UB Unionbancal Corp

UnionBanCal Corporation (NYSE:UB) today reported third quarter 2008 net income of $104.8 million, or $0.75 per diluted common share. This compares with $127.5 million, or $0.92 per diluted common share, a year earlier, and $141.3 million, or $1.02 per diluted common share, in second quarter 2008. Net income for third quarter 2008 included a net loss from discontinued operations of $5.3 million, or $0.04 per diluted common share. Net income for third quarter 2007 included a net loss from discontinued operations of $22.8 million, or $0.16 per diluted common share. Net income for second quarter 2008 included an $11.5 million after-tax, or $0.08 per diluted common share, net gain on the sale of the insurance brokerage business, and a $4.4 million after-tax, or $0.03 per diluted common share, gain on the partial redemption of MasterCard Inc. common stock. Earnings from continuing operations for third quarter 2008 were $110.1 million, or $0.79 per diluted common share, compared with $150.2 million, or $1.08 per diluted common share, a year earlier, and $134.3 million, or $0.97 per diluted common share, in second quarter 2008. For the first nine months of 2008, earnings from continuing operations were $366.8 million, or $2.65 per diluted common share. This compares with earnings from continuing operations for the first nine months of 2007 of $464.1 million, or $3.33 per diluted common share. Summary of Third Quarter Results From Continuing Operations Third Quarter Total Revenue For third quarter 2008, total revenue (taxable-equivalent net interest income plus noninterest income) was $721 million, up 13 percent compared with third quarter 2007. Net interest income increased 22 percent and noninterest income decreased 4.6 percent. Compared with second quarter 2008, total revenue was up 1.2 percent, with net interest income up 1.8 percent and noninterest income down 0.5 percent. Third Quarter Net Interest Income (Taxable-equivalent) Net interest income was $522 million in third quarter 2008, up $93 million, or 22 percent, from the same quarter a year ago, primarily due to lower rates paid on interest bearing liabilities and strong loan growth, partially offset by lower yields on earning assets. Average earning assets in third quarter 2008 increased $8 billion, or 16.4 percent, compared to third quarter 2007, primarily due to a $7.7 billion, or 19.5 percent, increase in average loans. Compared to third quarter 2007, average interest bearing deposits increased $1.1 billion, or 4 percent, while average noninterest bearing deposits decreased $1.4 billion, or 10.3 percent. Average noninterest bearing deposits represented 29.7 percent of average total deposits in third quarter 2008. The annualized average all-in cost of funds was 1.60 percent, compared with 2.78 percent in third quarter 2007, and 1.56 percent in second quarter 2008. The Company�s average core deposit-to-loan ratio was 67.4 percent. The net interest margin in third quarter 2008 was 3.67 percent, an increase of 16 basis points compared with third quarter 2007. Third quarter 2008 net interest income increased 1.8 percent from second quarter 2008. Average loans increased $1.7 billion, or 3.7 percent. Average noninterest bearing deposits decreased $0.5 billion, or 4 percent. Average interest bearing deposits decreased $1.0 billion, or 3.4 percent, primarily due to a decrease in large time deposits, offset by increased borrowings from the Federal Reserve Bank and the Federal Home Loan Bank, a more stable source of funding. The net interest margin decreased 7 basis points to 3.67 percent. Third Quarter Noninterest Income In third quarter 2008, noninterest income was $198.7 million, down $9.5 million, or 4.6 percent, from the same quarter a year ago. Service charges on deposit accounts and trust and investment management fees were both flat, while trading account revenues declined $9.4 million. Third quarter 2008 noninterest income decreased $0.9 million, or 0.5 percent, compared with second quarter 2008. Service charges on deposit accounts were flat, with lower account analysis fees offset by higher overdraft fees. Third Quarter Noninterest Expense Noninterest expense for third quarter 2008 was $443.8 million, an increase of $63.0 million, or 16.5 percent, compared with third quarter 2007. Salaries and employee benefits expense increased $21.3 million, or 9.8 percent, primarily due to annual merit increases and higher staff levels. The provision for losses on off-balance sheet commitments was $8 million in third quarter 2008, compared to $4 million in third quarter 2007. Noninterest expense increased $24.5 million, or 5.8 percent, compared with second quarter 2008. Salaries and other compensation expense was flat. The provision for losses on off-balance sheet commitments was $8 million, compared to $5 million in second quarter 2008. Other noninterest expense increased $19.2 million, or 52.7 percent, primarily due to losses related to the securities lending program, higher regulatory agency fees