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UCBH Holdings 10-Q 2006

Documents found in this filing:

  1. 10-Q
  2. Ex-2.4
  3. Ex-31.1
  4. Ex-31.2
  5. Ex-32.0
  6. Ex-32.0
e10vq
Table of Contents

 
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
     
þ   Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
For the quarterly period ended September 30, 2006.
OR
     
o   Transition Report under Section 13 or 15(d) of the Securities Exchange Act of 1934.
For the transition period from                      to                     .
Commission File Number: 000-24947
UCBH HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
     
Delaware   94-3072450
     
(State or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification No.)
     
555 Montgomery Street, San Francisco, California   94111
     
(Address of principal executive offices)   (Zip Code)
Registrant’s telephone number, including area code: (415) 315-2800
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 þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check One):
Large accelerated filer þ                     Accelerated filer o                     Non-accelerated filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
As of October 31, 2006, the Registrant had 94,594,256 shares of common stock, par value $0.01 per share, outstanding.
 
 

 


 

UCBH HOLDINGS, INC. AND SUBSIDIARIES
Table of Contents
             
        Page  
           
  Financial Statements     1  
  Management’s Discussion and Analysis of Financial Condition and Results of Operations     20  
  Quantitative and Qualitative Disclosures About Market Risk     48  
  Controls and Procedures     48  
 
           
           
  Legal Proceedings     49  
  Risk Factors     49  
  Unregistered Sales of Equity Securities and Use of Proceeds     49  
  Defaults Upon Senior Securities     49  
  Submission of Matters to a Vote of Security Holders     49  
  Other Information     49  
  Exhibits     50  
 
           
SIGNATURES     53  
 EXHIBIT 2.4
 EXHIBIT 31.1
 EXHIBIT 31.2
 EXHIBIT 32.0

 


Table of Contents

PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
UCBH HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets

(Dollars in Thousands, Except Share and Par Value Amounts)
(Unaudited)
                 
    September 30,     December 31,  
    2006     2005  
ASSETS
               
Noninterest bearing cash
  $ 79,953     $ 101,002  
Interest bearing cash
    114,911       99,070  
Federal funds sold
    18,202       2,993  
 
           
 
               
Cash and cash equivalents
    213,066       203,065  
 
           
 
               
Securities purchased under agreements to resell
    175,000        
Investment and mortgage-backed securities available for sale, at fair value
    1,307,791       1,117,724  
Investment and mortgage-backed securities held to maturity, at cost (fair value of $300,941 and $313,974 at September 30, 2006, and December 31, 2005, respectively)
    295,451       308,608  
Federal Home Loan Bank stock and other equity investments
    92,035       75,445  
Loans held for sale
    123,040       156,740  
 
Loans held in portfolio
    5,866,325       5,838,660  
Allowance for loan losses
    (56,630 )     (64,542 )
 
           
 
               
Loans held in portfolio, net
    5,809,695       5,774,118  
 
           
 
               
Accrued interest receivable
    45,382       37,750  
Premises and equipment, net
    97,413       98,289  
Goodwill
    103,234       106,648  
Core deposit intangibles, net
    12,077       14,981  
Mortgage servicing rights, net
    13,533       10,642  
Other assets
    64,010       61,627  
 
           
 
               
Total assets
  $ 8,351,727     $ 7,965,637  
 
           
 
               
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
Noninterest bearing deposits
  $ 653,311     $ 558,649  
Interest bearing deposits
    5,728,181       5,705,520  
 
           
 
               
Total deposits
    6,381,492       6,264,169  
 
           
 
               
Securities sold under agreements to repurchase
    300,000        
Short-term borrowings
    9,787       279,425  
Subordinated debentures
    150,520       150,520  
Accrued interest payable
    17,090       12,582  
Long-term borrowings
    731,225       562,033  
Other liabilities
    86,337       93,394  
 
           
 
               
Total liabilities
    7,676,451       7,362,123  
 
           
 
               
Commitments and contingencies (Note 15)
               
 
               
Preferred stock, $0.01 par value, 10,000,000 shares authorized, none issued and outstanding
           
Common stock, $0.01 par value, 180,000,000 shares authorized at September 30, 2006, and December 31, 2005; 94,556,354 and 94,037,878 shares issued and outstanding at September 30, 2006, and December 31, 2005, respectively
    946       940  
Additional paid-in capital
    254,619       247,340  
Retained earnings
    441,117       375,220  
Accumulated other comprehensive loss
    (21,406 )     (19,986 )
 
           
 
               
Total stockholders’ equity
    675,276       603,514  
 
           
 
               
Total liabilities and stockholders’ equity
  $ 8,351,727     $ 7,965,637  
 
           
See accompanying notes to consolidated financial statements.

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Table of Contents

UCBH HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations

(Dollars in Thousands, Except Per Share Amounts)
(Unaudited)
                                 
    Three Months Ended September 30,     Nine Months Ended September 30,  
    2006     2005     2006     2005  
Interest and dividend income:
                               
Loans
  $ 114,752     $ 87,684     $ 331,926     $ 233,544  
Investment and mortgage-backed securities:
                               
Taxable
    16,220       13,439       44,895       41,600  
Nontaxable
    2,686       2,692       8,062       7,927  
FHLB stock
    1,313       5       2,308       645  
Federal funds sold and deposits with banks
    1,682       226       3,920       1,225  
Securities purchased under agreements to resell
    1,239             1,239        
 
                       
 
                               
Total interest and dividend income
    137,892       104,046       392,350       284,941  
 
                       
 
                               
Interest expense:
                               
Deposits
    56,702       33,410       150,797       82,077  
Securities sold under agreements to repurchase
    1,908             2,829        
Short-term borrowings and federal funds purchased
    1,523       4,062       8,167       7,031  
Subordinated debentures
    3,095       1,967       8,845       6,714  
Long-term borrowings
    8,540       4,491       23,958       13,991  
 
                       
 
                               
Total interest expense
    71,768       43,930       194,596       109,813  
 
                       
 
                               
Net interest income
    66,124       60,116       197,754       175,128  
Provision for (recovery of) loan losses
    936       (105 )     2,492       2,860  
 
                       
 
                               
Net interest income after provision for loan losses
    65,188       60,221       195,262       172,268  
 
                       
 
                               
Noninterest income:
                               
Commercial banking fees
    3,682       2,743       11,193       7,584  
Service charges on deposits
    1,006       758       2,658       2,273  
Gain (loss) on sale of securities, net
    208             206       (5 )
Gain on sale of SBA loans, net
    704       715       2,306       2,638  
Gain on sale of commercial and multifamily real estate loans, net
    5,212       1,314       13,361       7,749  
Lower of cost or market adjustment on loans held for sale
          (773 )     150       (773 )
Equity loss in other equity investments
    (253 )     (510 )     (761 )     (1,780 )
Acquisition termination fee
                5,000        
Other fees
    409       316       1,061       591  
 
                       
 
                               
Total noninterest income
    10,968       4,563       35,174       18,277  
 
                       
 
                               
Noninterest expense:
                               
Personnel
    19,900       12,895       66,372       42,744  
Occupancy
    4,400       3,006       11,815       8,914  
Data processing
    2,257       1,698       7,584       5,084  
Furniture and equipment
    1,862       1,535       5,297       4,631  
Professional fees and contracted services
    2,428       2,436       8,223       7,727  
Deposit insurance
    194       182       600       559  
Communication
    284       211       788       706  
Core deposit intangible amortization
    668       205       1,690       747  
Loss (gain) on extinguishment of subordinated debentures and borrowings
          89       (360 )     1,285  
Other general and administrative
    5,426       3,714       15,289       11,215  
 
                       
 
                               
Total noninterest expense
    37,419       25,971       117,298       83,612  
 
                       
 
                               
Income before income tax expense
    38,737       38,813       113,138       106,933  
Income tax expense
    13,167       13,290       38,743       34,240  
 
                       
 
                               
Net income
  $ 25,570     $ 25,523     $ 74,395     $ 72,693  
 
                       
 
                               
Earnings per share:
                               
Basic
  $ 0.27     $ 0.28     $ 0.79     $ 0.79  
Diluted
  $ 0.26     $ 0.27     $ 0.76     $ 0.76  
 
                               
Dividends declared per share
  $ 0.030     $ 0.025     $ 0.090     $ 0.075  
See accompanying notes to consolidated financial statements.

