the time frames indicated for the balance sheet and
interest rate derivatives as of December 31, 1996.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
AMOUNTS MATURING OR REPRICING IN
-------------------------------------------------------------------------
<CAPTION>
AFTER THREE AFTER SIX
MONTHS BUT MONTHS BUT AFTER
LESS THAN WITHIN WITHIN ONE YEAR AND
(DOLLARS IN THOUSANDS) THREE MONTHS SIX MONTHS ONE YEAR NON- MATURING TOTAL
- ------------------------------------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS
Federal funds sold and securities purchased
under resale agreements................... $ 537,710 $ -- $ -- $ -- $ 537,710
Interest bearing deposits in banks......... 1,091,216 40,000 -- -- 1,131,216
Trading account securities................. 617,464 -- -- -- 617,464
Investment securities...................... 56,785 62,754 491,396 1,821,458 2,432,393
Loans...................................... 12,567,070 1,920,272 1,345,939 5,064,824 20,898,105
------------- ------------- ------------- ------------- -------------
Total earning assets................... 14,870,245 2,023,026 1,837,335 6,886,282 25,616,888
Noninterest earning assets................. 497,143 497,143 -- 2,622,885 3,617,171
------------- ------------- ------------- ------------- -------------
Total assets........................... 15,367,388 2,520,169 1,837,335 9,509,167 29,234,059
------------- ------------- ------------- ------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest bearing deposits:
Interest bearing checking (1)............ 178,884 -- -- 1,252,186 1,431,070
Money market demand accounts (1)......... 1,187,668 -- -- 2,578,836 3,766,504
Savings (1).............................. 163,579 -- -- 1,145,055 1,308,634
Other time deposits...................... 4,623,150 1,702,202 630,579 415,712 7,371,643
Federal funds purchased and securities sold
under repurchase agreements............... 1,322,654 -- -- -- 1,322,654
Other borrowed funds....................... 2,014,531 230,646 8,537 -- 2,253,714
Subordinated capital notes................. 309,000 -- 73,000 -- 382,000
------------- ------------- ------------- ------------- -------------
Total interest bearing liabilities..... 9,799,466 1,932,848 712,116 5,391,789 17,836,219
Demand deposit accounts (1)................ 1,677,555 1,677,555 -- 4,300,000 7,655,110
Other noninterest bearing liabilities...... -- -- -- 1,247,797 1,247,797
Shareholders' equity (2)................... -- -- 135,000 2,359,933 2,494,933
------------- ------------- ------------- ------------- -------------
Total liabilities and shareholders'
equity................................ $ 11,477,021 $ 3,610,403 $ 847,116 $ 13,299,519 $ 29,234,059
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Gap before interest rate derivatives....... $ 3,890,367 $ (1,090,234) $ 990,219 $ (3,790,352)
Cumulative gap before interest rate
derivatives............................... $ 3,890,367 $ 2,800,133 $ 3,790,352 $ --
Derivatives affecting interest rate
sensitivity:
Interest rate swaps...................... (642,113) (2,796) 534,088 110,821
Interest rate floors (3)................. (1,900,000) (150,000) 500,000 1,550,000
------------- ------------- ------------- -------------
Gap adjusted for interest rate
derivatives............................... $ 1,348,254 $ (1,243,030) $ 2,024,307 $ (2,129,531)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Cumulative gap adjusted for derivatives.... $ 1,348,254 $ 105,224 $ 2,129,531
------------- ------------- -------------
------------- ------------- -------------
Cumulative gap adjusted for derivatives as
a percent of total earning assets......... 5.26% 0.41% 8.31%
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
- ---------------
(1) Interest rate sensitivity of non-maturity deposit accounts are based on
assumptions utilized by the Company's Asset and Liability Management
Committee for a declining interest rate scenario since the Company's
balance sheet is asset-sensitive.
(2) $135 million of preferred stock is redeemable after September 3, 1997.
(3) Floors purchased affecting interest rate sensitivity in a declining
interest rate scenario.
F-18
<PAGE>
INVESTMENT SECURITIES
The following tables summarize the composition of the investment securities
portfolio and the gross unrealized gains and losses within the portfolio.
INVESTMENT SECURITIES AVAILABLE FOR SALE
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------------------------------------------------------
1996 1995
---------------------------------------------- ---------------------------------------------- 1994
GROSS GROSS GROSS GROSS ---------
AMORTIZED UNREALIZED UNREALIZED FAIR AMORTIZED UNREALIZED UNREALIZED FAIR FAIR
(DOLLARS IN THOUSANDS) COST GAINS LOSSES VALUE COST GAINS LOSSES VALUE VALUE
- ----------------------- --------- ----------- ----------- --------- --------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury.......... $1,137,992 $ 4,993 $ 1,933 $1,141,052 $ 981,392 $ 13,122 $ 22 $ 994,492 $ 212,604
Other U.S. government.. 687,717 4,993 779 691,931 354,029 10,555 -- 364,584 21,122
Mortgage-backed
securities............ 193,531 400 274 193,657 448,581 590 998 448,173 795,818
State and municipal.... 101,006 13,749 -- 114,755 117,061 15,637 -- 132,698 64,232
Equity securities...... 19,041 2,553 -- 21,594 12,836 3,736 33 16,539 21,376
Foreign securities..... 1,136 72 -- 1,208 3,872 193 -- 4,065 4,064
--------- ----------- ----------- --------- --------- ----------- ----------- --------- ---------
Total investment
securities available
for sale............ $2,140,423 $ 26,760 $ 2,986 $2,164,197 $1,917,771 $ 43,833 $ 1,053 $1,960,551 $1,119,216
--------- ----------- ----------- --------- --------- ----------- ----------- --------- ---------
--------- ----------- ----------- --------- --------- ----------- ----------- --------- ---------
</TABLE>
INVESTMENT SECURITIES HELD TO MATURITY
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------------------------------------------------------
1996 1995
---------------------------------------------- ---------------------------------------------- 1994
GROSS GROSS GROSS GROSS ---------
AMORTIZED UNREALIZED UNREALIZED FAIR AMORTIZED UNREALIZED UNREALIZED FAIR AMORTIZED
(DOLLARS IN THOUSANDS) COST GAINS LOSSES VALUE COST GAINS LOSSES VALUE COST
- ----------------------- --------- ----------- ----------- --------- --------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury.......... $ 50,109 $ 1,735 $ -- $ 51,844 $ 51,125 $ 3,468 $ -- $ 54,593 $ 485,631
Other U.S. government.. 139,188 4,412 -- 143,600 138,816 8,509 -- 147,325 49,576
Mortgage-backed
securities............ 41,985 2,019 68 43,936 124,375 2,511 105 126,781 168,835
State and municipal.... 36,914 310 2,199 35,025 48,971 661 2,231 47,401 147,437
--------- ----------- ----------- --------- --------- ----------- ----------- --------- ---------
Total investment
securities held to
maturity............ $ 268,196 $ 8,476 $ 2,267 $ 274,405 $ 363,287 $ 15,149 $ 2,336 $ 376,100 $ 851,479
--------- ----------- ----------- --------- --------- ----------- ----------- --------- ---------
--------- ----------- ----------- --------- --------- ----------- ----------- --------- ---------
</TABLE>
Management of the investment portfolio involves the maximization of
investment return while maintaining prudent levels of quality and liquidity. At
December 31, 1996, approximately 99 percent of total investment securities were
investment grade.
During the quarter ended December 31, 1995, in accordance with guidance
issued by the Financial Accounting Standards Board, the Company reclassified
from investment securities held to maturity to investment securities available
for sale, approximately $285 million amortized cost of U.S. Treasury Notes (fair
value $285 million) and $64 million book value of municipal bonds (fair value
$72 million).
F-19
<PAGE>
ANALYSIS OF INVESTMENT SECURITIES PORTFOLIO
The following tables show the expected remaining maturities and yields of
the investment securities portfolio.
INVESTMENT SECURITIES AVAILABLE FOR SALE
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MATURITY
--------------------------------------------------------------------------------------------------
<CAPTION>
AFTER ONE YEAR AFTER FIVE YEARS
WITHIN AND WITHIN AND WITHIN AFTER
ONE YEAR FIVE YEARS TEN YEARS TEN YEARS
---------------------- ---------------------- ------------------------ ------------------------
(DOLLARS IN THOUSANDS) AMOUNT YIELD(3) AMOUNT YIELD(3) AMOUNT YIELD(3) AMOUNT YIELD(3)
- -------------------------- --------- ----------- --------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury............. $ 402,163 5.66% $ 735,829 6.14% $ -- -- % $ -- -- %
Other U.S. government..... 27,423 6.07 660,294 6.42 -- -- -- --
Mortgage-backed
securities.............. 112,236 6.33 79,206 6.43 2,089 9.25 -- --
State and municipal (1)... 8,450 10.46 29,485 9.73 21,327 10.67 41,744 11.35
Equity securities (2)..... -- -- -- -- -- -- -- --
Foreign securities........ -- -- 1,136 8.50 -- -- -- --
--------- --------- ----------- -----------
Total investment
securities available
for sale............. $ 550,272 5.89% $1,505,950 6.35% $ 23,416 10.54% $ 41,744 11.35%
--------- --------- ----------- -----------
--------- --------- ----------- -----------
<CAPTION>
<S> <C> <C>
TOTAL
AMORTIZED COST
----------------------
(DOLLARS IN THOUSANDS) AMOUNT YIELD(3)
- -------------------------- --------- -----------
<S> <C> <C>
U.S. Treasury............. $1,137,992 5.97%
Other U.S. government..... 687,717 6.41
Mortgage-backed
securities.............. 193,531 6.40
State and municipal (1)... 101,006 10.66
Equity securities (2)..... 19,041 --
Foreign securities........ 1,136 8.50
---------
Total investment
securities available
for sale............. $2,140,423 6.32%
---------
---------
</TABLE>
INVESTMENT SECURITIES HELD TO MATURITY
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MATURITY
--------------------------------------------------------------------------------------------------
<CAPTION>
AFTER ONE YEAR AFTER FIVE YEARS
WITHIN AND WITHIN AND WITHIN AFTER
ONE YEAR FIVE YEARS TEN YEARS TEN YEARS
---------------------- ---------------------- ------------------------ ------------------------
(DOLLARS IN THOUSANDS) AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
- -------------------------- --------- ----------- --------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury............. $ 9,976 7.65% $ 40,133 7.56% $ -- -- % $ -- -- %
Other U.S. government..... 39,891 7.94 99,297 7.75 -- -- -- --
Mortgage-backed
securities.............. 15,293 5.31 26,692 9.04 -- -- -- --
State and municipal (1)... 12,210 8.76 9,077 9.19 2,116 6.51 13,511 5.76
--------- --------- ----------- -----------
Total investment
securities held to
maturity............. $77,370 7.51 % $175,199 7.98 % $2,116 6.51 % $13,511 5.76%
--------- --------- ----------- -----------
--------- --------- ----------- -----------
<CAPTION>
<S> <C> <C>
TOTAL
AMORTIZED COST
----------------------
(DOLLARS IN THOUSANDS) AMOUNT YIELD
- -------------------------- --------- -----------
<S> <C> <C>
U.S. Treasury............. $ 50,109 7.58%
Other U.S. government..... 139,188 7.81
Mortgage-backed
securities.............. 41,985 7.68
State and municipal (1)... 36,914 7.64
---------
Total investment
securities held to
maturity............. $268,196 7.72 %
---------
---------
</TABLE>
- ------------
(1) Yields on tax-exempt municipal securities are presented on a
taxable-equivalent basis using the current federal statutory rate of 35
percent.
(2) Equity securities do not have a stated maturity and are included in the
total column only.
(3) Yields are based on amortized cost.
F-20
<PAGE>
LOAN MATURITIES
The following table presents the Company's loans by maturity.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-------------------------------------------------------
<S> <C> <C> <C> <C>
AFTER
ONE YEAR
WITHIN AND WITHIN AFTER
(DOLLARS IN THOUSANDS) ONE YEAR FIVE YEARS FIVE YEARS TOTAL
- -------------------------------------------------------- ------------ ------------ ------------ -------------
Domestic:
Commercial, financial and industrial.................. $ 3,815,829 $ 3,515,114 $ 2,161,312 $ 9,492,255
Construction.......................................... 239,404 118,413 -- 357,817
Mortgage:
Residential......................................... 93,528 269,025 2,598,355 2,960,908
Commercial.......................................... 637,103 789,526 1,170,987 2,597,616
------------ ------------ ------------ -------------
Total mortgage.................................... 730,631 1,058,551 3,769,342 5,558,524
Consumer:
Installment......................................... 143,981 1,795,501 123,952 2,063,434
Home equity......................................... 1,969 40,625 1,070,675 1,113,269
Credit card and other lines of credit............... 300,739 2,496 -- 303,235
------------ ------------ ------------ -------------
Total consumer.................................... 446,689 1,838,622 1,194,627 3,479,938
Lease financing....................................... 74,280 520,481 205,287 800,048
------------ ------------ ------------ -------------
Total loans in domestic offices................... 5,306,833 7,051,181 7,330,568 19,688,582
Loans originated in foreign branches.................... 1,183,505 12,755 13,263 1,209,523
------------ ------------ ------------ -------------
Total loans....................................... $ 6,490,338 $ 7,063,936 $ 7,343,831 20,898,105
------------ ------------ ------------
------------ ------------ ------------
Allowance for credit losses..................... 523,946
-------------
Net loans......................................... $ 20,374,159
-------------
-------------
Total fixed rate loans due after one year............... $ 9,509,127
Total variable rate loans due after one year............ 4,898,640
-------------
Total loans due after one year.................... $ 14,407,767
-------------
-------------
</TABLE>
CERTIFICATES OF DEPOSIT OF $100,000 AND OVER
The following table presents domestic certificates of deposits of $100,000
and over by maturity.
<TABLE>
<CAPTION>
DECEMBER 31,
(DOLLARS IN THOUSANDS) 1996
- ---------------------------------------------------------------------------------------------------- ------------
<S> <C>
Three months or less................................................................................ $2,931,364
Over three months through six months................................................................ 1,276,494
Over six months through twelve months............................................................... 344,725
Over twelve months.................................................................................. 148,128
------------
Total domestic certificates of deposit of $100,000 and over..................................... $4,700,711
------------
------------
</TABLE>
The Company offers certificates of deposit of $100,000 and over, at market
rates of interest. Many of these certificates are issued to customers, both
public and private, who have done business with the Company for some period. The
Company expects that as these deposits come due, the majority will continue to
be renewed at market rates of interest.
Substantially all of the Company's deposits in foreign branches are
certificates of deposit of $100,000 and over and mature in less than one year.
F-21
<PAGE>
BORROWED FUNDS
The following table presents information on the Company's borrowed funds.
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
<S> <C> <C> <C>
(DOLLARS IN THOUSANDS) 1996 1995 1994
- ------------------------------------------------------------------------ ------------ ------------ ------------
Federal funds purchased and securities sold under repurchase agreements
with weighted average interest rates of 5.09%, 4.96% and 5.14% at
December 31, 1996, 1995 and 1994, respectively......................... $ 1,322,654 $ 1,195,058 $ 1,482,445
Commercial paper, with weighted average interest rates of 5.34%, 5.75%
and 5.70% at December 31, 1996, 1995 and 1994, respectively............ 1,495,463 1,389,870 1,267,494
Other borrowed funds, with weighted average interest rates of 5.59%,
5.77% and 5.23% at December 31, 1996, 1995 and 1994, respectively...... 758,251 1,065,058 563,822
------------ ------------ ------------
Total borrowed funds................................................ $ 3,576,368 $ 3,649,986 $ 3,313,761
------------ ------------ ------------
------------ ------------ ------------
Federal funds purchased and securities sold under repurchase agreements:
Maximum outstanding at any month end.................................. $ 1,322,654 $ 1,517,999 $ 1,482,385
Average balance during the year....................................... 933,433 1,384,762 1,249,278
Weighted average interest rate during the year........................ 5.05% 5.70% 4.30%
Commercial paper:
Maximum outstanding at any month end.................................. $ 1,854,576 $ 1,591,712 $ 1,267,480
Average balance during the year....................................... 1,620,087 1,448,739 1,102,009
Weighted average interest rate during the year........................ 5.40% 5.98% 4.34%
Other borrowed funds:
Maximum outstanding at any month end.................................. $ 1,697,777 $ 1,320,030 $ 1,339,601
Average balance during the year....................................... 1,119,051 731,759 774,302
Weighted average interest rate during the year........................ 5.59% 5.82% 4.46%
</TABLE>
CAPITAL ADEQUACY AND DIVIDENDS
The Company's capital objectives are to support future growth, to protect
depositors, to absorb any unanticipated losses and to comply with various
regulatory requirements. Management believes that the Company has retained its
capital at a level which supports the risk structure of the Company, as well as
providing for anticipated growth of current business activities and strategic
expansion.
Total shareholders' equity was $2,495 million at December 31, 1996, an
increase of $11 million from year-end 1995. This change was primarily a result
of $249 million of net income for 1996, offset by dividends on common stock of
$219 million (including $145 million paid to The Mitsubishi Bank, Limited in the
first quarter of 1996 by BanCal Tri-State Corporation and The Bank of
California, N.A.).
The Company offers a dividend reinvestment plan that allows shareholders to
reinvest dividends in the Company's common stock at five percent below the
market price. At December 31, 1996, BTM was not a participant in the plan.
Capital adequacy depends on a variety of factors including asset quality and
risk profile, liquidity, stability of earnings, competitive and economic
conditions, and management. The Company believes that the current level of
profitability, together with earnings retention and the Company's dividend
reinvestment plan, is adequate to support normal growth in operations while
meeting regulatory capital guidelines.
F-22
<PAGE>
The following table summarizes risk-based capital, risk-weighted assets, and
risk-based capital ratios.
<TABLE>
<CAPTION>
DECEMBER 31, MINIMUM
------------------------------------------------------------------------- REGULATORY
(DOLLARS IN THOUSANDS) 1996 1995 1994 1993 1992 REQUIREMENT
- ----------------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
CAPITAL COMPONENTS
Tier 1 capital......... $ 2,395,580 $ 2,355,057 $ 2,070,554 $ 1,952,045 $ 1,642,945
Tier 2 capital......... 551,074 591,266 626,903 702,652 809,949
------------- ------------- ------------- ------------- -------------
Total risk-based
capital............... $ 2,946,654 $ 2,946,323 $ 2,697,457 $ 2,654,697 $ 2,452,894
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Risk-weighted assets... $ 26,390,288 $ 25,179,489 $ 22,419,516 $ 21,992,647 $ 22,704,438
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Quarterly average
assets................ $ 28,496,355 $ 27,073,158 $ 23,868,729 $ 23,624,622 $ 24,823,529
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
CAPITAL RATIOS
Tier 1 capital......... 9.08% 9.35% 9.24% 8.88% 7.24% 4.0%
Total risk-based
capital............... 11.17 11.70 12.03 12.07 10.80 8.0
Leverage ratio (1)..... 8.41 8.70 8.67 8.26 6.62 4.0
</TABLE>
- ---------------
(1) Tier 1 capital divided by quarterly average total assets.
For regulatory purposes, the Company's capital computations are based on
risk-adjusted Tier 1 and Total capital. The Company's Tier 1 and Total
risk-based capital ratios were 9.08 percent and 11.17 percent, respectively, at
December 31, 1996, as compared to 9.35 percent and 11.70 percent, respectively,
at December 31, 1995. The decreases in the ratios from December 31, 1995 were
primarily attributable to the $145 million dividend paid to The Mitsubishi Bank,
Limited in the first quarter of 1996. As of December 31, 1996, management
believes the capital ratios of the Company's subsidiary bank, Union Bank of
California, N.A., met all regulatory minimums of a well-capitalized bank.
COMPARISON OF 1995 VERSUS 1994
Net income in 1995 was $313 million, compared with $125 million in 1994. The
improvement in net income in 1995 reflected higher net interest income and
noninterest income, lower loan loss provision expense, lower noninterest
expense, and a lower effective income tax rate than in 1994.
Net income applicable to common stock was $284 million, or $5.21 per common
share, in 1995, compared with $104 million, or $1.95 per common share, in 1994.
The return on average assets was 1.22% in 1995 versus 0.53% in 1994. The
return on average common equity was 13.9% in 1995, compared with 5.6% in 1994.
Net interest income on a taxable-equivalent basis increased by $145 million,
or 14 percent, over 1994. Average loans increased $1,359 million, or 8 percent,
and the net interest margin grew 26 basis points to 5.05%.
Noninterest income increased by $35 million, or 10 percent, over 1994.
Credit card merchant fees, merchant banking fees, investment services revenue,
and foreign exchange fees collectively grew 28 percent and accounted for $23
million of the growth in noninterest income.
The provision for credit losses was $53 million in 1995, $20 million, or 27
percent, lower than in 1994, reflecting the improved quality of the loan
portfolio.
Noninterest expense decreased by $58 million, or 6 percent, from 1994. The
reduction was primarily the result of lower foreclosed asset and regulatory
authority assessment expenses, partially offset by higher personnel-related
expense. Foreclosed asset expense declined $77 million due to lower levels of
foreclosed assets and the stabilization of market values for such assets.
Regulatory authority assessments decreased by
F-23
<PAGE>
$20 million, or 46 percent, from 1994, primarily due to a mid-1995 reduction in
the deposit insurance premium rate charged by the FDIC. Personnel-related
expense increased $24 million, or 6 percent, in 1995, reflecting higher staff
levels and regular salary increases.
Income tax expense was $73 million higher in 1995 than in 1994, reflecting
higher pre-tax income, but a lower effective income tax rate. The decrease in
the effective rate from 49 percent in 1994 to 38 percent in 1995 was primarily
attributable to an adjustment to state income taxes in 1994.
Total loans at December 31, 1995 were $20.2 billion, an increase of $2.2
billion, or 12 percent, over year-end 1994. The increase was primarily
attributable to commercial, financial and industrial loans, which rose $1.1
billion, or 13 percent, residential mortgage loans, which grew 17 percent, and
commercial mortgage loans, which increased 21 percent. The growth in commercial,
financial and industrial loans was primarily attributable to the improved
economy in California and other specialized markets served by the Company, which
enabled the Company to substantially increase lending to well-qualified
borrowers. The growth in residential mortgage loans reflected the favorable
interest rate environment in 1995, which stimulated higher originations. The
growth in commercial mortgage loans was primarily due to higher originations of
mini-perm loans of $1 million to $10 million.
Total nonperforming assets were $247 million at December 31, 1995, $174
million, or 41 percent, lower than one year earlier. Nonaccrual commercial
mortgage loans accounted for $81 million of the decrease, reflecting successful
workout strategies and an improvement in the California real estate sector in
1995. Nonaccrual construction loans declined $34 million, or 46 percent, in
1995, while nonaccrual commercial, financial and industrial loans fell $22
million. Net loan charge offs in 1995 were $61 million, compared to $202 million
in 1994. The $141 million, or 70 percent, decrease was principally due to a $58
million reduction in charge offs of commercial, financial and industrial loans
and a $71 million reduction in charge offs of commercial and residential
mortgage loans, while loan loss recoveries were essentially flat. The reduction
in charge offs was due to a decrease in new nonperforming assets in 1995 and a
reduction in nonaccrual and underperforming loans, reflecting improved economic
conditions and successful workout strategies.
At December 31, 1995, the Tier 1 risk-based capital ratio was 9.4% and the
total risk-based capital ratio was 11.7%, compared with ratios of 9.2% and
12.0%, respectively, at December 31, 1994.