and higher expense related to low income housing projects. Year-to-Date Results Total revenue for the first nine months of 2008 was $2.1 billion, an increase of $201 million, or 10.6 percent, compared with total revenue of $1.9 billion in the same period of 2007. Net interest income increased $208 million, or 16.1 percent, and noninterest income decreased $7 million, or 1.1 percent. Noninterest income in the first nine months of 2008 was $594 million, a decrease of $7 million, or 1.1 percent, compared with the same period in 2007. Service charges on deposit accounts were flat, with higher account analysis fees related to lower earnings credit rates offset by lower overdraft fees on lower deposit balances. For the first nine months of 2008, noninterest expense increased $110 million, or 9.5 percent, over the first nine months of 2007. Salaries and other compensation expense increased $32 million, or 5.7 percent, primarily due to annual merit increases, higher staff levels and higher accruals for performance-related incentive expense. The provision for off-balance sheet commitments was $21 million in the first nine months of 2008, compared with $5 million in the first nine months of 2007. Other noninterest expense increased $34.6 million, or 39.4 percent, primarily due to losses related to the securities lending program, higher expense related to low income housing projects and higher regulatory agency fees. Credit Quality Nonperforming assets at September 30, 2008, were $304 million, or 0.49 percent of total assets. This compares with $225 million, or 0.37 percent of total assets, at June 30, 2008, and $53 million, or 0.10 percent of total assets, at September 30, 2007. In third quarter 2008, the total provision for credit losses was $125 million, compared with a total provision for credit losses of $100 million in second quarter 2008, and a total provision for credit losses of $20 million in third 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. Net loans charged-off for third quarter 2008 were $63 million, or 0.53 percent of average total loans. This compares with net loans charged-off of $31 million, or 0.28 percent of average total loans, in second quarter 2008, and net loans charged-off of $2 million, or 0.02 percent of average total loans, in third quarter 2007. At September 30, 2008, the allowance for credit losses as a percent of total loans and as a percent of nonaccrual loans was 1.43 percent and 240 percent, respectively. These ratios were 1.37 percent and 291 percent, respectively, at June 30, 2008, and 1.10 percent and 853 percent, respectively, at September 30, 2007. Balance Sheet and Capital Ratios At September 30, 2008, the Company had total assets of $62.6 billion. Total loans were $48.3 billion and total deposits were $42.4 billion, resulting in a period-end deposit-to-loan ratio of 87.7 percent. Core deposits at period-end were $33.3 billion, resulting in a core deposit-to-loan ratio of 68.9 percent. At period-end, total stockholders� equity was $4.7 billion and the tangible common equity ratio was 6.96 percent. The Company�s Tier I and total risk-based capital ratios at period-end were 8.03 percent and 10.94 percent, respectively. Discontinued Operations Commencing with second quarter 2008, the results of the insurance brokerage business have been reported in discontinued operations and all prior periods have been restated to reflect this accounting treatment. Commencing with fourth quarter 2007, the results of the retirement recordkeeping business have been reported in discontinued operations and all prior periods have been restated to reflect this accounting treatment. Status of Merger with The Bank of Tokyo-Mitsubishi UFJ, Ltd. Mitsubishi UFJ Financial Group, Inc. ("MUFG") (NYSE:MTU), its wholly owned subsidiary, The Bank of Tokyo-Mitsubishi UFJ, Ltd. ("BTMU"), and UnionBanCal Corporation (�UNBC�) announced on September 28, 2008, the successful completion of the cash tender offer by MUFG and BTMU to purchase all of the outstanding shares of UNBC that MUFG and its affiliates do not already own. The offer expired at 12:00 midnight EDT on Friday, September 26, 2008. On September 28, 2008, BTMU accepted for payment a total of 46,119,880 shares tendered pursuant to the offer and not withdrawn at a price of $73.50 per share. Payment for the shares accepted for purchase under the offer was made on October 1, 2008, in cash, without interest, by the depositary. Following completion of the offer, BTMU owned approximately 136,337,188 shares of UNBC common stock outstanding as of October 1, 2008. Together, MUFG, BTMU and their affiliates owned approximately 97% of our outstanding Common Stock as of such date. In accordance with the merger agreement between BTMU and UNBC announced on August 18, 2008, BTMU and UNBC will carry out a second-step merger as a result of which UNBC will become a wholly owned indirect subsidiary of MUFG. In the merger, each share of UNBC common stock not previously purchased in the tender offer will be converted, subject to appraisal rights, into the right to receive $73.50 per share in cash. On October 3, 2008, BTMU executed a written consent approving and adopting the merger agreement and approving the merger. Consummation of the merger is expected to occur as soon as reasonably practicable. 