# UNIONBANC INVESTMENT SERVICES, LLC X-17A-5/A (2022-03-03) — Broker-dealer annual report - Company: UNIONBANC INVESTMENT SERVICES, LLC - Form: X-17A-5/A - Filed: 2022-03-03 - Period: 2021-12-31 - Accession: 0000731201-22-000002 - CIK: 731201 - File #: 8-30706 - Type: Broker-dealer - Material weakness: No - Auditor: Deloitte & Touche LLP - Auditor location: New York, NY - Contact: Stacey L. Morin - Phone: 818-254-2075 - Email: julian.jacolev@unionbank.com - Website: unionbank.com - Signed by: Julian Jacolev (Chief Financial Officer) Original filing: https://www.sec.gov/Archives/edgar/data/731201/000073120122000002/auditfin.pdf --- {0}------------------------------------------------ # UnionBanc Investment Services, LLC (SEC ID. NO. 8-30706) Financial Statements and Supplemental Schedules as of and for the Year Ended December 31, 2021 and Report of Independent Registered Public Accounting Firm #### **PUBLIC DOCUMENT** **Filed pursuant to Rule 17a-5(e)(3)** {1}------------------------------------------------ #### **UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549** OMB Number: 3235-0123 Expires: Oct. 31, 2023 Estimated average burden hours per response: 12 OMB APPROVAL ## **ANNUAL REPORTS FORM X-17A-5 PART III** | SEC FILE NUMBER | | |-----------------|--| | 8-30706 | | **FACING PAGE** **Information Required Pursuant to Rules 17a-5, 17a-12, and 18a-7 under the Securities Exchange Act of 1934** | FILING FOR THE PERIOD BEGINNING | | 01/01/21
MM/DD/YY | AND ENDING | | 12/31/21
MM/DD/YY | | |------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------|------------------------------------------------------------|----------------------------------------|-----------------|--------------------------------------------|--| | A.
REGISTRANT IDENTIFICATION | | | | | | | | NAME OF FIRM: UnionBanc Investment Services, LLC | | | | | | | | TYPE OF REGISTRANT (check all applicable boxes):
܆x Broker-dealer
܆ Check here if respondent is also an OTC derivatives dealer | ܆Security-based swap dealer | | ܆Major security-based swap participant | | | | | ADDRESS OF PRINCIPAL PLACE OF BUSINESS: (Do not use a P.O. box no.) | | | | | | | | 800 N. Brand Blvd, 16th Floor | | | | | | | | | | (No. and Street) | | | | | | Glendale,
(City) | | CA
(State) | | | 91203
(Zip Code) | | | PERSON TO CONTACT WITH REGARD TO THIS FILING | | | | | | | | Julian Jacolev, Managing Director, CFO 206-664-0061
(Name) | | (Area Code – Telephone Number) | | (Email Address) | julian.jacolev@unionbank.com | | | | B. | ACCOUNTANT IDENTIFICATION | | | | | | INDEPENDENT PUBLIC ACCOUNTANT whose reports are contained in this filing* | | | | | | | | Deloitte & Touche LLP | | (Name – if individual, state last, first, and middle name) | | | | | | | | | | | | | | 30 Rockefeller Plaza
(Address) | | New York
(City) | | NY
(State) | 10112
(Zip Code) | | | 10/20/2003 | | | | 34 | | | | (Date of Registration with PCAOB)(if applicable) | | | | | (PCAOB Registration Number, if applicable) | | | | | FOR OFFICIAL USE ONLY | | | | | | * Claims for exemption from the requirement that the annual reports be covered by the reports of an independent public
accountant must be supported by a statement of facts and circumstances relied on as the basis of the exemption. See 17 CFR | | | | | | | 240.17a-5(e)(1)(ii), if applicable. **Persons who are to respond to the collection of information contained in this form are not required to respond unless the form displays** #### **a currently valid OMB control number.** {2}------------------------------------------------ ## **This filing\*\* contains (check all applicable boxes):** - ܆) a) Statement of financial condition. - ܆) b) Notes to consolidated statement of financial condition. - ܆) c) Statement of income (loss) or, if there is other comprehensive income in the period(s) presented, a statement of comprehensive income (as defined in § 210.1-02 of Regulation S-X). - ܆) d) Statement of cash flows. - ܆) e) Statement of changes in stockholders' or partners' or sole proprietor's equity. - ܆) f) Statement of changes in liabilities subordinated to claims of creditors. - ܆) g) Notes to consolidated financial statements. - ܆) h) Computation of net capital under 17 CFR 240.15c3-1 or 17 CFR 240.18a-1, as applicable. - ܆) i) Computation of tangible net worth under 17 CFR 240.18a-2. - ܆) j) Computation for determination of customer reserve requirements pursuant to Exhibit A to 17 CFR 240.15c3-3. - ܆) k) Computation for determination of security-based swap reserve requirements pursuant to Exhibit B to 17 CFR 240.15c3-3 or Exhibit A to 17 CFR 240.18a-4, as applicable. - ܆) l) Computation for Determination of PAB Requirements under Exhibit A to § 240.15c3-3. - ܆) m) Information relating to possession or control requirements for customers under 17 CFR 240.15c3-3. - ܆) n) Information relating to possession or control requirements for security-based swap customers under 17 CFR 240.15c3-3(p)(2) or 17 CFR 240.18a-4, as