UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
COMMISSION FILE NUMBER 0-28118
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UnionBanCal Corporation
State of Incorporation: I.R.S. Employer Identification No.
California 94-1234979
400 California Street
San Francisco, California 94104-1476
Registrant's telephone number (415) 765-2969
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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 October 31, 2000: 159,927,344
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UNIONBANCAL CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
PAGE
NUMBER
------
PART I
FINANCIAL INFORMATION
<S> <C>
Consolidated Financial Highlights.................................................... 2
Item 1. Financial Statements:
Condensed Consolidated Statements of Income....................................... 4
Condensed Consolidated Balance Sheets............................................. 5
Condensed Consolidated Statements of Changes in Shareholders' Equity.............. 6
Condensed Consolidated Statements of Cash Flows................................... 7
Notes to Condensed Consolidated Financial Statements.............................. 8
Item 2. Management's Discussion and Analysis:
Introduction...................................................................... 14
Summary........................................................................... 14
Mission Excel..................................................................... 17
Business Segments................................................................. 18
Net Interest Income............................................................... 26
Noninterest Income................................................................ 29
Noninterest Expense............................................................... 31
Income Tax Expense................................................................ 32
Loans............................................................................. 32
Cross-Border Outstandings......................................................... 33
Provision for Credit Losses....................................................... 34
Allowance for Credit Losses....................................................... 34
Nonperforming Assets.............................................................. 39
Loans 90 Days or More Past Due and Still Accruing................................. 39
Asset Quality Trends.............................................................. 39
Liquidity......................................................................... 40
Regulatory Capital................................................................ 40
Forward-looking Statements........................................................ 41
Item 3. Market Risk.................................................................. 45
PART II
OTHER INFORMATION
Item 4. Other Information............................................................ 46
Item 5. Exhibits and Reports on Form 8-K............................................. 46
Signatures........................................................................... 47
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<CAPTION>
UnionBanCal Corporation and Subsidiaries
Consolidated Financial Highlights
(Unaudited)
PERCENT CHANGE TO
AS OF AND FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 FROM:
------------------------------------------- ------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SEPTEMBER 30, JUNE 30, SEPTEMBER 30, SEPTEMBER 30, JUNE 30,
---------------------------------- 1999 2000 2000 1999 2000
SHARE DATA) ------------- ----------- ------------- ------------- --------
----------------------------------
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Net interest income(1)......... $ 360,760 $ 396,929 $ 404,626 12.16% 1.94%
Provision for credit losses.... 20,000 70,000 80,000 300.00 14.29
Noninterest income............. 148,349 173,070 168,928 13.87 (2.39)
Noninterest expense, excluding
restructuring charge (credit) 299,298 290,319 291,378 (2.65) 0.36
Restructuring charge (credit).. 85,000 (8,000) - nm nm
----------- ----------- -----------
Income before income taxes(1).. 104,811 217,680 202,176 92.90 (7.12)
Taxable-equivalent adjustment.. 747 637 641 (14.19) 0.63
Income tax expense............. 32,483 75,628 69,959 115.37 (7.50)
----------- ----------- -----------
Net income..................... $ 71,581 $ 141,415 $ 131,576 83.81% (6.96)%
=========== =========== ===========
PER COMMON SHARE:
Net income-basic............... $ 0.43 $ 0.87 $ 0.82 90.70% (5.75)%
Net income-diluted............. 0.43 0.87 0.82 90.70 (5.75)
Dividends(2)................... 0.19 0.25 0.25 31.58 -
Book value (end of period)..... 17.72 19.42 20.13 13.60 3.66
Common shares outstanding (end 164,624,258 161,604,417 160,112,869 (2.74) (0.92)
of period)..................
Weighted average common shares 164,616,369 162,231,696 160,759,916 (2.34) (0.91)
outstanding-basic...........
Weighted average common shares 165,472,346 162,660,994 161,014,901 (2.69) (1.01)
outstanding-diluted.........
BALANCE SHEET (END OF PERIOD):
Total assets................... $ 32,518,035 $ 33,895,037 $ 33,745,489 3.77% (0.44)%
Total loans.................... 25,185,682 26,373,044 26,157,939 3.86 (0.82)
Nonaccrual loans............... 154,900 203,201 282,999 82.70 39.27
Nonperforming assets........... 158,257 228,981 299,795 89.44 30.93
Total deposits................. 25,175,921 25,733,981 25,894,059 2.85 0.62
Trust preferred securities..... 350,000 350,000 350,000 - -
Common equity.................. 2,917,583 3,138,690 3,222,770 10.46 2.68
BALANCE SHEET (PERIOD AVERAGE):
Total assets................... $ 32,038,792 $ 33,846,445 $ 33,690,070 5.15% (0.46)%
Total loans.................... 25,152,550 26,441,412 26,454,975 5.18 0.05
Earning assets................. 29,007,215 30,575,062 30,399,146 4.80 (0.58)
Total deposits................. 23,926,472 25,476,764 25,402,036 6.17 (0.29)
Common equity.................. 2,929,140 3,085,227 3,185,167 8.74 3.24
FINANCIAL RATIOS:
Return on average assets(3).... 0.89% 1.68% 1.55%
Return on average common
equity(3)................... 9.70 18.44 16.43
Efficiency ratio(4)............ 75.62 49.52 50.80
Net interest margin(1)......... 4.93 5.21 5.30
Dividend payout ratio.......... 44.19 28.74 30.49
Tangible equity ratio.......... 8.78 9.13 9.41
Tier 1 risk-based capital ratio 9.94 10.23 10.52
Total risk-based capital ratio. 11.81 12.05 12.35
Leverage ratio................. 10.06 10.26 10.47
Allowance for credit losses to
total loans................. 1.82 1.90 2.01
Allowance for credit losses to
nonaccrual loans............ 295.31 246.42 185.83
Net loans charged off to average
total loans]................ 0.21 0.80 0.82
Nonperforming assets to total
loans, foreclosed assets, and
distressed loans held for sale 0.63 0.87 1.15
Nonperforming assets to total
assets...................... 0.49 0.68 0.89
<FN>
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(1) Amounts are on a taxable-equivalent basis using the federal statutory
tax rate of 35 percent.
(2) Dividends per share reflect dividends declared on UnionBanCal
Corporation's common stock outstanding as of the declaration date.
(3) Annualized.
(4) The efficiency ratio is noninterest expense, excluding foreclosed asset
expense (income), as a percentage of net interest income
(taxable-equivalent) and noninterest income. Foreclosed asset expense
(income) was $(0.7) million in the third quarter of 1999, and none in
the second and third quarters of 2000.
nm = not meaningful
</FN>
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2
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<CAPTION>
UnionBanCal Corporation and Subsidiaries
Consolidated Financial Highlights (Continued)
(Unaudited)
SEPTEMBER 30, SEPTEMBER 30, PERCENT
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 1999 2000 CHANGE
-------------------------------------------------------------------------- ------------ ------------ --------
<S> <C> <C> <C>
RESULTS OF OPERATIONS:
Net interest income(1).................................................... $ 1,049,485 $ 1,187,732 13.17%
Provision for credit losses............................................... 35,000 190,000 442.86
Noninterest income........................................................ 432,455 494,008 14.23
Noninterest expense, excluding restructuring charge (credit).............. 905,690 848,735 (6.29)
Restructuring charge (credit)............................................. 85,000 (19,000) nm
------------ ------------
Income before income taxes(1)............................................. 456,250 662,005 45.10
Taxable-equivalent adjustment............................................. 2,488 1,933 (22.31)
Income tax expense........................................................ 148,959 228,610 53.47
------------ ------------
Net income................................................................ $ 304,803 $ 431,462 41.55%
============ ============
PER COMMON SHARE:
Net income-basic.......................................................... $ 1.83 $ 2.66 45.36%
Net income-diluted........................................................ 1.82 2.65 45.60
Dividends(2).............................................................. 0.57 0.75 31.58
Book value (end of period)................................................ 17.72 20.13 13.60
Common shares outstanding (end of period)................................. 164,624,258 160,112,869 (2.74)
Weighted average common shares outstanding-basic.......................... 166,983,654 162,259,396 (2.83)
Weighted average common shares outstanding-diluted........................ 167,698,656 162,674,610 (3.00)
BALANCE SHEET (END OF PERIOD):
Total assets.............................................................. $ 32,518,035 $ 33,745,489 3.77%
Total loans............................................................... 25,185,682 26,157,939 3.86
Nonaccrual loans.......................................................... 154,900 282,999 82.70
Nonperforming assets...................................................... 158,257 299,795 89.44
Total deposits............................................................ 25,175,921 25,894,059 2.85
Trust preferred securities................................................ 350,000 350,000 -
Common equity............................................................. 2,917,583 3,222,770 10.46
BALANCE SHEET (PERIOD AVERAGE):
Total assets.............................................................. $ 31,910,097 $ 33,520,179 5.05%
Total loans............................................................... 24,765,902 26,303,921 6.21
Earning assets............................................................ 28,832,723 30,267,580 4.98
Total deposits............................................................ 23,529,262 25,320,107 7.61
Common equity............................................................. 2,931,922 3,095,375 5.57
FINANCIAL RATIOS:
Return on average assets]................................................. 1.28% 1.72%
Return on average common equity].......................................... 13.90 18.62
Efficiency ratio]......................................................... 66.94 49.34
Net interest margin]...................................................... 4.86 5.23
Dividend payout ratio..................................................... 31.15 28.20
Tangible equity ratio..................................................... 8.78 9.41
Tier 1 risk-based capital ratio........................................... 9.94 10.52
Total risk-based capital ratio............................................ 11.81 12.35
Leverage ratio............................................................ 10.06 10.47
Allowance for credit losses to total loans................................ 1.82 2.01
Allowance for credit losses to nonaccrual loans........................... 295.31 185.83
Net loans charged off to average total loans]............................. 0.20 0.68
Nonperforming assets to total loans, foreclosed assets, and distressed 0.63 1.15
loans held for sale....................................................
Nonperforming assets to total assets...................................... 0.49 0.89
-----------
<FN>
(1) Amounts are on a taxable-equivalent basis using the federal statutory
tax rate of 35 percent.
(2) Dividends per share reflect dividends declared on UnionBanCal
Corporation's common stock outstanding as of the declaration date.
(3) Annualized.
(4) The efficiency ratio is noninterest expense, excluding foreclosed asset
expense (income), as a percentage of net interest income
(taxable-equivalent) and noninterest income. Foreclosed asset expense
(income) was $(1.3) million in the first nine months of 1999 and none
for the first nine months of 2000.
nm = not meaningful
</FN>
</TABLE>
3
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
UNIONBANCAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
---------------------- --------------------------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) 1999 2000 1999 2000
-------------------------------------------------------------------- --------- -------- ---------- ----------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans............................................................... $491,239 $576,567 $1,416,805 $1,675,900
Securities.......................................................... 50,820 55,706 161,851 162,689
Interest bearing deposits in banks.................................. 2,786 2,775 9,042 7,522
Federal funds sold and securities purchased under resale agreements. 2,345 1,263 5,237 6,364
Trading account assets.............................................. 3,087 4,170 9,489 12,205
--------- -------- ---------- ----------
Total interest income............................................ 550,277 640,481 1,602,424 1,864,680
--------- -------- ---------- ----------
INTEREST EXPENSE
Domestic deposits................................................... 114,345 144,406 331,227 410,625
Foreign deposits.................................................... 18,233 25,506 52,046 76,872
Federal funds purchased and securities sold under repurchase
agreements....................................................... 16,493 26,994 57,368 72,383
Commercial paper.................................................... 19,572 26,072 56,766 71,004
Subordinated capital notes.......................................... 4,240 4,060 12,385 13,997
UnionBanCal Corporation - obligated mandatorily redeemable preferred
securities of subsidiary grantor trust........................... 7,093 6,414 17,476 19,788
Other borrowed funds................................................ 10,288 3,044 28,159 14,212
--------- -------- ---------- ----------
Total interest expense......................................... 190,264 236,496 555,427 678,881
--------- -------- ---------- ----------
NET INTEREST INCOME................................................. 360,013 403,985 1,046,997 1,185,799
Provision for credit losses......................................... 20,000 80,000 35,000 190,000
--------- -------- ---------- ----------
Net interest income after provision for credit losses.......... 340,013 323,985 1,011,997 995,799
--------- -------- ---------- ----------
NONINTEREST INCOME
Service charges on deposit accounts................................. 45,401 53,779 127,981 153,987
Trust and investment management fees................................ 36,353 39,975 102,607 116,163
Merchant transaction processing fees................................ 18,598 19,354 51,256 54,887
International commissions and fees.................................. 17,475 18,012 53,186 53,463
Merchant banking fees............................................... 10,946 15,353 27,561 40,681
Brokerage commissions and fees...................................... 7,148 8,616 18,825 27,309
Securities gains, net............................................... 2,004 3,104 3,899 8,804
Other............................................................... 10,424 10,735 47,140 38,714
--------- -------- ---------- ----------
Total noninterest income....................................... 148,349 168,928 432,455 494,008
--------- -------- ---------- ----------
NONINTEREST EXPENSE
Salaries and employee benefits...................................... 165,458 152,227 500,140 444,483
Net occupancy....................................................... 22,895 24,664 67,273 69,358
Equipment........................................................... 19,389 15,702 49,405 47,706
Merchant transaction processing..................................... 12,905 12,784 37,773 37,144
Communications...................................................... 10,666 11,736 31,217 33,048
Professional services............................................... 8,440 10,760 29,426 29,278
Data processing..................................................... 7,797 8,577 23,459 26,199
Foreclosed asset expense (income)................................... (703) (14) (1,256) 7
Restructuring charge (credit)....................................... 85,000 - 85,000 (19,000)
Other............................................................... 52,451 54,942 168,253 161,512
--------- -------- ---------- ----------
Total noninterest expense...................................... 384,298 291,378 990,690 829,735
--------- -------- ---------- ----------
Income before income taxes.......................................... 104,064 201,535 453,762 660,072
Income tax expense.................................................. 32,483 69,959 148,959 228,610
--------- -------- ---------- ----------
NET INCOME.......................................................... $ 71,581 $131,576 $ 304,803 $ 431,462
========= ======== ========== ==========
NET INCOME PER COMMON SHARE-BASIC................................... $ 0.43 $ 0.82 $ 1.83 $ 2.66
========= ======== ========== ==========
NET INCOME PER COMMON SHARE-DILUTED................................. $ 0.43 $ 0.82 $ 1.82 $ 2.65
========= ======== ========== ==========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING-BASIC.................... 164,616 160,760 166,984 162,259
========= ======== ========== ==========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING-DILUTED.................. 165,472 161,015 167,699 162,675
========= ======== ========== ==========
<FN>
See accompanying notes to condensed consolidated financial statements.
</FN>
</TABLE>
4
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<TABLE>
<CAPTION>
UNIONBANCAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED) (UNAUDITED)
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
(DOLLARS IN THOUSANDS) 1999 1999 2000
-------------------------------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
ASSETS
Cash and due from banks............................................. $ 2,209,694 $ 2,141,964 $ 2,133,958
Interest bearing deposits in banks.................................. 194,535 182,719 142,106
Federal funds sold and securities purchased under resale agreements. 371,523 833,450 236,600
----------- ----------- -----------
Total cash and cash equivalents.................................. 2,775,752 3,158,133 2,512,664
Trading account assets.............................................. 245,762 179,935 224,063
Securities available for sale....................................... 3,096,494 3,210,099 3,588,360
Securities held to maturity (market value: September 30, 1999,
$86,611; December 31, 1999, $45,376; September 30, 2000, $23,469) 87,221 46,526 24,173
Loans (net of allowance for credit losses: September 30, 1999,
$457,429; December 31, 1999, $470,378; September 30, 2000,
$525,896)........................................................ 24,728,253 25,442,580 25,632,043
Due from customers on acceptances................................... 272,009 259,340 255,325
Premises and equipment, net......................................... 437,083 425,021 426,166
Other assets........................................................ 875,461 963,142 1,082,695
----------- ----------- -----------
Total assets..................................................... $32,518,035 $33,684,776 $33,745,489
=========== =========== ===========
LIABILITIES
Domestic deposits:
Noninterest bearing................................................. $ 9,484,156 $ 9,395,925 $ 9,971,158
Interest bearing.................................................... 13,667,733 14,274,310 13,723,799
Foreign deposits:
Noninterest bearing................................................. 270,765 325,415 288,612
Interest bearing.................................................... 1,753,267 2,260,957 1,910,490
----------- ----------- -----------
Total deposits................................................... 25,175,921 26,256,607 25,894,059
Federal funds purchased and securities sold under repurchase
agreements....................................................... 651,170 1,156,799 1,234,541
Commercial paper.................................................... 1,479,939 1,108,258 1,471,815
Other borrowed funds................................................ 629,891 540,496 274,348
Acceptances outstanding............................................. 272,009 259,340 255,325
Other liabilities................................................... 743,522 727,808 842,631
Subordinated capital notes.......................................... 298,000 298,000 200,000
UnionBanCal Corporation-obligated mandatorily redeemable preferred
securities of subsidiary grantor trust........................... 350,000 350,000 350,000
----------- ----------- -----------
Total liabilities................................................ 29,600,452 30,697,308 30,522,719
----------- ----------- -----------
Commitments and contingencies
SHAREHOLDERS' EQUITY
Preferred stock:
Authorized 5,000,000 shares, no shares issued or outstanding as of
September 30, 1999, December 31, 1999, and September 30, 2000.... - - -
Common stock-no stated value:
Authorized 300,000,000 shares, issued 164,624,258 shares as of
September 30, 1999, 164,282,622 shares as of December 31, 1999,
and 160,112,869 shares as of September 30, 2000.................. 1,416,680 1,404,155 1,294,893
Retained earnings................................................... 1,528,546 1,625,263 1,936,827
Accumulated other comprehensive income (loss)....................... (27,643) (41,950) (8,950)
----------- ----------- -----------
Total shareholders' equity....................................... 2,917,583 2,987,468 3,222,770
----------- ----------- -----------
Total liabilities and shareholders' equity....................... $32,518,035 $33,684,776 $33,745,489
=========== =========== ===========
<FN>
See accompanying notes to condensed consolidated financial statements.