F-24
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Consolidated Statements of Income for the Years Ended
December 31, 1996, 1995 and 1994.......................................................................... F-26
Consolidated Balance Sheets as of December 31, 1996 and 1995............................................... F-27
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1995 and 1994.......................................................................... F-28
Consolidated Statements of Changes in Shareholders' Equity for the Years Ended
December 31, 1996, 1995 and 1994.......................................................................... F-29
Notes to Consolidated Financial Statements................................................................. F-30
Management Statement....................................................................................... F-63
Independent Auditors' Reports.............................................................................. F-64
</TABLE>
F-25
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 1996 1995 1994
- ------------------------------------------------------------------------- --------- --------- ----------
<S> <C> <C> <C>
INTEREST INCOME
Loans, including fees.................................................... $1,675,969 $1,613,376 $1,313,472
Investment securities -- taxable......................................... 133,170 120,210 80,556
Investment securities -- tax-exempt...................................... 10,242 12,592 15,219
Interest bearing deposits in banks....................................... 52,709 58,201 46,859
Federal funds sold and securities purchased under resale agreements...... 30,246 22,247 13,517
Trading account securities............................................... 24,968 20,567 8,917
--------- --------- ----------
Total interest income................................................ 1,927,304 1,847,193 1,478,540
--------- --------- ----------
INTEREST EXPENSE
Deposits in domestic offices............................................. 460,130 358,049 258,094
Deposits in foreign offices.............................................. 71,437 96,109 52,730
Federal funds purchased and securities sold under repurchase
agreements.............................................................. 47,095 78,908 53,680
Commercial paper......................................................... 87,411 86,695 47,776
Other borrowed funds..................................................... 62,549 42,561 34,682
Subordinated capital notes............................................... 30,104 42,538 36,355
--------- --------- ----------
Total interest expense............................................... 758,726 704,860 483,317
--------- --------- ----------
NET INTEREST INCOME...................................................... 1,168,578 1,142,333 995,223
Provision for credit losses.............................................. 40,000 53,250 73,000
--------- --------- ----------
Net interest income after provision for credit losses................ 1,128,578 1,089,083 922,223
--------- --------- ----------
NONINTEREST INCOME
Service charges on deposit accounts...................................... 101,975 95,177 94,226
Trust fees............................................................... 93,479 87,743 84,531
International services and foreign exchange.............................. 79,363 87,664 78,552
Credit card merchant fees................................................ 49,778 45,767 40,677
Merchant banking fees.................................................... 23,929 24,483 16,099
Investment securities gains (losses), net................................ 4,502 (702) (2,612)
Other.................................................................... 65,650 55,187 48,358
--------- --------- ----------
Total noninterest income............................................. 418,676 395,319 359,831
--------- --------- ----------
NONINTEREST EXPENSE
Salaries and employee benefits........................................... 557,247 536,671 509,295
Net occupancy............................................................ 103,335 92,863 101,413
Equipment................................................................ 55,942 55,056 51,926
Credit card processing................................................... 37,091 31,288 26,503
Communications........................................................... 31,740 29,261 27,358
Advertising and public relations......................................... 28,788 20,911 18,511
Printing and office supplies............................................. 27,085 22,626 17,660
Professional services.................................................... 24,342 26,197 30,929
Armored car.............................................................. 21,689 20,337 19,419
Regulatory assessments................................................... 4,048 23,431 43,296
Foreclosed asset expense (income)........................................ 2,889 (3,213) 73,668
Merger and integration................................................... 117,464 -- --
Other.................................................................... 123,244 122,673 116,371
--------- --------- ----------
Total noninterest expense............................................ 1,134,904 978,101 1,036,349
--------- --------- ----------
Income before income taxes............................................... 412,350 506,301 245,705
Income tax expense....................................................... 162,892 193,359 120,356
--------- --------- ----------
NET INCOME............................................................... $ 249,458 $ 312,942 $ 125,349
--------- --------- ----------
--------- --------- ----------
NET INCOME APPLICABLE TO:
Common stock......................................................... $ 225,080 $ 284,196 $ 104,364
--------- --------- ----------
--------- --------- ----------
Parent direct interest in bank subsidiary............................ $ 13,072 $ 17,441 $ 9,681
--------- --------- ----------
--------- --------- ----------
NET INCOME PER AVERAGE COMMON SHARE...................................... $ 4.11 $ 5.21 $ 1.95
--------- --------- ----------
--------- --------- ----------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (IN THOUSANDS)................ 54,740 54,546 53,640
--------- --------- ----------
--------- --------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-26
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE ------------------------
DATA) 1996 1995
- ---------------------------------------- ----------- -----------
<S> <C> <C>
ASSETS
Cash and due from banks................. $ 2,268,771 $ 2,274,088
Interest bearing deposits in banks...... 1,131,216 761,310
Federal funds sold and securities
purchased under resale agreements...... 537,710 317,025
----------- -----------
Total cash and cash equivalents..... 3,937,697 3,352,423
Trading account securities.............. 617,464 322,283
Investment securities available for
sale................................... 2,164,197 1,960,551
Investment securities held to maturity
(market value of $274,405 and $376,100
as of
December 31, 1996 and 1995,
respectively).......................... 268,196 363,287
Loans................................... 20,898,105 20,226,089
Less: Allowance for credit losses....... 523,946 555,149
----------- -----------
Net loans........................... 20,374,159 19,670,940
Customers' acceptance liability......... 778,378 719,681
Premises and equipment, net............. 410,621 421,921
Intangible assets....................... 91,129 104,529
Other assets............................ 592,218 631,244
----------- -----------
Total assets........................ $29,234,059 $27,546,859
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits in domestic offices:
Noninterest bearing................... $ 7,381,078 $ 7,036,969
Interest bearing...................... 12,607,691 10,885,810
Deposits in foreign offices:
Noninterest bearing................... 274,031 342,430
Interest bearing...................... 1,270,160 1,389,834
----------- -----------
Total deposits...................... 21,532,960 19,655,043
Federal funds purchased and securities
sold under repurchase agreements....... 1,322,654 1,195,058
Commercial paper........................ 1,495,463 1,389,870
Other borrowed funds.................... 758,251 1,065,058
Acceptances outstanding................. 778,378 719,681
Other liabilities....................... 469,420 536,688
Subordinated capital notes.............. 382,000 501,369
----------- -----------
Total liabilities................... 26,739,126 25,062,767
----------- -----------
SHAREHOLDERS' EQUITY
Parent direct interest in equity of bank
subsidiary............................. 128,689 159,996
Preferred stock:
Authorized 5,000,000 shares, issued
1,350,000 shares 8 3/8%
Noncumulative, Series A.............. 135,000 135,000
Common stock -- $5 stated value,
authorized 100,000,000 shares, issued
54,762,653 shares and 54,670,283 shares
as of December 31, 1996 and 1995,
respectively........................... 273,813 273,351
Additional paid-in capital.............. 1,310,813 1,306,697
Retained earnings....................... 635,180 585,680
Cumulative translation adjustment....... (2,752) (972)
Net unrealized gain on securities
available for sale..................... 14,190 24,340
----------- -----------
Total shareholders' equity.......... 2,494,933 2,484,092
----------- -----------
Total liabilities and shareholders'
equity............................. $29,234,059 $27,546,859
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-27
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
(DOLLARS IN THOUSANDS) 1996 1995 1994
- ---------------------------------------- ---------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................ $ 249,458 $ 312,942 $ 125,349
Adjustments to reconcile net income to
net cash provided by operating
activities:
Provision for credit losses......... 40,000 53,250 73,000
Depreciation, amortization and
accretion.......................... 65,146 61,767 57,501
Provision for deferred income
taxes.............................. 50,658 54,637 (108,833)
(Gain) loss on sale or call of
investment securities available for
sale, net.......................... (3,308) 801 2,679
Noncash portion of provision for
merger and integration expense..... 77,309 -- --
Other, net.......................... (424,667) (169,369) 266,622
---------- ----------- -----------
Total adjustments................. (194,862) 1,086 290,969
---------- ----------- -----------
Net cash provided by operating
activities........................... 54,596 314,028 416,318
---------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of investment
securities available for sale........ 19,536 240,731 318,700
Proceeds from matured and called
investment securities available for
sale................................. 757,463 764,853 421,522
Purchase of investment securities
available for sale................... (995,479) (1,452,339) (558,880)
Proceeds from matured and called
investment securities held to
maturity............................. 95,829 213,337 98,872
Purchase of investment securities held
to maturity.......................... -- (123,886) (499,702)
Proceeds from sales of loans.......... 71,741 65,665 513,640
Net increase in loans................. (763,102) (2,185,778) (1,130,507)
Other, net............................ (40,521) (41,698) 217,899
---------- ----------- -----------
Net cash used by investing
activities......................... (854,533) (2,519,115) (618,456)
---------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits.............. 1,877,917 2,245,306 431,390
Net increase (decrease) in federal
funds purchased and securities sold
under repurchase agreements.......... 127,596 (287,387) (169,625)
Net increase (decrease) in other
borrowed funds....................... (201,214) 623,612 200,910
Maturity and redemption of
subordinated capital notes........... (119,369) (154,490) (85,000)
Dividends paid........................ (222,533) (43,403) (43,567)
Repayment of borrowing to support
corporate owned life insurance....... (95,475) (10,638) --
Other, net............................ 5,034 18,341 16,323
---------- ----------- -----------
Net cash provided by financing
activities......................... 1,371,956 2,391,341 350,431
---------- ----------- -----------
Net increase in cash and cash
equivalents............................ 572,019 186,254 148,293
Cash and cash equivalents at beginning
of year................................ 3,352,423 3,153,713 2,996,398
Foreign exchange revaluation gain....... 13,255 12,456 9,022
---------- ----------- -----------
Cash and cash equivalents at end of
year................................... $3,937,697 $ 3,352,423 $ 3,153,713
---------- ----------- -----------
---------- ----------- -----------
CASH PAID DURING THE YEAR FOR:
Interest.............................. $ 764,327 $ 739,300 $ 465,833
Income taxes.......................... 172,451 91,717 21,587
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Loans transferred to other real estate
owned................................ $ 44,557 $ 48,397 $ 91,004
Investment securities transferred from
held to maturity to available for
sale................................. -- 348,717 --
</TABLE>
See accompanying notes to consolidated financial statements.
F-28
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
NET
UNREALIZED
PARENT GAIN
DIRECT (LOSS) ON
INTEREST ADDITIONAL CUMULATIVE SECURITIES
IN BANK PREFERRED COMMON PAID-IN RETAINED TRANSLATION AVAILABLE
(DOLLARS IN THOUSANDS) SUBSIDIARY STOCK STOCK CAPITAL EARNINGS ADJUSTMENT FOR SALE TOTAL
- ------------------------------ ---------- --------- -------- ---------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31,
1993......................... $132,691 $135,000 $266,367 $1,274,016 $298,787 $(1,348) $ 7,942 $2,113,455
Change in unrealized gain
(loss) on securities
available for sale, net of
taxes........................ (850) (16,367) (17,217)
Net income.................... 9,681 115,668 125,349
Dividend reinvestment plan.... 3,090 13,233 16,323
Dividends on common stock
($1.40 per share) (1)........ (49,723 ) (49,723)
Dividends on preferred
stock........................ (11,304 ) (11,304)
Deferred compensation --
restricted stock awards...... 293 1,277 (11 ) 1,559
Stock options exercised....... 40 136 176
Change in translation
adjustment................... 85 499 584
---------- --------- -------- ---------- -------- ---------- ---------- ----------
BALANCE AT DECEMBER 31,
1994......................... 141,607 135,000 269,790 1,288,662 353,417 (849) (8,425) 2,179,202
Change in unrealized gain
(loss) on securities
available for sale, net of
taxes........................ 973 32,765 33,738
Net income.................... 17,441 295,501 312,942
Dividend reinvestment plan.... 3,103 15,238 18,341
Dividends on common stock
($1.40 per share) (1)........ (50,989 ) (50,989)
Dividends on preferred
stock........................ (11,305 ) (11,305)
Deferred compensation --
restricted stock awards...... 379 2,268 (944 ) 1,703
Stock options exercised....... 79 529 608
Change in translation
adjustment................... (25) (123) (148)
---------- --------- -------- ---------- -------- ---------- ---------- ----------
BALANCE AT DECEMBER 31,
1995......................... 159,996 135,000 273,351 1,306,697 585,680 (972) 24,340 2,484,092
Change in unrealized gain
(loss) on securities
available for sale, net of
taxes........................ (686) (10,150) (10,836)
Net income.................... 13,072 236,386 249,458
Dividend reinvestment plan.... 121 1,041 1,162
Dividends on common stock
($1.40 per share) (1)........ (3,640) (70,292 ) (73,932)
Dividends on preferred
stock........................ (11,306 ) (11,306)
Dividend to BTM............... (39,890) (105,000) (144,890)
Deferred compensation --
restricted stock awards...... 207 2,148 (288 ) 2,067
Stock options exercised....... 134 927 1,061
Change in translation
adjustment................... (163) (1,780) (1,943)
---------- --------- -------- ---------- -------- ---------- ---------- ----------
BALANCE AT DECEMBER 31,
1996......................... $128,689 $135,000 $273,813 $1,310,813 $635,180 $(2,752) $ 14,190 $2,494,933
---------- --------- -------- ---------- -------- ---------- ---------- ----------
---------- --------- -------- ---------- -------- ---------- ---------- ----------
</TABLE>
- ---------------
(1) Dividends per share are based on historical Union Bank common cash dividends
declared and do not include the $145 million dividend paid to The Mitsubishi
Bank, Limited in the first quarter of 1996 by BanCal Tri-State Corporation
and The Bank of California, N.A.
See accompanying notes to consolidated financial statements.
F-29
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF
OPERATIONS
UnionBanCal Corporation is a bank holding company owned 81 percent by The
Bank of Tokyo-Mitsubishi, Ltd. ("BTM"). It resulted from the combination on
April 1, 1996, of Union Bank with BanCal Tri-State Corporation and its banking
subsidiary, The Bank of California, N.A. UnionBanCal Corporation, its banking
subsidiary now known as Union Bank of California, N.A. ("Bank") and its other
subsidiaries are collectively referred to as "the Company". The combination was
accounted for as a reorganization of entities under common control (similar to a
pooling of interests) and, accordingly, all historical financial information has
been restated as if the combination had been in effect for all periods
presented. Additional information pertaining to the combination is presented in
Note 2.
The Company provides a wide range of financial services to consumers, small
businesses, middle market companies and major corporations, primarily in
California, Oregon and Washington, but nationally and internationally as well.
BASIS OF FINANCIAL STATEMENT PRESENTATION
The accounting and reporting policies of the Company conform to generally
accepted accounting principles ("GAAP") and general practice within the banking
industry. Those policies that materially affect the determination of financial
position, results of operations, and cash flows are summarized below.
The consolidated financial statements include the accounts of the Company.
All material intercompany transactions and balances have been eliminated. 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 disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents include cash
and due from banks, interest bearing deposits in banks and federal funds sold
and securities purchased under resale agreements, substantially all of which
have maturities less than 90 days.
TRADING ACCOUNT SECURITIES
Trading account securities are designated as such when acquired based on
management's intent to use these securities for trading purposes. Trading
account positions are carried at market value. Realized gains and losses from
the close out of trading account positions and unrealized market value
adjustments are recognized in noninterest income.
INVESTMENT SECURITIES AVAILABLE FOR SALE
Investment securities available for sale are all securities not classified
as either held to maturity or trading account securities. Investment securities
available for sale are carried at fair value, with unrealized gains or losses
reported net of taxes as a separate component of shareholders' equity until
realized. Realized gains or losses from the sale of investment securities are
determined using the specific identification method and are included in
noninterest income.
INVESTMENT SECURITIES HELD TO MATURITY
Investment securities held to maturity are carried at cost, adjusted for
premium amortization or discount accretion computed using the effective interest
method. The Company has the intent and ability to hold these securities to their
maturities. Realized gains or losses on sales, if any, are included in
noninterest income.
F-30
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF
OPERATIONS (CONTINUED)
LOANS
Loans are reported at the principal amounts outstanding, net of unamortized
nonrefundable loan fees and related direct loan origination costs. Deferred net
fees and costs are recognized in interest income over the loan term using a
method that generally produces a level yield on the unpaid loan balance.
Nonrefundable fees and direct loan origination costs related to loans held for
sale are deferred and recognized as a component of the gain or loss on sale.
Interest income is accrued principally on a simple interest basis.
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. Except for
small business loans that are processed centrally and consumer loans, which are
charged off within 180 days of becoming past due, interest accruals are
continued for loans that have become contractually past due 90 days only when
such loans are both well secured and in the process of collection. For this
purpose, loans are considered well secured if they are collateralized by
property having a net realizable value in excess of the amount of principal and
accrued interest outstanding or are guaranteed by a financially responsible and
willing party. Loans are considered "in the process of collection" if collection
is proceeding in due course either through legal action or other actions that
are reasonably expected to result in the prompt repayment of the debt or in its
restoration to current status.
When a loan is placed on nonaccrual, all previously accrued but uncollected
interest is reversed against current period operating results. All subsequent
payments received are first applied to unpaid principal and then to accrued but
uncollected interest. Interest income is recognized at such time as the loan is
brought fully current as to both principal and interest, and, in management's
judgment, such loans are considered to be fully collectible. However, Company
policy also allows management to continue the recognition of interest income on
certain loans designated as nonaccrual. This portion of the nonaccrual portfolio
is referred to as "Cash Basis Nonaccrual" loans. This policy only applies to
loans that are well secured and in management's judgment are considered to be
fully collectible. Although the accrual of interest is suspended, any payments
received may be applied to the loan according to its contractual terms and
interest income recognized accordingly.
Renegotiated loans are those in which the Company has formally restructured
a significant portion of the loan. The remaining portion is normally charged
off, with a concession either in the form of below market rate financing, or
debt forgiveness on the charged off portion. Loans that have been renegotiated
and have not met specific performance standards for payment are classified as
renegotiated loans within the classification of nonperforming assets. Upon
payment performance, such loans may be transferred from nonperforming status to
accrual status.
The Company offers two types of leases to customers: 1) direct financing
leases where the assets leased are acquired without additional financing from
other sources, and 2) leveraged leases where a substantial portion of the
financing is provided by debt with no recourse to the Company. Direct financing
leases are carried net of unearned income, unamortized nonrefundable fees and
related direct costs associated with the origination or purchase of leases.
Leveraged leases are carried net of nonrecourse debt and unamortized investment
tax credits.
ALLOWANCE FOR CREDIT LOSSES
The Company's allowance for credit losses is maintained at a level
considered by management to be adequate to absorb estimated losses inherent in
the existing portfolio, including commitments under commercial and standby
letters of credit and guarantees. The allowance for credit losses is increased
by the
F-31
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF
OPERATIONS (CONTINUED)
provision for credit losses, which is charged against current period operating
results and decreased by the amount of net loan charge-offs during the period.
Losses are fully or partially charged against the allowance for credit losses
when, in management's judgment, the uncollectible portion of a loan's principal
balance is determined.
In evaluating the adequacy of the allowance for credit losses, management
estimates the amount of the potential risk of loss for each loan that has been
identified as having more than standard credit risk. Those estimates give
consideration to economic conditions and their effects on the borrower's
industry, financial and management abilities and to current valuations of
collateral where appropriate. An estimate for potential credit loss content is
calculated for all loans not so identified based upon the risk characteristics
of particular categories of loans and historical loss experience in the
portfolio, adjusted, as appropriate, for the estimated effects of current
economic conditions. Further consideration for the allocation is based on credit
risk concentrations in the portfolio and commitments and contingent obligations
under off-balance sheet commercial and standby letters of credit. For analytical
purposes, management attributes portions of the allowance for credit losses to
individual loans or groups of loans. However, the allowance for credit losses is
available to absorb all credit losses that arise from the loan and lease
portfolio and is not segregated for, or allocated to, any particular loan or
group of loans. Although management believes that the allowance for possible
credit losses is adequate, future provisions will be subject to continuing
evaluation of inherent risk in the loan portfolio and other credit exposures.
A loan is considered impaired when management determines that it is probable
that the Company will be unable to collect all amounts due according to the
original contractual terms of the loan agreement. Impaired loans are carried at
the estimated present value of total expected future cash flows, discounted at
the loan's effective rate, or at the fair value of the collateral if less than
the recorded investment in the loan (including accrued interest, net deferred
loan fees or costs and unamortized premium or discount). An impairment is
recognized by adjusting an allocation of the existing allowance for credit
losses.
OTHER REAL ESTATE OWNED ("OREO")
At the time collateral from a loan is foreclosed upon, the collateral is
transferred from loans to OREO at the lesser of the loan's unpaid principal
balance or its fair value as established by a current appraisal, adjusted for
disposition costs. Any writedown at the date of transfer is charged to the
allowance for credit losses. On an ongoing basis, OREO book values are reviewed
and any decline in value is recognized as foreclosed asset expense in the
current period. The net operating results from these assets are included in the
current period as noninterest expense. The book value of OREO assets is included
in Other Assets in the Consolidated Financial Statements.
PREMISES AND EQUIPMENT
Premises and equipment are carried at cost, less accumulated depreciation
and amortization. Depreciation and amortization are calculated using the
straight-line method over the estimated useful life of each asset. Lives of
premises range from ten to forty years; lives of furniture and equipment range
from three to eight years. Leasehold improvements are amortized over the term of
the respective lease or the estimated useful life of ten years, whichever is
shorter.
GOODWILL AND OTHER ASSETS
The excess of purchase price over the fair value of net assets of acquired
companies is classified as goodwill and reported as intangible assets. Goodwill
is amortized using the straight-line method, generally over 15 years.
F-32
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF
OPERATIONS (CONTINUED)
DERIVATIVE INSTRUMENTS HELD FOR TRADING OR CUSTOMER ACCOMMODATION
The Company is party to a variety of derivative transactions, including
foreign exchange forward contracts, currency and interest rate swap contracts,
and interest rate cap and floor agreements. These contracts are entered into for
trading purposes or as a service to customers. Derivatives held for trading or
customer accommodation are designated as such when acquired based on
management's intent.
Derivatives held or issued for trading or customer accommodation are carried
at fair value, with realized and unrealized changes in fair values on contracts
included in noninterest income in the period in which the changes occur.
Unrealized gains and losses are reported gross and included in other assets and
other liabilities. Cash flows are reported net as operating activities.
DERIVATIVE INSTRUMENTS HELD FOR PURPOSES OTHER THAN TRADING
The Company is party to a variety of derivative transactions, including
foreign exchange forward contracts, currency and interest rate swap contracts,
and interest rate cap and floor agreements. These contracts are entered into as
a means of reducing the Company's interest rate or foreign exchange risk and are
designated as such when acquired based on management's intent. The Company
monitors the results of each transaction to insure that management's intent is
satisfied. The Company does not use derivatives to hedge anticipated
transactions.
Gains and losses on foreign exchange forward contracts and on the related
asset and liability are deferred and amortized over the life of the hedged
transaction as interest income or interest expense.
Net interest settlements on interest rate swap, cap and floor agreements are
recognized on an accrual basis as interest income or expense of the related
asset or liability over the lives of the agreements. Premiums paid or received
for interest rate caps and floors are amortized either to interest income or to
expense of the related asset or liability over the lives of the agreements. If
an agreement is terminated early, any resulting gain or loss is deferred and
amortized as interest income or expense of the related asset or liability over
the remaining life of the original agreement. Unamortized premiums paid are
included in other assets. Unamortized premiums received are included in other
liabilities. Net settlement amounts are reported gross as other assets and other
liabilities. Cash flows are reported net as operating activities.
INCOME TAXES
The Company files consolidated federal and combined state income tax
returns. Amounts provided for income tax expense are based on income reported
for financial statement purposes and do not necessarily represent amounts
currently payable under tax laws. Deferred taxes, which arise principally from
temporary differences between the period in which certain income and expenses
are recognized for financial accounting purposes and the period in which they
affect taxable income, are included in the amounts provided for income taxes.
Under this method, the computation of the net deferred tax liability or asset
gives current recognition to changes in the tax laws.
NET INCOME PER COMMON SHARE
Primary and fully diluted earnings per share are computed based on net
income after preferred dividends and parent direct interest and are based on the
weighted average number of common shares and equivalent common shares
outstanding during the period. Both stock options and restricted stock (see Note
13) are common stock equivalents. For the years presented, stock options and
restricted stock did not have a dilutive effect and are not included in the
Company's earnings per share calculation.
F-33
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF
OPERATIONS (CONTINUED)
EMPLOYEE BENEFIT AND INCENTIVE PLANS AND OTHER POSTRETIREMENT BENEFITS
The Company provides a variety of benefit and incentive compensation plans
for eligible employees and retirees. Provisions for the costs of these employee
benefit and incentive plans and postretirement benefit plans are accrued and
charged to expense when the benefit is earned.
STOCK-BASED COMPENSATION
The Company adopted the disclosure provisions of Statement of Financial
Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation"
on January 1, 1996. SFAS No. 123 establishes accounting and disclosure
requirements using a fair value-based method of accounting for stock-based
compensation plans.
As allowed under the provisions of SFAS No. 123, the Company has chosen to
continue to recognize compensation expense using the intrinsic value-based
method of valuing stock options prescribed in Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" and related
Interpretations. Under the intrinsic value-based method, compensation cost is
measured as the amount by which the quoted market price of the Company's stock
at the date of grant exceeds the stock option exercise price.
Compensation cost associated with the Company's Restricted Stock Program is
measured based on the market price of the stock at the grant date and is
expensed over the vesting period.
NEW ACCOUNTING PRONOUNCEMENTS
On January 1, 1996, the Company adopted SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,"
which addresses the accounting for the impairment of long-lived assets, such as
premises, furniture and equipment, certain identifiable intangibles and goodwill
related to those assets. Long-lived assets and certain identifiable intangibles
are to be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. An
impairment loss is recognized when the sum of the future cash flows expected
from the use of the asset and its eventual disposition (undiscounted and without
interest charges) is less than the carrying amount of the asset. The Statement
also requires that long-lived assets and identifiable intangibles, except for
assets of a discontinued operation held for disposal, be accounted for at the
lower of cost or fair value less cost to sell. The Company has implemented SFAS
No. 121 and, except for the effects of the writedown of certain assets and
leases in connection with the recognition of merger and integration costs, has
determined that the measurement of impairment loss is not material.
In June 1996, SFAS No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities" was issued. The Statement
establishes standards for when transfers of financial assets, including those
with continuing involvement by the transferor, should be considered a sale. SFAS
No. 125 also establishes standards for when a liability should be considered
extinguished. This statement is effective for transfers of assets and
extinguishments of liabilities after December 31, 1996. In December 1996, the
Financial Accounting Standards Board ("FASB") reconsidered certain provisions of
SFAS No. 125 and issued SFAS No. 127, "Deferral of the Effective Date of Certain
Provisions of FASB Statement No. 125" to defer for one year the effective date
of implementation for transactions related to repurchase agreements, dollar-roll
repurchase agreements, securities lending and similar transactions. Earlier
adoption or retroactive application of this statement with respect to any of its
provisions is not permitted. Management believes that the effect of adoption on
the Company's financial statements will not be material.
F-34
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
NOTE 2 -- MERGER; COMBINATION OF UNION BANK AND SUBSIDIARIES AND BANCAL TRI-
STATE CORPORATION AND SUBSIDIARIES
As discussed in Note 1, the combination of Union Bank and BanCal Tri-State
Corporation in a merger to form UnionBanCal Corporation and subsidiaries was
completed on April 1, 1996, and was accounted for as a reorganization of
entities under common control (similar to a pooling of interests). The merger
was effected by the issuance of 18,134,027 shares of Union Bank common stock in
exchange for all the outstanding common shares of BanCal Tri-State Corporation.
All historical information has been restated as if the merger had been in effect
for all periods presented.
The following table presents certain financial data pertaining to the
combination of Union Bank with BanCal Tri-State Corporation for periods prior to
April 1, 1996. Certain reclassifications and restatements of historical data
have been made to conform to consistent methods of accounting. The principal
restatements include the results of conforming the date of adoption of SFAS No.
115, "Accounting for Certain Investments in Debt and Equity Securities" to
December 31, 1993, and the results of restating 1994 and 1993 to reflect
adoption of SFAS 109, "Accounting for Income Taxes", effective January 1, 1993,
with the recognition of certain deferred tax assets at that date as a cumulative
effect of a change in accounting principle. The restatement for income taxes
resulted in an increase in 1993 net income of $172 million which reflected the
net effect of the accounting change and in 1994 a corresponding $172 million
decrease in net income which reflected the increase in income tax expense of
$172 million.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEARS ENDED
MARCH 31, DECEMBER 31,
------------- --------------------------
(DOLLARS IN THOUSANDS) 1996 1995 1994
- ---------------------------------------------------------------------- ------------- ------------ ------------
<S> <C> <C> <C>
Net interest income and noninterest income:
Union Bank.......................................................... $ 284,291 $ 1,079,882 $ 938,448
BanCal Tri-State Corporation........................................ 114,250 457,770 416,606
------------- ------------ ------------
UnionBanCal Corporation as restated............................... $ 398,541 $ 1,537,652 $ 1,355,054
------------- ------------ ------------
------------- ------------ ------------
Net income:
Union Bank.......................................................... $ 60,529 $ 207,341 $ 63,253
BanCal Tri-State Corporation........................................ 22,737 105,601 233,919
Adjustment for income tax restatement............................... -- -- (171,823)
------------- ------------ ------------
UnionBanCal Corporation as restated............................... $ 83,266 $ 312,942 $ 125,349
------------- ------------ ------------
------------- ------------ ------------
</TABLE>
Merger and integration expenses of $117 million, as summarized in the
following table, were incurred in 1996 in connection with the combination.
<TABLE>
<CAPTION>
SEVERANCE,
RETENTION AND
OTHER EMPLOYEE FACILITIES PROFESSIONAL
(DOLLARS IN THOUSANDS) RELATED COSTS COSTS FEES OTHER TOTAL
- ------------------------------------------------- --------------- --------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C>
Provision for merger and integration costs....... $ 39,960 $ 53,628 $ 8,225 $ 15,651 $ 117,464
Utilization for 1996:
Cash........................................... 17,619 1,658 8,225 12,653 40,155
Noncash........................................ -- 20,931 -- 2,034 22,965
------- --------- ----------- --------- ----------
Total utilization for 1996................... 17,619 22,589 8,225 14,687 63,120
------- --------- ----------- --------- ----------
Liability balance, December 31, 1996............. $ 22,341 $ 31,039 $ -- $ 964 $ 54,344
------- --------- ----------- --------- ----------
------- --------- ----------- --------- ----------
</TABLE>
F-35
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
NOTE 2 -- MERGER; COMBINATION OF UNION BANK AND SUBSIDIARIES AND BANCAL TRI-
STATE CORPORATION AND SUBSIDIARIES (CONTINUED)
It is expected that additional merger-related expenses which do not qualify
for current recognition will be incurred in the first quarter of 1997. These
expenses will also be classified as merger and intergration expense when
incurred.
NOTE 3 -- INVESTMENT SECURITIES
The amortized cost, gross unrealized gains, gross unrealized losses, and
fair values of investment securities are presented below.
INVESTMENT SECURITIES AVAILABLE FOR SALE
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1996 1995
------------------------------------------------ -----------------------------------
<CAPTION>
GROSS GROSS GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR AMORTIZED UNREALIZED UNREALIZED
(DOLLARS IN THOUSANDS) COST GAINS LOSSES VALUE COST GAINS LOSSES
- ----------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury...................... $1,137,992 $ 4,993 $1,933 $1,141,052 $ 981,392 $13,122 $ 22
Other U.S. government.............. 687,717 4,993 779 691,931 354,029 10,555 --
Mortgage-backed securities......... 193,531 400 274 193,657 448,581 590 998
State and municipal................ 101,006 13,749 -- 114,755 117,061 15,637 --
Equity securities.................. 19,041 2,553 -- 21,594 12,836 3,736 33
Foreign securities................. 1,136 72 -- 1,208 3,872 193 --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total investment securities
available for sale.............. $2,140,423 $26,760 $2,986 $2,164,197 $1,917,771 $43,833 $1,053
---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ----------
<CAPTION>
<S> <C>
FAIR
(DOLLARS IN THOUSANDS) VALUE
- ----------------------------------- ----------
<S> <C>
U.S. Treasury...................... $ 994,492
Other U.S. government.............. 364,584
Mortgage-backed securities......... 448,173
State and municipal................ 132,698
Equity securities.................. 16,539
Foreign securities................. 4,065
----------
Total investment securities
available for sale.............. $1,960,551
----------
----------
</TABLE>
INVESTMENT SECURITIES HELD TO MATURITY
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1996 1995
------------------------------------------------ ------------------------------------------------
<CAPTION>
GROSS GROSS GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR AMORTIZED UNREALIZED UNREALIZED FAIR
(DOLLARS IN THOUSANDS) COST GAINS LOSSES VALUE COST GAINS LOSSES VALUE
- ------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury............ $ 50,109 $ 1,735 $-- $ 51,844 $ 51,125 $ 3,468 $-- $ 54,593
Other U.S. government.... 139,188 4,412 -- 143,600 138,816 8,509 -- 147,325
Mortgage-backed
securities.............. 41,985 2,019 68 43,936 124,375 2,511 105 126,781
State and municipal...... 36,914 310 2,199 35,025 48,971 661 2,231 47,401
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total investment
securities held to
maturity.............. $ 268,196 $ 8,476 $2,267 $ 274,405 $ 363,287 $15,149 $2,336 $ 376,100
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
F-36
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
NOTE 3 -- INVESTMENT SECURITIES (CONTINUED)
The amortized cost and fair value of securities, by contractual maturity,
are shown below. Expected maturities may differ from contractual maturities
because borrowers may have the right to call or prepay obligations, with or
without call or prepayment penalties.
INVESTMENT SECURITIES AVAILABLE FOR SALE
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------
AMORTIZED FAIR
(DOLLARS IN THOUSANDS) COST VALUE
- -------------------------------------------------------------------------------------- ------------ ------------
<S> <C> <C>
Due in one year or less............................................................... $ 550,272 $ 549,783
Due after one year through five years................................................. 1,505,950 1,515,625
Due after five years through ten years................................................ 23,416 26,189
Due after ten years................................................................... 41,744 51,006
Equity securities..................................................................... 19,041 21,594
------------ ------------
Total investment securities available for sale.................................... $ 2,140,423 $ 2,164,197
------------ ------------
------------ ------------
</TABLE>
INVESTMENT SECURITIES HELD TO MATURITY
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------
AMORTIZED FAIR
(DOLLARS IN THOUSANDS) COST VALUE
- -------------------------------------------------------------------------------------- ------------ ------------
<S> <C> <C>
Due in one year or less............................................................... $ 77,370 $ 78,264
Due after one year through five years................................................. 175,199 182,713
Due after five years through ten years................................................ 2,116 2,056
Due after ten years................................................................... 13,511 11,372
------------ ------------
Total investment securities held to maturity...................................... $ 268,196 $ 274,405
------------ ------------
------------ ------------
</TABLE>
During the year ended December 31, 1996, there were no sales or transfers
from the investment securities held to maturity portfolio and proceeds from
sales of investment securities available for sale were $20 million with gross
realized gains of $3 million and no gross realized losses. In 1995, proceeds
from sales of investment securities available for sale were $241 million with
gross realized gains of $2 million and gross realized losses of $3 million in
1995. In 1994, proceeds were $319 million with gross realized gains of $2
million and from realized losses of $5 million.
During the quarter ended December 31, 1995, in accordance with guidance
issued by the FASB, the Company reclassified from investment securities held to
maturity to investment securities available for sale, approximately $285 million
amortized cost of U.S. Treasury Notes (fair value $285 million) and $64 million
amortized cost of municipal bonds (fair value $72 million).
F-37
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
NOTE 4 -- LOANS AND ALLOWANCE FOR CREDIT LOSSES
A summary of loans net of unearned interest and fees of $150 million and
$160 million at December 31, 1996 and 1995, respectively, is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
(DOLLARS IN THOUSANDS) 1996 1995
- ------------------------------------------------------------------------- ------------- -------------
<S> <C> <C>
Domestic:
Commercial, financial and industrial................................... $ 9,492,255 $ 9,679,600
Construction........................................................... 357,817 370,091
Mortgage:
Residential.......................................................... 2,960,908 2,642,257
Commercial........................................................... 2,597,616 2,143,231
------------- -------------
Total mortgage..................................................... 5,558,524 4,785,488
Consumer:
Installment.......................................................... 2,063,434 1,811,696
Home equity.......................................................... 1,113,269 1,222,356
Credit card and other lines of credit................................ 303,235 308,944
------------- -------------
Total consumer..................................................... 3,479,938 3,342,996
Lease financing........................................................ 800,048 845,170
------------- -------------
Total loans in domestic offices.................................... 19,688,582 19,023,345
Loans originated in foreign branches..................................... 1,209,523 1,202,744
------------- -------------
Total loans........................................................ $ 20,898,105 $ 20,226,089
------------- -------------
------------- -------------
</TABLE>
Changes in the allowance for credit losses were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
(DOLLARS IN THOUSANDS) 1996 1995 1994
- --------------------------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
Balance, beginning of year..................................... $ 555,149 $ 563,142 $ 692,584
Loans charged off.............................................. (119,227) (133,646) (273,817)
Loan loss recoveries........................................... 48,024 72,403 71,375
----------- ----------- -----------
Total net loans charged off................................ (71,203) (61,243) (202,442)
Provision for credit losses.................................... 40,000 53,250 73,000
----------- ----------- -----------
Balance, end of year........................................... $ 523,946 $ 555,149 $ 563,142
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
Nonaccrual loans totaled $128 million and $208 million at December 31, 1996
and 1995, respectively. A significant portion of these loans were real estate
related. There were no renegotiated loans at December 31, 1996 and at December
31, 1995, there were $2 million in renegotiated loans.
Interest foregone on loans designated as nonaccrual at December 31, 1996,
1995 and 1994 was $9 million, $18 million and $32 million, respectively.
LOAN IMPAIRMENT
Impaired loans of the Company include commercial, financial and industrial,
construction and commercial mortgage loans designated as nonaccrual. When the
value of an impaired loan is less than the recorded investment in the loan, a
portion of the Company's allowance for credit loss is allocated as an impairment
allowance.
F-38
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
NOTE 4 -- LOANS AND ALLOWANCE FOR CREDIT LOSSES (CONTINUED)
Effective January 1, 1995, the Company's policy for recognition of interest
income and loans charged off and application of payments on impaired loans is
the same as the policy applied to nonaccrual loans. During the years ended
December 31, 1996 and 1995, the average recorded investment in impaired loans
was $145 million and $278 million, respectively. Interest income recognized on
impaired loans on a cash basis was $5 million and $10 million, respectively.
A summary of the recorded loan balance and related impairment allowance for
impaired loans is shown below.
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------
1996 1995
----------------------- -----------------------
RECORDED RECORDED
LOAN IMPAIRMENT LOAN IMPAIRMENT
(DOLLARS IN THOUSANDS) BALANCE ALLOWANCE BALANCE ALLOWANCE
- --------------------------------------------------------------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Loans evaluated for impairment:
Requiring an impairment allowance:
Commercial, financial and industrial....................... $ 28,221 $ 14,818 $ 38,955 $ 11,782
Construction............................................... 678 206 -- --
Mortgage:
Commercial............................................... 40,987 6,236 19,629 4,055
---------- ----------- ---------- -----------
Total evaluated loans requiring an impairment
allowance............................................. 69,886 $ 21,260 58,584 $ 15,837
---------- ----------- ---------- -----------
----------- -----------
Not requiring an impairment allowance: (1)
Commercial, financial and industrial....................... 23,706 32,999
Construction............................................... 8,652 49,447
Mortgage:
Residential.............................................. -- 4,280
Commercial............................................... 11,604 27,885
---------- ----------
Total evaluated loans not requiring an impairment
allowance............................................. 43,962 114,611
---------- ----------
Total impaired loans (2)............................... $ 113,848 $ 173,195
---------- ----------
---------- ----------
</TABLE>
- ------------
(1) These loans do not require an impairment allowance since the value of the
impaired loan collateral equals or exceeds the recorded loan balance.
(2) This amount was evaluated for impairment using two measurement methods as
follows: $52 million and $72 million was evaluated using the present value
of the expected future cash flows at December 31, 1996 and 1995,
respectively; and $62 million and $101 million was evaluated using the fair
value of the collateral at December 31, 1996 and 1995, respectively.
RELATED PARTY LOANS
The Company in some cases makes related party loans to its directors,
executive officers and their affiliated companies. At December 31, 1996, related
party loans outstanding to individuals who served as directors or executive
officers at anytime during the year totaled $79 million as compared to $34
million at December 31, 1995. In the opinion of management, these related party
loans were made on substantially the same terms, including interest rates and
collateral requirements, as those terms prevailing at the date these loans were
made. During 1996 and 1995, there were no loans to related parties which were
charged off. Additionally, at December 31, 1996 and 1995, there were no loans to
related parties which were nonperforming.
F-39
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
NOTE 5 -- PREMISES AND EQUIPMENT
Premises and equipment are carried at cost, less accumulated depreciation.
As of December 31, 1996 and 1995, the amounts were:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------------------------------------
1996 1995
------------------------------------------- -------------------------------------------
ACCUMULATED ACCUMULATED
DEPRECIATION AND NET BOOK DEPRECIATION AND NET BOOK
(DOLLARS IN THOUSANDS) COST AMORTIZATION VALUE COST AMORTIZATION VALUE
- ------------------------------------ ----------- ----------------- ----------- ----------- ----------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Land................................ $ 73,309 $ -- $ 73,309 $ 96,781 $ -- $ 96,781
Premises............................ 264,545 98,785 165,760 260,639 98,831 161,808
Leasehold improvements.............. 124,065 75,264 48,801 124,796 77,170 47,626
Furniture, fixtures and equipment... 362,063 239,312 122,751 331,539 215,833 115,706
----------- ----------------- ----------- ----------- ----------------- -----------
Total............................. $ 823,982 $ 413,361 $ 410,621 $ 813,755 $ 391,834 $ 421,921
----------- ----------------- ----------- ----------- ----------------- -----------
----------- ----------------- ----------- ----------- ----------------- -----------
</TABLE>
Rental, depreciation and amortization expense were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
(DOLLARS IN THOUSANDS) 1996 1995 1994
- --------------------------------------------------------------------------------- --------- --------- ---------
Rental expense of premises....................................................... $ 66,189 $ 53,493 $ 61,931
Less: rental income.............................................................. 11,904 11,050 10,352
--------- --------- ---------
Net rental expense............................................................. $ 54,285 $ 42,443 $ 51,579
--------- --------- ---------
--------- --------- ---------
Other rental expense, primarily for equipment.................................... $ 3,081 $ 3,892 $ 3,828
Depreciation and amortization of premises and equipment.......................... 51,821 49,036 46,805
</TABLE>
Future minimum operating lease payments follow.
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) DECEMBER 31, 1996
- ----------------------------------------------------------------------------------------------- -----------------
<S> <C>
Years Ending December 31,
1997....................................................................................... $ 43,737
1998....................................................................................... 43,068
1999....................................................................................... 41,147
2000....................................................................................... 33,207
2001....................................................................................... 29,594
Later years................................................................................ 139,691
--------
Total minimum operating lease payments......................................................... $ 330,444
--------
--------
Minimum rental income due in the future under noncancellable subleases......................... $ 44,292
--------
--------
</TABLE>
A majority of the leases provide for the payment of taxes, maintenance,
insurance and certain other expenses applicable to the leased premises. Many of
the leases contain extension provisions, escalation clauses and purchase
options. There are no restrictions on paying dividends, incurring additional
debt or negotiating additional leases under the terms of the present lease
agreements.
F-40
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
NOTE 6 -- EMPLOYEE BENEFIT AND INCENTIVE PLANS AND OTHER POSTRETIREMENT BENEFITS
RETIREMENT PLANS
Between April 1, 1996, and December 31, 1996, the Company maintained two
retirement plans, one covering former Union Bank employees and the other
covering former BanCal Tri-State Corporation employees. It is anticipated that
the plan covering former BanCal Tri-State Corporation employees will be
terminated, retroactive to January 1, 1997, and those employees will be covered
by the remaining plan.
The former Union Bank Retirement Plan (the "Plan") is a qualified retirement
plan covering substantially all of the employees of the former Union Bank. The
Plan is a noncontributory defined benefit plan which provides benefits upon
retirement based on years of service and average compensation, as defined in the
Plan. Annual contributions are based on an amount which satisfies federal
funding standards. Contributions are intended to provide not only for benefits
attributed to services to date, but also for those expected to be earned in the
future.
Plan assets are invested in U.S. government securities, corporate bonds and
commingled trust funds.
The following sets forth the Plan's funded status and the amounts recognized
in the Company's balance sheets at the dates indicated.
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
<S> <C> <C>
(DOLLARS IN THOUSANDS) 1996 1995
- ------------------------------------------------------------------------------ ----------- -----------
Accumulated benefit obligation:
Actuarial present value of benefits for services rendered to date:
Vested.................................................................... $ (241,188) $ (216,454)
Non-vested................................................................ (27,821) (25,479)
----------- -----------
Total................................................................... $ (269,009) $ (241,933)
----------- -----------
----------- -----------
Projected benefit obligation.................................................. $ (323,646) $ (292,931)
Fair value of plan assets..................................................... 381,194 332,412
----------- -----------
Projected benefit obligation less than plan assets.......................... 57,548 39,481
Prior service cost not yet recognized in net periodic pension cost............ 5,165 7,273
Unrecognized net gain due to change of assumptions and experience different
from assumptions made........................................................ (29,660) (14,984)
Unrecognized transition asset at January 1, 1986, being recognized over 13.4
years........................................................................ (359) (508)
----------- -----------
Prepaid pension costs included in other assets.......................... $ 32,694 $ 31,262
----------- -----------
----------- -----------
</TABLE>
F-41
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
NOTE 6 -- EMPLOYEE BENEFIT AND INCENTIVE PLANS AND OTHER POSTRETIREMENT
BENEFITS (CONTINUED)
The following items are components of the defined benefit pension expense.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
<S> <C> <C> <C>
(DOLLARS IN THOUSANDS) 1996 1995 1994
- -------------------------------------------------------------------- ---------- ---------- ----------
Service cost -- present value of benefits earned.................... $ 12,651 $ 10,516 $ 11,252
Interest cost on projected benefit obligation....................... 22,043 19,637 17,987
Less return on assets:
Actual (gain) loss................................................ (44,210) (63,304) 4,459
Gains (losses) in excess of expected return on assets............. 20,333 42,286 (23,903)
---------- ---------- ----------
Expected return on assets....................................... (23,877) (21,018) (19,444)
Amortization of prior service cost.................................. 2,108 2,108 2,108
Amortization of transition asset.................................... (149) (149) (149)
---------- ---------- ----------
Net pension expense............................................. $ 12,776 $ 11,094 $ 11,754
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
Assumptions used in accounting were:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1996 1995 1994
--------- --------- ---------
Discount rate (settlement rate)............................................... 7.50% 7.50% 8.25%
Rate of increase in salary levels............................................. 5.50 5.50 5.75
Expected return on assets..................................................... 8.25 8.25 8.00
</TABLE>
The former BanCal Tri-State Corporation retirement plan is a defined
contribution plan. Company contributions are based upon employees' eligible
compensation. Depending upon employee entitlements, the Company contributions
range from 5 to 10 percent of an employee's eligible compensation. The Company's
expense for pension contributions for the years ended December 31, 1996, 1995,
and 1994 was $5 million, $6 million and $6 million, respectively.
EXECUTIVE SUPPLEMENTAL BENEFIT PLANS
The Company has Executive Supplemental Benefit Plans ("ESBP") which provide
eligible employees with monthly benefits upon retirement. The plans are
unfunded. The accrued liability for ESBP's included in other liabilities in the
consolidated balance sheets was $14 million and $14 million at December 31, 1996
and 1995, respectively. The Company's expense relating to the ESBPs was $1
million for each of the years ended December 31, 1996, 1995 and 1994.
SECTION 401 SAVINGS PLANS
The Company has two qualified savings plans (one for former Union Bank
employees and one for former BanCal Tri-State employees) authorized under
Section 401 of the Internal Revenue Code. The Company's combined matching
contribution expense was $9 million in each of the years ended December 31,
1996, 1995 and 1994.
OTHER POSTRETIREMENT BENEFITS
The Company provides certain health care and life insurance benefits for its
retired employees. The health care cost is shared between the Company and the
retiree. The life insurance plan is noncontributory. The accounting for the
health care plan anticipates future cost-sharing changes to the written plan
that are consistent with the Company's intent to maintain a level of
cost-sharing at approximately 25 percent. Assets set aside to cover such
obligations are primarily invested in mutual funds.
F-42
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
NOTE 6 -- EMPLOYEE BENEFIT AND INCENTIVE PLANS AND OTHER POSTRETIREMENT
BENEFITS (CONTINUED)
The following table sets forth the plan's combined funded status recognized.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
(DOLLARS IN THOUSANDS) 1996 1995
- --------------------------------------------------------------------------- ------------ ------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees................................................................. $ (48,747) $ (43,915)
Fully eligible plan participants......................................... (11,876) (12,917)
Other active plan participants........................................... (19,651) (20,055)
------------ ------------
Accumulated postretirement obligation.................................. (80,274) (76,887)
Fair value of plan assets.................................................. 21,703 16,690
------------ ------------
Accumulated postretirement obligation in excess of plan assets........... (58,571) (60,197)
Unrecognized net gain due to change in assumption and experience different
from assumptions made..................................................... (14,829) (14,292)
Unrecognized transition obligation......................................... 63,800 67,788
------------ ------------
Accrued postretirement benefit cost.................................... $ (9,600) $ (6,701)
------------ ------------
------------ ------------
</TABLE>
The following table sets forth the components of postretirement benefit
expense.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
(DOLLARS IN THOUSANDS) 1996 1995 1994
- ------------------------------------------------------------ ------------ ------------ ------------
<S> <C> <C> <C>
Service cost................................................ $ 1,741 $ 1,792 $ 1,974
Interest cost............................................... 5,581 6,091 5,394
Actual return on plan assets................................ (2,590) (3,337) 185
Net amortization and deferral............................... 4,397 5,559 2,394
------------ ------------ ------------
Net periodic postretirement benefit cost.................. $ 9,129 $ 10,105 $ 9,947
------------ ------------ ------------
------------ ------------ ------------
Postretirement benefit claims paid for the year............. $ 3,808 $ 5,309 $ 4,129
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The unrecognized transition obligation recorded on January 1, 1993, is being
amortized over 20 years.
For 1996, the Company assumed a 9 percent annual rate of increase in the per
capita cost of postretirement medical benefits for the indemnity plan and a 4
percent annual rate of increase was assumed for the health maintenance
organization ("HMO") plan. For future periods the assumed rate for the indemnity
plan gradually decreased from 9 percent to 5.5 percent in 2007 and remained
level thereafter. The assumed rate of increase on the HMO plan increased to 7
percent in 1997 and then gradually decreased to 5.5 percent in the year 2007 and
thereafter.
The healthcare cost trend rate assumption has a significant effect on the
amounts reported. To illustrate, increasing the assumed health care cost trend
rates by one percentage point in each year would increase the accumulated
postretirement benefit obligation as of December 31, 1996, by $9 million and the
aggregate of the service and interest cost components of net periodic
postretirement benefit cost of the year then ended by $1 million.
For 1995, the former Union Bank assumed a 9 percent annual rate of increase
in the per capita cost of postretirement medical benefits for the indemnity plan
and a 4 percent annual rate of increase was assumed for the HMO plan. For future
periods the assumed rate for the indemnity plan gradually decreased from 9
F-43
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
NOTE 6 -- EMPLOYEE BENEFIT AND INCENTIVE PLANS AND OTHER POSTRETIREMENT
BENEFITS (CONTINUED)
percent to 5.5 percent in 2007 and remained level thereafter. The assumed rate
of change on the HMO plan increased for the remainder of the decade, then
gradually decreased to 5.5 percent in the year 2007 and thereafter.
For 1995, former BanCal Tri-State Corporation assumed an 11.5 percent annual
rate of increase in the per capita cost of postretirement medical benefits for
the indemnity plan. For future periods the assumed rate for the indemnity plan
gradually decreased from 11.5 percent to 5.5 percent in 2003 and remained level
thereafter.
For 1994, former Union Bank assumed a 9 percent annual rate of increase in
the per capita cost of postretirement medical benefits for the indemnity plan.
No increase was assumed for the HMO plan. The annual rate of increase for both
plans were assumed to decrease gradually to 5.5 percent by 2008 and remain level
thereafter. For the former BanCal Tri-State Corporation, the assumed rate of
future increases in the health care cost trend rate was 12.25 percent for 1994,
gradually decreasing to 6.5 percent for the year 2003 and remaining level
thereafter.
The discount rate used in determining the actuarial present value of the
projected benefit obligation was 7.50 percent as of December 31, 1996 and 1995.
At December 31, 1994, the discount rate was 9.00 percent for BanCal Tri-State
and 8.25 percent for Union Bank. The estimated rate of return on plan assets was
8.00 percent, 8.00 percent, and 8.25 percent as of December 31, 1996, 1995, and
1994, respectively.
NOTE 7 -- INCOME TAXES
The components of income tax expense were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
<S> <C> <C> <C>
(DOLLARS IN THOUSANDS) 1996 1995 1994
- ------------------------------------------------------------------- ---------- ---------- ----------
Taxes currently payable:
Federal.......................................................... $ 86,159 $ 96,732 $ 36,760
State............................................................ 23,180 42,356 18,935
Foreign.......................................................... 2,895 3,430 1,671
---------- ---------- ----------
Total currently payable........................................ 112,234 142,518 57,366
---------- ---------- ----------
Taxes deferred:
Federal.......................................................... 47,575 34,839 70,779
State............................................................ 3,455 16,005 (7,659)
Foreign.......................................................... (372) (3) (130)
---------- ---------- ----------
Total deferred................................................. 50,658 50,841 62,990
---------- ---------- ----------
Total income tax expense....................................... $ 162,892 $ 193,359 $ 120,356
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
F-44
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
NOTE 7 -- INCOME TAXES (CONTINUED)
The components of the net deferred tax balances of the Company were as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
(DOLLARS IN THOUSANDS) 1996 1995
- -------------------------------------------------------------------------------- ---------- ----------
<S> <C> <C>
Deferred Tax Assets:
Allowance for credit losses................................................... $ 195,128 $ 220,153
Alternative minimum tax....................................................... -- 41,896
Accrued income & expense...................................................... 31,964 40,194
Accrued merger expense........................................................ 22,051 --
Deferred state taxes.......................................................... 13,572 8,544
Other......................................................................... 2,567 3,144
---------- ----------
Total deferred tax assets................................................... 265,282 313,931
---------- ----------
Deferred Tax Liabilities:
Leasing....................................................................... 276,922 271,473
Depreciation.................................................................. 13,809 14,977
Unrealized gain on securities available for sale.............................. 9,711 18,200
Other......................................................................... -- 3,138
---------- ----------
Total deferred tax liabilities.............................................. 300,442 307,788
---------- ----------
Net deferred tax liability (asset)........................................ $ 35,160 $ (6,143)
---------- ----------
---------- ----------
</TABLE>
The following table is an analysis of the effective tax rate.
