Market Overview

UnionBanCal Corporation Reports Third Quarter Net Income of $124 Million

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SAN FRANCISCO--(BUSINESS WIRE)--

UnionBanCal Corporation (the Company), parent company of San Francisco-based Union Bank, N.A., today reported third quarter 2012 results. Net income for third quarter was $124 million, down from $187 million for the prior quarter, and down from $172 million for the year-ago quarter. The primary driver of the decrease in reported net income from second quarter was a provision for credit losses compared to a benefit for the prior quarter, which was largely due to the implementation of recently issued regulatory guidance. The guidance requires that loans discharged under Chapter 7 bankruptcy and not reaffirmed by the borrower be charged off to their collateral value and considered nonaccrual, regardless of their delinquency status. Heightened levels of uncertainty in the macroeconomic outlook also contributed to the provision for credit losses. Additionally, noninterest expense increased primarily due to a prepayment fee paid for early extinguishment of wholesale borrowings, which was partially offset by higher gains on the sale of securities in the current quarter, both resulting from strategic securities portfolio rebalancing activities.

Summary of Third Quarter Results

Third Quarter Total Revenue

For third quarter 2012, total revenue (net interest income plus noninterest income) was $843 million, up $9 million, or 1 percent, compared with second quarter 2012. Net interest income decreased 1 percent, and noninterest income increased 8 percent. The net interest margin was 3.32 percent, up slightly compared with 3.29 percent for the prior quarter.

Net interest income for third quarter 2012 was $654 million, down $5 million, or 1 percent, compared with second quarter 2012. The decrease in net interest income was primarily due to a decline in average earning assets related to securities portfolio rebalancing activities that resulted in a modest increase in net interest margin.

Average total loans, excluding FDIC covered loans, increased $518 million, or 1 percent, compared with second quarter 2012, primarily due to growth in commercial and industrial loans and residential mortgage loans. Average FDIC covered loans decreased $170 million, or 21 percent, due to runoff of the portfolio. Average noninterest bearing deposits increased $897 million, or 4 percent. Average interest bearing deposits decreased $976 million, or 2 percent, primarily due to a decrease in time deposits.

For third quarter 2012, noninterest income was $189 million, up $14 million, or 8 percent, compared with second quarter 2012. Noninterest income increased primarily due to higher net gains on the sale of securities due to portfolio rebalancing activities and higher merchant banking fees from higher syndication activities.

Compared with third quarter 2011, total revenue grew $52 million, with net interest income up 8 percent and noninterest income up 2 percent. Net interest income increased $48 million compared with the year-ago quarter, primarily due to growth in both non-FDIC covered loans and securities, as well as a more favorable mix of total earning assets.

Average total loans, excluding FDIC covered loans, increased $5.6 billion, or 11 percent, compared with third quarter 2011, primarily due to growth in commercial and industrial loans and residential mortgage loans. Average FDIC covered loans decreased $550 million, or 47 percent, due to runoff of the portfolio. Average interest bearing deposits increased $2.2 billion, or 5 percent, and average noninterest bearing deposits increased $2.7 billion, or 14 percent.

Noninterest income increased $4 million, or 2 percent, compared with third quarter 2011, primarily due to higher net gains on the sale of securities related to portfolio rebalancing activities in third quarter 2012. Offsets to the securities gains included the impact of amortization adjustments to the FDIC indemnification asset, lower card processing fees due to lower per-transaction fees charged, and lower trust and investment management fees due to the sale of certain business units in first quarter 2012.

Third Quarter Noninterest Expense

Noninterest expense for third quarter 2012 was $638 million, up $39 million, or 7 percent, compared with second quarter 2012. Salaries and employee benefits expense increased $5 million. Non-staff expense increased $34 million, primarily due to a prepayment fee for early extinguishment of wholesale borrowings, recorded in third quarter.

Noninterest expense for third quarter 2012 was up $35 million, or 6 percent, compared with third quarter 2011, primarily due to a prepayment fee for early extinguishment of wholesale borrowings, recorded in third quarter 2012.

Balance Sheet

At September 30, 2012, the Company had total assets of $88.2 billion, down $1.5 billion, or 2 percent, compared with December 31, 2011. Loan growth, excluding FDIC covered loans, of $2.3 billion during the first nine months of 2012 was offset by decreased interest bearing deposits in banks and decreased securities available for sale. On September 30, 2012, the Company transferred certain of its Collateralized Loan Obligation (CLO) debt securities with a carrying value of $1.1 billion from held to maturity to available for sale, due to a significant increase in risk weights under regulatory capital rules proposed by the U.S. federal banking agencies in June 2012. Accordingly, the Company no longer intends to hold these securities to maturity.

At September 30, 2012, total deposits were $65.1 billion, up $0.7 billion, or 1 percent, compared with December 31, 2011. Core deposits at September 30, 2012, were $55.1 billion, up $2.3 billion, or 4 percent, compared with December 31, 2011.

Credit Quality

Reported credit quality metrics for the quarter were impacted by the implementation in third quarter of regulatory guidance that affected residential mortgage and home equity loans to borrowers whose obligations have been discharged in Chapter 7 bankruptcy where the borrower has not reaffirmed the debt. Implementation of the regulatory guidance affected nonperforming loans and net charge-offs as follows:

  • $35 million reclassification of performing residential mortgage and consumer loans to nonaccrual status
  • $17 million increase in net charge-offs

Nonperforming assets, excluding FDIC covered assets, ended the quarter at $526 million, down from $539 million at June 30, 2102, and down from $690 million at September 30, 2011. The decrease of $13 million, or 2 percent, compared with prior quarter included a $35 million increase in nonaccrual loans resulting from implementation of the regulatory guidance.

Excluding FDIC covered assets, net charge-offs for third quarter 2012 were $40 million, or an annualized 0.29 percent of average total loans for third quarter 2012, up from net charge-offs of $29 million, or an annualized 0.21 percent of average total loans, for second quarter 2012, and down from $43 million, or an annualized 0.36 percent of average total loans for third quarter 2011. The increase of $11 million compared with prior quarter included a $17 million increase in residential mortgage and home equity net charge-offs resulting from implementation of the regulatory guidance.

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. In third quarter 2012, the provision for loan losses was $45 million and the reversal of provision for losses on off-balance sheet commitments was a benefit of $4 million, for a total provision for credit losses of $41 million for third quarter 2012. This compares with a benefit of $15 million for second quarter 2012. The primary drivers of the higher provision were higher charge-offs in the residential mortgage and consumer loan portfolios due to the recently issued regulatory guidance and heightened levels of uncertainty in the macroeconomic outlook.