</FN>
</TABLE>
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<TABLE>
<CAPTION>
UNIONBANCAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------------------------------
(DOLLARS IN THOUSANDS) 1999 2000
----------------------------------------------------------------- -------------------------- -----------------------
<S> <C> <C>
COMMON STOCK
Balance, beginning of period..................................... $1,725,619 $1,404,155
Dividend reinvestment plan....................................... 39 39
Deferred compensation-restricted stock awards.................... (78) 247
Stock options exercised.......................................... 2,638 1,652
Common stock repurchased......................................... (311,538) (111,200)
---------- ----------
Balance, end of period........................................... $1,416,680 $1,294,893
---------- ----------
RETAINED EARNINGS
Balance, beginning of period..................................... $1,314,915 $1,625,263
Net income....................................................... 304,803 $304,803 431,462 $431,462
Dividends on common stock(1)..................................... (93,820) (121,402)
Deferred compensation - restricted stock awards.................. 2,648 1,504
---------- ----------
Balance, end of period........................................... $1,528,546 $1,936,827
---------- ----------
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Balance, beginning of period..................................... $ 17,710 $ (41,950)
Unrealized holding (losses) gains arising during the period on
securities available for sale, net of tax (benefit) expense of
$(26,878) and $23,587 in the first nine months of 1999 and
2000, respectively............................................ (43,391) 38,078
Less: reclassification adjustment for gains on securities
available for sale included in net income, net of tax expense
of $1,491 and $3,368 in the first nine months of 1999 and 2000,
respectively (2,408) (5,436)
-------- --------
Net unrealized (losses) gains on securities available for sale... (45,799) 32,642
Foreign currency translation adjustment, net of tax benefit
(expense) of $138 and $(222) in the first nine months of 1999
and 2000, respectively........................................ (223) 358
Minimum pension liability adjustment, net of tax expense of $373
in the first nine months of 1999.............................. 669 -
-------- --------
Other comprehensive (loss) income................................ (45,353) (45,353) 33,000 33,000
---------- -------- ---------- --------
Total comprehensive income....................................... $259,450 $464,462
======== ========
Balance, end of period........................................... $ (27,643) $ (8,950)
---------- ----------
TOTAL SHAREHOLDERS' EQUITY.................................... $2,917,583 $3,222,770
========== ==========
-----------
<FN>
(1) Dividends per share were $0.57 and $0.75 for the first nine months of
1999 and 2000, respectively. Dividends are based on UnionBanCal
Corporation's shares outstanding as of the declaration date.
See accompanying notes to condensed consolidated financial statements.
</FN>
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
UNIONBANCAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------
(DOLLARS IN THOUSANDS) 1999 2000
--------------------------------------------------------------------------------------------- ----------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................................................... $ 304,803 $ 431,462
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses............................................................... 35,000 190,000
Depreciation, amortization and accretion.................................................. 58,424 53,862
Provision for deferred income taxes....................................................... (17,555) (28,431)
Gain on sales of securities available for sale............................................ (3,899) (8,804)
Utilization (in excess of) less than restructuring charge/credit.......................... 82,577 (46,772)
Net decrease (increase) in trading account assets......................................... 21,956 (44,128)
Other, net................................................................................ (203,053) 56,786
----------- ------------
Total adjustments....................................................................... (26,550) 172,513
----------- ------------
Net cash provided by operating activities.................................................... 278,253 603,975
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of securities available for sale......................................... 203,084 393,869
Proceeds from matured and called securities available for sale............................... 636,916 725,459
Purchases of securities available for sale................................................... (364,440) (1,434,439)
Proceeds from matured and called securities held to maturity................................. 73,475 22,359
Net increase in loans........................................................................ (956,464) (390,627)
Other, net................................................................................... (67,867) (46,486)
----------- ------------
Net cash used in investing activities................................................... (475,296) (729,865)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits.......................................................... 668,042 (362,548)
Net increase (decrease) in federal funds purchased and securities sold under repurchase
agreements................................................................................ (656,574) 77,742
Net increase in commercial paper and other borrowed funds.................................... 333,920 97,409
Common stock repurchased..................................................................... (311,538) (111,200)
Proceeds from issuance of trust preferred securities......................................... 350,000 -
Repayment of subordinated debt............................................................... - (98,000)
Payments of cash dividends................................................................... (95,840) (122,556)
Other, net................................................................................... 2,454 2,049
----------- ------------
Net cash provided by (used in) financing activities..................................... 290,464 (517,104)
----------- ------------
Net increase (decrease) in cash and cash equivalents......................................... 93,421 (642,994)
Cash and cash equivalents at beginning of period............................................. 2,678,478 3,158,133
Effect of exchange rate changes on cash and cash equivalents................................. 3,853 (2,475)
----------- ------------
Cash and cash equivalents at end of period................................................... $ 2,775,752 $ 2,512,664
=========== ============
CASH PAID DURING THE PERIOD FOR:
Interest..................................................................................... $ 508,921 $ 667,649
Income taxes................................................................................. 75,180 179,581
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Loans transferred to foreclosed assets (OREO) and distressed loans held for sale............. $ 5,039 $ 21,875
Dividends declared but unpaid................................................................ 31,279 40,018
<FN>
See accompanying notes to condensed consolidated financial statements.
</FN>
</TABLE>
7
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(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 accounting principles generally accepted in the United States of
America (US GAAP) for interim financial reporting and the instructions to Form
10-Q and Rule 10-01 of Regulation S-X of the Rules and Regulations of the
Securities and Exchange Commission. However, they do not include all of the
disclosures necessary for annual financial statements in conformity with US
GAAP. The results of operations for the period ended September 30, 2000 are not
necessarily indicative of the operating results anticipated for the full year.
Accordingly, 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, 1999. The
preparation of financial statements in conformity with US GAAP also 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.
On March 3, 1999, the Company completed a secondary offering of 28.75
million shares of its Common Stock owned by The Bank of Tokyo-Mitsubishi, Ltd.
(BTM). The Company received no proceeds from this transaction. Concurrent with
the secondary offering, the Company repurchased 8.6 million shares of its
outstanding Common Stock from BTM and 2.1 million shares owned by Meiji Life
Insurance Company with $311 million of the net proceeds from the issuance of
$350 million of 7 3/8 percent redeemable preferred securities that occurred on
February 19, 1999.
The Company completed the repurchase of $100 million in common stock
between December 1999 and July 2000, under a stock repurchase plan authorized in
November 1999. In July 2000, the Company announced an additional $100 million
stock repurchase plan. The amount purchased under the new plan as of September
30, 2000 was $32.5 million.
On January 1, 2000, the Company changed the method it uses to calculate
the market-related value of its pension plan assets. This change increased the
value of plan assets on which the expected returns are based and, therefore,
results in lower net periodic pension cost. This change in methodology resulted
in a one-time credit to salaries and benefits of $16.0 million. The impact on
future years is not considered significant.
Certain amounts for prior periods have been reclassified to conform to
current financial statement presentation.
NOTE 2-RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities". The Statement will require the
Company to recognize all derivatives on the balance sheet at fair value. SFAS
No. 133 requires that derivative instruments used to hedge be identified
specifically to assets, liabilities, firm commitments or anticipated
transactions and measured as to effectiveness and ineffectiveness when hedging
changes in fair value or cash flows. Derivative instruments that do not qualify
as either a fair value or cash flow hedge will be valued at fair value with the
resultant gain or loss recognized in current earnings. Changes in the effective
portion of fair value hedges will be recognized in current earnings along with
the change in fair value of the hedged item. Changes in the effective portion of
the fair
8
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000
(UNAUDITED)
NOTE 2-RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS (CONTINUED)
value of cash flow hedges will be recognized in other comprehensive income until
realization of the cash flows of the hedged item through current earnings. Any
ineffective portion of hedges will be recognized in current earnings. In June
1999, the FASB issued SFAS No. 137, "Deferral of the Effective Date of FASB
Statement No. 133", to defer for one year the effective date of implementation
of SFAS No. 133. In June 2000, FASB issued SFAS No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities", which amends the
accounting and reporting standards of SFAS No. 133 for certain derivative
instruments and certain hedging activity. SFAS No. 133, as amended by SFAS No.
137 and SFAS No. 138, is effective for fiscal years beginning after June 15,
2000, with earlier application encouraged. The Company's hedging strategies are
primarily related to hedges of cash flows from variable rate loans. The impact
on net income and other comprehensive income is not expected to be material. The
Company may also be impacted by the outcome of several issues, which have not
yet been resolved by the FASB. However, management does not believe that the
resolution of these issues will have a material impact on the Company's
financial position or its net income. The Company will adopt SFAS No. 133 on
January 1, 2001.
In September 2000, the FASB issued SFAS No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,"
which replaces SFAS No. 125. The Statement revises the standards for accounting
for the securitization and other transfers of financial assets and collateral,
and requires certain disclosures, but carries over most of SFAS No. 125's
provisions without reconsideration. SFAS No. 140 is effective for transfers and
servicing of financial assets and extinguishments of liabilities occurring after
March 31, 2001. However, for recognition and reclassification of collateral and
for disclosures relating to securitization transactions and collateral this
Statement is effective for fiscal years ending after December 15, 2000. SFAS No.
140 must be applied prospectively. Management believes that adopting SFAS No.
140 will not have a material impact on the Company's financial position or
results of operation.
NOTE 3-EARNINGS PER SHARE
Basic earnings per share (EPS) is computed by dividing net income by
the weighted average number of common shares outstanding during the period.
Diluted EPS incorporates the dilutive effect of common stock equivalents
outstanding on an average basis during the period. Stock options are a common
stock equivalent. The following table presents a reconciliation of basic and
diluted EPS for the three months and nine months ended September 30, 1999 and
2000:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------------------- ------------------------------------------------
(AMOUNTS IN THOUSANDS, 1999 2000 1999 2000
----------------------- ---------------------- ---------------------- ---------------------- ---------------------
EXCEPT PER SHARE DATA) BASIC DILUTED BASIC DILUTED BASIC DILUTED BASIC DILUTED
----------------------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Income............ $ 71,581 $ 71,581 $131,576 $131,576 $304,803 $304,803 $431,462 $431,462
======== ======== ======== ======== ======== ======== ======== ========
Weighted average
common shares
outstanding........ 164,616 164,616 160,760 160,760 166,984 166,984 162,259 162,259
Additional shares due
to:
Assumed conversion
of dilutive
stock options... - 856 - 255 - 715 - 415
-------- -------- -------- -------- -------- -------- -------- --------
Adjusted weighted
average common
shares outstanding. 164,616 165,472 160,760 161,015 166,984 167,699 162,259 162,675
======== ======== ======== ======== ======== ======== ======== ========
Net income per share.. $ 0.43 $ 0.43 $ 0.82 $ 0.82 $ 1.83 $ 1.82 $ 2.66 $ 2.65
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
9
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000
(UNAUDITED)
NOTE 4-COMPREHENSIVE INCOME
The following table presents a summary of the components of accumulated
other comprehensive income (loss):
<TABLE>
<CAPTION>
NET UNREALIZED MINIMUM ACCUMULATED
GAINS (LOSSES) ON FOREIGN PENSION OTHER
SECURITIES AVAILABLE CURRENCY LIABILITY COMPREHENSIVE
FOR SALE TRANSLATION ADJUSTMENT INCOME
--------------------- ------------------- ------------------ ---------------------
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
-----------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) 1999 2000 1999 2000 1999 2000 1999 2000
------------------------------ -------- -------- ------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Beginning balance............. $ 29,109 $(32,548) $(9,651) $(8,713) $(1,748) $(689) $ 17,710 $(41,950)
Change during the period...... (45,799) 32,642 (223) 358 669 - (45,353) 33,000
-------- -------- ------- ------- ------- ----- -------- --------
Ending balance................ $(16,690) $ 94 $(9,874) $(8,355) $(1,079) $(689) $(27,643) $ (8,950)
======== ======== ======= ======= ======= ===== ======== ========
</TABLE>
NOTE 5-BUSINESS SEGMENTS
The Company is organized based on the products and services that it
offers and operates in four principal areas:
o The Community Banking and Investment Services Group offers a full
range of banking services, primarily to individuals and small
businesses, delivered through a tri-state network of branches and
ATM's. These services include commercial loans, mortgages and home
equity lines of credit, consumer loans, deposit services and cash
management as well as fiduciary, private banking, investment and
asset management services for individuals and institutions.
o The Commercial Financial Services Group primarily provides
tailored credit and cash management services to large corporate
and middle market companies. Services include commercial loans,
asset based lending, commercial real estate lending, leasing and a
comprehensive product array of deposit and cash management
services.
o The International Banking Group provides trade-finance products to
banks, and extends primarily short-term credit to corporations
engaged in international business. The group's revenue
predominately relates to foreign customers.
o The Global Markets Group manages the Company's securities
portfolio, trading operations, wholesale funding needs, and
interest rate and liquidity risk.
The information set forth in the following table reflects selected
income statement items and a selected balance sheet item by business unit. The
information presented does not necessarily represent the business units'
financial condition and results of operations as if they were independent
entities. Unlike financial accounting, there is no authoritative body of
guidance for management accounting equivalent to US GAAP. Consequently, reported
results are not necessarily comparable with those presented by other companies.
The information in this table is derived from the internal management
reporting system used by management to measure the performance of the segments
and the Company overall. The management reporting system assigns balance sheet
and income statement items to each segment based on internal management
accounting policies. Net interest income is determined by the Company's internal
funds
10
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000
(UNAUDITED)
NOTE 5-BUSINESS SEGMENTS (CONTINUED)
transfer pricing system, which assigns a cost of funds or a credit for funds to
assets or liabilities based on their type, maturity or repricing
characteristics. Noninterest income and expense directly attributable to a
segment are assigned to that business, other than restructuring charges
(credits). Indirect costs, such as overhead, operations, and technology expense,
are allocated to the segments based on studies of billable unit costs for
product or data processing. Under the Company's risk-adjusted return on capital
(RAROC) methodology, credit expense is charged to businesses based upon expected
losses arising from credit risk. In addition, the attribution of economic
capital is related to unexpected losses arising from credit, market and
operational risks.
"Other" is comprised of goodwill, certain parent company non-bank
subsidiaries, the elimination of the fully taxable-equivalent amounts, the
allowance and related provision for credit losses in excess of that ascribed
through the Company's RAROC methodology, the net impact of transfer pricing, the
earnings associated with the unallocated equity capital, and the residual costs
of support groups, as well as certain other non-recurring items such as
restructuring charges (credits) and merger and integration expenses. In
addition, it includes two units, the Credit Management Group, which manages
nonperforming assets, and the Pacific Rim Group, which offers financial products
to Japanese-owned subsidiaries located in the U.S. On an individual basis, none
of the business units in "Other" are significant to the Company's business.
<TABLE>
<CAPTION>
COMMUNITY
BANKING AND COMMERCIAL
INVESTMENT FINANCIAL INTERNATIONAL
SERVICES GROUP SERVICES GROUP BANKING GROUP
---------------------- ------------------------ ---------------------
AS OF AND FOR THE THREE MONTHS ENDED SEPTEMBER 30,
---------------------------------------------------------------------------
1999 2000 1999 2000 1999 2000
--------- --------- --------- --------- --------- ---------
RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS):
<S> <C> <C> <C> <C> <C> <C>
Total revenue(1)................................... $273,472 $295,226 $186,500 $226,896 $ 23,812 $ 22,637
Net income......................................... $ 42,317 $ 63,069 $ 57,296 $ 77,394 $ 4,681 $ 4,217
Total assets at period end (dollars in millions)... $ 9,350 $ 9,118 $ 16,612 $ 18,444 $ 1,516 $ 1,369
<CAPTION>
GLOBAL UNIONBANCAL
MARKETS GROUP OTHER CORPORATION
---------------------- ------------------------ ---------------------
AS OF AND FOR THE THREE MONTHS ENDED SEPTEMBER 30,
---------------------------------------------------------------------------
1999 2000 1999 2000 1999 2000
--------- --------- --------- --------- --------- ---------
RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS):
<S> <C> <C> <C> <C> <C> <C>
Total revenue(1)................................. $ 16,520 $ 15,107 $ 8,058 $ 13,047 $508,362 $572,913
Net income....................................... $ 7,179 $ 6,924 $(39,892) $(20,028) $ 71,581 $131,576
Total assets at period end (dollars in millions). $ 3,447 $ 3,960 $ 1,593 $ 854 $ 32,518 $ 33,745
-----------
<FN>
(1) Total revenue is comprised of net interest income and noninterest income
</FN>
</TABLE>
11
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000
(UNAUDITED)
NOTE 5-BUSINESS SEGMENTS (CONTINUED)
<TABLE>
<CAPTION>
COMMUNITY BANKING COMMERCIAL
AND INVESTMENT FINANCIAL INTERNATIONAL
SERVICES SERVICES BANKING
GROUP GROUP GROUP
-------------------- ---------------------- -----------------------
AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------------------------------------------
1999 2000 1999 2000 1999 2000
-------- -------- -------- --------- ---------- ----------
RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS):
<S> <C> <C> <C> <C> <C> <C>
Total revenue(1)................................... $783,456 $863,254 $532,331 $674,663 $ 76,046 $ 70,916
Net income......................................... $106,896 $180,051 $155,576 $234,213 $ 15,315 $ 14,375
Total assets at period end (dollars in millions)... $ 9,350 $ 9,118 $ 16,612 $ 18,444 $ 1,516 $ 1,369
<CAPTION>
GLOBAL UNIONBANCAL
MARKETS GROUP OTHER CORPORATION
-------------------- ---------------------- -----------------------
AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------------------------------------------
1999 2000 1999 2000 1999 2000
-------- -------- -------- --------- ---------- ----------
RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS):
<S> <C> <C> <C> <C> <C> <C>
Total revenue(1)................................. $59,220 $24,545 $ 28,399 $ 46,429 $1,479,452 $1,679,807
Net income....................................... $26,107 $ 7,897 $ 909 $ (5,074) $ 304,803 $ 431,462
Total assets at period end (dollars in millions). $ 3,447 $ 3,960 $ 1,593 $ 854 $ 32,518 $ 33,745
-----------
<FN>
(1) Total revenue is comprised of net interest income and noninterest income
</FN>
</TABLE>
NOTE 6-RESTRUCTURING CHARGE (CREDIT)
A restructuring charge of $85 million was recorded in the third quarter
of 1999. The restructuring charge was incurred in connection with a company-wide
project referred to as "Mission Excel". Mission Excel is an initiative to slow
the growth rate of expenses, increase sustainable growth in revenues, and
increase productivity through elimination of unnecessary or duplicate functions.