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 the anticipated consummation of the merger. 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, declines or disruptions in the stock, bond, or credit markets which may adversely affect the Company or the Company�s borrowers or other customers; adverse economic conditions in the United States; 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 BTMU, which is a wholly-owned subsidiary of MUFG; 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; effects of governmental fiscal or monetary policies; legal or regulatory proceedings or investigations; 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. Based in San Francisco, UnionBanCal Corporation is a bank holding company with assets of $62.6 billion at September 30, 2008. Its primary subsidiary, Union Bank of California, N.A., had 336 banking offices in California, Oregon and Washington, and 2 international offices at September 30, 2008. UnionBanCal Corporation and Subsidiaries Financial Highlights (Unaudited) Exhibit 1 � � � Percent Change to As of and for the Three Months Ended Sept. 30, 2008 from Sept. 30, June 30, Sept. 30, Sept. 30, � June 30, (Dollars in thousands, except per share data) 2007 2008 2008 2007 � 2008 Results of operations: Net interest income (1) $428,952 $512,887 $522,296 21.76 % 1.83 % Noninterest income 208,187 � 199,626 � 198,721 � (4.55 %) (0.45 %) Total revenue 637,139 712,513 721,017 13.16 % 1.19 % Noninterest expense 380,847 419,312 443,812 16.53 % 5.84 % Provision for loan losses 16,000 � 95,000 � 117,000 � nm 23.16 % Income from continuing operations before income taxes (1) 240,292 198,201 160,205 (33.33 %) (19.17 %) Taxable-equivalent adjustment 2,389 2,329 2,550 6.74 % 9.49 % Income tax expense 87,664 � 61,574 � 47,549 � (45.76 %) (22.78 %) Income from continuing operations 150,239 134,298 110,106 (26.71 %) (18.01 %) Income (loss) from discontinued operations (22,780 ) 7,047 � (5,276 ) 76.84 % nm Net income $127,459 � $141,345 � $104,830 � (17.75 %) (25.83 %) � Per common share: Basic earnings: From continuing operations $1.09 $0.98 $0.80 (26.61 %) (18.37 %) Net income 0.93 1.03 0.76 (18.28 %) (26.21 %) Diluted earnings: From continuing operations 1.08 0.97 0.79 (26.85 %) (18.56 %) Net income 0.92 1.02 0.75 (18.48 %) (26.47 %) Dividends (2) 0.52 0.52 0.52 0.00 % 0.00 % Book value (end of period) 33.71 34.11 33.50 (0.62 %) (1.79 %) Common shares outstanding (end of period) (3) 138,523,666 138,050,671 140,069,898 1.12 % 1.46 % Weighted average common shares outstanding - basic (3) 137,667,976 137,208,620 138,197,446 0.38 % 0.72 % Weighted average common shares outstanding - diluted (3) 139,067,952 137,899,057 139,969,419 0.65 % 1.50 % � Balance sheet (end of period): Total assets (4) $54,343,045 $60,593,921 $62,599,753 15.19 % 3.31 % Total loans 39,745,341 46,041,358 48,306,118 21.54 % 4.92 % Nonperforming assets 52,562 224,944 304,246 nm 35.25 % Total deposits 42,242,889 42,604,419 42,355,853 0.27 % (0.58 %) Medium and long-term debt 1,871,726 2,809,329 3,827,164 nm 36.23 % Stockholders' equity 4,669,454 4,708,790 4,692,648 0.50 % (0.34 %) � Balance sheet (period average): Total assets $53,367,191 $59,269,965 $61,145,251 14.57 % 3.16 % Total loans 39,484,785 45,494,161 47,196,204 19.53 % 3.74 % Earning assets 48,901,494 54,935,058 56,920,548 16.40 % 3.61 % Total deposits 41,962,726 43,203,180 41,661,224 (0.72 %) (3.57 %) Stockholders' equity 4,664,229 4,616,596 4,588,441 (1.62 %) (0.61 %) � Financial ratios (5): Return on average assets (6): From continuing operations 1.12 % 0.91 % 0.72 % Net income 0.95 % 0.96 % 0.68 % Return on average stockholders' equity (6): From continuing operations 12.78 % 11.70 % 9.55 % Net income 10.84 % 12.31 % 9.09 % Efficiency ratio (7) 59.14 % 58.14 % 60.37 % Net interest margin (1) 3.51 % 3.74 % 3.67 % Dividend payout ratio 47.71 % 53.06 % 65.00 % Tangible common equity ratio 7.79 % 7.22 % 6.96 % Tier 1 risk-based capital ratio (4) (8) 8.40 % 7.96 % 8.03 % Total risk-based capital ratio (4) (8) 11.28 % 10.84 % 10.94 % Leverage ratio (4) (8) 8.39 % 7.95 % 7.97 % Allowance for loan losses to: Total loans 0.88 % 1.14 % 1.20 % Nonaccrual loans 683.96 % 243.59 % 200.94 % Allowances for credit losses to (9) : Total loans 1.10 % 1.37 % 1.43 % Nonaccrual loans 852.52 % 291.42 % 239.50 % Net loans charged off to average total loans (6) 0.02 % 0.28 % 0.53 % Nonperforming assets to total loans and foreclosed assets 0.13 % 0.49 % 0.63 % Nonperforming assets to total assets (4) 0.10 % 0.37 % 0.49 % � Refer to Exhibit 11 for footnote explanations. UnionBanCal Corporation and Subsidiaries Financial Highlights (Unaudited) Exhibit 2 � � � Percent Change to As of and for the Nine Months Ended Sept. 30, 2008 from Sept. 30, Sept. 30, Sept. 