The allowance for credit losses as a percent of total loans, excluding FDIC covered loans, was 1.43 percent at September 30, 2012, compared with 1.46 percent at June 30, 2012, and 1.77 percent at September 30, 2011. The allowance for credit losses as a percent of nonaccrual loans, excluding FDIC covered loans, was 155 percent at September 30, 2012, compared with 153 percent at June 30, 2012, and 132 percent at September 30, 2011.

Capital

At September 30, 2012, total stockholder's equity was $12.4 billion, up $875 million, or 8 percent, since December 31, 2011, and tangible common equity was $9.8 billion, up $924 million, or 10 percent, since December 31, 2011. The Company's tangible common equity ratio was 11.46 percent at September 30, 2012, up 126 basis points from 10.20 percent at December 31, 2011. The Basel I Tier 1 common and Tier 1 risk-based capital ratios were both 13.76 percent at September 30, 2012. Additionally, the Basel I Total risk-based capital ratio was 15.50 percent at September 30, 2012.

Non-GAAP Financial Measures

This press release contains certain references to financial measures identified as excluding privatization transaction impact, foreclosed asset expense, (reversal of) provision for losses on off-balance sheet commitments, productivity initiative costs and gains, low income housing credit (LIHC) investment amortization expense, expenses of the LIHC consolidated variable interest entities, merger costs related to acquisitions, debt termination fees from balance sheet repositioning, or gains from securities associated with debt termination fees from balance sheet repositioning, 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 or credits. This press release identifies the specific items excluded from the comparable GAAP financial measure in the calculation of each non-GAAP financial measure. 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 business results. This press release also includes additional capital ratios (the tangible common equity and Basel I Tier 1 common capital ratios) to facilitate the understanding of the Company's capital structure and for use in assessing and comparing the quality and composition of UnionBanCal's capital structure to other financial institutions. 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.

Headquartered in San Francisco, UnionBanCal Corporation is a financial holding company with assets of $88.2 billion at September 30, 2012. Its primary subsidiary, Union Bank, N.A., is a full-service commercial bank providing an array of financial services to individuals, small businesses, middle-market companies, and major corporations. The bank operated 402 branches in California, Washington, Oregon, Texas, Illinois, and New York as well as two international offices, on September 30, 2012. UnionBanCal Corporation is a wholly-owned subsidiary of The Bank of Tokyo-Mitsubishi UFJ, Ltd., which is a subsidiary of Mitsubishi UFJ Financial Group, Inc. Union Bank is a proud member of the Mitsubishi UFJ Financial Group (MUFG, NYSE: MTU), one of the world's largest financial organizations. Visit www.unionbank.com for more information.

 
UnionBanCal Corporation and Subsidiaries
Financial Highlights (Unaudited)

Exhibit 1

 
  As of and for the Three Months Ended Percent Change to
September 30, 2012 from
 
(Dollars in millions)

September 30,
2012

June 30,
2012

March 31,
2012
December 31,
2011
September 30,
2011
June 30,
2012
  September 30,
2011
 
Results of operations:  
Net interest income $ 654 $ 659 $ 653 $ 640 $ 606 (1 ) % 8 %
Noninterest income   189   175     202     151   185   8 2
Total revenue 843 834 855 791 791 1 7
Noninterest expense   638   599     614     619   603   7 6
Pre-tax, pre-provision income (1) 205 235 241 172 188 (13 ) 9
(Reversal of) provision for loan losses   45   (14 )   (1 )   7   (13 ) 421 446

Income before income taxes and including noncontrolling interests

160 249 242 165 201 (36 ) (20 )
Income tax expense   42   67     51     40   33   (37 ) 27
Net income including noncontrolling interests 118 182 191 125 168 (35 ) (30 )
Deduct: Net loss from noncontrolling interests   6   5     4     4   4   20 50

Net income attributable to UnionBanCal Corporation (UNBC)

$ 124 $ 187   $ 195   $ 129 $ 172   (34 ) (28 )
 
Balance sheet (end of period):
Total assets $ 88,185 $ 87,939 $ 92,323 $ 89,676 $ 84,013 - 5
Total securities 22,089 22,890 25,432 24,106 20,962 (3 ) 5
Total loans held for investment 55,410 54,291 54,322 53,540 50,998 2 9
Core deposits (2) 55,141 53,378 53,125 52,840 50,720 3 9
Total deposits 65,143 63,443 65,089 64,420 60,454 3 8
Long-term debt 5,540 6,444 5,554 6,684 7,064 (14 ) (22 )
UNBC stockholder's equity 12,437 12,076 11,821 11,562 10,900 3 14
 
Balance sheet (period average):
Total assets $ 87,881 $ 89,479 $ 89,449 $ 87,079 $ 82,197 (2 ) 7
Total securities 22,496 24,223 24,265 22,721 19,145 (7 ) 18
Total loans held for investment 55,285 54,937 54,149 52,365 50,214 1 10
Earning assets 79,137 80,625 80,503 78,007 73,303 (2 ) 8
Total deposits 64,420 64,499 64,425 62,848 59,580 - 8
UNBC stockholder's equity 12,209 11,905 11,621 11,646 10,708 3 14
 
Performance ratios:
Return on average assets (3) 0.56 % 0.84 % 0.88 % 0.59 % 0.83 %
Return on average UNBC stockholder's equity (3) 4.03 6.32 6.75 4.39 6.36

Return on average assets excluding the impact of privatization transaction (3) (4)

0.60 0.90 0.93 0.65 0.90

Return on average stockholder's equity excluding the impact of privatization transaction (3) (4)

5.21 8.18 8.76 5.97 8.65
Efficiency ratio (5) 75.61 71.83 71.86 78.27 76.21
Adjusted efficiency ratio (4) (5) 68.37 66.18 68.76 69.12 66.12
Net interest margin (3) (6) 3.32 3.29 3.27 3.29 3.31
 
Capital ratios:
Tier 1 risk-based capital ratio (7) 13.76 % 13.78 % 13.73 % 13.82 % 13.09 %
Total risk-based capital ratio (7) 15.50 15.54 15.77 15.98 15.41
Leverage ratio (7) 12.03 11.58 11.35 11.44 10.96
Tier 1 common capital ratio (7) (8) 13.76 13.78 13.73 13.82 13.09
Tangible common equity ratio (9) 11.46 11.04 10.20 10.20 10.10
 
Refer to Exhibit 14 for footnote explanations.
 