The restructuring charge included only direct and incremental costs associated
with the program.
The total cumulative reduction to the restructuring charge is $19.0
million, the same as reported at June 30, 2000. The reductions made in the prior
quarters were primarily related to the severance portion of the reserve,
reflecting continuing changes in attrition assumptions. Management believes that
the current strength of the California economy resulted in markedly higher
attrition rates than the Company had anticipated. At the end of the third
quarter of 2000, the number of employees remaining to be severed under the plan
is not expected to significantly change.
12
<PAGE>
UNIONBANCAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000
(UNAUDITED)
NOTE 6-RESTRUCTURING CHARGE (CREDIT) (CONTINUED)
The table below provides details of the restructuring related
liability.
<TABLE>
<CAPTION>
OCCUPANCY
(DOLLARS IN THOUSANDS) PERSONNEL AND OTHER TOTAL
----------------------------------------------------------------- --------- --------- --------
<S> <C> <C> <C>
Balances at December 31, 1999.................................... $59,525 $9,834 $69,359
Less:
Cash............................................................. 21,646 6,114 27,760
Noncash.......................................................... - 11 11
-------- ------- --------
Total utilization............................................. 21,646 6,125 27,771
Restructuring credit............................................. 18,000 1,000 19,000
-------- ------- --------
Balances at September 30, 2000................................... $19,879 $2,709 $22,588
======== ======= ========
</TABLE>
Personnel expense consists of severance and related benefits to be paid
under the Company's enhanced severance plan. The Company expects to sever
approximately 800 employees under the plan of which 663 employees have been
terminated as of September 30, 2000. Occupancy and other consists of lease
termination costs and the cost of professional services incurred during the
assessment phase of the project.
13
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
THIS DOCUMENT CONTAINS 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 ON PAGE 41 AND IN
OUR PUBLICLY AVAILABLE SECURITIES AND EXCHANGE COMMISSION FILINGS AND PRESS
RELEASES.
INTRODUCTION
We are a California-based commercial bank holding company with
consolidated assets of $33.7 billion at September 30, 2000. Our wholly-owned
subsidiary, Union Bank of California, N.A., is the third largest commercial bank
in California, based on total assets and total deposits in California, and one
of the 30 largest commercial banks in the United States. At September 30, 2000,
we operated 242 banking offices in California, 6 banking offices in Oregon and
Washington, and 18 overseas facilities. At September 30, 2000, we were 66
percent owned by The Bank of Tokyo-Mitsubishi, Ltd. and 34 percent owned by
other shareholders.
Our interim financial information should be read in conjunction with
our Form 10-K for the year ended December 31, 1999. Certain amounts for prior
periods have been reclassified to conform to current financial statement
presentation.
SUMMARY
To facilitate the discussion of the results of operations, the
following table includes certain pro forma earnings disclosures and ratios.
These presentations supplement the Condensed Consolidated Statements of Income
on page 4, which are prepared in accordance with accounting principles generally
accepted in the United States of America (US GAAP), primarily with respect to
the treatment of the restructuring charge recorded in the third quarter of 1999
and the restructuring credits, which were recorded in the first and second
quarters of 2000, as well as reflecting the taxable equivalent adjustment.
Management believes that it is meaningful to understand the operating results
and trends excluding these credits and, therefore, has included information in
this table and in management's discussion and analysis (MD&A) which follows,
that presents income excluding these items and related pro forma ratio and per
share calculations.
14
<PAGE>
These pro forma earnings have not been adjusted for any other non-recurring
items that may impact our ratios or trends.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------------ -----------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 1999 2000 1999 2000
--------------------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
INCOME BEFORE INCOME TAXES............................................ $ 104,811 $ 202,176 $ 456,250 $ 662,005
Restructuring charge/credits....................................... 85,000 - 85,000 (19,000)
Taxable equivalent adjustment...................................... (747) (641) (2,488) (1,933)
Income tax expense(1).............................................. (62,298) (69,959) (178,774) (221,452)
--------- --------- ---------- ----------
PRO FORMA EARNINGS.................................................... $ 126,766 $ 131,576 $ 359,988 $ 419,620
========= ========= ========== ==========
PER COMMON SHARE, EXCLUDING RESTRUCTURING CHARGE/CREDITS
Pro forma earnings (basic)......................................... $ 0.77 $ 0.82 $ 2.16 $ 2.59
Pro forma earnings (diluted)....................................... 0.77 0.82 2.15 2.58
SELECTED FINANCIAL RATIOS, EXCLUDING RESTRUCTURING CHARGE/CREDITS
Pro forma return on average assets................................. 1.57% 1.55% 1.51% 1.67%
Pro forma return on average common equity.......................... 17.17 16.43 16.42 18.11
Pro forma efficiency ratio(2)...................................... 58.93 50.80 61.20 50.47
Pro forma dividend payout ratio.................................... 24.68 30.49 26.39 28.96
-----------
<FN>
(1) Excludes an income tax benefit of $29.815 million in the three and nine
months ending September 30, 1999 related to the restructuring charge
recorded in the third quarter of 1999 and an income tax expense of
$7.159 million for the nine months ending September 30, 2000 related to
restructuring reserve credits recorded in the first and second quarters
of the year 2000.
(2) The pro forma efficiency ratio is noninterest expense, excluding
foreclosed asset income and restructuring charge/credits, as a
percentage of net interest income (taxable-equivalent) and noninterest
income. Foreclosed asset expense/(income) was $(0.703) million and
$(0.014) million for the third quarter of 1999 and 2000, respectively,
and ($1.256) million and $0.007 million for the first nine months of
1999 and 2000, respectively.
</FN>
</TABLE>
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 1999 AND SEPTEMBER 30, 2000
Reported net income was $131.6 million, or $0.82 per diluted common
share, in the third quarter of 2000 compared with $71.6 million, or $0.43 per
diluted common share, in the third quarter of 1999. Return on average assets was
1.55 percent for the quarter ending September 30, 2000, compared with 0.89
percent for the same period in 1999, and return on average common equity was
16.43 percent for the quarter ending September 30, 2000, compared with 9.70
percent for the same period in 1999.
Pro forma earnings were $131.6 million or $0.82 per diluted common
share in the third quarter of 2000 compared to $126.8 million or $0.77 per
diluted common share in the same period of 1999, excluding a restructuring
charge of $85.0 ($55.2 million, net of tax) million recognized in the third
quarter of 1999. In the third quarter of 2000, our pro forma return on average
assets decreased to 1.55 percent from 1.57 percent a year earlier, and our pro
forma return on average common equity decreased to 16.43 percent from 17.17
percent a year earlier.
Major factors affecting the pro forma earnings trend were:
o Total interest income during the third quarter of 2000, on a
taxable-equivalent basis, was $404.6 million or 12.2 percent
higher than the same period in 1999. Increased average earning
asset balances and the increasing interest rate environment were
the main contributors to the higher net interest income.
o Net interest margin for the third quarter of 2000 was 37 basis
points or 7.5 percent higher than the same period in 1999.
Increased yields on earning assets partially offset by higher cost
of funds on interest bearing liabilities, both resulting from the
increasing interest rate environment, and higher noninterest
bearing deposit balances, were the main contributors to a higher
net interest margin.
15
<PAGE>
o Growth in several fee revenue businesses was strong with service
charges on deposit accounts up $8.4 million or 18.5 percent, trust
and investment management fees up $3.6 million or 10.0 percent,
merchant banking fees up $4.4 million or 40.3 percent, brokerage
fees and commission up $1.5 million or 20.5 percent, and net
securities gains of $1.1 million or 54.9 percent. Overall
noninterest income grew $19.5 million or 13.3 percent, excluding
net securities gains in both years.
o The provision for loan losses increased to $80.0 million in the
third quarter of 2000 from $20.0 million in the same period in
1999. The change is attributed to an increase in our criticized
credits and in our impairment allowance.
o Pro forma noninterest expenses decreased $7.9 million or 2.6
percent from the same period in 1999. The decrease is mainly
attributed to lower direct expenses realized through our Mission
Excel expense reduction efforts and higher prior year expenses
related to the Year 2000 conversion.
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1999 AND SEPTEMBER 30, 2000
Reported net income was $431.5 million or $2.65 per diluted common
share, for the first nine months of 2000 compared with $304.8 million or $1.82
per diluted common share, for the first nine months of 1999. Return on average
assets was 1.72 percent for the nine months ending September 30, 2000, compared
with 1.28 percent for the same period in 1999, and return on average common
equity was 18.62 percent for the nine months ending September 30, 2000, compared
with 13.90 percent for the same period in 1999.
Pro forma earnings were $419.6 million or $2.58 per diluted common
share for the first nine months of 2000, compared to $360.0 million or $2.08 per
diluted common share for the first nine months of 1999. For the first nine
months of 2000, our pro forma return on average assets increased to 1.67 percent
from 1.46 percent a year earlier, and our pro forma return on average common
equity increased to 18.11 percent from 16.42 percent a year earlier.
Major factors affecting the pro forma earnings trend were:
o Total interest income during the first nine months of 2000, on a
taxable-equivalent basis, was $138.2 million or 13.2 percent
higher than the same period in 1999. Increased average earning
asset balances and the increasing interest rate environment were
the main contributors to the higher total interest income.
o Net interest margin for the first nine months of 2000 was 37 basis
points, or 7.1 percent higher than the same period in 1999.
Increased yields on earning assets, partially offset by higher
cost of funds on interest bearing liabilities, both resulting from
the increasing interest rate environment, and higher noninterest
bearing deposits were the main contributors to a higher net
interest margin.
o Growth in several fee revenue businesses continued with service
charges on deposit accounts up $26.0 million or 20.3 percent,
trust and investment management fees up $13.6 million or 13.2
percent, merchant banking fees up $13.1 million or 47.6 percent,
brokerage fees and commission up $8.5 million or 45.0 percent, and
foreign exchange profits up $8.5 million or 41.6 percent,
partially offset by an $8.4 million or 17.9 percent decrease in
other income. Overall noninterest income grew $56.6 million or
13.2 percent, excluding net securities gains in both years.
o The provision for loan losses increased to $190.0 million in the
first nine months of 2000 from $35.0 million in the same period in
1999. The change is attributed to an increase in our criticized
credits and in our impairment allowance.
16
<PAGE>
o Pro forma noninterest expenses decreased $57.0 million or 6.3
percent. The decrease is mainly attributed to lower direct
expenses realized through our Mission Excel expense reduction
efforts and higher prior year expenses related to the Year 2000
conversion.
o Nonperforming assets increased $141.5 million, or 89 percent, from
September 30, 1999 to $299.8 million at September 30, 2000.
Nonperforming assets as a percentage of total assets increased to
0.89 percent at September 30, 2000, compared with 0.49 percent one
year earlier. Total nonaccrual loans were $154.9 million at
September 30, 1999, compared with $283.0 million at September 30,
2000, resulting in an increase in the ratio of nonaccrual loans to
total loans from 0.62 percent at September 30, 1999 to 1.08
percent at September 30, 2000.
o Our Tier 1 and total risk-based capital ratios were 9.94 percent
and 11.81 percent, respectively, at September 30, 1999, compared
with 10.52 percent and 12.35 percent, respectively, at September
30, 2000. Our leverage ratio was 10.06 percent at September 30,
1999 compared with 10.47 percent at September 30, 2000
MISSION EXCEL
Mission Excel, a project begun in the second quarter 1999, is a
company-wide initiative to slow the rate of growth of our expenses, increase
sustainable growth in our revenues, and increase productivity through
elimination of unnecessary or duplicate functions. The goal of this project was
to help us achieve or exceed an efficiency ratio of 54 percent to 56 percent by
the fourth quarter 2000. This goal was achieved both on a reported basis, as
well as on a pro forma earnings basis by June 30, 2000.
In connection with Mission Excel, we incurred an $85 million
restructuring charge in the third quarter of 1999. The charge consisted of $70
million in personnel expense for approximately 1,400 employees to be terminated
under the plan. The remaining $15 million related to lease termination costs for
8 facilities that were to be vacated and professional service costs incurred in
connection with Mission Excel.
During the third quarter 2000, we evaluated the restructuring reserve
and concluded that the remaining reserve amount is adequate and that no
significant change is expected at this time.
The total cumulative reduction made in the prior quarters was $19.0
million, the same as reported at June 30, 2000. The reductions in the prior
quarters arose primarily in the severance portion of our reserve due to a change
in the attrition assumptions. The recent strength of the California economy,
coupled with a tight labor market, resulted in a markedly higher attrition rate
than we had anticipated. As we continue to evaluate the impact of the attrition
assumptions utilized in estimating the severance reserve, further adjustments
may be necessary.
At the completion of the plan, we currently expect to sever
approximately 800 employees who are not concentrated in any one group or class
of staff. Of the total, 663 employees have been severed as of September 30, 2000
and the remaining 137 employees are expected to be severed in the next two
quarters.
The following table presents the restructuring reserve for the period,
the utilization and reduction of the reserve, and the resulting balance as of
September 30, 2000.
<TABLE>
<CAPTION>
FOR THE THREE FOR THE NINE
MONTHS ENDED MONTHS ENDED
(DOLLARS IN THOUSANDS) SEPTEMBER 30, 2000 SEPTEMBER 30, 2000
------------------------------------------------- ------------------ ------------------
<S> <C> <C>
Balance, beginning of period...................... $ 30,024 $ 69,359
Restructuring credit.............................. - (19,000)
Utilization....................................... (7,436) (27,771)
--------- ---------
Balance, end of period............................ $ 22,588 $ 22,588
========= =========
</TABLE>
17
<PAGE>
BUSINESS SEGMENTS
We segregate our operations into four primary business units for the
purpose of management reporting, as shown in the table on the following pages.
The results show the financial performance of our major business units.
During the second quarter of 1999, we introduced a new method for
measuring the contribution provided by each of our business units. The
Risk-Adjusted Return on Capital (RAROC) methodology seeks to attribute economic
capital to business units consistent with the level of risk they assume. These
risks are primarily credit risk, market risk and operational risk. Credit risk
is the potential loss in economic value due to the likelihood that the obligor
will not perform as agreed. Market risk is the potential loss in fair value due
to changes in interest rates, currency rates and volatilities. Operational risk
is the potential loss due to failures in internal control, system failures, or
external events.
The following table reflects the condensed income statements, selected
average balance sheet items and selected financial ratios for each of our
primary business units. The information presented does not necessarily represent
the business units' financial condition and results of operations as if they
were independent entities. Unlike financial accounting, there is no
authoritative body of guidance for management accounting equivalent to US GAAP.
Consequently, reported results are not necessarily comparable with those
presented by other companies.
The RAROC measurement methodology recognizes credit expense for
expected losses arising from credit risk and attributes economic capital related
to unexpected losses arising from credit, market and operational risks. Credit
expense related to expected losses can differ significantly from the current
period provision for credit losses. However, over an economic cycle, the two
amounts should be substantially the same. Business unit results are based on an
internal management reporting system used by management to measure the
performance of the units and UnionBanCal Corporation as a whole. The management
reporting system identifies balance sheet and income statement items to each
business unit based on internal management accounting policies. Net interest
income is determined using our internal funds transfer pricing system, which
assigns a cost of funds to assets or a credit for funds to liabilities and
capital, based on their type, maturity or repricing characteristics. Noninterest
income and expense directly or indirectly attributable to a business unit are
assigned to that business.
18
<PAGE>
We have restated the business units' results for the prior periods to
reflect any reorganizational changes that have occurred.