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Table of Contents

UCBH HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders’ Equity and Comprehensive Income

(Dollars in Thousands, Except Share and Per Share Amounts)
(Unaudited)
                                                         
                    Additional             Accumulated Other     Total        
    Common Stock     Paid-In     Retained     Comprehensive     Stockholders’     Comprehensive  
    Shares     Amount     Capital     Earnings     Loss (1)     Equity     Income  
Balance at December 31, 2004
    91,131,824     $ 456     $ 203,432     $ 286,622     $ (6,498 )   $ 484,012          
 
                                                       
Net income
                      72,693             72,693     $ 72,693  
Other comprehensive income, net of tax benefit of $6,900
                            (9,510 )     (9,510 )     (9,510 )
 
                                                     
Comprehensive income
                                      $ 63,183  
 
                                                     
Stock options exercised, including related tax benefit
    753,607       6       7,273                   7,279          
Cash dividend of $0.075 per share
                      (6,877 )           (6,877 )        
Stock split
          457       (457 )                          
 
                                           
 
                                                       
Balance at September 30, 2005
    91,885,431     $ 919     $ 210,248     $ 352,438     $ (16,008 )   $ 547,597          
 
                                           
 
                                                       
Balance at December 31, 2005
    94,037,878     $ 940     $ 247,340     $ 375,220     $ (19,986 )   $ 603,514          
 
                                                       
Net income
                      74,395             74,395     $ 74,395  
Other comprehensive income, net of tax benefit of $1,036
                            (1,420 )     (1,420 )     (1,420 )
 
                                                     
Comprehensive income
                                      $ 72,975  
 
                                                     
Stock options exercised, including related tax benefit
    518,476       6       5,775                   5,781          
Stock compensation charge
                1,504                   1,504          
Cash dividend of $0.090 per share
                      (8,498 )           (8,498 )        
 
                                           
 
                                                       
Balance at September 30, 2006
    94,556,354     $ 946     $ 254,619     $ 441,117     $ (21,406 )   $ 675,276          
 
                                           
 
(1)   Accumulated Other Comprehensive Loss arises solely from net unrealized losses on investment and mortgage-backed securities available for sale, presented net of tax.
See accompanying notes to consolidated financial statements.

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Table of Contents

UCBH HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows

(Dollars in Thousands)
(Unaudited)
                 
    Nine Months Ended September 30,  
    2006     2005 (Restated)  
Cash flows from operating activities:
               
Net income
  $ 74,395     $ 72,693  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Provision for loan losses
    2,492       2,860  
Amortization of net deferred loan fees
    (7,257 )     (4,511 )
Amortization of net securities premiums and discounts
    (97 )     (24 )
Federal Home Loan Bank stock dividend
    (1,605 )     (862 )
Amortization of intangibles
    3,738       2,453  
Depreciation and amortization of premises and equipment
    6,677       6,004  
Gain on sale of loans originated in held in portfolio, securities, and other assets, net
    (13,621 )     (5,614 )
Lower of cost or market adjustment on loans held for sale
    (150 )     773  
Equity loss in other equity investments
    616       1,780  
Stock compensation expense, net of tax benefit related to nonqualified stock option grants
    1,386        
Loss (gain) on extinguishment of subordinated debentures and borrowings
    (360 )     1,285  
Other, net
    716       311  
Changes in operating assets and liabilities:
               
Decrease (increase) in loans originated in held for sale
    24,582       (243,571)  
Increase in accrued interest receivable
    (7,632 )     (9,358 )
Decrease (increase) in other assets
    (16,804 )     5,318  
Increase in accrued interest payable
    4,508       2,230  
Increase in other liabilities
    11,235       16,189  
 
           
 
               
Net cash provided by (used in) operating activities
    82,819       (152,044)  
 
           
 
               
Cash flows from investing activities:
               
Payment of acquisition related expenditures
    (399 )      
Purchase of securities purchased under agreements to resell
    (175,000 )      
Investment and mortgage-backed securities, available for sale:
               
Principal payments and maturities
    125,739       381,782  
Purchases
    (239,962 )     (438,581 )
Sales
    96,777       91,380  
Called
    1,800       22,000  
Investment and mortgage-backed securities, held to maturity:
               
Principal payments and maturities
    12,054       20,183  
Purchases
    (750 )     (9,893 )
Proceeds from redemption of Federal Home Loan Bank stock
    5,883        
Purchase of Federal Home Loan Bank stock
    (19,150 )     (15,783 )
Funding of other equity investments
    (2,030 )     (6,764 )
Proceeds from the sale of loans originated in held in portfolio
    638,489       298,378  
Loans originated in held in portfolio funded and purchased, net of principal collections
    (826,815 )     (1,189,093 )
Purchases of premises and other equipment
    (5,863 )     (4,669 )
Capitalization of loan servicing rights
    (4,080 )     (4,136 )
Other investing activities, net
    431       450  
 
           
 
               
Net cash used in investing activities
    (392,876 )     (854,746 )
 
           
 
               
Cash flows from financing activities:
               
Net increase in demand deposits, NOW, money market and savings accounts
    130,354       143,886  
Net increase (decrease) in time deposits
    (13,251 )     635,854  
Net increase (decrease) in short-term borrowings
    (123,410 )     94,745  
Proceeds from securities sold under agreements to repurchase
    300,000        
Proceeds from issuance of subordinated debentures
          40,000  
Redemption of subordinated debentures
          (30,000 )
Proceeds from long-term borrowings
    79,386       60,000  
Principal payments of long-term borrowings
    (48,876 )     (16,824 )
Proceeds from stock option exercises
    3,867       3,565  
Payment of cash dividend on common stock
    (8,012 )     (6,403 )
 
           
 
               
Net cash provided by financing activities
    320,058       924,823  
 
           
 
               
Net increase (decrease) in cash and cash equivalents
    10,001       (81,967 )
Cash and cash equivalents at beginning of period
    203,065       208,364  
 
           
 
               
Cash and cash equivalents at end of period
  $ 213,066     $ 126,397  
 
           
See accompanying notes to consolidated financial statements.

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Table of Contents

UCBH HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
1.   Basis of Presentation and Summary of Significant Accounting and Reporting Policies
 
    Basis of Presentation and Principles of Consolidation
 
    The unaudited interim consolidated financial statements include the accounts of UCBH Holdings, Inc. (“UCBH”), the bank holding company of United Commercial Bank (“UCB”), and its consolidated subsidiaries (collectively referred to as the “Company”, “we”, “us” and “our”). The consolidated results exclude seven special purpose trusts owned by UCBH, which were created for issuing guaranteed preferred beneficial interests in UCBH’s junior subordinated debentures. In accordance with Financial Accounting Standards Board (the “FASB”) Interpretation No. (“FIN”) 46R, Consolidation of Variable Interest Entities, an interpretation of ARB No. 51, these special purpose trusts are excluded from the consolidated results as UCBH is not considered to be the primary beneficiary of these trusts. All significant intercompany transactions and balances have been eliminated in consolidation. In the opinion of management, the unaudited consolidated financial statements contain all adjustments consisting only of a normal and recurring nature, which are considered necessary for a fair presentation of the financial condition and results of operations for such periods. The unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in the Company’s annual report on Form 10-K for the year ended December 31, 2005, which will be amended to reflect a misclassification of cash flows between operating activities and investing activities arising from loans that were originated as held in portfolio and subsequently transferred to held for sale and loans that were originated as held for sale and subsequently transferred to held in portfolio. The restatement only affects the Company’s Consolidated Statement of Cash Flows for the period and does not affect the Company’s Consolidated Statement of Income, Consolidated Balance Sheet or Consolidated Statement of Changes in Stockholders’ Equity and Comprehensive Income for the period. Accordingly, the Company’s historical revenues, net income, earnings per share, total assets and regulatory capital remain unchanged. Please see additional discussion later in this Note.
 
    The unaudited consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial statements and the instructions to Form 10-Q pursuant to Rule 10-01, “Interim Financial Statements”, of Regulation S-X promulgated by the Securities and Exchange Commission (the “SEC”). Accordingly, the unaudited consolidated financial statements do not include all of the disclosures required by GAAP for complete financial statements. The December 31, 2005, consolidated balance sheet was derived from audited financial statements, but does not include all disclosures required by GAAP. Results as of and for the three and nine months ended September 30, 2006, are not necessarily indicative of results that may be expected for any other interim period or the year as a whole.
 
    The results of operations for the three and nine months ended September 30, 2006, include the results of operations of Pacifica Bancorp, Inc., which was acquired on October 31, 2005, and Asian American Bank & Trust Company, which was acquired on November 28, 2005. On January 27, 2005, UCBH declared a two-for-one stock split in the form of a stock dividend payable to the stockholders of record as of March 31, 2005, and distributed the stock dividend on April 12, 2005. Accordingly, the number of issued and outstanding shares of UCBH’s common stock on the consolidated statement of changes in stockholders’ equity and comprehensive income at December 31, 2004, has been adjusted to take into account the stock split.
 
    Use of Estimates in Preparation of Financial Statements
 
    The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimated results.
 
    Reclassification
 
    Certain reclassifications have been made to prior periods’ consolidated financial statements to conform to the September 30, 2006, presentation.

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Table of Contents

UCBH HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements — Continued
(Unaudited)
    Allowance for Loan Losses
 
    The allowance for loan losses represents our estimate of the losses that are inherent in the loan portfolio. UCB continuously monitors the quality of its loan portfolio and maintains an allowance for loan losses sufficient to absorb losses inherent in the portfolio.
 
    UCB also estimates a reserve related to unfunded commitments and other off-balance sheet credit exposure. In assessing the adequacy of this reserve, UCB uses a similar approach used in the development of the allowance for loan losses. The reserve for unfunded commitments is included in other liabilities on the statement of financial position.
 
    Stock-Based Compensation
 
    Effective January 1, 2006, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 123(R), Share-Based Payment. Under SFAS No. 123(R), the total fair value of the stock options awards is expensed ratably over the service period of the employees receiving the awards. In adopting SFAS No. 123(R), the Company used the modified prospective method of adoption. Under this adoption method, compensation expense recognized subsequent to adoption will include: (a) compensation costs for all share-based payments granted prior to but not yet vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS No. 123, Accounting for Stock-Based Compensation, and (b) compensation costs for all share-based payments granted subsequent to January 1, 2006, based on the grant date fair value estimated in accordance with the provisions of SFAS No. 123(R).
 