applicable. - ܆) o) Reconciliations, including appropriate explanations, of the FOCUS Report with computation of net capital or tangible net worth under 17 CFR 240.15c3-1, 17 CFR 240.18a-1, or 17 CFR 240.18a-2, as applicable, and the reserve requirements under 17 CFR 240.15c3-3 or 17 CFR 240.18a-4, as applicable, if material differences exist, or a statement that no material differences exist. - ܆) p) Summary of financial data for subsidiaries not consolidated in the statement of financial condition. - ܆) q) Oath or affirmation in accordance with 17 CFR 240.17a-5, 17 CFR 240.17a-12, or 17 CFR 240.18a-7, as applicable. - ܆) r) Compliance report in accordance with 17 CFR 240.17a-5 or 17 CFR 240.18a-7, as applicable. - ܆) s) Exemption report in accordance with 17 CFR 240.17a-5 or 17 CFR 240.18a-7, as applicable (filed separately). - ܆) t) Independent public accountant's report based on an examination of the statement of financial condition. - ܆) u) Independent public accountant's report based on an examination of the financial report or financial statements under 17 CFR 240.17a-5, 17 CFR 240.18a-7, or 17 CFR 240.17a-12, as applicable. - ܆) v) Independent public accountant's report based on an examination of certain statements in the compliance report under 17 CFR 240.17a-5 or 17 CFR 240.18a-7, as applicable. - ܆) w) Independent public accountant's report based on a review of the exemption report under 17 CFR 240.17a-5 or 17 CFR 240.18a-7, as applicable (filed separately). - ܆) x) Supplemental reports on applying agreed-upon procedures, in accordance with 17 CFR 240.15c3-1e or 17 CFR 240.17a-12, as applicable. - ܆) y) Report describing any material inadequacies found to exist or found to have existed since the date of the previous audit, or a statement that no material inadequacies exist, under 17 CFR 240.17a-12(k). - ܆) z) Other: *\*\*To request confidential treatment of certain portions of this filing, see 17 CFR 240.17a-5(e)(3) or 17 CFR 240.18a-7(d)(2), as applicable.* {3}------------------------------------------------ **Deloitte & Touche LLP 30 Rockefeller Plaza New York, NY 10112-0015 USA** Tel: +1 212 492 4000 Fax: +1 212 489 1687 www.deloitte.com #### REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Managers and Member of UnionBanc Investment Services, LLC #### Opinion on the Financial Statements We have audited the accompanying statement of financial condition of UnionBanc Investment Services, LLC (the "Company") as of December 31, 2021, and the related statement of operations, changes in member's equity and cash flows for the year then ended, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. #### Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. #### Emphasis of Matter As disclosed in Note 6, the accompanying financial statements include significant transactions with affiliates and may not necessarily be indicative of the conditions that would have existed or the results of operations if the Company had operated as an unaffiliated business. Specifically, significant portions of certain expenses represent allocations received from or made to affiliates. #### Report on Supplemental Schedules The supplemental schedules H, : and D listed in the accompanying table of contents have been subjected to audit procedures performed in conjunction with the audit of the Company's financial statements. The supplemental schedules are the responsibility of the Company's management. Our audit procedures included determining whether the supplemental schedules reconcile to the financial statements or the underlying accounting and other records, as applicable, and performing procedures to test the completeness and accuracy of the information presented in the supplemental schedules. In forming our opinion on the supplemental schedules, we evaluated whether the supplemental schedules, including their form and content, are presented in compliance with Rule 17a-5 under the Securities Exchange Act of 1934. In our opinion, such schedules are fairly stated, in all material respects, in relation to the financial statements as a whole. February 17, 2022 We have served as the Company's auditor since 1996. {4}------------------------------------------------ #### **ASSETS** | Cash and cash equivalents | \$
4,986,027 | |---------------------------------------------|-----------------| | Financial instruments owned — At Fair Value | 111,994,592 | | Deposits with clearing organization | 9,836,525 | | Fees and commissions receivable | 3,080,970 | | Deferred tax asset | 2,832,487 | | Other assets | 722,096 | | TOTAL | 133,452,697 | | | | #### **LIABILITIES AND MEMBER'S EQUITY** | Accounts payable, accrued expense and other liabilities | \$
