Despite charging off millions of dollars of energy loans, the parent company of San Francisco-based MUFG Union Bank rode higher affiliate fees, securities gains and expense cutbacks to quarterly profit growth.
The $117.2 billion-asset MUFG Americas Holdings Corp., which is based in New York, on Monday reported net income of $305 million in the second quarter, up 68.5% from the same period last year. Revenue rose 7.4% to $1.2 billion.
Fees from affiliates totaled $239 million, up 24.5% year over year. That gain was partially offset by the costs of certain support services.
Still, MUFG Americas managed to cut noninterest expenses by $33 million year over year, partly as a result of a decrease in employee salaries and benefits. Total noninterest expenses were $810 million for the second quarter of 2016.
The dark spot was energy loans. MUFG Americas in the second quarter charged off $98 million of loans, most of them commitments in the oil and gas sector. That was a 390% increase over net chargeoffs during the second quarter of 2015.
Of the company's total energy loans, 78% were connected to petroleum exploration and production companies as of June 30. And more than two-thirds of the company's loans to those businesses were reserve-based loans, meaning they were collateralized with oil and gas reserves.
But the oil and gas portion of MUFG Americas' loan book eventually stabilized, according to a release. As proof there was the $37 million release of loan-loss reserves, a substantial improvement from the provision of $162 million for the first quarter of 2016 and the provision of $15 million for the prior-year quarter.
MUFG Americas is the intermediary holding company of Mitsubishi UFJ Financial Group in Tokyo. On July 1, in accordance with new Federal Reserve Board requirements, the Japanese company transferred all interests in its U.S. subsidiaries to MUFG Americas. Besides MUFG Union Bank, those subsidiaries include the broker-dealer MUFG Securities Americas and other nonbank entities with a combined total of about $36 billion in assets as of the first quarter of this year.
MUAH's third-quarter earnings will include results from these subsidiaries.