    Prior to January 1, 2006, the Company accounted for employee stock-based compensation using the intrinsic value method in accordance with Accounting Principles Board (the “APB”) Opinion No. 25, Accounting for Stock Issued to Employees, as allowed by SFAS No. 123, as amended by SFAS No. 148, Accounting for Stock-Based Compensation — Transition and Disclosure. Under the intrinsic value method, no stock-based employee compensation cost is recorded, provided the stock options are granted with an exercise price equal to or greater than the market value of the underlying common stock on the date of grant. No share-based employee compensation cost has been reflected in the Company’s net income prior to the adoption of SFAS No. 123(R).
 
    In estimating the fair value of each stock option award on their respective grant dates, we use the Black-Scholes pricing model. The Black-Scholes pricing model requires us to make assumptions with regard to the options granted during a reporting period namely, expected life, stock price volatility, expected dividend yield and risk-free interest rate.
 
    The expected life of the options is based on historical data of UCBH’s actual experience with the options it has granted and represents the period of time that the options granted are expected to be outstanding. This data includes employees’ expected exercise and post-vesting employment termination behaviors. The expected stock price volatility is estimated using the historical volatility of UCBH’s common stock and other factors. The historical volatility covers a period that corresponds to the expected life of the options. The expected dividend yield is based on the estimated annual dividends that we expect UCBH to pay over the expected life of the options as a percentage of the market value of UCBH’s stock as of the grant date. The risk-free interest rate for the expected life of the options granted is based on the U.S. Treasury yield curve in effect as of the grant date. See Note 11 for further information on share-based compensation.
 
    Restatement of the Consolidated Statements of Cash Flows
 
    UCBH has restated the Consolidated Statement of Cash Flows for the nine months ended September 30, 2005. The restatement does not affect the Company’s Consolidated Statement of Income, Consolidated Balance Sheet or Consolidated Statement of Changes in Stockholders’ Equity and Comprehensive Income for the affected period. Accordingly, the Company’s historical revenues, net income, earnings per share, total assets and regulatory capital remain unchanged. UCBH will be amending the Consolidated Statements of Cash Flows for the six months ended June 30, 2006 and 2005, and for the three months ended March 31, 2006 and 2005, as soon as practical.
 
    The restatement was caused by the misclassification of cash flows between operating activities and investing activities arising from loans that were originated as held in portfolio and subsequently transferred to held for sale and loans that were originated for sale and subsequently transferred to held in portfolio. In particular, proceeds from sales and repayments related to certain loans, which were initially classified as held in portfolio and subsequently transferred to held for sale, were classified as operating cash flows instead of investing cash flows in accordance with Statement of Financial Accounting Standards No. 102, Statement of Cash Flows—Exemption of Certain Enterprises and Classification of Cash Flows from Certain Securities Acquired for Resale. Accordingly, the restatement will only affect the classification of these activities and the subtotals of cash flows from operating and investing activities presented in the affected Consolidated Statement of Cash Flows, and will have no impact on the net increase (decrease) in total cash and cash equivalents set forth in the Consolidated Statement of Cash Flows for the previously reported period.
 
    The Consolidated Statement of Cash Flows for the nine months September 30, 2006, as previously reported and as restated, is as follows:
                 
    Nine Months Ended September 30, 2005
    As Previously    
    Reported   Restated
Cash flows from operating activities:
               
Net income
  $ 72,693     $ 72,693  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Provision for loan losses
    2,860       2,860  
Amortization of net deferred loan fees
    (4,511 )     (4,511 )
Amortization of net securities premiums and discounts
    (24 )     (24 )
Federal Home Loan Bank stock dividends
    (862 )     (862 )
Amortization of intangibles
    2,453       2,453  
Depreciation and amortization of premises and equipment
    6,004       6,004  
Gain on sale of loans originated in held in portfolio, securities, and other assets, net
    (1,267 )     (5,614 )
Unrealized loss on loans held for sale
    773       773  
Equity loss in other equity investments
    1,780       1,780  
Loss on extinguishment of subordinated debentures and secured borrowings
    1,285       1,285  
Other, net
    (575 )     (575 )
Changes in operating assets and liabilities:
               
Decrease (increase) in loans originated in held for sale
    35,952       (243,571 )
Increase in accrued interest receivable
    (9,358 )     (9,358 )
Decrease (increase) in other assets
    5,318       5,318  
Increase (decrease) in accrued interest payable
    2,230       2,230  
Increase in other liabilities
    16,189       16,189  
 
               
 
               
Net cash provided by (used in) operating activities
    131,826       (152,044 )
 
               
 
               
Cash flows from investing activities:
               
Investment and mortgage-backed securities, available for sale:
               
Principal payments and maturities
    381,782       381,782  
Purchases
    (438,581 )     (438,581 )
Sales
    91,380       91,380  
Called
    22,000       22,000  
Investment and mortgage-backed securities, held to maturity:
               
Principal payments and maturities
    20,183       20,183  
Purchases
    (9,893 )     (9,893 )
Purchase of Federal Home Loan Bank stock
    (15,783 )     (15,783 )
Funding of other equity investments
    (6,764 )     (6,764 )
Loans originated in held in portfolio funded and purchased, net of principal collections
    (1,231,610 )     (1,189,093 )
Proceeds from the sale of loans originated in held in portfolio
    57,025       298,378  
Purchases of premises and other equipment
    (4,669 )     (4,669 )
Capitalization of loan servicing rights
    (4,136 )     (4,136 )
Other investing activities, net
    450       450  
 
               
 
               
Net cash used in investing activities
    (1,138,616 )     (854,746 )
 
               
 
               
Cash flows from financing activities:
               
Net increase in demand deposits, NOW, money market and savings accounts
    143,886       143,886  
Net increase in time deposits
    635,854       635,854  
Net increase (decrease) in short-term borrowings
    94,745       94,745  
Proceeds from long-term borrowings
    60,000       60,000  
Principal payments of long-term borrowings
    (16,824 )     (16,824 )
Proceeds from issuance of subordinated debentures
    40,000       40,000  
Redemption of subordinated debentures
    (30,000 )     (30,000 )
Proceeds from stock option exercises
    3,565       3,565  
Payment of cash dividend on common stock
    (6,403 )     (6,403 )
 
               
 
               
Net cash provided by financing activities
    924,823       924,823  
 
               
 
               
Net decrease in cash and cash equivalents
    (81,967 )     (81,967 )
Cash and cash equivalents at beginning of period
    208,364       208,364  
 
               
 
               
Cash and cash equivalents at end of period
  $ 126,397     $ 126,397  
 
               

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Table of Contents

UCBH HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements — Continued
(Unaudited)
2.   Recent Accounting Pronouncements
 
    Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans
 
    In September 2006, the FASB issued SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — an amendment of FASB Statements No. 87, 88, 106 and 132(R). SFAS No. 158 requires an employer to recognize the overfunded or underfunded status of a defined benefit postretirement plan as an asset or liability in its statement of financial position and recognize changes in the funded status in the year in which the changes occur. SFAS No. 158 is effective for fiscal years ending after December 15, 2006. The Company does not expect the adoption of SFAS No. 158 will have a material effect on its consolidated financial position, results of operations or cash flows.
 
    Fair Value Measurements
 
    In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. SFAS No. 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS No. 157 clarifies the principle that fair value should be based on the assumptions market participants would use when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. Under the standard, fair value measurements would be separately disclosed by level within the fair value hierarchy. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the impact that adopting SFAS No. 157 will have on its financial statements.
 
    Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements
 
    In September 2006, the SEC issued Staff Accounting Bulletin (“SAB”) No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements. SAB No. 108 provides interpretive guidance on how the effects of the carryover or reversal of prior year misstatements should be considered in quantifying a current year misstatement. The SEC staff believes that registrants should quantify errors using both a balance sheet and income statement approach and evaluate whether either approach results in quantifying a misstatement that, when all relevant quantitative and qualitative factors considered, is material. SAB No. 108 is effective for fiscal years ending on or after November 15, 2006, with early application encouraged. The Company does not expect the adoption of SAB No. 108 will have a material effect on its consolidated financial position, results of operations or cash flows.
 
    Accounting for Uncertainty in Income Taxes
 
    In July 2006, the FASB issued FIN 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109. FIN 48 clarifies the accounting for income tax uncertainties that have been recognized in an enterprise’s financial statements in accordance with SFAS No. 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 requires that the Company recognize in the financial statements the impact of a tax position, if that position is more likely than not of being sustained on audit, based on the technical merits of the position. FIN 48 also provides additional guidance on accounting for tax uncertainties, including derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The provisions of FIN 48 are effective for fiscal years beginning after December 15, 2006, with the cumulative effect of the change in accounting principle recorded as an adjustment to opening retained earnings. The Company is currently evaluating the impact that adopting FIN 48 will have on its financial statements.