 
UnionBanCal Corporation and Subsidiaries
Financial Highlights (Unaudited)

Exhibit 2

 
  As of and for the Nine Months Ended   Percent Change to

September 30, 2012 from

(Dollars in millions)

September 30,
2012

  September 30,
2011
September 30,
2011
Results of operations:
Net interest income $ 1,966 $ 1,838 7 %
Noninterest income   566     665   (15 )
Total revenue 2,532 2,503 1
Noninterest expense   1,851     1,796   3
Pre-tax, pre-provision income (1) 681 707 (4 )
(Reversal of) provision for loan losses   30     (209 ) 114

Income before income taxes and including noncontrolling interests

651 916 (29 )
Income tax expense   160     278   (42 )
Net income including noncontrolling interests 491 638 (23 )
Deduct: Net loss from noncontrolling interests   15     11   36
Net income attributable to UNBC $ 506   $ 649   (22 )
 
Balance sheet (end of period):
Total assets $ 88,185 $ 84,013 5
Total securities 22,089 20,962 5
Total loans held for investment 55,410 50,998 9
Core deposits (2) 55,141 50,720 9
Total deposits 65,143 60,454 8
Long-term debt 5,540 7,064 (22 )
UNBC stockholder's equity 12,437 10,900 14
 
Balance sheet (period average):
Total assets $ 88,933 $ 80,870 10
Total securities 23,657 20,421 16
Total loans held for investment 54,792 49,121 12
Earning assets 80,085 72,128 11
Total deposits 64,448 59,129 9
UNBC stockholder's equity 11,913 10,417 14
 
Performance ratios:
Return on average assets (3) 0.76 % 1.07 %
Return on average UNBC stockholder's equity (3) 5.67 8.33

Return on average assets excluding the impact of privatization transaction (3) (4)

0.81 1.14

Return on average stockholders' equity excluding the impact of privatization transaction (3) (4)

7.34 11.11
Efficiency ratio (5) 73.10 71.75
Adjusted efficiency ratio (4) (5) 67.77 65.42
Net interest margin (3) (6) 3.29 3.41
 
Capital ratios:
Tier 1 risk-based capital ratio (7) 13.76 % 13.09 %
Total risk-based capital ratio (7) 15.50 15.41
Leverage ratio (7) 12.03 10.96
Tier 1 common capital ratio (7) (8) 13.76 13.09
Tangible common equity ratio (9) 11.46 10.10
 
Refer to Exhibit 14 for footnote explanations.
 

 
UnionBanCal Corporation and Subsidiaries
Credit Quality (Unaudited)

Exhibit 3

 
  As of and for the Three Months Ended Percent Change to
September 30, 2012 from
(Dollars in millions)

September 30,
2012

June 30,
2012
March 31,
2012
December 31,
2011
September 30,
2011
June 30,
2012
  September 30,
2011
 
Credit Data:
(Reversal of) provision for loan losses, excluding FDIC covered loans $ 43 $ (13 ) $ 1 $ 7 $ (13 ) 431 % 431
(Reversal of) provision for FDIC covered loan losses not subject to FDIC indemnification 2 (1 ) (2 ) - - 300 100
(Reversal of) provision for losses on off-balance sheet commitments   (4 )   (1 )   (2 )   2   -   (300 ) (100 )
Total (reversal of) provision for credit losses $ 41   $ (15 ) $ (3 ) $ 9 $ (13 ) 373 415
Net loans charged off $ 42 $ 31 $ 53 $ 28 $ 44 35 (5 )
Nonperforming assets 637 658 706 782 870 (3 ) (27 )
Criticized loans held for investment, excluding FDIC covered loans (10) 1,520 1,443 1,620 2,007 2,088 5 (27 )
- -
Credit Ratios:
Allowance for loan losses to:
Total loans held for investment 1.21 % 1.21 % 1.30 % 1.43 % 1.51 %
Nonaccrual loans 125.12 118.63 121.35 119.58 105.97
Allowance for credit losses to (11) :
Total loans held for investment 1.43 1.45 1.54 1.68 1.76
Nonaccrual loans 148.80 142.20 144.01 140.46 124.09
Net loans charged off to average total loans held for investment (3) 0.30 0.22 0.40 0.21 0.35

Nonperforming assets to total loans held for investment and Other Real Estate Owned (OREO)

1.15 1.21 1.30 1.46 1.70
Nonperforming assets to total assets 0.72 0.75 0.76 0.87 1.04
Nonaccrual loans to total loans held for investment 0.96 1.02 1.07 1.19 1.42
 
Excluding FDIC covered assets (12):
Allowance for loan losses to:
Total loans held for investment 1.20 % 1.22 % 1.30 % 1.42 % 1.51 %
Nonaccrual loans 130.29 127.22 129.95 126.26 112.28
Allowance for credit losses to (11) :
Total loans held for investment 1.43 1.46 1.54 1.67 1.77
Nonaccrual loans 155.39 152.64 154.55 148.80 131.92
Net loans charged off to average total loans held for investment (3) 0.29 0.21 0.41 0.21 0.36

Nonperforming assets to total loans held for investment and OREO

0.96 1.01 1.04 1.17 1.38
Nonperforming assets to total assets 0.60 0.62 0.61 0.70 0.83
Nonaccrual loans to total loans held for investment 0.92 0.96 1.00 1.12 1.34
 
 

As of and for the
Nine Months Ended

Percent Change to
September 30, 2012 from

(Dollars in millions)

September 30,
2012

September 30,
2011

September 30,
2011

 

 
Credit Data:
(Reversal of) provision for loan losses, excluding FDIC covered loans $ 31 $ (207 )

 

115

%
(Reversal of) provision for FDIC covered loan losses not subject to FDIC indemnification (1 ) (2 )

 

50

(Reversal of) provision for losses on off-balance sheet commitments   (7 )   (31 )

 

77

Total (reversal of) provision for credit losses $ 23   $ (240 )

 

110

Net loans charged off $ 126 $ 208

 

 

(39

)

Nonperforming assets 637 870

 

 

(27

)

 
Credit Ratios:
Net loans charged off to average total loans held for investment (3) 0.31 % 0.57 %
Nonperforming assets to total assets 0.72 1.04
 
Excluding FDIC covered assets (12):
Net loans charged off to average total loans held for investment (3) 0.30 % 0.58 %
Nonperforming assets to total assets 0.60 0.83
 
Refer to Exhibit 14 for footnote explanations.
 