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
---------------
<S> <C> <C> <C>
1996 1995 1994
--- --- ---
Federal income tax rate..................................... 35% 35% 35%
Net tax effects of:
State income taxes, net of federal income tax benefit..... 4 5 15
Tax-exempt interest income................................ (1) (1) (3)
Amortization of intangibles............................... 1 1 2
Other..................................................... 1 (2) --
--- --- ---
Effective tax rate...................................... 40% 38% 49%
--- --- ---
--- --- ---
</TABLE>
The Company has a tax indemnification agreement with Standard Chartered PLC
in connection with its acquisition of the former Union Bank in 1988. Certain
amounts have been paid to federal and state taxing authorities in settlement of
tax issues in years covered by the agreement and, accordingly, receivables from
Standard Chartered PLC have been recorded. Management believes that all such
receivables are fully collectible.
Federal and state tax returns for several years are under or subject to
examination by the respective taxing authorities. Although the ultimate outcome
of such examinations cannot be determined at this time, management believes that
the resolution of issues that have been or may be raised will not have a
material adverse effect on the Company's financial position or results of
operations.
F-45
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
NOTE 8 -- DEPOSITS
At December 31, 1996, the Company had $148 million in domestic time deposits
exceeding $100,000 with a remaining term of greater than one year. Maturity
information for those deposits is summarized below.
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) DECEMBER 31, 1996
- ------------------------------------------------------------------------------------- -----------------
<S> <C>
Due after one year through two years................................................. $ 54,450
Due after two years through three years.............................................. 51,173
Due after three years through four years............................................. 17,880
Due after four years through five years.............................................. 22,274
Due after five years................................................................. 2,351
--------
Total............................................................................ $ 148,128
--------
--------
</TABLE>
Substantially all of the foreign deposits exceeding $100,000 mature in less
than one year.
NOTE 9 -- BORROWED FUNDS
The following is a summary of the major categories of borrowed funds, all of
which mature within one year.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
<S> <C> <C>
(DOLLARS IN THOUSANDS) 1996 1995
- ---------------------------------------------------------------------------- ------------ ------------
Federal funds purchased and securities sold under repurchase agreements with
weighted average interest rates of 5.09% and 4.96% at December 31, 1996 and
1995, respectively......................................................... $ 1,322,654 $ 1,195,058
Commercial paper, with weighted average interest rates of 5.34% and 5.75% at
December 31, 1996 and 1995, respectively................................... 1,495,463 1,389,870
Other borrowed funds, with weighted average interest rates of 5.59% and
5.77% at December 31, 1996 and 1995, respectively.......................... 758,251 1,065,058
------------ ------------
Total borrowed funds.................................................... $ 3,576,368 $ 3,649,986
------------ ------------
------------ ------------
</TABLE>
<TABLE>
<S> <C> <C>
Federal funds purchased and securities sold under repurchase
agreements:
Maximum outstanding at any month end....................... $1,322,654 $1,517,999
Average balance during the year............................ 933,433 1,384,762
Weighted average interest rate during the year............. 5.05% 5.70%
Commercial paper:
Maximum outstanding at any month end....................... $1,854,576 $1,591,712
Average balance during the year............................ 1,620,087 1,448,739
Weighted average interest rate during the year............. 5.40% 5.98%
Other borrowed funds:
Maximum outstanding at any month end....................... $1,697,777 $1,320,030
Average balance during the year............................ 1,119,051 731,759
Weighted average interest rate during the year............. 5.59% 5.82%
</TABLE>
F-46
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
NOTE 10 -- SUBORDINATED CAPITAL NOTES
The following is a summary of capital notes which are subordinated to other
obligations of the Company.
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
<S> <C> <C>
(DOLLARS IN THOUSANDS) 1996 1995
- -------------------------------------------------------------------------------- ---------- ----------
Fixed rate and floating rate notes due October 1996 to October 1997, with
$23,000 bearing interest at fixed rates of 10.05% to 10.14% and notes totaling
$11,000 bearing interest at 0.375% above the 3-month London InterBank Offered
Rate (LIBOR)................................................................... $ 34,000 $ 67,000
Floating rate notes due September 1996. These notes bear interest at 0.25% above
LIBOR and are payable to The Bank of Tokyo-Mitsubishi, Ltd..................... -- 20,000
Floating rate notes due July 1997 and July 1998. These notes bear interest at
0.25% above LIBOR and are payable to The Bank of Tokyo-Mitsubishi, Ltd......... 100,000 150,000
8.00% fixed rate notes due February 2002. The notes may be called at par on or
after February 25, 1997. Beginning February 25, 1997, the notes will bear
interest at 1.25% above 6-month LIBOR(1)....................................... 100,000 100,000
Floating rate notes due July 2000. These notes bear interest at 0.30% above
3-month LIBOR.................................................................. 98,000 98,000
7.35% notes due February 2001. These notes are redeemable at the Company's
option at par.................................................................. -- 16,369
6.67% fixed rate notes due August 2002. The notes may be called at par on or
after August 20, 1997. Beginning August 20, 1997, the notes will bear interest
at 1.50% above 6-month LIBOR................................................... 50,000 50,000
---------- ----------
Total subordinated capital notes............................................ $ 382,000 $ 501,369
---------- ----------
---------- ----------
</TABLE>
All of the above notes qualify as Tier 2 risk-based capital under the
Federal Reserve guidelines for assessing regulatory capital. For the total
risk-based capital ratio, the amount of notes which qualify as capital is
reduced as the notes approach maturity. At December 31, 1996 and 1995, $219
million and $274 million, respectively, of the notes qualified as capital for
the total risk-based capital ratio.
Provisions of several of the notes restrict the use of the Company's
property as security for borrowings, and place limitations on leases,
indebtedness, distributions to shareholders, mergers, sale of certain assets,
transactions with affiliates and changes in majority stock ownership of the
Company.
The following table presents the maturities of subordinated capital notes.
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) DECEMBER 31, 1996
- --------------------------------------------------------------------------- -----------------
<S> <C>
Years ending December 31,
1997..................................................................... $ 184,000(1)
1998..................................................................... 50,000
2000..................................................................... 98,000
Later years.............................................................. 50,000
--------
Total.................................................................. $ 382,000
--------
--------
</TABLE>
- ---------------
(1) During February 1997, management intends to call the 8% fixed rate notes
due February 2002.
F-47
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
NOTE 11 -- PREFERRED STOCK
At December 31, 1996 and 1995, the Company had outstanding 1,350,000 shares
(or 5,400,000 depositary shares) of 8 3/8% Noncumulative Preferred Stock, Series
A (the "Preferred Stock") totaling $135 million. Holders of the Preferred Stock
are entitled to receive, when declared, noncumulative cash dividends payable
quarterly at a rate of 8 3/8 percent per annum (see Note 16 for an additional
discussion of dividends). On and after September 3, 1997, the Preferred Stock is
redeemable at the option of the Company, at a redemption price of $100 per share
of Preferred Stock (equivalent to $25 per depositary share), plus accrued and
unpaid dividends thereon from the immediately preceding dividend payment date to
the date fixed for redemption.
NOTE 12 -- DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN
The Company has a dividend reinvestment and stock purchase plan for
shareholders. The plan allows shareholders to automatically reinvest all or part
of their dividends in additional shares of the Company's common stock at a cost
of 5 percent below the market price. Participating shareholders also have the
option of purchasing additional shares at the full market price with cash
payments of $25 to $3,000 per quarter. The Company obtains shares required for
reinvestment through open market purchases or by the issuance of new shares from
its authorized but unissued stock. As a result of this plan, during 1996, 1995
and 1994, 23,902 shares, 620,678 shares and 617,997 shares, respectively, were
distributed under this plan. During 1994, BTM participated in the plan and
reinvested all of its dividends. BTM discontinued its participation after the
quarter ended March 31, 1995, and did not participate in the plan as of December
31, 1996.
NOTE 13 -- MANAGEMENT STOCK PLAN
The Company has a management stock plan (the "Plan") which has 1,200,000
shares of the Company's common stock authorized to be awarded to key employees
of the Company and its subsidiaries at the discretion of the Executive
Compensation and Benefits Committee of the Board of Directors (the "Committee").
Pursuant to the Plan, the Committee established the Restricted Stock Program and
the Stock Option Program. Committee members, members of the Board who are not
full-time employees, and employees on rotational assignment from BTM are not
eligible for stock awards. The combined number of shares that are granted under
the Restricted Stock Program and the Stock Option Program cannot exceed
1,200,000 shares of the Company's common stock.
The Committee determines the term of each stock option up to a maximum of
ten years from the date of grant. The exercise price of the options issued under
the Stock Option Program shall not be less than the fair market value on the
date the option is granted. Unvested restricted stock issued under the
Restricted Stock Program is shown as a reduction to retained earnings. The value
of the restricted shares at date of grant is amortized to compensation expense
over its vesting period. All cancelled or forfeited options and restricted stock
become available for future grants.
In 1996, 1995 and 1994, the Company granted options to various key
employees, including principal officers, under the Stock Option Program. The
stock options vest pro rata on each anniversary of the grant date and become
fully exercisable three years from the grant date, provided that the employee
has completed the specified continuous service requirement. They vest earlier if
the employee dies or retires under certain grant, age, and service conditions.
F-48
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
NOTE 13 -- MANAGEMENT STOCK PLAN (CONTINUED)
The following is a summary of transactions under the Stock Option Program.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------------------------------
1996 1995 1994
------------------------------ ------------------------------ ------------------------------
NUMBER OF WEIGHTED-AVERAGE NUMBER OF WEIGHTED-AVERAGE NUMBER OF WEIGHTED-AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
----------- ----------------- ----------- ----------------- ----------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding,
beginning of year.... 360,702 $ 31.25 246,834 $ 29.82 159,834 $ 31.16
Granted............. 92,400 54.88 129,700 33.75 95,000 26.75
Exercised........... (26,832) 32.06 (15,832) 29.49 (8,000) 20.00
Forfeited........... (5,001) -- -- -- -- --
----------- ----------- -----------
Options outstanding,
end of year.......... 421,269 $ 36.38 360,702 $ 31.25 246,834 $ 29.82
----------- ----------- -----------
----------- ----------- -----------
Options exercisable,
end of year.......... 228,715 $ 31.15 135,822 $ 29.34 88,165 $ 27.12
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The weighted-average fair value of options granted was $18.01 during 1996
and $9.38 during 1995.
The following table summarizes information about stock options outstanding.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING AT 12/31/96 OPTIONS EXERCISABLE AT
------------------------------------------------ 12/31/96
WEIGHTED-AVERAGE ------------------------------
RANGE OF NUMBER REMAINING WEIGHTED-AVERAGE NUMBER WEIGHTED-AVERAGE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- ------------------ ----------- ---------------- ----------------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
$20.00 38,834 3.9 year $ 20.00 38,834 $ 20.00
26.25 - 26.75 91,335 6.4 26.71 64,663 26.69
27.25 1,000 6.6 27.25 1,000 27.25
33.75 122,700 7.7 33.75 46,218 33.75
38.25 - 38.50 75,000 5.7 38.27 75,000 38.27
54.88 92,400 9.0 54.88 3,000 54.88
----------- -----------
421,269 228,715
----------- -----------
----------- -----------
</TABLE>
In 1996 and 1995, the Company also granted 44,480 shares and 77,070 shares,
respectively, of restricted stock to key officers, including executive officers,
under the Restricted Stock Program. The awards of restricted stock vest pro rata
on each anniversary of the grant date and become fully vested four years from
the grant date, provided that the employee has completed the specified
continuous service requirement. They vest earlier if the employee dies or is
permanently and totally disabled, or retires under certain grant, age, and
service conditions. Program participants have the right to vote their restricted
shares and receive dividends.
F-49
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
NOTE 13 -- MANAGEMENT STOCK PLAN (CONTINUED)
The following is a summary of the transactions under the Restricted Stock
Program.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------------------------------
1996 1995 1994
------------------------------ ------------------------------ ------------------------------
WEIGHTED-AVERAGE WEIGHTED-AVERAGE WEIGHTED-AVERAGE
NUMBER OF GRANT DATE NUMBER OF GRANT DATE NUMBER OF GRANT DATE
SHARES FAIR VALUE SHARES FAIR VALUE SHARES FAIR VALUE
----------- ----------------- ----------- ----------------- ----------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Restricted stock awards
outstanding, beginning
of year............... 348,317 $ 26.96 272,536 $ 24.74 213,937 $ 24.18
Granted.............. 44,480 54.88 77,070 34.84 61,200 26.72
Cancelled............ (3,857) 32.33 (1,289) 29.15 (2,601) 25.42
----------- ----------- -----------
Restricted stock awards
outstanding, end of
year.................. 388,940 $ 30.12 348,317 $ 26.96 272,536 $ 24.74
----------- ----------- -----------
----------- ----------- -----------
Restricted stock awards
vested, end of year... 254,890 $ 25.06 189,483 $ 23.43 122,707 $ 22.52
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
At December 31, 1996 and 1995, 319,461 shares and 447,483 shares,
respectively, were available for future grants as either stock options or
restricted stock under the Plan.
The Company follows the intrinsic value based method in accounting for its
employee stock-based compensation plans. Accordingly, no compensation cost has
been recognized for its stock option plans. Had compensation cost for the
Company's stock-based plans been determined based on the fair value at the grant
dates for awards under those plans consistent with the method of SFAS No. 123,
"Accounting for Stock-Based Compensation", the Company's net income and net
income per share would have decreased to the pro forma amounts indicated in the
following table. As 1996 is the initial phase-in period for applying this
Statement, the pro forma results indicated are not necessarily representative of
the effects on pro forma disclosures of net income for future periods as they
exclude options that were granted prior to January 1, 1995, with vesting periods
in 1995 and later.
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 1996 1995
- --------------------------------------------------------------------------------------- ---------- ----------
<S> <C> <C> <C>
Net income............................................................. As reported $ 249,458 $ 312,942
Pro forma 248,874 312,691
Net income applicable to common stock.................................. As reported $ 225,080 $ 284,195
Pro forma 224,496 283,944
Net income per average common share.................................... As reported $ 4.11 $ 5.21
Pro forma 4.10 5.21
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants made in 1996 and 1995: risk-free interest rates of
6.3% in 1996 and 7.1% in 1995; expected volatility of 28% in 1996 and 28% in
1995; expected lives of 7 years for both years and expected dividend yields of
2.6% in 1996 and 4.2% in 1995.
F-50
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
NOTE 14 -- FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of a financial instrument is the amount at which the
instrument could be exchanged in a current transaction between willing parties,
other than in a forced or liquidation sale. All of the fair values presented
below have been made under this definition of fair value unless otherwise
disclosed.
It is management's belief that the fair values presented below are
reasonable based on the valuation techniques and data available to the Company
as of December 31, 1996 and 1995, as more fully described below. It should be
noted that the operations of the Company are managed on a going concern basis
and not a liquidation basis. As a result, the ultimate value realized for the
financial instruments presented could be substantially different when actually
recognized over time through the normal course of operations. Additionally, a
substantial portion of an institution's inherent value is its capitalization and
franchise value. Neither of these components have been given consideration in
the presentation of fair values which follow.
The table below presents the carrying value and fair value of the specified
assets and liabilities held by the Company.
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------------
<S> <C> <C> <C> <C>
1996 1995
----------------------------- -----------------------------
<CAPTION>
(DOLLARS IN THOUSANDS) CARRYING VALUE FAIR VALUE CARRYING VALUE FAIR VALUE
- --------------------------------------------------- -------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents.......................... $ 3,937,697 $ 3,937,697 $ 3,352,423 $ 3,352,423
Trading account securities......................... 617,464 617,464 322,283 322,283
Investment securities available for sale........... 2,164,197 2,164,197 1,960,551 1,960,551
Investment securities held to maturity............. 268,196 274,405 363,287 376,100
Loans.............................................. 20,898,105 20,651,969 20,226,089 19,878,459
Less: Allowance for loan losses.................... 523,946 -- 555,149 --
-------------- ------------- -------------- -------------
Net loans........................................ 20,374,159 20,651,969 19,670,940 19,878,459
LIABILITIES
Deposits:
Noninterest bearing.............................. 7,655,109 7,655,109 7,379,399 7,379,399
Interest bearing................................. 13,877,851 13,885,504 12,275,644 12,290,962
-------------- ------------- -------------- -------------
Total deposits................................. 21,532,960 21,540,613 19,655,043 19,670,361
Borrowed funds..................................... 3,576,368 3,576,665 3,649,986 3,650,191
Subordinated capital notes......................... 382,000 388,388 501,369 517,166
</TABLE>
The Company is also a party to financial instruments that are not reflected
on the balance sheet but represent obligations of the Company in the normal
course of business. For information regarding the fair value of off-balance
sheet financial instruments, see Note 15.
The following methods and assumptions were used to estimate fair value of
each class of financial instruments for which it is practicable to estimate that
value.
CASH AND CASH EQUIVALENTS: The book value of cash and cash equivalents is
considered a reasonable estimate of fair value.
INVESTMENTS AND TRADING ACCOUNT SECURITIES: Fair values of investments and
trading account securities are based on quoted market prices or dealer quotes.
If a quoted market price is not available, fair value is estimated using quoted
market prices for similar securities.
F-51
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
NOTE 14 -- FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
LOANS: The fair value for performing fixed and non-reference rate loans was
estimated by discounting the future cash flows using the current rates at which
similar loans would be made to borrowers with similar credit ratings and for
similar remaining maturities and where available, discount rates were based on
current market rates.
The fair value of performing loans tied to the Company's reference rate with
normal credit risk is assumed to approximate their book value. The fair value
for these floating rate loans with increasing credit risk was estimated by
calculating their present value using a yield the Company would currently
require for loans with similar terms to borrowers with similar credit quality.
Loans which are on nonaccrual status were not included in the loan valuation
methods discussed previously. The fair value of these assets was determined
assuming these loans were sold on a liquidation basis based on the Company's
understanding of similar nonrecourse sales transactions which have been entered
into by financial institutions during 1996 and 1995.
The fair value of performing mortgage loans was based on quoted market
prices for loans with similar credit and interest rate risk characteristics.
The fair value of performing credit card loans and credit lines is assumed
to approximate their book value. The fair value was estimated for credit card
loans and credit lines which were past due at December 31, 1996 and 1995, by
segregating them according to their past due status and then discounting them
based on the Company's historical probability of loss.
DEMAND DEPOSITS: The fair value of demand deposits is the amount payable on
demand at the reporting date. The fair value of the demand deposit intangible
has not been estimated.
OTHER INTEREST BEARING DEPOSITS: The fair value of savings accounts and
certain money market accounts is the amount payable on demand at the reporting
date. The fair value of fixed maturity certificates of deposit was estimated
using rates currently being offered on certificates with similar maturities.
BORROWED FUNDS: The book values of federal funds purchased, securities sold
under repurchase agreements and other short-term borrowings are assumed to
approximate their fair value due to their limited duration characteristics. The
fair value for commercial paper and term federal funds purchased was estimated
using market quotes.
SUBORDINATED CAPITAL NOTES: The fair value of fixed-rate subordinated
capital notes was estimated using discounted cash flows based on market rates
for A-rated bank borrowings. The book values for variable-rate subordinated
capital notes are assumed to approximate fair market value.
NOTE 15 -- DERIVATIVE INSTRUMENTS AND OTHER FINANCIAL INSTRUMENTS WITH
OFF-BALANCE SHEET RISK
The Company is a party to certain derivative and other financial instruments
that are not reflected on the balance sheet but represent obligations or assets
of the Company in the normal course of business. These financial instruments are
used for trading activities of the Company, to meet the needs of customers and
to reduce the impact on the Company's operating results due to market
fluctuations in currency or interest rates.
These financial instruments involve, to varying degrees, elements of credit
and market risk which are not recognized on the balance sheet. Credit risk is
defined as the possibility that a loss may occur from the
F-52
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
NOTE 15 -- DERIVATIVE INSTRUMENTS AND OTHER FINANCIAL INSTRUMENTS WITH
OFF-BALANCE SHEET RISK (CONTINUED)
failure of another party to perform in accordance with the terms of the contract
which exceeds the value of the existing collateral, if any. Market risk is the
possibility that future changes in market conditions may make the financial
instrument less valuable.
DERIVATIVE INSTRUMENTS
The fair value of the derivative financial instruments was calculated based
on quoted market prices where available, or if quoted market prices were not
available the Company used the estimated amount it would receive or pay to
offset or terminate the agreements at December 31, 1996, based upon the terms of
such contracts relative to prevailing interest rates.
TRADING ACTIVITIES IN DERIVATIVE INSTRUMENTS
The following table reflects the Company's positions relating to trading
activities in derivative instruments. Trading activities include both activities
for the Company's own account and for customers. At December 31, 1996 and 1995,
the majority of the Company's derivative transactions for customers are hedged
with essentially offsetting contracts with other counterparties. The average
fair value of derivatives held or written for trading purposes during the year
is not material. The notional amount of derivative instruments reflects the
extent of the Company's involvement in these instruments. For interest rate
swap, cap and floor agreements, notional amounts do not represent exposure to
credit or market risk. Notional amounts are not exchanged, but serve as a point
of reference for calculating payments.
The following is a summary of derivative instruments held or written for
trading purposes.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
----------------------------------------------------------
UNAMORTIZED
NOTIONAL PREMIUM PAID FAIR
(DOLLARS IN THOUSANDS) AMOUNTS (RECEIVED) GAINS (1) LOSSES VALUE
- -------------------------------------------------------------- --------- ------------ ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
HELD OR WRITTEN FOR TRADING PURPOSES AND CUSTOMER
ACCOMMODATIONS
Foreign exchange forward contracts:
Commitments to purchase..................................... $ 403,602 $ -- $ 2,813 $ 14,548 $ (11,735)
Commitments to sell......................................... 530,923 -- 18,958 4,199 14,759
Currency swap agreements:
Commitments to pay.......................................... 64,817 -- 4,821 1,628 3,193
Commitments to receive...................................... 38,417 -- 1,628 33 1,595
Interest rate cap agreements:
Options purchased........................................... 994,605 -- 1,858 21 1,837
Options written............................................. 994,605 -- 21 1,859 (1,838)
Interest rate floor agreements:
Options purchased........................................... 147,250 -- 1,149 -- 1,149
Options written............................................. 147,250 -- -- 1,149 (1,149)
Interest rate swap agreements:
Pay variable/receive variable............................... 10,000 -- 28 27 1
Pay fixed/receive variable.................................. 788,165 -- 1,064 18,656 (17,592)
Pay variable/receive fixed.................................. 788,165 -- 19,623 949 18,674
</TABLE>
- ---------------
(1) Fair value gains are representative of economic credit risk and reflect the
replacement cost of those contracts in the event of nonperformance by
counterparties.
F-53
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
NOTE 15 -- DERIVATIVE INSTRUMENTS AND OTHER FINANCIAL INSTRUMENTS WITH
OFF-BALANCE SHEET RISK (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1995
------------------------------------------------------------
UNAMORTIZED
NOTIONAL PREMIUM PAID
(DOLLARS IN THOUSANDS) AMOUNTS (RECEIVED) GAINS (1) LOSSES FAIR VALUE
- ------------------------------------------------------------ ---------- ------------ ----------- --------- ----------
<S> <C> <C> <C> <C> <C>
HELD OR WRITTEN FOR TRADING PURPOSES AND CUSTOMER
ACCOMMODATIONS
Foreign exchange forward contracts:
Commitments to purchase................................... $ 341,351 $ -- $ 1,051 $ 22,681 $ (21,630)
Commitments to sell....................................... 450,042 -- 26,618 1,052 25,566
Currency swap agreements:
Commitments to pay........................................ 38,417 -- 2,297 1,137 1,160
Commitments to receive.................................... 38,417 -- 1,137 2,297 (1,160)
Interest rate cap agreements:
Options purchased......................................... 880,428 5,131 750 4,324 1,557
Options written........................................... 880,428 (5,129) 4,324 750 (1,555)
Interest rate floor agreements:
Options purchased......................................... 98,250 110 2,302 -- 2,412
Options written........................................... 98,250 (123) -- 2,302 (2,425)
Interest rate swap agreements:
Pay variable/receive variable............................. 68,000 -- 195 195 --
Pay fixed/receive variable................................ 665,343 -- 709 36,814 (36,105)
Pay variable/receive fixed................................ 665,343 -- 36,813 709 36,104
</TABLE>
- ---------------
(1) Fair value gains are representative of economic credit risk and reflect the
replacement cost of those contracts in the event of nonperformance by
counterparties.
ASSET AND LIABILITY MANAGEMENT DERIVATIVE INSTRUMENTS
Derivative positions are integral components of the Company's designated
asset and liability management activities. Therefore, the Company does not
believe it is meaningful to separately analyze the derivatives component of its
risk management activities in isolation from related positions. The Company uses
interest rate derivative instruments as part of its management of asset and
liability positions. Derivatives are used to manage interest rate risk relating
to specified groups of assets and liabilities, including LIBOR based commercial
loans deposit liabilities and certain subordinated capital notes. The Company
uses foreign currency forward contracts as a means of managing foreign exchange
rate risk associated with assets or liabilities denominated in foreign
currencies.
The following table reflects summary information on derivative contracts
used to hedge or modify the Company's risk as of December 31, 1996 and 1995.
Amounts included in the fair value column do not include
F-54
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
NOTE 15 -- DERIVATIVE INSTRUMENTS AND OTHER FINANCIAL INSTRUMENTS WITH
OFF-BALANCE SHEET RISK (CONTINUED)
gains or losses from changes in the value of the underlying asset or liability
being hedged. Notional amounts are not exchanged, but serve as a point of
reference for calculating payments. For interest rate swap, cap and floor
agreements, notional amounts do not represent exposure to credit or market risk.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-------------------------------------------------------------
UNAMORTIZED
NOTIONAL PREMIUM PAID FAIR
(DOLLARS IN THOUSANDS) AMOUNTS (RECEIVED) GAINS (1) LOSSES VALUE
- ------------------------------------------------------------- ------------ ------------ ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
HELD FOR OTHER THAN TRADING PURPOSES -- ASSET AND LIABILITY
MANAGEMENT
Foreign exchange forward contracts:
Commitments to purchase.................................... $ 129,264 $ -- $ 1,628 $ 3,914 $ (2,286)
Commitments to sell........................................ 4,142 -- 52 30 22
Interest rate cap agreements:
Options purchased.......................................... 15,740 -- -- -- --
Options written............................................ 250,000 (709) -- 909 (200)
Interest rate floor agreements:
Options purchased.......................................... 2,050,000 6,309 9,750 -- 16,059
Options written............................................ 500,000 (1,016) -- 391 (625)
Interest rate swap agreements:
Pay fixed/receive variable................................. 114,086 -- 241 1,092 (851)
Pay variable/receive fixed................................. 847,000 -- 3,775 1,377 2,398
</TABLE>
- ---------------
(1) Fair value gains are representative of economic credit risk and reflect the
replacement cost of those contracts in the event of nonperformance by
counterparties.