2,606,647 | |---------------------------------------------------------|-----------------| | Due to Parent — Net | 6,852,279 | | Payable to clearing organization — Net | 103,962 | | Total liabilities | 9,562,888 | | Member's equity | 123,889,809 | | TOTAL | 133,452,697 | See accompanying notes to financial statements. {5}------------------------------------------------ #### **STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2021** | REVENUES: | | |--------------------------------------------|-------------------| | Commissions | \$ 30,933,963 | | Advisory fees | 20,676,446 | | Principal transactions, net | 8,046,204 | | Bank deposit sweep fees | 10,909,166 | | Interest | 155,556 | | Other income | 512,800 | | Total revenues | 71,234,135 | | EXPENSES: | | | Salaries, incentives and employee benefits | 40,216,351 | | Management fees | 18,508,000 | | Clearing expenses | 6,785,838 | | Operating losses | 4,880,877 | | Occupancy and equipment | 3,933,413 | | Market and data | 1,375,399 | | Regulatory fees | 737,382 | | Other | 4,588,694 | | Total expenses | 81,025,954 | | LOSS BEFORE INCOME TAXES | (9,791,819) | | INCOME TAX BENEFIT | 2,488,885 | | NET LOSS | \$
(7,302,934) | | | | See accompanying notes to financial statements. {6}------------------------------------------------ #### **STATEMENT OF CHANGES IN MEMBER'S EQUITY FOR THE YEAR ENDED DECEMBER 31, 2021** | | Member's
Equity | |---------------------------------------|--------------------| | BALANCE — January 1, 2021 | \$
131,736,845 | | Compensation – restricted stock units | (544,102) | | Net loss | (7,302,934) | | BALANCE — December 31, 2021 | \$
123,889,809 | See accompanying notes to financial statements. {7}------------------------------------------------ #### **STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2021** | CASH FLOWS FROM OPERATING ACTIVITIES: | | |------------------------------------------------------------------------------|----------------| | Net loss | \$ (7,302,934) | | Adjustment to reconcile net income to net cash used by operating activities: | | | Depreciation and amortization | 34,372 | | Contributions related to stock plan expense | (544,102) | | Deferred income taxes | (1,582,363) | | (Increase) decrease in operating assets: | | | Financial instruments | 6,499,636 | | Deposits with clearing organizations | 1,835,767 | | Fees and commissions receivable | 61,916 | | Other assets | 133,505 | | Increase (decrease) in operating liabilities: | | | Payable to/ Receivable from clearing org - Net | 623,763 | | Accounts payable, accrued expenses and other liabilities | 524,723 | | Due to parent — Net | 3,998,313 | | Net cash used by operating activities | 4,282,596 | | CASH FLOWS FROM INVESTING ACTIVITIES | | | Purchases of furniture, equipment, and leasehold improvements | (3,023) | | NET INCREASE IN CASH AND CASH EQUIVALENTS | 4,279,573 | | CASH AND CASH EQUIVALENTS — Beginning of year | 706,454 | | CASH AND CASH EQUIVALENTS — End of year | \$ 4,986,027 | See accompanying notes to financial statements. {8}------------------------------------------------ #### **NOTES TO FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2021** #### **1. ORGANIZATION AND NATURE OF BUSINESS** UnionBanc Investment Services, LLC (the "Company"), is a broker-dealer registered with the Securities and Exchange Commission ("SEC") and is a member of the Financial Industry Regulatory Authority, Inc. The Company is also a registered investment advisor under the Investment Advisors Act of 1940. The Company is a limited liability company that is a wholly-owned subsidiary of MUFG Union Bank, N.A. (the "Parent"), a wholly-owned subsidiary of MUFG Americas Holdings Corporation (the "Holding Company"). MUFG Americas Holdings Corporation is owned by MUFG Bank, Ltd. ("MUFG Bank") and Mitsubishi UFJ Financial Group, Inc. ("MUFG"). MUFG Bank is a wholly-owned subsidiary of MUFG. On September 21, 2021, the Holdings Company, together with MUFG Bank and MUFG, issued a joint press release announcing the entry into a Share Purchase Agreement on September 21, 2021 by and among MUFG, the Holding Company and U.S. Bancorp ("USB") for the sale by the Holding Company to USB of 100% of the issued and outstanding shares of the common stock of the Parent. The Company provides services to retail and institutional clients in several core product areas: annuities, mutual funds, and fixed income products. Institutional services are delivered through a dedicated trading desk and sales force specializing in fixed income products. Retail services are delivered through a sales program consisting of dedicated investment specialists. The Company clears transactions on a fully disclosed basis through its clearing agent and, accordingly, does not carry securities accounts for customers or perform custodial functions relating to their securities. #### **2. SIGNIFICANT ACCOUNTING POLICIES** **Basis of Presentation**— The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America (US GAAP). The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although such estimates contemplate current conditions and management's expectations of how they may change in the future, it is reasonably possible that actual results could differ significantly from those estimates. Significant estimates made by management in the preparation of the Company's financial statements include, but are not limited to, compensation, taxes, litigation, and estimating the fair value of financial instruments (see Note 5). **Cash and Cash Equivalents** — The Company has defined cash equivalents as highly liquid investments, with original maturities of less than three months. There are no cash equivalents or restricted cash recorded as of December 31, 2021. **Payable to/ Receivable from clearing organization – net** Payables to clearing organization include amounts payable for unsettled regular-way trades. Receivables from clearing organization include receivable for unsettled regular-way trades. {9}------------------------------------------------ **Financial Instruments** — Financial instruments are recorded on a trade-date basis. Gains and losses are determined on a first in–first out basis. Interest associated with financial instruments owned, at fair value, is accrued as interest income and interest receivable in other assets on the Statement of Operations and Statement of Financial Condition, respectively. Financial instruments are recorded at fair value in accordance with Financial Accounting Standards Board Accounting Standards Codification 820, *Fair Value Measurements* (See Note 5), and unrealized and realized gains and losses are included in principal transaction revenue, net. **Due to Parent** — **Net** — Primarily consists of salary expense, bonus expenses, rent allocation, management fees, and income tax liabilities payable to parent. **Income Taxes** — The Company's operations are included in the consolidated federal income tax returns filed by the Holding Company. For California income tax purposes, the Company files a unitary tax return with the Parent. In accordance with a tax sharing agreement with the Holding Company, a receivable or payable is recorded for the income tax benefit or liability resulting from the Company's operations. In accordance with ASC 740, *Income Taxes,* a deferred tax asset or liability is determined based upon temporary differences between the tax basis of an asset or liability and its reported amount on the Statement of Financial Condition, using currently enacted tax rates. A valuation allowance is recognized if, based on the weight of available evidence, it is more likely than not that some portion or the entire deferred tax asset or liability will not be realized. **Revenues from Contracts with Customers** – The Company recognizes revenue from contracts with customers according to a five-step revenue recognition model: (1) identify the contract(s) with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) the entity satisfies a performance obligation. The Company's contracts with customers generally contain a single performance obligation or separately identified performance obligations, each with a stated transaction price and generally do not involve a significant timing difference between satisfaction of the performance obligation and customer payment. **Commissions** — Commissions include money market funds/mutual fund 12b-1 fees of \$4.4 million, annuity sales of \$20.2 million, and other brokerage commissions of \$6.3 million. The Company earns revenues for distribution and related support services performed related to mutual funds, fixed and variable annuities and insurance products. Depending on the product sold, The Company may receive an upfront fee for our services, a trailing commission, or some combination thereof. The Company believes that the performance obligation is satisfied on the trade date because that is when the underlying financial instrument or purchase is identified, the pricing is agreed upon and the risks and rewards of ownership of the securities have been transferred to/from the customer. Annuity sales and brokerage commissions received are generally based on a fixed rate applied, as a percentage, to amounts invested or the value of the contract at the time of sale and are recognized at the time of sale, or when the performance obligation is satisfied. Trailing commissions on annuities, 12b-1 fees and other brokerage trading are generally based on a fixed rate applied, as a percentage, to the net asset value of the fund, or the value of the insurance policy or annuity contract. These fees are variable due their dependence on the underlying asset value at future points in time as well as the length of time the investor remains in the fund. Both of these are highly susceptible to factors outside the Company's influence, therefore the Company does not believe that it can overcome this constraint until the market value of the fund and the investor activities are known, which are usually monthly or quarterly. {10}------------------------------------------------ **Advisory Fees** —The Company provides investment advisory services to its clients. Advisory fees are