Unionbancal (NYSE:UB)
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UnionBanCal Corporation (NYSE:UB):
First Quarter 2008 Highlights:
-- Net interest income up 5 percent versus fourth quarter and up 8
percent year-over-year
-- Net interest margin of 3.54 percent, up 3 basis points over prior
quarter
-- Average total loans up 11 percent year-over-year
-- Average core commercial loans up 14 percent
-- Average residential mortgage loans up 13 percent
-- Average commercial real estate loans up 17 percent
-- Average noninterest bearing deposits comprised 28.9 percent of
average total deposits
-- Average core deposits comprised 72.6 percent of average total
deposits
-- Average all-in cost of funds 2.26 percent
-- Total provision for credit losses of $80 million primarily
reflects increase in reserves against homebuilder portfolio and
robust loan growth
-- Nonperforming assets 0.23 percent of total assets at quarter-end
-- Net charge-offs of $12 million
-- Noninterest income included a $14.2 million gain on the partial
redemption of Visa Inc. common stock
-- Noninterest expense included a goodwill impairment charge of
$18.7 million related to a write-down of goodwill for the insurance
brokerage business and a $5.1 million reversal of reserves for the
Company's proportionate share of Visa litigation costs
-- Tangible common equity ratio of 7.42 percent at quarter-end
Other Highlights:
-- The Company has entered into a definitive agreement to sell its
insurance brokerage business to BB&T Insurance Services; closing
expected in the second quarter
-- Earnings from continuing operations forecast of $0.95 to $1.05
per share for second quarter; $4.00 to $4.35 per share for full year
2008
UnionBanCal Corporation (NYSE:UB) today reported first quarter 2008 net
income of $108.6 million, or $0.79 per diluted common share, compared
with $149.6 million, or $1.07 per diluted common share, a year earlier,
and $165.7 million, or $1.20 per diluted common share, in fourth quarter
2007. Net income for first quarter 2008 included: a $14.1 million
after-tax, or $0.10 per diluted common share, write-down of goodwill
related to the assessment of the valuation of the insurance brokerage
business; an $8.7 million after-tax, or $0.06 per diluted common share,
gain on the partial redemption of Visa Inc. common stock; and a $3.1
million after-tax, or $0.02 per diluted common share, reversal of
Visa-related litigation reserves. Net income for fourth quarter 2007
included income from discontinued operations of $57.0 million, or $0.42
per diluted common share.
Excluding the goodwill write-down and Visa-related credits, first
quarter 2008 earnings from continuing operations were $0.81 per diluted
common share. This compares with earnings from continuing operations of
$0.78 per diluted common share in fourth quarter 2007, and $1.06 per
diluted common share in first quarter 2007.
Compared to prior quarter, total revenue increased 2.8 percent and total
noninterest expense increased 0.8 percent, resulting in a 6.8 percent
increase in income before the provision for loan losses and income
taxes. The total provision for credit losses was $80 million, an
increase of $20 million compared with fourth quarter 2007, primarily due
to an increase in reserves attributable to the homebuilder segment of
the loan portfolio and robust loan growth.
“We have faced a tougher economic environment
than had been anticipated 90 days ago. Even so, during the first quarter
we generated strong, high quality loan growth, maintained our deposit
base and expanded our net interest margin over the fourth quarter. Our
growth in net interest income during the quarter and continued focus on
expense control allowed us to not only generate positive operating
leverage, but also more than 6 percent growth in core earnings over
fourth quarter,” said Masaaki Tanaka,
President and Chief Executive Officer. “In
these unpredictable times, it is difficult to determine the future and
we have chosen to proceed with a cautious outlook. Our capital base
remains strong with a tangible equity ratio at the upper end of our
peers. We believe that, as the economy faces continued uncertainty, the
strength of our balance sheet and our focus on capital preservation will
continue to serve us well during 2008,”
concluded Mr. Tanaka.
“Deterioration in our homebuilder portfolio
was more rapid than anticipated and we are beginning to see weakness in
related sectors. Even so, our overall credit quality remained strong
during the quarter relative to peer banks. We generated significant
growth across most of our loan categories, with particular focus in our
commercial loan and commercial mortgage portfolios. We achieved this
growth without sacrificing either quality or yield. Our credit quality
statistics were strong, with only $12 million of net charge-offs for the
period and nonperforming assets at only 23 basis points. Our residential
mortgage portfolio of over $14 billion had only $18 million in
foreclosure. However, given our current economic outlook we have adopted
a guarded outlook for the remainder of the year,”
said Vice Chairman and Chief Operating Officer Philip Flynn.
Subsequent Event –
Sale of Insurance Brokerage Business
On April 22, 2008, the Company entered into a definitive agreement to
sell its insurance subsidiary, UnionBanc Insurance Services, Inc., to
Raleigh, N.C.-based BB&T Insurance Services, a wholly-owned subsidiary
of BB&T Corporation (NYSE: BBT). The transaction has been approved by
the directors of BB&T Corporation and the Company, and is expected to
close in the second quarter.
In the first quarter, the Company recorded a $14.1 million after-tax, or
$0.10 per diluted common share, write-down of goodwill related to the
assessment of the valuation of the insurance brokerage business. Upon
closing of the transaction, the Company will recognize a net gain on the
sale of the business of approximately $11 million after-tax, or $0.08
per diluted common share.
Commencing with second quarter 2008, the results of the insurance
brokerage business will be reported in discontinued operations and all
prior periods will be restated to reflect this accounting treatment.
Summary of First Quarter Results From
Continuing Operations
First Quarter Total Revenue
For first quarter 2008, total revenue (taxable-equivalent net interest
income plus noninterest income) was $675 million, up 5.4 percent
compared with first quarter 2007. Net interest income increased 7.7
percent, and noninterest income increased 0.8 percent. Compared with
fourth quarter 2007, total revenue was up 2.8 percent, with net interest
income up 4.8 percent and noninterest income down 1.3 percent.
