UNIONBANCAL CORPORATION 
By UnionBanCal Corporation (NYSE:UB):
First Quarter 2007 Highlights:
-- Strong year-over-year organic loan growth
-- Average total loans up 13 percent
-- Average core commercial loans, which exclude loans to title
and escrow companies, up 14 percent
-- Annualized average all-in cost of funds of 2.55 percent
-- Average noninterest bearing deposits comprised 36.4 percent of
average total deposits
-- Nonperforming assets just 0.08 percent of total assets at
quarter-endUnionBanCal Corporation (NYSE:UB) today reported first quarter 2007 net income of $149.6 million, or $1.07 per diluted common share. Income from continuing operations for first quarter 2006 was $181.5 million, or $1.24 per diluted common share.
Income from continuing operations for fourth quarter 2006 was $227.7 million, or $1.61 per diluted common share, including $72.8 million, or $0.51 per diluted common share, in state income tax refunds, and $5.3 million, or $0.04 per diluted common share, in tax adjustments. Excluding these items, income from continuing operations for fourth quarter 2006 was $149.6 million, or $1.06 per diluted common share.
?The operating environment continues to be challenging for banks with significant commercial deposit businesses,? stated Takashi Morimura, President and Chief Executive Officer. ?However, our first quarter results were in line with our expectations, as strong loan growth, excellent asset quality, and good expense control offset the expected deposit weakness.
?In February, we announced that Masaaki Tanaka will be assuming the position of President and Chief Executive Officer in May, when I take on a new role with our majority shareholder. I am privileged to have served as President and Chief Executive Officer of UnionBanCal Corporation, and I leave the Company in the capable hands of Mr. Tanaka, our Chief Operating Officer Philip Flynn, and the rest of the executive management team.?
Commenting on the first quarter results, Mr. Flynn stated, ?We began 2007 with continued robust growth in loans, particularly in our industry specialty businesses. We grew core commercial and industrial loans 14 percent over last year, while we grew commercial mortgage and construction loans 16 percent. We expanded our high-quality residential mortgage portfolio by 8 percent year over year, while maintaining our stringent underwriting standards. Overall, credit quality continues to be excellent.
?Competition for deposits continues to be intense, which has resulted in pressure on noninterest bearing deposit balances. However, pricing on interest bearing core deposits appears to be stabilizing. We continue to have confidence in the strategic positioning of our commercial deposit businesses.?
Summary of First Quarter Results
First quarter 2007 net income was $149.6 million, or $1.07 per diluted common share, compared with income from continuing operations of $1.24 per diluted common share a year earlier. Total revenue compared with first quarter 2006 decreased 4.5 percent, due to a 2.1 percent increase in noninterest income and a 7.7 percent decrease in net interest income. The decrease in net interest income was primarily due to a deposit mix shift, reflecting customer decisions to shift balances from noninterest bearing and low-cost deposits into higher-cost deposits. The unfavorable deposit mix change offset strong loan growth. The total provision for credit losses was $5 million, $15 million higher than the negative $10 million provision recorded in first quarter 2006. For first quarter 2007, noninterest expense was up 1.8 percent from the same quarter a year earlier.
First quarter 2007 net income was $1.07 per diluted common share, compared with adjusted income from continuing operations of $1.06 per diluted common share last quarter. Adjusted income from continuing operations for fourth quarter 2006 excludes $0.51 per diluted common share in state income tax refunds and $0.04 per diluted common share in tax adjustments. Total revenue decreased 2.9 percent in sequential quarters, with net interest income decreasing 4.0 percent and noninterest income decreasing 0.7 percent. The decrease in net interest income was primarily due to lower noninterest bearing deposit balances and two fewer days in first quarter 2007. The total provision for credit losses was $5 million in both quarters. Noninterest expense declined 4.4 percent in sequential quarters, primarily due to lower cost of services related to title and escrow balances, lower compliance-related expense and lower expense associated with low income housing tax credit projects.