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-------------------------------------------------------------
UNAMORTIZED
NOTIONAL PREMIUM PAID FAIR
(DOLLARS IN THOUSANDS) AMOUNTS (RECEIVED) GAINS (1) LOSSES VALUE
- ------------------------------------------------------------- ------------ ------------ ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
HELD FOR OTHER THAN TRADING PURPOSES -- ASSET AND LIABILITY
MANAGEMENT
Foreign exchange forward contracts:
Commitments to purchase.................................... $ 131,262 $ -- $ 303 $ 4,240 $ (3,937)
Commitments to sell........................................ 23,751 -- 207 -- 207
Interest rate cap agreements:
Options purchased.......................................... 16,048 -- 5 -- 5
Options written............................................ 250,000 (2,003) 663 -- (1,340)
Interest rate floor agreements:
Options purchased.......................................... 1,500,000 6,909 21,974 -- 28,883
Options written............................................ 500,000 (1,455) -- 2,469 (3,924)
Interest rate swap agreements:
Pay fixed/receive variable................................. 164,163 -- 79 5,037 (4,958)
Pay variable/receive fixed................................. 892,000 -- 13,783 159 13,624
</TABLE>
- ---------------
(1) Fair value gains are representative of economic credit risk and reflect the
replacement cost of those contracts in the event of nonperformance by
counterparties.
F-55
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
NOTE 15 -- DERIVATIVE INSTRUMENTS AND OTHER FINANCIAL INSTRUMENTS WITH
OFF-BALANCE SHEET RISK (CONTINUED)
OTHER FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
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 payment of a fee or maintenance of compensatory balances. Such
fees are deferred and, upon partial or full exercise of the commitment,
amortized over the life of the loan or, if exercise is deemed remote, amortized
over the commitment period. Since many of the commitments are expected to expire
without being drawn upon, the contractual amounts do not necessarily represent
future cash requirements. With respect to commitments to extend credit and
letters of credit, the Company's exposure to credit risk in the event of
nonperformance by customers is represented by the contractual amount of those
instruments.
Standby letters of credit are provided to customers to assure their
performance to a third party, generally in the production of goods and services
or under contractual commitments in the financial markets. Commercial letters of
credit are issued to customers to facilitate foreign or domestic trade
transactions. The Company charges fees for the issuance of standby and
commercial letters of credit. The majority of these type of commitments have
terms of one year or less and any fees charged are recognized as noninterest
income upon extension of the commitment. The credit risk involved in issuing
letters of credit is essentially the same as that involved in extending loan
facilities to customers and is represented by the contractual amount of those
instruments. When deemed necessary, the Company holds appropriate collateral
supporting those commitments. Management does not anticipate any material losses
as a result of these transactions.
The Company uses the same credit underwriting policies in granting or
accepting such commitments or contingent obligations as it does for on-balance
sheet instruments, by evaluating customers' credit-worthiness. The amount of
collateral obtained, if deemed necessary by the Company upon extension of
credit, is based on management's evaluation of the customer. The nature of the
collateral varies but may include deposits held in financial institutions,
marketable securities, accounts receivable, inventory, property, equipment and
real estate. The Company also provides for potential losses from either
commitments to extend credit or standby letters of credit as a component of its
evaluation in determination of the adequacy of its allowance for credit losses
and resulting level of provision charged against current period earnings.
The Company's pricing of these financial instruments is based on the credit
quality and other covenants or requirements. Management believes that the
current fees assessed on these off-balance sheet items represent market rates
which would be charged for similar agreements. Based on this belief, the Company
feels that the carrying amounts are reasonable estimates of the fair value of
these financial instruments. At December 31, 1996 and 1995, fair value is
comprised of unamortized fee income less any allocated reserves for expected
credit losses. The following is a summary of other financial instruments with
off-balance sheet risk.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------
1996 1995
------------------------ ------------------------
CONTRACTUAL FAIR CONTRACTUAL FAIR
(DOLLARS IN THOUSANDS) AMOUNTS VALUE AMOUNTS VALUE
- -------------------------------------------------------------- ------------- --------- ------------- ---------
<S> <C> <C> <C> <C>
Commitments to extend credit.................................. $ 12,500,677 $ 598 $ 11,877,112 $ 1,146
Standby letters of credit..................................... 2,610,123 (7,792) 2,123,488 (2,396)
Other letters of credit....................................... 336,101 (700) 359,793 (300)
</TABLE>
F-56
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
NOTE 15 -- DERIVATIVE INSTRUMENTS AND OTHER FINANCIAL INSTRUMENTS WITH
OFF-BALANCE SHEET RISK (CONTINUED)
The Company conducts securities lending transactions for institutional
customers as a fully disclosed agent, and, at times, indemnifies its customers
against counterparty default. All lending transactions are collateralized,
primarily by cash. The amount of securities lent with indemnification was $1,170
million and $1,101 million at December 31, 1996 and 1995, respectively. The
market value of the associated collateral was $1,195 million and $1,122 million
at December 31, 1996 and 1995, respectively.
NOTE 16 -- RESTRICTIONS ON CASH AND DUE FROM BANKS, SECURITIES, LOANS AND
DIVIDENDS
Federal Reserve Board regulations require the Bank to maintain reserve
balances based on the types and amounts of deposits received. Average reserve
balances were approximately $291 million and $335 million for the years ended
December 31, 1996 and 1995, respectively.
As of December 31, 1996 and 1995, securities carried at $1.7 billion and
$1.8 billion, respectively, and loans of $1.8 billion and $1.1 billion,
respectively, were pledged as collateral for borrowings, to secure public and
trust department deposits, and for repurchase agreements as required by contract
or law.
The Federal Reserve Act restricts the extension of credit by the Bank to BTM
and affiliates and to UnionBanCal Corporation and its non-bank subsidiaries and
requires that such loans be secured by certain types of collateral. At December
31, 1996, such extensions of credit were not material.
The payment of dividends by the Bank to UnionBanCal Corporation and BTM is
subject to the approval of the Office of the Comptroller of the Currency ("OCC")
if the total of all dividends declared in any calendar year exceeds certain
calculated amounts. The payment of dividends is also limited by minimum capital
requirements imposed on national banks by the OCC. At December 31, 1996 the Bank
could have declared dividends aggregating $174 million without prior regulatory
approval. Dividends on the Company's common stock are further restricted by
certain provisions of the Company's outstanding noncumulative preferred stock.
These provisions specify that no common stock dividend shall be declared, paid
or set aside unless and until the Company has paid full dividends on the
preferred stock for the four most recent quarterly dividend periods.
NOTE 17 -- REGULATORY CAPITAL REQUIREMENTS
The Company and the Bank are subject to various regulations issued by
Federal banking agencies, including minimum capital requirements. Failure to
meet minimum capital requirements can initiate certain actions by regulators
that, if undertaken, could have a material effect on the Company's consolidated
financial statements. Under capital adequacy guidelines, the Company and the
Bank must meet specific capital guidelines that involve quantitative measures of
the Company's and Bank's assets, liabilities, and certain off-balance sheet
items as calculated under regulatory accounting practices. The Company's and the
Bank's capital amounts and the Bank's prompt corrective action classification
are also subject to qualitative judgments by the regulators about components,
risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum amounts and ratios (set
forth in the table below) of total and Tier 1 capital (as defined in the
regulations) to risk-weighted assets (as defined) and of Tier 1 capital (as
defined) to average assets (as defined). Management believes, as of December 31,
1996, that the Company and the Bank meet all capital adequacy requirements to
which they are subject.
The most recent notification from the OCC categorized the Bank as "well
capitalized" under the regulatory framework for prompt corrective action. To be
categorized as "well capitalized" the Bank must
F-57
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
NOTE 17 -- REGULATORY CAPITAL REQUIREMENTS (CONTINUED)
maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios
as set forth in the table. There are no conditions or events since that
notification that management believes have changed the Bank's category.
The Company's and the Bank's capital amounts and ratios are presented in the
following tables.
<TABLE>
<CAPTION>
MINIMUM CAPITAL
(DOLLARS IN THOUSANDS) AMOUNT RATIO RATIOS REQUIRED
- ----------------------------------------------------------- ------------ --------- -----------------
<S> <C> <C> <C> <C>
CAPITAL RATIOS FOR THE COMPANY:
As of December 31, 1996:
Total capital (to risk-weighted assets).................. $ 2,946,654 11.17% 8.0%
Tier 1 capital (to risk-weighted assets)................. 2,395,580 9.08 4.0
Tier 1 capital (to quarterly average assets)............. 2,395,580 8.41 4.0
As of December 31, 1995:
Total capital (to risk-weighted assets).................. 2,946,323 11.70 8.0
Tier 1 capital (to risk-weighted assets)................. 2,355,057 9.35 4.0
Tier 1 capital (to quarterly average assets)............. 2,355,057 8.70 4.0
</TABLE>
<TABLE>
<CAPTION>
RATIOS REQUIRED
MINIMUM CAPITAL TO BE "WELL
(DOLLARS IN THOUSANDS) AMOUNT RATIO RATIOS REQUIRED CAPITALIZED"
- ----------------------------------------------------------- ------------ --------- ----------------- -----------------
<S> <C> <C> <C> <C>
CAPITAL RATIOS FOR THE BANK:
As of December 31, 1996:
Total capital (to risk-weighted assets).................. $ 2,746,285 10.51% 8.0% 10.0%
Tier 1 capital (to risk-weighted assets)................. 2,208,392 8.45 4.0 6.0
Tier 1 capital (to quarterly average assets)............. 2,208,392 7.76 4.0 5.0
As of December 31, 1995:
Total capital (to risk-weighted assets).................. 2,850,826 11.53 8.0 10.0
Tier 1 capital (to risk-weighted assets)................. 2,280,158 9.22 4.0 6.0
Tier 1 capital (to quarterly average assets)............. 2,280,158 8.42 4.0 5.0
</TABLE>
NOTE 18 -- CONTINGENCIES
The Company is subject to various pending and threatened legal actions which
arise in the normal course of business. The Company maintains reserves for
losses from legal actions which are both probable and estimable. In the opinion
of management, the disposition of claims currently pending will not have a
material adverse effect on the Company's financial position or results of
operations.
F-58
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
NOTE 19 -- TRANSACTIONS WITH AFFILIATES
The Company has had, and expects to have in the future, banking transactions
and other transactions in the ordinary course of business with BTM and with its
affiliates and associates. During the years ended December 31, 1996, 1995 and
1994, such transactions included, but were not limited to, origination,
participation, servicing and remarketing of loans and leases, purchase and sale
of acceptances and interest rate derivatives, foreign exchange transactions,
funds transfers, custodianships, electronic data processing, investment advice
and management, deposits and credit examination, internal audit, and trust
services. In the opinion of management, such transactions were made at
prevailing rates, terms and conditions and do not involve more than the normal
risk of collectibility or present other unfavorable features.
NOTE 20 -- CONDENSED UNIONBANCAL CORPORATION UNCONSOLIDATED FINANCIAL STATEMENTS
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
(DOLLARS IN THOUSANDS) 1996 1995
- -------------------------------------------------------------------------------------- ------------ ------------
<S> <C> <C>
ASSETS
Cash and due from banks............................................................. $ 103,742 $ 640,913
Investment in and advances to subsidiaries.......................................... 2,360,055 2,484,712
Other assets........................................................................ 24,123 5,349
------------ ------------
Total assets.................................................................. $ 2,487,920 $ 3,130,974
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Short term borrowings............................................................... $ -- $ 632,296
Subordinated capital notes.......................................................... 100,000 170,000
Other liabilities................................................................... 21,676 4,582
------------ ------------
Total liabilities............................................................. 121,676 806,878
Shareholders' equity................................................................ 2,366,244 2,324,096
------------ ------------
Total liabilities and shareholders' equity.................................... $ 2,487,920 $ 3,130,974
------------ ------------
------------ ------------
</TABLE>
F-59
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
NOTE 20 -- CONDENSED UNIONBANCAL CORPORATION UNCONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
(DOLLARS IN THOUSANDS) 1996 1995 1994
- ----------------------------------------------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
INCOME:
Dividends from bank subsidiary............................................. $ 268,229 $ 25,062 $ 27,244
Dividends from nonbank subsidiaries........................................ 421 343 283
Interest income on advances to subsidiaries and deposits in Bank........... 24,366 52,289 35,516
Other income............................................................... 959 -- 105
---------- ---------- ----------
Total income......................................................... 293,975 77,694 63,148
EXPENSE:
Interest expense........................................................... 22,220 54,133 36,729
Other expense, net......................................................... 1,072 (212) 750
---------- ---------- ----------
Total expense........................................................ 23,292 53,921 37,479
---------- ---------- ----------
Income (loss) before income taxes and equity in undistributed net income of
subsidiaries................................................................ 270,683 23,773 25,669
Income tax benefit (expense)................................................. (889) 694 4,698
---------- ---------- ----------
Income (loss) before equity in undistributed net income of subsidiaries...... 269,794 24,467 30,367
Equity in undistributed net income of subsidiaries:
Bank subsidiary(1)......................................................... (43,533) 267,612 73,851
Nonbank subsidiaries....................................................... 10,125 3,422 11,450
---------- ---------- ----------
NET INCOME................................................................... $ 236,386 $ 295,501 $ 115,668
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
- ------------
(1) In 1996 the amount represents dividends distributed by the Bank in excess of
its 1996 net income.
F-60
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
NOTE 20 -- CONDENSED UNIONBANCAL CORPORATION UNCONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
(DOLLARS IN THOUSANDS) 1996 1995 1994
- --------------------------------------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................................... $ 236,386 $ 295,501 $ 115,668
Adjustments to reconcile net income to net cash provided by operating
activities:
Equity in undistributed (earnings) losses of subsidiaries................ 33,408 (271,034) (85,301)
Other, net............................................................... (3,772) 2,800 (3,622)
----------- ----------- -----------
Net cash provided (used) by operating activities................... 266,022 27,267 26,745
CASH FLOWS FROM INVESTING ACTIVITIES:
Repayment of advances to subsidiaries.................................... 70,000 70,000 88,500
Sales and maturities of investment securities............................ 322 11,650 (9,869)
----------- ----------- -----------
Net cash provided by investing activities.......................... 70,322 81,650 78,631
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in short term borrowings......................... (632,296) 366 149,026
Repayments of subordinated capital notes and long term debt.............. (70,000) (70,000) (85,000)
Dividends paid........................................................... (180,219) (43,403) (43,567)
Proceeds from reduction of investment in subsidiary equity............... 3,966 -- --
Other, net............................................................... 5,034 18,341 16,323
----------- ----------- -----------
Net cash provided (used) by financing activities................... (873,515) (94,696) 36,782
----------- ----------- -----------
Net increase (decrease) in cash and due from banks....................... (537,171) 14,221 142,158
Cash and due from banks:
Beginning of period................................................ 640,913 626,692 484,534
----------- ----------- -----------
End of period...................................................... $ 103,742 $ 640,913 $ 626,692
----------- ----------- -----------
----------- ----------- -----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
CASH PAID (RECEIVED) DURING THE YEAR FOR:
Interest............................................................... $ 25,785 $ 52,847 $ 37,050
Income taxes........................................................... (198) (2,030) (107)
</TABLE>
F-61
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
NOTE 21 -- SUMMARY OF QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Certain amounts in the following unaudited quarterly financial information
have been reclassified to conform with current presentation. In the opinion of
management, all adjustments necessary to fairly present the results of
operations have been made.
<TABLE>
<CAPTION>
1996 QUARTERS ENDED
-----------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) DECEMBER 31 SEPTEMBER 30 JUNE 30 MARCH 31
- ----------------------------------------------------------- ------------ ------------- --------- -------------
<S> <C> <C> <C> <C>
Interest income............................................ $ 489,320 $ 481,315 $ 473,601 $ 483,068
Interest expense........................................... 196,236 189,727 185,362 187,401
------------ ------------- --------- -------------
Net interest income........................................ 293,084 291,588 288,239 295,667
Provision for credit losses................................ 10,000 10,000 10,000 10,000
Noninterest income......................................... 102,972 107,280 105,550 102,874
Noninterest expense........................................ 285,021 284,075 313,784 252,024
------------ ------------- --------- -------------
Income before income taxes................................. 101,035 104,793 70,005 136,517
Income tax expense......................................... 41,234 42,810 25,597 53,251
------------ ------------- --------- -------------
Net income................................................. $ 59,801 $ 61,983 $ 44,408 $ 83,266
------------ ------------- --------- -------------
------------ ------------- --------- -------------
Net income applicable to:
Common stock............................................. $ 53,472 $ 55,745 $ 39,096 $ 76,767
------------ ------------- --------- -------------
------------ ------------- --------- -------------
Parent direct interest in bank subsidiary................ $ 3,503 $ 3,411 $ 2,486 $ 3,672
------------ ------------- --------- -------------
------------ ------------- --------- -------------
Net income per average common share........................ $ 0.98 $ 1.02 $ 0.71 $ 1.40
------------ ------------- --------- -------------
------------ ------------- --------- -------------
Dividends per average common share (1)..................... $ 0.35 $ 0.35 $ 0.35 $ 0.35
------------ ------------- --------- -------------
------------ ------------- --------- -------------
</TABLE>
<TABLE>
<CAPTION>
1995 QUARTERS ENDED
-----------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) DECEMBER 31 SEPTEMBER 30 JUNE 30 MARCH 31
- ----------------------------------------------------------- ------------ ------------- --------- -------------
<S> <C> <C> <C> <C>
Interest income............................................ $ 489,963 $ 468,528 $ 456,065 $ 432,637
Interest expense........................................... 193,234 182,394 173,089 156,143
------------ ------------- --------- -------------
Net interest income........................................ 296,729 286,134 282,976 276,494
Provision for credit losses................................ 8,750 12,000 12,500 20,000
Noninterest income......................................... 103,822 98,622 98,802 94,073
Noninterest expense........................................ 252,271 236,228 246,772 242,830
------------ ------------- --------- -------------
Income before income taxes................................. 139,530 136,528 122,506 107,737
Income tax expense......................................... 51,147 52,675 44,737 44,800
------------ ------------- --------- -------------
Net income................................................. $ 88,383 $ 83,853 $ 77,769 $ 62,937
------------ ------------- --------- -------------
------------ ------------- --------- -------------
Net income applicable to:
Common stock............................................. $ 80,736 $ 76,686 $ 70,323 $ 56,451
------------ ------------- --------- -------------
------------ ------------- --------- -------------
Parent direct interest in bank subsidiary................ $ 4,821 $ 4,341 $ 4,619 $ 3,660
------------ ------------- --------- -------------
------------ ------------- --------- -------------
Net income per average common share........................ $ 1.48 $ 1.40 $ 1.29 $ 1.04
------------ ------------- --------- -------------
------------ ------------- --------- -------------
Dividends per average common share (1)..................... $ 0.35 $ 0.35 $ 0.35 $ 0.35
------------ ------------- --------- -------------
------------ ------------- --------- -------------
</TABLE>
- ---------------
(1) Amounts prior to merger are based on Union Bank only and do not include the
dividend of $145 million paid to The Mitsubishi Bank, Limited in the first
quarter of 1996 by BanCal Tri-State Corporation and The Bank of California,
N.A.
F-62
<PAGE>
UNIONBANCAL CORPORATION
MANAGEMENT STATEMENT
The management of UnionBanCal Corporation (the "Company") is responsible for
the preparation, integrity, and fair presentation of its published financial
statements and all other information presented in this annual report. The
financial statements have been prepared in accordance with generally accepted
accounting principles and, as such, include amounts based on informed judgments
and estimates made by management.
The Company maintains a system of internal accounting controls to provide
reasonable assurance that assets are safeguarded and that transactions are
executed in accordance with management's authorization and recorded properly to
permit the preparation of financial statements in accordance with generally
accepted accounting principles. Management recognizes that even a highly
effective internal control system has inherent risks, including the possibility
of human error and the circumvention or overriding of controls, and that the
effectiveness of an internal control system can change with circumstances.
However, management believes that the internal control system provides
reasonable assurance that errors or irregularities that could be material to the
financial statements would be prevented or detected on a timely basis and
corrected through the normal course of business. As of December 31, 1996,
management believes that the internal controls are in place and operating
effectively.
The Audit and Examining Committee of the Board of Directors is comprised
entirely of outside directors who are independent of the Company's management;
it includes members with banking or related financial management expertise and
who are not large customers of the Bank. The Audit and Examining Committee has
access to outside counsel. The Audit and Examining Committee is responsible for
recommending to the Board of Directors the selection of independent auditors. It
meets periodically with management, the independent auditors, and the internal
auditors to ensure that they are carrying out their responsibilities. The Audit
and Examining Committee is also responsible for performing an oversight role by
reviewing and monitoring the financial, accounting and auditing procedures of
the Company in addition to reviewing the Company's financial reports. The
independent auditors and internal auditors have full and free access to the
Audit and Examining Committee, with or without the presence of management, to
discuss the adequacy of the internal control structure for financial reporting
and any other matters which they believe should be brought to the attention of
the Audit and Examining Committee.
The financial statements have been audited by Deloitte & Touche LLP,
independent auditors, which was given unrestricted access to all financial
records and related data, including minutes of all meetings of shareholders, the
Board of Directors and committees of the Board. Management believes that all
representations made to the independent auditors during their audit were valid
and appropriate. The independent auditors' report is presented on Page F-64.
/s/ KANETAKA YOSHIDA
--------------------------------------
Kanetaka Yoshida
President and Chief Executive Officer
/s/ TAKAHIRO MORIGUCHI
--------------------------------------
Takahiro Moriguchi
Vice Chairman and Chief Financial
Officer
/s/ DAVID W. EHLERS
--------------------------------------
David W. Ehlers
Executive Vice President and Director
of Finance
/s/ DAVID W. DOBON
--------------------------------------
David W. Dobon
Senior Vice President and Controller
January 31, 1997
F-63
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Directors of UnionBanCal Corporation:
We have audited the accompanying consolidated balance sheets of UnionBanCal
Corporation and subsidiaries (the "Company") as of December 31, 1996 and 1995,
and the related consolidated statements of income, changes in shareholders'
equity, and cash flows for each of the three years in the period ended December
31, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits. The consolidated financial statements give
retroactive effect to the merger of BanCal Tri-State Corporation and Union Bank
on April 1, 1996, which has been accounted for as a pooling of interests as
described in Note 2 to the consolidated financial statements. We did not audit
the consolidated financial statements of Union Bank and subsidiaries, which
statements reflect total assets, total net interest income, and net income of
$19,518 million, $832 million and $207 million, respectively, in 1995 and $713
million and $63 million of net interest income and net income, respectively, in
1994 of the related consolidated totals. These statements were audited by other
auditors whose report has been furnished to us, and our opinion expressed
herein, insofar as it relates to the amounts included for Union Bank for 1995
and 1994, is based solely upon the report of such other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based upon our audits and the report of the other auditors,
the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of UnionBanCal Corporation and its
subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
San Francisco, California
January 31, 1997
F-64
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of Union Bank:
We have audited the consolidated balance sheet of Union Bank, a California
state chartered bank and a 71% owned subsidiary of The Bank of Tokyo, Ltd., and
subsidiaries (the "Bank") as of December 31, 1995, and the related consolidated
statements of earnings, cash flows and changes in shareholders' equity for each
of the two years in the period ended December 31, 1995 (not presented herein).
These financial statements are the responsibility of the Bank's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Union Bank and
subsidiaries as of December 31, 1995, and the results of their operations and
their cash flows for each of the two years in the period ended December 31,
1995, in conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Arthur Andersen LLP
San Francisco, California
January 24, 1996
F-65
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
UnionBanCal Corporation (Registrant)
By: _______/s/_KANETAKA YOSHIDA_______
-----------------------------------
Kanetaka Yoshida
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
Date: March 26, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company
and in the capacities and on the date indicated below.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------------------------------ ---------------------------------------------------------
<C> <S>
/s/ALEXANDER D. CALHOUN
------------------------------------------- Director
Alexander D. Calhoun
/s/RICHARD D. FARMAN
------------------------------------------- Director
Richard D. Farman
/s/STANLEY F. FARRAR
------------------------------------------- Director
Stanley F. Farrar
/s/HERMAN E. GALLEGOS
------------------------------------------- Director
Herman E. Gallegos
/s/JACK L. HANCOCK
------------------------------------------- Director
Jack L. Hancock
/s/RICHARD C. HARTNACK
------------------------------------------- Director
Richard C. Hartnack
/s/ROY A. HENDERSON
------------------------------------------- Director
Roy A. Henderson
/s/HARRY W. LOW
------------------------------------------- Director
Harry W. Low
/s/MARY S. METZ
------------------------------------------- Director
Mary S. Metz
/s/RAYMOND E. MILES
------------------------------------------- Director
Raymond E. Miles
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------------------------------ ---------------------------------------------------------
<C> <S>
/s/TAKAHIRO MORIGUCHI
------------------------------------------- Director
Takahiro Moriguchi
/s/J. FERNANDO NIEBLA
------------------------------------------- Director
J. Fernando Niebla
/s/MINORU NODA
------------------------------------------- Director
Minoru Noda
/s/HIROO NOZAWA
------------------------------------------- Director
Hiroo Nozawa
/s/SIDNEY R. PETERSEN
------------------------------------------- Director
Sidney R. Petersen
/s/CARL W. ROBERTSON
------------------------------------------- Director
Carl W. Robertson
/s/CHARLES R. SCOTT
------------------------------------------- Director
Charles R. Scott
/s/PAUL W. STEERE
------------------------------------------- Director
Paul W. Steere
/s/YUJI TANIGUCHI
------------------------------------------- Director
Yuji Taniguchi
/s/ROBERT M. WALKER
------------------------------------------- Director
Robert M. Walker
/s/BLENDA J. WILSON
------------------------------------------- Director
Blenda J. Wilson
/s/TAMOTSU YAMAGUCHI
------------------------------------------- Director
Tamotsu Yamaguchi
/s/KANETAKA YOSHIDA
------------------------------------------- Director
Kanetaka Yoshida
/s/KENJI YOSHIZAWA
------------------------------------------- Director
Kenji Yoshizawa
Dated: March 26, 1997
</TABLE>
II-2
<PAGE>
- --------------------------------------------------------------------------------
UNION BANK OF CALIFORNIA
DEFERRED COMPENSATION PLAN
(January 1, 1997 Restatement)
- --------------------------------------------------------------------------------
<PAGE>
UNION BANK OF CALIFORNIA
DEFERRED COMPENSATION PLAN
ARTICLE I
HISTORY AND PURPOSE
1.1 Union Bank established the Senior Management Deferred Compensation Plan
effective July 1, 1990 for the purpose of allowing a select group of
executives of Union Bank to defer receipt of compensation to which the
executives would otherwise be entitled. The Plan was amended and restated
in its entirety as of January 1, 1994. As a consequence of the merger of
their respective parent companies, Union Bank and the Bank of California
have been merged into a new operating entity, Union Bank of California.