 
UnionBanCal Corporation and Subsidiaries
Consolidated Statements of Income (Unaudited)

Exhibit 4

 
For the Three Months Ended
(Dollars in millions)

September 30,
2012

 

June 30,
2012

 

March 31,
2012

 

December 31,
2011

 

September 30,
2011

Interest Income
Loans $ 621 $ 621 $ 606 $ 603 $ 576
Securities 129 134 142 134 123
Other   1     -     2     2     3  
Total interest income   751     755     750     739     702  
 
Interest Expense
Deposits 56 57 58 57 53
Commercial paper and other short-term borrowings 2 3 3 1 2
Long-term debt   39     36     36     41     41  
Total interest expense   97     96     97     99     96  
 
Net Interest Income 654 659 653 640 606
(Reversal of) provision for loan losses   45     (14 )   (1 )   7     (13 )
Net interest income after (reversal of) provision for loan losses   609     673     654     633     619  
 
Noninterest Income
Service charges on deposit accounts 51 52 55 53 51
Securities gains, net 41 28 19 - 1
Trust and investment management fees 29 27 30 31 33
Trading account activities 26 25 31 38 27
Merchant banking fees 24 19 23 22 27
Brokerage commissions and fees 11 11 10 10 12
Card processing fees, net 8 8 8 9 17
Other   (1 )   5     26     (12 )   17  
Total noninterest income   189     175     202     151     185  
 
Noninterest Expense
Salaries and employee benefits 356 351 364 347 348
Net occupancy and equipment 65 64 68 71 64
Professional and outside services 54 47 46 55 55
Intangible asset amortization 20 21 21 32 25
Regulatory assessments 14 16 18 15 14
(Reversal of) provision for losses on
off-balance sheet commitments (4 ) (1 ) (2 ) 2 -
Other   133     101     99     97     97  
Total noninterest expense   638     599     614     619     603  
 

Income before income taxes and including noncontrolling interests

160 249 242 165 201
Income tax expense   42     67     51     40     33  
Net Income including Noncontrolling Interests 118 182 191 125 168

Deduct: Net loss from noncontrolling interests

  6     5     4     4     4  
 
Net Income attributable to UNBC $ 124   $ 187   $ 195   $ 129   $ 172  
 

 
UnionBanCal Corporation and Subsidiaries
Consolidated Statements of Income (Unaudited)

Exhibit 5

 
  For the Nine Months Ended
(Dollars in millions)

September 30,
2012

  September 30,
2011
Interest Income
Loans $ 1,848 $ 1,700
Securities 405 404
Other 3 6
Total interest income 2,256 2,110
 
Interest Expense
Deposits 171 159
Commercial paper and other short-term borrowings 8 5
Long-term debt 111 108
Total interest expense 290 272
 
Net Interest Income 1,966 1,838
(Reversal of) provision for loan losses 30 (209)
Net interest income after (reversal of) provision for loan losses 1,936 2,047
 
Noninterest Income
Service charges on deposit accounts 158 153
Securities gains, net 88 58
Trust and investment management fees 86 101
Trading account activities 82 88
Merchant banking fees 66 75
Brokerage commissions and fees 32 37
Card processing fees, net 24 50
Other 30 103
Total noninterest income 566 665
 
Noninterest Expense
Salaries and employee benefits 1,071 1,038
Net occupancy and equipment 197 196
Professional and outside services 147 154
Intangible asset amortization 62 74
Regulatory assessments 48 54

(Reversal of) provision for losses on off-balance sheet commitments

(7) (31)
Other 333 311
Total noninterest expense 1,851 1,796
 

Income before income taxes and including noncontrolling interests

651 916
Income tax expense 160 278
Net Income including Noncontrolling Interests 491 638
Deduct: Net loss from noncontrolling interests 15 11
 
Net Income attributable to UNBC $ 506 $ 649
 

 
UnionBanCal Corporation and Subsidiaries
Consolidated Balance Sheets (Unaudited)

Exhibit 6

 
(Dollars in millions except for per share amount)   September 30,
2012
  June 30,
2012
  March 31,
2012
  December 31,
2011
  September 30,
2011
Assets
Cash and due from banks $ 1,237 $ 1,396 $ 1,371 $ 1,419 $ 1,277

Interest bearing deposits in banks (includes $8 at September 30, 2012, June 30, 2012, March 31, 2012 and December 31, 2012 and $7 at September 30, 2011 related to consolidated variable interest entities (VIEs))

1,703 1,479 3,260 2,764 2,757

Federal funds sold and securities purchased under resale agreements

  32     46     8     12     28  
Total cash and cash equivalents 2,972 2,921 4,639 4,195 4,062

Trading account assets (includes $3 at September 30, 2012, $34 at June 30, 2012, $3 at March 31, 2012, $14 at December 31, 2011 and $6 at September 30, 2011 of assets pledged as collateral)

1,236 1,237 1,177 1,135 1,120
Securities available for sale 20,907 20,545 23,366 22,833 19,633

Securities held to maturity (Fair value: September 30, 2012, $1,224 June 30, 2012, $2,536; March 31, 2012, $2,278; December 31, 2011, $1,429; and September 30, 2011, $1,474)

1,182 2,345 2,066 1,273 1,329
Loans held for investment:
Loans, excluding FDIC covered loans 54,886 53,593 53,473 52,591 49,904
FDIC covered loans   524     698     849     949     1,094  
Total loans held for investment 55,410 54,291 54,322 53,540 50,998
Allowance for loan losses   (668 )   (656 )   (704 )   (764 )   (768 )
Loans held for investment, net 54,742 53,635 53,618 52,776 50,230
Premises and equipment, net 637 649 663 684 673
Intangible assets, net 298 318 341 360 383
Goodwill 2,457 2,457 2,456 2,457 2,447
FDIC indemnification asset 401 449 521 598 616

Other assets (includes $337 at September 30, 2012, $331 at June 30, 2012, $278 at March 31, 2012, $286 at December 31, 2011 and $290 at September 30, 2011 related to consolidated VIEs)

  3,353     3,383     3,476     3,365     3,520  
Total assets $ 88,185   $ 87,939   $ 92,323   $ 89,676   $ 84,013  
 
Liabilities
Deposits:
Noninterest bearing $ 21,490 $ 20,777 $ 20,488 $ 20,598 $ 19,630
Interest bearing   43,653     42,666     44,601     43,822     40,824  
Total deposits 65,143 63,443 65,089 64,420 60,454
Commercial paper and other short-term borrowings 2,091 3,035 6,680 3,683 2,455

Long-term debt (includes $8 at September 30, 2012, June 30, 2012, March 31, 2012, December 31, 2011 and September 30, 2011 related to consolidated VIEs)

5,540 6,444 5,554 6,684 7,064
Trading account liabilities 952 976 922 1,040 946

Other liabilities (includes $1 at September 30, 2012, June 30, 2012, March 31, 2012 and December 31, 2011 and $3 at September 30, 2011 related to consolidated VIEs)

  1,763     1,712     1,996     2,019     1,925  
Total liabilities   75,489     75,610     80,241     77,846     72,844  
 

Equity

UNBC Stockholder's Equity:
Common stock, par value $1 per share:

Authorized 300,000,000 shares; 136,330,830 shares issued and outstanding as of September 30, 2012, June 30, 2012, March 31, 2012 and December 31, 2011, and 136,330,829 shares issued and outstanding as of September 30, 2011

136 136 136 136 136
Additional paid-in capital 5,989 5,985 5,992 5,989 5,203
Retained earnings 6,752 6,628 6,441 6,246 6,117
Accumulated other comprehensive loss   (440 )   (673 )   (748 )   (809 )   (556 )
Total UNBC stockholder's equity 12,437 12,076 11,821 11,562 10,900
Noncontrolling interests   259     253     261     268     269  
Total equity   12,696     12,329     12,082     11,830     11,169  
Total liabilities and equity $ 88,185   $ 87,939   $ 92,323   $ 89,676   $ 84,013  
 

 
UnionBanCal Corporation and Subsidiaries
Net Interest Income (Unaudited)

Exhibit 7

 
  For the Three Months Ended
September 30, 2012   June 30, 2012
  Interest   Average   Interest   Average
Average Income/ Yield/ Average Income/ Yield/
(Dollars in millions) Balance Expense (6) Rate (3)(6) Balance Expense (6) Rate (3)(6)
Assets
Loans held for investment: (13)
Commercial and industrial $ 20,389 $ 192 3.75 % $ 20,155 $ 194 3.86 %
Commercial mortgage 8,064 81 4.02 8,276 82 3.97
Construction 650 6 3.76 709 8 4.67
Lease financing 982 10 4.10 1,015 11 4.33
Residential mortgage 21,022 218 4.17 20,357 220 4.31
Home equity and other consumer loans   3,557     34 3.74   3,634     35 3.87
Total loans, excluding FDIC covered loans 54,664 541 3.96 54,146 550 4.07
FDIC covered loans   621     80 51.23   791     73 37.42
Total loans held for investment 55,285 621 4.49 54,937 623 4.55
Securities 22,496 132 2.34 24,223 135 2.22
Interest bearing deposits in banks 941 - 0.24 1,093 - 0.26

Federal funds sold and securities purchased under resale agreements

62 - 0.19 64 - 0.22
Trading account assets 228 1 0.53 175 - 0.57
Other earning assets   125     - 0.15   133     - 0.21
Total earning assets 79,137   754 3.81 80,625   758 3.77
Allowance for loan losses (657 ) (709 )
Cash and due from banks 1,258 1,313
Premises and equipment, net 646 659
Other assets   7,497     7,591  
Total assets $ 87,881   $ 89,479  
Liabilities
Interest bearing deposits:
Transaction and money market accounts $ 26,517 15 0.23 $ 25,646 14 0.22
Savings 5,222 2 0.16 5,311 2 0.16
Time   11,361     39 1.39   13,119     41 1.26
Total interest bearing deposits   43,100     56 0.53   44,076     57 0.52
Commercial paper and other short-term borrowings (14) 2,541 2 0.25 4,691 3 0.26
Long-term debt   5,963     39 2.57   5,679     36 2.54
Total borrowed funds   8,504     41 1.88   10,370     39 1.51
Total interest bearing liabilities 51,604   97 0.75 54,446   96 0.71
Noninterest bearing deposits 21,320 20,423
Other liabilities   2,494     2,445  
Total liabilities 75,418 77,314
Equity
UNBC Stockholder's equity 12,209 11,905
Noncontrolling interests   254     260  
Total equity   12,463     12,165  
Total liabilities and equity $ 87,881   $ 89,479  
 

Net interest income/spread (taxable-equivalent basis)

657 3.06 % 662 3.06 %
Impact of noninterest bearing deposits 0.22 0.19
Impact of other noninterest bearing sources 0.04 0.04
Net interest margin 3.32 3.29
Less: taxable-equivalent adjustment   3   3
Net interest income $ 654 $ 659
 
 
Refer to Exhibit 14 for footnote explanations.
 

 
UnionBanCal Corporation and Subsidiaries
Net Interest Income (Unaudited)

Exhibit 8

 
  For the Three Months Ended
September 30, 2012   September 30, 2011
  Interest   Average   Interest   Average
Average Income/ Yield/ Average Income/ Yield/
(Dollars in millions) Balance Expense (6) Rate (3)(6) Balance Expense (6) Rate (3)(6)
Assets
Loans held for investment: (13)
Commercial and industrial $ 20,389 $ 192 3.75 % $ 16,947 $ 160 3.76 %
Commercial mortgage 8,064 81 4.02 7,838 82 4.22
Construction 650 6 3.76 992 12 5.04
Lease financing 982 10 4.10 697 8 4.28
Residential mortgage 21,022 218 4.17 18,818 221 4.70
Home equity and other consumer loans   3,557     34 3.74   3,751     40 4.25
Total loans, excluding FDIC covered loans 54,664 541 3.96 49,043 523 4.26
FDIC covered loans   621     80 51.23   1,171     55 18.60
Total loans held for investment 55,285 621 4.49 50,214 578 4.60
Securities 22,496 132 2.34 19,145 123 2.56
Interest bearing deposits in banks 941 - 0.24 3,610 3 0.25

Federal funds sold and securities purchased under resale agreements

62 - 0.19 61 - 0.03
Trading account assets 228 1 0.53 166 - 0.68
Other earning assets   125     - 0.15   107     - 0.54
Total earning assets 79,137   754 3.81 73,303   704 3.83
Allowance for loan losses (657 ) (785 )
Cash and due from banks 1,258 1,254
Premises and equipment, net 646 676
Other assets   7,497     7,749  
Total assets $ 87,881   $ 82,197  
Liabilities
Interest bearing deposits:
Transaction and money market accounts $ 26,517 15 0.23 $ 23,836 14 0.23
Savings 5,222 2 0.16 5,476 3 0.21
Time   11,361     39 1.39   11,634     36 1.28
Total interest bearing deposits   43,100     56 0.53   40,946     53 0.53
Commercial paper and other short-term borrowings (14) 2,541 2 0.25 2,371 2 0.20
Long-term debt   5,963     39 2.57   7,066     41 2.31
Total borrowed funds   8,504     41 1.88   9,437     43 1.78
Total interest bearing liabilities 51,604   97 0.75 50,383   96 0.76
Noninterest bearing deposits 21,320 18,634
Other liabilities   2,494     2,203  
Total liabilities 75,418 71,220
Equity
UNBC Stockholder's equity 12,209 10,708
Noncontrolling interests   254     269  
Total equity   12,463     10,977  
Total liabilities and equity $ 87,881   $ 82,197  
 

Net interest income/spread (taxable-equivalent basis)

657 3.06 % 608 3.07 %
Impact of noninterest bearing deposits 0.22 0.20
Impact of other noninterest bearing sources 0.04 0.04
Net interest margin 3.32 3.31
Less: taxable-equivalent adjustment   3   2
Net interest income $ 654 $ 606
 
 
Refer to Exhibit 14 for footnote explanations.
 

