<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
Commission file number 0-28118
UNIONBANCAL CORPORATION
State of Incorporation: California I.R.S. Employer Identification No.
94-1234979
350 California Street
San Francisco, California 94104
Telephone: (415) 705-7350
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No ____
Number of shares of Common Stock outstanding at July 31, 1997: 54,882,262
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<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES
ON JULY 31, 1997, THE AGENT FOR EDGAR FILINGS FOR UNIONBANCAL CORPORATION (THE
"COMPANY") MISTAKENLY TRANSMITTED A DRAFT OF THE COMPANY'S FORM 10-Q QUARTERLY
REPORT. THE FOLLOWING REPORT AMENDS AND RESTATES THE MISTAKENLY TRANSMITTED
REPORT IN ITS ENTIRETY.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NUMBER
-------------
<S> <C>
PART I
FINANCIAL INFORMATION
Consolidated Financial Highlights..................................................................... 2
Item 1. Financial Statements:
Condensed Consolidated Statements of Income......................................................... 4
Condensed Consolidated Balance Sheets............................................................... 5
Condensed Consolidated Statements of Cash Flows..................................................... 6
Condensed Consolidated Statements of Changes in Shareholders' Equity................................ 7
Notes to Condensed Consolidated Financial Statements................................................ 8
Item 2. Management's Discussion and Analysis:
Introduction........................................................................................ 10
Summary............................................................................................. 11
Analysis of Earnings................................................................................ 13
Net Interest Income................................................................................. 14
Noninterest Income.................................................................................. 18
Noninterest Expense................................................................................. 19
Merger and Integration Expense...................................................................... 20
Income Tax Expense.................................................................................. 20
Loans............................................................................................... 21
Allowance for Credit Losses......................................................................... 22
Nonperforming Assets................................................................................ 23
Loans 90 Days or More Past Due and Still Accruing................................................... 24
Liquidity........................................................................................... 24
Regulatory Capital.................................................................................. 25
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.............................................................. 26
Signatures............................................................................................ 26
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
UNIONBANCAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL HIGHLIGHTS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------
INCREASE (DECREASE)
JUNE 30, JUNE 30, ------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 1997 1996 AMOUNT PERCENT
- ---------------------------------------------------------------------- ----------- ----------- ------------ ---------
<S> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Net interest income (1)............................................. $ 308,401 $ 290,263 $ 18,138 6.25%
Provision for credit losses......................................... -- 10,000 (10,000) (100.00)
Noninterest income.................................................. 111,021 105,550 5,471 5.18
Noninterest expense, excluding merger and integration expense (2)... 255,753 252,518 3,235 1.28
----------- ----------- ------------ ---------
Income before merger and integration expense and income
taxes (1)(2)...................................................... 163,669 133,295 30,374 22.79
Merger and integration expense...................................... -- 61,266 (61,266) (100.00)
----------- ----------- ------------ ---------
Income before income taxes (1)...................................... 163,669 72,029 91,640 127.23
Taxable-equivalent adjustment....................................... 1,385 2,024 (639) (31.57)
Income tax expense.................................................. 65,739 25,597 40,142 156.82
----------- ----------- ------------ ---------
Net income.......................................................... $ 96,545 $ 44,408 $ 52,137 117.40%
----------- ----------- ------------ ---------
----------- ----------- ------------ ---------
NET INCOME APPLICABLE TO:
Common stock........................................................ $ 88,097 $ 39,096 $ 49,001 125.34%
----------- ----------- ------------ ---------
----------- ----------- ------------ ---------
Parent direct interest in bank subsidiary........................... $ 5,621 $ 2,486 $ 3,135 126.11%
----------- ----------- ------------ ---------
----------- ----------- ------------ ---------
PER COMMON SHARE:
Net income.......................................................... $ 1.61 $ 0.71 $ 0.90 126.76%
Pro forma earnings, excluding after-tax merger and integration
expense (2)....................................................... 1.61 1.37 0.24 17.52
Dividends........................................................... 0.35 0.35 -- --
Book value (end of period).......................................... 43.15 39.29 3.86 9.82
Common shares outstanding (end of period)........................... 54,866,952 54,757,877 109,075 0.20
Weighted average common shares outstanding.......................... 54,795,625 54,752,316 43,309 0.08
BALANCE SHEET (END OF PERIOD):
Total assets........................................................ $30,275,150 $28,114,916 $2,160,234 7.68%
Total loans......................................................... 21,951,559 20,480,678 1,470,881 7.18
Nonperforming assets................................................ 176,199 228,173 (51,974) (22.78)
Subordinated capital notes.......................................... 482,000 495,369 (13,369) (2.70)
Preferred stock..................................................... 135,000 135,000 -- --
Common equity....................................................... 2,367,630 2,151,698 215,932 10.04
BALANCE SHEET (PERIOD AVERAGE):
Total assets........................................................ $29,439,297 $27,798,201 $1,641,096 5.90%
Total loans......................................................... 21,532,898 20,381,891 1,151,007 5.65
Common equity....................................................... 2,330,809 2,166,783 164,026 7.57
Earning assets...................................................... 26,006,291 24,492,765 1,513,526 6.18
FINANCIAL RATIOS:
Return on average assets (3)........................................ 1.32% 0.64% 0.68%
Pro forma return on average assets, excluding after-tax merger
and integration expense (2)(3).................................... 1.32 1.20 0.12
Return on average common equity (4)................................. 15.16 7.26 7.90
Pro forma return on average common equity, excluding after-tax
merger and integration expense (2)(4)............................. 15.16 13.95 1.21
Efficiency ratio (5)................................................ 60.87 79.06 (18.19)
Pro forma efficiency ratio, excluding merger and integration expense
(2)(5)............................................................ 60.87 63.58 (2.71)
Net interest margin (1)............................................. 4.75 4.77 (0.02)
Tier 1 risk-based capital ratio..................................... 9.19 8.94 0.25
Total risk-based capital ratio...................................... 11.59 11.24 0.35
Leverage ratio...................................................... 8.68 8.33 0.35
Allowance for credit losses to total loans.......................... 2.29 2.66 (0.37)
Allowance for credit losses to nonaccrual loans..................... 343.58 284.78 58.80
Net loans charged off to average total loans (6).................... 0.39 0.24 0.15
Nonperforming assets to total loans and foreclosed assets........... 0.80 1.11 (0.31)
Nonperforming assets to total assets................................ 0.58 0.81 (0.23)
</TABLE>
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(1) Amounts are on a taxable-equivalent basis using the federal statutory tax
rate of 35 percent.
(2) See page 10, "Merger Accounting", for a description of merger accounting
and pro forma earnings presentations.
(3) Based on annualized net income.
(4) Based on annualized net income applicable to common stock.
(5) The efficiency ratio is noninterest expense, excluding foreclosed asset
expense, as a percentage of net interest income (taxable-equivalent) and
noninterest income. Foreclosed asset expense was $0.5 million in the second
quarter of 1997 and $0.9 million in the second quarter of 1996.
(6) Annualized.
2
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UNIONBANCAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL HIGHLIGHTS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-----------------------------------------------------
INCREASE (DECREASE)
JUNE 30, JUNE 30, ---------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 1997 1996 AMOUNT PERCENT
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<S> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Net interest income (1)................................................. $ 603,853 $ 588,058 $ 15,795 2.69%
Provision for credit losses............................................. -- 20,000 (20,000) (100.00)
Noninterest income...................................................... 225,807 208,424 17,383 8.34
Noninterest expense, excluding merger and integration expense (2)....... 502,854 504,542 (1,688) (0.33)
------------- ------------- ---------- ---------
Income before merger and integration expense and income
taxes (1)(2).......................................................... 326,806 271,940 54,866 20.18
Merger and integration expense.......................................... 6,037 61,266 (55,229) (90.15)
------------- ------------- ---------- ---------
Income before income taxes (1).......................................... 320,769 210,674 110,095 52.26
Taxable-equivalent adjustment........................................... 2,806 4,152 (1,346) (32.42)
Income tax expense...................................................... 128,916 78,848 50,068 63.50
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Net income.............................................................. $ 189,047 $ 127,674 $ 61,373 48.07%
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NET INCOME APPLICABLE TO:
Common stock............................................................ $ 172,388 $ 115,864 $ 56,524 48.78%
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------------- ------------- ---------- ---------
Parent direct interest in bank subsidiary............................... $ 11,006 $ 6,158 $ 4,848 78.73%
------------- ------------- ---------- ---------
------------- ------------- ---------- ---------
PER COMMON SHARE:
Net income.............................................................. $ 3.15 $ 2.12 $ 1.03 48.58%
Pro forma earnings, excluding after-tax merger and integration expense
(2)................................................................... 3.21 2.78 0.43 15.47
Dividends (3)........................................................... 0.70 0.70 -- --
Book value (end of period).............................................. 43.15 39.29 3.86 9.82
Common shares outstanding (end of period)............................... 54,866,952 54,757,877 109,075 0.20
Weighted average common shares outstanding.............................. 54,780,158 54,721,265 58,893 0.11
BALANCE SHEET (END OF PERIOD):
Total assets............................................................ $ 30,275,150 $ 28,114,916 $2,160,234 7.68%
Total loans............................................................. 21,951,559 20,480,678 1,470,881 7.18
Nonperforming assets.................................................... 176,199 228,173 (51,974) (22.78)
Subordinated capital notes.............................................. 482,000 495,369 (13,369) (2.70)
Preferred stock......................................................... 135,000 135,000 -- --
Common equity........................................................... 2,367,630 2,151,698 215,932 10.04
BALANCE SHEET (PERIOD AVERAGE):
Total assets............................................................ $ 29,116,709 $ 27,613,461 $1,503,248 5.44%
Total loans............................................................. 21,302,142 20,285,159 1,016,983 5.01
Common equity........................................................... 2,296,397 2,188,235 108,162 4.94
Earning assets.......................................................... 25,728,698 24,443,391 1,285,307 5.26
FINANCIAL RATIOS:
Return on average assets (4)............................................ 1.31% 0.93% 0.38%
Pro forma return on average assets, excluding after-tax merger
and integration expense (2)(4)........................................ 1.33 1.21 0.12
Return on average common equity (5)..................................... 15.14 10.65 4.49
Pro forma return on average common equity, excluding after-tax merger
and integration expense (2)(5)........................................ 15.43 13.96 1.47
Efficiency ratio (6).................................................... 61.23 70.52 (9.29)
Pro forma efficiency ratio, excluding merger and integration expense
(2)(6)................................................................ 60.50 62.83 (2.33)
Net interest margin (1)................................................. 4.72 4.84 (0.12)
Tier 1 risk-based capital ratio......................................... 9.19 8.94 0.25
Total risk-based capital ratio.......................................... 11.59 11.24 0.35
Leverage ratio.......................................................... 8.68 8.33 0.35
Allowance for credit losses to total loans.............................. 2.29 2.66 (0.37)
Allowance for credit losses to nonaccrual loans......................... 343.58 284.78 58.80
Net loans charged off to average total loans (7)........................ 0.21 0.30 (0.09)
Nonperforming assets to total loans and foreclosed assets............... 0.80 1.11 (0.31)
Nonperforming assets to total assets.................................... 0.58 0.81 (0.23)
</TABLE>
- ------------------------------
(1) Amounts are on a taxable-equivalent basis using the federal statutory tax
rate of 35 percent.
