UnionBanCal Corporation Announces Third Quarter Earnings From Continuing Operations of $110 Million or $0.79 Per Share

UnionBanCal Corporation (NYSE:UB) today reported third quarter 2008 net income of $104.8 million, or $0.75 per diluted common share. This compares with $127.5 million, or $0.92 per diluted common share, a year earlier, and $141.3 million, or $1.02 per diluted common share, in second quarter 2008. Net income for third quarter 2008 included a net loss from discontinued operations of $5.3 million, or $0.04 per diluted common share. Net income for third quarter 2007 included a net loss from discontinued operations of $22.8 million, or $0.16 per diluted common share. Net income for second quarter 2008 included an $11.5 million after-tax, or $0.08 per diluted common share, net gain on the sale of the insurance brokerage business, and a $4.4 million after-tax, or $0.03 per diluted common share, gain on the partial redemption of MasterCard Inc. common stock.

Earnings from continuing operations for third quarter 2008 were $110.1 million, or $0.79 per diluted common share, compared with $150.2 million, or $1.08 per diluted common share, a year earlier, and $134.3 million, or $0.97 per diluted common share, in second quarter 2008.

For the first nine months of 2008, earnings from continuing operations were $366.8 million, or $2.65 per diluted common share. This compares with earnings from continuing operations for the first nine months of 2007 of $464.1 million, or $3.33 per diluted common share.

Summary of Third Quarter Results From Continuing Operations

Third Quarter Total Revenue

For third quarter 2008, total revenue (taxable-equivalent net interest income plus noninterest income) was $721 million, up 13 percent compared with third quarter 2007. Net interest income increased 22 percent and noninterest income decreased 4.6 percent. Compared with second quarter 2008, total revenue was up 1.2 percent, with net interest income up 1.8 percent and noninterest income down 0.5 percent.

Third Quarter Net Interest Income (Taxable-equivalent)

Net interest income was $522 million in third quarter 2008, up $93 million, or 22 percent, from the same quarter a year ago, primarily due to lower rates paid on interest bearing liabilities and strong loan growth, partially offset by lower yields on earning assets. Average earning assets in third quarter 2008 increased $8 billion, or 16.4 percent, compared to third quarter 2007, primarily due to a $7.7 billion, or 19.5 percent, increase in average loans.

Compared to third quarter 2007, average interest bearing deposits increased $1.1 billion, or 4 percent, while average noninterest bearing deposits decreased $1.4 billion, or 10.3 percent.

Average noninterest bearing deposits represented 29.7 percent of average total deposits in third quarter 2008. The annualized average all-in cost of funds was 1.60 percent, compared with 2.78 percent in third quarter 2007, and 1.56 percent in second quarter 2008. The Company’s average core deposit-to-loan ratio was 67.4 percent.

The net interest margin in third quarter 2008 was 3.67 percent, an increase of 16 basis points compared with third quarter 2007.

Third quarter 2008 net interest income increased 1.8 percent from second quarter 2008. Average loans increased $1.7 billion, or 3.7 percent. Average noninterest bearing deposits decreased $0.5 billion, or 4 percent. Average interest bearing deposits decreased $1.0 billion, or 3.4 percent, primarily due to a decrease in large time deposits, offset by increased borrowings from the Federal Reserve Bank and the Federal Home Loan Bank, a more stable source of funding. The net interest margin decreased 7 basis points to 3.67 percent.

Third Quarter Noninterest Income

In third quarter 2008, noninterest income was $198.7 million, down $9.5 million, or 4.6 percent, from the same quarter a year ago. Service charges on deposit accounts and trust and investment management fees were both flat, while trading account revenues declined $9.4 million.

Third quarter 2008 noninterest income decreased $0.9 million, or 0.5 percent, compared with second quarter 2008. Service charges on deposit accounts were flat, with lower account analysis fees offset by higher overdraft fees.