First Quarter Net Interest Income
(Taxable-equivalent)
Net interest income was $462 million in first quarter 2008, up $33
million, or 7.7 percent, from the same quarter a year ago, primarily due
to strong loan growth, lower rates paid on interest bearing liabilities
and one more day in the quarter, partially offset by lower yields on
earning assets and a deposit mix shift from noninterest bearing and
low-cost deposits into higher-cost deposits.
Average earning assets in first quarter 2008 increased $3.8 billion, or
7.9 percent, compared to first quarter 2007, primarily due to a $4.2
billion, or 11 percent, increase in average loans. Average commercial
loans increased $0.9 billion, or 6.1 percent, with average core
commercial loans, which exclude title and escrow loans, up $1.9 billion,
or 13.9 percent. Title and escrow loans, which are highly
rate-advantaged to the borrower and more volatile than other commercial
loans, decreased $1.0 billion, or 65.7 percent. Average residential
mortgage loans increased $1.6 billion, or 13.0 percent; average
commercial mortgage loans increased $1.2 billion, or 19.6 percent; and
average construction loans increased $0.2 billion, or 10.8 percent, year
over year.
Compared to first quarter 2007, average interest bearing deposits
increased $4.7 billion, or 18.0 percent, while average noninterest
bearing deposits decreased $2.5 billion, or 16.5 percent. The decline in
noninterest bearing deposits was due to a $1.1 billion, or 10.5 percent,
decrease in average other commercial noninterest bearing deposits; a
$1.1 billion, or 50.1 percent, decrease in average title and escrow
deposits; and a $0.3 billion, or 13.0 percent, decrease in average
consumer noninterest bearing deposits. Average other commercial and
average consumer noninterest bearing deposits both declined primarily
due to a mix shift toward interest-paying deposit accounts, and average
title and escrow deposits decreased due to reduced residential real
estate activity.
Average noninterest bearing deposits represented 28.9 percent of average
total deposits in first quarter 2008. The annualized average all-in cost
of funds improved to 2.26 percent, compared with 2.56 percent in first
quarter 2007, and 2.73 percent in fourth quarter 2007. The Company’s
average core deposit-to-loan ratio was 74.1 percent.
The average yield on earning assets of $52.2 billion was 5.72 percent,
down 34 basis points from first quarter 2007, with the average loan
yield decreasing 39 basis points. The average rate on interest bearing
liabilities of $37.7 billion was 3.02 percent, down 75 basis points
compared with first quarter 2007, reflecting recent decreases in
short-term interest rates. The net interest margin in first quarter 2008
was 3.54 percent, compared with 3.57 percent in first quarter 2007.
First quarter 2008 net interest income increased 4.8 percent from fourth
quarter 2007. Average loans increased $1.8 billion, or 4.4 percent.
Average commercial loans increased $0.9 billion, or 6.4 percent, which
was comprised of an increase in core commercial loans of $1.0 billion,
or 7.3 percent, offset by a decrease in title and escrow loans of $84
million, or 14.5 percent. Average commercial mortgage loans increased
$465 million, or 6.9 percent; average residential mortgage loans
increased $330 million, or 2.4 percent; and average construction loans
increased $37 million, or 1.5 percent. Average interest bearing deposits
increased $1.3 billion, or 4.2 percent, while average noninterest
bearing deposits decreased $0.5 billion, or 3.7 percent. The average
yield on earning assets decreased 44 basis points and the average rate
on interest bearing liabilities decreased 72 basis points. The net
interest margin increased 3 basis points to 3.54 percent.
First Quarter Noninterest Income
In first quarter 2008, noninterest income was $213 million, up $1.8
million, or 0.8 percent, from the same quarter a year ago. Service
charges on deposit accounts were flat. Trust and investment management
fees increased $6.5 million, or 17.7 percent, primarily due to an
increase in trust assets. Gain on private capital investments, net, was
$1.1 million, a decrease of $8.0 million compared with the same quarter
a year earlier. The Company recorded a $14.2 million pre-tax gain on the
partial redemption of Visa Inc. common stock in first quarter 2008.
Other noninterest income declined $6.4 million, or 23 percent, primarily
due to a gain on the sale of real property recorded in first quarter
2007.
First quarter 2008 noninterest income decreased $2.9 million, or 1.3
percent, compared with fourth quarter 2007. Service charges on deposit
accounts were $75 million, down $1.3 million, or 1.7 percent. Merchant
banking fees decreased $4.4 million, or 27.2 percent, primarily due to
lower syndication fees in first quarter 2008. Trading account revenue
decreased $4.1 million, or 27.2 percent, primarily due to downward
valuation adjustments for interest rate derivatives and losses on
distressed debt. The Company recorded a $14.2 million pre-tax gain on
the partial redemption of Visa Inc. common stock in first quarter 2008.
Other noninterest income declined $8.4 million, or 28.2 percent,
primarily due to a gain on the partial redemption of MasterCard common
stock and a net gain on the sale of syndicated loans, both recorded in
fourth quarter 2007.
First Quarter Noninterest Expense
Noninterest expense for first quarter 2008 was $437 million, an increase
of $26.1 million, or 6.4 percent, compared with first quarter 2007.
Excluding the impairment charge of $18.7 million related to the
write-down of goodwill for the insurance brokerage business, noninterest
expense increased 1.8 percent. Salaries and employee benefits expense
was flat. The provision for losses on off-balance sheet commitments was
$8 million in first quarter 2008, compared to $1 million in first
quarter 2007. Other noninterest expense included a $5.1 million reversal
of prior reserves for the Company’s
proportionate share of Visa litigation costs.