(2) See page 10, "Merger Accounting", for a description of merger accounting
and pro forma earnings presentations.
(3) The dividend amount for the first half of 1996 does not include a dividend
of $145 million paid to The Mitsubishi Bank, Limited in the first quarter
of 1996 by BanCal Tri-State Corporation and The Bank of California, N.A.
(4) Based on annualized net income.
(5) Based on annualized net income applicable to common stock.
(6) The efficiency ratio is noninterest expense, excluding foreclosed asset
expense, as a percentage of net interest income (taxable-equivalent) and
noninterest income. Foreclosed asset expense was $0.9 million in the first
six months of 1997 and $4.1 million in the first six months of 1996.
(7) Annualized.
3
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
UNIONBANCAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE FOR THE SIX
MONTHS MONTHS
ENDED JUNE 30, ENDED JUNE 30,
(DOLLARS IN THOUSANDS, EXCEPT ------------------ ------------------
PER SHARE DATA) 1997 1996 1997 1996
- ------------------------------ -------- -------- -------- --------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans, including fees....... $437,087 $412,991 $857,559 $832,796
Investment securities --
taxable................... 38,642 32,099 74,470 64,853
Investment securities --
tax-exempt................ 2,160 2,630 4,379 5,356
Interest bearing deposits in
banks..................... 16,080 11,821 27,279 26,098
Federal funds sold and
securities purchased under
resale agreements......... 4,683 7,396 14,523 15,815
Trading account
securities.................. 6,011 6,664 11,484 11,751
-------- -------- -------- --------
Total interest income... 504,663 473,601 989,694 956,669
-------- -------- -------- --------
INTEREST EXPENSE
Deposits in domestic
offices................... 125,407 107,003 251,811 215,601
Deposits in foreign
offices................... 19,487 17,731 37,397 35,473
Federal funds purchased and
securities sold under
repurchase agreements..... 15,492 12,208 25,883 27,845
Commercial paper............ 24,876 23,225 44,729 43,962
Other borrowed funds........ 7,564 17,306 18,503 33,759
Subordinated capital
notes..................... 4,821 7,889 10,324 16,123
-------- -------- -------- --------
Total interest
expense............... 197,647 185,362 388,647 372,763
-------- -------- -------- --------
NET INTEREST INCOME........... 307,016 288,239 601,047 583,906
Provision for credit losses... -- 10,000 -- 20,000
-------- -------- -------- --------
Net interest income
after provision for
credit losses......... 307,016 278,239 601,047 563,906
-------- -------- -------- --------
NONINTEREST INCOME
Service charges on deposit
accounts.................. 28,307 25,067 55,428 49,028
Trust fees.................. 25,696 23,309 49,594 45,557
International commissions
and fees.................. 17,306 17,124 32,385 33,402
Credit card merchant fees... 14,283 12,905 27,327 24,503
Merchant banking fees....... 6,445 5,234 14,825 14,482
Investment securities gains,
net....................... 81 2,621 552 3,237
Other....................... 18,903 19,290 45,696 38,215
-------- -------- -------- --------
Total noninterest
income................ 111,021 105,550 225,807 208,424
-------- -------- -------- --------
NONINTEREST EXPENSE
Salaries and employee
benefits.................. 137,173 139,964 277,961 282,315
Occupancy................... 22,884 24,270 42,514 46,225
Equipment................... 14,143 13,336 27,830 27,149
Communications.............. 10,518 9,334 20,786 18,021
Credit card processing...... 10,545 10,038 20,267 18,407
Professional services....... 7,882 6,592 12,601 12,461
Advertising and public
relations................. 7,218 6,702 13,227 13,695
Data processing............. 6,148 4,689 12,571 10,007
Printing and office
supplies.................. 6,087 6,434 12,256 12,532
Foreclosed asset expense.... 465 867 876 4,141
Merger and integration...... -- 61,266 6,037 61,266
Other....................... 32,690 30,292 61,965 59,589
-------- -------- -------- --------
Total noninterest
expense............... 255.753 313,784 508,891 565,808
-------- -------- -------- --------
Income before income taxes.... 162,284 70,005 317,963 206,522
Income tax expense............ 65,739 25,597 128,916 78,848
-------- -------- -------- --------
NET INCOME.................... $ 96,545 $ 44,408 $189,047 $127,674
-------- -------- -------- --------
-------- -------- -------- --------
NET INCOME APPLICABLE TO:
Common stock................ $ 88,097 $ 39,096 $172,388 $115,864
-------- -------- -------- --------
-------- -------- -------- --------
Parent direct interest in
bank subsidiary........... $ 5,621 $ 2,486 $ 11,006 $ 6,158
-------- -------- -------- --------
-------- -------- -------- --------
NET INCOME PER AVERAGE COMMON
SHARE........................ $ 1.61 $ 0.71 $ 3.15 $ 2.12
-------- -------- -------- --------
-------- -------- -------- --------
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING (IN THOUSANDS)... 54,796 54,752 54,780 54,721
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(UNAUDITED) (UNAUDITED)
JUNE 30, DECEMBER 31, JUNE 30,
(DOLLARS IN THOUSANDS) 1997 1996 1996
- ----------------------------------------------------------------------- ------------ ------------ ------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks................................................ $ 2,340,247 $2,268,771 $ 1,951,582
Interest bearing deposits in banks..................................... 919,040 1,131,216 914,087
Federal funds sold and securities purchased under resale agreements.... 262,700 537,710 488,240
------------ ------------ ------------
Total cash and cash equivalents.................................... 3,521,987 3,937,697 3,353,909
Trading account securities............................................. 580,401 617,464 544,551
Investment securities available for sale............................... 2,531,733 2,164,197 1,917,089
Investment securities held to maturity (market value of $252,188 at
June 30, 1997, $274,405 at December 31, 1996, and $314,203 at June 30,
1996)................................................................. 247,809 268,196 309,712
Loans.................................................................. 21,951,559 20,898,105 20,480,678
Less: Allowance for credit losses...................................... 502,114 523,946 545,345
------------ ------------ ------------
Net loans.......................................................... 21,449,445 20,374,159 19,935,333
Customers' acceptance liability........................................ 803,272 778,378 884,162
Premises and equipment, net............................................ 410,831 410,621 424,116
Intangible assets...................................................... 84,439 91,129 97,827
Other assets........................................................... 645,233 592,218 648,217
------------ ------------ ------------
Total assets....................................................... $ 30,275,150 $29,234,059 $ 28,114,916
------------ ------------ ------------
------------ ------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits in domestic offices:
Noninterest bearing.................................................. $ 7,674,300 $7,381,078 $ 6,696,146
Interest bearing..................................................... 12,983,561 12,607,691 11,565,169
Deposits in foreign offices:
Noninterest bearing.................................................. 296,848 274,031 317,082
Interest bearing..................................................... 1,398,210 1,270,160 1,387,111
------------ ------------ ------------
Total deposits..................................................... 22,352,919 21,532,960 19,965,508
Federal funds purchased and securities sold under repurchase
agreements............................................................ 1,114,292 1,322,654 1,130,840
Commercial paper....................................................... 1,756,777 1,495,463 1,736,712
Other borrowed funds................................................... 528,385 758,251 970,848
Acceptances outstanding................................................ 803,272 778,378 884,162
Other liabilities...................................................... 597,648 469,420 519,459
Subordinated capital notes............................................. 482,000 382,000 495,369
------------ ------------ ------------
Total liabilities.................................................. 27,635,293 26,739,126 25,702,898
------------ ------------ ------------
SHAREHOLDERS' EQUITY
Parent direct interest in equity of bank subsidiary.................... 137,227 128,689 125,320
Preferred stock:
Authorized 5,000,000 shares, issued 1,350,000 shares 8 3/8%
Noncumulative, Series A............................................ 135,000 135,000 135,000
Common stock--$5 stated value:
Authorized 100,000,000 shares, issued 54,866,952 as of June 30, 1997,
54,762,653 as of December 31, 1996, and 54,757,877 as of June 30,
1996............................................................... 274,334 273,813 273,789
Additional paid-in capital............................................. 1,316,973 1,310,813 1,310,428
Retained earnings...................................................... 766,419 635,180 563,437
Cumulative translation adjustment...................................... (3,580) (2,752) (2,157)
Net unrealized gain on securities available for sale................... 13,484 14,190 6,201
------------ ------------ ------------
Total shareholders' equity......................................... 2,639,857 2,494,933 2,412,018
------------ ------------ ------------
Total liabilities and shareholders' equity......................... $ 30,275,150 $29,234,059 $ 28,114,916
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30,
------------------------
(DOLLARS IN THOUSANDS) 1997 1996
- --------------------------------------------------------------------------------------- ----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................................................... $ 189,047 $ 127,674
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses........................................................ -- 20,000
Depreciation, amortization and accretion........................................... 32,698 32,196
Provision for deferred income taxes................................................ 17,606 19,482
Gain on sale or call of investment securities available for sale, net.............. (552) (3,237)
Noncash portion of provision for merger and integration expense.................... 1,026 51,077
Other, net......................................................................... 95,397 (388,659)
----------- -----------
Total adjustments................................................................ 146,175 (269,141)
----------- -----------
Net cash provided (used) by operating activities..................................... 335,222 (141,467)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of investment securities available for sale....................... 989 11,667
Proceeds from matured and called investment securities available for sale............ 111,123 495,606
Purchase of investment securities available for sale................................. (431,931) (419,552)
Proceeds from matured and called investment securities held to maturity.............. 20,636 50,687
Net increase in loans................................................................ (1,124,544) (292,040)
Other, net........................................................................... (32,882) (22,769)
----------- -----------
Net cash used by investing activities.............................................. (1,456,609) (176,401)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits............................................................. 819,959 310,465
Net decrease in federal funds purchased and securities sold under repurchase
agreements......................................................................... (208,362) (64,218)
Net increase in commercial paper and other borrowed funds............................ 31,448 348,107
Net increase (decrease) in subordinated capital notes................................ 100,000 (6,000)
Dividends paid....................................................................... (46,180) (181,734)
Repayment of borrowing to support corporate owned life insurance..................... -- (95,475)
Other, net........................................................................... 1,490 1,193
----------- -----------
Net cash provided (used) by financing activities................................... 698,355 312,338
----------- -----------
Net increase (decrease) in cash and cash equivalents................................... (423,032) (5,530)
Cash and cash equivalents at beginning of period....................................... 3,937,697 3,352,423
Foreign exchange revaluation gain...................................................... 7,322 7,016
----------- -----------
Cash and cash equivalents at end of period............................................. $ 3,521,987 $ 3,353,909
----------- -----------
----------- -----------
CASH PAID DURING THE PERIOD FOR:
Interest............................................................................. $ 402,018 $ 373,902
Income taxes......................................................................... 80,080 43,249