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Table of Contents

UCBH HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements — Continued
(Unaudited)
    Accounting for Servicing of Financial Assets
 
    In March 2006, the FASB issued SFAS No. 156, Accounting for Servicing of Financial Assets, an amendment of FASB Statement No. 140. SFAS No. 156 permits entities to choose either to measure servicing rights subsequent to initial evaluation at fair value and report changes in fair value in earnings or to amortize the servicing rights in proportion to and over the estimated net servicing income or loss and assess the servicing rights for impairment or the need for an increased obligation. SFAS No. 156 also clarifies when a servicer should separately recognize servicing assets and liabilities, requires that all separately recognized assets and liabilities be initially measured at fair value, if practicable, permits a one-time reclassification of available for sales securities to trading securities by an entity with recognized servicing rights and requires additional disclosures for all separately recognized servicing assets and liabilities. SFAS No. 156 is effective as of the beginning of an entity’s fiscal year that begins after September 15, 2006. The Company is currently evaluating the impact that adopting SFAS No. 156 will have on its financial statements.
 
    Accounting for Certain Hybrid Financial Instruments
 
    In February 2006, the FASB issued SFAS No. 155, Accounting for Certain Hybrid Financial Instruments, an amendment of FASB Statements No. 133 and 140. SFAS No. 155 permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation; clarifies which interest-only strips and principal-only strips are not subject to the requirements of SFAS No. 133; establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation; clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives; and amends SFAS No. 140 to eliminate the prohibition on a qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. The new standard is effective for all financial instruments acquired or issued after the beginning of the Company’s first fiscal year that begins after September 15, 2006. The Company is currently evaluating the impact that adopting SFAS No. 155 will have on its financial statements.
 
3.   Business Combinations
 
    Summit Bank Corporation
 
    UCBH and Summit Bank Corporation (“Summit”), a Georgia corporation registered under the Bank Holding Company Act of 1956, as amended, entered into an Agreement and Plan of Merger dated as of September 18, 2006. Under the terms of the agreement, Summit’s shareholders can elect to exchange one share of Summit common stock for 1.3521 shares of UCBH common stock, $24.50 in cash or a combination of both, subject to the requirement that 50% of the merger consideration is paid in cash and 50% of the merger consideration is paid in shares of UCBH common stock. Holders of options to acquire shares of the Summit’s common stock shall receive $24.50 per option less the exercise price of such options. Based on the number of Summit’s common stock shares outstanding at the agreement date, the value of the transaction is approximately $175.8 million (based on the average closing price for UCBH’s common stock around the announcement date of September 19, 2006), which is comprised of the issuance of approximately 4.8 million shares of UCBH common stock, $87.4 million in cash and approximately $800,000 related to the cash-out of the outstanding stock options of Summit, subject to certain adjustments as outlined in the agreement. Summit may terminate the transaction for various reasons prior to the consummation of the merger, including but not limited to a substantial change in the market value of the UCBH common stock in relation to the NASDAQ Bank Index, unless UCBH agrees to increase the Exchange Ratio (as defined in the agreement). Similarly, UCBH may terminate the transaction for various reasons prior to the consummation of the merger. If either Summit or UCBH terminates the transaction upon certain conditions, such party shall pay a break-up fee to the other. This acquisition allows the

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Table of Contents

UCBH HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements — Continued
(Unaudited)
    Company to enter the markets in Atlanta, Georgia and Houston, Texas. In addition, Summit’s Shanghai, China representative office complements UCBH’s Greater China expansion strategy. The transaction, which is subject to approval by Summit’s shareholders and regulatory approval, is anticipated to close in the first quarter of 2007. Summit had total assets of $665.7 million and total deposits of $549.1 million as of September 30, 2006.
 
    Pacifica Bancorp, Inc., Asian American Bank & Trust Company and Bank of Canton of California
 
    During the three and nine months ended September 30, 2006, goodwill and core deposit intangibles were adjusted to reflect the final valuations of the net assets acquired from Pacifica Bancorp, Inc. (“Pacifica”) and Asian American Bank & Trust Company (“AABT”). Additionally, goodwill was adjusted for the income tax benefit related to the buyout of Pacifica stock options at the time of acquisition, the newly identified income tax deduction related to Pacifica and AABT acquisition costs, and the newly permitted income tax deduction of investment banking fees related to Bank of Canton of California.
 
    Great Eastern Bank
 
    On February 17, 2006, Great Eastern Bank (“GEB”) notified UCBH that it had decided to accept a superior third party proposal, as defined in Agreement and Plan of Merger between UCBH and GEB dated as of October 13, 2005 (the “GEB Merger Agreement”). UCBH notified GEB on February 21, 2006, that it elected not to exercise the right of further negotiation as permitted under the GEB Merger Agreement. This resulted in the termination of the GEB Merger Agreement and the payment of a breakup fee of $5.0 million from GEB to UCBH, which was received on February 21, 2006.
 
4.   Cash and Cash Equivalents
 
    UCB is required to maintain a percentage of its deposit balances as reserves either in cash or on deposit at the Federal Reserve Bank of San Francisco. At September 30, 2006, and December 31, 2005, the reserve requirement was $8.3 million and $13.1 million, respectively.
 
5.   Securities Purchased Under Agreements to Resell
 
    UCB entered into two long-term transactions involving the purchases of securities under agreements to resell (“Resell Agreements”). The first Resell Agreement is for $100.0 million and matures on August 4, 2016. Under the terms of this Resell Agreement, interest payments are due from the seller quarterly. The interest rate for this Resell Agreement is 7.40% for the first six months adjustable quarterly to the three-month London Interbank Offered Rate (“LIBOR”) subject to a maximum interest rate of 7.50%. The initial interest rate and at September 30, 2006, is 7.40%. Additionally, the seller has the right to terminate this Resell Agreement at the six-month anniversary date and quarterly thereafter. The second Resell Agreement is for $75.0 million and matures on September 27, 2016. Under the terms of this Resell Agreement, interest payments are due from the seller quarterly. The interest rate for this Resell Agreement is adjustable monthly and is calculated as 8.40% plus the residual of ten multiplied by 65% of the average weekly one-month LIBOR less the average Bond Market Association Index for short-term municipal bonds subject to a maximum rate of 9.89%. The initial interest rate and at September 30, 2006, is 5.61%. The underlying collateral pledged for the Resell Agreements consists of Federal National Mortgage Association (“FNMA”) and Federal Home Loan Mortgage Corporation (“FHLMC”) mortgage-backed securities. The collateral is held by a custodian and maintained under seller’s control.

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Table of Contents

UCBH HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements — Continued
(Unaudited)
6.   Investment and Mortgage-Backed Securities
 
    The amortized cost and approximate market value of investment and mortgage-backed securities classified as available for sale and held to maturity at September 30, 2006, and December 31, 2005, were as follows (dollars in thousands):
                                 
    September 30, 2006     December 31, 2005  
    Amortized     Market     Amortized     Market  
    Cost     Value     Cost     Value  
Investment securities available for sale:
                               
Trust preferred securities
  $ 38,445     $ 38,235     $ 33,443     $ 32,946  
U.S. Government sponsored enterprises
    210,895       206,913       159,655       155,185  
Other
    10,000       10,014       11,012       10,911  
 
                       
 
                               
Total investment securities available for sale
    259,340       255,162       204,110       199,042  
 
                       
 
                               
Mortgage-backed securities available for sale:
                               
FNMA
    509,104       494,225       355,135       344,190  
GNMA
    83,415       79,934       88,184       85,033  
FHLMC
    300,429       290,318       302,540       292,316  
Other
    192,473       188,152       202,264       197,143  
 
                       
 
                               
Total mortgage-backed securities available for sale
    1,085,421       1,052,629       948,123       918,682  
 
                       
 
                               
Total investment and mortgage-backed securities available for sale
    1,344,761       1,307,791       1,152,233       1,117,724  
 
                       
 
                               
Investment securities held to maturity:
                               
Municipals
    224,588       232,202       225,573       232,279  
 
                       
 
                               
Mortgage-backed securities held to maturity:
                               
FNMA
    4,417       4,237       5,112       4,923  
GNMA
    65,903       63,980       77,261       76,133  
FHLMC
    543       522       662       639  
 
                       
 
Total mortgage-backed securities held to maturity
    70,863       68,739       83,035       81,695  
 
                       
 
                               
Total investment and mortgage-backed securities held to maturity
    295,451       300,941       308,608       313,974  
 
                       
 
                               
Total investment and mortgage-backed securities
  $ 1,640,212     $ 1,608,732     $ 1,460,841     $ 1,431,698  
 
                       
    As of September 30, 2006, the net unrealized loss on securities was $31.5 million. The net unrealized loss on securities that are available for sale was $37.0 million. Net of tax benefit of $15.6 million, the unrealized $21.4 million loss is included in other comprehensive loss as a reduction to stockholders’ equity. The $5.5 million net gain between the carrying value and market value of securities that are held to maturity has not been recognized in the consolidated financial statements for the three and nine months ended September 30, 2006. Additionally, certain securities that UCB holds have unrealized losses that extend for periods in excess of twelve months. However, since the unrealized losses are attributable to movement in market interest rates and UCB has the intent and ability to hold these securities until recovery of such unrealized loss, UCB has concluded that the decline in value on these securities is temporary.
 
    As of December 31, 2005, the net unrealized loss on securities was $29.1 million. The net unrealized loss on securities that are available for sale was $34.5 million. Net of tax benefit of $14.5 million, the unrealized $20.0 million loss is included in other comprehensive income as a reduction to stockholders’ equity. The $5.4 million net gain between the carrying value and market value of securities that are held to maturity has not been recognized in the financial statements for the year ended December 31, 2005.