Noninterest expense increased $3.3 million, or 0.8 percent, compared
with fourth quarter 2007. Excluding the impairment charge of $18.7
million related to the write-down of goodwill for the insurance
brokerage business, noninterest expense decreased 3.5 percent. Salaries
and employee benefits expense increased $16.6 million, or 7.0 percent,
primarily due to annual seasonal factors that result in higher payroll
taxes and 401(k) matching contributions. Outside services expense
decreased $3.9 million, or 18.7 percent, primarily due to lower cost of
services related to title and escrow balances. Professional services
expense decreased $7.4 million, or 33.2 percent, primarily due to lower
information technology and risk-management project costs. Advertising
and public relations expense decreased $4.2 million, or 34.0 percent,
primarily due to timing of marketing promotions. The provision for
losses on off-balance sheet commitments was $8 million, compared to $4
million in fourth quarter 2007. Other noninterest expense decreased
$16.1 million, or 34.3 percent, primarily due to the establishment of
legal reserves relative to the Company’s
proportionate share of Visa litigation charges, recorded in fourth
quarter 2007, plus a reversal of a portion of those reserves recorded in
first quarter 2008.
Income Tax Expense
Income tax expense for the first quarter was $54.7 million. The
effective tax rate for first quarter 2008 was 33.5 percent, unchanged
from prior year. The effective tax rate for fourth quarter 2007 was 33.9
percent.
Credit Quality
Nonperforming assets at March 31, 2008, were $132 million, or 0.23
percent of total assets. This compares with $57 million, or 0.10 percent
of total assets, at December 31, 2007, and $42 million, or 0.08 percent
of total assets, at March 31, 2007. The increase in nonperforming assets
versus year-end was due primarily to a $55 million increase in
nonperforming loans in the construction portfolio, virtually all
attributable to the homebuilder sector, and an $18 million increase in
commercial and industrial nonperforming loans.
In first quarter 2008, the total provision for credit losses was $80
million, compared with a total provision for credit losses of $60
million in fourth quarter 2007, and a total provision for credit losses
of $5 million in first quarter 2007. The total provision for credit
losses is comprised of the provision for loan losses and the provision
for losses on off-balance sheet commitments, which is classified in
noninterest expense. Provision expense in first quarter 2008 was
primarily due to an increase in reserves attributable to the homebuilder
segment of the loan portfolio and robust loan growth. At quarter-end,
the Company maintained approximately $133 million in identified reserves
against the homebuilder portfolio, which had approximately $815 million
outstanding at March 31, 2008. In first quarter 2008, there were no net
charge-offs for the homebuilder portfolio.
Net loans charged-off for first quarter 2008 were $12 million, or 0.11
percent of average total loans. This compares with net loans charged-off
of $3 million, or 0.04 percent of average total loans, in fourth quarter
2007, and net loans charged-off of $2 million, or 0.03 percent of
average total loans, in first quarter 2007.
At March 31, 2008, the allowance for credit losses as a percent of total
loans and as a percent of nonaccrual loans was 1.29 percent and 445
percent, respectively. These ratios were 1.20 percent and 885 percent,
respectively, at December 31, 2007, and 1.11 percent and 997 percent,
respectively, at March 31, 2007.
Balance Sheet and Capital Ratios
At March 31, 2008, the Company had total assets of $57.9 billion. Total
loans were $43.5 billion and total deposits were $45.2 billion,
resulting in a period-end deposit-to-loan ratio of 104 percent. Core
deposits at period-end were $33.4 billion, resulting in a core
deposit-to-loan ratio of 77 percent. At period-end, total stockholders’
equity was $4.7 billion and the tangible common equity ratio was 7.42
percent. The Company’s Tier I and total
risk-based capital ratios at period-end were 8.07 percent and 10.98
percent, respectively.
Stock Repurchases
During first quarter 2008, the Company spent less than $1 million on the
repurchase of common stock. At March 31, 2008, the Company had remaining
repurchase authority of $512 million.
Common shares outstanding at March 31, 2008, were 137.9 million, a
decrease of 0.2 million shares, or 0.1 percent, from one year earlier.
Second Quarter and Full Year 2008 Forecast
The Company currently estimates that second quarter 2008 earnings from
continuing operations will be in the range of $0.95 to $1.05 per diluted
common share, including a total provision for credit losses of $60
million to $80 million.
The Company currently estimates that full year 2008 earnings from
continuing operations will be in the range of $4.00 to $4.35 per diluted
common share, including a total provision for credit losses of $225
million to $300 million.
Commencing with second quarter 2008, the results of the insurance
brokerage business will be reported in discontinued operations and all
prior periods will be restated to reflect this accounting treatment. On
such a basis, first quarter 2008 earnings from continuing operations
were $0.89 per diluted common share.
Non-GAAP Financial Measures
This press release contains certain references to financial measures
identified as being stated on an “adjusted
basis” or that adjust for or exclude a
goodwill write-down and Visa-related credits or that reflect the
accounting treatment for discontinued operations for the sale of the
insurance brokerage business, which are adjustments from comparable
measures calculated and presented in accordance with accounting
principles generally accepted in the United States of America (GAAP).
These financial measures, as used herein, differ from financial measures
reported under GAAP in that they exclude unusual or non-recurring
charges, losses, credits or gains. This press release identifies the
specific items excluded from the comparable GAAP financial measure in
the calculation of each non-GAAP financial measure. Because these items
and their impact on the Company’s performance
are difficult to predict, management believes that financial
presentations excluding the impact of these items provide useful
supplemental information which is important to a proper understanding of
the Company’s core business results by
investors. These presentations should not be viewed as a substitute for
results determined in accordance with GAAP, nor are they necessarily
comparable to non-GAAP financial measures presented by other companies.
Forward-Looking Statements
The following appears in accordance with the Private Securities
Litigation Reform Act. This press release includes forward-looking
statements that involve risks and uncertainties. Forward-looking
statements can be identified by the fact that they do not relate
strictly to historical or current facts. Often, they include the words “believe,”
”continue,” “expect,”
“target,” “anticipate,”
“intend,” “plan,”
“estimate,” “potential,”
“project,” or
words of similar meaning, or future or conditional verbs such as “will,”
“would,” “should,”
“could,” or “may.”