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Loans transferred to foreclosed assets............................................... $ 12,856 $ 17,629
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
NET
PARENT UNREALIZED
DIRECT GAIN
INTEREST IN ADDITIONAL CUMULATIVE ON SECURITIES
BANK PREFERRED COMMON PAID-IN RETAINED TRANSLATION AVAILABLE FOR
(DOLLARS IN THOUSANDS) SUBSIDIARY STOCK STOCK CAPITAL EARNINGS ADJUSTMENT SALE
- --------------------------------- ----------- ----------- ----------- ----------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995..... $ 159,996 $ 135,000 $ 273,351 $1,306,697 $ 585,680 $ (972) $ 24,340
Decrease in unrealized gain on
securities available for sale,
net of taxes.................... (865) (18,139)
Net income....................... 6,158 121,516
Dividend reinvestment plan....... 116 1,077
Dividends on common stock ($0.70
per share) (1).................. (31,960)
Dividends on preferred stock..... (5,652)
Dividend to MBL (2).............. (39,890) (105,000)
Deferred compensation--restricted
stock awards.................... 212 2,095 (1,147)
Stock options exercised.......... 110 559
Change in translation
adjustment...................... (79) (1,185)
----------- ----------- ----------- ----------- --------- ----------- -------------
BALANCE AT JUNE 30, 1996......... $ 125,320 $ 135,000 $ 273,789 $1,310,428 $ 563,437 $ (2,157) $ 6,201
----------- ----------- ----------- ----------- --------- ----------- -------------
----------- ----------- ----------- ----------- --------- ----------- -------------
BALANCE AT DECEMBER 31, 1996..... $ 128,689 $ 135,000 $ 273,813 $1,310,813 $ 635,180 $ (2,752) $ 14,190
Decrease in unrealized gain on
securities available for sale,
net of taxes.................... 19 (706)
Net income....................... 11,006 178,041
Dividend reinvestment plan....... 1 (76)
Dividends on common stock ($0.70
per share)...................... (2,434) (38,368)
Dividends on preferred stock..... (5,653)
Deferred compensation--restricted
stock awards.................... 287 3,558 (2,781)
Stock options exercised.......... 233 2,678
Change in translation
adjustment...................... (53) (828)
----------- ----------- ----------- ----------- --------- ----------- -------------
BALANCE AT JUNE 30, 1997......... $ 137,227 $ 135,000 $ 274,334 $1,316,973 $ 766,419 $ (3,580) $ 13,484
----------- ----------- ----------- ----------- --------- ----------- -------------
----------- ----------- ----------- ----------- --------- ----------- -------------
<CAPTION>
(DOLLARS IN THOUSANDS) TOTAL
- --------------------------------- ---------
<S> <C>
BALANCE AT DECEMBER 31, 1995..... $2,484,092
Decrease in unrealized gain on
securities available for sale,
net of taxes.................... (19,004)
Net income....................... 127,674
Dividend reinvestment plan....... 1,193
Dividends on common stock ($0.70
per share) (1).................. (31,960)
Dividends on preferred stock..... (5,652)
Dividend to MBL (2).............. (144,890)
Deferred compensation--restricted
stock awards.................... 1,160
Stock options exercised.......... 669
Change in translation
adjustment...................... (1,264)
---------
BALANCE AT JUNE 30, 1996......... $2,412,018
---------
---------
BALANCE AT DECEMBER 31, 1996..... $2,494,933
Decrease in unrealized gain on
securities available for sale,
net of taxes.................... (687)
Net income....................... 189,047
Dividend reinvestment plan....... (75)
Dividends on common stock ($0.70
per share)...................... (40,802)
Dividends on preferred stock..... (5,653)
Deferred compensation--restricted
stock awards.................... 1,064
Stock options exercised.......... 2,911
Change in translation
adjustment...................... (881)
---------
BALANCE AT JUNE 30, 1997......... $2,639,857
---------
---------
</TABLE>
- ------------------------------
(1) Based on historical Union Bank common cash dividends declared and does not
include a $145 million dividend paid to The Mitsubishi Bank, Limited in the
first quarter of 1996 by BanCal Tri-State Corporation and The Bank of
California, N.A.
(2) The Mitsubishi Bank, Limited.
See accompanying notes to condensed consolidated financial statements.
7
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(UNAUDITED)
NOTE 1 -- BASIS OF PRESENTATION AND NATURE OF OPERATIONS
The unaudited condensed consolidated financial statements of UnionBanCal
Corporation and subsidiaries (the "Company") have been prepared in accordance
with generally accepted accounting principles ("GAAP") for interim financial
reporting and the instructions to Form 10-Q. Accordingly, they do not include
all of the information and footnote disclosures necessary for complete financial
statements in conformity with GAAP. The preparation of financial statements in
conformity with GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expense during the reporting period. Actual
results could differ from those estimates. These unaudited condensed
consolidated financial statements should be read in conjunction with the audited
consolidated financial statements included in the Company's Form 10-K for the
year ended December 31, 1996.
In the opinion of management, all adjustments (comprised of normal accruals)
considered necessary for a fair presentation of the Company's interim financial
statements have been included.
Primary and fully diluted earnings per share are computed based on net
income after preferred dividends and parent direct interest in bank subsidiary,
and use the weighted average number of common shares and equivalent common
shares outstanding during the period. Stock options are a common stock
equivalent but, for the periods presented, did not have a dilutive effect and
are, therefore, not included in the Company's earnings per share calculations.
NOTE 2 -- RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1996, Statement of Financial Accounting Standards ("SFAS") No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities" was issued. This Statement establishes standards for when
transfers of financial assets, including those with continuing involvement by
the transferor, should be considered a sale. SFAS No. 125 also establishes
standards for when a liability should be considered extinguished. This statement
is effective for transfers of assets and extinguishments of liabilities after
December 31, 1996. In December 1996, the Financial Accounting Standards Board
("FASB") reconsidered certain provisions of SFAS No. 125 and issued SFAS No.
127, "Deferral of the Effective Date of Certain Provisions of FASB Statement No.
125" to defer for one year the effective date of implementation for transactions
related to repurchase agreements, dollar-roll repurchase agreements, securities
lending and similar transactions. Management determined that the effect of
adoption of SFAS No. 125 on the Company's financial statements was not material
and believes that the effect of adoption of SFAS No. 127 will also not be
material.
In February 1997, the FASB issued SFAS No. 128, "Earnings per Share". This
Statement simplifies the standards for computing earnings per share ("EPS") and
makes them comparable to international EPS standards. SFAS No. 128 replaces the
presentation of primary EPS with a presentation of basic EPS. In addition, all
entities with complex capital structures are required to provide a dual
disclosure of basic and diluted EPS on the face of the income statement and a
reconciliation of the numerator and denominator of the basic EPS computation to
the numerator and denominator of the diluted EPS computation. This Statement
applies to entities with publicly held common stock or potential common stock
and is effective for financial statements issued for periods ending after
December 15, 1997, including interim periods, and requires restatement of all
prior period EPS data presented.
8
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997
(UNAUDITED)
NOTE 2 -- RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS (CONTINUED)
The following table provides pro forma disclosure of basic and diluted EPS
in accordance with SFAS No. 128:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Pro forma basic EPS..................................................... 1.61 0.71 3.15 2.12
Pro forma diluted EPS................................................... 1.60 0.71 3.14 2.11
</TABLE>
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income", which requires that an enterprise report, by major components and as a
single total, the change in its net assets during the period from non-owner
sources; and No. 131, "Disclosures about Segments of an Enterprise and Related
Information", which establishes annual and interim reporting standards for an
enterprise's operating segments and related disclosures about its products,
services, geographic areas, and major customers. Adoption of these statements
will not impact the Company's consolidated financial position, results of
operations or cash flows, and any effect will be limited to the form and content
of its disclosures. Both statements are effective for fiscal years beginning
after December 15, 1997, with earlier application permitted.
NOTE 3 -- SUBSEQUENT EVENT
Subsequent to June 30, 1997, the Franchise Tax Board of the State of
California approved tax and interest refunds to settle litigation,
administration and audit disputes covering tax years 1975-1987. The final
agreement is expected to be signed during the third quarter of 1997. It is
estimated that the effect will be to reduce income tax expense and,
correspondingly, to increase net income by approximately $25 million for the
three and nine month periods ending September 30, 1997.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
UnionBanCal Corporation is a San Francisco, California-based bank holding
company with consolidated assets of $30 billion at June 30, 1997. Its primary
banking subsidiary is Union Bank of California, N.A., the third largest
commercial bank in California, and among the 30 largest banks in the United
States. Union Bank of California, N.A., had 237 banking offices in California, 5
banking offices in Oregon and Washington and 18 overseas facilities at June 30,
1997. UnionBanCal Corporation is 81 percent owned by The Bank of
Tokyo-Mitsubishi, Ltd., and 19 percent owned by other shareholders. Union Bank
of California, N.A., is 94 percent owned by UnionBanCal Corporation and 6
percent directly owned by The Bank of Tokyo-Mitsubishi, Ltd.
THIS DOCUMENT MAY CONTAIN FORWARD-LOOKING STATEMENTS THAT ARE SUBJECT TO
RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
FROM THOSE INDICATED. FOR A DISCUSSION OF FACTORS THAT COULD CAUSE ACTUAL
RESULTS TO DIFFER, PLEASE SEE THE DISCUSSION CONTAINED HEREIN AND IN THE
COMPANY'S PUBLICLY AVAILABLE SECURITIES AND EXCHANGE COMMISSION FILINGS AND
PRESS RELEASES.
The interim financial information should be read in conjunction with the
Company's Form 10-K for the year ended December 31, 1996. Certain amounts for
prior periods have been reclassified to conform with current financial statement
presentation.
MERGER ACCOUNTING
UnionBanCal Corporation was formed from the combination of Union Bank with
BanCal Tri-State Corporation and its banking subsidiary, The Bank of California,
N.A., on April 1, 1996. The merger was effected by the issuance of 18,134,027
shares of Union Bank common stock in exchange for all the outstanding common
shares of BanCal Tri-State Corporation.
The combination was accounted for as a reorganization of entities under
common control (similar to a pooling of interests). Accordingly, all historical
financial information has been restated as if the combination had been in effect
for all periods presented.
To facilitate the discussion of the results of operations, the Consolidated
Financial Highlights on pages 2 and 3 and the Analysis of Earnings on page 13
include certain pro forma earnings disclosures. These presentations supplement
the Condensed Consolidated Statements of Income on page 4 (which are prepared in
accordance with GAAP) with respect to the treatment of merger and integration
expense. Management believes that it is meaningful to review the operating
results trends excluding merger and integration expense and, therefore, has
included information in the Consolidated Financial Highlights and the Analysis
of Earnings which presents earnings before and after income taxes, as well as
certain financial ratios, excluding merger and integration expense.
10
<PAGE>
SUMMARY
Net income in the second quarter of 1997 was $97 million, compared with $44
million in the second quarter of 1996. Net income applicable to common stock was
$88 million, or $1.61 per common share, in the second quarter of 1997, compared
with $39 million, or $0.71 per common share, in the second quarter of 1996. Pro
forma earnings, excluding after-tax merger and integration expense, were $97
million in the second quarter of 1997, an increase of 17 percent from $83
million a year earlier. Pro forma earnings applicable to common stock were $88
million, or $1.61 per common share, compared with $75 million, or $1.37 per
common share, in the second quarter of 1996. Other highlights of the second
quarter of 1997 include:
- Net interest income on a taxable-equivalent basis was $308 million in the
second quarter of 1997, an $18 million, or 6 percent, increase from the
comparable period one year earlier, primarily due to a $1.5 billion, or 6
percent, increase in average earning assets and a 12 percent increase in
average demand deposits.