Third Quarter Noninterest Expense

Noninterest expense for third quarter 2008 was $443.8 million, an increase of $63.0 million, or 16.5 percent, compared with third quarter 2007. Salaries and employee benefits expense increased $21.3 million, or 9.8 percent, primarily due to annual merit increases and higher staff levels. The provision for losses on off-balance sheet commitments was $8 million in third quarter 2008, compared to $4 million in third quarter 2007.

Noninterest expense increased $24.5 million, or 5.8 percent, compared with second quarter 2008. Salaries and other compensation expense was flat. The provision for losses on off-balance sheet commitments was $8 million, compared to $5 million in second quarter 2008. Other noninterest expense increased $19.2 million, or 52.7 percent, primarily due to losses related to the securities lending program, higher regulatory agency fees and higher expense related to low income housing projects.

Year-to-Date Results

Total revenue for the first nine months of 2008 was $2.1 billion, an increase of $201 million, or 10.6 percent, compared with total revenue of $1.9 billion in the same period of 2007. Net interest income increased $208 million, or 16.1 percent, and noninterest income decreased $7 million, or 1.1 percent.

Noninterest income in the first nine months of 2008 was $594 million, a decrease of $7 million, or 1.1 percent, compared with the same period in 2007. Service charges on deposit accounts were flat, with higher account analysis fees related to lower earnings credit rates offset by lower overdraft fees on lower deposit balances.

For the first nine months of 2008, noninterest expense increased $110 million, or 9.5 percent, over the first nine months of 2007. Salaries and other compensation expense increased $32 million, or 5.7 percent, primarily due to annual merit increases, higher staff levels and higher accruals for performance-related incentive expense. The provision for off-balance sheet commitments was $21 million in the first nine months of 2008, compared with $5 million in the first nine months of 2007. Other noninterest expense increased $34.6 million, or 39.4 percent, primarily due to losses related to the securities lending program, higher expense related to low income housing projects and higher regulatory agency fees.

Credit Quality

Nonperforming assets at September 30, 2008, were $304 million, or 0.49 percent of total assets. This compares with $225 million, or 0.37 percent of total assets, at June 30, 2008, and $53 million, or 0.10 percent of total assets, at September 30, 2007.

In third quarter 2008, the total provision for credit losses was $125 million, compared with a total provision for credit losses of $100 million in second quarter 2008, and a total provision for credit losses of $20 million in third quarter 2007. The total provision for credit losses is comprised of the provision for loan losses and the provision for losses on off-balance sheet commitments, which is classified in noninterest expense.

Net loans charged-off for third quarter 2008 were $63 million, or 0.53 percent of average total loans. This compares with net loans charged-off of $31 million, or 0.28 percent of average total loans, in second quarter 2008, and net loans charged-off of $2 million, or 0.02 percent of average total loans, in third quarter 2007.

At September 30, 2008, the allowance for credit losses as a percent of total loans and as a percent of nonaccrual loans was 1.43 percent and 240 percent, respectively. These ratios were 1.37 percent and 291 percent, respectively, at June 30, 2008, and 1.10 percent and 853 percent, respectively, at September 30, 2007.

Balance Sheet and Capital Ratios

At September 30, 2008, the Company had total assets of $62.6 billion. Total loans were $48.3 billion and total deposits were $42.4 billion, resulting in a period-end deposit-to-loan ratio of 87.7 percent. Core deposits at period-end were $33.3 billion, resulting in a core deposit-to-loan ratio of 68.9 percent. At period-end, total stockholders’ equity was $4.7 billion and the tangible common equity ratio was 6.96 percent. The Company’s Tier I and total risk-based capital ratios at period-end were 8.03 percent and 10.94 percent, respectively.

Discontinued Operations

Commencing with second quarter 2008, the results of the insurance brokerage business have been reported in discontinued operations and all prior periods have been restated to reflect this accounting treatment.

Commencing with fourth quarter 2007, the results of the retirement recordkeeping business have been reported in discontinued operations and all prior periods have been restated to reflect this accounting treatment.