30, (Dollars in thousands, except per share data) � 2007 � � 2008 � 2007 Results of operations: Net interest income (1) $ 1,290,535 $ 1,498,287 16.10 % Noninterest income � 600,590 � � 593,743 � (1.14 %) Total revenue 1,891,125 2,092,030 10.62 % Noninterest expense 1,156,517 1,266,330 9.50 % (Reversal of) provision for loan losses � 25,000 � � 284,000 � nm Income from continuing operations before income taxes (1) 709,608 541,700 (23.66 %) Taxable-equivalent adjustment 6,755 7,405 9.62 % Income tax expense � 238,727 � � 167,493 � (29.84 %) Income from continuing operations 464,126 366,802 (20.97 %) Income (loss) from discontinued operations � (21,702 ) � (12,037 ) 44.54 % Net income $ 442,424 � $ 354,765 � (19.81 %) � Per common share: Basic earnings: From continuing operations $ 3.37 $ 2.67 (20.77 %) Net income 3.21 2.58 (19.63 %) Diluted earnings: From continuing operations 3.33 2.65 (20.42 %) Net income 3.18 2.56 (19.50 %) Dividends (2) 1.51 1.56 3.31 % Book value (end of period) 33.71 33.50 (0.62 %) Common shares outstanding (end of period) (3) 138,523,666 140,069,898 1.12 % Weighted average common shares outstanding - basic (3) 137,694,682 137,473,242 (0.16 %) Weighted average common shares outstanding - diluted (3) 139,291,920 138,584,608 (0.51 %) � Balance sheet (end of period): Total assets (4) $ 54,343,045 $ 62,599,753 15.19 % Total loans 39,745,341 48,306,118 21.54 % Nonperforming assets 52,562 304,246 nm Total deposits 42,242,889 42,355,853 0.27 % Medium and long-term debt 1,871,726 3,827,164 nm Stockholders' equity 4,669,454 4,692,648 0.50 % � Balance sheet (period average): Total assets $ 53,065,919 $ 59,023,615 11.23 % Total loans 38,931,283 45,138,144 15.94 % Earning assets 48,568,556 54,689,402 12.60 % Total deposits 41,966,403 42,821,802 2.04 % Stockholders' equity 4,588,063 4,640,908 1.15 % � Financial ratios (5): Return on average assets (6): From continuing operations 1.17 % 0.83 % Net income 1.11 % 0.80 % Return on average stockholders' equity (6): From continuing operations 13.52 % 10.56 % Net income 12.89 % 10.21 % Efficiency ratio (7) 60.89 % 59.49 % Net interest margin (1) 3.54 % 3.65 % Dividend payout ratio 44.81 % 58.43 % Tangible common equity ratio 7.79 % 6.96 % Tier 1 risk-based capital ratio (4) (8) 8.40 % 8.03 % Total risk-based capital ratio (4) (8) 11.28 % 10.94 % Leverage ratio (4) (8) 8.39 % 7.97 % Allowance for loan losses to: Total loans 0.88 % 1.20 % Nonaccrual loans 683.96 % 200.94 % Allowances for credit losses to (9) : Total loans 1.10 % 1.43 % Nonaccrual loans 852.52 % 239.50 % Net loans charged off to average total loans (6) 0.02 % 0.31 % Nonperforming assets to total loans and foreclosed assets 0.13 % 0.63 % Nonperforming assets to total assets (4) 0.10 % 0.49 % � Refer to Exhibit 11 for footnote explanations. UnionBanCal Corporation and Subsidiaries Condensed Consolidated Statements of Income (Unaudited) (Taxable-Equivalent Basis) Exhibit 3 � � � � For the Three Months Ended � For the Nine Months Ended Sept. 30, � June 30, � Sept. 30, Sept. 30, (Amounts in thousands, except per share data) � 2007 � � 2008 � � 2008 � � 2007 � � � 2008 � Interest Income (1) Loans $ 640,511 $ 617,508 $ 638,862 $ 1,862,217 $ 1,889,732 Securities 113,083 98,338 100,659 331,342 305,042 Interest bearing deposits in banks 709 228 147 3,113 503 Federal funds sold and securities purchased under resale agreements 4,683 1,093 1,787 23,644 5,573 Trading account assets � 1,898 � � 1,119 � � 1,364 � � 5,200 � � 5,287 � Total interest income � 760,884 � � 718,286 � � 742,819 � � 2,225,516 � � 2,206,137 � � Interest Expense Deposits 259,406 144,509 135,736 727,632 500,905 Federal funds purchased and securities sold under repurchase agreements 14,259 13,057 15,630 38,290 44,402 Commercial paper 19,753 8,279 8,056 59,446 26,127 Medium and long-term debt 26,957 19,692 25,989 75,625 65,138 Trust notes 239 238 239 715 715 Other borrowed funds � 11,318 � � 19,624 � � 34,873 � � 33,273 � � 70,563 � Total interest expense � 331,932 � � 205,399 � � 220,523 � � 934,981 � � 707,850 � � Net Interest Income (1) 428,952 512,887 522,296 1,290,535 1,498,287 Provision for loan losses � 16,000 � � 95,000 � � 117,000 � � 25,000 � � 284,000 � Net interest income after provision for loan losses � 412,952 � � 417,887 � � 405,296 � � 1,265,535 � � 1,214,287 � � Noninterest Income Service charges on deposit accounts 76,210 77,706 77,079 228,373 229,521 Trust and investment management fees 39,546 43,802 40,638 116,062 127,828 Trading account activities 21,795 16,687 12,397 50,473 40,096 Merchant banking fees 10,031 11,085 12,789 27,917 35,667 Brokerage commissions and fees 10,476 10,635 9,520 29,669 30,014 Card processing fees, net 7,785 8,167 8,129 22,736 24,060 Securities gains, net 171 - 50 1,621 48 Other � 42,173 � � 31,544 � � 38,119 � � 123,739 � � 106,509 � Total noninterest income � 208,187 � � 199,626 � � 198,721 � � 600,590 � � 593,743 � � Noninterest Expense Salaries and employee benefits 216,812 243,299 238,129 686,175 723,098 Net occupancy 37,534 38,232 38,574 