They may also consist of annualized amounts based on historical interim
period results. Forward-looking statements in this press release include
those related to earnings forecasts, provision for credit losses, trends
in deposit pricing, deposit mix, and net interest margin and their
impact on the Company and its future performance, the Company’s
loan portfolio, credit quality, competitive positioning and earnings
power.
There are numerous risks and uncertainties that could and will cause
actual results to differ materially from those discussed in the Company’s
forward-looking statements. Many of these factors are beyond the Company’s
ability to control or predict and could have a material adverse effect
on the Company’s stock price, financial
condition, and results of operations or prospects. Such risks and
uncertainties include, but are not limited to, adverse economic and
fiscal conditions in California; increased energy costs; global
political and general economic conditions related to the war on
terrorism and other hostilities; fluctuations in interest rates; the
controlling interest in UnionBanCal Corporation of The Bank of
Tokyo-Mitsubishi UFJ, Ltd., which is a wholly-owned subsidiary of
Mitsubishi UFJ Financial Group, Inc.; the effects of filing taxes on the
worldwide unitary basis; competition in the banking and financial
services industries; deposit pricing pressures; the levels of commercial
and residential real estate activity in our market; adverse effects of
current and future banking laws, rules and regulations and their
enforcement, including the previously disclosed agreements with
regulatory and governmental authorities related to the Company’s
Bank Secrecy Act/Anti-Money Laundering compliance program; effects of
governmental fiscal or monetary policies; legal or regulatory
proceedings or investigations; declines or disruptions in the stock,
bond, or credit markets which may adversely affect the Company or the
Company’s borrowers or other customers;
changes in accounting practices or requirements; and risks associated
with various strategies the Company may pursue, including potential
acquisitions, divestitures and restructurings.
A complete description of the Company, including related risk factors,
is discussed in the Company’s public filings
with the Securities and Exchange Commission, which are available by
calling (415) 765-2969 or online at http://www.sec.gov.
All forward-looking statements included in this press release are based
on information available at the time of the release, and the Company
assumes no obligation to update any forward-looking statement.
Conference Call and Webcast
The Company will conduct a conference call to review first quarter 2008
results at 8:30 AM Pacific Time (11:30 AM Eastern Time) on April 24,
2008. Interested parties calling from locations within the United States
should call 800-230-1074 (612-332-0345 from outside the United States)
10 minutes prior to the beginning of the conference.
A live webcast of the call will be available at http://www.unionbank.com.
You may access the Investor Relations section of the website via the “About
Union Bank” link from the homepage. The
webcast replay will be available on the website within 24 hours after
the conclusion of the call, and will remain on the website for a period
of one year.
A recorded playback of the conference call will be available by calling
800-475-6701, (320-365-3844 from outside the United States) from
approximately 12:00 PM Pacific Time (3:00 PM Eastern Time), April 24,
through 11:59 PM Pacific Time, May 1 (2:59 AM Eastern Time, May 2). The
reservation number for this playback is 918373.
Based in San Francisco, UnionBanCal Corporation is a bank holding
company with assets of $57.9 billion at March 31, 2008. Its primary
subsidiary, Union Bank of California, N.A., had 334 banking offices in
California, Oregon and Washington, and 2 international offices at March
31, 2008.
UnionBanCal Corporation and Subsidiaries
Financial Highlights (Unaudited)
Exhibit 1
Percent Change to
As of and for the Three Months Ended
December 31, 2007 from
March 31,
December 31,
March 31,
March 31,
December 31,
(Dollars in thousands, except per share data)
2007
2007
2008
2007
2007
Results of operations:
Net interest income (1)
$ 429,337
$ 441,039
$ 462,324
7.68%
4.83%
Noninterest income
210,858
215,513
212,618
0.83%
(1.34%)
Total revenue
640,195
656,552
674,942
5.43%
2.80%
Noninterest expense
410,866
433,683
437,002
6.36%
0.77%
Provision for loan losses
4,000
56,000
72,000
nm
28.57%
Income from continuing operations before income taxes (1)
225,329
166,869
165,940
(26.36%)
(0.56%)
Taxable-equivalent adjustment
2,115
2,517
2,526
19.43%
0.36%
Income tax expense
74,693
55,665
54,662
(26.82%)
(1.80%)
Income from continuing operations
$ 148,521
$ 108,687
$ 108,752
(26.78%)
0.06%
Income (loss) from discontinued operations
1,090
56,983
(162)
nm
nm
Net income
$ 149,611
$ 165,670
$ 108,590
(27.42%)
(34.45%)
Per common share:
Basic earnings:
From continuing operations
$ 1.08
$ 0.79
$ 0.79
(26.85%)
0.00%
Net income
1.08
1.21
0.79
(26.85%)
(34.71%)
Diluted earnings:
From continuing operations
1.06
0.78
0.79
(25.47%)
1.28%
Net income