Status of Merger with The Bank of Tokyo-Mitsubishi UFJ, Ltd.

Mitsubishi UFJ Financial Group, Inc. ("MUFG") (NYSE:MTU), its wholly owned subsidiary, The Bank of Tokyo-Mitsubishi UFJ, Ltd. ("BTMU"), and UnionBanCal Corporation (“UNBC”) announced on September 28, 2008, the successful completion of the cash tender offer by MUFG and BTMU to purchase all of the outstanding shares of UNBC that MUFG and its affiliates do not already own. The offer expired at 12:00 midnight EDT on Friday, September 26, 2008.

On September 28, 2008, BTMU accepted for payment a total of 46,119,880 shares tendered pursuant to the offer and not withdrawn at a price of $73.50 per share. Payment for the shares accepted for purchase under the offer was made on October 1, 2008, in cash, without interest, by the depositary. Following completion of the offer, BTMU owned approximately 136,337,188 shares of UNBC common stock outstanding as of October 1, 2008. Together, MUFG, BTMU and their affiliates owned approximately 97% of our outstanding Common Stock as of such date.

In accordance with the merger agreement between BTMU and UNBC announced on August 18, 2008, BTMU and UNBC will carry out a second-step merger as a result of which UNBC will become a wholly owned indirect subsidiary of MUFG. In the merger, each share of UNBC common stock not previously purchased in the tender offer will be converted, subject to appraisal rights, into the right to receive $73.50 per share in cash. On October 3, 2008, BTMU executed a written consent approving and adopting the merger agreement and approving the merger. Consummation of the merger is expected to occur as soon as reasonably practicable.

Forward-Looking Statements

The following appears in accordance with the Private Securities Litigation Reform Act. This press release includes forward-looking statements that involve risks and uncertainties. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. Often, they include the words “believe,””continue,” “expect,”“target,” “anticipate,”“intend,” “plan,”“estimate,” “potential,”“project,” or words of similar meaning, or future or conditional verbs such as “will,”“would,” “should,”“could,” or “may.” They may also consist of annualized amounts based on historical interim period results. Forward-looking statements in this press release include those related to the anticipated consummation of the merger.

There are numerous risks and uncertainties that could and will cause actual results to differ materially from those discussed in the Company’s forward-looking statements. Many of these factors are beyond the Company’s ability to control or predict and could have a material adverse effect on the Company’s stock price, financial condition, and results of operations or prospects. Such risks and uncertainties include, but are not limited to, declines or disruptions in the stock, bond, or credit markets which may adversely affect the Company or the Company’s borrowers or other customers; adverse economic conditions in the United States; adverse economic and fiscal conditions in California; increased energy costs; global political and general economic conditions related to the war on terrorism and other hostilities; fluctuations in interest rates; the controlling interest in UnionBanCal Corporation of BTMU, which is a wholly-owned subsidiary of MUFG; the effects of filing taxes on the worldwide unitary basis; competition in the banking and financial services industries; deposit pricing pressures; the levels of commercial and residential real estate activity in our market; adverse effects of current and future banking laws, rules and regulations and their enforcement; effects of governmental fiscal or monetary policies; legal or regulatory proceedings or investigations; changes in accounting practices or requirements; and risks associated with various strategies the Company may pursue, including potential acquisitions, divestitures and restructurings.

A complete description of the Company, including related risk factors, is discussed in the Company’s public filings with the Securities and Exchange Commission, which are available by calling (415) 765-2969 or online at http://www.sec.gov. All forward-looking statements included in this press release are based on information available at the time of the release, and the Company assumes no obligation to update any forward-looking statement.

Based in San Francisco, UnionBanCal Corporation is a bank holding company with assets of $62.6 billion at September 30, 2008. Its primary subsidiary, Union Bank of California, N.A., had 336 banking offices in California, Oregon and Washington, and 2 international offices at September 30, 2008.