First Quarter Total Revenue
For first quarter 2007, total revenue (taxable-equivalent net interest income plus noninterest income) was $653.2 million, down 4.5 percent compared with first quarter 2006. Net interest income decreased 7.7 percent, and noninterest income increased 2.1 percent. Compared with fourth quarter 2006, total revenue decreased 2.9 percent, with net interest income decreasing 4.0 percent and noninterest income decreasing 0.7 percent.
First Quarter Net Interest Income (Taxable-equivalent)
Net interest income was $430.6 million in first quarter 2007, down $35.7 million, or 7.7 percent, from the same quarter a year ago, primarily due to a deposit mix shift from noninterest bearing and low-cost deposits into higher-cost deposits, partially offset by solid growth in loans and higher yields on earning assets.
Average earning assets increased $5.3 billion, or 12.2 percent, compared to 2006, primarily due to a $4.4 billion, or 12.9 percent, increase in average loans. Average commercial loans increased $2.3 billion, or 18.7 percent; and average residential mortgages increased $0.9 billion, or 8.2 percent. $708 million, or 31 percent, of the increase in average commercial loans was attributable to title and escrow loans, which are highly rate-advantaged loans and are more volatile than other commercial loans. Excluding title and escrow loans, average commercial loans grew 14.0 percent, year over year.
Compared to first quarter 2006, average interest bearing deposits increased $5.0 billion, or 23.7 percent, while average noninterest bearing deposits decreased $2.4 billion, or 13.8 percent. The decline in noninterest bearing deposits was primarily due to a $1.7 billion, or 14.8 percent, decrease in average other commercial noninterest bearing deposits and a $0.3 billion, or 11.6 percent, decrease in average title and escrow deposits. Average other commercial noninterest bearing deposits declined primarily due to changes in customer behavior in response to rising short-term interest rates, and average title and escrow deposits decreased due to lower residential real estate activity. Average consumer noninterest bearing deposits decreased $0.4 billion, or 12.0 percent.
Average noninterest bearing deposits represented 36.4 percent of average total deposits in first quarter 2007. The annualized average all-in cost of funds was 2.55 percent, reflecting the Company's strong average core deposit-to-loan ratio of 86 percent and the high proportion of noninterest bearing deposits to total deposits.
The average yield on earning assets of $48.4 billion was 6.06 percent, up 29 basis points over first quarter 2006, with the average loan yield increasing 25 basis points. The average rate on interest bearing liabilities of $31.9 billion was 3.75 percent, up 126 basis points compared with first quarter 2006, reflecting higher short-term interest rates, an unfavorable change in deposit mix, and heightened competition for deposits. The net interest margin in first quarter 2007 was 3.58 percent, compared with 4.36 percent in first quarter 2006.
First quarter 2007 net interest income decreased $18 million, or 4.0 percent, compared with fourth quarter 2006, with approximately $3.8 million of the decline attributable to two fewer days in first quarter 2007. Average loans increased $1.0 billion, or 2.6 percent. Average commercial loans increased $511 million, or 3.6 percent, average commercial mortgage loans increased $249 million, or 4.3 percent, and average residential mortgages increased $162 million, or 1.3 percent. Average interest bearing deposits increased $1.2 billion, or 4.8 percent, while average noninterest bearing deposits decreased $1.0 billion, or 6.4 percent. The decline in noninterest bearing deposits was due to a $677 million, or 6.2 percent, decrease in average other commercial noninterest bearing deposits and a $347 million, or 14.1 percent, decrease in average title and escrow deposits. Average consumer noninterest bearing deposits decreased $10 million, or 0.4 percent. The average yield on earning assets was flat and the average rate on interest bearing liabilities increased 17 basis points. The net interest margin decreased 23 basis points to 3.58 percent.
First Quarter Noninterest Income
In first quarter 2007, noninterest income was $222.6 million, up $4.6 million, or 2.1 percent, from the same quarter a year ago. Service charges on deposit accounts decreased $6.7 million, or 8.2 percent, primarily due to lower account analysis fees, stemming from an increase in the earnings credit rate on deposit balances and lower noninterest bearing deposit balances. Gain on private capital investments, net, was $9.1 million, compared with $2.8 million in the same quarter a year ago.