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Table of Contents

UCBH HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements — Continued
(Unaudited)
7.   Loans Held for Sale
 
    The components of loans held for sale as of September 30, 2006, and December 31, 2005, were as follows (dollars in thousands):
                 
    September 30,     December 31,  
    2006     2005  
Commercial:
               
Secured by real estate — nonresidential
  $ 120,738     $ 154,087  
Business
    1,224       2,653  
 
           
 
               
Total commercial loans
    121,962       156,740  
 
           
 
               
Consumer:
               
Residential mortgage (one-to-four family)
    1,078        
 
           
 
               
Loans held for sale (1)
  $ 123,040     $ 156,740  
 
           
 
(1)   Amounts reflect net unamortized deferred loan fees of $214,000 and $372,000 at September 30, 2006, and December 31, 2005, respectively.
    During the nine months ended September 30, 2006, UCB transferred $381.8 million of loans from held in portfolio to held for sale and $80.5 million of loans from held for sale to held in portfolio.
 
8.   Loans Held in Portfolio and Allowance for Loan Losses
 
    The components of loans held in portfolio as of September 30, 2006, and December 31, 2005, were as follows (dollars in thousands):
                 
    September 30,     December 31,  
    2006     2005  
Commercial:
               
Secured by real estate — nonresidential
  $ 1,974,364     $ 2,307,381  
Secured by real estate — multifamily
    1,360,624       1,506,848  
Construction
    879,494       494,841  
Business
    1,155,049       863,935  
 
           
 
               
Total commercial loans
    5,369,531       5,173,005  
 
           
 
               
Consumer:
               
Residential mortgage (one-to-four family)
    441,366       613,988  
Other
    55,428       51,667  
 
           
 
               
Total consumer loans
    496,794       665,655  
 
           
 
               
Loans held in portfolio (1)
    5,866,325       5,838,660  
Allowance for loan losses
    (56,630 )     (64,542 )
 
           
 
               
Loans held in portfolio, net
  $ 5,809,695     $ 5,774,118  
 
           
 
(1)   Amounts reflect net unamortized deferred loan fees of $8.9 million and $7.4 million at September 30, 2006, and December 31, 2005, respectively.

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Table of Contents

UCBH HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements — Continued
(Unaudited)
    On September 1, 2006, UCB securitized $176.1 million of residential mortgage loans with servicing rights retained through FNMA. The mortgage-backed securities created from this guaranteed mortgage securitization are classified as available for sale investments. As part of this transaction, UCB has recognized mortgage servicing rights of $1.4 million.
 
    The components of loans held in portfolio by interest rate type as of September 30, 2006, and December 31, 2005, were as follows (dollars in thousands):
                 
    September 30,     December 31,  
    2006     2005  
Adjustable-rate loans
  $ 3,137,877     $ 2,951,945  
Intermediate fixed-rated loans
    1,504,941       1,711,915  
Fixed-rate loans
    1,232,365       1,182,198  
 
           
 
               
Loans held in portfolio (1)
  $ 5,875,183     $ 5,846,058  
 
           
 
(1)   Amounts do not reflect net unamortized deferred loan fees of $8.9 million and $7.4 million at September 30, 2006, and December 31, 2005, respectively.
    The activity in the allowance for loan losses and allowance for losses related to unfunded commitments for the three and nine months ended September 30, 2006 and 2005, was as follows (dollars in thousands):
                                 
    Three Months Ended September 30,     Nine Months Ended September 30,  
    2006     2005     2006     2005  
Balance at beginning of period :
                               
Allowance for loan losses
  $ 59,035     $ 58,508     $ 64,542     $ 56,472  
Allowance for losses — unfunded commitments
    5,224       4,807       3,402       3,940  
 
                       
 
                               
Total allowance for losses at beginning of period
    64,259       63,315       67,944       60,412  
Provision for (recovery of) losses
    936       (105 )     2,492       2,860  
Loans charged off
    (2,507 )     (98 )     (7,990 )     (235 )
Recoveries of loans previously charged off
    170       38       412       113  
 
                       
 
                               
Total allowance for losses at end of period
  $ 62,858     $ 63,150     $ 62,858     $ 63,150  
 
                       
 
                               
Allowance for loan losses
  $ 56,630     $ 57,501     $ 56,630     $ 57,501  
Allowance for losses — unfunded commitments
    6,228       5,649       6,228       5,649  
 
                       
 
                               
Total allowance for losses at end of period
  $ 62,858     $ 63,150     $ 62,858     $ 63,150  
 
                       

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Table of Contents

UCBH HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements — Continued
(Unaudited)
9.   Borrowings
 
    Securities Sold Under Agreements to Repurchase
 
    Information regarding outstanding securities sold under agreements to repurchase (the “Repurchase Agreements”) as of and for the nine months ended September 30, 2006, was as follows (dollars in thousands):
         
Average balance outstanding
  $ 101,832  
Maximum amount outstanding at any month end period
    300,000  
Balance outstanding at end of period
    300,000  
Weighted average interest rate during the period
    3.70 %
Weighted average interest rate at end of period
    3.15 %
Weighted average remaining term to maturity at end of period (in years)
    8.4  
    UCB has entered into five Repurchase Agreements totaling $300.0 million, which mature between May 11, 2011, and September 29, 2016. Under the terms of the Repurchase Agreements, payments are due quarterly. The interest rates for the respective first years of the Repurchase Agreements ranged from a 3-month LIBOR less 82 basis points to a 3-month LIBOR less 384 basis points, which adjust quarterly. Thereafter the interest rates are fixed for the remainder of the term with interest rates ranging from 4.50% to 5.00%. The initial interest rates ranged from 1.63% to 4.14%. The current interest rates at September 30, 2006, ranged from 1.63% to 4.45%. Additionally, the lender has the right to terminate the applicable Repurchase Agreement either at the first anniversary date of the Repurchase Agreement or at the first anniversary date and quarterly thereafter. The underlying collateral pledged for the Repurchase Agreements consists of FNMA, FHLMC and Government National Mortgage Association mortgage-backed securities, AAA rated or better private label collateralized mortgage obligations and Federal Home Loan Bank investment securities with a fair value of $223.3 million as of September 30, 2006. The collateral is held by a custodian and maintained under UCB’s control. At September 30, 2006, the securities sold under agreements to repurchase mature between 2010 to 2035.
 
    Long-Term and Short-Term Borrowings
 
    UCB has certain loan sale transactions recorded as secured borrowings as of September 30, 2006, and December 31, 2005, since these transactions did not qualify for sales treatment under SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities. The secured borrowings amounted to $4.4 million at September 30, 2006, and $19.1 million at December 31, 2005.

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Table of Contents

UCBH HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements — Continued
(Unaudited)
10.   Earnings Per Share
 
    The reconciliation of the numerators and denominators of basic and diluted earnings per share for the three and nine months ended September 30, 2006 and 2005, is as follows (dollars in thousands, except shares and per share amounts):
                                                 
    Income     Shares     Per Share     Income     Shares     Per Share  
    (Numerator)     (Denominator)     Amount     (Numerator)     (Denominator)     Amount  
    Three Months Ended September 30, 2006     Three Months Ended September 30, 2005  
Net income — basic
  $ 25,570       94,523,317     $ 0.27     $ 25,523       91,799,715     $ 0.28  
Effect of stock options
          3,455,335                     3,618,940          
 
                                       
 
                                               
Net income — diluted
  $ 25,570       97,978,652     $ 0.26     $ 25,523       95,418,655     $ 0.27  
 
                                       
                                                 
    Nine months Ended September 30, 2006     Nine Months Ended September 30, 2005  
Net income — basic
  $ 74,395       94,357,245     $ 0.79     $ 72,693       91,552,743     $ 0.79  
Effect of stock options
          3,617,184                     3,909,009          
 
                                       
 
                                               
Net income — diluted
  $ 74,395       97,974,429     $ 0.76     $ 72,693       95,461,752     $ 0.76  
 
                                       
    The antidilutive outstanding stock options of UCBH common stock that were excluded from the computation of diluted earnings per share for the three months ended September 30, 2006 and 2005, were 7,067,105 shares and 5,931,644 shares, respectively, and for the nine months ended September 30, 2006 and 2005, were 6,744,105 shares and 2,740,800 shares, respectively. The stock options of UCBH common stock are considered antidilutive if assumed proceeds per share exceed the average market price of UCBH’s common stock during the relevant periods. Assumed proceeds include proceeds from the exercise of stock options of UCBH common stock, as well as unrecognized compensation and certain deferred tax benefits related to stock options.
 
11.   Employee Benefit Plans
 
    Stock Option Plan
 
    On May 18, 2006, UCBH adopted the UCBH Holdings, Inc. 2006 Equity Incentive Plan (the “Plan”), which was formerly known as the UCBH Holdings, Inc. 1998 Stock Option Plan, as amended. The Plan was approved by its stockholders and provides for the granting of stock-based compensation awards, including options, to eligible officers, employees and directors of the Company. Stock option awards are approved by the Board of Directors and are granted at the fair market value of the Company’s common stock on the date of the grant. The options vest over a period determined at the time the options are granted, generally three years of continuous service, and have a maximum term of ten years. Certain options awards provide for accelerated vesting if there is a change in control, as defined in the Plan. As of September 30, 2006, the Company had 915,014 shares of common stock reserved for the issuance of options under the Plan.
 