1.2 Union Bank of California hereby amends and restates the Plan in its
entirety effective January 1, 1997, to reflect the merger of Union Bank
and the Bank of California and to extend participation to the non-employee
directors of Union Bank of California and the non-employee directors of
UnionBanCal Corporation and to rename the Plan, the Union Bank of
California Deferred Compensation Plan.
ARTICLE II
DEFINITIONS
Whenever referred to in this Plan, the following terms shall have the meanings
set forth below except where otherwise provided:
2.1 "Account" means a Participant's Deferred Compensation Account(s)
established pursuant to Article V.
2.2 "Bank" means Union Bank of California.
2.3 "Beneficiary" means the person(s) designated in writing by the Participant
to receive his benefits under the Plan if the Participant dies before
receiving all of his benefits. A Beneficiary designation must be signed
and dated by the Participant and delivered to the Committee to become
effective. In the absence of a valid or effective Beneficiary
designation, the Participant's surviving spouse shall be the Beneficiary
or if there is none, the Beneficiary shall be the Participant's surviving
descendants by right of representation, surviving parents or estate (in
that order).
2.4 "Board" means the Board of Directors of UnionBanCal Corporation and the
Board of Directors of Union Bank of California.
2.5 "Code" means the Internal Revenue Code of 1986, as amended.
2.6 "Committee" means a committee appointed or designated by the Board to
administer the Plan as
1
<PAGE>
described in Article VII. The Committee shall be the "plan administrator"
under ERISA.
2.7 "Compensation" means an Employee's base salary and/or any payments under
the Senior Management Bonus Plan or those incentive awards designated by
the Bank as Compensation under this Plan which, but for deferral under
this Plan, would have been paid to the Participant in cash.
"Compensation" shall be calculated without regard to any salary reduction
arrangement described in Code section 125 or 401(k) in which the
Participant participates and which is maintained by the Bank.
2.8 "Deferral Election Form" means the agreement between a Participant and the
Bank whereby the Participant elects to reduce his Compensation or Fees and
the Bank promises to pay him benefits under the Plan in the future.
2.9 "Director" means a non-employee director of the Bank or any of its
subsidiaries or a non-employee Director of UnionBanCal Corporation. A
Director who becomes an Employee shall cease to participate as a Director
under the Plan, but may participate in his or her capacity as an Employee
subject to the provisions of the Plan (including eligibility).
2.10 "Disabled" describes a Participant who while an Employee becomes
permanently and totally prevented from engaging in substantial gainful
activity because of a physical or mental condition as determined by the
Committee and becomes eligible for disability benefits under the Social
Security Act.
2.11 "Employee" means a common law employee of the Bank or any of its
subsidiaries.
2.12 "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
2.13 "Fees" means Retainer Fees (the annual fee paid for service on the Board,
including additional fees paid to Committee chairpersons) and Meeting Fees
(which are paid for attendance at Board and committee meetings) paid to
Directors for service during the Plan Year.
2.14 "Participant" means an Employee or Director (a) who has been designated by
the Board as eligible to participate and who has executed a Deferral
Election Form or (b) who has previously deferred Compensation or Fees
under the Plan and who continues to have an Account balance greater than
zero.
2.15 "Payment Date" means the date on which a Participant's Account is to be
paid or on which payments are to commence.
2.16 "Plan" means the Union Bank of California Deferred Compensation Plan as
set forth herein and as amended from time to time.
2.17 "Plan Year" means the calendar year.
2
<PAGE>
2.18 "Termination of Service" means, with respect to an Employee, any voluntary
or involuntary termination of employment with the Bank. With respect to
Directors, "Termination of Service" means the Director has voluntarily or
involuntarily ceased to serve as a member of the Board.
ARTICLE III
ELIGIBILITY
The Board (or if designated, the Committee) shall determine which Employees and
Directors are eligible to participate in the Plan, provided that only those
Employees who are members of a select group of management or highly compensated
employees (within the meaning of ERISA Sections 201, 301 and 401) shall be
eligible Employees.
ARTICLE IV
ELECTION TO DEFER
4.1 An Employee may elect to defer receipt of Compensation by completing the
Deferral Election Form prescribed by the Committee and specifying the
percentage (in 5 percent increments up to a maximum of 50% of base salary
and a maximum of 100% of bonuses and other incentive awards)) of
Compensation to be deferred. A Director may elect to defer receipt of Fees
by completing the Deferral Election Form prescribed by the Committee and
specifying the percentage (in 5% increments up to a maximum of 100%) of
Retainer Fees and/or Meeting Fees to be deferred. To be effective, a
Deferral Election Form must be signed and dated by the Participant, and
signed and dated by the Human Resources Department.
4.2 The Deferral Election Form must be received by the Human Resources
Department before the beginning of the period for which the Compensation
or Fees are earned. Therefore, the deadline for electing to defer the
annual Senior Management Bonus is December 31 of the year preceding the
year for which the Bonus is earned. The deadline for electing to defer
base salary is thirty (30) days prior to the beginning of the first
payroll period in which the deferral is effective. The deadline for a
Director's election to defer Retainer Fees and/or Meeting Fees is December
31 of the year preceding the Plan Year in which the meetings occur and the
service is rendered.
4.3 An election to defer Fees or Compensation attributable to bonuses,
incentive awards or base salary already earned shall be irrevocable. An
election to defer Compensation attributable to base salary may be revoked
with respect to base salary not yet earned, but may not be amended to
otherwise increase or decrease the elected percentage. The revocation
must be in writing and received by the Human Resources Department no less
than thirty (30) days prior to the beginning of the payroll period in
which the revocation is effective. If a Participant revokes an election
to defer Compensation, he or she is precluded from again deferring base
salary until the next Plan Year.
3
<PAGE>
4.4 Each Deferral Election Form shall specify the Payment Date which shall be
either:
(a) the Participant's Termination of Service, or
(b) January 31 of any year subsequent to the year in which the
Compensation or Fees would have been paid absent the Deferral
Election, provided that the deferral period must be at least
12 months.
The election of a Payment Date shall be irrevocable.
4.5 Each Deferral Election Form shall specify that the Account is to be paid:
(a) in a single lump sum on the Payment Date (or as soon thereafter as
administratively feasible) or
(b) in four substantially equal annual installments, commencing on the
Payment Date (or as soon thereafter as administratively feasible) or
(c) in ten substantially equal annual installments, commencing on the
Payment Date (or as soon thereafter as administratively feasible).
The election of a payment form shall be irrevocable. Notwithstanding the
foregoing, all Participants shall have a one-time limited opportunity to
elect the installment option described in paragraph (c) with respect to
Account(s) which are not currently in pay status. The election must be
made during the period beginning December 2, 1996 and ending with the
close of business December 31, 1996. Elections made during this window
become effective with respect to Payment Dates after December 31, 1997 and
are irrevocable. This window election opportunity is provided because of
a change in federal law restricting states' ability to tax pension income
based on its source.
ARTICLE V
ACCOUNTS
5.1 In lieu of paying Compensation or Fees deferred pursuant to a Deferral
Election Form, the Bank shall credit the deferred amount as of the last
day of the month in which the Compensation or Fees would have otherwise
been paid to an account in the name of the Participant (the "Deferred
Compensation Account") established for this purpose on the Bank's books
and records. If the Participant has entered into more than one Deferral
Election Form and they specify different Payment Dates or different
payment forms (under Section 4.5), the Bank shall establish a separate
Account for amounts credited pursuant to each such Deferral Election Form.
5.2 The balance credited to each Deferred Compensation Account shall be
credited with interest at the end of each calendar quarter. Effective for
calendar quarters beginning on or after January 1, 1993, the interest rate
credited shall be the 1-Year Treasury Constant Maturities Rate
4
<PAGE>
for deferrals of less than 36 months, and the 5-Year Treasury Constant
Maturities Rate for deferrals of 36 months or more or to the date of
Termination of Employment. The monthly average Treasury Constant
Maturities Rates are quoted in the Federal Reserve Statistical Release,
H.15, and calculated quarterly, based on a rolling average for the
previous 12 months. The interest applied to Compensation or Fees credited
during a Plan Year shall be prorated for the number of months in the Plan
Year that the Compensation or Fees were credited to the Participant's
Account.
5.3 If, pursuant to Article VI, interest is required to be credited through
the last day of any month (other than the end of a calendar quarter), the
rate shall be that rate in effect under Section 5.2 as of the last day of
the preceding quarter, prorated on a monthly basis to the crediting date.
5.4 If, pursuant to the provisions of Article VI, a Participant is paid
deferred amounts in the same Plan Year in which the amounts would
otherwise have been paid as Compensation or Fees, those amounts will be
credited with interest as described in Section 5.3 through the date
specified in Article VI.
ARTICLE VI
PAYMENT OF ACCOUNTS
6.1 GENERAL RULE. Amounts credited to a Participant's Account(s) shall be
paid as specified in the Deferral Election Form on or commencing on the
Payment Date or as soon thereafter as administratively practicable. The
unpaid balance of a Participant's Account(s) being paid in installments
shall continue to be credited with the interest specified in Article V
through the last day of the month preceding the last installment payment.
Accounts which are to be paid in a single lump sum shall be credited with
the interest specified in Article V through the last day of the month
preceding the Payment Date. All payments shall be in cash.
6.2 EMPLOYEE'S VOLUNTARY TERMINATION. Notwithstanding the provisions of
Section 6.1, if an Employee's Termination of Service precedes his
designated Payment Date for any Account(s) and the Termination of Service
is voluntary (other than a Retirement),
(a) all amounts credited to his Accounts shall be paid to the Participant
in a single lump sum (without regard to the Participant's designated
Payment Date or payment form) as soon as administratively practicable
with interest credited under Article V through the end of the
calendar quarter preceding the Termination of Service,
(b) any Accounts being paid in installments shall be accelerated with the
remaining installments paid in a single lump sum with interest
credited under Article V through the last day of the preceding
quarter.
For purposes of this Article, an Employee's Termination of Service is
treated as a "Retirement" if the Participant is eligible to commence
benefits under the Union Bank of California Retirement Plan on the
termination date.
5
<PAGE>
6.3 INVOLUNTARY TERMINATION. Notwithstanding the provisions of Section 6.1,
if an Employee's Termination of Service is due to involuntary termination
by the Bank (and the termination is not a Retirement),
(a) any Accounts currently being paid in installments will continue to be
so paid with interest credited as provided in Section 6.1,
(b) all other Accounts shall be paid to the Participant in a single lump
sum (without regard to the Participant's designated Payment Date or
payment form) as soon as administratively practicable with interest
credited as provided in Section 6.1.
6.4 DEATH. Notwithstanding Section 6.1, if a Participant dies before
receiving his entire Account(s), the balance shall be paid to his
Beneficiary in four substantially equal annual installments commencing on
January 31 of the year following the year death occurs, unless the
Committee in its discretion decides to accelerate payment in a single lump
sum. The Account shall continue to be credited with the interest specified
in Article V through the last day of the month preceding the last
installment payment (or the lump sum payment if payment is accelerated) to
the Beneficiary. Notwithstanding the foregoing, if the Participant was
receiving installment payments under the Plan, remaining installments
shall be paid to the Beneficiary as though he were the Participant unless
the Committee in its discretion decides to accelerate the installments and
pay the Beneficiary in a single lump sum.
6.5 DISABILITY AND HARDSHIP. Prior to the Payment Date, payment of amounts
credited to a Participant's Account(s) may be permitted only if the
Committee determines that the Participant is Disabled or has a financial
hardship. "Hardship" requires an immediate and heavy financial need of
the Participant which was not reasonably foreseeable and which cannot be
satisfied from other resources reasonably available to the Participant.
The amount of any hardship payment shall not exceed the amount required to
meet the need. The Participant shall submit a written request to the
Committee and shall certify as to the financial need. The Committee shall
have sole discretion to determine whether to make a hardship payment and
to determine the amount of such payment, if any. The Committee may
accelerate installment payments in the event of a Participant becomes
Disabled or incurs a hardship. The Committee's decision as to the
Participant's Disabled status or hardship shall be final and binding on
all interested parties.
ARTICLE VII
PLAN ADMINISTRATION
7.1 This Plan shall be adopted by the Board of Union Bank of California and
shall be administered by the Committee.
7.2 This Plan may be amended in any way or may be terminated, in whole or in
part, at any time, at the discretion of the Board of Union Bank of
California. No amendment or termination of the Plan shall adversely
affect the amount in any Participant's Account prior to or as of the
effective date of such amendment or termination.
6
<PAGE>
7.3 The Committee shall have the sole authority, in its discretion, to adopt,
amend and rescind such rules and regulations as it deems advisable in the
administration of the Plan, to construe and interpret the Plan, the rules
and regulations, and Deferral Election Forms, and to make all other
determinations and interpretations of the Plan. All decisions,
determinations, and interpretations of the Committee shall be binding on
all persons. Committee members who are Participants shall abstain from
voting on any Plan matters that would cause them to be in constructive
receipt of amounts credited to their Accounts. The Committee may delegate
its responsibilities as it sees fit.
ARTICLE VIII
MISCELLANEOUS
8.1 NO FUNDING OBLIGATION. The amounts credited to a Participant's Account
are not held in a trust or escrow account and are not secured by any
specific assets of the Bank or in which the Bank has an interest. This
Plan shall not be construed to require the Bank to fund any of the
benefits provided hereunder nor to establish a trust for such purpose.
The Bank may make such arrangements as it desires to provide for the
payment of benefits. Neither the Participant, any Beneficiary nor the
Participant's estate shall have any rights against the Bank with respect
to any portion of the Participant's Account except as a general unsecured
creditor of the Bank. No Participant has an interest in his Accounts
until the Participant actually receives payment.
8.2 NON-ALIENATION OF BENEFITS. No benefit under this Plan may be sold,
assigned, transferred, conveyed, hypothecated, encumbered, anticipated, or
otherwise disposed of, and any attempt to do so shall be void. No such
benefit shall, prior to receipt thereof by a Participant, be in any manner
subject to the debts, contracts, liabilities, engagements, or torts of
such Participant.
8.3 LIMITATION OF RIGHTS. Nothing in this Plan shall be construed to limit in
any way the right of the Bank to terminate an Employee's employment at any
time for any reason whatsoever with or without cause; nor shall it be
evidence of any agreement or understanding, express or implied, that the
Bank (a) will employ an Employee in any particular position, (b) will
ensure participation in any incentive programs, or -C- will grant any
awards from such programs.
8.4 APPLICABLE LAW. This Plan shall be construed and its provisions enforced
and administered in accordance with the laws of the State of California
except as otherwise provided in ERISA.
Date: UNION BANK OF CALIFORNIA
----------------------
By /s/ Paul Fearer
-------------------------------------
Title Executive Vice President, Director
----------------------------------
of Human Resources
----------------------------------
7
<PAGE>
UNION BANK OF CALIFORNIA
SENIOR MANAGEMENT
BONUS PLAN
-- Effective January 1, 1996 --
<PAGE>
UNION BANK OF CALIFORNIA
SENIOR MANAGEMENT
BONUS PLAN
I. OBJECTIVE
Union Bank of California (the Bank) provides a challenging and rewarding
environment where outstanding performance is encouraged and recognized.
Senior Managers are provided with a base salary and the opportunity to
earn additional compensation based on, and consistent with, their
individual performance.
The objective of the Senior Management Bonus Plan (the Plan) is to reward
Senior Managers who assist in achieving and exceeding the Bank's and their
Group's financial goals. In addition, the Plan is designed to help
provide an environment that stimulates high performance, as well as
motivates Senior Managers to exercise initiative, effort, and ingenuity.
II. EFFECTIVE DATE
The Plan is effective January 1, 1996, and terminates December 31, 1996.
III. ELIGIBILITY
With the exception of policy-making officers who are Bank Of
Tokyo-Mitsubishi (" BTM ") expatriates, the following individuals are
eligible to participate in the Plan:
- Vice Chairmen
- Executive Vice Presidents (EVP)
- Senior Vice Presidents (SVP) whose performance is associated
primarily with the Bank's performance and therefore do not
participate in business unit incentive plans
The President and CEO, Chairman, Deputy Chairman and Chief Operating
Officer (" COO "), and Vice Chairmen and policy-making EVP's who are BTM
expatriates are not eligible to participate in the plan.
2
<PAGE>
UNION BANK OF CALIFORNIA
SENIOR MANAGEMENT
BONUS PLAN
IV BASIS FOR PAYMENT
A. BANK FINANCIAL GOALS
The Bank's Plan goals are Return On Average Assets (ROA) Ratio and
Net Income, which will be designated by the President and CEO in the
financial planning process. ROA is defined as:
--------------------------------------------------------------
--------------------------------------------------------------
Return On Net Income
Average Assets = ----------
Average Annual Assets
--------------------------------------------------------------
--------------------------------------------------------------
B. INCENTIVE TARGETS
Incentive targets with Bank performance at 100% of financial goals
are 25% for SVPs and 35% for EVPs and above.
Group Heads may recommend individual incentive targets that vary by
position within officer level, taking into consideration competitive
market factors and the criticality of the position. Variances in
individual incentive targets and resulting payments are subject to
review by the COO or CFO, as appropriate, and final approval of the
President and CEO, provided that the payments do not exceed the
approved bonus fund designated for the respective officer level for
each Group.
3
<PAGE>
UNION BANK OF CALIFORNIA
SENIOR MANAGEMENT
BONUS PLAN
C. FUNDING FORMULA
At the end of the fiscal year, bonus funds will be generated
according to the following formulas:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. SENIOR VICE PRESIDENT FUND FORMULA
-----------------------------------------------------
-----------------------------------------------------
FUND AS A % OF
PARTICIPANT SALARIES
-----------------------------------------------------
-----------------------------------------------------
PERFORMANCE AGAINST CORPORATE GOAL
FOR RETURN ON AVERAGE ASSETS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PERFORMANCE AGAINST BELOW ABOVE
CORPORATE GOAL
FOR NET INCOME 70% 70-89% 90-109% 110-130% 130%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BELOW 70% 0% 10% 15% 20% 25%
- --------------------------------------------------------------------------------
70-89% 10% 15% 20% 25% 30%
- --------------------------------------------------------------------------------
90-109% 15% 20% 25% 30% 35%
- --------------------------------------------------------------------------------
110-130% 20% 25% 30% 35% 40%
- --------------------------------------------------------------------------------
ABOVE 130% 25% 30% 35% 40% 50%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2. EXECUTIVE VICE PRESIDENT AND ABOVE FUND FORMULA
-----------------------------------------------------
-----------------------------------------------------
FUND AS A % OF
PARTICIPANT SALARIES
-----------------------------------------------------
-----------------------------------------------------
PERFORMANCE AGAINST CORPORATE GOAL
FOR RETURN ON AVERAGE ASSETS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PERFORMANCE AGAINST BELOW ABOVE
CORPORATE GOAL
FOR NET INCOME 70% 70-89% 90-109% 110-130% 130%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BELOW 70% 0% 15% 20% 30% 35%
- --------------------------------------------------------------------------------
70-89% 15% 20% 30% 35% 40%
- --------------------------------------------------------------------------------
90-109% 20% 30% 35% 40% 50%
- --------------------------------------------------------------------------------
110-130% 30% 35% 40% 50% 60%
- --------------------------------------------------------------------------------
ABOVE 130% 35% 40% 50% 60% 70%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4
<PAGE>
UNION BANK OF CALIFORNIA
SENIOR MANAGEMENT
BONUS PLAN
The President and CEO will submit bonus fund recommendations to the
Committee, which may establish, reduce, increase, or otherwise make
adjustments to a calculated bonus fund, subject to the maximum for
that fund (50% for SVP fund and 70% for EVP fund) and based on the
following:
- The Bank's overall performance in relation to other peer banks
- Whether absolute Return On Average Assets and/or Net Income goals
are reasonable in relation to long-term objectives and the Bank's
historical performance.
- Merger integration efforts and success, with particular emphasis
on full and timely achievement of the cost reduction commitments
that have been made to shareholders, the Board, and the investor
community.
- Efficiency ratios as compared to peer banks, with recognition
that constant attention must be given to long-term expense
reduction through continuous productivity improvement in order to
support UBOC's competitiveness.
- General economic or market conditions
- Achievement of other financial and strategic objectives
- Normalizing financial data to allow for an acquisition/merger,
other extraordinary circumstances or material events that were
not specifically planned or not directly related to the
performance of Bank executives during the performance year.
D. DETERMINING INDIVIDUAL AWARDS
1. Individual bonus awards will be determined in the following
manner:
a. The President and CEO will recommend awards for eligible
Vice Chairmen and policy-making officers to the Committee,
which will then review and approve these awards, with or
without modification. The recommendations of the President
and CEO, prior to their submittal, will have been developed
in conjunction with the CFO, COO, and, when relevant, the
Group Head to whom the policy-making officer reports.
b. The President and CEO, in consultation with the COO and CFO,
will allocate the remaining funds for non policy-making
officers to Group Heads based on aggregate individual
incentive award targets and Group performance. Any
adjustments to allocations, based on Group performance, must
be made within the approved bonus funding limits. The
President and CEO will also issue guidelines for Group Heads
to develop individual bonus award recommendations.
5
<PAGE>
UNION BANK OF CALIFORNIA
SENIOR MANAGEMENT
BONUS PLAN
c. Group Heads will prepare individual EVP and eligible SVP
bonus award recommendations. Recommendations by Group Heads
who report to the COO will then be reviewed by the COO and
forwarded to the CEO for final approval. Group Heads who
report to the CEO will submit recommendations directly to
the CEO for final approval.
d. The Committee may request a report on bonuses awarded to
executives other than policy-making officers.
2. Individual awards may exceed the incentive target, up to a
maximum of 50% or 70% for SVP's and EVP's, respectively, subject
to overall bonus funding limits. Individual awards above the
maximum may be granted in exceptional circumstances and require
the approval of the President and CEO and the Committee.
3. Vacation, sick pay, retirement, and all other employee benefit
plans excluding the 401(k) plan are based on the base salary rate
and do not include Senior Management Bonus payments.
V. ADMINISTRATION
A. The final authority and responsibility for administration of the Plan
resides exclusively with the Committee.
B. The Director of Finance will have responsibility for calculating the
bonus funds including the application of any fund limitations
specified by the Committee. The bonus funds will be rounded to the
nearest thousand dollars and individual awards will be rounded to the
nearest one hundred dollars.
C. The Director of Human Resources will have responsibility for providing
the Director of Finance with information on Bonus-eligible executives
and salaries, processing award payments, and keeping records of
activities related to the Plan.
D. The award payments will be made as soon as administratively practical
after the end of the fiscal year.
E. New participants will be eligible to receive a pro-rated award based
on the number of months worked (rounded-up) as a participant during
the Plan year.
6
<PAGE>
UNION BANK OF CALIFORNIA
SENIOR MANAGEMENT
BONUS PLAN
F. Participants on Leave of Absence during part of the Plan year will be
eligible for a pro-rated award payment based upon the number of months
worked (rounded-up) during the Plan year.
G. Participants must be employed by the Bank, Bank of Tokyo-Mitsubishi
Group or any subsidiary or affiliate at the time awards are to be paid
in order to receive payment. In the case of retirement, death,
permanent disability, or exceptional circumstances, deviations from
eligibility due to non-employment at the date of payment may be
approved at the sole discretion of the President and CEO for non-
policy making EVPs and eligible SVPs and at the sole discretion of the
Committee for policy-making officers.
VI. GENERAL PROVISIONS
A. NO CONTRACT OF EMPLOYMENT
Neither the action of Union Bank of California in establishing this
Plan or its provisions, nor any action taken according to those
provisions, will be construed as giving the right to a participant to
continue in the employ of the Bank. The Plan is not a contract of
employment. No rights in the Plan will accrue to any person whether
or not he/she is selected to participate in the Plan, and no person
will, because of the Plan acquire any right to an accounting or to
examine the books or the affairs of the Bank.
B. ASSIGNMENT
No funds, assets or other property of the Bank, and no obligation or
liability of the Bank under this Plan, will be subject to any claim of
any participant, nor will any participant have any right or power to
pledge, encumber or assign any bonus award provided for in this Plan.
C. SOLE AND ENTIRE PLAN
No Bank director, officer, employee or other person has the authority
to enter into any agreement, either written or oral, with any person
or participant concerning an award or payment of a bonus award, or to
make any representation or warranty with respect to any bonus award
under this Plan. Only the President and CEO or the Committee, as
appropriate, will have such authority. This Plan supersedes any prior
oral or written understanding on this subject.
7
<PAGE>
UNION BANK OF CALIFORNIA
SENIOR MANAGEMENT
BONUS PLAN
D. CONTINGENCY
The Plan is contingent in character and, therefore, no rights will
vest in any individual participant under the Plan until all conditions
of the Plan are satisfied.
E. MINIMUM PERSONAL PERFORMANCE
Bank management in its absolute discretion through the President and
CEO, and in consultation with the Committee where appropriate, retains
the right to reduce or eliminate incentive awards which are not yet
paid for a participant whose personal performance level is
unsatisfactory, regardless of the Bank's or Group's performance.
Unsatisfactory personal performance shall be determined by the Bank in
its absolute discretion and may include, but only as examples and not
as an exhaustive list, such factors as misconduct, poor performance
rating, poor credit management, poor account management, disruptive
behavior, failure to adhere to Bank policies and procedures, failure
to abide by Bank compliance standards, poor audits, failure to control
or monitor risk, or other relevant factors.
F. NO VESTING
The right to receive any payment of a bonus award shall not vest in
any employee, or the estate of the employee, until such payment is
actually made in accordance with the terms and conditions of the Plan.