generally based on related asset levels under management of a customer's account. The Company believes the performance obligation for providing advisory services is satisfied over time because the customer is receiving and consuming the benefits as they are provided by the Company. Fees are received quarterly and are recognized as revenue at that time as they relate specifically to the services provided in that period, which are distinct from the services provided in other periods. **Bank Deposit Sweep Fees** — Bank deposit sweep fees represent fees earned on available cash balances in client accounts that were swept into Federal Deposit Insurance Corporation ("FDIC") insured cash accounts at an affiliated bank, for which the Company earns a percentage on the outstanding client balances. The amounts received are variable in nature and fluctuate based on client cash balances in the program, as well as the level of short-term interest rates relative to interest paid to clients on outstanding balances. **Management Fees** – Management fees are paid to the Parent under the terms of a master service agreement for the use of certain shared resources such as administrative, legal, and human resource services and are based on a fixed fee. #### **3. RECENT ACCOUNTING PRONOUNCEMENTS** There are no new accounting pronouncements that impact the Company in 2021 and 2022. #### **4. PAYABLE TO /RECEIVABLE FROM BROKERS, DEALERS AND CLEARING ORGANIZATION** Amounts receivable from/payable to brokers, dealers, and clearing organization as of December 31, 2021 consist of the following: | | Receivable | Payable | Payable to
Clearing Org
Net | | |------------------|------------|--------------|-----------------------------------|--| | Unsettled Trades | \$ | \$ | \$ | | | | 24,346,664 | (24,450,626) | (103,962) | | #### **5. FAIR VALUE MEASUREMENT AND FAIR VALUE OF FINANCIAL INSTRUMENTS** **Valuation Methodologies** — Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., an exit price) in an orderly transaction between willing market participants at the measurement date. The Company has an established and documented process for determining fair value for financial assets and liabilities that are measured at fair value on either a recurring or a nonrecurring basis. When available, quoted market prices are used to determine fair value. If quoted market prices are not available, fair value is based upon quoted market prices for instruments with similar characteristics, dealer quotes, or pricing models. Valuation adjustments may be made to ensure the financial instruments are recorded at fair value. **Fair Value Hierarchy** — In determining fair value, the Company maximizes the use of observable market inputs and minimizes the use of unobservable inputs. Observable inputs reflect market-derived or market-based information obtained from independent sources, while unobservable inputs reflect the Company's estimate about market data. Based on the observability of the significant inputs used, the {11}------------------------------------------------ Company classifies its fair value measurements in accordance with the three-level hierarchy as defined by US GAAP. This hierarchy is based on the quality, observability, and reliability of the information used to determine fair value. *Level 1* — Valuations are based on quoted prices in active markets for identical assets or liabilities. Since the valuations are based on quoted prices that are readily available in an active market, they do not entail a significant degree of judgment. *Level 2* — Valuations are based on quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuations for which all significant assumptions are observable or can be corroborated by observable market data. *Level 3* — Valuations are based on at least one significant unobservable input that is supported by little or no market activity and is significant to the fair value measurement. Values are determined using pricing models and discounted cash flow models that include management judgment and estimation, which may be significant. In assigning the appropriate levels, the Company performs a detailed analysis of the assets and liabilities that are measured at fair value. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. The level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement in its entirety. **Fair Value Measurements on a Recurring Basis** — The following table presents Financial Instruments Owned at FV on a recurring basis at December 31, 2021, by caption on the statement of financial condition and by valuation hierarchy level: | | Level 1 | Level 2 | Level 3 | Fair Value | |----------------------------------------------------------------------------------------------------------------------|-----------|--------------------------------|-----------|--------------------------------| | Financial Instruments Owned at FV:
U.S. Government sponsored agency securities
State and municipal obligations | - \$