    Prior to January 1, 2006, the Company accounted for employee stock-based compensation using the intrinsic value method in accordance with APB Opinion No. 25, Accounting for Stock Issued to Employees, as allowed by SFAS No. 123, Accounting for Stock-Based Compensation, as amended by SFAS No. 148, Accounting for Stock-Based Compensation — Transition and Disclosure. Under the intrinsic value method, no stock-based employee compensation cost is recorded, provided the stock options are granted with an exercise price equal to or greater than the market value of the underlying common stock on the date of grant.

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Table of Contents

UCBH HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements — Continued
(Unaudited)
    Effective January 1, 2006, the Company adopted SFAS No. 123(R), Share-Based Payment. SFAS No. 123(R) eliminates the ability for companies to account for share-based compensation transactions using the intrinsic value method and requires that companies measure and recognize compensation expense for all share-based payments at fair value. Under SFAS No. 123(R), the total fair value of the stock options awards is expensed ratably over the service period of the employees receiving the awards. In adopting SFAS No. 123(R), the Company used the modified prospective method of adoption. Under this adoption method, compensation expense recognized subsequent to adoption will include: (a) compensation costs for all share-based payments granted prior to but not yet vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS No. 123, and (b) compensation costs for all share-based payments granted subsequent to January 1, 2006, based on the grant date fair value estimated in accordance with the provisions of SFAS No. 123(R). No share-based employee compensation cost has been reflected in the Company’s net income prior to the adoption of SFAS No. 123(R) and results for prior periods have not been restated.
 
    The adoption of SFAS No. 123(R) reduced income before income tax expense for the three and nine months ended September 30, 2006, by approximately $642,000 and $1.5 million, respectively, and reduced net income for the same periods by approximately $543,000 and $1.3 million, respectively. Basic and diluted earnings per common share were reduced by less than $0.01 and slightly more than $0.01 for the three and nine months ended September 30, 2006, respectively, as a result of the amounts expensed. In addition, as of September 30, 2006, total unrecognized compensation cost related to nonvested stock option awards was approximately $6.5 million and the related weighted-average period over which it is expected to be recognized was approximately 2.42 years. Further, for the three and nine months ended September 30, 2006, the total income tax benefit related to nonqualified stock option grants recognized in the statement of operations was $99,000 and $216,000, respectively.
 
    Prior to the adoption of SFAS No. 123(R), the Company presented all tax benefits for deductions resulting from the exercise of stock options as operating cash flows in the consolidated statements of cash flows. SFAS No. 123(R) requires that the cash flows from the tax benefits resulting from tax deductions in excess of the compensation cost recognized for those options (excess tax benefits) be classified as financing cash flows. However, for the three and nine months ended September 30, 2006, there were no such excess tax benefits.
 
    In estimating the fair value of each stock option award on their respective grant dates, we use the Black-Scholes pricing model. The following are the assumptions that were incorporated in the model for the three and nine months ended September 30, 2006 and 2005:
                                 
    Three Months Ended September 30,   Nine Months Ended September 30,
    2006   2005   2006   2005
Dividend yield
    0.52 %     0.63 %     0.62 %     0.58 %
Volatility
    29.77 %     27.37 %     29.89 %     28.78 %
Risk-free interest rate
    4.96 %     4.22 %     4.73 %     4.16 %
Expected lives (years)
    7.21       7.32       7.54       7.51  
    The expected life of the options is based on historical data of UCBH’s actual experience with the options it has granted and represents the period of time that the options granted are expected to be outstanding. This data includes employees’ expected exercise and post-vesting employment termination behaviors. The expected stock price volatility is estimated using the historical volatility of UCBH’s common stock and other factors. The historical volatility covers a period that corresponds to the expected life of the options. The expected dividend yield is based on the estimated annual dividends that UCBH expects to pay over the expected life of the options as a percentage of the market value of UCBH’s stock as of the grant date. The risk-free interest rate for the expected life of the options granted is based on the U.S. Treasury yield curve in effect as of the grant date.
 
    The following is a summary of the stock option activity for the three and nine months ended September 30, 2006 (dollars in thousands, except weighted average exercise price):

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UCBH HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements — Continued
(Unaudited)
                                                                 
                    Weighted                           Weighted    
            Weighted   Average                   Weighted   Average    
            Average   Remaining   Aggregate           Average   Remaining   Aggregate
    Number of   Exercise   Contractual   Intrinsic   Number of   Exercise   Contractual   Intrinsic
    Shares   Price   Term   Value   Shares   Price   Term   Value
    Three Months Ended September 30, 2006   Nine months Ended September 30, 2006
Options outstanding, beginning of period
    14,858,324     $ 12.71                       14,436,020     $ 12.23                  
 
Granted
    117,500       15.86                       1,033,500       17.86                  
Exercised
    (77,117 )     6.69                       (518,476 )     7.47                  
Forfeited
    (27,000 )     18.72                       (73,000 )     18.05                  
Expired
    (15,941 )     18.66                       (22,278 )     18.59                  
 
                                                               
 
                                                               
Options outstanding, end of period
    14,855,766     $ 12.75       6.08     $ 69,940       14,855,766     $ 12.75       6.08     $ 69,940  
 
                                                               
 
                                                               
Shares exercisable end of period
    13,743,266     $ 12.34       5.81     $ 70,324       13,743,266     $ 12.34       5.81     $ 70,324  
 
                                                               
    The weighted-average grant date fair value of options granted was $6.49 and $6.84 during the three months ended September 30, 2006 and 2005, respectively, and $7.27 and $7.40 during the nine months ended September 30, 2006 and 2005, respectively. The total intrinsic value of options exercised was $785,000 and $1.6 million during the three months ended September 30, 2006 and 2005, respectively, and $5.6 million and $10.5 million during the nine months ended September 30, 2006 and 2005, respectively. The total fair value of options that vested was $1.1 million and $9.5 million during the three and nine months ended September 30, 2005, respectively. No options vested during the three and nine months ended September 30, 2006.
 
    The range of exercise prices for options outstanding at September 30, 2006, was as follows:
                                         
            Weighted-   Weighted-           Weighted-
            Average   Average           Average
    Options   Exercise   Remaining   Options   Exercise
Exercise Price   Outstanding   Price   Life   Exercisable   Price
$1.88-$2.25
    1,497,216     $ 1.88       2.24       1,497,216     $ 1.88  
$2.26-$4.51
    148,956       2.95       3.51       148,956       2.95  
$4.52-$6.77
    3,877,992       6.15       4.55       3,877,992       6.15  
$6.78-$9.03
    273,412       7.21       5.14       273,412       7.21  
$9.04-$11.29
    680,266       10.01       5.19       680,266       10.01  
$11.30-$13.55
    314,655       12.38       6.32       314,655       12.38  
$13.56-$15.81
    503,164       15.01       7.38       404,164       14.82  
$15.82-$18.07
    1,371,500       17.32       8.72       630,000       16.96  
$18.08-$20.33
    5,448,805       18.83       7.60       5,176,805       18.82  
$20.34-$22.59
    739,800       21.25       6.39       739,800       21.25  
 
                                       
 
                                       
Total/Average
    14,855,766     $ 12.75       6.08       13,743,266     $ 12.34  
 
                                       

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Table of Contents

UCBH HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements — Continued
(Unaudited)
    The following table sets forth the effect on net income and net income per common share as if the Company had applied the fair value recognition provisions of SFAS No. 123 to all outstanding stock option awards for the three and nine months ended September 30, 2005, prior to the Company’s adoption of SFAS No. 123(R) (amounts in thousands, except per share amounts):
                 
    Three Months     Nine Months  
    Ended     Ended  
    September 30, 2005     September 30, 2005  
Net income, as reported
  $ 25,523     $ 72,693  
Deduct: Total stock-based employee compensation expense determined under fair value based method of all awards, net of related tax effects
    (2,316 )     (6,729 )
 
           
 
               
Net income, pro forma
  $ 23,207     $ 65,964  
 
           
 
               
Basic earnings per share:
               
As reported
  $ 0.28     $ 0.79  
Pro forma
  $ 0.25     $ 0.72  
 
               
Diluted earnings per share:
               
As reported
  $ 0.27     $ 0.76  
Pro forma
  $ 0.24     $ 0.69  
    During the fourth quarter of 2005, UCBH’s Board of Directors approved the accelerated vesting of all outstanding unvested stock options awarded to employees, officers and directors that had been granted on or before October 26, 2005, under its stock option plan. The decision to accelerate the vesting was made primarily to reduce the impact of recording noncash compensation expense upon the adoption of SFAS No. 123(R). Stock options covering approximately 5.1 million shares of UCBH’s common stock were affected by this action, including approximately 1.9 million shares that were held by the Company’s executive officers and directors. The number of shares, exercise prices and all of the other relevant terms and conditions applicable to the accelerated options remained unchanged. By accelerating the vesting of the options, the Company estimated that approximately $16.4 million of future compensation expense, net of taxes, has been eliminated.
 
12.   Income Tax Expense
 
    For the three and nine months ended September 30, 2006, the Company recorded an income tax benefit adjustment of $1.0 million and $2.8 million, respectively, related to additional Enterprise Zone tax credits for the years ending prior to December 31, 2005. During the nine months ended September 30, 2005, the Company elected to repatriate approximately $26 million in previously unremitted foreign earnings from its foreign subsidiary, which resulted in an income tax benefit of $3.9 million from the reversal of the deferred tax liability.
 