First quarter 2007 noninterest income decreased $1.5 million, or 0.7 percent, compared with fourth quarter 2006. Service charges on deposit accounts decreased $2.1 million, or 2.8 percent, primarily due to lower noninterest bearing deposit balances. Insurance commissions increased $2.3 million, or 12.7 percent, primarily due to normal seasonal factors. Merchant banking fees decreased $4.8 million, or 34.7 percent, primarily due to a lower volume of syndications completed in first quarter.
First Quarter Noninterest Expense
Noninterest expense for first quarter 2007 was $422.1 million, an increase of $7.5 million, or 1.8 percent, over noninterest expense for first quarter 2006. Salaries and employee benefits expense increased $6.0 million, or 2.4 percent, primarily due to annual merit increases and higher accruals for performance-related incentive expense, partially offset by lower pension expense. Outside services expense decreased $8.8 million, or 30.7 percent, primarily due to lower cost of services related to title and escrow balances. Professional services expense increased $2.5 million, or 17.5 percent, primarily due to higher compliance-related expense compared with first quarter last year. Advertising and public relations expense decreased $1.8 million, or 18.0 percent, primarily due to timing of marketing promotions. Foreclosed asset expense (income) decreased $7.4 million, reflecting a $7.4 million gain on the sale of property recorded in first quarter 2006. Provision for losses on off-balance sheet commitments in first quarter 2007 was $1.0 million, compared with negative $3.0 million in first quarter 2006.
Noninterest expense decreased $19.6 million, or 4.4 percent, compared with fourth quarter 2006. Salaries and employee benefits expense increased $7.7 million, or 3.1 percent, primarily due to annual seasonal factors that result in higher payroll taxes and 401(k) matching contributions, and higher accruals for performance-related incentive expense, partially offset by lower pension expense and lower severance expense. Outside services expense declined $6.3 million, or 24.2 percent, primarily due to lower cost of services related to title and escrow balances. Professional services expense decreased $2.8 million, or 14.0 percent, partially due to lower compliance-related expense. Provision for losses on off-balance sheet commitments was $1.0 million, compared with $2.0 million in the prior quarter.
Income Tax Expense
The effective tax rate for first quarter 2007 was 33.5 percent, compared with an effective tax rate of 34.1 percent for first quarter 2006. The difference in rate was primarily due to higher tax credits in 2007.
Significant Accounting Policies
On January 1, 2007, the Company adopted Staff Position (FSP) FAS 13-2, "Accounting for a Change or Projected Change in the Timing of Cash Flows Related to Income Taxes Generated by a Leveraged Lease Transaction", which resulted in a reduction to retained earnings of $20.8 million.
On January 1, 2007, the Company adopted FIN No. 48, "Accounting for Uncertainty in Income Taxes - An Interpretation of FASB Statement No. 109". The cumulative effect of applying the provisions of this interpretation was recognized as a reduction to retained earnings of $49.3 million.
Credit Quality
Nonperforming assets at March 31, 2007, were $42 million, or 0.08 percent of total assets. This compares with $42 million, or 0.08 percent of total assets, at December 31, 2006, and $42 million, or 0.09 percent of total assets, at March 31, 2006.
In first quarter 2007, the total provision for credit losses was $5 million. The total provision for credit losses was $5 million in fourth quarter 2006 and negative $10 million in first quarter 2006. In first quarter 2007, net charge-offs were $2 million, compared with net recoveries of $1 million in fourth quarter 2006, and net charge-offs of $5 million in first quarter 2006.
At March 31, 2007, the allowance for credit losses as a percent of total loans and as a percent of nonaccrual loans was 1.11 percent and 997 percent, respectively. These ratios were 1.12 percent and 987 percent, respectively, at December 31, 2006, and 1.26 percent and 1003 percent, respectively, at March 31, 2006.