G. ADMINISTRATION
Bank management shall determine in its absolute discretion all
elements and goals of the Plan. All determinations made by the Bank
shall be binding. At any time prior to the date the awards are paid,
the Bank reserves the right to adjust any element or goals of the
Plan.
8
<PAGE>
UNION BANK OF CALIFORNIA
SENIOR MANAGEMENT
BONUS PLAN
H. AMENDMENT
The Bank management may at any time, revise, amend, suspend, or
terminate in whole or in part, any or all provisions of this Plan.
I. OTHER INCENTIVE PLANS
An individual may not participate in this Plan during the time that
he/she is participating in any business unit incentive plan.
J. TAX RELATED LIABILITIES
Participants are responsible for determining the tax consequences of
bonus awards and arranging for appropriate withholding and payment of
all taxes due. The Bank will not be responsible for and will be held
harmless from liability for payments, interest, penalties, costs or
expenses incurred as a result of not arranging for sufficient
withholding or deductions from bonus awards.
K. ARBITRATION
This Plan is made, and shall in all respects be interpreted, enforced
and governed by and under the laws of the United States, as
appropriate, and the State of California. Any dispute arising out of
or relating to this Plan including its meaning or interpretation will
be resolved solely by arbitration before an experienced employment
arbitrator selected in accordance with the model employment
arbitration procedures of the American Arbitration Association. The
locations of the arbitration will be in San Francisco, Los Angeles,
San Diego, Portland or Seattle as selected by the Bank in good faith.
The provisions of this paragraph are exclusive for all purposes and
applicable to any and all disputes between a participant and the Plan.
Any decision or award by an arbitrator shall affect the Plan solely as
to its obligations to the participant who requests arbitration. The
arbitrator's decision will have no impact on the Plan's relationship
to any other participant, nor will it require the Bank to interpret
the Plan in any particular manner.
L. BENEFITS UNFUNDED AND UNSECURED
The rights of a participant, or any designated beneficiary of the
participant, shall be solely those of an unsecured general creditor of
the Bank, and the Bank's obligation shall be an unfunded and unsecured
promise to pay.
9
<PAGE>
UNION BANK OF CALIFORNIA
SENIOR MANAGEMENT BONUS PLAN APPROVAL
-- EFFECTIVE JANUARY 1, 1996 --
The Senior Management Bonus Plan is adopted effective January 1, 1996 and
terminates December 31, 1996.
/s/ Kanetaka Yoshida
-------------------------------------
Kanetaka Yoshida
President and Chief Executive Officer
/s/ Takahiro Moriguchi
-------------------------------------
Takahiro Moriguchi
Vice Chairman and Chief Financial Officer
/s/ Paul Fearer
-------------------------------------
Paul Fearer
Executive Vice President
Director of Human Resources
10
<PAGE>
[LETTERHEAD]
December 7, 1995
Mr. Roy Henderson
The Bank of California
400 California Street
San Francisco, California 94104
Re: Change of Control Agreement
Dear Roy:
I am pleased that you have decided to become part of the management
team of the new bank. As we discussed earlier, I know that your experience and
unique talents will assist us in successfully meeting the challenges of the
merger and the creation of Union Bank of California ("UBOC").
I have received your letter of September 21, 1995 regarding the terms
you would like to have included as part of your employment relationship with
UBOC. By this letter, I wanted to memorialize the essential parts of the
agreement we reached regarding your future employment with The Bank of
California and UBOC. I expect you keep the information contained in this letter
STRICTLY CONFIDENTIAL.
1. TITLE. Your title will be Vice Chairman and, at UBOC, you will
report to me. We would also like you to be a member of the Executive Management
Committee of UBOC.
2. JOB RESPONSIBILITIES. As a Vice Chairman of UBOC, you will focus
on the Trust, Investment, and Private Banking areas. We will expect you to
establish a synergy between the retail and small business banking areas that Mr.
Hartnack is expected to manage and with the middle market banking area which
Mr. Walker is expected to manage.
3. COMPENSATION THROUGH APRIL, 1996. Your base salary will remain
the same until your next regularly scheduled increase on April 1. At that time
you will be
<PAGE>
Mr. Roy Henderson
December 7, 1995 Page 2
considered for a merit increase based on your performance. Short term and long
term incentives for the current year will be paid in accordance with the terms
of the existing plan. A new competitive short term and long term plan for UBOC
will be introduced in 1996. Your benefits will remain the same until the merger
date.
4. TERMINATION. As an officer of The Bank of California and, after
the merger, you will be subject to the dismissal provisions of the National Bank
Act. This means that the Bank can terminate your employment at any time, with
or without cause. We have agreed that the vote by the Boards of Directors on
September 27, 1995 approving the merger between Union Bank and BanCal Tri-State
Corporation shall be considered a change in control sufficient to trigger that
clause of your contract executed by you on August 13, 1993. Therefore, in the
event that your employment is terminated by you or the Bank before September 27,
1997, the termination will be treated as a Qualifying Event under your August
13, 1993 contract, and you will receive severance payments pursuant thereto.
If the Bank terminates your employment at any time for willful misconduct or
gross negligence, you will be entitled only to your regular compensation through
the date of your termination.
5. UBOC'S EMPLOYMENT CONTRACT. UBOC will offer you a new employment
contract, which will supersede your August 13, 1993 contract with The Bank of
California referenced above. You have requested and I have agreed that your new
employment contract will be consistent in terms of benefits and duration with
the employment agreements offered to other Vice Chairman of UBOC, except that
through September 27, 1997 the parachute provision described in paragraph 4.
above will be in effect.
If the terms proposed in this letter accurately represent the
essential terms of the agreement we have reached, please sign the letter in the
place indicated and return it to me.
<PAGE>
Mr. Roy Henderson
December 7, 1995 Page 3
I want to thank you for your continued support and assistance during
this time of transition and change. I am looking forward to working with you as
we move into the merger and the formation of a strong quality bank.
Very truly yours,
/s/ H. Nozawa
----------------
Accepted:
/s/ Roy A. Henderson 12/28/95
- -------------------------- ----------------
Name Date
<PAGE>
THE BANK OF CALIFORNIA, NATIONAL ASSOCIATION
EXECUTIVE SUPPLEMENTAL BENEFITS PLAN
(Restated as of January 1, 1990)
TABLE OF CONTENTS
ARTICLE SECTION PAGE
1 RESTATEMENT AND PURPOSE
1.1 Restatement of Plan 1
1.2 Purpose of the Plan 1
1.3 Application of Plan 1
2 DEFINITIONS
2.1 Definitions 1
2.2 Gender and Number 3
3 ELIGIBILITY AND PARTICIPATION
3.1 Eligibility and Participation 3
3.2 Duration 3
4 BENEFITS
4.1 Defined Contribution Benefit 3
4.2 Contract Payments 4
4.3 Maintenance of Accounts 4
4.4 Vesting and Forfeitures 5
4.5 Payment of Deferred Compensation 5
4.6 Death 5
5 ADMINISTRATION
5.1 Compensation and Benefits Committee 5
5.2 Uniform Rules 5
5.3 Notice of Address 6
5.4 Records 6
5.5 Claims Procedure 6
6 GENERAL PROVISIONS
6.1 Nonassignability 6
6.2 Incompetency 6
6.3 Employment Rights 7
6.4 No Individual Liability 7
6.5 Illegality of Particular Provision 7
7 AMENDMENT AND TERMINATION
7.1 Amendment and Termination 7
7.2 Reorganization of the Bank 7
7.3 Protected Benefits 8
8 APPLICABLE LAWS
8.1 Applicable Laws 8
-i-
<PAGE>
DECLARATION OF AMENDMENT AND
RESTATEMENT OF THE BANK OF CALIFORNIA
NATIONAL ASSOCIATION,
EXECUTIVE SUPPLEMENTAL BENEFITS PLAN
WHEREAS, The Bank of California, a national association organized under
the laws of the United States and headquartered in San Francisco, California
(hereinafter called the "Bank") entered into a contract effective as of
January 1, 1986 establishing a Supplemental Retirement Plan for eligible
executives known as The Bank of California, National Association Executive
Supplemental Benefits Plan (the "Plan"), to provide retirement and other
benefits for such employees of the Bank (and certain of its affiliates and
subsidiaries) as from time to time may be and become Participants; and
WHEREAS, the Bank has reserved the right to amend the Plan and desires to
amend it in certain respects as hereinafter set forth;
NOW THEREFORE, The Bank of California, National Association Executive
Supplemental Benefits Plan is hereby amended and restated to read as follows:
ARTICLE 1. RESTATEMENT AND PURPOSE
1.1 RESTATEMENT OF PLAN. The Bank of California, National Association
(the "Bank") hereby restates, effective as of January 1, 1990, its Executive
Supplemental Retirement Plan and shall be referred to hereinafter as the
"Plan."
1.2 PURPOSE OF THE PLAN. It is the purpose of this Plan to provide
eligible executives with benefits that will compensate them for benefits lost
because of maximums imposed by law upon qualified pension and profit sharing
plans, and to provide benefits to other eligible executives given deferred
compensation agreements by the Board of Directors of the Bank. This Plan is
established in order to provide supplemental retirement benefits, payable as
provided hereafter solely from the general assets of the Bank. The Plan is
intended to be exempt from the participation, vesting, funding, and fiduciary
requirements of Title 1 of the Employee Retirement Income Security Act of
1974.
1.3 APPLICATION OF PLAN. The terms of this Plan as restated are
applicable only to eligible executives who are in the employ of the Bank or an
Affiliate on or after January 1, 1987.
ARTICLE 2. DEFINITIONS
2.1 DEFINITIONS. Whenever used in the Plan, the following terms shall
have the respective meanings set forth below, unless otherwise expressly
provided herein, and when the defined meaning is intended, the term is
capitalized:
-1-
<PAGE>
(a) "AFFILIATE" means BanCal and any corporation which has 50% or
more of its voting stock owned by the Bank or BanCal, or any one or more of
them.
(b) "BANK" means The Bank of California, National Association, or
any successor thereto.
(c) "BANCAL" means BanCal Tri-State Corporation or any successor
thereto.
(d) "BENEFICIARY" means the person designated under the Plan by the
Participant to receive benefits in the event of his death. Beneficiary
designation shall be made on a form provided by the Compensation and Benefits
Committee.
(e) "BOARD OF DIRECTORS" means the Board of Directors of the Bank.
(f) "CAPITAL ACCUMULATION PLAN" or "CAP" means The Bank of -
California, National Association Capital Accumulation Plan as restated from
time to time thereafter.
(g) "COMPENSATION AND BENEFITS COMMITTEE" means the committee of
members of the Board of Directors with authority to administer the Plan as
provided under section 5.1.
(h) "ELIGIBLE EARNINGS" means the full salary and wages paid to a
Participant by the Employer for services rendered, including salary, wage,
bonus, incentive plan payments, commission and overtime compensation, amounts
of Shelter Pay (as defined in the Capital Accumulation Plan) whether or not
deferred under CAP, and any amount by which his regular salary or wage is
reduced as a result of his election to have contributions made under the
Health Pay Plan or any other similar plan maintained by the Employer. Eligible
Earnings does not include (i) retention awards, (ii) hiring and moving
bonuses, (iii) referral awards, (iv) prizes or monetary awards given in
connection with contests or competitions, (v) expatriate allowances, (vi) tax
gross-ups, (vii) Christmas gifts and payments of like character, (viii)
reimbursement for expenses or allowances therefor, including automobile
allowances and moving allowances, (ix) any amount contributed by the employer
to any pension plan or plan of deferred compensation other than Shelter Pay
deferred under CAP, (x) any amount paid by the Employer for other fringe
benefits, such as health and welfare, (other than Health Pay Plan
Contributions) hospitalization, and group life insurance benefits,
perquisites, and personal use of automobiles, (xi) one-time recognition
awards, and (xii) any amount paid to a Participant which the Board of
Directors of the Employer shall expressly declare does not constitute
"Eligible Earnings."
(i) "EMPLOYEE" means those individuals or classes of officers of an
Employer which are designated by the Board of Directors or its designee to be
eligible to participate in this Plan.
(j) "EMPLOYER" means either the Bank, or any Affiliate which, with
the approval of the Chief Executive Officer of the Bank, elects to become a
party to the Plan by adopting by a resolution of the respective Board of
Directors the Plan for the benefit of its employees, or any one or more of
them, as the context indicates.
<PAGE>
(k) "PARTICIPANT" means an employee of the Employer who has
satisfied the requirements for participation set forth in section 3.1 of this
Plan.
(l) "PERSONAL RETIREMENT OPTIONS PLAN" or "PRO" means The Bank of
California, National Association Personal Retirement Options Plan established
January 1, 1986 and as amended or restated form time to time thereafter.
(m) "RETIREMENT" and "RETIRED" means a Participant's termination of
employment after attaining "Early Retirement Age" as defined in the Personal
Retirement Options Plan.
2.2 GENDER AND NUMBER. Except when otherwise indicated by the context,
any masculine terminology used herein shall also include the feminine, and the
use of any term herein in the singular may also include the plural.
ARTICLE 3. ELIGIBILITY AND PARTICIPATION
3.1 ELIGIBILITY AND PARTICIPATION. Any Employee of the Employer who is
prevented from receiving a full allocation of Employer contributions under
the Personal Retirement Options Plan as amended ("PRO") and/or Employer
contributions (other than elective deferrals) under the Capital Accumulation
Plan as amended ("CAP") due to restrictions imposed by the Internal Revenue
Code of 1986 as amended ("Code") Section 415 and/or by Section 401(a)(17), or
successor provisions thereto, shall become a Participant in this Plan
beginning with the first day of the calendar year in which allocations of
Employer contributions are limited or reduced under either Plan. Any employee
of the Employer who is prevented from receiving a full allocation of Employer
matching contributions under the CAP provisions because of the limitations
imposed by Code Section 402(g) as adjusted, or successor provisions thereto, on
the matched elective deferrals shall become a Participant in this Plan
beginning with the first day of the calendar year for which such allocations
are limited or reduced. Any Employee who is given a deferred compensation
agreement by the Board of Directors or its designee shall become a
Participant as of the first day of the month following the month in which his
or her participation is approved by the appropriate party.
3.2 DURATION. An Employee who becomes a Participant shall remain a
Participant hereunder until the earliest to occur of (i) his or her
Retirement, or (ii) the date upon which his or her employment terminates for
any reason.
ARTICLE 4. BENEFITS
4.1 DEFINED CONTRIBUTION BENEFIT. For the calendar year 1986 and for each
calendar year thereafter, the Bank shall credit, as of the end of the
calendar year, each Participant who qualifies under Article 3 with deferred
compensation in an amount equal to the amount of Employer contributions
(excluding elective deferrals under CAP) which would have been allocated to
his account under CAP and PRO if (i) each Plan lacked provisions designed to
comply with Internal Revenue Code Section 415, or successor provision thereto,
(ii) for years 1986 and 1987 the Participant had not entered into an
irrevocable agreement to defer payment of salary and bonuses, less the amount
actually allocated to his accounts under such Plans, and (iii) for calendar
year 1987 and thereafter, the amount of Employer matching contributions which
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would have been allocated to his account under CAP if the plan did not
contain provisions designed to comply with Internal Revenue Code section
402(g), less the Employer contributions (other than elective deferrals under
CAP) actually allocated to his account under CAP and PRO that year.
The deferred compensation amounts specified in the preceding sentence
shall be allocated to the account of a Participant as of the date such
amounts would have been allocated under the PRO and CAP plans absent such
Code limitations or, for 1986 and 1987, compensation deferrals.
4.2 CONTRACT PAYMENTS. If a Participant has entered into a contract with
the Employer that promises deferred compensation to the Participant, whether
in the form of allocations or deferrals to a book reserve account, or in the
form of monthly payments after separation from service, then such benefits
will be paid under the provisions of this Plan to the extent that these
provisions are not inconsistent with the Participant's contract.
If the Participant's contract requires that a book reserve account be
maintained, then allocations and valuation increases, as well as benefit
payments, shall be made under this Plan, and shall be administered by the
Compensation and Benefits Committee. Similarly, if the contract calls for
deferred payment, the value thereof shall be a liability of this Plan, and the
payment of benefits shall be administered by the Compensation and Benefits
Committee.
The Board of Directors shall have the power to determine whether benefits
required under a separate contract with a Participant shall operate to reduce
accruals under section 4.1 and the extent of any such reduction.
4.3 MAINTENANCE OF ACCOUNTS.
(a) The Bank shall establish and maintain, in the name of each
Participant, an individual account, to be known as the supplemental account,
which shall be credited each year with any allocation the Participant is
entitled to receive under section 4.1 (and 4.2 if applicable) and earnings
or losses on the balance outstanding as of the end of the preceding year.
As of the end of each calendar year, the Compensation and Benefits Committee
shall adjust the balance, if any, of the Participant's supplemental account
as of the last day of the preceding calendar year, by multiplying such amount
by a number equal to one plus the decimal equivalent of the percentage yield,
as of the first week of the current calendar year, available for new deposits
made to guaranteed interest contracts under CAP and PRO at such time.
(b) The supplemental account of each Participant shall be entered on
the books of the Bank and shall represent a liability, payable when due under
this Plan, out of the general assets of the Bank. Prior to benefits becoming
due hereunder, the Bank shall expense the liability for payment of such
accounts in accordance with policies determined appropriate by the Bank's
controller. The supplemental account created for a Participant by the Bank
shall not be funded by a trust or an insurance contract; nor shall any assets
of the Bank be segregated or identified to such account; nor shall any
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property or assets of the Bank be pledged, encumbered, or otherwise subjected
to a lien or security interest for payment of benefits hereunder.
4.4 VESTING AND FORFEITURES. A separate accounting shall be kept for
each Participant of book accruals (and earnings) attributable, under
section 4.1, to the PRO plan, and each Participant shall attain a
nonforfeitable right to benefits attributable to such account only to the
extent that he is "vested" under the PRO plan. The separate accounting
maintained under this section shall be dropped once the Participant becomes
fully vested under PRO. The balance of a Participant's supplemental account
attributable to CAP benefits shall be nonforfeitable at all times. Any
Participant who has his employment terminated by reason of theft,
embezzlement, willful misconduct or gross neglect of the employer's policies
or procedures shall lose any right to a benefit notwithstanding the fact that
he may have attained a vested interest in that benefit.
4.5 PAYMENT OF DEFERRED COMPENSATION. The amount accumulated in a
Participant's supplemental account shall be distributed in a single sum at
the same time as his distribution from the Personal Retirement Options Plan.
4.6 DEATH. The supplemental account of a Participant who dies while
employed shall be paid in a lump sum to the Participant's Beneficiary at the
same time as benefits are paid out to the beneficiary designated under the
Personal Retirement Options Plan.
ARTICLE 5. ADMINISTRATION
5.1 COMPENSATION AND BENEFITS COMMITTEE. This Plan shall be administered
by the Employee Compensation and Benefits Committee of the Board of Directors
of the Bank (the "Committee"). The Committee shall consist of not fewer than
three (3) members of the Board of Directors of the Bank. The Board of
Directors may from time to time remove members from, or add members to, the
Committee. Vacancies on the Committee shall be filled by the Board of
Directors. No directors, while a Participant in this Plan, shall be eligible
to serve as a member of the Committee.
The interpretation and construction by the Committee of any provisions of the
Plan shall be final unless otherwise determined by the Board of Directors.
Subject to the Board, the Committee is authorized to interpret the Plan, to
prescribe, amend, and rescind rules and regulations relating to it, to decide
upon claims pursuant to section 5.5 below, and to make all other
determinations necessary for its administration.
Without limiting the generality of the foregoing, the Committee shall have
the authority to calculate pensions and deferred compensation amounts
allocable to Participants, and to maintain and adjust supplemental accounts.
The Committee shall have the authority to delegate responsibility for
performance of ministerial functions necessary for administration of the Plan
to such officers of the Bank, excluding Participants, as the Committee shall
in its discretion deem appropriate.
5.2 UNIFORM RULES. In administering the Plan, the Committee will apply
uniform rules, policies and procedures to all Participants similarly situated,
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which uniform rules, policies and procedures shall be maintained by the Bank
in writing.
5.3 NOTICE OF ADDRESS. Any payment to a Participant or Beneficiary, at
the last known post office address on file with the Bank, shall constitute a
complete acquittance and discharge to the Bank and any director or officer
with respect thereto unless the Bank shall have received prior written notice
of any change in the address, condition, or status of the distributee.
Neither the Bank nor any director or officer shall have any duty or
obligation to search for or ascertain the whereabouts of any Participant or
his Beneficiary.
5.4 RECORDS. The records maintained by the Bank under the direction of
the Committee with respect to the Plan shall be conclusive on all
Participants, all Beneficiaries, and all other persons whomsoever.
5.5 CLAIMS PROCEDURE. If any claim for benefits under the Plan is wholly
or partially denied by the Committee, the claimant shall be given notice in
writing, within a reasonable period of time after receipt of the claim by the
Plan, by registered or certified mail, of such denial, written in a manner
calculated to be understood by the claimant, setting forth the specific
reasons for such denial, specific reference to pertinent Plan provisions on
which the denial is based, a description of any additional material or
information necessary for the claimant to perfect the claim and an
explanation of the Plan's claims review procedure. The claimant also shall be
advised that he or his duly authorized representative may request a review by
the Board of Directors of the decision denying the claim by filing with the
Board, within 65 days after such notice has been received by the claimant, a
written request for such review, and that he may review pertinent documents,
and submit issues and comments in writing within the same 65-day period. If
such request is so filed, such review shall be made by the Board within 60
days after receipt of such request; and the claimant shall be given written
notice of the decision resulting from such review, and shall include specific
reasons for the decision, written in a manner calculated to be understood by
the claimant, and specific references to the pertinent Plan provisions on
which the decision is based.
ARTICLE 6. GENERAL PROVISIONS
6.1 NONASSIGNABILITY. Benefits under the Plan are not in any way subject
to the debts or other obligations of the persons entitled thereto and may not
voluntarily or involuntarily be sold, transferred, or assigned. Any voluntary
attempt to sell, anticipate, assign, or encumber benefits under this Plan
shall operate to cancel the benefit or the balance of a Participant's
supplemental account as of the date of such attempt and to relieve the Bank
from any future liability to pay or distribute any benefit with respect to
such canceled amount.
6.2 INCOMPETENCY. Every person receiving or claiming benefits under the
Plan shall be conclusively presumed to be mentally competent and of age until
the Compensation and Benefits Committee receives written notice, in a form
and manner acceptable to it, that such person is incompetent or a minor, and
that a guardian, conservator, statutory committee, or other person legally
vested
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with the care of his estate has been appointed. In the event that the
Compensation and Benefits Committee finds that any person to whom a benefit
is payable under the Plan is unable to properly care for his affairs, or is a
minor, then any payment due (unless a prior claim therefor shall have been
made by a duly appointed legal representative) may be paid to the spouse, a
child, a parent, or a brother or sister, or to any person deemed by the
Compensation and Benefits Committee to have incurred expense for such person
otherwise entitled to payment.
In the event a guardian or conservator or statutory committee of the
estate of any person receiving or claiming benefits under the Plan shall be
appointed by a court of competent jurisdiction, payment shall be made to such
guardian or conservator or statutory committee provided that proper proof of
appointment is furnished in a form and manner suitable to the Compensation
and Benefits Committee. Any payment made under the provisions of this section
shall be a complete discharge of liability therefor under the Plan.
6.3 EMPLOYMENT RIGHTS. The establishment of the Plan shall not be
construed as conferring any legal rights upon any Participant or any other
person for a continuation of employment, nor shall it interfere with the
rights of the Bank to discharge any person or treat him without regard to the
effect which such treatment might have upon him as a person covered by this
Plan.
6.4 NO INDIVIDUAL LIABILITY. It is declared to be the express purpose
and intention of the Plan that no liability whatsoever shall attach to or be
incurred by the shareholders, officers, or directors of the Bank, or any
representatives appointed hereunder by the Bank, under or by reason of any of
the terms or conditions of the Plan.
6.5 ILLEGALITY OF PARTICULAR PROVISION. If any particular provision of
this Plan shall be found to be illegal or unenforceable, such provision shall
not affect any other provision thereof, but the Plan shall be construed in
all respects as if such invalid provision were omitted.
ARTICLE 7. AMENDMENT AND TERMINATION
7.1 AMENDMENT AND TERMINATION. The Bank expects the Plan to be
permanent, but since future conditions affecting the Bank cannot be
anticipated or foreseen, the Bank must necessarily and does hereby reserve
the right to amend, modify, or terminate the Plan at any time by action of
its Board of Directors.
7.2 REORGANIZATION OF THE BANK. In the event of a merger or consolidation
of the Bank, or the transfer of substantially all of the assets of the Bank
to another corporation, such continuing, resulting or transferree corporation
shall have the right to continue and carry on the Plan and to assume all
liabilities of the Bank hereunder without obtaining the consent of any
Participant or Beneficiary. If such successor shall assume the liabilities of
the Bank hereunder, then the Bank shall be relieved of all such liability,
and no Participant or Beneficiary shall have the right to assert any claim
against the Bank for benefits under or in connection with this Plan.
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7.3 PROTECTED BENEFITS. If the Plan is terminated, or if liabilities
accrued hereunder up to the date of an event specified in section 7.2 are not
assumed by the successor to the Bank, then the dollar amount of benefits of
each retired Participant and Beneficiary and the dollar amount of vested
benefits of each active Participant shall be guaranteed and shall not
thereafter be reduced without the Participant's or Beneficiary's consent.
ARTICLE 8. APPLICABLE LAWS
8.1 APPLICABLE LAWS. The Plan shall be governed by and construed
according to the laws of the State of California.
IN WITNESS WHEREOF, The Bank of California, National Association, has
caused this instrument to be executed by its duly authorized officers and its
corporate seal to be hereunto affixed, this 20th day of September 1990, but
effective as of January 1, 1990.
THE BANK OF CALIFORNIA, NATIONAL ASSOCIATION
By /s/ Y. Gomi
--------------------------------
Its President
-----------------
ATTEST By /s/ John H. McGuckin, Jr.