- | \$
106,997,790
4,996,802 | - \$
- | \$
106,997,790
4,996,802 | | Total Financial Instruments Owned at FV | - | 111,994,592 | - | 111,994,592 | **Financial Instruments Not Measured at Fair Value —** Certain financial assets and liabilities that are not carried at fair value on the Statement of Financial Condition are carried at amounts that approximate fair value due to their short-term nature and generally negligible credit risk. These financial assets and liabilities are classified as either Level 1 or Level 2 within the fair value hierarchy. Level 1 includes cash and cash equivalents and deposits with clearing organization. Level 2 includes payable to clearing organization- net, and fees and commissions receivable. The leveling excludes all non-financial assets and liabilities such as furniture, equipment, software, and leasehold improvements which are included under Other assets in the Statement of Financial Condition. #### **6. RELATED-PARTY TRANSACTIONS** At December 31, 2021, the Company had cash of \$4,986,027 deposited in non-interest-bearing checking accounts at the Parent. {12}------------------------------------------------ The Company has a revolving line of credit to borrow up to \$450 million with the Parent, which permits borrowing on an unsecured basis by the Company. The line of credit will automatically renew on the maturity date of March 1, 2022 for an additional one-year period, unless at least ten days prior to the new maturity date, the Parent provides written notice to the Company of its intent not to renew this line of credit. Interest accrues monthly based on the SOFR rate plus the applicable margin. Based on a reimbursement agreement, the Company reimburses the Parent for various business services paid by the Parent, which includes all employee and occupancy and certain equipment expenses related to the operation of the Company. Such expenses for the year ended December 31, 2021 were \$40,216,351 for employee salaries and benefits, \$6,785,838 for clearing expenses, \$4,880,877 for operating losses, \$3,933,413 for occupancy and equipment, \$737,382 for regulatory fees, and \$4,588,694 for all other expenses. Other expenses include communications, professional services and travel and conferences expenses. In addition, management fees are paid to the Parent for the use of certain shared resources such as administrative, legal, and human resource services. In consideration for the services provided, the Company pays the Parent fixed fees under a master service agreement. For the year ended December 31, 2021, total intercompany management fees paid to the Parent were \$18,508,000. The Parent maintains a noncontributory defined benefit pension plan (the "Plan"), covering substantially all employees of the Company. The Plan provides retirement benefits based on a cash balance formula, with annual pay credits based on a participant's eligible pay multiplied by a percentage determined by age and years of service, with annual interest credits based on 30-year Treasury bond yields. Employees become eligible for this plan after one year of service and become vested upon completing three years of service. The plan costs are allocated to the Company by the Parent, based on eligible employees' salaries. The Parent also maintains a defined contribution plan authorized under Section 401(k) of the Internal Revenue Code. All benefits-eligible employees are eligible to participate in the plan. The employer matching contribution is 100% on the first 3% of eligible compensation an employee contributes and 50% on the next 2% of eligible compensation. Eligible employees of the Company are awarded restricted stock unit grants included in the Salaries, incentives and employee benefits in the Statement of Operations, under the MUAH Stock Bonus Plan ("MUAH Plan"). Under the MUAH Plan, employees are granted restricted stock units settled in American Depositary Receipt ("ADRs") representing shares of common stock of the Company's ultimate parent company, MUFG. The MUFG ADRs are purchased in the open market upon the vesting of the restricted stock units, through a revocable trust. There is no amount authorized to be issued under the MUAH Plan since all shares are purchased in the open market. These awards generally vest pro-rata on each anniversary of the grant date and become fully vested three years from the grant date, provided that the employee has completed the specified continuous service requirement. The Company's total fair value of RSUs that vested during the year ended December 31, 2021 was \$1,967,089. The Company recognizes compensation expense on restricted stock unit grants ratably over the vesting period for nonretirement eligible employees based on the grant-date fair value of MUFG ADRs. The Company's total compensation expense for RSUs during the year ended December 31, 2021 was \$1,422,985. The Parent provides certain healthcare benefits for retired