104,919 113,008 Outside services 19,868 20,295 20,777 54,987 58,081 Professional services 17,669 15,931 21,397 45,163 51,925 Equipment 15,426 15,141 14,437 47,240 44,925 Software 14,278 14,409 14,812 41,551 44,016 Communications 9,421 9,111 9,204 26,834 27,690 Foreclosed asset expense 37 83 524 55 696 Provision for losses on off-balance sheet commitments 4,000 5,000 8,000 5,000 21,000 Other � 45,802 � � 57,811 � � 77,958 � � 144,593 � � 181,891 � Total noninterest expense � 380,847 � � 419,312 � � 443,812 � � 1,156,517 � � 1,266,330 � � Income from continuing operations before income taxes (1) 240,292 198,201 160,205 709,608 541,700 Taxable-equivalent adjustment 2,389 2,329 2,550 6,755 7,405 Income tax expense 87,664 61,574 47,549 238,727 167,493 � � � � � Income from Continuing Operations � 150,239 � � 134,298 � � 110,106 � � 464,126 � � 366,802 � � Income (loss) from discontinued operations before income taxes (23,443 ) 3,068 (8,175 ) (21,561 ) (22,692 ) Income tax expense (benefit) � (663 ) � (3,979 ) � (2,899 ) � 141 � � (10,655 ) Income (Loss) from Discontinued Operations � (22,780 ) � 7,047 � � (5,276 ) � (21,702 ) � (12,037 ) Net Income $ 127,459 � $ 141,345 � $ 104,830 � $ 442,424 � $ 354,765 � � Income from continuing operations per common share - basic $ 1.09 � $ 0.98 � $ 0.80 � $ 3.37 � $ 2.67 � Net income per common share - basic $ 0.93 � $ 1.03 � $ 0.76 � $ 3.21 � $ 2.58 � Income from continuing operations per common share - diluted $ 1.08 � $ 0.97 � $ 0.79 � $ 3.33 � $ 2.65 � Net income per common share - diluted $ 0.92 � $ 1.02 � $ 0.75 � $ 3.18 � $ 2.56 � Weighted average common shares outstanding - basic � 137,668 � � 137,209 � � 138,197 � � 137,695 � � 137,473 � Weighted average common shares outstanding - diluted � 139,068 � � 137,899 � � 139,969 � � 139,292 � � 138,585 � � Refer to Exhibit 11 for footnote explanations. UnionBanCal Corporation and Subsidiaries Consolidated Balance Sheets Exhibit 4 � � � � (Unaudited) � � (Unaudited) Sept, 30, Dec. 31, Sept. 30, (Dollars in thousands) � 2007 � � 2007 � � 2008 � Assets Cash and due from banks $ 1,715,742 $ 2,106,927 $ 1,959,484 Interest bearing deposits in banks 151,000 104,528 16,029 Federal funds sold and securities purchased under resale agreements � 381,604 � � 310,178 � � 488,014 � Total cash and cash equivalents 2,248,346 2,521,633 2,463,527 Trading account assets: Pledged as collateral - - 18,124 Held in portfolio 507,961 603,333 711,293 Securities available for sale: Pledged as collateral 77,732 685,123 1,404,463 Held in portfolio 8,427,764 7,770,037 6,890,891 Loans (net of allowance for loan losses: September 30, 2007, $350,491; December 31, 2007, $402,726; September 30, 2008, $580,474) 39,394,850 40,801,462 47,725,644 Due from customers on acceptances 18,648 16,482 21,562 Premises and equipment, net 477,697 486,034 474,519 Intangible assets 7,583 6,458 4,447 Goodwill 360,058 355,287 355,287 Other assets 2,698,377 2,358,915 2,524,839 Assets of discontinued operations to be disposed or sold � 124,029 � � 122,984 � � 5,157 � Total assets $ 54,343,045 � $ 55,727,748 � $ 62,599,753 � � Liabilities Noninterest bearing $ 13,675,884 $ 13,802,640 $ 13,694,272 Interest bearing � 28,567,005 � � 28,877,551 � � 28,661,581 � Total deposits 42,242,889 42,680,191 42,355,853 Federal funds purchased and securities sold under repurchase agreements 1,823,872 1,631,602 1,760,442 Commercial paper 1,706,135 1,266,656 1,659,935 Other borrowed funds 298,548 1,875,619 6,718,935 Trading account liabilities 251,051 351,057 506,890 Acceptances outstanding 18,648 16,482 21,562 Other liabilities 1,322,416 1,108,585 1,020,085 Medium- and long-term debt 1,871,726 1,913,622 3,827,164 Junior subordinated debt payable to subsidiary grantor trust 14,546 14,432 14,093 Liabilities of discontinued operations to be extinguished or assumed � 123,760 � � 131,521 � � 22,146 � Total liabilities � 49,673,591 � � 50,989,767 � � 57,907,105 � � � � Stockholders' Equity Preferred stock: Authorized 5,000,000 shares; no shares issued or outstanding as of September 30, 2007, December 31, 2007 and September 30, 2008 - - - Common stock, par value $1 per share: Authorized 300,000,000 shares; issued 157,272,167 shares as of September 30, 2007, 157,559,521 shares as of December 31, 2007 and 159,834,897 shares as of September 30, 2008 � 157,272 157,559 159,835 Additional paid-in capital 1,144,971 1,153,737 1,299,045 Treasury stock - 18,748,501 shares as of September 30, 2007, 19,723,453 shares as of December 31, 2007 and 19,764,999 shares as of September 30, 2008 (1,152,157 ) (1,202,584 ) (1,204,759 ) Retained earnings 4,818,477 4,912,392 5,050,682 Accumulated other comprehensive loss � (299,109 ) � (283,123 ) � (612,155 ) Total stockholders' equity � 4,669,454 � � 4,737,981 � � 4,692,648 � Total liabilities and stockholders' equity $ 54,343,045 � $ 55,727,748 � $ 62,599,753 � UnionBanCal Corporation and Subsidiaries Loans (Unaudited) Exhibit 5 � � � � � � � � � Percent Change to Three Months Ended Sept. 30, 2008 from Sept. 30, June 30, Sept. 