Balance Sheet and Capital Ratios
At March 31, 2007, the Company had total assets of $54.6 billion. Total loans were $37.3 billion and total deposits were $43.8 billion, resulting in a period-end deposit-to-loan ratio of 118 percent. At period-end, total stockholders' equity was $4.6 billion, the tangible equity ratio was 7.53 percent, and the ratio of tangible common equity to risk-weighted assets was 7.99 percent. Book value per share at March 31, 2007, was $32.98, up 3.3 percent from a year earlier. The Company's Tier I and total risk-based capital ratios at period-end were 8.41 percent and 11.38 percent, respectively.
Stock Repurchases
During first quarter 2007, the Company repurchased 1.4 million shares of common stock at a total price of $85.5 million, or an average of $62.73 per repurchased share. At March 31, 2007, the Company had remaining repurchase authority of $64 million.
Common shares outstanding at March 31, 2007, were 138.1 million, a decrease of 5.3 million shares, or 3.7 percent, from one year earlier.
Common Stock Dividend
The next meeting of the Board of Directors of the Company is scheduled for May 24, 2007. At this meeting, the Board will consider and declare the second quarter 2007 common stock dividend.
Second Quarter and Full Year 2007 Earnings Per Share Forecast
The Company currently estimates that second quarter 2007 fully diluted earnings per share will be in the range of $1.07 to $1.12, including a total provision for credit losses of approximately $5 million.
For the year, the Company currently estimates that fully diluted earnings per share will be in the range of $4.50 to $4.75, including a total provision for credit losses of approximately $35 million.
Non-GAAP Financial Measures
This press release contains certain references to financial measures identified as being stated on an ?adjusted basis? or that adjust for or exclude tax refunds and adjustments, which are adjustments from comparable measures calculated and presented in accordance with accounting principles generally accepted in the United States of America (GAAP). These financial measures, as used herein, differ from financial measures reported under GAAP in that they exclude unusual or non-recurring charges, losses, credits or gains. This press release identifies the specific items excluded from the comparable GAAP financial measure in the calculation of each non-GAAP financial measure. Because these items and their impact on the Company's performance are difficult to predict, management believes that financial presentations excluding the impact of these items provide useful supplemental information which is important to a proper understanding of the Company's core business results by investors. These presentations should not be viewed as a substitute for results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP financial measures presented by other companies.
Forward-Looking Statements
The following appears in accordance with the Private Securities Litigation Reform Act. This press release includes forward-looking statements that involve risks and uncertainties. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. Often, they include the words ?believe,? ?continue,? ?expect,? ?target,? ?anticipate,? ?intend,? ?plan,? ?estimate,? ?potential,? ?project,? or words of similar meaning, or future or conditional verbs such as ?will,? ?would,? ?should,? ?could,? or ?may.? They may also consist of annualized amounts based on historical interim period results. Forward-looking statements in this press release include those related to earnings forecasts, provision for credit losses, trends in deposit rates and balances and competition for deposits and their impact on the Company, and the Company's loan portfolio, business model, competitive positioning and earnings power.
There are numerous risks and uncertainties that could and will cause actual results to differ materially from those discussed in the Company's forward-looking statements. Many of these factors are beyond the Company's ability to control or predict and could have a material adverse effect on the Company's stock price, financial condition, and results of operations or prospects. Such risks and uncertainties include, but are not limited to, adverse economic and fiscal conditions in California; increased energy costs; global political and general economic conditions related to the war on terrorism and other hostilities; fluctuations in interest rates; the controlling interest in UnionBanCal Corporation of The Bank of Tokyo-Mitsubishi UFJ, Ltd., which is a wholly-owned subsidiary of Mitsubishi UFJ Financial Group, Inc.; 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, or governmental fiscal or monetary policies; legal or regulatory proceedings; declines or disruptions in the stock or bond markets which may adversely affect the Company or the Company's borrowers or other customers; changes in accounting practices or requirements; and risks associated with various strategies the Company may pursue, including potential acquisitions, divestitures and restructurings.