- No provision for credit losses was recorded, compared with $10 million in
the second quarter of 1996, reflecting improvement in the quality of the
loan portfolio. Net loans charged off in the second quarter of 1997, were
$21 million, or 0.39% of average loans outstanding, compared with $12
million, or 0.24% of average loans outstanding, for the second quarter of
1996.
- Noninterest income was $111 million, an increase of $5 million over the
second quarter of 1996, due primarily to an increase in service charges on
deposits of $3 million and an increase in trust fees of $2 million.
- Noninterest expense, excluding merger and integration expense, was $256
million for the second quarter of 1997, compared with $253 million for the
second quarter of 1996, an increase of 1 percent. Salaries and employee
benefits declined $3 million due to staff reductions and occupancy
declined $1 million due to the closure of banking offices, while all other
noninterest expense combined increased $7 million or 8 percent. No merger
and integration expense was recorded in the second quarter of 1997,
compared with $61 million in the second quarter of 1996.
- The effective tax rate for second quarter 1997 was 41 percent compared
with 37 percent for the same quarter in 1996, primarily due to a $5
million tax benefit in 1996 reflecting the settlement of a unitary tax
issue with the California Franchise Tax Board.
- In the second quarter 1997, the return on average assets increased to
1.32% from 0.64% a year earlier. The return on average common equity
increased to 15.16% from 7.26%. Excluding the after-tax effect of merger
and integration expense, the pro forma return on average assets increased
to 1.32% from 1.20%, while the pro forma return on average common equity
increased to 15.16% from 13.95%.
- Total loans at June 30, 1997, increased $1.5 billion, or 7 percent, over
June 30, 1996, primarily due to growth in the commercial, financial and
industrial and the commercial mortgage portfolios. At $22.0 billion, total
loans were 4 percent higher at June 30, 1997 than at March 31, 1997.
- Nonperforming assets declined $52 million, or 23 percent, from June 30,
1996, to $176 million at June 30, 1997. Nonperforming assets as a percent
of total assets were 0.58% at June 30, 1997 compared with 0.81% a year
earlier. Total nonaccrual loans at June 30, 1997 and 1996 were $146
million and $191 million, respectively. This decrease caused the ratio of
nonaccrual and renegotiated loans to total loans to drop from 0.94% to
0.67%.
- The Company's Tier 1 and total risk-based capital ratios were 9.19% and
11.59% at June 30, 1997, compared with 8.94% and 11.24% at June 30, 1996.
The second quarter 1997 leverage ratio for the Company was 8.68%, compared
with 8.33% for the second quarter of 1996. The increase in the capital
ratios was primarily attributable to additional retained earnings.
11
<PAGE>
SUMMARY (CONTINUED)
Net income in the first half of 1997 was $189 million, including $4 million
of after-tax merger and integration expense recorded in connection with the
April 1, 1996, combination of Union Bank and BanCal Tri-State Corporation. Net
income for the first half of 1996 was $128 million, including $38 million of
after-tax merger and integration expense. Net income applicable to common stock
was $172 million, or $3.15 per common share, in the first half of 1997, compared
with $116 million, or $2.12 per common share, in the first half of 1996. Pro
forma earnings, excluding after-tax merger and integration expense, were $193
million, an increase of 16 percent from a year earlier. Pro forma earnings
applicable to common stock were $176 million, or $3.21 per common share,
compared with $152 million, or $2.78 per common share, in the first half of
1996. Other comparisons of the first half of 1997 with the first half of 1996
are as follows:
- Net interest income on a taxable-equivalent basis was $604 million in the
first half of 1997, a $16 million, or 3 percent, increase from the
comparable period one year earlier. Although the net interest margin
declined 12 basis points to 4.72 percent, largely due to a drop in the
average domestic loan yield of 17 basis points, net interest income
increased, primarily due to loan growth of 5 percent and demand deposit
growth of 11 percent.
- No provision for credit losses was recorded, compared with $20 million in
the first half of 1996, reflecting improvement in the quality of the loan
portfolio. Net loans charged off in the first half of 1997 were $22
million, or 0.21% of average loans outstanding, compared with $30 million,
or 0.30% of average loans outstanding, in the same period a year earlier.
- Noninterest income was $226 million, an increase of $17 million over the
first half of 1996, due primarily to a $6 million increase in service
charges on deposits and an $8 million gain on a real estate joint venture.
- Noninterest expense, excluding merger and integration expense, was $503
million in the first half of 1997, compared with $505 million in the first
half of 1996. Personnel-related and occupancy expense decreased by $4
million each as a result of merger consolidations. In addition, foreclosed
asset expense declined $3 million. These decreases were mostly offset by
increases in other noninterest expense categories.
- The effective tax rate for the first half of 1997 was 41%, compared with
38% for the same period of 1996. The increase was primarily due to a $5
million tax benefit in 1996 reflecting the settlement of a unitary tax
issue with the California Franchise Tax Board and to a post-merger
increase in the effective state tax rate.
- The return on average assets increased to 1.31% from 0.93%. The return on
average common equity increased to 15.14% from 10.65%. Excluding the
after-tax effect of merger and integration expense, the pro forma return
on average assets increased to 1.33% from 1.21%, while the pro forma
return on average common equity increased to 15.43% from 13.96%. The 12
basis point increase in pro forma return on average assets was
attributable to a 16 percent increase in pro forma earnings combined with
a 5 percent increase in average assets. Similarly, the 147 basis point
increase in pro forma return on average common equity was due to a 16
percent increase in pro forma earnings applicable to common stock combined
with a 5 percent increase in average common equity.
12
<PAGE>
ANALYSIS OF EARNINGS
<TABLE>
<CAPTION>
FOR THE SIX
FOR THE THREE MONTHS ENDED MONTHS ENDED
--------------------------------------------------------------- --------------------
JUNE 30, MARCH 31, DECEMBER 31, SEPTEMBER 30, JUNE 30, JUNE 30, JUNE 30,
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1997 1997 1996 1996 1996 1997 1996
- ------------------------------------- --------- ----------- ------------- ------------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
EARNINGS SUMMARY
Interest income (1)................ $ 506,048 $ 486,452 $ 490,803 $ 482,404 $ 475,625 $ 992,500 $ 960,821
Interest expense................... 197,647 191,000 196,236 189,727 185,362 388,647 372,763
--------- ----------- ------------- ------------- --------- --------- ---------
Net interest income (1)............ 308,401 295,452 294,567 292,677 290,263 603,853 588,058
Provision for credit losses........ -- -- 10,000 10,000 10,000 -- 20,000
Noninterest income................. 111,021 114,786 102,972 107,280 105,550 225,807 208,424
Noninterest expense, excluding
merger and integration expense
(2).............................. 255,753 247,101 254,375 258,523 252,518 502,854 504,542
--------- ----------- ------------- ------------- --------- --------- ---------
Income before merger and
integration expense and income
taxes (1)(2)..................... 163,669 163,137 133,164 131,434 133,295 326,806 271,940
Merger and integration expense
(2).............................. -- 6,037 30,646 25,552 61,266 6,037 61,266
--------- ----------- ------------- ------------- --------- --------- ---------
Income before income taxes (1)..... 163,669 157,100 102,518 105,882 72,029 320,769 210,674
Taxable-equivalent adjustment...... 1,385 1,421 1,483 1,089 2,024 2,806 4,152
Income tax expense................. 65,739 63,177 41,234 42,810 25,597 128,916 78,848
--------- ----------- ------------- ------------- --------- --------- ---------
Net income......................... $ 96,545 $ 92,502 $ 59,801 $ 61,983 $ 44,408 $ 189,047 $ 127,674
--------- ----------- ------------- ------------- --------- --------- ---------
--------- ----------- ------------- ------------- --------- --------- ---------
Net income applicable to:
Common stock..................... $ 88,097 $ 84,291 $ 53,472 $ 55,745 $ 39,096 $ 172,388 $ 115,864
--------- ----------- ------------- ------------- --------- --------- ---------
--------- ----------- ------------- ------------- --------- --------- ---------
Parent direct interest in bank
subsidiary..................... $ 5,621 $ 5,385 $ 3,503 $ 3,411 $ 2,486 $ 11,006 $ 6,158
--------- ----------- ------------- ------------- --------- --------- ---------
--------- ----------- ------------- ------------- --------- --------- ---------
RECAP OF EARNINGS
Net income......................... $ 96,545 $ 92,502 $ 59,801 $ 61,983 $ 44,408 $ 189,047 $ 127,674
Merger and integration expense
(after-tax) (2).................. -- 3,550 18,570 15,025 38,323 3,550 38,323
--------- ----------- ------------- ------------- --------- --------- ---------
Pro forma earnings, excluding
merger and integration expense
(2).............................. $ 96,545 $ 96,052 $ 78,371 $ 77,008 $ 82,731 $ 192,597 $ 165,997
--------- ----------- ------------- ------------- --------- --------- ---------
--------- ----------- ------------- ------------- --------- --------- ---------
Net income applicable to common
stock............................ $ 88,097 $ 84,291 $ 53,472 $ 55,745 $ 39,096 $ 172,388 $ 115,864
Merger and integration expense
(after-tax) applicable to common
stock (2)........................ -- 3,338 17,460 14,128 36,036 3,338 36,036
--------- ----------- ------------- ------------- --------- --------- ---------
Pro forma earnings applicable to
common stock, excluding merger
and integration expense (2)...... $ 88,097 $ 87,629 $ 70,932 $ 69,873 $ 75,132 $ 175,726 $ 151,900
--------- ----------- ------------- ------------- --------- --------- ---------
--------- ----------- ------------- ------------- --------- --------- ---------
PER COMMON SHARE
Net income......................... $ 1.61 $ 1.54 $ 0.98 $ 1.02 $ 0.71 $ 3.15 $ 2.12
Merger and integration expense
(after-tax) (2).................. -- 0.06 0.32 0.26 0.66 0.06 0.66
--------- ----------- ------------- ------------- --------- --------- ---------
Pro forma earnings, excluding
merger and integration expense
(2).............................. $ 1.61 $ 1.60 $ 1.30 $ 1.28 $ 1.37 $ 3.21 $ 2.78
--------- ----------- ------------- ------------- --------- --------- ---------
--------- ----------- ------------- ------------- --------- --------- ---------
Dividends (3)...................... $ 0.35 $ 0.35 $ 0.35 $ 0.35 $ 0.35 $ 0.70 $ 0.70
Book value (end of period)......... 43.15 41.76 40.74 40.04 39.29 43.15 39.29
Weighted average common shares
outstanding (in thousands)....... 54,796 54,765 54,760 54,759 54,752 54,780 54,721
</TABLE>
- ------------------------------
(1) Amounts are on a taxable-equivalent basis using the federal statutory tax
rate of 35 percent.
(2) See page 10, "Merger Accounting", for a description of merger accounting
and pro forma earnings presentations.
(3) The dividend amount for the first six months of 1996 does not include a
dividend of $145 million paid to The Mitsubishi Bank, Limited in the second
quarter of 1996 by BanCal Tri-State Corporation and The Bank of California,
N.A.