<TABLE>
<CAPTION>
COMMUNITY BANKING
AND INVESTMENT COMMERCIAL INTERNATIONAL
GROUP SERVICES GROUP GROUP
----------------------- ----------------------- -------------------
AS OF AND FOR THE THREE MONTHS ENDED SEPTEMBER 30,
-------------------------------------------------------------------------
1999 2000 1999 2000 1999 2000
-------- --------- --------- --------- -------- --------
RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS):
<S> <C> <C> <C> <C> <C> <C>
Net interest income............................... $175,756 $184,753 $152,739 $185,717 $10,522 $ 9,129
Noninterest income................................ 97,716 110,473 33,761 41,179 13,290 13,508
--------- --------- --------- --------- -------- --------
Total revenue..................................... 273,472 295,226 186,500 226,896 23,812 22,637
Noninterest expense(1)............................ 190,506 181,038 69,560 74,048 12,823 14,320
Credit expense (income)........................... 13,633 12,052 26,615 31,829 3,338 1,488
--------- --------- --------- --------- -------- --------
Income before income tax expense (benefit)........ 69,333 102,136 90,325 121,019 7,651 6,829
Income tax expense (benefit)...................... 27,016 39,067 33,029 43,625 2,970 2,612
--------- --------- --------- --------- -------- --------
Net income........................................ $ 42,317 $ 63,069 $ 57,296 $ 77,394 $ 4,681 $ 4,217
========= ========= ========= ========= ======== ========
AVERAGE BALANCES (DOLLARS IN MILLIONS):
Total loans....................................... $ 8,330 $ 8,057 $ 14,988 $ 17,054 $ 1,017 $ 928
Total assets...................................... 9,328 8,952 16,421 18,909 1,540 1,426
Total deposits.................................... 14,309 13,957 5,870 6,485 840 1,070
FINANCIAL RATIOS:
Return on risk adjusted capital].................. 28% 42% 18% 19% 16% 19%
Return on average assets]......................... 1.80 2.80 1.38 1.63 1.21 1.18
Efficiency ratio]................................. 69.66 61.32 37.30 32.64 53.85 63.26
<CAPTION>
GLOBAL
MARKETS UNIONBANCAL
GROUP OTHER CORPORATION
----------------------- ----------------------- -------------------
AS OF AND FOR THE THREE MONTHS ENDED SEPTEMBER 30,
-------------------------------------------------------------------------
1999 2000 1999 2000 1999 2000
-------- --------- --------- --------- -------- --------
RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS):
<S> <C> <C> <C> <C> <C> <C>
Net interest income........................... $ 12,545 $ 12,242 $ 8,451 $ 12,144 $360,013 $403,985
Noninterest income............................ 3,975 2,865 (393) 903 148,349 168,928
-------- --------- -------- -------- -------- --------
Total revenue................................. 16,520 15,107 8,058 13,048 508,362 572,913
Noninterest expense].......................... 4,777 3,894 106,632 18,079 384,298 291,378
Credit expense (income)....................... - - (23,586) 34,631 20,000 80,000
-------- --------- -------- -------- -------- --------
Income before income tax expense (benefit).... 11,743 11,213 (74,988) (39,662) 104,064 201,535
Income tax expense (benefit).................. 4,564 4,289 (35,096) (19,634) 32,483 69,959
-------- --------- -------- -------- -------- --------
Net income.................................... $ 7,179 $ 6,924 $(39,892) $(20,028) $ 71,581 $131,576
======== ========= ======== ======== ======== ========
AVERAGE BALANCES (DOLLARS IN MILLIONS):
Total loans................................... $ - $ - $ 818 $ 416 $ 25,153 $ 26,455
Total assets.................................. 3,615 3,593 1,135 810 32,039 33,690
Total deposits................................ 2,823 3,099 84 791 23,926 25,402
FINANCIAL RATIOS:
Return on risk adjusted capital].............. 20% 17% na na na na
Return on average assets]..................... 0.79 0.77 na na 0.89% 1.55%
Efficiency ratio]............................. 28.92 25.78 na na 75.60 50.86
-----------
<FN>
(1) "Other" includes a third quarter 1999 restructuring charge of $85.0 million ($55.2 million, net of tax).
(2) Annualized.
(3) The efficiency ratio is noninterest expense, excluding foreclosed asset
expense (income), as a percentage of net interest income (taxable-
equivalent) and noninterest income. Foreclosed asset expense (income)
was $(0.7) million in the third quarter of 1999, and none in the second
and third quarters of 2000.
na = not applicable
</FN>
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
COMMUNITY BANKING COMMERCIAL INTERNATIONAL
AND INVESTMENT FINANCIAL BANKING
SERVICES GROUP SERVICES GROUP GROUP
--------------------- ---------------------- -------------------
AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------------------------------------------------
1999 2000 1999 2000 1999 2000
-------- -------- -------- -------- ------- -------
RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS):
<S> <C> <C> <C> <C> <C> <C>
Net interest income............................. $509,742 $544,784 $436,562 $540,649 $33,388 $25,901
Noninterest income.............................. 273,714 318,470 95,769 134,014 42,658 45,015
-------- -------- -------- -------- ------- -------
Total revenue................................... 783,456 863,254 532,331 674,663 76,046 70,916
Noninterest expense]............................ 569,981 535,218 213,325 218,955 41,919 41,427
Credit expense (income)......................... 39,554 36,456 71,459 89,510 9,215 6,210
-------- -------- -------- -------- ------- -------
Income before income tax expense (benefit)...... 173,921 291,580 247,547 366,198 24,912 23,279
Income tax expense (benefit).................... 67,025 111,529 91,971 131,985 9,597 8,904
-------- -------- -------- -------- ------- -------
Net income...................................... $106,896 $180,051 $155,576 $234,213 $15,315 $14,375
======== ======== ======== ======== ======= =======
AVERAGE BALANCES (DOLLARS IN MILLIONS):
Total loans..................................... $ 8,322 $ 8,013 $ 14,435 $ 16,858 $ 1,066 $ 953
Total assets.................................... 9,303 8,935 15,812 18,650 1,633 1,511
Total deposits.................................. 14,037 14,163 5,811 6,248 803 946
FINANCIAL RATIOS:
Return on risk adjusted capital]................ 24% 43% 18% 21% 17% 19%
Return on average assets]....................... 1.54 2.69 1.32 1.68 1.25 1.27
Efficiency ratio]............................... 72.75 62.00 40.07 32.45 55.12 58.42
<CAPTION>
GLOBAL UNIONBANCAL
MARKETS GROUP OTHER CORPORATION
--------------------- ---------------------- -------------------
AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------------------------------------------------
1999 2000 1999 2000 1999 2000
-------- -------- -------- -------- ---------- ----------
RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS):
<S> <C> <C> <C> <C> <C> <C>
Net interest income........................... $ 46,842 $ 34,334 $ 20,463 $ 40,131 $1,046,997 $1,185,799
Noninterest income............................ 12,378 (9,789) 7,936 6,298 432,455 494,008
-------- -------- -------- --------- ---------- ----------
Total revenue................................. 59,220 24,545 28,399 46,429 1,479,452 1,679,807
Noninterest expense].......................... 16,752 11,756 148,713 22,379 990,690 829,735
Credit expense (income)....................... - - (85,228) 57,824 35,000 190,000
-------- -------- -------- --------- ---------- ----------
Income before income tax expense (benefit).... 42,469 12,789 (35,086) (33,774) 453,762 660,072
Income tax expense (benefit).................. 16,361 4,892 (35,995) (28,700) 148,959 228,610
-------- -------- -------- --------- ---------- ----------
Net income ................................... $ 26,107 $ 7,897 $ 909 $ (5,074) $ 304,803 $ 431,462
======== ======== ======== ========= ========== ==========
AVERAGE BALANCES (DOLLARS IN MILLIONS):
Total loans................................... $ - $ - $ 943 $ 480 $ 24,766 $ 26,304
Total assets.................................. 3,839 3,604 1,323 820 31,910 33,520
Total deposits................................ 2,820 3,306 58 657 23,529 25,320
FINANCIAL RATIOS:
Return on risk adjusted capital].............. 21% 6% na na na na
Return on average assets]..................... 0.91 0.29 na na 1.28% 1.72%
Efficiency ratio]............................. 28.29 47.90 na na 66.96 49.39
-----------
<FN>
(1) "Other" includes restructuring credits of $19.0 million ($11.8 million,
net of tax) in 2000 and a restructuring charge of $85.0 million ($55.2
million, net of tax).
(2) Annualized.
(3) The efficiency ratio is noninterest expense, excluding foreclosed asset
expense (income), as a percentage of net interest income (taxable-
equivalent) and noninterest income. Foreclosed asset expense (income)
was $(1.3) million in the first nine months of 1999 and none for the
first nine months of 2000.
na = not applicable
</FN>
</TABLE>
20
<PAGE>
COMMUNITY BANKING AND INVESTMENT SERVICES GROUP
The Community Banking and Investment Services Group strives to provide
the best possible financial products to individuals and small businesses
including a broad set of credit, deposit and trust products delivered through
branches, relationship managers, private bankers and trust administrators. The
Community Banking and Investment Services Group provides its customers with high
quality customer service executed through a number of responsive and efficient
delivery channels.
In addition to our traditional network channels, the Community Banking
and Investment Services Group announced earlier this year the establishment of
an alliance with NIX Check Cashing and Operation Hope designed to bring
convenient banking services to a broader community. This alliance will allow our
small business and consumer clients access to a unique blend of financial
services combining the NIX Check Cashing services, Union Bank of California
Banking Services and Operation Hope small business education services. Checking
and savings account services are available today through selected NIX locations
with future services planned to include applications for consumer loans, credit
cards, new and used car loans, home equity loans and residential mortgages. The
NIX alliance complements our current network of 15 cash and save outlets located
throughout Southern and Central California.
Operating expenses decreased in the Community Banking and Investment
Services Group by $9.5 million, due to a combination of the continued
implementation of Mission Excel cost reduction efforts and the introduction of
technology improvements in back office operations and call centers.
Continued success in these strategies has resulted in increased
revenues, reduced costs, improved efficiency ratios and higher returns on
capital. In the third quarter of 2000, net income increased $20.8 million, an
increase of over 49 percent compared to third quarter 1999. Total revenue
increased $21.8 million compared to a year ago with the majority of that
increase coming from a $12.8 million increase in noninterest income. Noninterest
income increases arose from a strategic repricing effort initiated through
Mission Excel, and from the purchase of trust assets of the Imperial Trust
Company, which occurred in mid-1999. Net interest income increased $9.0 million
over the prior year due to a combination of higher earning asset volume and a
higher rate environment.
With the completion of organizational changes resulting from Mission
Excel, the Community Banking and Investment Services Group is comprised of three
major divisions: Community Banking, Wealth Management, and Institutional
Services and Asset Management.
COMMUNITY BANKING serves over one million consumer households and
businesses through its 242 full-service branches in California, 6 full-service
branches in Oregon and Washington, 3 full-service branches in Guam and Saipan
and its network of over 425 proprietary ATMs. Customers may also access our
services 24 hours a day by telephone or through our Bank@Home product at
www.UBOC.com. In addition, the division offers automated teller and
point-of-sale debit services through our founding membership in the Star
System(R), the largest shared ATM network in the Western United States.
This division is organized by service delivery method, by markets and
by geography. We serve our customers in the following ways:
o through community banking branches, which serve consumers and
businesses with checking and deposit services, as well as various
types of indirect and direct financing, including auto leasing and
residential real estate lending;
o through on-line access our internet banking services augment our
physical delivery channels by providing a wide array of customer
transaction, bill payment and loan payment services;
o through business banking centers, which serve businesses with
sales up to $5 million; and
o through in-store branches, which also serve consumers and
businesses.
21
<PAGE>
WEALTH MANAGEMENT provides private banking services to our affluent
clientele as well as brokerage products and services.
o The Private Bank focuses primarily on delivering integrated and
customized financial services to high net worth individuals with
sophisticated financial needs as well as to professional service
firms. Specific products and services include trust and estate
services, investment account management services, offshore trust
services and customized deposit and credit products. The Private
Bank's strategy is to expand its business by leveraging existing
Bank client relationships, increasing its geographic market
coverage and the breadth of its products and services. Through its
8 locations, the Private Bank relationship managers offer all of
the Bank's available products and services.
o Our brokerage products and services are provided through UBOC
Investment Services, Inc., a registered broker/dealer offering a
full line of investment products to individuals and institutional
clients. Its primary strategy is to further penetrate our existing
client base.
INSTITUTIONAL SERVICES AND ASSET MANAGEMENT provides investment
management and administration services for a broad range of individuals and
institutions.
o HighMark Capital Management, Inc., a registered investment
adviser, provides investment advisory services to affiliated
domestic and offshore mutual funds, including the HighMark Funds.
It also provides advisory services to UBOC trust clients,
including corporations, pension funds and individuals. HighMark
Capital Management also provides mutual fund support services.
HighMark Capital Management's strategy is to increase assets under
management by broadening its client base and helping to expand the
distribution of shares of its mutual fund clients.
o Business Trust provides businesses, government agencies, unions
and non-profit organizations with trustee services, investment
management and 401(k) valuation and recordkeeping services.
Business Trust's strategy is to expand its third-party
distribution network to include insurance companies, investment
managers, brokers and mutual funds.
o Securities Services is engaged in domestic and global securities
custody, safekeeping, mutual fund accounting, securities lending,
and corporate trust services. Its client base includes financial
institutions, businesses, government agencies, unions, investment
managers and non-profit organizations. Securities Services is the
only West Coast based provider of a full range of institutional
financial services.
Through alliances with other financial institutions, the group offers
additional products and services, such as credit cards, leasing, and asset-based
and leveraged financing.
The group competes with larger banks by providing service quality
superior to that of its major competitors. We are recognized as among the
highest rated banks in California for customer service quality and satisfaction.
The group's primary means of competing with community banks include its
large and convenient branch network and its reputation for innovative use of
technology to deliver banking services. We have the fifth largest branch network
among depository institutions in California. We also offer convenient banking
hours to consumers through our drive-through banking locations and selected
branches that are open seven days a week.
The group competes with a number of commercial banks, internet banks,
savings associations and credit unions, as well as more specialized financial
service providers such as investment brokerage companies, consumer finance
companies, and residential real estate lenders. The group's primary competitors
are other major depository institutions such as Bank of America, California
Federal, Washington Mutual and Wells Fargo, as well as smaller community banks
in the markets in which we operate.
22
<PAGE>
COMMERCIAL FINANCIAL SERVICES GROUP
The Commercial Financial Services Group offers customized financing and
cash management services to middle market and large corporate businesses
primarily headquartered in the western United States. The Commercial Financial
Services Group has continued to produce strong earnings growth by focusing on
customer segmentation, allowing the group to provide specialized financing
expertise to specific geographic markets and industry segments such as
Communications, Energy, Entertainment, and Retailers. Relationship managers and
credit executives in the Commercial Financial Services Group provide credit
services including commercial loans, accounts receivables and inventory
financing, project financing, lease financing, trade financing and real estate
financing. In addition to credit services, the group offers its customers access
to high quality cash management services delivered through specialized deposit
managers with extensive experience in cash management solutions for businesses.
The group's continued success in their focused approach to the
wholesale market has led to third quarter 2000 net income growth of $20.1
million over a year ago. Revenues increased by $40.4 million primarily due to
strong loan growth, higher interest rates and improved noninterest income.
Operating expenses increased $4.5 million over the third quarter last year due
to higher expenses to support increased deposit volume. Despite this increase,
the group continues to improve efficiency with revenue growth significantly
outpacing expense growth. Credit expenses increased $5.2 million in response to
the loan growth over the prior year, and deterioration in the syndicated loan
portfolio.
The Commercial Financial Services Group is organized in the following
business units:
o the Commercial Banking Division, which serves California
middle-market companies;
o the Corporate Deposit Services Division, which provides deposit
and cash management expertise to clients in the middle market,
large corporate market and specialized industries;
o the Institutional and Deposit Services Division, which provides
deposit and cash management expertise to clients in specific
deposit intensive industries;
o the Corporate Capital Markets Division, which provides merchant
and investment banking related products and services. In addition
to a product and service focus, the Corporate Capital Markets
Division is responsible for credit services to a variety of
specialized industries including retailers, finance companies and
insurance companies;
o the Real Estate Industries Division, which is responsible for
providing real estate lending products such as construction loans,
commercial mortgages and bridge financing;
o the Energy Capital Services Division, which provides custom
financing and project financing to power and utility companies, as
well as oil and gas companies, in California and Texas;
o the Communications and Media Division, which provides custom
financing to middle market and large corporate clients in the
communications, entertainment and media industries; and
o the Commercial Finance and National Banking Division, which
provides asset based and selected leveraged financing to middle
market companies. The National Division focuses on select large
corporate clients headquartered outside California.
In addition, the Commercial Customer Service Unit supports the business
units described above by providing centralized customer service support.
The group competes with other banks primarily on the basis of its
reputation as a "business bank," the quality of its relationship managers, and
the delivery of superior customer service. We are recognized in California as
having a superior "business banking" reputation relative to other large banks.
We are also highly rated among financial institutions for our cash management
services and systems.
23
<PAGE>
The group's main strategy is to target industries and companies for
which the group can reasonably expect to be one of a customer's primary banks.
Consistent with its strategy, the group attempts to serve a large part of its
targeted customers' credit and depository needs.
The group competes with a variety of other financial services
companies. Competitors include other major California banks, as well as
regional, national and international banks. In addition, we compete with
investment banks, commercial finance companies, leasing companies, and insurance
companies.