A complete description of the Company, including related risk factors, is discussed in the Company's public filings with the Securities and Exchange Commission, which are available by calling (415) 765-2969 or online at http://www.sec.gov. All forward-looking statements included in this press release are based on information available at the time of the release, and the Company assumes no obligation to update any forward-looking statement.
Conference Call and Webcast
The Company will conduct a conference call to review first quarter 2007 results at 8:30 AM Pacific Time (11:30 AM Eastern Time) on April 20, 2007. Interested parties calling from locations within the United States should call 800-230-1951 (612-332-0107 from outside the United States) 10 minutes prior to the beginning of the conference.
A live webcast of the call will be available at http://www.unionbank.com. You may access the Investor Relations section of the website via the ?About Union Bank? link from the homepage. The webcast replay will be available on the website within 24 hours after the conclusion of the call, and will remain on the website for a period of one year.
A recorded playback of the conference call will be available by calling 800-475-6701, (320-365-3844 from outside the United States) from approximately 12:00 PM Pacific Time (3:00 PM Eastern Time), April 20, through 11:59 PM Pacific Time, April 27 (2:59 AM Eastern Time, April 28). The reservation number for this playback is 868035.
Based in San Francisco, UnionBanCal Corporation is a bank holding company with assets of $54.6 billion at March 31, 2007. Its primary subsidiary, Union Bank of California, N.A., had 321 banking offices in California, Oregon and Washington, and 2 international offices at March 31, 2007.
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UnionBanCal Corporation and Subsidiaries | ||||||||||||||||||||||||||||||||||||
Financial Highlights (Unaudited) | ||||||||||||||||||||||||||||||||||||
Exhibit 1 | ||||||||||||||||||||||||||||||||||||
| Percent Change to | ||||||||||||||||||||||||||||||||||||
| As of and for the Three Months Ended | March 31, 2007 from | |||||||||||||||||||||||||||||||||||
March 31, | Dec. 31, | March 31, | March 31, | Dec. 31, | ||||||||||||||||||||||||||||||||
| (Dollars in thousands, except per share data) | 2006 | 2006 | 2007 | 2006 | 2006 | |||||||||||||||||||||||||||||||
| Results of operations: | ||||||||||||||||||||||||||||||||||||
| Net interest income (1) | $ 466,341 | $ 448,619 | $ 430,627 | (7.66%) | (4.01%) | |||||||||||||||||||||||||||||||
| Noninterest income | 217,910 | 224,106 | 222,558 | 2.13% | (0.69%) | |||||||||||||||||||||||||||||||
| Total revenue | 684,251 | 672,725 | 653,185 | (4.54%) | (2.90%) | |||||||||||||||||||||||||||||||
| Noninterest expense | 414,544 | 441,693 | 422,091 | 1.82% | (4.44%) | |||||||||||||||||||||||||||||||
| (Reversal of) provision for loan losses | (7,000) | 3,000 | 4,000 | nm | 33.33% | |||||||||||||||||||||||||||||||
| Income from continuing operations before income taxes (1) | ||||||||||||||||||||||||||||||||||||
| 276,707 | 228,032 | 227,094 | (17.93%) | (0.41%) | ||||||||||||||||||||||||||||||||
| Taxable-equivalent adjustment | 1,248 | 1,923 | 2,115 | 69.47% | 9.98% | |||||||||||||||||||||||||||||||
| Income tax expense (benefit) | 94,004 | (1,632) | 75,368 | (19.82%) | nm | |||||||||||||||||||||||||||||||