employees who reached age 50 by December 31, 2014, subject to a service requirement, and life insurance benefits for employees who retired prior to January 1, 2001. Total pension, 401(k) plan, and postretirement benefits expenses were \$210,377 for the year ended December 31, 2021. This amount is included in the total employee salaries and benefits expense allocated from the Parent. {13}------------------------------------------------ #### **7. NET CAPITAL REQUIREMENT** As a registered broker-dealer, the Company is subject to the SEC's "Uniform Net Capital Rule" Rule (15c3-1) pursuant to the Securities Exchange Act of 1934. The Company has elected to use the alternative method which requires the Company to maintain minimum net capital equal to the greater of \$250,000 or 2% of aggregate debit balances. At December 31, 2021, the Company had net capital of \$101,502,037, which was \$101,252,037 in excess of the required \$250,000. #### **8. RISK** As the agreement between the Company and NFS provides that the Company is obligated to assume any exposure related to nonperformance by its customers, these activities may expose the Company to off-balance-sheet credit risk in the event the customer is unable to fulfill its contracted obligations. In the event the customer fails to satisfy its obligations, the Company may be required to purchase or sell financial instruments at prevailing market prices in order to fulfill the customer's obligations. As of and for the year ended December 31, 2021, there were no customers in default. The Company is engaged in various trading and brokerage activities; counterparties primarily include broker-dealers, banks, municipalities, corporations, individuals, and other financial institutions. In the event counterparties do not fulfill their obligations, the Company may be exposed to risk. The risk of default depends on the creditworthiness of the counterparty or issuer of the financial instrument. It is the Company's policy to review, as necessary, the credit standing of each counterparty with which it conducts business. **NFS Clearing Agreement** — The Company participates in a clearing agreement with NFS. Under the terms of the NFS agreement, NFS acts as a clearing agent and carries the Company's customer accounts on a fully disclosed basis. As such, customer security positions and money balances are held in custody with NFS. The Company, as introducing broker, pays a fee to NFS for the trade-clearing function performed on its behalf. In addition, the Company is responsible for the collection of the margin required to support transactions in margin accounts for any losses sustained by NFS resulting from a customer's failure to make timely payments on securities purchased or timely and good delivery of securities sold; and for any losses sustained by NFS from complying with written requests from the Company not to "sell out" or "buy in" accounts that have become deficient in margin. **Portfolio Connection** — Portfolio connection is a product that allows customers to consolidate their finances into an integrated brokerage account with a debit card and check-writing features. The Company may be liable for potential overdrafts in customer accounts. The Company seeks to control off-balance-sheet credit risk by monitoring its customers' transactions and reviewing information from NFS. There were no outstanding items as of and for the year-ended December 31, 2021. **Litigation –** The Company may can be named in legal actions arising in the ordinary course of business and records contingent reserves under ASC 450 as appropriate **Pandemic** – During the year-ended December 31, 2021 the Company was able to continue its business and operate remotely. The Company will continue to assess the impact of the COVID-19 pandemic on its business on an ongoing basis. #### **9. INCOME TAXES** The components of the Company's expense (benefit) for income taxes for the year ended December 31, 2021 consist of the following: {14}------------------------------------------------ Income Tax Expense (Benefit) | | Current | Deferred | Total | |--------------------------|------------------------------|--------------------------------|--------------------------------| | Federal
State | \$
(701,106)
(205,417) | \$
(1,162,822)
(419,541) | \$
(1,863,927)
(624,958) | | Total income tax expense | \$
(906,523) | \$
(1,582,363) | \$