INTERNATIONAL BANKING GROUP
The International Banking Group mainly provides correspondent banking
and trade finance-related products and services to international financial
institutions worldwide, primarily in Asia. This includes providing products and
services that facilitate trade finance transactions, including payments,
collection and the extension of short-term credit. The group also serves
selected foreign firms and U.S. corporate clients in selected countries
worldwide, particularly in Asia. In the U.S., the group serves subsidiaries and
affiliates of non-Japanese Asian companies and U.S. branches and agencies of
foreign banks. The group also provides international services to domestic
corporate clients along the West Coast. The group's revenue predominately
relates to foreign customers. In the first nine months of 2000, net income
decreased by $0.9 million compared to the same period last year primarily due to
the continued economic recovery in Asia and a related increase in liquidity
which have put pressure on spreads in the region. Partially offsetting these
narrower spreads, the group benefited from a lower portfolio exposure which has
resulted in lower credit expenses of $3.0 million and lower operating expenses
of $0.5 million as Mission Excel initiatives continue to be implemented.
The group has a long and stable history of providing correspondent and
trade-related services to international financial institutions. We believe that
we have achieved a leading market position and strong customer loyalty in the
Asia/Pacific correspondent banking market because we provide high quality,
customized products, and services at competitive prices. The group maintains
branches in Tokyo, Taipei, Seoul, Manila and Hong Kong, representative offices
in other parts of Asia and Latin America, and an international banking
subsidiary in New York.
One of the group's primary services is international trade finance.
Trade finance is typically short-term, which means it generally has a lower
credit risk.
GLOBAL MARKETS GROUP
The Global Markets Group conducts business activities primarily to
support the previously described business groups and their customers. This group
offers a broad range of risk management products, such as foreign exchange and
interest rate swaps, caps and floors. Additionally, it places debt securities,
including Union Bank of California, N.A.'s own liabilities, with institutional
investors and trades debt instruments in the secondary market. At the same time,
this group manages our market-related risks as part of its responsibilities for
asset/liability management including wholesale funding, liquidity, securities
portfolio, and off-balance sheet interest rate risk hedges. In the third quarter
of 2000, net income decreased $0.3 million compared to the third quarter of
1999. Total revenue in the third quarter of 2000 decreased $1.4 million
primarily due to a higher distribution of foreign exchange revenue to other
business segments of the bank compared to the third quarter of 1999. In
addition, noninterest income for the first nine months of 2000, decreased $22.2
million compared to the first nine months of 1999 mainly due to the sale of
securities in our portfolio in order to replace low yielding with higher
yielding securities. Noninterest expense in the third quarter of 2000 decreased
$0.9 million largely due to personnel expense reductions compared to the third
quarter of 1999.
24
<PAGE>
OTHER
"Other" includes the following items:
o corporate activities that are not directly attributable to one of
the four major business units. Included in this category are
goodwill and certain other non-recurring items such as
restructuring charges (credits), merger and integration expense,
certain parent company non-bank subsidiaries, and the elimination
of the fully taxable-equivalent amounts;
o the adjustment between the credit expense under RAROC and the
provision for credit losses under US GAAP, the net impact of
transfer pricing, and earnings associated with unallocated equity
capital;
o the Credit Management Group, which includes $158.3 million and
$299.8 million of average nonperforming assets for the first nine
months of September 30, 1999 and 2000, respectively;
o the Pacific Rim Corporate Group, which offers a range of credit,
deposit, and investment management products and services to
companies in the U.S., which are affiliated with companies
headquartered outside the U.S., mostly in Japan; and
o the residual costs of support groups.
25
<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
----------------------------------------------------------------------------------------
SEPTEMBER 30, 1999 SEPTEMBER 30, 2000
------------------------------------------ -----------------------------------------
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........................ $24,073,361 $474,460 7.82% $25,440,873 $559,071 8.74%
Foreign(3)...................... 1,079,189 16,886 6.21 1,014,102 17,568 6.89
Securities-taxable................. 3,142,864 49,554 6.31 3,349,476 54,602 6.52
Securities-tax-exempt.............. 75,489 1,880 9.96 67,962 1,643 9.68
Interest bearing deposits in banks. 207,291 2,786 5.33 174,526 2,775 6.32
Federal funds sold and securities
purchased under resale agreements 178,509 2,345 5.21 74,158 1,263 6.77
Trading account assets............. 250,512 3,113 4.93 278,049 4,200 6.01
----------- -------- ----------- --------
Total earning assets......... 29,007,215 551,024 7.55 30,399,146 641,122 8.40
-------- --------
Allowance for credit losses........ (448,924) (521,989)
Cash and due from banks............ 1,944,556 2,109,093
Premises and equipment, net........ 439,067 428,854
Other assets....................... 1,096,878 1,274,966
----------- -----------
Total assets................. $32,038,792 $33,690,070
=========== ===========
LIABILITIES
Domestic deposits:
Interest bearing................ $ 5,782,867 36,292 2.49 $ 5,977,345 41,506 2.76
Savings and consumer time....... 3,382,731 26,681 3.13 3,381,638 30,969 3.64
Large time...................... 4,109,821 51,372 4.96 4,602,394 71,931 6.22
Foreign deposits(3)................ 1,552,769 18,233 4.66 1,764,375 25,506 5.75
----------- -------- ----------- --------
Total interest bearing deposits 14,828,188 132,578 3.55 15,725,752 169,912 4.30
----------- -------- ----------- --------
Federal funds purchased and
securities sold under repurchase
agreements...................... 1,319,426 16,493 4.96 1,644,888 26,994 6.53
Commercial paper................... 1,514,326 19,572 5.13 1,595,462 26,072 6.50
Other borrowed funds............... 774,975 10,288 5.27 243,854 3,044 4.97
Subordinated capital notes......... 298,000 4,240 5.64 226,630 4,060 7.13
UnionBanCal Corporation-obligated
mandatorily redeemable preferred
securities of subsidiary grantor
trust........................... 350,000 7,093 7.92 350,000 6,414 7.32
----------- -------- ----------- --------
Total borrowed funds......... 4,256,727 57,686 5.38 4,060,834 66,584 6.53
----------- -------- ----------- --------
Total interest bearing
liabilities................ 19,084,915 190,264 3.96 19,786,586 236,496 4.76
-------- --------
Noninterest bearing deposits....... 9,098,284 9,676,284
Other liabilities.................. 926,453 1,042,033
----------- -----------
Total liabilities............ 29,109,652 30,504,903
SHAREHOLDERS' EQUITY
Common equity...................... 2,929,140 3,185,167
----------- -----------
Total shareholders' equity... 2,929,140 3,185,167
----------- -----------
Total liabilities and
shareholders' equity....... $32,038,792 $33,690,070
=========== ===========
Net interest income/margin (taxable-
equivalent basis)...... 360,760 4.93% 404,626 5.30%
Less: taxable-equivalent adjustment 747 641
-------- --------
Net interest income.......... $360,013 $403,985
======== ========
-----------
<FN>
(1) Yields and interest income are presented on a taxable-equivalent basis
using the federal statutory tax rate of 35 percent.
(2) Average balances on loans outstanding include all nonperforming and
renegotiated loans. The amortized portion of net loan origination fees
(costs) is included in interest income on loans, representing an
adjustment to the yield.
(3) Foreign loans and deposits are those loans and deposits originated in
foreign branches.
</FN>
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
----------------------------------------------------------------------------------------
SEPTEMBER 30, 1999 SEPTEMBER 30, 2000
------------------------------------------ -----------------------------------------
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........................ $23,674,469 $1,365,493 7.64% $25,248,387 $1,622,722 8.59%
Foreign(3)...................... 1,091,433 51,700 6.33 1,055,534 53,386 6.76
Securities-taxable................. 3,352,827 157,739 6.27 3,290,918 159,204 6.45
Securities-tax-exempt.............. 80,216 6,086 10.11 69,078 5,134 9.91
Interest bearing deposits in banks. 209,184 9,042 5.78 193,050 7,522 5.20
Federal funds sold and securities
purchased under resale agreements 138,396 5,237 5.06 137,987 6,364 6.16
Trading account assets............. 286,198 9,615 4.49 272,626 12,281 6.02
----------- ---------- ----------- ----------
Total earning assets......... 28,832,723 1,604,912 7.44 30,267,580 1,866,613 8.23
---------- ----------
Allowance for credit losses........ (450,295) (500,137)
Cash and due from banks............ 1,972,792 2,111,443
Premises and equipment, net........ 433,750 425,880
Other assets....................... 1,121,127 1,215,413
----------- -----------
Total assets................. $31,910,097 $33,520,179
=========== ===========
LIABILITIES
Domestic deposits:
Interest bearing................ $ 5,645,828 106,064 2.51 $ 5,942,695 117,648 2.64
Savings and consumer time....... 3,356,224 80,365 3.20 3,395,513 89,318 3.51
Large time...................... 3,963,288 144,798 4.46 4,581,849 203,659 5.94
Foreign deposits(3)................ 1,554,221 52,046 4.48 1,869,177 76,872 5.49
----------- ---------- ----------- ----------
Total interest bearing deposits 14,519,561 383,273 3.53 15,789,234 487,497 4.12
----------- ---------- ----------- ----------
Federal funds purchased and
securities sold under repurchase
agreements...................... 1,609,826 57,368 4.76 1,573,315 72,383 6.15
Commercial paper................... 1,541,151 56,766 4.92 1,539,749 71,004 6.16
Other borrowed funds............... 740,933 28,159 5.08 366,568 14,212 5.18
Subordinated capital notes......... 298,000 12,385 5.56 274,036 13,997 6.82
UnionBanCal Corporation-obligated
mandatorily redeemable preferred
securities of subsidiary grantor
trust........................... 287,179 17,476 8.03 350,000 19,788 7.53
----------- ---------- ----------- ----------
Total borrowed funds......... 4,477,089 172,154 5.14 4,103,668 191,384 6.23
----------- ---------- ----------- ----------
Total interest bearing
liabilities................ 18,996,650 555,427 3.91 19,892,902 678,881 4.56
---------- ----------
Noninterest bearing deposits....... 9,009,701 9,530,873
Other liabilities.................. 971,824 1,001,029
----------- -----------
Total liabilities............ 28,978,175 30,424,804
SHAREHOLDERS' EQUITY
Common equity...................... 2,931,922 3,095,375
----------- -----------
Total shareholders' equity... 2,931,922 3,095,375
----------- -----------
Total liabilities and
shareholders' equity....... $31,910,097 $33,520,179
=========== ===========
Net interest income/margin (taxable-
equivalent basis)...... 1,049,485 4.86% 1,187,732 5.23%
Less: taxable-equivalent adjustment 2,488 1,933
---------- ----------
Net interest income.......... $1,046,997 $1,185,799
========== ==========
-----------
<FN>
(1) Yields and interest income are presented on a taxable-equivalent basis
using the federal statutory tax rate of 35 percent.
(2) Average balances on loans outstanding include all nonperforming and
renegotiated loans. The amortized portion of net loan origination fees
(costs) is included in interest income on loans, representing an
adjustment to the yield.
(3) Foreign loans and deposits are those loans and deposits originated in
foreign branches.
</FN>
</TABLE>
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 volume and composition of average interest earning assets and
average interest bearing liabilities.
27
<PAGE>
THREE MONTHS ENDED SEPTEMBER 30, 1999 AND SEPTEMBER 30, 2000
Net interest income, on a taxable-equivalent basis, was $360.8 million
in the third quarter of 1999, compared with $404.6 million in the third quarter
of 2000. This increase of $43.8 million, or 12 percent, was attributable
primarily to a $1.4 billion, or 5 percent, increase in average earning assets,
partially funded by a $578.0 million, or 6 percent, increase in average
noninterest bearing deposits. In addition, the net interest margin was favorably
impacted by the interest rate environment that contributed to higher yields on
loans and other interest bearing assets, partially offset by higher rates on
deposits and other average interest bearing liabilities, as well as a lower
effective cost of funding the increased assets. The net interest margin
increased 37 basis points to 5.30 percent.
Average earning assets were $29.0 billion in the third quarter of 1999,
compared with $30.4 billion in the third quarter of 2000. This growth was
attributable to a $1.3 billion, or 5 percent, increase in average loans. The
growth in average loans was mostly due to the increase in average commercial,
financial and industrial loans of $782.5 million, real estate construction loans
of $303.6 million, real estate residential mortgage loans of $206.6 million,
real estate commercial mortgage loans of $188.1 million, and partially offset by
lower average consumer loans of $179.5 million.
The higher interest rate environment resulted in higher yields on
average earning assets of 85 basis points, partially offset by higher rates paid
on average interest bearing liabilities of 80 basis points. The decision to
maintain an asset sensitive balance sheet contributed to the higher yields. The
$0.7 billion, or 4 percent, increase in average interest bearing liabilities
over the third quarter of 1999 was due to an increase in average interest
bearing deposits of $0.9 billion, primarily large time deposits.
Average noninterest bearing deposits increased $578.0 million, or 6
percent, over the third quarter of 1999. This large base of interest-free
funding continues to benefit our lower cost of funds.
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND SEPTEMBER 30, 2000
Net interest income, on a taxable-equivalent basis, was $1,049 million
in the first nine months of 1999, compared with $1,188 million in the first nine
months of 2000. This increase of $138.2 million, or 13 percent, was attributable
primarily to a $1.4 billion, or 5 percent, increase in average earning assets,
partially funded by a $521.2 million, or 6 percent, increase in average
noninterest bearing deposits. In addition, the net interest margin was favorably
impacted by the interest rate environment that contributed to higher yields on
loans and other interest bearing assets, partially offset by higher rates on
deposits and other average interest bearing liabilities, as well as a lower
effective cost of funding the increased assets. The net interest margin
increased 37 basis points to 5.23 percent.
Average earning assets were $28.8 billion in the first nine months of
1999, compared with $30.3 billion in the first nine months of 2000. This growth
was attributable to a $1.5 billion, or 6 percent, increase in average loans,
partially offset by $73.0 million, or 2 percent decrease in average securities.
The growth in average loans was mostly due to the increase in average
commercial, financial and industrial loans of $908.8 million, real estate
commercial mortgage loans of $375.1 million, real estate construction loans of
$268.7 million, and real estate residential mortgage loans of $104.5 million,
partially offset by lower average consumer loans of $164.8 million. The decrease
in average securities, which comprised primarily of fixed rate available for
sale securities, reflected liquidity and interest rate risk management actions.
The higher interest rate environment resulted in higher yields on
average earning assets of 79 basis points, partially offset by higher rates paid
on average interest bearing liabilities of 65 basis points. The decision to
maintain an asset sensitive balance sheet contributed to the higher yields. The
$896.3 million, or 5 percent, increase in average interest bearing liabilities
over the first nine months of 1999 was due to an increase in average interest
bearing deposits of $1.3 billion, or 9 percent, primarily large time deposits.
Average noninterest bearing deposits increased $521.2 million, or 6
percent, over the first nine months of 1999. This large base of interest-free
funding continues to benefit our lower cost of funds.
28
<PAGE>
NONINTEREST INCOME
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
-------------------------------------- -------------------------------------
SEPTEMBER 30, SEPTEMBER 30, PERCENT SEPTEMBER 30, SEPTEMBER 30, PERCENT
(DOLLARS IN THOUSANDS) 1999 2000 CHANGE 1999 2000 CHANGE
----------------------------- -------- -------- ------ -------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Service charges on
deposit accounts..... $ 45,401 $ 53,779 18.45% $127,981 $153,987 20.32%
Trust and investment
management fees...... 36,353 39,975 9.96 102,607 116,163 13.21
Merchant transaction
processing fees...... 18,598 19,354 4.06 51,256 54,887 7.08
International commissions
and fees............. 17,475 18,012 3.07 53,186 53,463 0.52
Merchant banking fees... 10,946 15,353 40.26 27,561 40,681 47.60
Brokerage commissions and
fees................. 7,148 8,616 20.54 18,825 27,309 45.07
Foreign exchange trading
gains, net........... 5,267 6,143 16.63 14,873 21,054 41.56
Securities gains, net... 2,004 3,104 54.89 3,899 8,804 125.80
Other................... 5,157 4,592 (10.96) 32,267 17,660 (45.27)
-------- -------- ------ -------- -------- ------
Total noninterest
income............ $148,349 $168,928 13.87% $432,455 $494,008 14.23%
======== ======== ====== ======== ======== ======
-----------
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 1999 AND SEPTEMBER 30, 2000
In the third quarter of 2000, noninterest income was $168.9 million, an
increase of $20.6 million, or 14 percent, over the same period in 1999. This
increase was attributed to growth in deposit- related income, merchant banking
fees, trust and investment fees, brokerage revenues and securities gains, net.
Service charges on deposit accounts revenue was $53.8 million, an
increase of $8.4 million or 18 percent over the third quarter of 1999. The
increase was primarily attributable to a 6 percent increase in average deposits,
higher overdraft fees due to a change in fee structure, and the expansion of
several products and services.
Merchant banking fees were $15.4 million, an increase of $4.4 million
or 40 percent over the third quarter of 1999. The increase was primarily related
to increased syndication fees.
Trust and investment management fees were $40.0 million for the
quarter, an increase of $3.6 million or 10 percent over the same period in 1999.
The increase was mainly attributed to asset growth under management. Managed
assets have grown by 12 percent over the prior year, rising to $21.9 billion,
while total assets have increased 8 percent to $132.5 billion.
Brokerage commissions and fees were $8.6 million, an increase of $1.5
million or 21 percent over the third quarter of 1999. The increase was primarily
related to brokerage commissions on sales of non-proprietary mutual funds,
annuities, and insurance products and growth in corporate sweep products.