1.07
1.20
0.79
(26.17%)
(34.17%)
Dividends (2)
0.47
0.52
0.52
10.64%
0.00%
Book value (end of period)
32.98
34.37
34.17
3.61%
(0.58%)
Common shares outstanding (end of period) (3)
138,117,370
137,836,068
137,944,897
(0.12%)
0.08%
Weighted average common shares outstanding - basic (3)
137,942,320
137,386,881
137,005,702
(0.68%)
(0.28%)
Weighted average common shares outstanding - diluted
(3)
139,729,681
138,562,892
137,609,383
(1.52%)
(0.69%)
Balance sheet (end of period):
Total assets (4)
$ 54,616,849
$ 55,727,748
$ 57,933,325
6.07%
3.96%
Total loans
37,251,950
41,204,188
43,499,968
16.77%
5.57%
Nonperforming assets
41,744
56,525
131,687
nm
nm
Total deposits
43,685,706
42,680,191
45,240,821
3.56%
6.00%
Medium and long-term debt
2,071,263
1,913,622
1,963,952
(5.18%)
2.63%
Stockholders' equity
4,555,439
4,737,981
4,713,206
3.46%
(0.52%)
Balance sheet (period average):
Total assets
$ 52,962,611
$ 54,781,708
$ 56,748,724
7.15%
3.59%
Total loans
38,458,014
40,887,376
42,701,453
11.03%
4.44%
Earning assets
48,354,950
50,156,954
52,188,096
7.93%
4.05%
Total deposits
41,365,182
42,835,877
43,613,754
5.44%
1.82%
Stockholders' equity
4,510,205
4,647,470
4,718,409
4.62%
1.53%
Financial ratios (5):
Return on average assets (6):
From continuing operations
1.14%
0.79%
0.77%
Net income
1.15%
1.20%
0.77%
Return on average stockholders' equity (6):
From continuing operations
13.35%
9.28%
9.27%
Net income
13.45%
14.14%
9.26%
Efficiency ratio (7)
64.02%
65.44%
63.55%
Net interest margin (1)
3.57%
3.51%
3.54%
Dividend payout ratio
43.52%
65.82%
65.82%
Tangible common equity ratio
7.53%
7.73%
7.42%
Tier 1 risk-based capital ratio (4) (8)
8.42%
8.30%
8.07%
Total risk-based capital ratio (4) (8)
11.38%
11.21%
10.98%
Leverage ratio (4) (8)
8.12%
8.27%
8.09%
Allowance for loan losses to:
Total loans
0.89%
0.98%
1.06%
Nonaccrual loans
799.52%
722.64%
367.17%
Allowances for credit losses to (9) :
Total loans
1.11%
1.20%
1.29%
Nonaccrual loans
997.48%
884.80%
445.20%
Net loans charged off (recovered) to average
total loans (6)
0.03%
0.04%
0.11%
Nonperforming assets to total loans and foreclosed assets
0.11%
0.14%
0.30%
Nonperforming assets to total assets (4)
0.08%
0.10%
0.23%
Refer to Exhibit 8 for footnote explanations.
UnionBanCal Corporation and Subsidiaries
Condensed Consolidated Statements of Income (Unaudited)
(Taxable-Equivalent Basis)
Exhibit 2
For the Three Months Ended
March 31,
December 31,
March 31,
(Amounts in thousands, except per share data)
2007
2007
2008
Interest Income (1)
Loans
$
603,502
$
655,933
$
633,362
Securities
108,422
114,022
106,046
Interest bearing deposits in banks
1,109
163
128
Federal funds sold and securities purchased under resale agreements
11,152
2,603
2,693
Trading account assets
1,701
3,448
2,804
Total interest income
725,886
776,169
745,033
Interest Expense
Deposits
222,155
263,508
220,660
Federal funds purchased and securities sold under repurchase
agreements
14,916
19,465
16,496
Commercial paper
22,264
16,838
9,792
Medium and long-term debt
19,695
25,471
19,457
Trust notes
238
238
238
Other borrowed funds
17,281
9,610
16,066
Total interest expense
296,549
335,130
282,709
Net Interest Income (1)
429,337
441,039
462,324
Provision for loan losses
4,000
56,000
72,000
Net interest income after provision for loan losses
425,337
385,039
390,324
Noninterest Income
Service charges on deposit accounts
74,945
75,989
74,736
Trust and investment management fees
36,860
41,672
43,388
Insurance commissions
20,250
16,557
17,393
Merchant banking fees
9,077
16,206
11,793
Trading account activities
14,840
15,135
11,012
Brokerage commissions and fees
9,660
10,170
9,859
Card processing fees, net
7,127
7,571
7,764
Securities gains (losses), net
1,220
-
(2
)
Other
36,879
32,213
36,675
Total noninterest income
210,858
215,513
212,618
Noninterest Expense
Salaries and employee benefits
251,835
236,835
253,429
Net occupancy
34,459
37,467
37,011
Outside services
18,170
21,071
17,138
Equipment
16,333
16,677
15,637
Software
13,599
15,965
15,125
Professional services
16,927
22,281
14,889
Communications
9,306
9,847
9,517
Foreclosed asset expense
9
55
89
Provision for losses on off-balance sheet commitments
1,000
4,000
8,000
Other
49,228
69,485
66,167
Total noninterest expense
410,866
433,683
437,002
Income from continuing operations before income taxes (1)
225,329
166,869
165,940
Taxable-equivalent adjustment
2,115
2,517
2,526
Income tax expense
74,693
55,665
54,662
Income from Continuing Operations
148,521
108,687
108,752
Income (loss) from discontinued operations before income taxes
1,765
88,827
(231
)
Income tax expense (benefit)
675
31,844
(69
)
Income (Loss) from Discontinued Operations
1,090
56,983
(162
)
Net Income
$
149,611
$
165,670
$
108,590
Income from continuing operations per common share - basic
$
1.08
$
0.79
$
0.79
Net income per common share - basic
$
1.08
$
1.21
$
0.79
Income from continuing operations per common share - diluted
$
1.06
$
0.78
$
0.79
Net income per common share - diluted
$
1.07
$
1.20
$
0.79
Weighted average common shares outstanding - basic
137,942
137,387
137,006
Weighted average common shares outstanding - diluted
139,730
138,563
137,609
Refer to Exhibit 8 for footnote explanations.