13
<PAGE>
NET INTEREST INCOME
The table below shows the major components of net interest income and net
interest margin.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
------------------------------------------------------------------------------------
JUNE 30, 1997 MARCH 31, 1997
----------------------------------------- -----------------------------------------
INTEREST AVERAGE INTEREST AVERAGE
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
(DOLLARS IN THOUSANDS) BALANCE EXPENSE (1) RATE (1) BALANCE EXPENSE (1) RATE (1)
- ----------------------------------------- -------------- ------------ ----------- -------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Loans: (2)
Domestic............................... $ 20,239,615 $ 416,966 8.26% $ 19,818,799 $ 401,456 8.19%
Foreign................................ 1,293,283 20,431 6.34 1,250,023 19,307 6.26
Investment securities--taxable (3)....... 2,459,386 38,641 6.29 2,312,482 35,829 6.24
Investment securities--tax-exempt (3).... 127,403 3,236 10.16 134,157 3,348 9.98
Interest bearing deposits in banks....... 1,099,134 16,080 5.87 802,784 11,199 5.66
Federal funds sold and securities
purchased under resale agreements...... 329,367 4,683 5.70 733,499 9,840 5.44
Trading account securities............... 458,103 6,011 5.26 396,277 5,473 5.60
-------------- ------------ -------------- ------------
Total earning assets................. 26,006,291 506,048 7.80 25,448,021 486,452 7.73
------------ ------------
Allowance for credit losses.............. (515,546) (531,621)
Cash and due from banks.................. 2,034,748 2,032,209
Premises and equipment, net.............. 412,993 416,582
Other assets............................. 1,500,811 1,425,210
-------------- --------------
Total assets......................... $ 29,439,297 $ 28,790,401
-------------- --------------
-------------- --------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits in domestic offices:
Interest bearing....................... $ 5,280,831 37,074 2.82 $ 5,212,126 35,961 2.80
Savings and consumer time.............. 2,955,092 27,890 3.79 2,918,508 27,025 3.76
Large time............................. 4,479,911 60,442 5.41 4,755,047 63,419 5.41
Deposits in foreign offices.............. 1,626,865 19,488 4.80 1,540,546 17,909 4.71
-------------- ------------ -------------- ------------
Total interest bearing deposits...... 14,342,699 144,894 4.05 14,426,227 144,314 4.06
-------------- ------------ -------------- ------------
Federal funds purchased and securities
sold under repurchase agreements....... 1,158,540 15,492 5.36 819,980 10,391 5.14
Subordinated capital notes............... 295,187 4,821 6.55 343,111 5,503 6.51
Other borrowed funds..................... 2,409,865 32,440 5.40 2,291,772 30,792 5.45
-------------- ------------ -------------- ------------
Total borrowed funds................. 3,863,592 52,753 5.48 3,454,863 46,686 5.48
-------------- ------------ -------------- ------------
Total interest bearing liabilities... 18,206,291 197,647 4.35 17,881,090 191,000 4.33
------------ ------------
Demand deposits.......................... 7,364,799 7,102,730
Other liabilities........................ 1,268,456 1,279,767
-------------- --------------
Total liabilities.................... 26,839,546 26,263,587
SHAREHOLDERS' EQUITY..................... 2,599,751 2,526,814
-------------- --------------
Total liabilities and shareholders'
equity............................. $ 29,439,297 $ 28,790,401
-------------- --------------
-------------- --------------
Net interest income/margin
(taxable-equivalent basis)............. 308,401 4.75% 295,452 4.69%
Less: taxable-equivalent adjustment...... 1,385 1,421
------------ ------------
Net interest income.................. $ 307,016 $ 294,031
------------ ------------
------------ ------------
<CAPTION>
DECEMBER 31, 1996
-----------------------------------------
INTEREST AVERAGE
AVERAGE INCOME/ YIELD/
(DOLLARS IN THOUSANDS) BALANCE EXPENSE (1) RATE (1)
- ----------------------------------------- -------------- ------------ -----------
<S> <C> <C> <C>
ASSETS
Loans: (2)
Domestic............................... $ 19,632,870 $ 404,481 8.20%
Foreign................................ 1,210,820 18,864 6.20
Investment securities--taxable (3)....... 2,234,788 34,408 6.14
Investment securities--tax-exempt (3).... 142,155 3,568 10.04
Interest bearing deposits in banks....... 980,076 14,126 5.73
Federal funds sold and securities
purchased under resale agreements...... 606,687 8,403 5.51
Trading account securities............... 488,505 6,953 5.66
-------------- ------------
Total earning assets................. 25,295,901 490,803 7.72
------------
Allowance for credit losses.............. (534,247)
Cash and due from banks.................. 2,020,856
Premises and equipment, net.............. 430,765
Other assets............................. 1,378,108
--------------
Total assets......................... $ 28,591,383
--------------
--------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits in domestic offices:
Interest bearing....................... $ 5,121,292 35,806 2.78
Savings and consumer time.............. 2,892,147 27,342 3.76
Large time............................. 4,759,405 65,018 5.43
Deposits in foreign offices.............. 1,486,542 17,720 4.74
-------------- ------------
Total interest bearing deposits...... 14,259,386 145,886 4.07
-------------- ------------
Federal funds purchased and securities
sold under repurchase agreements....... 692,535 8,784 5.05
Subordinated capital notes............... 391,685 6,489 6.59
Other borrowed funds..................... 2,521,206 35,077 5.53
-------------- ------------
Total borrowed funds................. 3,605,426 50,350 5.56
-------------- ------------
Total interest bearing liabilities... 17,864,812 196,236 4.37
------------
Demand deposits.......................... 7,030,556
Other liabilities........................ 1,220,071
--------------
Total liabilities.................... 26,115,439
SHAREHOLDERS' EQUITY..................... 2,475,944
--------------
Total liabilities and shareholders'
equity............................. $ 28,591,383
--------------
--------------
Net interest income/margin
(taxable-equivalent basis)............. 294,567 4.63%
Less: taxable-equivalent adjustment...... 1,483
------------
Net interest income.................. $ 293,084
------------
------------
</TABLE>
- ------------------------------
(1) Yields and interest income are presented on a taxable-equivalent basis
using the federal statutory tax rate of 35 percent.
(2) The amortized portion of net loan origination fees (costs) is included in
interest income on loans.
(3) Yields on investment securities available for sale were based on fair
value. The difference between these yields and those based on amortized
cost was not significant.
14
<PAGE>
NET INTEREST INCOME (CONTINUED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
------------------------------------------------------------------
SEPTEMBER 30, 1996 JUNE 30, 1996
------------------------------ ---------------------------------
INTEREST AVERAGE AVERAGE
INCOME/ YIELD/ INTEREST YIELD/
AVERAGE EXPENSE RATE AVERAGE INCOME/ RATE
(DOLLARS IN THOUSANDS) BALANCE (1) (1) BALANCE EXPENSE (1) (1)
- -------------------------------------------------------------- ----------- -------- ------- ----------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Loans: (2)
Domestic.................................................... $19,453,079 $402,143 8.22% $19,235,527 $ 396,344 8.29%
Foreign..................................................... 1,198,378 17,847 5.92 1,146,364 17,272 6.06
Investment securities--taxable (3)............................ 2,119,276 33,909 6.38 2,082,706 32,099 6.18
Investment securities--tax-exempt (3)......................... 147,623 3,735 10.12 157,139 4,024 10.24
Interest bearing deposits in banks............................ 864,087 12,485 5.75 833,804 11,821 5.70
Federal funds sold and securities purchased under resale
agreements................................................... 433,494 6,028 5.53 547,527 7,396 5.43
Trading account securities.................................... 439,227 6,257 5.67 489,698 6,669 5.48
----------- -------- ----------- -----------
Total earning assets...................................... 24,655,164 482,404 7.78 24,492,765 475,625 7.81
-------- -----------
Allowance for credit losses................................... (543,646) (546,744)
Cash and due from banks....................................... 1,918,643 1,911,415
Premises and equipment, net................................... 425,019 427,181
Other assets.................................................. 1,526,714 1,513,584
----------- -----------
Total assets.............................................. $27,981,894 $27,798,201
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits in domestic offices:
Interest bearing............................................ $ 5,037,400 34,137 2.70 $ 4,924,269 33,148 2.71
Savings and consumer time................................... 2,854,894 26,294 3.66 2,816,501 25,695 3.67
Large time.................................................. 4,137,305 55,932 5.38 3,724,302 48,160 5.20
Deposits in foreign offices................................... 1,512,042 18,244 4.80 1,504,478 17,731 4.74
----------- -------- ----------- -----------
Total interest bearing deposits........................... 13,541,641 134,607 3.95 12,969,550 124,734 3.87
----------- -------- ----------- -----------
Federal funds purchased and securities sold under repurchase
agreements................................................... 817,236 10,466 5.09 1,022,271 12,208 4.80
Subordinated capital notes.................................... 452,211 7,492 6.59 495,369 7,889 6.40
Other borrowed funds.......................................... 2,759,849 37,162 5.36 3,032,052 40,531 5.38
----------- -------- ----------- -----------
Total borrowed funds...................................... 4,029,296 55,120 5.44 4,549,692 60,628 5.36
----------- -------- ----------- -----------
Total interest bearing liabilities........................ 17,570,937 189,727 4.30 17,519,242 185,362 4.26
-------- -----------
Demand deposits............................................... 6,640,131 6,560,900
Other liabilities............................................. 1,335,204 1,291,592
----------- -----------
Total liabilities......................................... 25,546,272 25,371,734
SHAREHOLDERS' EQUITY.......................................... 2,435,622 2,426,467
----------- -----------
Total liabilities and shareholders' equity................ $27,981,894 $27,798,201
----------- -----------
----------- -----------
Net interest income/margin (taxable-equivalent basis)......... 292,677 4.72% 290,263 4.77%
Less: taxable-equivalent adjustment........................... 1,089 2,024
-------- -----------
Net interest income....................................... $291,588 $ 288,239
-------- -----------
-------- -----------
</TABLE>
- ------------------------------
(1) Yields and interest income are presented on a taxable-equivalent basis
using the federal statutory tax rate of 35 percent.
(2) The amortized portion of net loan origination fees (costs) is included in
interest income on loans.
(3) Yields on investment securities available for sale were based on fair
value. The difference between these yields and those based on amortized
cost was not significant.