Securities gains, net were $3.1 million, an increase of $1.1 million
over the third quarter of 1999. This increase was primarily related to the sale
of venture capital securities investments during the period.
Other noninterest income was $4.6 million, a decrease of $0.6 million
or 11 percent from the same period in 1999. The decrease was primarily
attributed to a $4.5 million loss on distressed loans held for sale, partially
offset by higher rate swap fee income of $3.1 million. Included in other
noninterest income are auto lease residual write-downs of $5.0 million in third
quarter 2000 and $6.3 million in the same quarter 1999.
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND SEPTEMBER 30, 2000
In the first nine months of 2000, noninterest income was $494.0
million, an increase of $61.6 million, or 14 percent, over the same period in
1999. This increase was primarily attributed to growth in deposit-related
income, trust and investment fees, merchant banking fees, brokerage revenues,
foreign exchange trading gains, net gains from securities sales, and partially
offset by other income.
29
<PAGE>
Service charges on deposit accounts revenue was $154.0 million, an
increase of $26.0 million or 20 percent over the first nine months of 1999. The
increase was primarily attributable to a 8 percent increase in average deposits,
higher overdraft fees due to a change in fee structure, and the expansion of
several products and services.
Trust and investment management fees were $116.2 million, an increase
of $13.6 million or 13 percent over the first nine months of 1999. The
acquisition of Imperial Trust Company accounted for just over 25 percent of the
increase with the rest attributable to growth in institutional trust business,
institutional asset management accounts, and a 10 percent increase in retail
HighMark Fund balances.
Merchant banking fees were $40.7 million, an increase of $13.1 million
or 48 percent over the first nine months of 1999. The increase was primarily
related to higher syndication fees.
Brokerage commissions and fees were $27.3 million, an increase of $8.5
million or 45 percent over the first nine months of 1999. The increase was
primarily related to brokerage commissions on sales of non-proprietary mutual
funds, annuities, and insurance products and growth in corporate sweep products.
Foreign exchange trading gains, net were $21.1 million, an increase of
$6.2 million or 42 percent over the first nine months of 1999. The increase was
attributed to an increase in exporters' cross border transactions, reflecting
the gradual recovery of the Asian and European economies and a strong US$ which
resulted in an increase in overseas direct investments and capital market
securities' investments.
Securities gains, net were $8.8 million, an increase of $4.9 million or
126 percent over the first nine months of 1999. This increase was primarily
related to the sale of venture capital securities investments, partially offset
by the sale of certain lower yielding securities in our portfolio where the
proceeds were used to purchase higher yielding securities.
Other noninterest income was $17.7 million, a decrease of $14.6 million
or 45 percent over the first nine months of 1999. The decrease was mainly
attributed to higher losses on the valuation of auto lease residuals of $11.2
million, a $4.5 million loss on the sale of distressed loans held for sale, and
the write down of venture capital equity investments of $1.8 million, partially
offset by a $4.1 million gain on the sale of a property.
30
<PAGE>
NONINTEREST EXPENSE
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
-------------------------------------- --------------------------------------
SEPTEMBER 30, SEPTEMBER 30, PERCENT SEPTEMBER 30, SEPTEMBER 30, PERCENT
(DOLLARS IN THOUSANDS) 1999 2000 CHANGE 1999 2000 CHANGE
------------------------- -------- -------- ------ -------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Salaries and other $135,697 $130,085 (4.14)% $401,973 $387,411 (3.62)%
compensation.......
Employee benefits..... 29,761 22,142 (25.60) 98,167 57,072 (41.86)
-------- -------- ------ -------- -------- ------
Personnel-related
expense......... 165,458 152,227 (8.00) 500,140 444,483 (11.13)
Net occupancy......... 22,895 24,664 7.73 67,273 69,358 3.10
Equipment............. 19,389 15,702 (19.02) 49,405 47,706 (3.44)
Merchant transaction
processing......... 12,905 12,784 (0.94) 37,773 37,144 (1.67)
Communications........ 10,666 11,736 10.03 31,217 33,048 5.87
Professional services. 8,440 10,760 27.49 29,426 29,278 (0.50)
Data processing....... 7,797 8,577 10.00 23,459 26,199 11.68
Advertising and public
relations.......... 7,845 8,042 2.51 23,341 20,546 (11.97)
Software.............. 6,113 5,850 (4.30) 18,790 16,831 (10.43)
Printing and office
supplies........... 5,103 5,055 (0.94) 17,800 14,945 (16.04)
Travel................ 4,335 3,900 (10.03) 14,236 12,020 (15.57)
Intangible asset
amortization....... 3,509 3,338 (4.87) 10,527 10,014 (4.87)
Armored car........... 3,180 3,153 (0.85) 9,648 9,437 (2.19)
Foreclosed asset
expense (income)... (703) (14) (98.01) (1,256) 7 nm
Restructuring charge
(credit)........... 85,000 - nm 85,000 (19,000) nm
Other................. 22,366 25,604 14.48 73,911 77,719 5.15
-------- -------- -------- --------
Total noninterest
expense......... $384,298 $291,378 (24.18) $990,690 $829,735 (16.25)
======== ======== ======== ========
-----------
<FN>
nm = not meaninful
</FN>
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 1999 AND SEPTEMBER 30, 2000
In the third quarter of 2000, noninterest expense was $291.4 million, a
decrease of $7.9 million, or 3 percent, over the same period in 1999, excluding
the $85.0 million restructuring reserve recorded in the third quarter of 1999.
This decrease was mainly attributed to lower direct expenses realized through
our Mission Excel expense reduction efforts and higher expenses in the prior
year related to the Year 2000 conversion, partially offset by higher
professional service fees resulting from increased projects in the current year.
o Personnel-related expense was $152.2 million, a decrease of $13.2
million or 8 percent over the third quarter of 1999. This decrease
was attributed to lower staff expense due to personnel reductions
achieved through Mission Excel and changes to our pension plan
assumptions.
o Equipment expense was $15.7 million, a decrease $3.7 million or 19
percent over the third quarter of 1999. This decrease was
primarily related to the write-off of unused personal computer
equipment replaced in a corporate upgrade in the prior year.
o Professional services expense was $10.8 million, an increase of
$2.3 million or 27 percent over the third quarter of 1999. This
increase was attributed to a higher level of projects being
conducted in the current year.
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND SEPTEMBER 30, 2000
In the first nine months of 2000, noninterest expense, excluding the
restructuring reserve of $85.0 million recorded in the third quarter of 1999 and
the restructuring credits of $19.0 million recorded in the first and second
quarters of 2000, was $848.7 million, a decrease of $57.0 million, or 6 percent,
over the same
31
<PAGE>
period in 1999. This decrease was attributed to lower direct expenses realized
through our Mission Excel expense reduction efforts, higher expenses in the
prior year related to the Year 2000 conversion, and a one-time credit related to
an accounting change.
o Personnel-related expense was $444.5 million, a decrease of $55.7
million or 11 percent over the first nine months of 1999. This
decrease was attributed to a one-time credit for an accounting
methodology change in recognizing pension expense of $16.0
million, personnel reductions achieved through Mission Excel, and
changes to our pension plan assumptions.
INCOME TAX EXPENSE
The effective tax rate for each of the third quarters of 1999 and 2000
were 30 percent and 35 percent, respectively. During the third quarter of 1999,
we recognized a net tax benefit of $4.4 million as the result of a California
Franchise Tax Board audit settlement for the years 1989 through 1993. Excluding
this tax benefit, our effective tax rate would have been 35 percent and 35
percent for the three months ended September 30, 1999 and September 30, 2000,
respectively.
The effective tax rate for the first nine months of 1999 and 2000 were
32 percent and 35 percent, respectively. During the first nine months of 1999,
we recognized tax benefits as the result of an IRS settlement of $6.3 million
for refund claims we filed for the years 1992 through 1994 and a California
Franchise Tax Board audit settlement of $4.4 million for the years 1989 through
1993. Excluding these tax benefits, our effective tax rate would have been 34
percent and 35 percent for the first nine months ended September 30, 1999 and
September 30, 2000, respectively.
LOANS
The following table shows loans outstanding by loan type.
<TABLE>
<CAPTION>
PERCENT CHANGE TO
SEPTEMBER 30, 2000 FROM:
--------------------------------
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
(DOLLARS IN THOUSANDS) 1999 1999 2000 1999 1999
------------------------------- ----------- ----------- ----------- ------ ------
<S> <C> <C> <C> <C> <C>
Domestic:
Commercial, financial and
industrial............... $13,774,886 $14,176,630 $14,207,319 3.14 % 0.22 %
Construction................ 644,980 648,478 944,263 46.40 45.61
Mortgage:
Residential.............. 2,579,526 2,581,141 2,984,627 15.70 15.63
Commercial............... 3,242,516 3,572,347 3,373,801 4.05 (5.56)
----------- ----------- -----------
Total mortgage......... 5,822,042 6,153,488 6,358,428 9.21 3.33
Consumer:
Installment.............. 1,969,518 1,922,158 1,752,292 (11.03) (8.84)
Home equity.............. 714,189 727,776 736,835 3.17 1.24
----------- ----------- -----------
Total consumer......... 2,683,707 2,649,934 2,489,127 (7.25) (6.07)
Lease financing............. 1,155,415 1,148,542 1,148,314 (0.61) (0.02)
----------- ----------- -----------
Total loans in domestic
offices............. 24,081,030 24,777,072 25,147,451 4.43 1.49
Loans originated in foreign
branches.................... 1,104,652 1,135,886 1,010,488 (8.52) (11.04)
----------- ----------- -----------
Total loans............ $25,185,682 $25,912,958 $26,157,939 3.86 % 0.95 %
=========== =========== ===========
</TABLE>
32
<PAGE>
Our lending activities are predominantly domestic, with such loans
comprising 96 percent of the total loan portfolio at September 30, 2000. Total
loans at September 30, 2000 were $26.2 billion, an increase of $1.0 billion, or
4 percent, over September 30, 1999. The increase was attributable to growth in
the commercial, financial and industrial loan portfolio, which increased $432.4
million, the residential mortgage loan portfolio, which increased $405.1
million, the construction loan portfolio, which increased $299.3 million, the
commercial mortgage loan portfolio, which increased $131.3 million, partially
offset by, the consumer loan portfolio, which decreased $194.6 million.
Commercial, financial and industrial loans represent the largest
category in the loan portfolio. These loans are extended principally to
corporations, middle market businesses, and small businesses, with no industry
concentration exceeding 10 percent of total commercial, financial and industrial
loans. At September 30, 1999 and 2000, the commercial, financial and industrial
loan portfolio was $13.8 billion, or 55 percent of total loans, and $14.2
billion, or 54 percent of total loans, respectively. The increase of $432.4
million, or 3 percent, from September 30, 1999 was primarily attributable to
loans extended to businesses with revenues exceeding $20 million.
The construction loan portfolio totaled $645.0 million, or 3 percent of
total loans, at September 30, 1999, compared with $944.3 million, or 4 percent
of total loans, at September 30, 2000. This growth of $299.3 million, or 46
percent, from September 30, 1999 was primarily attributable to the continuing
favorable California real estate market coupled with a strong West Coast
economy.
Mortgage loans were $5.8 billion, or 23 percent of total loans, at
September 30, 1999, compared with $6.4 billion, or 24 percent of total loans, at
September 30, 2000. The mortgage loan portfolio consists of loans on commercial
and industrial projects and residential loans, secured by one-to-four family
residential properties, primarily in California. The increase in commercial
mortgage loans of $131.3 million, or 4 percent and in residential mortgage loans
of $405.1 million, or 16 percent, from September 30, 1999, reflected both the
favorable California real estate market and a strong West Coast economy. In
addition, higher residential mortgage loan balances were impacted by the
purchase of $109.0 million in adjustable rate mortgages primarily originated in
California, Oregon and Washington.
Consumer loans totaled $2.7 billion, or 11 percent of total loans, at
September 30, 1999, compared with $2.5 billion, or 10 percent of total loans, at
September 30, 2000. The decrease of $194.6 million, or 7 percent, was primarily
attributable to automobile dealer loans. Origination's were lower due to
increased competition in the business and the maturing of loans originated
during peak years. In a press release dated September 14, 2000, the bank
announced it is exiting the indirect automobile lending business.
CROSS-BORDER OUTSTANDINGS
Our cross-border outstandings reflect certain additional economic and
political risks that are not reflected in domestic outstandings. These risks
include those arising from exchange rate fluctuations and restrictions on the
transfer of funds. The following table sets forth our cross-border outstandings
as of September 30, 1999, December 31, 1999, and September 30, 2000 for each
country where such outstandings exceeded 1 percent of total assets. The
cross-border outstandings were compiled based upon category and domicile of
ultimate risk and are comprised of balances with banks, trading account assets,
securities available for sale, securities purchased under resale agreements,
loans, accrued interest receivable, acceptances outstanding and investments with
foreign entities. The amounts outstanding for each country
33
<PAGE>
exclude local currency outstandings. For those individual countries shown in the
table below, most of our local currency outstandings are hedged or are funded by
local currency borrowings.
<TABLE>
<CAPTION>
PUBLIC CORPORATIONS
FINANCIAL SECTOR AND OTHER TOTAL
(DOLLARS IN MILLIONS) INSTITUTIONS ENTITIES BORROWERS OUTSTANDINGS
------------------------------------------------------------ ------------ -------- ------------ ------------
<S> <C> <C> <C> <C>
September 30, 1999
Japan....................................................... $127 $- $361 $488
Korea....................................................... 459 1 57 517
December 31, 1999
Japan....................................................... 82 - 339 421
Korea....................................................... 422 - 53 475
September 30, 2000
Korea....................................................... 332 - 34 366
</TABLE>
PROVISION FOR CREDIT LOSSES
We recorded a $20 million provision for credit losses in the third
quarter of 1999, compared with an $80 million provision for credit losses in the
third quarter of 2000 and a $70 million provision in the second quarter 2000.
The provision for credit losses for the nine months ended September 30, 2000 was
$190 million compared to $35 million for the nine months ended September 30,
1999. Provisions for credit losses are charged to income to bring our allowance
for credit losses to a level deemed appropriate by management based on the
factors discussed under "Allowance for Credit Losses" below.
Our provision for credit losses in the third quarter of 2000, compared
with the second quarter 2000 provision was affected by the following factors:
o The continuing application of strict standards to the definitions
of potential and well-defined weaknesses in our loan portfolio,
resulting in higher levels of criticized assets and downward
migration within the criticized grades,
o The higher impairment allowance on nonaccrual loans due to both
increased impairment and higher volume of loans placed on
nonaccrual during the period,
o The establishment of a separate loss factor for foreign loans
based on historical losses in our foreign loan portfolio, which
reduced our provision requirement, and
o The refinement of our reserve methodology, which eliminated the
portion of the unallocated allowance related to model and
estimation risk.
ALLOWANCE FOR CREDIT LOSSES
We maintain an allowance for credit losses to absorb losses inherent in
the loan portfolio. The allowance is based on our regular, quarterly assessments
of the probable estimated losses inherent in the loan portfolio, and to a lesser
extent, unused commitments to provide financing. Our methodology for measuring
the appropriate level of the allowance relies on several key elements, which
include the formula allowance, specific allowances for identified problem loans
and portfolio segments and the unallocated allowance.
The formula allowance is calculated by applying loss factors to
outstanding loans and certain unused commitments, in each case based on the
internal risk grade of such loans, pools of loans, leases and commitments.
Changes in risk grades of both performing and nonperforming loans affect the
amount of the formula allowance. Loss factors are based on our historical loss
experience and may be adjusted for
34
<PAGE>
significant factors that, in management's judgment, affect the collectibility of
the portfolio as of the evaluation date. Loss factors are developed in the
following ways:
o Problem graded loan loss factors are derived from a migration
model that tracks historical loss experience over a six-year
period, which we believe captures the appropriate default losses
on our loan portfolio,
o Pass graded loan loss factors are based on the average annual net
charge-off rate over a period of 10 years, which we believe is
reflective of a full business cycle,
o Pooled loan loss factors (not individually graded loans) are based
on expected net charge-offs for one year. Pooled loans are loans
that are homogeneous in nature, such as consumer installment and
residential mortgage loans and automobile leases.
We believe that a business cycle is a period in which both upturns and
downturns in the economy have been reflected. The most recent economic expansion
has required us to extend our historical perspective to capture the highs and
lows of a typical economic cycle.
Specific allowances are established in cases where management has
identified significant conditions or circumstances related to a credit that
management believes indicate the probability that a loss has been incurred. This
amount may be determined either by a method prescribed by Statement of Financial
Accounting Standards (SFAS) No. 114, "Accounting by Creditors for Impairment of
a Loan", or by a method which identifies certain qualitative factors.
The unallocated allowance contains amounts that are based on
management's evaluation of conditions that are not directly measured in the
determination of the formula and specific allowances. The evaluation of the
inherent loss with respect to these conditions is subject to a higher degree of
uncertainty because they are not identified with specific problem credits or
portfolio segments. The conditions evaluated in connection with the unallocated
allowance include the following, which existed at the balance sheet date:
o General economic and business conditions affecting our key lending
areas,
o Credit quality trends (including trends in nonperforming loans
expected to result from existing conditions),
o Collateral values,
o Loan volumes and concentrations,
o Seasoning of the loan portfolio,
o Specific industry conditions within portfolio segments,
o Recent loss experience in particular segments of the portfolio,
o Duration of the current business cycle,
o Bank regulatory examination results, and
o Findings of our internal credit examiners.