| Income from continuing operations | $ 181,455 | $ 227,741 | $ 149,611 | (17.55%) | (34.31%) | |||||||||||||||||||||||||||||||
| Loss from discontinued operations | (8,510) | (1,307) | - | 100.00% | 100.00% | |||||||||||||||||||||||||||||||
| Net income | $ 172,945 | $ 226,434 | $ 149,611 | (13.49%) | (33.93%) | |||||||||||||||||||||||||||||||
| Per common share: | ||||||||||||||||||||||||||||||||||||
| Basic earnings: | ||||||||||||||||||||||||||||||||||||
| From continuing operations | $ 1.26 | $ 1.63 | $ 1.08 | (14.29%) | (33.74%) | |||||||||||||||||||||||||||||||
| Net income | 1.20 | 1.62 | 1.08 | (10.00%) | (33.33%) | |||||||||||||||||||||||||||||||
| Diluted earnings: | ||||||||||||||||||||||||||||||||||||
| From continuing operations | 1.24 | 1.61 | 1.07 | (13.71%) | (33.54%) | |||||||||||||||||||||||||||||||
| Net income | 1.18 | 1.61 | 1.07 | (9.32%) | (33.54%) | |||||||||||||||||||||||||||||||
| Dividends (2) | 0.41 | 0.47 | 0.47 | 14.63% | 0.00% | |||||||||||||||||||||||||||||||
| Book value (end of period) | 31.94 | 32.86 | 32.98 | 3.26% | 0.37% | |||||||||||||||||||||||||||||||
| Common shares outstanding (end of period) (3) (4) | 143,402,332 | 139,107,254 | 138,117,370 | (3.69%) | (0.71%) | |||||||||||||||||||||||||||||||
| Weighted average common shares outstanding - basic (3) (4) | ||||||||||||||||||||||||||||||||||||
| 143,878,106 | 139,390,487 | 137,942,320 | (4.13%) | (1.04%) | ||||||||||||||||||||||||||||||||
| Weighted average common shares outstanding - diluted (3) (4) | ||||||||||||||||||||||||||||||||||||
| 146,026,188 | 141,025,758 | 139,729,681 | (4.31%) | (0.92%) | ||||||||||||||||||||||||||||||||
| Balance sheet (end of period): | ||||||||||||||||||||||||||||||||||||
| Total assets (5) | $ 48,800,945 | $ 52,619,576 | $ 54,616,849 | 11.92% | 3.80% | |||||||||||||||||||||||||||||||
| Total loans | 33,528,868 | 36,671,723 | 37,251,950 | 11.10% | 1.58% | |||||||||||||||||||||||||||||||
| Nonperforming assets | 42,392 | 42,365 | 41,744 | (1.53%) | (1.47%) | |||||||||||||||||||||||||||||||
| Total deposits | 39,155,904 | 41,969,368 | 43,797,924 | 11.86% | 4.36% | |||||||||||||||||||||||||||||||
| Stockholders' equity | 4,579,878 | 4,571,401 | 4,555,439 | (0.53%) | (0.35%) | |||||||||||||||||||||||||||||||
| Balance sheet (period average): | ||||||||||||||||||||||||||||||||||||
| Total assets | $ 48,016,643 | $ 51,671,465 | $ 52,973,203 | 10.32% | 2.52% | |||||||||||||||||||||||||||||||
| Total loans | 34,052,067 | 37,495,315 | 38,458,014 | 12.94% | 2.57% | |||||||||||||||||||||||||||||||
| Earning assets | 43,084,349 | 46,860,166 | 48,354,950 | 12.23% | 3.19% | |||||||||||||||||||||||||||||||
| Total deposits | 38,856,033 | 41,320,468 | 41,483,062 | 6.76% | 0.39% | |||||||||||||||||||||||||||||||
| Stockholders' equity | 4,538,679 | 4,638,801 | 4,510,205 | (0.63%) | (2.77%) | |||||||||||||||||||||||||||||||
| Financial ratios (6): | ||||||||||||||||||||||||||||||||||||
| Return on average assets (7) : | ||||||||||||||||||||||||||||||||||||
| From continuing operations | 1.53% | 1.75% | 1.15% | |||||||||||||||||||||||||||||||||
| Net income | 1.46% | 1.74% | Share
© Business Wire - 2007
MUFG Americas Holdings Corp, is located in New York, the United States, is a financial service provider.
Sector
Banks
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