 
UnionBanCal Corporation and Subsidiaries
Net Interest Income (Unaudited)

Exhibit 9

 
  For the Nine Months Ended
September 30, 2012   September 30, 2011
  Interest   Average   Interest   Average
Average Income/ Yield/ Average Income/ Yield/
(Dollars in millions) Balance Expense (6) Rate (3)(6) Balance Expense (6) Rate (3)(6)
Assets
Loans held for investment: (13)
Commercial and industrial $ 20,066 $ 573 3.81 % $ 16,035 $ 476 3.97 %
Commercial mortgage 8,204 248 4.03 7,780 251 4.31
Construction 720 22 4.12 1,148 35 4.11
Lease financing 1,006 32 4.23 748 24 4.20
Residential mortgage 20,396 654 4.28 18,316 662 4.82
Home equity and other consumer loans   3,627     105 3.85   3,785     120 4.26
Total loans, excluding FDIC covered loans 54,019 1,634 4.04 47,812 1,568 4.38
FDIC covered loans   773     219 37.88   1,309     138 14.03
Total loans held for investment 54,792 1,853 4.51 49,121 1,706 4.64
Securities 23,657 409 2.30 20,421 405 2.64
Interest bearing deposits in banks 1,254 2 0.25 2,300 5 0.25

Federal funds sold and securities purchased under resale agreements

62 - 0.21 76 - 0.11
Trading account assets 185 1 0.57 151 1 0.84
Other earning assets   135     - 0.15   59     - 1.03
Total earning assets 80,085   2,265 3.77 72,128   2,117 3.92
Allowance for loan losses (710 ) (985 )
Cash and due from banks 1,299 1,236
Premises and equipment, net 659 693
Other assets   7,600     7,798  
Total assets $ 88,933   $ 80,870  
Liabilities
Interest bearing deposits:
Transaction and money market accounts $ 25,926 43 0.22 $ 24,325 43 0.24
Savings 5,271 6 0.16 5,042 9 0.25
Time   12,636     122 1.29   11,847     107 1.21
Total interest bearing deposits   43,833     171 0.52   41,214     159 0.52
Commercial paper and other short-term borrowings (14) 3,851 8 0.27 2,640 5 0.23
Long-term debt   5,907     111 2.50   6,443     108 2.24
Total borrowed funds   9,758     119 1.62   9,083     113 1.65
Total interest bearing liabilities 53,591   290 0.72 50,297   272 0.72
Noninterest bearing deposits 20,615 17,915
Other liabilities   2,554     1,971  
Total liabilities 76,760 70,183
Equity
UNBC Stockholder's equity 11,913 10,417
Noncontrolling interests   260     270  
Total equity   12,173     10,687  
Total liabilities and equity $ 88,933   $ 80,870  
 

Net interest income/spread (taxable-equivalent basis)

1,975 3.05 % 1,845 3.20 %
Impact of noninterest bearing deposits 0.20 0.19
Impact of other noninterest bearing sources 0.04 0.02
Net interest margin 3.29 3.41
Less: taxable-equivalent adjustment   9   7
Net interest income $ 1,966 $ 1,838
 
 
Refer to Exhibit 14 for footnote explanations.
 

 
UnionBanCal Corporation and Subsidiaries
Loans and Nonperforming Assets (Unaudited)

Exhibit 10

 
 
(Dollars in millions)  

September 30,
2012

  June 30,
2012
  March 31,
2012
  December 31,
2011
  September 30,
2011
 
Loans held for investment (period end)
Loans held for investment:
Commercial and industrial $ 20,124 $ 19,465 $ 19,429 $ 19,226 $ 17,545
Commercial mortgage 8,293 8,188 8,510 8,175 7,927
Construction 678 613 776 870 966
Lease financing   962   994   1,023   965   693
Total commercial portfolio 30,057 29,260 29,738 29,236 27,131
19,625
Residential mortgage 21,335 20,729 20,081 19,625 19,043
Home equity and other consumer loans   3,494   3,604   3,654   3,730   3,730
Total consumer portfolio   24,829   24,333   23,735   23,355   22,773
Total loans held for investment, excluding FDIC covered loans   54,886   53,593   53,473   52,591   49,904
FDIC covered loans   524   698   849   949   1,094
Total loans held for investment $ 55,410 $ 54,291 $ 54,322 $ 53,540 $ 50,998
 
Nonperforming Assets (period end)
Nonaccrual loans:
Commercial and industrial $ 36 $ 75 $ 71 $ 127 $ 163
Commercial mortgage 91 101 120 139 206
Construction   -   -   16   16   16
Total commercial portfolio 127 176 207 282 385
Residential mortgage 325 293 301 285 259
Home equity and other consumer loans   52   44   26   24   25
Total consumer portfolio   377   337   327   309   284
Total nonaccrual loans, excluding FDIC covered loans 504 513 534 591 669
FDIC covered loans   30   40   46   47   56
Total nonaccrual loans 534 553 580 638 725
 
OREO 22 26 24 27 21
FDIC covered OREO   81   79   102   117   124
 
Total nonperforming assets $ 637 $ 658 $ 706 $ 782 $ 870
 
Total nonperforming assets, excluding FDIC covered assets $ 526 $ 539 $ 558 $ 618 $ 690
 
Loans 90 days or more past due and still accruing (15) $ 1 $ 1 $ 2 $ 1 $ 3
 
Refer to Exhibit 14 for footnote explanations.
 

 
UnionBanCal Corporation and Subsidiaries
Allowance for Credit Losses (Unaudited)

Exhibit 11

 
  As of and for the Three Months Ended
(Dollars in millions)

September 30,
2012

  June 30,
2012
  March 31,
2012
  December 31,
2011
  September 30,
2011
 
Analysis of Allowance for Credit Losses
Balance, beginning of period $ 656 $ 704 $ 764 $ 768 $ 826
 
(Reversal of) provision for loan losses, excluding FDIC covered loans 43 (13 ) 1 7 (13 )

(Reversal of) provision for FDIC covered loan losses not subject to FDIC indemnification

2 (1 ) (2 ) - -
Increase (decrease) in allowance covered by FDIC indemnification 8 (3 ) (6 ) - -
Other (16) 1 - - 17 (1 )
 