Executive management reviews these conditions quarterly in discussion
with our senior credit officers. To the extent that any of these conditions is
evidenced by a specifically identifiable problem credit or portfolio segment as
of the evaluation date, management's estimate of the effect of such condition
may be reflected as a specific allowance, applicable to such credit or portfolio
segment. Where any of these conditions is not evidenced by a specifically
identifiable problem credit or portfolio segment as of the evaluation date,
management's evaluation of the probable loss related to such condition is
reflected in the unallocated allowance.
35
<PAGE>
The allowance for credit losses is based upon estimates of probable
losses inherent in the loan portfolio. The amount actually observed for these
losses can vary from the estimated amounts. Our methodology includes several
features that are intended to reduce the differences between estimated and
actual losses. The loss migration model that is used to establish the loan loss
factors for problem graded loans is designed to be self-correcting by taking
into account our loss experience over prescribed periods. Similarly, by basing
the pass graded loan loss factors over a period reflective of a business cycle,
the methodology is designed to take our recent loss experience into account.
Pooled loan loss factors are adjusted quarterly based upon the level of net
charge-offs expected by management in the next twelve months. Furthermore, our
methodology permits adjustments to any loss factor used in the computation of
the formula allowance in the event that, in management's judgment, significant
factors, which affect the collectibility of the portfolio as of the evaluation
date, are not reflected in the loss factors. By assessing the probable estimated
losses inherent in the loan portfolio on a quarterly basis, we are able to
adjust specific and inherent loss estimates based upon the most recent
information that has become available.
COMPARISON OF THE TOTAL ALLOWANCE AND RELATED PROVISION FOR CREDIT LOSSES FROM
DECEMBER 31, 1999
At December 31, 1999, our allowance for credit losses was $470 million,
or 1.82 percent of total loans, and 281 percent of total nonaccrual loans,
compared with an allowance for credit losses at September 30, 2000 of $526
million, or 2.01 percent of total loans, and 186 percent of total nonaccrual
loans.
In addition, the allowance incorporates the results of measuring
impaired loans as provided in SFAS No. 114 and SFAS No. 118, "Accounting by
Creditors for Impairment of a Loan-Income Recognition and Disclosures". These
accounting standards prescribe the measurement methods, income recognition and
disclosures related to impaired loans. At December 31, 1999, total impaired
loans were $167.4 million and the associated impairment allowance was $42.4
million, compared with $283.0 million and $91.1 million, respectively, at
September 30, 2000.
Historically, our credit policy prescribed that our unallocated
allowance include a component in respect of model and estimation risk equal to
20% to 25% of the allocated allowance. The primary reason for this component of
the unallocated allowance was the dissimilarity of the loss histories of our
predecessor institutions, Union Bank and Bank of California, prior to their
combination in 1996. As part of our ongoing effort to improve our allowance
methodology, we conducted a review of model imprecision for our pass and problem
graded loans, which was completed during the third quarter of 2000. The review
indicated the following:
o In light of the expansion to a ten year loss history for our pass
graded loans and our analysis of our loss experience for the
10-year period, we have concluded that it is not necessary to
provide an amount for model risk with respect to this portion of
the formula allowance.
o Our loss migration model, upon which we calculate default losses
on our problem graded credits, now indicates that losses have
remained relatively unchanged over the past six years, which is
the maximum number of years that may be included in our model. As
a result, we have concluded that it is not necessary to provide
for model risk with respect to this portion of the formula
allowance.
o In addition, we have concluded that our impaired loans, which are
remeasured on a monthly basis, have no significant, evidenced
estimation risk within our specific allowance.
We made no other changes in estimation methods or assumptions that
affected our methodology for assessing the appropriateness of the allowance for
credit losses. Changes in assumptions regarding the effects of economic and
business conditions on borrowers and other factors, which are described below,
have affected the assessment of the unallocated allowance. Estimation risk,
which continues to be present in the allowance for credit losses, will now be
included as part of our attributed factors within the unallocated allowance for
credit losses.
36
<PAGE>
CHANGES IN THE FORMULA, SPECIFIC AND UNALLOCATED ALLOWANCES FROM DECEMBER 31,
1999
At September 30, 2000, the formula allowance was $320 million, compared
to $257 million at December 31, 1999, an increase of $63 million. This was
primarily due to increases in criticized credits and downward migration within
the criticized grades, offset by a reduction of $12 million related to
improvement in the risk factors on foreign loans.
At September 30, 2000, the specific allowance was $107 million compared
to $51 million at December 31, 1999, an increase of $56 million. This was
primarily caused by both higher impairment allowances on our nonaccrual loans
and higher levels of nonaccrual loans.
At September 30, 2000, the unallocated allowance was $99 million
compared to $162 million at December 31, 1999, a decrease of $63 million. As
discussed previously, during the quarter we refined our reserve methodology to
eliminate the prescribed component of the unallocated allowance in respect of
model and estimation risk. In light of the elimination of this mandatory
component of the unallocated reserve, we have increased the remaining component
of the unallocated allowance to reflect the estimation risk that management
believes exists in the formula and specific allowances, primarily in respect of
the anticipated downward regradings of loans in certain sectors of our
portfolio. Management believes that other inherent losses related to certain
conditions considered in its evaluation of the unallocated allowance have been
recognized in the formula allowance during the nine months ended September 30,
2000.
At September 30, 2000, we had a $99 million unallocated allowance in
our allowance for credit losses. In evaluating the appropriateness of the
unallocated allowance, we considered the following factors as well as more
general factors such as the interest rate environment and the impact of economic
downturn on those borrowers who have a more leveraged financial profile:
o the need to provide for model and estimation risk, as previously
required by our credit policy was eliminated,
o the need to provide for probable losses related to certain Asian
countries on borrowers was eliminated, as we reduced our exposures
and completed the regradings of those exposures,
o the adverse effects of rising fuel prices and governmental
regulation on borrowers in the utilities industry, which could be
in the range of $22 million to $35 million,
o the adverse effects of changes in the economic, regulatory, and
technology environments on borrowers in the communications/media
industry, which could be in the range of $21 million to $31
million,
o the adverse effects of the recent slowing trends in same-store
sales and softening consumer confidence on borrowers in the
retailing industry, which could be in the range of $8 million to
$14 million,
o the adverse effects of export market conditions and cyclical
overcapacity on borrowers in the technology industry, which could
be in the range of $4 million to $8 million, and
o the adverse effects on borrowers in the healthcare industry from
reduced reimbursements from government medical insurance programs,
which have been reduced either through loan sales or as a result
of their incorporation into our formula allowance, which could be
in the range of $3 million to $6 million.
37
<PAGE>
There can be no assurance that the adverse impact of any of these
conditions on us will not be in excess of the ranges set forth above. See
forward-looking statements on page 41.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------------------------------
(DOLLARS IN THOUSANDS) 1999 2000 1999 2000
----------------------------------------------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Balance, beginning of period........................................... $450,403 $500,731 $459,328 $470,378
Loans charged off:
Commercial, financial and industrial................................ 15,080 55,855 27,570 140,629
Mortgage............................................................ 84 18 724 133
Consumer............................................................ 2,978 2,867 10,790 8,861
Lease financing..................................................... 785 827 2,559 2,158
Foreign]............................................................ - - 14,127 -
--------- --------- --------- ---------
Total loans charged off.......................................... 18,927 59,567 55,770 151,781
Recoveries of loans previously charged off:
Commercial, financial and industrial................................ 3,909 3,123 11,479 11,766
Mortgage............................................................ 49 30 452 156
Consumer............................................................ 1,605 1,534 6,242 5,047
Lease financing..................................................... 238 128 581 455
--------- --------- --------- ---------
Total recoveries of loans previously charged off................. 5,801 4,815 18,754 17,424
--------- --------- --------- ---------
Net loans charged off.......................................... 13,126 54,752 37,016 134,357
Provision for credit losses............................................ 20,000 80,000 35,000 190,000
Foreign translation adjustment and other net additions (deductions).... 152 (83) 117 (125)
--------- --------- --------- ---------
Balance, end of period................................................. $457,429 $525,896 $457,429 $525,896
========= ========= ========= =========
Allowance for credit losses to total loans............................. 1.82% 2.01% 1.82% 2.01%
Provision for credit losses to net loans charged off................... 152.37 146.11 94.55 141.41
Net loans charged off to average loans outstanding for the period(2)... 0.21 0.82 0.20 0.68
-----------
<FN>
(1) Foreign loans are those loans originated in foreign branches.
(2) Annualized.
</FN>
</TABLE>
Total loans charged off in the third quarter of 2000 increased by $40.6
million from the third quarter of 1999, of which $9.5 million was related to
distressed loan sales. Charge-offs reflect the realization of losses in the
portfolio that were recognized previously through provisions for credit losses.
The third quarter's recoveries of loans previously charged off
decreased by $1.0 million from the same period in 1999. The percentage of net
loans charged off to average loans increased by 61 percent, from the same period
in 1999. At September 30, 2000, the allowance for credit losses exceeded the net
loans charged off during the third quarter of 2000, reflecting management's
belief, based on the foregoing analysis, that there are additional losses
inherent in the portfolio.
Historical net charge-offs are not necessarily indicative of the amount
of net charge-offs that we will realize in the future.
38
<PAGE>
NONPERFORMING ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
(DOLLARS IN THOUSANDS) 1999 1999 2000
----------------------------------------------------------------------- ------------- ------------ -------------
<S> <C> <C> <C>
Commercial, financial and industrial................................... $146,521 $159,479 $262,169
Construction........................................................... 4,334 4,286 3,967
Commercial mortgage.................................................... 4,045 3,629 11,509
Foreign................................................................ - - 5,354
--------- --------- ---------
Total nonaccrual loans........................................... 154,900 167,394 282,999
Foreclosed assets...................................................... 3,357 2,386 2,014
Distressed loans held for sale......................................... - - 14,782
--------- --------- ---------
Total nonperforming assets....................................... $158,257 $169,780 $299,795
========= ========= =========
Allowance for credit losses............................................ $457,429 $470,378 $525,896
========= ========= =========
Nonaccrual loans to total loans........................................ 0.62% 0.65% 1.08%
Allowance for credit losses to nonaccrual loans........................ 295.31 281.00 185.83
Nonperforming assets to total loans, foreclosed assets and distressed
loans held for sale................................................. 0.63 0.66 1.15
Nonperforming assets to total assets................................... 0.49 0.50 0.89
</TABLE>
At September 30, 2000, nonperforming assets totaled $299.8 million, an
increase of $141.5 million, or 89 percent, from a year earlier. The increase was
mainly in commercial and industrial loans to medium-to-large corporate borrowers
in different industry sectors. Included in nonperforming assets are $14.8
million in distressed loans that are being held for accelerated disposition.
During the third quarter of 2000, we sold $56.0 million of distressed loans
under this accelerated disposition program.
Nonaccrual loans as a percentage of total loans were 1.08 percent at
September 30, 2000, compared with 0.62 percent at September 30, 1999.
Nonperforming assets as a percentage of total loans, foreclosed assets, and
distressed loans held for sale increased to 1.15 percent at September 30, 2000
from 0.63 percent at September 30, 1999.
LOANS 90 DAYS OR MORE PAST DUE AND STILL ACCRUING
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
(DOLLARS IN THOUSANDS) 1999 1999 2000
----------------------------------------------------------------------- ------------- ------------ -------------
<S> <C> <C> <C>
Commercial, financial and industrial................................... $ 1,211 $ 2,729 $ 5,758
Construction........................................................... - - 638
Mortgage:
Residential......................................................... 4,728 5,830 2,835
Commercial.......................................................... 386 442 -
------- ------- -------
Total mortgage................................................... 5,114 6,272 2,835
Consumer and other..................................................... 4,397 2,932 3,405
------- ------- -------
Total loans 90 days or more past due and still accruing............. $10,722 $11,933 $12,636
======= ======= =======
</TABLE>
ASSET QUALITY TRENDS
During the past year, we have experienced deteriorating asset quality
with increasing levels of nonperforming assets, charge-offs, and provision
expense. Based on this trend, we expect that nonperforming assets, charge-offs
and provision expense may continue to rise as our borrowers become adversely
impacted by the slowing economy and other factors.
39
<PAGE>
LIQUIDITY
Liquidity risk represents the potential for loss as a result of
limitations on our ability to adjust our future cash flows to meet the needs of
depositors and borrowers and to fund operations on a timely and cost-effective
basis. The ALM Policy approved by the Board requires quarterly reviews of our
liquidity by the ALCO, which is composed of bank senior executives. Our
liquidity management draws upon the strengths of our extensive retail and
commercial market business franchise, coupled with the ability to obtain funds
for various terms in a variety of domestic and international money markets.
Liquidity is managed through the funding and investment functions of the Global
Markets Group.
Core deposits provide us with a sizable source of relatively stable and
low-cost funds. Our average core deposits, which include demand deposits, money
market demand accounts, and savings and consumer time deposits, combined with
average common shareholders' equity, funded 66 percent of average total assets
of $33.7 billion for the third quarter ended September 30, 2000. Most of the
remaining funding was provided by short-term borrowings in the form of
negotiable certificates of deposit, foreign deposits, federal funds purchased
and securities sold under repurchase agreements, commercial paper and other
borrowings.
Liquidity may also be provided by the sale or maturity of assets. Such
assets include interest-bearing deposits in banks, federal funds sold and
securities purchased under resale agreements, and trading account securities.
The aggregate of these assets averaged $0.5 billion during the third quarter of
2000. Additional liquidity may be provided by investment securities available
for sale that amounted to $3.6 billion at September 30, 2000, and by loan
maturities.
REGULATORY CAPITAL
The following table summarizes our risk-based capital, risk-weighted
assets, and risk-based capital ratios.
<TABLE>
<CAPTION>
UNIONBANCAL CORPORATION
MINIMUM "WELL-CAPITALIZED"
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30, REGULATORY REGULATORY
(DOLLARS IN THOUSANDS) 1999 1999 2000 REQUIREMENT REQUIREMENT
------------------------ ----------- ----------- ----------- ------------------- ------------------
CAPITAL COMPONENTS
<S> <C> <C> <C>
Tier 1 capital $ 3,216,976 $ 3,308,912 $ 3,520,717
Tier 2 capital 605,381 616,772 613,777
----------- ----------- -----------
Total risk-based capital $ 3,822,357 $ 3,925,684 $ 4,134,494
=========== =========== ===========
Risk-weighted assets... $32,378,472 $33,288,167 $33,476,055
=========== =========== ===========
Quarterly average assets $31,969,687 $32,765,347 $33,637,908
=========== =========== ===========
<CAPTION>
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
CAPITAL RATIOS ----------- ------ ----------- ------ ----------- ----- ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total capital (to
risk-weighted assets) $ 3,822,357 11.81% $ 3,925,684 11.79% $ 4,134,494 12.35% > $ 2,678,084 8.0% na
-
Tier 1 capital (to
risk-weighted assets) 3,216,976 9.94 3,308,912 9.94 3,520,717 10.52 > 1,339,042 4.0 na
-
Leverage ratio(1) 3,216,976 10.06 3,308,912 10.10 3,520,717 10.47 > 1,345,516 4.0 na
-
-----------
<FN>
(1) Tier 1 capital divided by quarterly average assets (excluding certain intangible assets).
</FN>
</TABLE>
<TABLE>
<CAPTION>
UNION BANK OF CALIFORNIA, N.A.
MINIMUM "WELL-CAPITALIZED"
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30, REGULATORY REGULATORY
(DOLLARS IN THOUSANDS) 1999 1999 2000 REQUIREMENT REQUIREMENT
------------------------ ----------- ----------- ----------- ------------------- ------------------
<S> <C> <C> <C>
CAPITAL COMPONENTS
Tier 1 capital $ 3,103,665 $ 3,103,324 $ 3,295,828
Tier 2 capital 500,178 511,327 506,616
----------- ----------- -----------
Total risk-based capital $ 3,603,843 $ 3,614,651 $ 3,802,444
=========== =========== ===========
Risk-weighted assets $31,960,695 $32,850,575 $32,900,514
=========== =========== ===========
Quarterly average assets $31,696,685 $32,507,079 $33,942,940
=========== =========== ===========
<CAPTION>
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
CAPITAL RATIOS ----------- ----- ----------- ----- ----------- ----- ----------- ----- ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total capital (to
risk-weighted assets) $ 3,603,843 11.28% $ 3,614,651 11.00% $ 3,802,444 11.56% > $ 2,632,041 8.0% > $ 3,290,051 10.0
- -
Tier 1 capital (to
risk-weighted assets) 3,103,665 9.71 3,103,324 9.45 3,295,828 10.02 > 1,316,021 4.0 > 1,974,031 6.0
- -
Leverage ratio(1) 3,103,665 9.79 3,103,324 9.55 3,295,828 9.71 > 1,357,718 4.0 > 1,697,147 5.0
- -
-----------
<FN>
(1) Tier 1 capital divided by quarterly average assets (excluding certain
intangible assets).
</FN>
</TABLE>
40
<PAGE>
We and Union Bank of California, N.A. are subject to various regulations
issued by federal banking agencies, including minimum capital requirements. We
and Union Bank of California, N.A. are required to maintain minimum ratios of
total and Tier 1 capital to risk-weighted assets and of Tier 1 capital to
quarterly average assets (the leverage ratio).