UnionBanCal Corporation and Subsidiaries
Consolidated Balance Sheets
Exhibit 3
(Unaudited)
(Unaudited)
March 31,
December 31,
March 31,
(Dollars in thousands)
2007
2007
2008
Assets
Cash and due from banks
$
1,913,937
$
2,106,930
$
2,071,971
Interest bearing deposits in banks
1,008,327
104,528
1,000
Federal funds sold and securities purchased under resale agreements
2,747,300
310,178
125,940
Total cash and cash equivalents
5,669,564
2,521,636
2,198,911
Trading account assets
297,998
603,333
811,509
Securities available for sale:
Securities pledged as collateral
62,026
685,123
642,346
Held in portfolio
8,524,615
7,770,048
7,667,970
Loans (net of allowance for loan losses: March 31, 2007, $332,679;
December 31, 2007, $402,726; March 31, 2008, $462,943)
36,919,271
40,801,462
43,037,025
Due from customers on acceptances
18,099
16,482
15,984
Premises and equipment, net
489,553
490,197
490,419
Intangible assets
24,321
18,568
17,221
Goodwill
453,489
448,718
429,987
Other assets
2,146,638
2,364,577
2,611,140
Assets of discontinued operations to be disposed or sold
11,275
7,604
10,813
Total assets
$
54,616,849
$
55,727,748
$
57,933,325
Liabilities
Noninterest bearing
16,175,360
13,802,640
13,997,843
Interest bearing
27,510,346
28,877,551
31,242,978
Total deposits
43,685,706
42,680,191
45,240,821
Federal funds purchased and securities sold under repurchase
agreements
549,545
1,631,602
1,785,044
Commercial paper
1,424,401
1,266,656
1,299,930
Other borrowed funds
892,349
1,875,623
921,519
Trading account liabilities
162,613
351,057
629,166
Acceptances outstanding
18,099
16,482
15,984
Other liabilities
1,130,090
1,132,103
1,230,985
Medium and long-term debt
2,071,263
1,913,622
1,963,952
Junior subordinated debt payable to subsidiary grantor trust
14,772
14,432
14,319
Liabilities of discontinued operations to be extinguished or assumed
112,572
107,999
118,399
Total liabilities
50,061,410
50,989,767
53,220,119
Stockholders' Equity
Preferred stock:
Authorized 5,000,000 shares; no shares issued or outstanding as of
March 31, 2007, December 31, 2007 and March 31, 2008
-
-
-
Common stock, par value $1 per share:
Authorized 300,000,000 shares; issued 156,832,956 shares as of March
31, 2007, 157,559,521 shares as of December 31, 2007 and 157,670,426
shares as of March 31, 2008
156,833
157,559
157,670
Additional paid-in capital
1,109,817
1,153,737
1,167,391
Treasury stock - 18,715,586 shares as of March 31, 2007, 19,723,453
shares as of December 31, 2007 and 19,725,529 shares as of March 31,
2008
(1,150,090
)
(1,202,584
)
(1,202,685
)
Retained earnings
4,669,590
4,912,392
4,949,040
Accumulated other comprehensive loss
(230,711
)
(283,123
)
(358,210
)
Total stockholders' equity
4,555,439
4,737,981
4,713,206
Total liabilities and stockholders' equity
$
54,616,849
$
55,727,748
$
57,933,325
UnionBanCal Corporation and Subsidiaries
Loans (Unaudited)
Exhibit 4
Percent Change to
Three Months Ended
December 31, 2007 from
March 31,
December 31,
March 31,
March 31,
December 31,
(Dollars in millions)
2007
2007
2008
2007
2007
Loans (period average)
Commercial, financial and industrial
$
14,681
$
14,633
$
15,569
6.05%
6.40%
Construction
2,233
2,437
2,474
10.79%
1.52%
Mortgage - Commercial
6,064
6,786
7,251
19.57%
6.85%
Mortgage - Residential
12,384
13,658
13,988
12.95%
2.42%
Consumer
2,542
2,618
2,686
5.66%
2.60%
Lease financing
548
638
650
18.61%
1.88%
Total loans held to maturity
38,452
40,770
42,618
10.83%
4.53%
Total loans held for sale
6
117
83
nm
(29.06%)
Total loans
$
38,458
$
40,887
$
42,701
11.03%
4.44%
Nonperforming Assets (period end)
Nonaccrual loans:
Commercial, financial and industrial
$
5
$
29
$
47
nm
62.07%
Construction
-
-
55
nm
nm
Mortgage - Commercial
22
14
24
9.09%
71.43%
Lease financing
15
13
-
(100.00%)
(100.00%)
Total nonaccrual loans
42
56
126
nm
nm
Restructured loans
Mortgage - Residential
-
-
1
nm
nm
Foreclosed assets
-
1
5
nm
nm
Total nonperforming assets
$
42
$
57
$
132
nm
nm
Loans 90 days or more past due and still accruing
$
6
$
22
$
30
nm
36.36%
Analysis of Allowances for Credit Losses
Beginning balance
$
331
$
350
$
403
Provision for loan losses
4
56
72
Loans charged off:
Commercial, financial and industrial
(3)
(4)
(10)
Consumer
(1)
(2)
(3)
Total loans charged off
(4)
(6)
(13)
Loans recovered:
Commercial, financial and industrial
2
2
1
Consumer
-
1
-
Total loans recovered
2
3
1
Net loans recovered (charged off)
(2)
(3)
(12)
Ending balance of allowance for loan losses
333
403
463
Allowance for off-balance sheet commitment losses
82
90
98
$
-
Allowances for credit losses
$
415
$
493
$
561
Refer to Exhibit 8 for footnote explanations.