Loans charged off:
Commercial and industrial (12 ) (10 ) (34 ) (7 ) (20 )
Commercial mortgage (1 ) (5 ) (6 ) (14 ) (10 )
Construction - (11 ) - - -
Lease financing   -     -     -     (14 )   (5 )
Total commercial portfolio (13 ) (26 ) (40 ) (35 ) (35 )
Residential mortgage (22 ) (9 ) (12 ) (9 ) (12 )
Home equity and other consumer loans   (19 )   (7 )   (11 )   (10 )   (8 )
Total consumer portfolio (41 ) (16 ) (23 ) (19 ) (20 )
FDIC covered loans   (3 )   (2 )   -     -     (2 )
Total loans charged off (57 ) (44 ) (63 ) (54 ) (57 )
 
Recoveries of loans previously charged off:
Commercial and industrial 7 8 4 8 5
Commercial mortgage 5 - 3 15 1
Construction   1     5     1     2     4  
Total commercial portfolio 13 13 8 25 10
Residential mortgage - - - - 1
Home equity and other consumer loans   1     -     1     -     1  
Total consumer portfolio   1     -     1     -     2  
FDIC covered loans   1     -     1     1     1  
Total recoveries of loans previously charged off   15     13     10     26     13  
Net loans charged off   (42 )   (31 )   (53 )   (28 )   (44 )
 
Ending balance of allowance for loan losses 668 656 704 764 768
Allowance for losses on off-balance sheet commitments   126     130     131     133     131  
Total allowance for credit losses $ 794   $ 786   $ 835   $ 897   $ 899  
 
Components of allowance for loan losses:
 
Allowance for loan losses, excluding allowance on FDIC covered loans $ 656 $ 652 $ 694 $ 747 $ 751
Allowance for loan losses on FDIC covered loans 12 4 10 17 17
         
Total allowance for loan losses $ 668   $ 656   $ 704   $ 764   $ 768  
 
Refer to Exhibit 14 for footnote explanations.
 

 
UnionBanCal Corporation and Subsidiaries
Securities Available for Sale (Unaudited)

Exhibit 12

 
  September 30, 2012   June 30, 2012   Fair Value
Amount Change from
  Fair Value
% Change from
(Dollars in millions) Amortized
Cost
  Fair
Value
Amortized
Cost
  Fair
Value
June 30,
2012
June 30,
2012
 
U.S. government sponsored agencies $ 2,599 $ 2,629 $ 5,393 $ 5,459 $ (2,830) (52) %
Residential mortgage-backed securities:
U.S. government and government sponsored agencies 11,687 11,970 11,125 11,337 633 6
Privately issued 505 498 653 623 (125) (20)
Commercial mortgage-backed securities 2,251 2,361 1,503 1,554 807 52
Collateralized loan obligations 1,652 1,590 - - 1,590 100
Other debt securities 1,804 1,755 1,480 1,486 269 18
Equity securities 104 104 86 86 18 21
Total securities available for sale $ 20,602 $ 20,907 $ 20,240 $ 20,545 $ 362 2 %
 

 
UnionBanCal Corporation and Subsidiaries
Reconciliation of Non-GAAP Measures (Unaudited)

Exhibit 13

 

The following table presents a reconciliation between certain Generally Accepted Accounting Principles (GAAP) amounts and specific non-GAAP measures as used to compute selected non-GAAP financial ratios.

 
  As of and for the Three Months Ended For the Nine Months Ended
(Dollars in millions) September 30,
2012
June 30,
2012
March 31,
2012
December 31,
2011
September 30,
2011
September 30,
2012
September 30,
2011
 
Net income attributable to UNBC $ 124 $ 187 $ 195 $ 129 $ 172 $ 506 $ 649
Net adjustments related to privatization transaction, net of tax   5     7     6     10     10     18     18  

Net income attributable to UNBC, excluding impact of privatization transaction

$ 129   $ 194   $ 201   $ 139   $ 182   $ 524   $ 667  
 
Average total assets $ 87,881 $ 89,479 $ 89,449 $ 87,079 $ 82,197 $ 88,933 $ 80,870
Net adjustments related to privatization transaction   2,359     2,377     2,394     2,419     2,442     2,376     2,458  
Average total assets, excluding impact of privatization transaction $ 85,522   $ 87,102   $ 87,055   $ 84,660   $ 79,755   $ 86,557   $ 78,412  
Return on average assets (3) 0.56 % 0.84 % 0.88 % 0.59 % 0.83 % 0.76 % 1.07 %
Return on average assets, excluding impact of privatization transaction (3) (4) 0.60 0.90 0.93 0.65 0.90 0.81 1.14
 
Average UNBC stockholder's equity $ 12,209 $ 11,905 $ 11,621 $ 11,646 $ 10,708 $ 11,913 $ 10,417
Net adjustments related to privatization transaction   2,366     2,371     2,375     2,380     2,385     2,370     2,390  

Average UNBC stockholder's equity, excluding impact of privatization transaction

$ 9,843   $ 9,534   $ 9,246   $ 9,266   $ 8,323   $ 9,543   $ 8,027  
Return on average UNBC stockholder's equity (3) 4.03 % 6.32 % 6.75 % 4.39 % 6.36 % 5.67 % 8.33 %

 

Return on average UNBC stockholder's equity, excluding impact of privatization transaction (3) (4)

5.21 8.18 8.76 5.97 8.65 7.34 11.11
 
Noninterest expense $ 638 $ 599 $ 614 $ 619 $ 603 $ 1,851 $ 1,796
Less: Foreclosed asset expense - 1 1 3 4 2 8
Less: (Reversal of) provision for losses on off-balance sheet commitments (4 ) (1 ) (2 ) 2 - (7 ) (31 )
Less: Productivity initiative costs 10 2 6 14 33 18 42
Less: Low income housing credit (LIHC) investment amortization expense 15 18 13 23 15 46 47
Less: Expenses of the LIHC consolidated VIEs 10 8 7 6 6 25 18
Less: Merger costs related to acquisitions 6 3 1 - 1 10 24
Less: Net adjustments related to privatization transaction 21 21 22 32 26 64 77
Less: Debt termination fees from balance sheet repositioning   30     -     -     -     -     30     -  
Net noninterest expense, excluding impact of privatization transaction (a) $ 550   $ 547   $ 566   $ 539   $ 518   $ 1,663   $ 1,611  
 
Total revenue $ 843 $ 834 $ 855 $ 791 $ 791 $ 2,532 $ 2,503
Add: Net interest income taxable-equivalent adjustment 3 3 3 2 2 9 7
Less: Productivity initiative gains - - 23 - - 23 -
Less: Accretion related to privatization-related fair value adjustments 12 10 11 15 10 33 47

 

Less: Gains from securities associated with debt termination fees from balance sheet repositioning