Compared with December 31, 1999, our Tier 1 risk-based capital ratio at
September 30, 2000 increased 58 basis points to 10.52 percent, our total
risk-based capital ratio increased 54 basis points to 12.35 percent, and our
leverage ratio increased 41 basis points to 10.47 percent. The increases in the
capital ratios were primarily attributable to a higher growth rate in Tier 1
capital attributed to higher growth in net income.
As of September 30, 2000, management believes the capital ratios of
Union Bank of California, N.A. met all regulatory minimums of a
"well-capitalized" institution.
FORWARD-LOOKING STATEMENTS
Our management frequently makes forward-looking statements in
Securities and Exchange Commission filings, such as this one, press releases,
news articles, conference calls with Wall Street analysts and when we are
speaking on behalf of UnionBanCal Corporation. Forward-looking statements can be
identified by looking at the fact that they do not relate strictly to historical
or current facts. Often, they include the words "believe," "expect,"
"anticipate," "intend," "plan," "estimate," "project," or words of similar
meaning, or future or conditional verbs such as "will," "would," "should,"
"could," or "may." The forward-looking statements we make are intended to
provide investors with additional information with which they may assess our
future potential. All of these forward-looking statements are based on
assumptions about an uncertain future. There are numerous factors that could and
will cause actual results to differ from those discussed in our forward-looking
statements. Many of these factors are beyond our ability to control or predict
and could have a material adverse effect on our stock price, financial position,
or results of operations. Some, but not all, of these factors are discussed
below. All forward-looking statements included in this document are based on
information available as of its date, and we assume no obligation to update any
forward-looking statement.
ADVERSE CALIFORNIA ECONOMIC CONDITIONS COULD ADVERSELY AFFECT OUR
BUSINESS
A substantial majority of our assets and deposits are generated in
California. As a result, poor economic conditions in California may cause us to
incur losses associated with higher default rates and decreased collateral
values in our loan portfolio. In the early 1990's, the California economy
experienced an economic recession that resulted in increases in the level of
delinquencies and losses for us and many of the state's other financial
institutions. If California were to experience another recession, it is expected
that our level of problem assets would increase accordingly.
ADVERSE ECONOMIC FACTORS AFFECTING CERTAIN INDUSTRIES COULD HAVE
AN ADVERSE EFFECT ON OUR CUSTOMERS AND THEIR ABILITY TO MAKE PAYMENTS
TO US
We are also subject to certain industry-specific economic factors. For
example, a portion of our total loan portfolio is related to real estate
obligations, and a portion of our recent growth has been fueled by the general
real estate recovery in California. Accordingly, a downturn in the real estate
industry in California could have an adverse effect on our operations.
Similarly, a portion of our total loan portfolio is to borrowers in the
agricultural industry. Adverse weather conditions, combined with low commodity
prices, may adversely affect the agricultural industry and, consequently, may
impact our business negatively. Similarly, portions of our total loan portfolio
are to borrowers in the industries referred to in "Allowance for Credit Losses"
above, which could be adversely affected by the factors referred to in that
section.
41
<PAGE>
FLUCTUATIONS IN INTEREST RATES COULD ADVERSELY AFFECT OUR BUSINESS
Significant increases in market interest rates, or the perception that
an increase may occur, could adversely affect both our ability to originate new
loans and our ability to grow. Conversely, a decrease in interest rates could
result in an acceleration in the prepayment of loans. In addition, changes in
market interest rates, or changes in the relationships between short-term and
long-term market interest rates, or changes in the relationships between
different interest rate indices, could affect the interest rates charged on
interest earning assets differently than the interest rates paid on interest
bearing liabilities. This difference could result in an increase in interest
expense relative to interest income. An increase in market interest rates also
could adversely affect the ability of our floating-rate borrowers to meet their
higher payment obligations. If this occurred, it could cause an increase in
nonperforming assets and charge-offs, which could adversely affect our business.
SHAREHOLDER VOTES ARE CONTROLLED BY THE BANK OF TOKYO-MITSUBISHI, LTD.
A majority of our directors are not officers or employees of
UnionBanCal Corporation or any of our affiliates, including The Bank of Tokyo-
Mitsubishi, Ltd. However, because of The Bank of Tokyo-Mitsubishi, Ltd.'s
control over the election of our directors, The Bank of Tokyo- Mitsubishi, Ltd.
could change the composition of our Board of Directors so that the Board would
not have a majority of outside directors. The Bank of Tokyo- Mitsubishi, Ltd.
owns a majority of the outstanding shares of our common stock. As a result, The
Bank of Tokyo-Mitsubishi, Ltd. can elect all of our directors and as a result
can control the vote on all matters, including determinations such as: approval
of mergers or other business combinations; sales of all or substantially all of
our assets; any matters submitted to a vote of our shareholders; issuance of any
additional common stock or other equity securities; incurrence of debt other
than in the ordinary course of business; the selection and tenure of our Chief
Executive Officer; payment of dividends with respect to common stock or other
equity securities; and matters that might be favorable to The Bank of
Tokyo-Mitsubishi, Ltd. The Bank of Tokyo-Mitsubishi, Ltd.'s ability to prevent
an unsolicited bid for us or any other change in control could have an adverse
effect on the market price for our common stock.
THE BANK OF TOKYO-MITSUBISHI, LTD.'S FINANCIAL CONDITION COULD
ADVERSELY AFFECT OUR OPERATIONS
Although we fund our operations independently of The Bank of
Tokyo-Mitsubishi, Ltd. and believe our business is not necessarily closely
related to The Bank of Tokyo-Mitsubishi, Ltd.'s business or outlook, The Bank of
Tokyo-Mitsubishi, Ltd.'s credit ratings may affect our credit ratings. The Bank
of Tokyo-Mitsubishi, Ltd.'s credit ratings were downgraded in October 1998 by
Standard and Poor's Corporation and are currently on Moody's Investors Service,
Inc.'s credit watch with negative implications. Any future downgrading of The
Bank of Tokyo-Mitsubishi, Ltd.'s credit rating could adversely affect our credit
ratings. Therefore, as long as The Bank of Tokyo-Mitsubishi, Ltd. maintains a
majority interest in us, deterioration in The Bank of Tokyo- Mitsubishi, Ltd.'s
financial condition could result in an increase in our borrowing costs and could
impair our access to the public and private capital markets. The Bank of
Tokyo-Mitsubishi, Ltd. is also subject to regulatory oversight and review. Our
business operations and expansion plans could be negatively affected by
regulatory concerns related to the Japanese financial system and The Bank of
Tokyo-Mitsubishi, Ltd.
POTENTIAL CONFLICTS OF INTEREST WITH THE BANK OF TOKYO-MITSUBISHI, LTD.
COULD ADVERSELY AFFECT US
As part of The Bank of Tokyo-Mitsubishi, Ltd.'s normal risk management
processes, The Bank of Tokyo-Mitsubishi, Ltd. manages global credit exposures
and concentrations on an aggregate basis, including us. Therefore, at certain
levels, our ability to approve certain credits and categories of customers is
subject to concurrence by The Bank of Tokyo-Mitsubishi, Ltd.. We may wish to
extend credit to the same customer as The Bank of Tokyo- Mitsubishi, Ltd. Our
ability to do so may be limited for various reasons, including The Bank of
Tokyo-Mitsubishi, Ltd's aggregate credit exposure and marketing policies.
Certain
42
<PAGE>
directors' and officers' ownership interests in The Bank of Tokyo-Mitsubishi,
Ltd.'s common stock or service as a director or officer or other employee of
both us and The Bank of Tokyo-Mitsubishi, Ltd. could create or appear to create
potential conflicts of interest, especially since both of us compete in the
United States banking industry.
SUBSTANTIAL COMPETITION IN THE CALIFORNIA BANKING MARKET COULD
ADVERSELY AFFECT US
Banking is a highly competitive business. We compete actively for loan,
deposit, and other financial services business in California, as well as
nationally and internationally. Our competitors include a large number of state
and national banks, thrift institutions and major foreign-affiliated or foreign
banks, as well as many financial and non-financial firms that offer services
similar to those offered by us. Some of our competitors are community banks that
have strong local market positions. Other competitors include large financial
institutions (such as Bank of America, California Federal, Washington Mutual,
and Wells Fargo) that have substantial capital, technology and marketing
resources. Such large financial institutions may have greater access to capital
at a lower cost than us, which may adversely affect our ability to compete
effectively.
RESTRICTIONS ON DIVIDENDS AND OTHER DISTRIBUTIONS COULD LIMIT AMOUNTS
PAYABLE TO US
A substantial portion of our cash flow typically comes from dividends
our bank and nonbank subsidiaries pay to us. Various statutory provisions
restrict the amount of dividends our subsidiaries can pay to us without
regulatory approval. In addition, if any of our subsidiaries liquidates, that
subsidiary's creditors will be entitled to receive distributions from the assets
of that subsidiary to satisfy their claims against it before we, as a holder of
an equity interest in the subsidiary, will be entitled to receive any of the
assets of the subsidiary. If, however, we are a creditor of the subsidiary with
recognized claims against it, we would be in the same position.
ADVERSE EFFECTS OF BANKING REGULATIONS OR CHANGES IN BANKING REGULA-
TIONS COULD ADVERSELY AFFECT US
We are subject to significant federal and state regulation and
supervision, which is primarily for the benefit and protection of our customers
and not for the benefit of investors. In the past, our business has been
materially affected by these regulations. This trend is likely to continue in
the future. Laws, regulations or policies currently affecting us and our
subsidiaries may change at any time. Regulatory authorities may also change
their interpretation of these statutes and regulations. Therefore, our business
may be adversely affected by any future changes in laws, regulations, policies
or interpretations. Additionally, our international activities may be subject to
the laws and regulations of the jurisdiction where business is being conducted.
International laws, regulations and policies affecting us and our subsidiaries
may change at any time and affect our business opportunities and competitiveness
in these jurisdictions. Due to The Bank of Tokyo-Mitsubishi, Ltd.'s controlling
ownership of us, laws, regulations and policies adopted or enforced by the
Government of Japan may adversely affect our activities and investments and
those of our subsidiaries in the future. Under long-standing policy of the Board
of Governors of the Federal Reserve System, a bank holding company is expected
to act as a source of financial strength for its subsidiary banks. As a result
of that policy, we may be required to commit financial and other resources to
our subsidiary bank in circumstances where we might not otherwise do so.
POSSIBLE FUTURE SALES OF SHARES BY THE BANK OF TOKYO-MITSUBISHI, LTD.
COULD ADVERSELY AFFECT THE MARKET FOR OUR STOCK
Although The Bank of Tokyo-Mitsubishi, Ltd. has announced its intention
to maintain its majority ownership in us, The Bank of Tokyo- Mitsubishi, Ltd.
may sell shares of our common stock in compliance with the federal securities
laws. By virtue of The Bank of Tokyo-Mitsubishi, Ltd.'s current control of us,
The Bank of Tokyo-Mitsubishi, Ltd. could sell large amounts of shares of our
common stock by causing us to file a registration statement that would allow
them to sell shares more easily. In addition, The Bank of
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Tokyo-Mitsubishi, Ltd. could sell shares of our common stock without
registration pursuant to Rule 144 under the Securities Act. Although we can make
no prediction as to the effect, if any, that such sales would have on the market
price of our common stock, sales of substantial amounts of our common stock, or
the perception that such sales could occur, could adversely affect our market
price. If The Bank of Tokyo-Mitsubishi, Ltd. sells or transfers shares of our
common stock as a block, another person or entity could become our controlling
shareholder.
STRATEGIES
In connection with our strategic repositioning, we have developed
long-term financial performance goals, which we expect to result from successful
implementation of our operating strategies. We cannot assure you that we will be
successful in achieving these long-term goals or that our operating strategies
will be successful. Achieving success in these areas is dependent on a number of
factors, many of which are beyond our direct control.
Factors that may adversely affect our ability to attain our long-term
financial performance goals include:
o deterioration of our asset quality,
o our inability to reduce noninterest expenses,
o our inability to increase noninterest income,
o our inability to decrease reliance on asset revenues,
o our ability to sustain loan growth,
o regulatory and other impediments associated with making
acquisitions,
o deterioration in general economic conditions, especially in
our core markets,
o decreases in net interest margins,
o increases in competition,
o adverse regulatory or legislative developments,
o unexpected increases in costs related to potential
acquisitions, and
o unexpected increased costs associated with implementation of
our efficiency improvement project.
RISKS ASSOCIATED WITH POTENTIAL ACQUISITIONS OR DIVESTITURES OR
RESTRUCTURING
We may acquire or invest in companies, technologies, services or
products that complement our business. In addition, we continue to evaluate
performance of all of our businesses and business lines and may sell a business
or business lines. Any acquisitions, divestitures or restructuring may result in
potentially dilutive issuance of equity securities, significant write-offs, the
amortization of expenses related to goodwill and other intangible assets and/or
the incurrence of debt, any of which could have a material adverse effect on our
business, financial condition and results of operations. Acquisitions,
divestitures or restructuring could involve numerous additional risks including
difficulties in the assimilation or separation of operations, services, products
and personnel, the diversion of management's attention from other business
concerns, the disruption of our business, and the potential loss of key
employees. There can be no assurance that we would be successful in overcoming
these or any other significant risks encountered.
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WE MIGHT BE UNABLE TO RECRUIT OR RETAIN NECESSARY PERSONNEL, WHICH
COULD SLOW THE DEVELOPMENT OF OUR BUSINESS.
Our performance is substantially dependent on the performance of our
key managerial, marketing and technical personnel. We are dependent both on our
ability to retain and motivate our key personnel and to attract new personnel.
However, the labor markets in California are extremely tight and we cannot be
sure that we will be able to attract, motivate and retain such personnel.
Competition for qualified personnel in California is intense both within our
industry and other industry sectors, including high technology. Competitors and
others, including high technology companies, have in the past and may in the
future attempt to recruit our employees. Inability to attract, retain and
motivate the personnel necessary to support the growth of our business could
have a material adverse effect upon our business, results of operations, and
financial condition.
ITEM 3. MARKET RISK.
Information concerning our exposure to market risk, which has remained
relatively unchanged from December 31, 1999, is incorporated by reference from
the text under the caption "Quantitative and Qualitative Disclosures About
Market Risk" in the Form 10-K for the year ended December 31, 1999.
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PART II. OTHER INFORMATION
ITEM 4. OTHER INFORMATION
SHAREHOLDER PROPOSALS: Shareholders who expect to present a proposal at
the 2001 Annual Meeting of Shareholders should notify the Secretary of the
Company at 400 California Street, Mail Code 1-001-18, San Francisco, CA 94104 by
December 1, 2000. Without such notice, proxy holders appointed by the Board of
Directors of the Company will be entitled to exercise their discretionary voting
authority when the proposal is raised at the annual meeting, without any
discussion of the proposal in the proxy statement. Note that the December 31,
2000 deadline for submitting shareholder proposals for presentation at the 2001
Annual Meeting of Shareholders, for publication in the Company's proxy statement
and action on the proxy form or otherwise, as stated on page 23 of the Company's
Proxy Statement dated March 31, 2000, is incorrect. The correct deadline is
December 1, 2000.
ITEM 5. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
NO. DESCRIPTION
----- -------------------------------------------------------------------------
3.1 Restated Articles of Incorporation of the Registrant, as amended(1)
3.2 By-laws of the Registrant, as amended January 27, 1999(2)
10.1 Management Stock Plan. (As restated effective June 1, 1997)*(3)
10.2 Union Bank of California Deferred Compensation Plan. (January 1, 1997,
Restatement, as amended November 21, 1996)*(4)
10.3 Union Bank of California Senior Management Bonus Plan. (Effective January
1, 2000)*(5)
10.4 Richard C. Hartnack Employment Agreement. (Effective January 1, 1998)*(6)
10.5 Robert M. Walker Employment Agreement. (Effective January 1, 1998)*(6)
10.6 Union Bank of California Supplemental Executive Retirement Plan. (Effec-
tive January 1, 1988) (Amended and restated as of January 1, 1997)*(3)
10.7 Union Bank Financial Services Reimbursement Program. (As restated effec-
tive January 1, 2000)*(7)
10.8 Performance Share Plan. (Effective January 1, 1997)*(3)
10.9 Service Agreement Between Union Bank of California and The Bank of Tokyo-
Mitsubishi Ltd. (Effective October 1, 1997)*(3)
10.10 Management Stock Plan. (As restated effective January 1, 2000)*(8)
10.11 Union Bank of California, N.A. Supplemental Retirement Plan for Policy
Making Officers (effective November 1, 1999)*(5)
27.1 Financial Data Schedule(9)
-----------
(1) Incorporated by reference to Form 10-K for the year ended December 31, 1998.
(2) Incorporated by reference to Form 10-Q for the quarter ended March 31, 1999.
(3) Incorporated by reference to Form 10-K for the year ended December 31, 1997.
(4) Incorporated by reference to Form 10-K for the year ended December 31, 1996.
(5) Incorporated by reference to Form 10-Q for the quarter ended June 30, 2000.
(6) Incorporated by reference to Form 10-Q for the quarter ended September 30,
1998.
(7) Incorporated by reference to Form 8-K dated April 1, 1996 (filed as exhibit
10.14).
(8) Incorporated by reference to Form 10-Q for the quarter ended June 30, 1999.
(9) Filed herewith.
* Management contract or compensatory plan, contract or arrangement.
(b) Reports on Form 8-K:
None
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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/ DAVID I. MATSON
----------------------------------------
David I. Matson
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
By /s/ DAVID A. ANDERSON
----------------------------------------
David A. Anderson
SENIOR VICE PRESIDENT AND CONTROLLER
Dated: November 13, 2000
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