15
<PAGE>
NET INTEREST INCOME (CONTINUED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
------------------------------------------------------------------
JUNE 30, 1997 JUNE 30, 1996
------------------------------ ---------------------------------
INTEREST AVERAGE AVERAGE
INCOME/ YIELD/ INTEREST YIELD/
AVERAGE EXPENSE RATE AVERAGE INCOME/ RATE
(DOLLARS IN THOUSANDS) BALANCE (1) (1) BALANCE EXPENSE (1) (1)
- -------------------------------------------------------------- ----------- -------- ------- ----------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Loans: (2)
Domestic.................................................... $20,030,369 $818,422 8.23% $19,100,846 $ 797,806 8.40%
Foreign..................................................... 1,271,773 39,738 6.30 1,184,313 36,343 6.17
Investment securities--taxable (3)............................ 2,386,340 74,470 6.27 2,099,105 64,853 6.21
Investment securities--tax-exempt (3)......................... 130,761 6,584 10.07 159,128 8,148 10.24
Interest bearing deposits in banks............................ 951,777 27,279 5.78 901,098 26,098 5.82
Federal funds sold and securities purchased under resale
agreements................................................... 530,317 14,523 5.52 575,305 15,815 5.53
Trading account securities.................................... 427,361 11,484 5.42 423,596 11,758 5.58
----------- -------- ----------- -----------
Total earning assets...................................... 25,728,698 992,500 7.77 24,443,391 960,821 7.90
-------- -----------
Allowance for credit losses................................... (523,539) (550,731)
Cash and due from banks....................................... 2,033,552 1,881,872
Premises and equipment, net................................... 414,777 423,973
Other assets.................................................. 1,463,221 1,414,956
----------- -----------
Total assets.............................................. $29,116,709 $27,613,461
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits in domestic offices:
Interest bearing............................................ $ 5,246,668 73,035 2.81 $ 4,921,914 65,878 2.69
Savings and consumer time................................... 2,936,900 54,915 3.77 2,800,477 51,714 3.71
Large time.................................................. 4,616,719 123,861 5.41 3,738,208 98,009 5.27
Deposits in foreign offices................................... 1,583,944 37,397 4.76 1,508,895 35,473 4.73
----------- -------- ----------- -----------
Total interest bearing deposits........................... 14,384,231 289,208 4.05 12,969,494 251,074 3.89
----------- -------- ----------- -----------
Federal funds purchased and securities sold under repurchase
agreements................................................... 990,195 25,883 5.27 1,113,942 27,845 5.03
Subordinated capital notes.................................... 319,017 10,324 6.53 496,391 16,124 6.53
Other borrowed funds.......................................... 2,351,213 63,232 5.42 2,843,906 77,720 5.50
----------- -------- ----------- -----------
Total borrowed funds...................................... 3,660,425 99,439 5.48 4,454,239 121,689 5.49
----------- -------- ----------- -----------
Total interest bearing liabilities........................ 18,044,656 388,647 4.34 17,423,733 372,763 4.30
-------- -----------
Demand deposits............................................... 7,234,488 6,490,768
Other liabilities............................................. 1,274,081 1,233,753
----------- -----------
Total liabilities......................................... 26,553,225 25,148,254
SHAREHOLDERS' EQUITY.......................................... 2,563,484 2,465,207
----------- -----------
Total liabilities and shareholders' equity................ $29,116,709 $27,613,461
----------- -----------
----------- -----------
Net interest income/margin (taxable-equivalent basis)......... 603,853 4.72% 588,058 4.84%
Less: taxable-equivalent adjustment........................... 2,806 4,152
-------- -----------
Net interest income....................................... $601,047 $ 583,906
-------- -----------
-------- -----------
</TABLE>
- ------------------------------
(1) Yields and interest income are presented on a taxable-equivalent basis
using the federal statutory tax rate of 35 percent.
(2) The amortized portion of net loan origination fees (costs) is included in
interest income on loans.
(3) Yields on investment securities available for sale were based on fair
value. The difference between these yields and those based on amortized
cost was not significant.
16
<PAGE>
NET INTEREST INCOME (CONTINUED)
Net interest income is interest earned on loans and investments less
interest expense on deposit accounts and borrowings. Primary factors affecting
the level of net interest income include the margin between the yield earned on
interest earning assets and the rate paid on interest bearing liabilities, as
well as the composition of average interest earning assets and average interest
bearing liabilities.
Net interest income on a taxable-equivalent basis was $308 million for the
second quarter of 1997 and $290 million for the second quarter of 1996. This
increase of $18 million, or 6 percent, was primarily attributable to a $1.5
billion, or 6 percent, increase in average earning assets and an $804 million,
or 12 percent, increase in average demand deposits. At the same time, the net
interest margin declined 2 basis points to 4.75%, primarily as a result of a 9
basis point increase in the cost of interest bearing liabilities, which was
largely offset by an increase in the proportion of funding provided by demand
deposits.
Average earning assets were $26.0 billion in the second quarter of 1997,
compared with $24.5 billion in the second quarter of 1996. Most of this increase
was attributable to growth in average loans, which increased $1.2 billion, or 6
percent, while average investment securities were $347 million higher. See
"Loans" for additional commentary on growth in the loan portfolio. The increase
in investment securities reflected interest rate risk management actions to
reduce the Company's exposure to declines in interest rates.
The $1.5 billion, or 6 percent, growth in average earning assets from the
second quarter of 1996 to the second quarter of 1997 was funded primarily by
increases in demand deposits and interest bearing core deposits. Increases in
these categories were: demand deposits $804 million, or 12 percent; interest
bearing domestic deposits $357 million, or 7 percent; and savings and consumer
time deposits $139 million, or 5 percent. The average proportion of funding
provided by noninterest bearing and interest bearing core deposits (excluding
large time) increased from 65 percent in the second quarter of 1996 to 66
percent in the same period of 1997.
For the first half of 1997, net interest income on a taxable-equivalent
basis was $604 million, compared with $588 million in the comparable period one
year earlier. The increase of $16 million, or 3 percent, was primarily
attributable to a $1.3 billion, or 5 percent, increase in average earning assets
and a $744 million, or 11 percent, increase in average demand deposits.
Partially offsetting the positive impact of the growth in earning assets and
demand deposits on net interest income was a 12 basis point decline in the net
interest margin to 4.72%. The decline in the net interest margin resulted from
both an increase in the cost of lower cost sources of funds and a decrease in
the average yield on domestic loans. The cost of interest bearing core deposits
(excluding large time) increased by 8 basis points, while the yield on domestic
loans dropped by 17 basis points. The negative impact on the net interest margin
of these two factors was partially offset by an increase in the proportion of
funding provided by demand deposits.
17
<PAGE>
NONINTEREST INCOME
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
FOR THE THREE MONTHS ENDED ENDED
--------------------------------------------------------------- ----------------------
JUNE 30, MARCH 31, DECEMBER 31, SEPTEMBER 30, JUNE 30, JUNE 30, JUNE 30,
(DOLLARS IN THOUSANDS) 1997 1997 1996 1996 1996 1997 1996
- ----------------------------------- ---------- ---------- ------------ ------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Service charges on deposit
accounts.......................... $ 28,307 $ 27,121 $ 26,148 $ 26,799 $ 25,067 $ 55,428 $ 49,028
Trust fees......................... 25,696 23,898 23,824 24,098 23,309 49,594 45,557
International commissions and
fees.............................. 17,306 15,079 16,586 16,120 17,124 32,385 33,402
Credit card merchant fees.......... 14,283 13,044 11,554 13,721 12,905 27,327 24,503
Merchant banking fees.............. 6,445 8,380 4,718 4,729 5,234 14,825 14,482
Investment services................ 6,096 4,979 5,182 5,225 4,714 11,075 8,973
Foreign exchange................... 3,853 3,469 3,598 2,641 3,330 7,322 7,016
Investment securities gains, net... 81 471 637 628 2,621 552 3,237
Other.............................. 8,954 18,345 10,725 13,319 11,246 27,299 22,226
---------- ---------- ------------ ------------- ---------- ---------- ----------
Total noninterest income......... $ 111,021 $ 114,786 $ 102,972 $ 107,280 $ 105,550 $ 225,807 $ 208,424
---------- ---------- ------------ ------------- ---------- ---------- ----------
---------- ---------- ------------ ------------- ---------- ---------- ----------
</TABLE>
In the second quarter of 1997, noninterest income was $111 million, compared
with $106 million for the same period in 1996. This increase of $5 million
included a $3 million increase in service charges on deposits, arising from an
increase in the volume of non-credit services, and a $2 million increase in
trust fees, primarily due to growth in the Company's proprietary mutual funds.
Increases of approximately $1 million each in credit card merchant fees,
merchant banking fees, investment services fees, and foreign exchange fees were
offset by a $3 million decrease in net gains on sales of investment securities.
For the six months ended June 30, 1997, noninterest income increased to $226
million from $208 million for the same period in 1996. This increase of $18
million was primarily due to an $8 million gain from a real estate joint venture
(included in "Other" in the first quarter of 1997), a $6 million increase in
service charges on deposits, a $4 million increase in trust fees and a $3
million increase in credit card merchant fees, offset by a $3 million decrease
in net gains on sales of investment securities.
18
<PAGE>
NONINTEREST EXPENSE
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
FOR THE THREE MONTHS ENDED ENDED
--------------------------------------------------------------- ----------------------
JUNE 30, MARCH 31, DECEMBER 31, SEPTEMBER 30, JUNE 30, JUNE 30, JUNE 30,
(DOLLARS IN THOUSANDS) 1997 1997 1996 1996 1996 1997 1996
- ----------------------------------- ---------- ---------- ------------ ------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Salaries and other compensation.... $ 112,714 $ 108,601 $ 109,201 $ 113,416 $ 114,281 $ 221,315 $ 226,176
Employee benefits.................. 24,459 32,187 27,724 24,591 25,683 56,646 56,139
---------- ---------- ------------ ------------- ---------- ---------- ----------
Personnel-related expense........ 137,173 140,788 136,925 138,007 139,964 277,961 282,315
Occupancy.......................... 22,884 19,630 21,671 35,439 24,270 42,514 46,225
Equipment.......................... 14,143 13,687 14,790 14,003 13,336 27,830 27,149
Communications..................... 10,518 10,268 9,203 8,713 9,334 20,786 18,021
Credit card processing............. 10,545 9,722 9,065 9,619 10,038 20,267 18,407
Professional services.............. 7,882 4,719 5,737 6,144 6,592 12,601 12,461
Advertising and public relations... 7,218 6,009 9,585 5,508 6,702 13,227 13,695
Data processing.................... 6,148 6,423 6,565 5,568 4,689 12,571 10,007
Printing and office supplies....... 6,087 6,169 6,614 7,939 6,434 12,256 12,532
Software........................... 3,604 4,729 4,575 3,966 3,678 8,333 7,354
Intangible asset amortization...... 3,338 3,338 3,321 3,338 3,338 6,676 6,676
Travel............................. 4,369 3,195 4,487 3,553 3,822 7,564 6,896
Armored car........................ 2,956 3,113 4,778 4,458 4,171 6,069 8,256
Foreclosed asset expense
(income).......................... 465 411 (556) (696) 867 876 4,141
Other.............................. 18,423 14,900 17,615 12,964 15,283 33,323 30,407
---------- ---------- ------------ ------------- ---------- ---------- ----------
Noninterest expense, excluding
merger and integration
expense........................ 255,753 247,101 254,375 258,523 252,518 502,854 504,542
Merger and integration expense..... -- 6,037 30,646 25,552 61,266 6,037 61,266
---------- ---------- ------------ ------------- ---------- ---------- ----------
Total noninterest expense........ $ 255,753 $ 253,138 $ 285,021 $ 284,075 $ 313,784 $ 508,891 $ 565,808
---------- ---------- ------------ ------------- ---------- ---------- ----------
---------- ---------- ------------ ------------- ---------- ---------- ----------
</TABLE>
Noninterest expense, excluding merger and integration expense, was $256
million for the second quarter of 1997, compared with $253 million for the
second quarter of 1996, an increase of $3 million, or 1 percent.
Personnel-related expense decreased $3 million, or 2 percent, due to a 6 percent
decline in full-time equivalent employees. In addition, occupancy expense
decreased $1 million due to the consolidation of administrative functions and
the closure of banking offices. Offsetting these reductions was an increase of
$7 million, or 8 percent, in all other noninterest expense combined. No merger
and integration expense was recorded in the second quarter of 1997, compared
with $61 million in the same quarter in 1996.