UnionBanCal Corporation and Subsidiaries
Net Interest Income (Unaudited)
Exhibit 5
For the Three Months Ended
For the Three Months Ended
March 31, 2007
March 31, 2008
Interest
Average
Interest
Average
Average
Income/
Yield/
Average
Income/
Yield/
(Dollars in thousands)
Balance
Expense (10)
Rate (6)(10)
Balance
Expense (10)
Rate (6)(10)
Assets
Loans (11)
Commercial, financial and industrial
$
14,684,098
$
237,278
6.55
%
$
15,647,162
$
238,303
6.13
%
Construction
2,233,131
42,775
7.77
2,474,323
36,617
5.95
Residential mortgage
12,386,306
163,766
5.29
13,992,743
192,785
5.51
Commercial mortgage
6,064,169
106,966
7.15
7,250,747
112,970
6.23
Consumer
2,542,507
48,979
7.81
2,686,635
46,390
6.94
Lease financing
547,803
3,738
2.73
649,843
6,297
3.88
Total loans
38,458,014
603,502
6.34
42,701,453
633,362
5.95
Securities - taxable
8,580,315
107,268
5.00
8,355,954
104,964
5.02
Securities - tax-exempt
57,654
1,154
8.01
53,359
1,082
8.11
Interest bearing deposits in banks
79,562
1,109
5.65
29,869
128
1.72
Federal funds sold and securities purchased under resale agreements
846,042
11,152
5.35
328,145
2,693
3.30
Trading account assets
333,363
1,701
2.07
719,316
2,804
1.57
Total earning assets
48,354,950
725,886
6.06
52,188,096
745,033
5.72
Allowance for loan losses
(330,277
)
(399,280
)
Cash and due from banks
1,949,232
1,757,365
Premises and equipment, net
491,449
487,928
Other assets
2,497,257
2,714,615
Total assets
$
52,962,611
$
56,748,724
Liabilities
Deposits:
Transaction accounts
$
13,534,373
91,505
2.74
$
14,864,561
82,915
2.24
Savings and consumer time
4,297,383
26,855
2.53
4,179,663
23,529
2.26
Large time
8,435,137
103,795
4.99
11,962,678
114,216
3.84
Total interest bearing deposits
26,266,893
222,155
3.43
31,006,902
220,660
2.86
Federal funds purchased and securities sold under repurchase
agreements
1,046,439
13,524
5.24
1,950,692
15,566
3.21
Net funding allocated from (to) discontinued operations (12)
107,715
1,392
5.24
109,356
930
3.42
Commercial paper
1,783,758
22,264
5.06
1,207,510
9,792
3.26
Other borrowed funds (13)
1,309,102
17,281
5.35
1,566,301
16,066
4.13
Medium and long-term debt
1,371,446
19,695
5.82
1,846,885
19,457
4.24
Trust notes
14,827
238
6.43
14,374
238
6.63
Total borrowed funds
5,633,287
74,394
5.36
6,695,118
62,049
3.73
Total interest bearing liabilities
31,900,180
296,549
3.77
37,702,020
282,709
3.02
Noninterest bearing deposits
15,098,289
12,606,852
Other liabilities
1,453,937
1,721,443
Total liabilities
48,452,406
52,030,315
Stockholders' Equity
Common equity
4,510,205
4,718,409
Total stockholders' equity
4,510,205
4,718,409
Total liabilities and stockholders' equity
$
52,962,611
$
56,748,724
Reported Net Interest Income/Margin
Net interest income/margin (taxable-equivalent basis)
429,337
3.57
%
462,324
3.54
%
Less: taxable-equivalent adjustment
2,115
2,526
Net interest income
$
427,222
$
459,798
Average Assets and Liabilities of Discontinued Operations for Period
Ended:
March 31, 2007
March 31, 2008
Assets
$
10,592
$
7,440
Liabilities
$
118,307
$
116,796
Net Liabilities
$
(107,715
)
$
(109,356
)
Refer to Exhibit 8 for footnote explanations.
UnionBanCal Corporation and Subsidiaries
Net Interest Income (Unaudited)
Exhibit 6
For the Three Months Ended
For the Three Months Ended
December 31, 2007
March 31, 2008
Interest
Average
Interest
Average
Average
Income/
Yield/
Average
Income/
Yield/
(Dollars in thousands)
Balance
Expense (10)
Rate (6)(10)
Balance
Expense (10)
Rate (6)(10)
Assets
Loans: (11)
Commercial, financial and industrial
$
14,745,251
$
250,542
6.74
%
$
15,647,162
$
238,303
6.13
%
Construction
2,436,921
44,393
7.23
2,474,323
36,617
5.95
Residential mortgage
13,663,048
187,372
5.49
13,992,743
192,785
5.51
Commercial mortgage
6,786,416
116,974
6.84
7,250,747
112,970
6.23
Consumer
2,617,949
50,202
7.61
2,686,635
46,390
6.94
Lease financing
637,791
6,450
4.05
649,843
6,297
3.88
Total loans
40,887,376
655,933
6.38
42,701,453
633,362
5.95
Securities - taxable
8,443,508
112,924
5.35
8,355,954
104,964
5.02
Securities - tax-exempt
54,155
1,098
8.11
53,359
1,082
8.11
Interest bearing deposits in banks
4,505
163
14.29
29,869
128
1.72
Federal funds sold and securities
purchased under resale agreements
236,411
2,603
4.37
328,145
2,693
3.30
Trading account assets
530,999
3,448
2.58
719,316
2,804
1.57
Total earning assets
50,156,954
776,169
6.16
52,188,096
745,033
5.72
Allowance for loan losses
(349,409
)
(399,280
)
Cash and due from banks
1,818,633
1,757,365
Premises and equipment, net
483,751
487,928
Other assets
2,671,779
2,714,615
Total assets
$
54,781,708
$
56,748,724
Liabilities
Deposits:
Transaction accounts
$
14,605,230
106,517
2.89
$
14,864,561
82,915
2.24
Savings and consumer time
4,411,122
30,469
2.74
4,179,663
23,529
2.26
Large time
10,727,470
126,522
4.68
11,962,678
114,216
3.84
Total interest bearing deposits
29,743,822
263,508
3.51
31,006,902
220,660
2.86
Federal funds purchased and securities sold under repurchase
agreements
1,605,100
18,371
4.54
1,950,692
15,566
3.21
Net funding allocated from (to)
discontinued operations (12)
95,570
1,094
4.54
109,356
930
3.42
Commercial paper
1,469,372
16,838
4.55
1,207,510
9,792
3.26
Other borrowed funds (13)
788,853
9,610
4.83
1,566,301
16,066
4.13
Medium and long-term debt
1,846,780
25,471
5.47
1,846,885
19,457
4.24
Trust notes
14,487
238
6.58
14,374
238
6.63
Total borrowed funds
5,820,162
71,622
4.88
6,695,118
62,049
3.73
Total interest bearing liabilities
35,563,984
335,130
3.74
37,702,020
282,709
3.02
Noninterest bearing deposits
13,092,055
12,606,852
Other liabilities
1,478,199
1,721,443
Total liabilities
50,134,238
52,030,315
Stockholders' Equity
Common equity
4,647,470
4,718,409
Total stockholders' equity
4,647,470
4,718,409
Total liabilities and stockholders' equity
$
54,781,708
$
56,748,724
Reported Net Interest Income/Margin
Net interest income/margin (taxable-equivalent basis)
441,039
3.51
%
462,324
3.54
%
Less: taxable-equivalent adjustment
2,517
2,526
Net interest income
$
438,522
$
459,798
Average Assets and Liabilities of Discontinued Operations for Period
Ended:
December 31, 2007
March 31, 2008
Assets
$
8,311
$
7,440
Liabilities
$
103,881
$
116,796
Net Liabilities
$
(95,570
)
$
(109,356
)
Refer to Exhibit 8 for footnote explanations.