30, Sept. 30, � June 30, (Dollars in millions) 2007 2008 2008 2007 2008 � Loans (period average) Commercial, financial and industrial $ 14,258 $ 16,729 $ 17,153 20.30 % 2.53 % Construction 2,372 2,566 2,613 10.16 % 1.83 % Mortgage - Commercial 6,387 7,822 8,009 25.40 % 2.39 % Mortgage - Residential 13,193 14,490 15,281 15.83 % 5.46 % Consumer 2,570 2,978 3,421 33.11 % 14.88 % Lease financing � 617 � � 645 � � 639 � 3.57 % (0.93 %) � Total loans held to maturity 39,397 45,230 47,116 19.59 % 4.17 % Total loans held for sale � 88 � � 264 � � 80 � (9.09 %) (69.70 %) � Total loans $ 39,485 � $ 45,494 � $ 47,196 � 19.53 % 3.74 % � Nonperforming Assets (period end) Nonaccrual loans: Commercial, financial and industrial $ 37 $ 82 $ 162 nm 97.56 % Construction - 95 93 nm (2.11 %) Mortgage - Commercial 15 39 34 nm (12.82 %) � � � Total nonaccrual loans 52 216 289 nm 33.80 % Restructured loans Mortgage - Residential - 2 1 nm (50.00 %) Foreclosed assets � 1 � � 7 � � 14 � nm 100.00 % � Total nonperforming assets $ 53 � $ 225 � $ 304 � nm 35.11 % Loans 90 days or more past due and still accruing $ 18 � $ 51 � $ 50 � nm (1.96 %) � Analysis of Allowances for Credit Losses Beginning balance $ 336 $ 463 $ 527 � Provision for loan losses 16 95 117 � Loans charged off: Commercial, financial and industrial (3 ) (18 ) (42 ) Construction - (10 ) (16 ) Mortgage - Residential - (2 ) (3 ) Consumer � (2 ) � (3 ) � (4 ) Total loans charged off � (5 ) � (33 ) � (65 ) � Loans recovered: Commercial, financial and industrial 2 1 2 Consumer � 1 � � 1 � � - � Total loans recovered � 3 � � 2 � � 2 � Net loans recovered (charged off) � (2 ) � (31 ) � (63 ) � Ending balance of allowance for loan losses 350 527 581 Allowance for off-balance sheet commitment losses � 86 � � 103 � � 111 � $ - Allowances for credit losses $ 436 � $ 630 � $ 692 � UnionBanCal Corporation and Subsidiaries Net Interest Income (Unaudited) Exhibit 6 � � � � For the Three Months Ended September 30, 2007 � September 30, 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 $ 14,342,095 $ 246,275 6.81 % $ 17,262,407 $ 229,377 5.29 % Construction 2,371,833 46,043 7.70 2,579,582 30,352 4.68 Residential mortgage 13,196,677 178,589 5.41 15,285,171 211,965 5.55 Commercial mortgage 6,386,963 112,743 7.00 8,008,618 111,816 5.58 Consumer 2,570,234 50,601 7.81 3,421,338 49,286 5.73 Lease financing � 616,983 � � 6,260 � 4.06 � 639,088 � � 6,066 � 3.80 Total loans 39,484,785 640,511 6.45 47,196,204 638,862 5.40 Securities - taxable 8,593,945 111,933 5.21 8,348,785 99,614 4.77 Securities - tax-exempt 55,236 1,150 8.33 51,831 1,045 8.06 Interest bearing deposits in banks 44,185 709 6.37 13,642 147 4.27 Federal funds sold and securities purchased under resale agreements 355,111 4,683 5.23 361,361 1,787 1.97 Trading account assets � 368,232 � � 1,898 � 2.04 � 948,725 � � 1,364 � 0.57 Total earning assets 48,901,494 � 760,884 � 6.20 56,920,548 � 742,819 � 5.21 Allowance for loan losses (335,932 ) (506,452 ) Cash and due from banks 1,845,328 1,606,632 Premises and equipment, net 480,054 475,408 Other assets � 2,476,247 � � 2,649,115 � Total assets $ 53,367,191 � $ 61,145,251 � Liabilities Deposits: Transaction accounts $ 14,288,967 108,653 3.02 $ 15,552,783 61,636 1.58 Savings and consumer time 4,371,913 30,362 2.76 3,899,687 13,237 1.35 Large time � 9,515,315 � � 120,391 � 5.02 � 9,847,584 � � 60,863 � 2.46 Total interest bearing deposits � 28,176,195 � � 259,406 � 3.65 � 29,300,054 � � 135,736 � 1.84 Federal funds purchased and securities sold under repurchase agreements 1,130,404 14,284 5.01 3,496,184 15,365 1.75 Net funding allocated from (to) discontinued operations (12) (1,912 ) (25 ) 5.19 55,121 265 1.91 Commercial paper 1,559,098 19,753 5.03 1,432,207 8,056 2.24 Other borrowed funds (13) 828,448 11,318 5.42 4,886,263 34,873 2.84 Medium and long-term debt 1,846,674 26,957 5.79 3,300,675 25,989 3.13 Trust notes � 14,601 � � 239 � 6.53 � 14,148 � � 239 � 6.73 Total borrowed funds � 5,377,313 � � 72,526 � 5.35 � 13,184,598 � � 84,787 � 2.56 Total interest bearing liabilities 33,553,508 � 331,932 � 3.92 42,484,652 � 220,523 � 2.06 Noninterest bearing deposits 13,786,531 12,361,170 Other liabilities � 1,362,923 � � 1,710,988 � Total liabilities 48,702,962 56,556,810 Stockholders' Equity Common equity � 4,664,229 � � 4,588,441 � Total stockholders' equity � 4,664,229 � � 4,588,441 � Total liabilities and stockholders' equity $ 53,367,191 � $ 61,145,251 � Reported Net Interest Income/Margin Net interest income/margin (taxable-equivalent basis) 428,952 3.51 % 522,296 3.67 % Less: taxable-equivalent adjustment � 2,389 � � 2,550 � Net interest income $ 426,563 � $ 519,746 � � � � � � � � � � � � � � � � Average Assets and Liabilities of Discontinued Operations for Period Ended: September 30, 2007 September 30, 2008 Assets $ 128,494 $ 5,738 Liabilities $ 126,582 $ 60,859 Net Assets (Liabilities) $ 1,912 $ (55,121 ) � � � � � � � � � � � � � � � � Refer to Exhibit 11 for footnote explanations. UnionBanCal Corporation and Subsidiaries Net Interest