13.   Related Party Transactions
 
    Several members of the Board of Directors and executive officers of the Company have deposits with UCB that are made in the ordinary course of business with the same terms and conditions, including interest rates, as those prevailing at the same time for comparable transactions with other customers. The total deposits for these related parties were $6.5 million and $7.2 million at September 30, 2006, and December 31, 2005, respectively. Additionally, UCB has adopted a policy that prohibits loans or extensions of credit to members of the Board of Directors and affiliated persons of the Company, and their related interests.

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Table of Contents

UCBH HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements — Continued
(Unaudited)
14.   Derivative Financial Instruments and Financial Instruments with Off-Balance-Sheet Risk
 
    The contractual or notional amounts of derivative financial instruments and financial instruments with off-balance-sheet risk as of September 30, 2006, and December 31, 2005, were as follows (dollars in thousands):
                 
    September 30,   December 31,
    2006   2005
Financial instruments whose contract amounts represent credit risk:
               
Commitments to extend credit:
               
Consumer (including residential mortgage)
  $ 80,894     $ 88,407  
Commercial (excluding construction)
    986,998       672,662  
Construction
    812,169       539,955  
Letters of credit
    127,730       90,595  
Foreign exchange contracts receivable
    (427,470 )     (159,957 )
Foreign exchange contracts payable
    241,235       57,825  
Put options to buy
    10,860       11,269  
Put options to sell
    (10,860 )     (11,269 )
Unfunded CRA investment commitments
    4,021       4,760  
15.   Contingent Liabilities
 
    The Company is subject to pending or threatened actions and proceedings arising in the normal course of business. In the opinion of management, the ultimate disposition of all pending or threatened actions and proceedings will not have a material adverse effect on the Company’s results of operations or financial condition.
 
16.   Supplemental Cash Flow Information
 
    The supplemental cash flow information for the nine months ended September 30, 2006 and 2005, was as follows (dollars in thousands):
                 
    2006   2005
Cash paid during the period for:
               
Interest
  $ 190,087     $ 107,582  
Income taxes
    48,552       26,692  
 
               
Noncash investing and financing activities:
               
Stock warrants acquired with issuance of commercial loans
  $ (129 )   $  
Income tax benefit from stock options exercised
    1,914       3,714  
Transfer of loans from held for sale to held in portfolio
    (80,469 )     (251,980 )
Transfer of loans to held for sale from held in portfolio
    381,757       265,098  
Loan securitization:
               
Loans originated in held in portfolio sold
    176,143        
Mortgage-backed securities acquired
    (174,721 )      
Mortgage servicing rights acquired
    (1,422 )      
17.   Segment Information
 
    The Company designates the internal organization that is used by management for making operating decisions and assessing performance as the source of its reportable segments. The Company has determined that its reportable segments are those that are based on the Company’s method of internal reporting. The Company has determined

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Table of Contents

UCBH HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements — Continued
(Unaudited)
    that it has two reportable segments, “Domestic Banking” and “Other”. “Other” segment consists of the Company’s Hong Kong operations and UCB Investment Services, Inc. The “UCBH Holdings, Inc.” column in the following table consists of UCBH, which reflects the holding company activities. The intersegment column consists of the UCBH and UCB elimination units and reflects the elimination of intersegment transactions.
 
    The following is segment information for the three and nine months ended September 30, 2006 and 2005 (dollars in thousands):
                                                 
                            UCBH        
    Domestic           Total   Holdings,        
    Banking   Other   Segments   Inc.   Intersegment   Consolidated
Three months ended September 30, 2006:
                                               
Total interest and dividend income
  $ 133,871     $ 6,774     $ 140,645     $     $ (2,753 )   $ 137,892  
Net interest income (expense)
    67,065       2,178       69,243       (3,119 )           66,124  
Net income (loss)
    27,650       1,235       28,885       25,570       (28,885 )     25,570  
 
                                               
Three months ended September 30, 2005:
                                               
Total interest and dividend income
  $ 102,971     $ 1,890     $ 104,861     $     $ (815 )   $ 104,046  
Net interest income (expense)
    60,721       1,367       62,088       (1,972 )           60,116  
Net income (loss)
    27,169       1,767       28,936       25,523       (28,936 )     25,523  
 
                                               
Nine months ended September 30, 2006:
                                               
Total interest and dividend income
  $ 381,453     $ 17,468     $ 398,921     $     $ (6,571 )   $ 392,350  
Net interest income (expense)
    201,436       5,229       206,665       (8,911 )           197,754  
Net income (loss)
    82,756       (658 )     82,098       74,395       (82,098 )     74,395  
 
                                               
Nine months ended September 30, 2005:
                                               
Total interest and dividend income
  $ 282,365     $ 4,321     $ 286,686     $     $ (1,745 )   $ 284,941  
Net interest income (expense)
    178,259       3,599       181,858       (6,730 )           175,128  
Net income (loss)
    82,431       683       83,114       72,693       (83,114 )     72,693  

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Table of Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
FORWARD LOOKING STATEMENTS
This document, including information included or incorporated by reference in this document, contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements provide current expectations or forecasts of future events and include, among other things:
  statements with respect to UCBH Holdings, Inc. and its consolidated subsidiaries’ (collectively the “Company”) beliefs, plans, objectives, goals, guidelines, expectations, anticipations, and future financial condition, results of operations and performance; and
  statements preceded or identified by words, such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “will,” “should,” “could,” “projects,” “may,” or words of similar import.
These forward-looking statements are based upon management’s current beliefs and expectations and are not guarantees of future performance, nor should they be relied upon as representing management’s views as of any subsequent date. These forward-looking statements are also inherently subject to significant business, economic and competitive uncertainties, risks and contingencies, many of which are difficult to predict and generally beyond management’s control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change and actual results, performance or achievements may be materially different from the anticipated results, performance or achievements discussed, expressed or implied by these forward-looking statements. Factors that might cause such differences include, but are not limited to the following:
  the Company’s ability to successfully execute its business plans and achieve its objectives;
 
  changes in political and economic conditions, including the economic effects of terrorist attacks against the United States and related events;
 
  changes in financial market conditions, either nationally or locally in areas in which the Company conducts its operations;
 
  fluctuations in the equity and fixed-income markets;
 
  changes in interest rates;
 
  acquisitions and integration of acquired businesses;
 
  increases in the levels of losses, customer bankruptcies, claims and assessments;
 
  changes in fiscal, monetary, regulatory, trade and tax policies and laws;
 
  continuing consolidation in the financial services industry;
 
  new litigation or changes in existing litigation;
 
  success in gaining regulatory approvals, when required;
 
  changes in consumer spending and savings habits;
 
  increased competitive challenges and expanding product and pricing pressures among financial institutions, whether banks, investment banks, insurance companies or others, in the Company’s markets;
 
  technological changes;
 
  demographic changes;
 
  legislation or regulatory changes which adversely affect the Company’s operations and businesses;
 
  the Company’s ability to comply with applicable laws and regulations; and
 
  changes in accounting policies or procedures as may be required by the Financial Accounting Standards Board or regulatory agencies.
You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this document or the date of any document incorporated by reference in this document. All subsequent written and oral forward-looking statements concerning matters addressed in this document and attributable to the Company or any person acting on the Company’s behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Except to the extent required by applicable law or regulation, the Company undertakes no obligation to update these forward-looking statements to reflect events, developments or circumstances after the date of this document or to reflect the occurrence of future events.