  30     -     -     -     -     30     -  
Total revenue, excluding impact of privatization transaction (b) $ 804   $ 827   $ 824   $ 778   $ 783   $ 2,455   $ 2,463  
Adjusted efficiency ratio, excluding impact of privatization transaction (a)/(b) (4) (5) 68.37 66.18 68.76 69.12 66.12 67.77 65.42
 
Total UNBC stockholder's equity $ 12,437 $ 12,076 $ 11,821 $ 11,562 $ 10,900
Less: Goodwill 2,457 2,457 2,456 2,457 2,447
Less: Intangible assets 298 318 341 360 383
Less: Deferred tax liabilities related to goodwill and intangible assets   (117 )   (115 )   (123 )   (130 )   (140 )
Tangible common equity (c) $ 9,799   $ 9,416   $ 9,147   $ 8,875   $ 8,210  
Tier 1 capital, determined in accordance with regulatory requirements
Tier 1 common equity (d) $ 10,207   $ 10,049   $ 9,853   $ 9,641   $ 8,724  
Total assets $ 88,185 $ 87,939 $ 92,323 $ 89,676 $ 84,013
Less: Goodwill 2,457 2,457 2,456 2,457 2,447
Less: Intangible assets 298 318 341 360 383
Less: Deferred tax liabilities related to goodwill and intangible assets   (117 )   (115 )   (123 )   (130 )   (140 )
Tangible assets (e) $ 85,547   $ 85,279   $ 89,649   $ 86,989   $ 81,323  
Risk-weighted assets, determined in accordance with regulatory requirements (f) (7) $ 74,156   $ 72,905   $ 71,752   $ 69,738   $ 66,628  
Tangible common equity ratio (c)/(e) (9) 11.46 % 11.04 % 10.20 % 10.20 % 10.10 %
Tier 1 common capital ratio (d)/(f) (7) (8) 13.76 13.78 13.73 13.82 13.09
 
Refer to Exhibit 14 for footnote explanations.
 

 
UnionBanCal Corporation and Subsidiaries
   
Footnotes

Exhibit 14

       
 
(1) Pre-tax, pre-provision income is total revenue less noninterest expense. Management believes that this is a useful financial measure because it enables investors and others to assess the Company's ability to generate capital to cover loan losses through a credit cycle.
 
(2) Core deposits exclude brokered deposits, foreign time deposits and domestic time deposits greater than $250,000.
 
(3) Annualized.
 
(4) These ratios exclude the impact of the privatization transaction. Management believes that these ratios, which exclude the push-down accounting effects of the privatization transaction, provide useful supplemental information regarding UnionBanCal's business results. Please refer to Exhibit 13 for a reconciliation between certain GAAP amounts and these non-GAAP measures.
 
(5) The efficiency ratio is total noninterest expense as a percentage of total revenue (net interest income and noninterest income). The adjusted efficiency ratio, a non-GAAP financial measure, is net noninterest expense (noninterest expense excluding privatization-related expenses and fair value amortization/accretion, foreclosed asset expense, (reversal of) provision for losses on off-balance sheet commitments, low income housing credit (LIHC) investment amortization expense, expenses of the LIHC consolidated VIEs, merger costs related to acquisitions, certain costs related to productivity initiatives and debt termination fees from balance sheet repositioning) as a percentage of total revenue (net interest income (taxable-equivalent basis) and noninterest income), excluding impact of privatization, gains from productivity initiatives related to the sale of certain business units in 2012 and gains from securities associated with debt termination fees from balance sheet repositioning. Management discloses the adjusted efficiency ratio as a measure of the efficiency of our operations, focusing on those costs most relevant to our business activities. Please refer to Exhibit 13 for a reconciliation between certain GAAP amounts and these non-GAAP measures.
 
(6) Yields, interest income and net interest margin are presented on a taxable-equivalent basis using the federal statutory tax rate of 35 percent.
 
(7) Estimated as of September 30, 2012.
 
(8) The Tier 1 common capital ratio is the ratio of Tier 1 capital, less qualifying trust preferred securities, if any, to risk-weighted assets. The Tier 1 common capital ratio, a non-GAAP financial measure, facilitates the understanding of UnionBanCal's capital structure and is used to assess and compare the quality and composition of UnionBanCal's capital structure to other financial institutions. Please refer to Exhibit 13 for a reconciliation between certain GAAP amounts and these non-GAAP measures.
 
(9) The tangible common equity ratio, a non-GAAP financial measure, is calculated as tangible common equity divided by tangible assets. The methodology for determining tangible common equity may differ among companies. The tangible common equity ratio facilitates the understanding of UnionBanCal's capital structure and is used to assess and compare the quality and composition of UnionBanCal's capital structure to other financial institutions. Please refer to Exhibit 13 for a reconciliation between certain GAAP amounts and these non-GAAP measures.
 
(10) Criticized loans held for investment, excluding FDIC covered loans reflect loans in the commercial portfolio segment that are monitored for credit quality based on internal ratings. Amounts exclude small business loans, which are monitored by business credit score and delinquency status.
 
(11) The allowance for credit losses ratios include the allowances for loan losses and losses on off-balance sheet commitments.
 
(12) These ratios exclude the impact of the FDIC covered loans, the related allowance for loan losses and FDIC covered OREO, which are covered under loss share agreements between Union Bank, N.A. and the Federal Deposit Insurance Corporation. Such agreements are related to the April 2010 acquisitions of certain assets and assumption of certain liabilities of Frontier Bank and Tamalpais Bank. Management believes the exclusion of FDIC covered loans and FDIC covered OREO in certain asset quality ratios that include nonperforming loans, nonperforming assets, total loans held for investment and the allowance for loan losses or credit losses in the numerator or denominator provides a better perspective into underlying asset quality trends.
 
(13) Average balances on loans outstanding include all nonperforming loans. The amortized portion of net loan origination fees (costs) is included in interest income on loans, representing an adjustment to the yield.
 
(14) Includes interest bearing trading liabilities.
 
(15) Excludes loans totaling $88 million, $124 million, $144 million, $165 million, and $198 million that are 90 days or more past due and still accruing at September 30, 2012, June 30, 2012, March 31, 2012, December 31, 2011, and September 30, 2011 respectively, which consist of FDIC covered loans accounted for in accordance with the accounting standards for purchased credit impaired loans.
 
(16) "Other" includes a $16 million allowance for loan losses transfer attributed to an internal reorganization on October 1, 2011 in which The Bank of Tokyo-Mitsubishi UFJ transferred its trust company, The Bank of Tokyo-Mitsubishi UFJ Trust Company (BTMUT) to UnionBanCal.
 
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UnionBanCal Corporation
Thomas Taggart, 415-765-2249
Corporate Communications
Michelle Crandall, 415-765-2780
Investor Relations

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