Income (Unaudited) Exhibit 7 � � � � For the Three Months Ended June 30, 2008 � September 30, 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 $ 16,987,504 $ 229,612 5.44 % $ 17,262,407 $ 229,377 5.29 % Construction 2,566,207 30,794 4.83 2,579,582 30,352 4.68 Residential mortgage 14,495,754 199,756 5.51 15,285,171 211,965 5.55 Commercial mortgage 7,822,056 111,722 5.71 8,008,618 111,816 5.58 Consumer 2,977,852 44,453 6.00 3,421,338 49,286 5.73 Lease financing � 644,788 � � 1,171 � 0.73 � 639,088 � � 6,066 � 3.80 Total loans 45,494,161 617,508 5.44 47,196,204 638,862 5.40 Securities - taxable 8,293,036 97,233 4.69 8,348,785 99,614 4.77 Securities - tax-exempt 52,742 1,105 8.38 51,831 1,045 8.06 Interest bearing deposits in banks 67,553 228 1.36 13,642 147 4.27 Federal funds sold and securities purchased under resale agreements 213,292 1,093 2.06 361,361 1,787 1.97 Trading account assets � 814,274 � � 1,119 � 0.55 � 948,725 � � 1,364 � 0.57 Total earning assets 54,935,058 � 718,286 � 5.24 56,920,548 � 742,819 � 5.21 Allowance for loan losses (456,191 ) (506,452 ) Cash and due from banks 1,662,638 1,606,632 Premises and equipment, net 482,950 475,408 Other assets � 2,645,510 � � 2,649,115 � Total assets $ 59,269,965 � $ 61,145,251 � Liabilities Deposits: Transaction accounts $ 15,550,970 59,513 1.54 $ 15,552,783 61,636 1.58 Savings and consumer time 3,846,404 13,918 1.46 3,899,687 13,237 1.35 Large time � 10,929,983 � � 71,078 � 2.62 � 9,847,584 � � 60,863 � 2.46 Total interest bearing deposits � 30,327,357 � � 144,509 � 1.92 � 29,300,054 � � 135,736 � 1.84 Federal funds purchased and securities sold under repurchase agreements 2,428,357 12,697 2.10 3,496,184 15,365 1.75 Net funding allocated from (to) discontinued operations (12) 64,945 360 2.23 55,121 265 1.91 Commercial paper 1,487,032 8,279 2.24 1,432,207 8,056 2.24 Other borrowed funds (13) 3,201,612 19,624 2.47 4,886,263 34,873 2.84 Medium and long-term debt 2,629,308 19,692 3.01 3,300,675 25,989 3.13 Trust notes � 14,261 � � 238 � 6.68 � 14,148 � � 239 � 6.73 Total borrowed funds � 9,825,515 � � 60,890 � 2.49 � 13,184,598 � � 84,787 � 2.56 Total interest bearing liabilities 40,152,872 � 205,399 � 2.06 42,484,652 � 220,523 � 2.06 Noninterest bearing deposits 12,875,823 12,361,170 Other liabilities � 1,624,674 � � 1,710,988 � Total liabilities 54,653,369 56,556,810 Stockholders' Equity Common equity � 4,616,596 � � 4,588,441 � Total stockholders' equity � 4,616,596 � � 4,588,441 � Total liabilities and stockholders' equity $ 59,269,965 � $ 61,145,251 � Reported Net Interest Income/Margin Net interest income/margin (taxable-equivalent basis) 512,887 3.74 % 522,296 3.67 % Less: taxable-equivalent adjustment � 2,329 � � 2,550 � Net interest income $ 510,558 � $ 519,746 � � � � � � � � � � � � � � � � Average Assets and Liabilities of Discontinued Operations for Period Ended: June 30, 2008 September 30, 2008 Assets $ 95,415 $ 5,738 Liabilities $ 160,360 $ 60,859 Net Liabilities $ (64,945 ) $ (55,121 ) � � � � � � � � � � � � � � � � Refer to Exhibit 11 for footnote explanations. UnionBanCal Corporation and Subsidiaries Net Interest Income (Unaudited) Exhibit 8 � � � � For the Nine Months Ended September 30, 2007 � September 30, 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 $ 14,544,388 $ 721,728 6.63 % $ 16,623,490 $ 697,292 5.60 % Construction 2,300,862 132,865 7.72 2,551,348 97,763 5.12 Residential mortgage 12,728,651 509,697 5.34 14,593,755 604,506 5.52 Commercial mortgage 6,222,590 331,429 7.12 7,694,956 336,508 5.83 Consumer 2,556,710 149,159 7.80 3,030,042 140,129 6.18 Lease financing � 578,082 � � 17,339 � 4.00 � 644,553 � � 13,534 � 2.80 Total loans 38,931,283 1,862,217 6.39 45,138,144 1,889,732 5.59 Securities - taxable 8,574,149 327,874 5.10 8,332,647 301,810 4.83 Securities - tax-exempt 56,316 3,468 8.21 52,641 3,232 8.19 Interest bearing deposits in banks 70,650 3,113 5.89 36,936 503 1.82 Federal funds sold and securities purchased under resale agreements 596,492 23,644 5.30 301,153 5,573 2.47 Trading account assets � 339,666 � � 5,200 � 2.05 � 827,881 � � 5,287 � 0.85 Total earning assets 48,568,556 � 2,225,516 � 6.12 54,689,402 � 2,206,137 � 5.38 Allowance for loan losses (332,690 ) (454,191 ) Cash and due from banks 1,931,368 1,675,293 Premises and equipment, net 482,373 480,705 Other assets � 2,416,312 � � 2,632,406 � Total assets $ 53,065,919 � $ 59,023,615 � Liabilities Deposits: Transaction accounts $ 13,969,058 302,991 2.90 $ 15,323,611 204,064 1.78 Savings and consumer time 4,332,052 86,075 2.66 3,974,976 50,684 1.70 Large time � 9,045,417 � � 338,566 � 5.00 � 10,909,525 � � 246,157 � 3.01 Total interest bearing deposits � 27,346,527 � � 727,632 � 3.56 � 30,208,112 � � 500,905 � 2.21 Federal funds purchased and securities sold under repurchase agreements 986,589 37,928 5.14 2,628,257 43,628 2.22 Net funding allocated from (to) discontinued operations (12) 9,310 362 5.20 45,520 774 2.27 Commercial paper 1,576,745 59,446 5.04 1,375,789 26,127 2.54 Other borrowed funds (13) 821,270 