For the six months ended June 30, 1997, noninterest expense, excluding
merger and integration expense of $6 million, was $503 million, compared with
$505 million, excluding merger and integration expense of $61 million, for the
first six months of 1996. This decrease of $2 million, or less than 1 percent,
resulted principally from a $4 million decrease in personnel-related expense,
primarily due to a 5 percent decline in full-time equivalent employees, a $4
million reduction in occupancy expense, and a $3 million decline in foreclosed
asset expense. These decreases were largely offset by increases in other
noninterest expense, primarily communications, credit card processing and data
processing expense.
19
<PAGE>
MERGER AND INTEGRATION EXPENSE
In the second quarter of 1997, no merger and integration expense was
recorded, compared with $6 million in the first quarter of 1997 and $61 million
in the second quarter of 1996. The combination of Union Bank and BanCal
Tri-State Corporation on April 1, 1996, resulted in the recording of a total of
$124 million in merger and integration expense.
The table that follows presents merger and integration expense provisions in
1996 and the first half of 1997, the cash and noncash utilization of those
expense provisions during the periods, and the resulting liability balances as
of June 30, 1997, and December 31, 1996.
<TABLE>
<CAPTION>
SIX MONTHS ENDED TWELVE MONTHS ENDED
(DOLLARS IN THOUSANDS) JUNE 30, 1997 DECEMBER 31, 1996
- ------------------------------------------------------------------------- ----------------- --------------------
<S> <C> <C>
Balance, accrued merger and integration expense, beginning of period..... $ 54,344 $ --
Provision for merger and integration costs............................... 6,037 117,464
Utilization:
Cash................................................................... 25,354 40,155
Noncash................................................................ 886 22,965
-------- -------
Total utilization.................................................... 26,240 63,120
-------- -------
Balance, accrued merger and integration expense, end of period........... $ 34,141 $ 54,344
-------- -------
-------- -------
</TABLE>
The Company's liquidity has not been significantly affected by these cash
outlays, and future cash outlays are not expected to significantly affect
liquidity.
INCOME TAX EXPENSE
The effective tax rates for the second quarter of 1997 and 1996 were 40.5
percent and 36.6 percent, respectively. The increase was primarily attributable
to a $5 million benefit recognized in the second quarter of 1996 from a
settlement with the California Franchise Tax Board for 1985 and 1986.
The effective tax rates for the six months ended June 30, 1997 and 1996,
were 40.5 percent and 38.2 percent, respectively. The increase in the effective
tax rate was primarily attributable to an increase in the effective state tax
rates as a result of the combination of Union Bank with BanCal Tri-State
Corporation and of their parents, The Bank of Tokyo, Ltd. and The Mitsubishi
Bank, Limited, on April 1, 1996, and to the settlement with the California
Franchise Tax Board in the second quarter of 1996.
20
<PAGE>
LOANS
<TABLE>
<CAPTION>
JUNE 30, MARCH 31, DECEMBER 31, SEPTEMBER 30, JUNE 30,
(DOLLARS IN THOUSANDS) 1997 1997 1996 1996 1996
- ------------------------------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Domestic:
Commercial, financial and
industrial....................... $ 10,385,050 $ 9,676,131 $ 9,492,255 $ 9,603,845 $ 9,439,260
Construction....................... 319,355 331,149 357,817 362,324 365,946
Mortgage:
Residential...................... 2,960,502 2,973,411 2,960,908 3,005,167 3,026,548
Commercial....................... 2,804,061 2,650,511 2,597,616 2,485,963 2,301,144
------------- ------------- ------------- ------------- -------------
Total mortgage................. 5,764,563 5,623,922 5,558,524 5,491,130 5,327,692
Consumer:
Installment...................... 2,054,050 2,061,883 2,063,434 2,038,849 1,943,889
Home equity...................... 1,058,937 1,064,357 1,113,269 1,137,454 1,166,428
Credit card and other lines of
credit......................... 279,163 284,009 303,235 296,131 298,798
------------- ------------- ------------- ------------- -------------
Total consumer................. 3,392,150 3,410,249 3,479,938 3,472,434 3,409,115
Lease financing.................... 857,935 824,325 800,048 823,082 830,889
------------- ------------- ------------- ------------- -------------
Total loans in domestic
offices...................... 20,719,053 19,865,776 19,688,582 19,752,815 19,372,902
Loans originated in foreign
branches............................ 1,232,506 1,234,150 1,209,523 1,193,950 1,107,776
------------- ------------- ------------- ------------- -------------
Total loans.................... $ 21,951,559 $ 21,099,926 $ 20,898,105 $ 20,946,765 $ 20,480,678
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
</TABLE>
The Company's lending activities are predominantly domestic, with such loans
comprising approximately 94 percent of the portfolio at June 30, 1997. Total
loans at June 30, 1997, were $22.0 billion, an increase of $1.5 billion, or 7
percent, from June 30, 1996. The increase was primarily attributable to growth
in the commercial, financial and industrial loan portfolio, which increased $946
million from June 30, 1996, and to the commercial real estate mortgage loan
portfolio, which increased $503 million.
Commercial, financial and industrial loans represent the largest category in
the loan portfolio. These loans are principally to major corporations, middle
market businesses, and small businesses, with no industry concentration
exceeding ten percent of the total. At June 30, 1997 and 1996, the commercial,
financial and industrial loan portfolio was $10.4 billion, or 47 percent of
total loans, and $9.4 billion, or 46 percent of total loans, respectively.
During the second quarter of 1997, commercial, financial and industrial loans
increased $709 million, or 7 percent. The increase was primarily attributable to
loans to large corporations in industries in which the bank has specialized
lending expertise.
The construction loan portfolio totaled $319 million, or 1 percent of total
loans, at June 30, 1997, compared with $366 million, or 2 percent of total
loans, at June 30, 1996.
Mortgage loans were $5.8 billion, or 26 percent of total loans, at June 30,
1997, and $5.3 billion, or 26 percent of total loans, at June 30, 1996. The
mortgage loan portfolio consists of loans on commercial and industrial projects
and loans secured by one to four family residential properties, primarily in
California. Commercial mortgages increased $503 million from June 30, 1996 to
June 30, 1997, primarily due to an increase in mini perm loans ranging from $1
million to $10 million in size.
Consumer loans totaled $3.4 billion, or 15 percent of total loans, at June
30, 1997, compared with $3.4 billion, or 17 percent of total loans, at June 30,
1996. This portfolio is primarily comprised of installment loans and home equity
loans.
Lease financing totaled $858 million, or 4 percent of total loans, at June
30, 1997, compared with $831 million, or 4 percent of total loans, at June 30,
1996.
Loans originated in foreign branches totaled $1.2 billion, or 6 percent of
total loans, at June 30, 1997, and $1.1 billion, or 5 percent of total loans, at
June 30, 1996.
21
<PAGE>
ALLOWANCE FOR CREDIT LOSSES
The allowance for credit losses is maintained at a level considered
appropriate by management and is based on an ongoing assessment of risk in the
credit and lease portfolio, including commitments to provide financing. The
allowance is increased by the provision for credit losses, which is charged
against current period operating results, and is decreased by the amount of net
loans charged off during the period. In evaluating the adequacy of the allowance
for credit losses, management incorporates such factors as collateral value,
portfolio composition and concentration, and trends in local and national
economic conditions and the related impact on the financial strength of the
Company's borrowers. While the allowance is segmented by broad portfolio
categories to analyze its adequacy, the allowance is general in nature and is
available for the portfolio in its entirety. Although management believes that
the allowance for credit losses is adequate, without any provision for credit
losses in the second quarter of 1997, future provisions will be subject to
continuing evaluation of risk in the credit and lease portfolio.
The table below sets forth a reconciliation of changes in the allowance for
credit losses.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
---------------------------------------------------------------
JUNE 30, MARCH 31, DECEMBER 31, SEPTEMBER 30, JUNE 30,
(DOLLARS IN THOUSANDS) 1997 1997 1996 1996 1996
- ----------------------------------------------- ---------- ---------- ------------ ------------- ----------
<S> <C> <C> <C> <C> <C>
Balance, beginning of period................... $ 522,835 $ 523,946 $ 535,087 $ 545,345 $ 547,401
Loans charged off:
Commercial, financial and industrial....... 12,628 5,175 13,280 10,289 6,628
Construction............................... 120 -- 2,376 -- 806
Mortgage................................... 1,549 1,888 1,706 5,086 2,621
Consumer................................... 13,466 12,539 18,083 12,293 12,162
Lease financing............................ 709 969 683 716 577
Loans originated in foreign branches....... 34 -- 42 1,256 49
---------- ---------- ------------ ------------- ----------
Total loans charged off.................. 28,506 20,571 36,170 29,640 22,843
Recoveries of loans previously charged off:
Commercial, financial and industrial....... 3,644 7,540 7,887 4,030 4,271
Construction............................... -- 6,891 2 -- 129
Mortgage................................... 610 1,474 4,310 2,230 3,097
Consumer................................... 3,402 3,481 2,786 3,027 3,147
Lease financing............................ 129 74 44 95 143
---------- ---------- ------------ ------------- ----------
Total recoveries of loans previously
charged off............................ 7,785 19,460 15,029 9,382 10,787
---------- ---------- ------------ ------------- ----------
Net loans charged off.................. 20,721 1,111 21,141 20,258 12,056
Provision for credit losses.................... -- -- 10,000 10,000 10,000
---------- ---------- ------------ ------------- ----------
Balance, end of period......................... $ 502,114 $ 522,835 $ 523,946 $ 535,087 $ 545,345
---------- ---------- ------------ ------------- ----------
---------- ---------- ------------ ------------- ----------
Allowance for credit losses to total loans..... 2.29% 2.48% 2.51% 2.55% 2.66%
Provision for credit losses to net loans
charged off................................... -- -- 47.30 49.36 82.95
Recoveries of loans to loans charged off in the
previous period............................... 37.84 53.80 50.71 41.07 35.28
Net loans charged off to average loans
outstanding for the period (1)................ 0.39 0.02 0.40 0.39 0.24
</TABLE>
- ------------------------------
(1) Annualized.
22
<PAGE>
ALLOWANCE FOR CREDIT LOSSES (CONTINUED)
At June 30, 1997, the Company's allowance for credit losses was $502
million, or 2.29 percent of total loans, and 344 percent of total nonaccrual
loans, compared with an allowance for credit losses at June 30, 1996, of $545
million, or 2.66 percent of total loans, and 285 percent of total nonaccrual
loans.
During the second quarter of 1997, the Company recorded no provision for
credit losses compared with a provision of $10 million in the second quarter of
1996. Similarly, there was no provision for credit losses in the first quarter
of 1997, compared to a provision of $10 million in the first quarter of 1996.
This resulted from management's regular quarterly assessment of overall credit
quality and economic conditions in relation to the level of the allowance for
credit losses. Future quarterly provisions will be subject to the same
evaluation process.
During the second quarter of 1997, net loans charged off were $21 million,
compared with $12 million in the second quarter of 1996. Net loans charged off
as a percentage of average total loans for the second quarter of 1997 increased
to 0.39%, compared with 0.24% for the same quarter last year. These increases
were primarily attributable to a $6 million increase in commercial loans charged
off. In addition, there were $8 million in recoveries during the second quarter
of 1997 compared with $11 million in recoveries for the same period in 1996.
The Company evaluates its loan portfolio for impairment as defined by
Statement of Financial Accounting Standards No. 114, as amended. At June 30,
1997, total impaired loans were $145 million, and the associated impairment
allowance was $10 million, compared with total impaired loans of $158 million
and an associated impairment allowance of $11 million, at June 30, 1996.