UnionBanCal Corporation and Subsidiaries
Noninterest income (Unaudited)
Exhibit 7
Percentage Change to
For the Three Months Ended
March 31, 2008 from
March 31,
December 31,
March 31,
March 31,
December 31,
(Dollars in thousands)
2007
2007
2008
2007
2007
Service charges on deposit accounts
$
74,945
$
75,989
$
74,736
(0.28
)
%
(1.65
)
%
Trust and investment management fees
36,860
41,672
43,388
17.71
4.12
Insurance commissions
20,250
16,557
17,393
(14.11
)
5.05
Merchant banking fees
9,077
16,206
11,793
29.92
(27.23
)
Trading account activities
14,840
15,135
11,012
(25.80
)
(27.24
)
Brokerage commissions and fees
9,660
10,170
9,859
2.06
(3.06
)
Card processing fees, net
7,127
7,571
7,764
8.94
2.55
Securities gains (losses), net
1,220
-
(2
)
nm
nm
Gains on private capital investments, net
9,095
2,412
1,070
(88.24
)
(55.64
)
Gain on the VISA IPO redemption
-
-
14,211
nm
nm
Other
27,784
29,801
21,394
(23.00
)
(28.21
)
Total noninterest income
$
210,858
$
215,513
$
212,618
0.83
%
(1.34
)
%
Noninterest expense (Unaudited)
Percentage Change to
For the Three Months Ended
March 31, 2008 from
March 31,
December 31,
March 31,
March 31,
December 31,
(Dollars in thousands)
2007
2007
2008
2007
2007
Salaries and other compensation
$
202,494
$
198,804
$
201,498
(0.49
)
%
1.36
%
Employee benefits
49,341
38,031
51,931
5.25
36.55
Salaries and employee benefits
251,835
236,835
253,429
0.63
7.01
Net occupancy
34,459
37,467
37,011
7.41
(1.22
)
Intangible asset amortization
1,926
1,901
20,078
nm
nm
Outside services
18,170
21,071
17,138
(5.68
)
(18.67
)
Equipment
16,333
16,677
15,637
(4.26
)
(6.24
)
Software
13,599
15,965
15,125
11.22
(5.26
)
Professional services
16,927
22,281
14,889
(12.04
)
(33.18
)
Communications
9,306
9,847
9,517
2.27
(3.35
)
Advertising and public relations
8,367
12,487
8,239
(1.53
)
(34.02
)
Data processing
8,184
8,221
7,076
(13.54
)
(13.93
)
Foreclosed asset expense
9
55
89
nm
61.82
Provision for losses on
off-balance sheet commitments
1,000
4,000
8,000
nm
100.00
Other
30,751
46,876
30,774
0.07
(34.35
)
Total noninterest expense
$
410,866
$
433,683
$
437,002
6.36
%
0.77
%
Refer to Exhibit 8 for footnote explanations.
UnionBanCal Corporation and Subsidiaries
Footnotes
Exhibit 8
(1)
Taxable-equivalent basis.
(2)
Dividends per share reflect dividends declared on UnionBanCal
Corporation's common stock outstanding as of the declaration date.
(3)
Common shares outstanding reflect common shares issued less treasury
shares. Weighted average common shares outstanding (basic) excludes
nonvested restricted shares but includes the impact of those shares
in the calculation of diluted shares.
(4)
End of period total assets and assets used in calculating these
ratios include those of discontinued operations.
(5)
Average balances used to calculate our financial ratios are based on
continuing operations data only, unless otherwise indicated.
(6)
Annualized.
(7)
The efficiency ratio is noninterest expense, excluding foreclosed
asset expense (income) and the (reversal of) provision for losses on
off-balance sheet commitments, as a percentage of net interest
income (taxable-equivalent basis) and noninterest income, and is
calculated for continuing operations only.
(8)
Estimated as of March 31, 2008. The regulatory capital and leverage
ratios include discontinued operations.
(9)
The allowance for credit losses ratios include the allowances for
loan losses and losses on off-balance sheet commitments. These
ratios relate to continuing operations only.
(10)
Yields and interest income are presented on a taxable-equivalent
basis using the federal statutory tax rate of 35 percent.
(11)
Average balances on loans outstanding include all nonperforming
loans and loans held for sale. The amortized portion of net loan
origination fees (costs) is included in interest income on loans,
representing an adjustment to the yield.
(12)
Net funding allocated from (to) discontinued operations represents
the shortage (excess) of assets over liabilities of discontinued
operations. The expense (earning) on funds allocated from (to)
discontinued operations is calculated by taking the net balance and
applying an earnings rate or a cost of funds equivalent to the
corresponding period's Federal funds purchased rate.
(13)
Includes interest bearing trading liabilities.
nm = not meaningful