33,273 5.42 3,224,146 70,563 2.92 Medium and long-term debt 1,752,240 75,625 5.77 2,594,875 65,138 3.35 Trust notes � 14,713 � � 715 � 6.48 � 14,261 � � 715 � 6.68 Total borrowed funds � 5,160,867 � � 207,349 � 5.37 � 9,882,848 � � 206,945 � 2.80 Total interest bearing liabilities 32,507,394 � 934,981 � 3.85 40,090,960 � 707,850 � 2.36 Noninterest bearing deposits 14,619,876 12,613,690 Other liabilities � 1,350,586 � � 1,678,057 � Total liabilities 48,477,856 54,382,707 Stockholders' Equity Common equity � 4,588,063 � � 4,640,908 � Total stockholders' equity � 4,588,063 � � 4,640,908 � Total liabilities and stockholders' equity $ 53,065,919 � $ 59,023,615 � Reported Net Interest Income/Margin Net interest income/margin (taxable-equivalent basis) 1,290,535 3.54 % 1,498,287 3.65 % Less: taxable-equivalent adjustment � 6,755 � � 7,405 � Net interest income $ 1,283,780 � $ 1,490,882 � � � � � � � � � � � � � � � � Average Assets and Liabilities of Discontinued Operations for Period Ended: September 30, 2007 September 30, 2008 Assets $ 130,672 $ 74,723 Liabilities $ 139,982 $ 120,243 Net Liabilities $ (9,310 ) $ (45,520 ) � � � � � � � � � � � � � � � � Refer to Exhibit 11 for footnote explanations. UnionBanCal Corporation and Subsidiaries � Noninterest income (Unaudited) Exhibit 9 � � � � � � Percentage Change to For the Three Months Ended Sept. 30, 2008 from Sept. 30, June 30, Sept. 30, Sept. 30, � June 30, (Dollars in thousands) 2007 2008 2008 2007 � 2008 Service charges on deposit accounts $ 76,210 $ 77,706 $ 77,079 1.14 % (0.81 ) % Trust and investment management fees 39,546 43,802 40,638 2.76 (7.22 ) Merchant banking fees 10,031 11,085 12,789 27.49 15.37 Trading account activities 21,795 16,687 12,397 (43.12 ) (25.71 ) Brokerage commissions and fees 10,476 10,635 9,520 (9.13 ) (10.48 ) Card processing fees, net 7,785 8,167 8,129 4.42 (0.47 ) Securities gains, net 171 - 50 (70.76 ) nm Gains on private capital investments, net 12,203 1,282 5,597 (54.13 ) nm Other � 29,970 � 30,262 � 32,522 8.52 7.47 Total noninterest income $ 208,187 $ 199,626 $ 198,721 (4.55 ) % (0.45 ) % � � Noninterest expense (Unaudited) � Percentage Change to For the Three Months Ended Sept. 30, 2008 from Sept. 30, June 30, Sept. 30, Sept. 30, June 30, (Dollars in thousands) 2007 2008 2008 2007 � 2008 Salaries and other compensation $ 187,359 $ 204,077 $ 204,389 9.09 % 0.15 % Employee benefits � 29,453 � 39,222 � 33,740 14.56 (13.98 ) Salaries and employee benefits 216,812 243,299 238,129 9.83 (2.13 ) Net occupancy 37,534 38,232 38,574 2.77 0.89 Professional services 17,669 15,931 21,397 21.10 34.31 Outside services 19,868 20,295 20,777 4.58 2.38 Software 14,278 14,409 14,812 3.74 2.80 Equipment 15,426 15,141 14,437 (6.41 ) (4.65 ) Advertising and public relations 10,145 12,857 12,624 24.44 (1.81 ) Communications 9,421 9,111 9,204 (2.30 ) 1.02 Data processing 8,086 7,784 8,945 10.62 14.92 Intangible asset amortization 1,126 670 670 (40.50 ) 0.00 Foreclosed asset expense 37 83 524 nm nm Provision for losses on off-balance sheet commitments 4,000 5,000 8,000 100.00 60.00 Other � 26,445 � 36,500 � 55,719 nm 52.65 Total noninterest expense $ 380,847 $ 419,312 $ 443,812 16.53 % 5.84 % UnionBanCal Corporation and Subsidiaries � Noninterest income (Unaudited) Exhibit 10 � � � � � Percentage Change to For the Nine Months Ended Sept. 30, 2008 from � Sept. 30, Sept. 30, Sept. 30, (Dollars in thousands) 2007 2008 2007 � Service charges on deposit accounts $ 228,373 $ 229,521 0.50 % Trust and investment management fees 116,062 127,828 10.14 Trading account activities 50,473 40,096 (20.56 ) Merchant banking fees 27,917 35,667 27.76 Brokerage commissions and fees 29,669 30,014 1.16 Card processing fees, net 22,736 24,060 5.82 Securities gains, net 1,621 48 (97.04 ) Gains on private capital investments, net 41,469 7,949 (80.83 ) Gain on the VISA IPO redemption - 14,211 nm Other � 82,270 � 84,349 2.53 Total noninterest income $ 600,590 $ 593,743 (1.14 ) % � � Noninterest expense (Unaudited) � Percentage Change to For the Nine Months Ended � Sept. 30, 2008 from � Sept. 30, Sept. 30, Sept. 30, (Dollars in thousands) 2007 2008 2007 � Salaries and other compensation $ 568,245 $ 600,477 5.67 % Employee benefits � 117,930 � 122,621 3.98 Salaries and employee benefits 686,175 723,098 5.38 Net occupancy 104,919 113,008 7.71 Outside services 54,987 58,081 5.63 Professional services 45,163 51,925 14.97 Equipment 47,240 44,925 (4.90 ) Software 41,551 44,016 5.93 Advertising and public relations 28,536 33,579 17.67 Communications 26,834 27,690 3.19 Data processing 24,831 23,805 (4.13 ) Intangible asset amortization 3,377 2,011 (40.45 ) Foreclosed asset expense 55 696 nm Provision for losses on off-balance sheet commitments 5,000 21,000 nm Other � 87,849 � 122,496 39.44 Total noninterest expense $ 1,156,517 $ 1,266,330 9.50 % UnionBanCal Corporation and Subsidiaries � Footnotes Exhibit 11 � � � � (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 September 30, 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