--------------------------------
Its Secretary
-----------------
(S E A L)
<PAGE>
AMENDMENT NUMBER ONE
TO THE BANK OF CALIFORNIA, NATIONAL ASSOCIATION
EXECUTIVE SUPPLEMENTAL BENEFITS PLAN
The Bank of California, National Association Executive Supplemental Benefits
Plan (the "Plan"), as restated effective January 1, 1986, is amended as
follows:
(1) Effective January 1, 1997, Article 1 (Restatement and Purpose) is
amended by adding the following Section 1.4:
1.4 MERGER WITH UNION BANK OF CALIFORNIA, NATIONAL ASSOCIATION. Union
Bank merged with The Bank of California, National Association
effective April 1, 1996. The resulting corporate entity is the
Union Bank of California, National Association. Payment of Plan
benefits shall occur at the same time as a Participant's
distribution from the Union Bank of California 401(k) Plan or The
Bank of California, National Association Personal Retirement
Options Plan, whichever occurs last.
(2) Effective December 31, 1996, Section 4.5 (Payment of Deferred
Compensation) is amended in its entirety to read as follows:
4.5 PAYMENT OF DEFERRED COMPENSATION. The amount accumulated in the
Participant's supplemental account shall be distributed in a
single sum at the same time as his distribution from the Union
Bank of California 401(k) Plan or The Bank of California,
National Association Personal Retirement Options Plan, whichever
occurs last.
This Amendment Number One is executed on this THIRD day of February, 1997.
UNION BANK OF CALIFORNIA, NATIONAL ASSOCIATION
By /s/ Paul Fearer
------------------------------------------
Title Director of Human Resources
---------------------------------------
<PAGE>
AGREEMENT
This Agreement ("Agreement") is dated as of August 13, 1993 and is
entered into by, between, and among Roy A. Henderson ("Mr. Henderson"), The
Bank of California, a national banking association ("the Bank"), and BanCal
Tri-State Corporation, a Delaware corporation which is the bank holding
company of the Bank and wholly-owned subsidiary of the Mitsubishi Bank, Ltd.
("BankCal Tri-State"). As an inducement to render services and superior
performance to the Bank as an officer and director, and to BanCal Tri-State
as an officer and director, to the benefit of both the Bank and BanCal
Tri-State, Mr. Henderson, the Bank and BanCal Tri-State agree as follows:
1. EMPLOYMENT. The Bank agrees to employ Mr. Henderson, and Mr.
Henderson agrees to serve the Bank and BanCal Tri-State as Vice-Chairman and
"Sector Executive-Regional Bank" and as a director of the Bank and BanCal
Tri-State. Mr. Henderson will join the Bank as a Senior Executive Vice
President. The title of Vice-Chairman is subject to approval by the Board of
Directors and will be submitted to the Board for approval no later than
12/31/93. Mr. Henderson's duties and powers will include management of the
Bank's Commercial Banking, Private Banking, Trust, and Sales, Planning and
Marketing functions, and such other duties relating to the business of the
Bank as may be reasonably be required of him from time to time by the
President and Chief Executive Officer of the Bank. Mr. Henderson will be a
member of the Bank's Executive Management Committee, and will report to the
President and Chief Executive Officer. Mr. Henderson agrees while employed by
the Bank to devote his best talents and abilities on a full-time basis to his
duties with the Bank. It is understood that Mr. Henderson may spend a
reasonable amount of time on civic affairs and board representations subject
to the Bank's normal policies and procedures.
2. TERMINATION OF EMPLOYMENT. The Board of Directors of the Bank may
terminate the employment of Mr. Henderson at pleasure. The Board of Directors
of BanCal Tri-State may terminate the employment of Mr. Henderson at pleasure.
3. BASE SALARY. Mr. Henderson shall, during the term of this Agreement,
receive a base salary of $27,084 per month. Such salary shall be paid in
semi-monthly installments less applicable withholding and salary reductions.
The Bank will periodically review and may, in its discretion, periodically
increase the base salary, but may not, however, reduce Mr. Henderson's base
salary during the term of this Agreement.
4. BENEFITS. In addition to the benefits specifically described in this
Agreement, Mr. Henderson shall be entitled to participate in the employee
benefit programs generally available to senior executive employees of the
Bank. Mr. Henderson will receive four weeks paid vacation per year. The Bank
agrees to pay the cost of continuing Mr. Henderson's existing
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health insurance coverage for himself and his family from his previous
employer until such time as he is eligible for coverage under the Bank's
medical insurance plan. Mr. Henderson will receive a car allowance of $1,000
per month, membership in a luncheon club at the Bank's expense, and annual
reimbursement of up to $4,500 for personal financial planning purposes. Mr.
Henderson will be eligible to participate in the Bank's Long-Term Disability
Plan ("LTD") Capital Accumulation Plan ("CAP") and Personal Retirement
Options ("PRO") in accordance with the eligibility requirements and terms of
those specific plans. He shall be entitled to participate in other employee
benefits as of the first of the month after completing sixty days of
employment.
5. BONUS. Mr. Henderson will become a participant in the Bank's
Management Incentive Plan ("MIP") with an annual bonus opportunity of 30% of
his base salary. Provided his employment with the Bank begins on or before
September 30, 1993, Mr. Henderson's 1993 incentive payment will be based on
corporate performance and mutually agreed upon group and individual
objectives to be established within thirty days after Mr. Henderson begins
his employment with the Bank. The amount of bonus payment for 1993, if any
is earned, will be prorated in accordance with his date of hire.
6. RELOCATION. Mr. Henderson will receive the relocation benefits
described in Appendix A. In addition, he will receive a sign-on bonus of
$75,000 payable within five days of the effective date of this Agreement.
7. LONG-TERM INCENTIVE PLAN. Mr. Henderson will be granted 750 initial
shares of "phantom stock" as a participant in the Bank's Long-Term Incentive
Plan subject to the terms and conditions of that plan. Mr. Henderson shall be
eligible for the award of additional shares in future years.
8. BUSINESS EXPENSES. Mr. Henderson shall be authorized to incur
necessary and reasonable travel, entertainment and other business and
professional expenses in connection with or reasonably related to his duties
and position. The Bank will reimburse Mr. Henderson for such expenses upon
presentation of an itemized account and appropriate supporting documentation,
all in accordance with the Bank's generally applicable policies.
9. CONTINGENT COMPENSATION. Because of the possibility of termination
at any time pursuant to paragraph 2 of this Agreement, and in order to obtain
the services of Mr. Henderson for the benefit of both the Bank and BanCal
Tri-State, and induce him to relocate to San Francisco and to enter into this
agreement, either the Bank, or if for any reason the Bank is unable to make
such payment, BanCal Tri-State, agrees, subject to applicable regulations, to
pay to Mr. Henderson additional compensation as follows:
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(9.1) Upon the occurrence of a "Qualifying Event" which occurs within
four years from the effective date of this agreement and as defined in
subparagraph (9.2) of this Agreement, during the period between 90 days prior
to an announcement of, and two years after a Change in Control, as defined in
subparagraph (9.3), the Bank (or BanCal Tri-State) shall immediately pay to
Mr. Henderson an amount equal to two times his average annualized includible
compensation, calculated in accordance with Section 280G(b)(3)(A) of the
Internal Revenue Code, as amended, or any successor provision, and the
Regulations thereunder, from the beginning of his employment with the Bank
or the last five (5) years of his employment with the Bank, whichever period
is shorter.
(9.2) Any of the following shall constitute a Qualifying Event under
this Agreement:
(a) Termination of Mr. Henderson's employment by the Bank for other
than either willful misconduct or gross negligence, in the performance of his
duties for the Bank; or
(b) Voluntary termination of his employment by Mr. Henderson, if
such termination occurs after Mr. Henderson's position, duties,
responsibilities, work location, compensation or benefits are materially
altered by the Bank to his detriment; or
(c) Mr. Henderson's death, or his incapacity for a period of six
or more consecutive months as the result of a physical or mental sickness or
injury.
(9.3) A Change in Control of the Bank or BanCal Tri-State means, and
shall be deemed to have occurred, if and when
(a) within the meaning of Section 13(d) of the Securities Exchange
Act of 1934, any person or group other than Mitsubishi Bank, Ltd., becomes a
beneficial owner, directly or indirectly, or securities of the Bank or BanCal
Tri-State representing 50% or more of the total fair market value or the
total voting power of the Bank or BanCal Tri-State's then outstanding
securities; or
(b) the stockholders of the Bank or BanCal Tri-State approve the
dissolution or liquidation of the Bank or BanCal Tri-State; or
(c) the stockholders of the Bank or BanCal Tri-State approve an
agreement to merge or consolidate, or otherwise reorganize, with or into one
or more entities, as a result of which less than 50% of the total fair market
value or the total voting power of securities of the surviving or resulting
entity are, or are to be, owned by the former stockholders of the Bank or
BanCal Tri-State; or
(d) the stockholders or the directors of the Bank or of BanCal
Tri-State approve the sale of 33% or more of the Bank's or BanCal Tri-State's
business and/or assets.
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(9.4) If Mr. Henderson is terminated under circumstances other than
those described in subparagraph (9.1) above, he will receive those
termination benefits, if any, accorded senior executive employees under Bank
policy or practice in effect at the time of his termination.
10. BOARD MEMBERSHIP. BanCal Tri-State shall cause Mr. Henderson to be
elected to the Boards of Directors of both BanCal Tri-State and the Bank as
soon as reasonably possible after the effective date of this Agreement.
11. GOVERNING LAW. This Agreement is made and entered into in the State
of California, and the laws of California shall govern as to validity and
interpretation in the performance by the parties of their respective duties
and obligations.
12. AMENDMENT. This Agreement constitutes the entire Agreement of the
parties, and may be altered or amended or any provided hereof waived only by
an agreement in writing signed by the party against whom enforcement of any
alteration, amendment or waiver is sought. No waiver by either party of any
breach of this Agreement shall be considered as a waiver of any subsequent
breach.
13. SEVERABILITY. In case any one or more of the provisions contained in
this Agreement shall for any reason be held to be invalid, illegal, or
unenforceable in any other respect, such invalidity, illegality or
unenforceability shall not affect any other provision of this Agreement. This
Agreement shall be constructed as if such invalid, illegal or unenforceable
provision had never been a part of the Agreement and there shall be
substituted therefore such other provision as will most nearly accomplish the
intent of the parties to the extent permitted by applicable law.
14. COUNTERPARTS. This Agreement may be executed simultaneously in two
or more counterparts, each of which shall be deemed an original, but all of
which shall together constitute one in the same Agreement.
15. EFFECTIVE DATE. This Agreement shall become effective upon its
execution by all parties and the receipt of a no objection letter from the
Office of the Comptroller of the Currency pursuant to Section 914 of the
Federal Deposition Insurance Corporation Improvement Act of 1991.
16. TERM OF AGREEMENT. This Agreement shall become effective on its
EFFECTIVE DATE, as defined herein, and shall remain in effect during the term
of employment of Mr. Henderson by the Bank and BanCal Tri-State.
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17. ARBITRATION. The parties agree to submit any and all claims
arising from the employment relationship described herein or the termination
of such employment relationship and any other disputes involving the terms of
this Agreement to arbitration. Any such arbitration shall be governed by the
California Arbitration Act and shall be conducted by and in accordance with
the Employment Dispute Resolution Rules of the American Arbitration
Association. Judgment upon the award rendered by the arbitration may be
entered in any court having jurisdiction thereof. Each party agrees to bear
its own costs and attorneys' fees incurred in connection with any arbitration
conducted pursuant to this provision, except that, if Mr. Henderson shall
substantially prevail in such proceeding, the Bank shall pay his costs and
reasonable attorneys' fees. In agreeing to arbitrate all claims described
herein, the parties forego any right they may have to seek relief from the
state and federal courts and any and all administrative agencies that might
otherwise have jurisdiction over such claims.
DATED August 13, 1993
ROY A. HENDERSON
/s/ Roy A. Henderson
--------------------
THE BANK OF CALIFORNIA, N.A.
By /s/ Y. Gomi
-------------------------------------------------
Chairman, President and Chief Executive Officer
BANCAL TRI-STATE CORPORATION
By /s/ Y. Gomi
-------------------------------------------------
Chairman, President and Chief Executive Officer
5
<PAGE>
ROY A. HENDERSON
CUSTOMIZED RELOCATION POLICY
ADMINISTRATION: Employee relocations are administered by the Manager of
Payroll/Operations, Leonor Grima, who will coordinate with other departments
within the Bank. Contact Ms. Grima at (415) 765-2509, to make arrangements
with a moving company; do not make the initial contact or make a commitment
to any carrier before discussing it with Ms. Grima.
MOVING AND STORAGE: The Bank will provide for the packing, unpacking,
shipment and insuring of your normal household goods and two automobiles. The
Bank will not accept responsibility for, nor will it pay for the cost of
moving articles of exceptional value or such articles as perishables,
combustible items, and items which may cause contamination or damage to other
goods, recreational vehicles, airplanes, trailers, motorcycles, antique cars,
animals, frozen foods, lumber and plywood, bricks, fireplace wood, building
materials, swimming pools, jewelry, precious stones, legal documents, money
(cash, securities, bonds, notes), or other articles which cannot be
transported economically or practically in a moving van.
INSURANCE: The Bank will insure each shipment up to $75,000. Additional
insurance may be obtained through the Bank, but must be paid for by the
employee.
TEMPORARY LIVING: The Bank will provide for temporary living until you secure
a permanent residence in the Bay area. Human Resources will provide a list of
accommodations or assist in finding accommodations. You will be reimbursed
for the cost of meals, up to $40 per day per person, rental car, telephone
charges, and laundry until March 1, 1994.
SWING LOAN: The bank will offer you reimbursement of reasonable loan fees and
interest charges incurred on a bridge loan of up to 90% of the equity in your
Seattle residence obtained from a reputable financial institution for period
of up to 18 months from date of hire or until your Seattle residence is sold,
whichever comes first.
PURCHASE OF NEW RESIDENCE: The bank will reimburse all reasonable fees and
costs (excluding interest) incurred on financing provided by a reputable
financial institution.
The Bank will also provide reimbursement of the following costs associated
with the purchase of your residence in the Bay area:
A) Abstract/title search
B) Assumption fees
C) Attorneys fees
D) Credit report
E) Escrow fees
F) Lenders' inspection fee
G) Notary fees
H) Photo
I) Recording fees
J) Roof inspection
K) Settlement/closing fees
L) State, City, County stamps on Deed/Mortgage/Note
Appendix A
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PURCHASE OF NEW RESIDENT (CONT'D):
M) State surtax stamps
N) Tax service fee
O) Title examination
P) Title insurance (owner's coverage)
Q) Title insurance binder (lenders)
R) Transfer fees
S) Home inspection (not to exceed $300)
T) Toxic substance inspection (not to exceed $300)
DUPLICATE HOUSING COSTS: Once you have purchased and occupy a new residence
in the Bay area and temporary living expenses cease, the bank will then
reimburse expenses associated with your Seattle residence to include
interest, insurance, taxes, and maintenance costs commencing at the time your
permanent housing costs begin in the Bay area for the duration of the period
not to exceed 18 months from your date of hire.
INTERIM TRAVEL: During the period preceding the relocation of your family to
the Bay area, the Bank will reimburse you for the cost of coach travel
between San Francisco and Seattle for up to a maximum of two trips per month.
SALE OF PERSONAL RESIDENCE: The bank will reimburse you the following cost
associated with the sale of your Seattle residence:
A) Real Estate Brokers fee
B) Title and escrow fees
C) Termite inspection (but not actual work)
D) Prepayment penalties
E) Recording and reconveyance fees
F) Transfer taxes
RELOCATION ALLOWANCE: The Bank will provide a one time benefit, up to $8,000
when selling and buying a home, or up to $4,000 when relocating employees
sell their prior residence and rent in a new location, for reimbursement of
related moving expense such as automobile registration, license, local taxes,
cable, trash removal, telephone installation, special utility hook-ups,
installation of drapes or carpets, etc. Any allowance not accounted for by
receipts may be taxable.
FINAL TRIP TO THE NEW LOCATION: The Bank will reimburse the cost of
transportation for you and your family from the old to the new location.
Should you elect to drive to the new location, you are expected to drive via
the most direct route and the trip will be reimbursed at the standard rate
per mile, in accordance with the IRS regulations. You are expected to drive
300 miles per day. Reasonable expenses will be reimbursed for lodging and
meals in route for you, your wife and other eligible household members. Upon
arrival at the new location, if necessary, the Bank will reimburse for one
night's lodging and meals for the family and eligible household members as
part of the final move trip.
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FINAL TRIP TO THE NEW LOCATION (CONT'D):
Should you travel by air, one-way coach fare is provided for you and your
immediate family traveling from the old location to the new location. You
will be authorized time off with pay up to a maximum of three working days to
pack, travel to your new home, and unpack household goods.
SPOUSAL EMPLOYMENT ASSISTANCE: The Bank will contribute up to $500 toward a
provider of job search and counseling services.
MOVING EXPENSES UNDER THE TAX REFORM ACT: Under the IRS Regulations, any
amount received or accrued, directly or indirectly by you as payment or
reimbursement for expenses of moving from one residence to another residence
must be included in gross income by the taxpayer as compensation for
services. Therefore, all reimbursements and payments made by the Bank in your
behalf (including the moving company bill) will be reported by the Bank and
will be included in your gross income on your W-2 form at the year-end.
Upon completion of your move, you will be furnished with a recap of all
moving expenses reimbursed to you by the Bank or paid in your behalf on an
Internal Revenue Service From 4872 or substitute. This information will
provide a breakdown of the total moving expenses which will be of assistance
to you if you are entitled to declare a moving expense deduction, and for the
detailed moving expense information with respect to the deduction, see
Internal Revenue Service Form 3903 and Publication 521.
TAX REQUIREMENTS: Present federal tax laws require that certain moving
expenses be treated as income by the employee. In these instances, the Bank
will scale up the reimbursement to provide for the additional tax. The basis
for computation of the tax rate shall be your total base salary (excluding
other income), plus reimbursed moving expenses less an amount for present
exemptions, and the standard allowance for deductions.
SUBMITTING EXPENSES: All incurred expenses must be submitted in writing to
the Manager of Payroll/Operations, 400-10, for approval. These submissions
should follow these guidelines:
- Expenses must be itemized and submitted with receipts and vouchers.
- All expenses are charged to the receiving cost center.
- The department manager is not authorized to approve payment for moving
expenses.
- The Controller's Division will reimburse the employee by direct deposit
into his/her checking account or by check.
TIME LIMIT
You will have eighteen months from date of hire to utilize these benefits.
3
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDEND REQUIREMENTS
<TABLE>
<CAPTION>
(In millions, except ratios) For the Years Ended December 31,
- ----------------------------------------------------------- --------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
EXCLUDING INTEREST ON DEPOSITS
Income before income taxes and effect of accounting changes $412 $506 $246 $172 $128
Fixed Charges:
Interest expense 759 705 483 457 651
One third of rents, net income from subleases (A) 18 14 17 15 15
-------- -------- -------- -------- --------
Total fixed charges 777 719 500 472 666
-------- -------- -------- -------- --------
Earnings before taxes, fixed charges, and effect of
accounting changes, excluding capitalized interest $1,189 $1,225 $746 $644 $794
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Fixed charges, as above $777 $719 $500 $472 $666
Preferred stock dividends 11 11 11 11 10
-------- -------- -------- -------- --------
Fixed charges including preferred stock dividends $788 $730 $511 $483 $676
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Ratio of earnings to fixed charges and preferred
stock dividend requirements 1.51 1.68 1.46 1.33 1.17
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
INCLUDING INTEREST ON DEPOSITS
Fixed charges including preferred stock dividends $788 $730 $511 $483 $676
Add: Interest on deposits 532 454 311 314 454
-------- -------- -------- -------- --------
Total fixed charges including preferred stock
dividends and interst on deposits $1,320 $1,184 $822 $797 $1,130
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Earnings before taxes, fixed charges, and effect of
accounting changes, excluding capitalized
interest, as above $1,189 $1,225 $746 $644 $794
Add: Interest on deposits 532 454 311 314 454
-------- -------- -------- -------- --------
Total earnings before taxes, fixed charges, effect
of accounting changes and interest on
on deposits $1,721 $1,679 $1,057 $958 $1,248
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Ratio of earnings to fixed charges and preferred
stock dividend requirements 1.30 1.42 1.29 1.20 1.10
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>
(A) The proportion deemed representative of the interest factor.
Exhibit 12.1
<PAGE>
UNIONBANCAL CORPORATION AND
UNION BANK OF CALIFORNIA, N.A.
AS OF December 31, 1996
ACTIVE SUBSIDIARIES OF UNIONBANCAL CORPORATION
1. Bankers Commercial Corporation
2. Cal First Properties, Inc.
3. Mills-Ralston, Inc.
4. SBS Realty Inc.
5. Stanco Properties, Inc.
6. UNBC Leasing, Inc.
7. UnionBanCal Commercial Funding Corporation
8. UnionBanCal Equities, Inc.
9. UnionBanCal Leasing Corporation
10. UnionBanCal Mortgage Corporation
11. UnionBanCal Venture Corporation
ACTIVE SUBSIDIARIES OF UNION BANK OF CALIFORNIA, N.A.
1. Inland Property Company
2. UBOC Investment Services, Inc.
3. Union Bank of California International
3a. Union Bank of California Servicos Limitada
INACTIVE SUBSIDIARIES
1. UNBC Cayman, Ltd.
2. Union Bank of California Capital Services & Consulting, Inc.
3. Union Bank of California Leasing, Inc.
<PAGE>
CORPORATE STRUCTURE
_____________ The Bank of Public
| Tokyo-Mitsubishi, Common
| Ltd. Shareholders
| 81% 19%
| | |
| | |
| -------------------------------
| UNIONBANCAL
| CORPORATION
| -------------------------------
| |
6%| 94% |
| _______________________|
| | | 100%
----------------------------- | -----------------------------
UNION BANK OF |____ Stanco
CALIFORNIA | Properties, Inc.
----------------------------- | -----------------------------
| | 100%
| | -----------------------------
100% |________________ |____ Cal First
----------------------------- | | Properties, Inc.
Union Bank of California | | -----------------------------
Leasing, Inc. __| | 100%
(inactive) | | -----------------------------
----------------------------- | |____ Bankers Commercial
100% | | Corporation
----------------------------- | | -----------------------------
Inland Property | | 100%
Company __| | -----------------------------
| |____ UnionBanCal Commercial
----------------------------- | | Funding Corporation
100% | | -----------------------------
----------------------------- | | 100%
Union Bank of California | | -----------------------------
Capital Services & Consulting,_| |____ UnionBanCal
Inc. (inactive) | | Equities, Inc.
----------------------------- | | -----------------------------
100% | | 100%
----------------------------- | | -----------------------------
UBOC Investment Services, | |____ UnionBanCal
Inc. __| | Venture Corporation
| | -----------------------------
----------------------------- | | 100%
100% | | -----------------------------
----------------------------- | |____ UNBC Leasing
Union Bank of California | | Inc.
International __| | -----------------------------
| 100%
----------------------------- | -----------------------------
100% | |____ UnionBanCal
UBCI | UBOC | Leasing Corporation
99.99% | .01% | -----------------------------
------------------------ | 100%
Union Bank of California | -----------------------------
Servicos Limitada |____ UnionBanCal
| Mortgage Corporation
------------------------ | -----------------------------
| 100%
| -----------------------------
|____ UNBC (Cayman), Ltd.
| (inactive)
| -----------------------------
| 100%
| -----------------------------
|____ Mills-Ralston
| Inc.
| -----------------------------
| 100%
| -----------------------------
|____ SBS
Realty Inc.
-----------------------------
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
33-3-3040 on Form S-3 and Registration Statements Nos. 33-3-3042 and 33-3-3044
on Form S-8 of UnionBanCal Corporation of our report dated January 31, 1997,
appearing in this Annual Report on Form 10-K of UnionBanCal Corporation for the
year ended December 31, 1996.
/s/ DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
San Francisco, California
March 27, 1997
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report dated January 24, 1996 on the consolidated financial statements of Union
Bank and subsidiaries (not presented herein) included in this Form 10-K and
incorporated by reference into UnionBanCal Corporation's previously filed Form
S-3 Registration Statement File No 33-3-3040 and Form S-8 Registration
Statement File Nos. 33-3-3042 and 33-3-3044. It should be noted that we have not
audited any financial statements of Union Bank and subsidiaries subsequent to
December 31, 1995 or performed any audit procedures subsequent to the date of
our report.
/s/ ARTHUR ANDERSEN LLP
Arthur Andersen LLP
Los Angeles, California
March 11, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS RESTATED SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND STATEMENT OF INCOME AND THE ACCOMPANYING TABLES
OF FORM 10-K. INFORMATION HEREIN IS QUALIFIED BY REFERENCE TO SUCH STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,268,771
<INT-BEARING-DEPOSITS> 1,131,216
<FED-FUNDS-SOLD> 537,710
<TRADING-ASSETS> 617,464
<INVESTMENTS-HELD-FOR-SALE> 2,164,197
<INVESTMENTS-CARRYING> 268,196
<INVESTMENTS-MARKET> 274,405
<LOANS> 20,898,105
<ALLOWANCE> 523,946
<TOTAL-ASSETS> 29,234,059
<DEPOSITS> 21,532,960
<SHORT-TERM> 3,576,368
<LIABILITIES-OTHER> 469,420
<LONG-TERM> 382,000
0
135,000
<COMMON> 273,813
<OTHER-SE> 2,086,120
<TOTAL-LIABILITIES-AND-EQUITY> 29,234,059
<INTEREST-LOAN> 1,675,969
<INTEREST-INVEST> 143,412
<INTEREST-OTHER> 107,923
<INTEREST-TOTAL> 1,927,304
<INTEREST-DEPOSIT> 531,567
<INTEREST-EXPENSE> 758,726
<INTEREST-INCOME-NET> 1,168,578
<LOAN-LOSSES> 40,000
<SECURITIES-GAINS> 4,502
<EXPENSE-OTHER> 1,134,904
<INCOME-PRETAX> 412,350
<INCOME-PRE-EXTRAORDINARY> 249,458
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 249,458
<EPS-PRIMARY> 4.11
<EPS-DILUTED> 4.11
<YIELD-ACTUAL> 4.75
<LOANS-NON> 128,267
<LOANS-PAST> 23,692
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 555,149
<CHARGE-OFFS> 119,227
<RECOVERIES> 48,024
<ALLOWANCE-CLOSE> 523,946
<ALLOWANCE-DOMESTIC> 269,400
<ALLOWANCE-FOREIGN> 9,394
<ALLOWANCE-UNALLOCATED> 245,152
</TABLE>