NONPERFORMING ASSETS
<TABLE>
<CAPTION>
JUNE 30, MARCH 31, DECEMBER 31, SEPTEMBER 30, JUNE 30,
(DOLLARS IN THOUSANDS) 1997 1997 1996 1996 1996
- ----------------------------------------------- ---------- ---------- ------------ ------------- ----------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans:
Commercial, financial and industrial....... $ 87,415 $ 70,778 $ 56,864 $ 70,920 $ 94,303
Construction............................... 8,804 5,009 7,349 10,670 10,974
Mortgage:
Residential.............................. 1,134 3,244 11,214 10,577 16,083
Commercial............................... 48,787 57,636 52,593 54,904 66,911
---------- ---------- ------------ ------------- ----------
Total mortgage......................... 49,921 60,880 63,807 65,481 82,994
Other...................................... -- -- 247 704 3,223
---------- ---------- ------------ ------------- ----------
Total nonaccrual loans................. 146,140 136,667 128,267 147,775 191,494
Renegotiated loans............................. -- -- -- -- 681
Foreclosed assets.............................. 30,059 30,378 28,517 32,882 35,998
---------- ---------- ------------ ------------- ----------
Total nonperforming assets............... $ 176,199 $ 167,045 $ 156,784 $ 180,657 $ 228,173
---------- ---------- ------------ ------------- ----------
---------- ---------- ------------ ------------- ----------
Allowance for credit losses.................... $ 502,114 $ 522,835 $ 523,946 $ 535,087 $ 545,345
---------- ---------- ------------ ------------- ----------
---------- ---------- ------------ ------------- ----------
Nonaccrual and renegotiated loans to total
loans......................................... 0.67% 0.65% 0.61% 0.71% 0.94%
Nonaccrual loans to allowance for credit
losses........................................ 29.10 26.14 24.48 27.62 35.11
Nonperforming assets to total loans and
foreclosed assets............................. 0.80 0.79 0.75 0.86 1.11
Nonperforming assets to total assets........... 0.58 0.57 0.54 0.63 0.81
</TABLE>
23
<PAGE>
NONPERFORMING ASSETS (CONTINUED)
At June 30, 1997, nonperforming assets totaled $176 million, a decrease of
$52 million, or 23 percent, from a year earlier. The decrease was primarily the
result of reductions of $18 million in nonaccrual commercial mortgage loans, $15
million in nonaccrual residential mortgage loans, $7 million in nonaccrual
commercial, financial and industrial loans, and $6 million in foreclosed assets.
The decrease in nonaccrual residential mortgage loans is a permanent reduction,
due to a change in policy in 1997. Since December 31, 1996, nonperforming assets
have increased by $19 million, primarily due to the addition of two nonaccrual
commercial, financial and industrial loans totaling $36 million.
Nonaccrual and renegotiated loans as a percentage of total loans were 0.67%
at June 30, 1997, compared with 0.94% at June 30, 1996. Nonperforming assets as
a percentage of total loans and foreclosed assets were 0.80% at June 30, 1997,
compared with 1.11% at June 30, 1996.
LOANS 90 DAYS OR MORE PAST DUE AND STILL ACCRUING
<TABLE>
<CAPTION>
JUNE 30, MARCH 31, DECEMBER 31, SEPTEMBER 30, JUNE 30,
(DOLLARS IN THOUSANDS) 1997 1997 1996 1996 1996
- -------------------------------------------------- --------- ----------- ------------ ------------- ---------
<S> <C> <C> <C> <C> <C>
Commercial, financial and industrial............. $ 2,085 $ 4,419 $ 4,527 $ 521 $ 1,800
Construction.................................... -- 5,081 -- 2,325 188
Mortgage:
Residential................................... 11,155 10,952 8,969 9,838 7,110
Commercial.................................... 2,190 13,742 168 16,372 117
--------- ----------- ------------ ------------- ---------
Total mortgage.............................. 13,345 24,694 9,137 26,210 7,227
Consumer and other.............................. 11,922 11,865 10,028 13,643 6,867
--------- ----------- ------------ ------------- ---------
Total loans 90 days or more past due and
still accruing............................ $ 27,352 $ 46,059 $ 23,692 $ 42,699 $ 16,082
--------- ----------- ------------ ------------- ---------
--------- ----------- ------------ ------------- ---------
</TABLE>
Total loans 90 days or more past due and still accruing were $27 million at
June 30, 1997, compared with $46 million at March 31, 1997, and $16 million at
June 30, 1996.
LIQUIDITY
Liquidity refers to the Company's ability to adjust its future cash flows to
meet the needs of depositors and borrowers and to fund operations on a timely
and cost-effective basis. The Company's liquidity management draws upon the
strengths of its extensive retail and commercial market business franchise,
coupled with its ability to obtain funds for various terms in a variety of
domestic and international money markets.
Core deposits provide the Company with a sizable source of relatively stable
and low-cost funds. In the second quarter of 1997, lower cost sources of funds,
which include demand deposits and interest bearing core deposits, funded 66
percent of average earning assets. Most of the remaining funding was provided by
short-term borrowing in the form of negotiable certificates of deposit, foreign
deposits, federal funds purchased and securities sold under repurchase
agreements, commercial paper, and other borrowings.
24
<PAGE>
REGULATORY CAPITAL
<TABLE>
<CAPTION>
MINIMUM
JUNE 30, MARCH 31, DECEMBER 31, SEPTEMBER 30, JUNE 30, REGULATORY
(DOLLARS IN THOUSANDS) 1997 1997 1996 1996 1996 REQUIREMENT
- -------------------------------- --------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
CAPITAL COMPONENTS FOR THE COMPANY
Tier 1 capital.................. $ 2,547,481 $ 2,467,312 $ 2,395,580 $ 2,349,483 $ 2,308,038
Tier 2 capital.................. 667,395 458,135 551,074 552,768 594,911
--------------- ------------- ------------- ------------- -------------
Total risk-based capital........ $ 3,214,876 $ 2,925,447 $ 2,946,654 $ 2,902,251 $ 2,902,949
--------------- ------------- ------------- ------------- -------------
--------------- ------------- ------------- ------------- -------------
Risk-weighted assets............ $ 27,734,101 $ 26,963,265 $ 26,390,288 $ 25,994,269 $ 25,827,724
--------------- ------------- ------------- ------------- -------------
--------------- ------------- ------------- ------------- -------------
Quarterly average assets........ $ 29,360,405 $ 28,702,616 $ 28,496,355 $ 27,885,645 $ 27,699,256
--------------- ------------- ------------- ------------- -------------
--------------- ------------- ------------- ------------- -------------
CAPITAL RATIOS FOR THE COMPANY
Tier 1 risk-based capital....... 9.19% 9.15% 9.08% 9.04% 8.94% 4.0%
Total risk-based capital........ 11.59 10.85 11.17 11.16 11.24 8.0
Leverage ratio (1).............. 8.68 8.60 8.41 8.43 8.33 4.0
</TABLE>
- ------------------------------
(1) Tier 1 capital divided by quarterly average assets.
The Company and the Company's subsidiary bank, Union Bank of California,
N.A. (the "Bank") are subject to various regulations issued by Federal banking
agencies, including minimum capital requirements. The Company and the Bank are
required to maintain minimum ratios of total and Tier 1 capital to risk-weighted
assets and of Tier 1 capital to average assets (the "leverage ratio").
Compared with one year earlier, the Company's Tier 1 risk-based capital
ratio at June 30, 1997, increased 25 basis points to 9.19%, the total risk-based
capital ratio increased 35 basis points to 11.59%, and the leverage ratio
increased 35 basis points to 8.68%. The increase in the capital ratios was due
to retained earnings growing faster than both risk-weighted assets and average
assets. Additionally, the increase in the total capital ratio was partially
attributable to the issuance of $200 million in long-term subordinated debt in
June 1997, partly offset by the redemption of $100 million of subordinated debt
in the first quarter of 1997.
In June 1997, the Company announced that it will redeem $135 million of
preferred stock in the third quarter of 1997. A reduction of $135 million in
Tier 1 capital as of June 30, 1997, would have resulted in a decrease in the
Tier 1 and total capital ratios of 50 basis points, and a decrease in the
leverage ratio of 46 basis points.
As of June 30, 1997, management believes the capital ratios of the Bank met
all regulatory minimums of a well-capitalized bank. Since the preferred stock to
be redeemed in the third quarter of 1997 was issued by UnionBanCal Corporation's
holding company, the redemption will have no impact on the capital ratios of the
Bank.
25
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits Index:
NO. DESCRIPTION
- --- -----------------------
27 Financial Data Schedule
(b) Reports on Form 8-K: None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
UNIONBANCAL CORPORATION
(Registrant)
By /s/ MINORU NODA
------------------------------------
Minoru Noda
DEPUTY CHAIRMAN OF THE BOARD,
CHIEF FINANCIAL OFFICER AND
CHIEF CREDIT OFFICER
By /s/ DAVID W. EHLERS
------------------------------------
David W. Ehlers
EXECUTIVE VICE PRESIDENT AND
DIRECTOR OF FINANCE
By /s/ DAVID W. DOBON
------------------------------------
David W. Dobon
SENIOR VICE PRESIDENT AND CONTROLLER
Dated: August 7, 1997
26
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF INCOME AND THE
ACCOMPANYING TABLES OF FORM 10-Q INFORMATION HEREIN IS QUALIFIED BY REFERENCE TO
SUCH STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 2,340,247
<INT-BEARING-DEPOSITS> 919,040
<FED-FUNDS-SOLD> 262,700
<TRADING-ASSETS> 580,401
<INVESTMENTS-HELD-FOR-SALE> 2,531,733
<INVESTMENTS-CARRYING> 247,809
<INVESTMENTS-MARKET> 252,188
<LOANS> 21,951,559
<ALLOWANCE> (502,114)
<TOTAL-ASSETS> 30,275,150
<DEPOSITS> 22,352,919
<SHORT-TERM> 3,398,736
<LIABILITIES-OTHER> 547,648
<LONG-TERM> 482,718
0
135,000
<COMMON> 274,334
<OTHER-SE> 2,230,523
<TOTAL-LIABILITIES-AND-EQUITY> 30,275,150
<INTEREST-LOAN> 857,559
<INTEREST-INVEST> 78,849
<INTEREST-OTHER> 53,286
<INTEREST-TOTAL> 989,694
<INTEREST-DEPOSIT> 289,208
<INTEREST-EXPENSE> 388,647
<INTEREST-INCOME-NET> 601,047
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 552
<EXPENSE-OTHER> 508,891
<INCOME-PRETAX> 317,963
<INCOME-PRE-EXTRAORDINARY> 189,047
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 189,047
<EPS-PRIMARY> 3.15
<EPS-DILUTED> 3.15
<YIELD-ACTUAL> 4.72
<LOANS-NON> 146,140
<LOANS-PAST> 27,352
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 523,946
<CHARGE-OFFS> 49,077
<RECOVERIES> 27,245
<ALLOWANCE-CLOSE> 502,114
<ALLOWANCE-DOMESTIC> 273,404
<ALLOWANCE-FOREIGN> 9,390
<ALLOWANCE-UNALLOCATED> 219,320
</TABLE>