(2,488,885) | The Company's expense (benefit) for income taxes for the year ended December 31, 2021, differs from the amount of income tax determined by applying the applicable U.S. statutory federal income tax rate of 21%, due primarily to state taxes. | Federal income tax rate | 21% | |--------------------------------------------|-----| | State income taxes, net of federal benefit | 5% | | Permanent differences and discretes | -1% | | Total Effective Tax Rate | 25% | In addition, pursuant to the Company's tax-sharing agreement with the Holding Company (see Note 2), the Company had a current payable to the Parent of \$2,815,425 and deferred tax assets of \$2,832,487 at December 31, 2021. The tax effects of the temporary differences that give rise to deferred income tax assets and liabilities for the year ended December 31, 2021 are as follows: | Deferred Tax Balances | | | | |---------------------------|----------------|-----------|--| | | Ending Balance | | | | Deferred tax assets: | | | | | Incentive Bonus | \$ | 661,629 | | | Contingency Reserves | | 1,506,359 | | | Stock Based Comp | | 553,918 | | | Other | | 110,581 | | | Deferred tax liabilities: | | - | | | Net deferred tax assets | \$ | 2,832,487 | | The Company is subject to U.S. federal income tax as well as various state income taxes. With limited exception, the Company is not open to examination for periods before 2018 by U.S. federal taxing authorities and 2016 by state taxing authorities. The Company files a combined California income tax return with MUAH which is open to examination for the tax periods 2010 through 2015 in respect to refund claims filed for those periods. There were no uncertain tax positions as of December 31, 2021 and there is no expected change in the next 12 months. {15}------------------------------------------------ #### **10. SUBSEQUENT EVENTS** The Company has evaluated the need for disclosure and/or adjustment resulting from subsequent events through the date this financial statement was available to be issued. Management found no subsequent events to be disclosed. \*\*\*\*\*\* {16}------------------------------------------------ ### **UNIONBANC INVESTMENT SERVICES, LLC Schedule H** #### **COMPUTATION OF NET CAPITAL FOR BROKERS AND DEALERS PURSUANT TO RULE 15c3-1 UNDER THE SECURITIES EXCHANGE ACT OF 1934 FOR THE YEAR ENDED DECEMBER 31, 2021** | Total member's equity from statement of financial condition | \$
123,889,809 | |----------------------------------------------------------------------------------------|-------------------| | Deduct ownership equity not allowable for Net Capital | 305,613 | | Adjusted member's equity from statement of financial condition | 123,584,196 | | NONALLOWABLE ASSETS | | | Cash held with Parent | 4,986,027 | | Fees and commissions receivable | 2,860,703 | | Deferred tax asset | 2,832,487 | | Due to Parent - Gross | 10,462,945 | | Other | 722,096 | | Total | 21,864,258 | | NET CAPITAL BEFORE HAIRCUTS ON SECURITIES POSITIONS | 101,719,938 | | HAIRCUTS ON SECURITIES | 217,901 | | NET CAPITAL | 101,502,037 | | MINIMUM NET CAPITAL REQUIRED (2% of aggregate debit items or
\$250,000, if greater) | 250,000 | | NET CAPITAL IN EXCESS OF MINIMUM REQUIREMENT | \$
101,252,037 | There were no material differences between the above computation and the Company's corresponding unaudited December 31, 2021 Form X‑17A‑5, Part IIA FOCUS report refiled on February 16, 2022. {17}------------------------------------------------ ### **UNIONBANC INVESTMENT SERVICES, LLC Schedule J** #### **COMPUTATION FOR DETERMINATION OF RESERVE REQUIREMENT FOR BROKERS AND DEALERS PURSUANT TO RULE 15c3-3 UNDER THE SECURITIES EXCHANGE ACT OF 1934 FOR THE YEAR ENDED DECEMBER 31, 2021** The Company is exempt from the provisions of Rule 15c3-3 pursuant to paragraph (k)(2)(ii) of such Rule under the Securities Exchange Act of 1934 as it is an introducing broker or dealer that clears all transactions with and for customers on a fully disclosed basis with a clearing broker or dealer. All other business activities are limited to effecting securities transactions via subscription way basis where the funds are payable to the issuer or its agent and not to the Company and the Company does not otherwise hold funds or securities for, or owe money or securities to, customers. As such, the Company is not required to prepare the reserve requirements for brokers or dealers. {18}------------------------------------------------ ### **UNIONBANC INVESTMENT SERVICES, LLC Schedule M** #### **INFORMATION RELATING TO POSSESSION OR CONTROL REQUIREMENTS FOR BROKERS AND DEALERS PURSUANT TO RULE 15c3-3 UNDER THE SECURITIES EXCHANGE ACT OF 1934 FOR THE YEAR ENDED DECEMBER 31, 2021** The Company is exempt from the provisions of Rule 15c3-3 pursuant to paragraph (k)(2)(ii) of such Rule under the Securities Exchange Act of 1934 as it is an introducing broker or dealer that clears all transactions with and for customers on a fully disclosed basis with a clearing broker or dealer. All other business activities are limited to effecting securities transactions via subscription way basis where the funds are payable to the issuer or its agent and not to the Company and the Company does not otherwise hold funds or securities for, or owe money or securities to, customers. As such, the Company is not required to prepare the reserve requirements for brokers or dealers. Source: SEC EDGAR via Adviser Search (https://search.stillhousedata.com). Agents: see https://search.stillhousedata.com/llms.txt.