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MANAGEMENT OVERVIEW
UCBH Holdings, Inc. (“UCBH”) and its consolidated subsidiaries (collectively referred to as the “Company”, “we”, “us” or “our”) is an $8.35 billion bank with headquarters in San Francisco, California. The Company’s operations are conducted primarily through its banking subsidiary, United Commercial Bank (“UCB”). UCB operates through sixty offices and branches in the United States and Asia and is a leader in providing financial services to the ethnic Chinese in the United States. At September 30, 2006, we had fifty-seven domestic branches and offices; twenty-six in Northern California, twenty-one in Southern California, two in the Seattle metropolitan area, three in the Boston metropolitan area and five in the New York metropolitan area. UCB also has a branch in Hong Kong and representative offices in Shenzhen, China and Taipei, Taiwan.
The Company’s primary or “core” business consists of providing commercial and retail banking services to both individuals and companies in markets with high concentrations of ethnic Chinese. We believe that our core banking business performed satisfactorily in the nine months ended September 30, 2006, given the challenging interest rate environment that continues to impact the financial services industry.
The Company reported earnings for the three months ended September 30, 2006, of $25.6 million or $0.26 per diluted share. This compares with $25.5 million or $0.27 per diluted share for the three months ended September 30, 2005, and $25.4 million or $0.26 per diluted share for the three months ended June 30, 2006. Return on average equity (“ROE”) was 15.51% and return on average assets (“ROA”) was 1.24% for the three months ended September 30, 2006, compared with a ROE of 18.97% and ROA of 1.43% for the three months ended September 30, 2005, and 16.20% and 1.25% for the three months ended June 30, 2006, respectively.
For the nine months ended September 30, 2006, the Company reported earnings of $74.4 million or $0.76 per diluted share, compared with $72.7 million or $0.76 per diluted share for the nine months ended September 30, 2005, respectively. ROE was 15.68% and ROA was 1.22% for the nine months ended September 30, 2006, compared with a ROE of 18.85% and ROA of 1.44% for the nine months ended September 30, 2005.
CORPORATE DEVELOPMENTS
Merger Agreement with Summit Bank Corporation. UCBH and Summit Bank Corporation (“Summit”), a Georgia corporation registered under the Bank Holding Company Act of 1956, as amended, entered into an Agreement and Plan of Merger dated as of September 18, 2006. Under the terms of the agreement, Summit’s shareholders can elect to exchange one share of Summit common stock for 1.3521 shares of UCBH common stock, $24.50 in cash or a combination of both, subject to the requirement that 50% of the merger consideration is paid in cash and 50% of the merger consideration is paid in shares of UCBH common stock. Holders of options to acquire shares of the Summit’s common stock shall receive $24.50 per option less the exercise price of such options. Based on the number of Summit’s common stock shares outstanding at the agreement date, the value of the transaction is approximately $175.8 million (based on the average closing price for UCBH’s common stock around the announcement date of September 19, 2006), which is comprised of the issuance of approximately 4.8 million shares of UCBH common stock, $87.4 million in cash and approximately $800,000 related to the cash-out of the outstanding stock options of Summit, subject to certain adjustments as outlined in the agreement. Summit may terminate the transaction for various reasons prior to the consummation of the merger, including but not limited to a substantial change in the market value of the UCBH common stock in relation to the NASDAQ Bank Index, unless UCBH agrees to increase the Exchange Ratio (as defined in the agreement). Similarly, UCBH may terminate the transaction for various reasons prior to the consummation of the merger. If either Summit or UCBH terminates the transaction upon certain conditions, such party shall pay a break-up fee to the other. This acquisition allows the Company to enter the markets in Atlanta, Georgia and Houston, Texas. In addition, Summit’s Shanghai, China representative office complements UCBH’s Greater China expansion strategy. The transaction, which is subject to approval by Summit’s shareholders and regulatory approval, is anticipated to close in the first quarter of 2007. Summit had total assets of $665.7 million and deposits of $549.1 million as of September 30, 2006.

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CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT ESTIMATES
Other than as discussed below, the Company has made no significant changes in its critical accounting policies and significant estimates from those disclosed in its Annual Report on Form 10-K for the fiscal year ended December 31, 2005.
Allowance for Loan Losses
The allowance for loan losses represents our estimate of the losses that are inherent in the loan portfolio. UCB continuously monitors the quality of its loan portfolio and maintains an allowance for loan losses sufficient to absorb losses inherent in the loan portfolio. At September 30, 2006, UCB’s total allowance for loan losses was $56.6 million, which represented 0.97% of gross loans held in portfolio.
UCB’s methodology for assessing the adequacy of the allowance for loan losses includes the evaluation of two distinct components: a general allowance applied to loan portfolio categories as a whole and a specific allowance for loans deemed impaired. Loans that are determined to be impaired are excluded from the general allowance analysis of the loan portfolio and are assessed individually.
In determining the general allowance, UCB applies loss factors, differentiated by an internal credit risk rating system, to its major loan portfolio categories (based primarily on loan type). UCB’s risk rating system is applied at the individual loan level within each of the major loan portfolio categories. The credit quality of the loan portfolio is regularly assessed through ongoing review.
As of June 30, 2006, UCB improved its methodologies for establishing its loss factors. The loss factors are developed from actual historic losses, and reflect comparative analysis with peer group loss rates and expected losses, which is in turn based on estimated probabilities of default and loss given default. Additionally, loss factors incorporate qualitative adjustments that reflect an assessment of internal and external influences on credit quality that have not yet been reflected in the historical loss or risk-rating data. These influences may include elements such as portfolio credit quality trends and changes in concentrations, growth, or credit underwriting. UCB’s qualitative adjustments also include an economic surcharge factor to adjust loss factors in recognition of the impact various macro-economic factors have on portfolio performance. The quantitative analysis also resulted in establishing a minimum loss factor for each of the major loan portfolio categories to better reflect minimum inherent loss in all portfolios including those with limited historic loss experience.
UCB regularly assesses the loss factors that are applied to loan portfolio categories, and as part of the assessment concluded during the three months ended September 30, 2006, UCB effected a further refinement in the methodology employed in establishing appropriate loss factors. This refinement focused primarily on the continued development of the expected loss approach and resulted in a revision and lowering of the loss factors applied to criticized and classified loans, which was applicable to all of the major loan portfolio categories.
The second component of the allowance for loan losses, the specific reserve, applies to loans that are deemed impaired. A loan is considered impaired when it is probable that UCB will not be able to collect all amounts due, including interest payments, in accordance with the loan’s contractual terms. Unless the loan is collateral-dependent, loan impairment is measured based on the present value of expected future cash flows that have been discounted at the loan’s effective interest rate. If the loan is collateral-dependent, either the observable market price or the current fair value of the collateral, reduced by estimated disposition costs, is used in place of the discounted cash flow analysis.
The effect of all general allowance and specific reserve changes during the three months ended September 30, 2006, resulted in a net reduction of $2.4 million in the allowance for loan losses, including a $1.9 million reduction in the allowance for loan losses from changes in loss factors and a $3.3 million increase from loan growth. The allowance for loan losses was also reduced by $2.5 million from gross loan charge-offs and $1.5 million from migrations in loan quality and repayments or sale of criticized loans.

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UCB also estimates a reserve related to unfunded commitments and other off-balance sheet credit exposure. In assessing the adequacy of this reserve, UCB uses a similar approach used in the development of the allowance for loan losses. The reserve for unfunded commitments is included in other liabilities on the statement of financial position.
There are numerous components that enter into the evaluation of the allowance for loan losses. Some are quantitative while others require UCB to make qualitative judgments. Although UCB believes that its processes for determining an appropriate level for the allowance for loan losses adequately address all of the components to estimate inherent credit losses, the processes and their elements include features that may be susceptible to significant change. Any unfavorable differences between the actual outcome of credit-related events and UCB’s estimates and projections could require an additional allowance for credit losses, which would negatively impact the Company’s results of operations in future periods. UCB continually evaluates its allowance for loan losses methodology, seeking to refine and enhance this process as appropriate.
Stock-Based Compensation
Effective January 1, 2006, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 123(R), Share-Based Payment. Under SFAS No. 123(R), the total fair value of the stock options awards is expensed ratably over the service period of the employees receiving the awards. In adopting SFAS No. 123(R), the Company used the modified prospective method of adoption. Under this adoption method, compensation expense recognized subsequent to adoption will include: (a) compensation costs for all share-based payments granted prior to but not yet vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS No. 123, Accounting for Stock-Based Compensation, and (b) compensation costs for all share-based payments granted subsequent to January 1, 2006, based on the grant date fair value estimated in accordance with the provisions of SFAS No. 123(R).
Prior to January 1, 2006, the Company accounted for employee stock-based compensation using the intrinsic value method in accordance with Accounting Principles Board (the “APB”) Opinion No. 25, Accounting for Stock Issued to Employees, as allowed by SFAS No. 123, as amended by SFAS No. 148, Accounting for Stock-Based Compensation — Transition and Disclosure. Under the intrinsic value method, no stock-based employee compensation cost is recorded, provided the stock options are granted with an exercise price equal to or greater than the market value of the underlying common stock on the date of grant. No share-based employee compensation cost has been reflected in the Company’s net income prior to the adoption of SFAS No. 123(R).
In estimating the fair value of each stock option award on their respective grant dates, we use the Black-Scholes pricing model. The following are the assumptions that were incorporated in the model for the three and nine months ended September 30, 2006 and 2005:
                                 
    Three Months Ended September 30,   Nine Months Ended September 30,
    2006   2005   2006   2005
Dividend yield
    0.52 %     0.63 %     0.62 %     0.58 %
Volatility
    29.77 %     27.37 %     29.89 %     28.78 %
Risk-free interest rate
    4.96 %     4.22 %     4.73 %     4.16 %
Expected lives (years)
    7.21       7.32       7.54       7.51  
The expected life of the options is based on historical data of UCBH’s actual experience with the options it has granted and represents the period of time that the options granted are expected to be outstanding. This data includes employees’ expected exercise and post-vesting employment termination behaviors. The expected stock price volatility is estimated using the historical volatility of UCBH’s common stock and other factors. The historical volatility covers a period that corresponds to the expected life of the options. The expected dividend yield is based on the estimated annual dividends that UCBH expects to pay over the expected life of the options as a percentage of the market value of UCBH’s stock as of the grant date. The risk-free interest rate for the expected life of the options granted is based on the U.S. Treasury yield curve in effect as of the grant date.

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The fair values assigned to UCBH’s stock options are based upon estimates and assumptions. In accordance with SFAS No. 123(R), once established, the fair value does not change unless the option grant is modified subsequent to its issuance. If actual results are not consistent with our estimates and assumptions, we may be required to record additional stock-based compensation expense or income tax expense, which could affect our results of operations. However, we believe that given the procedures that we have followed in determining the assumptions used in the estimation process, the fair values of the options are appropriate.
Effective December 27, 2005, UCBH’s Board of Directors authorized UCBH to accelerate the vesting of all unvested options associated with grants issued on or prior to October 26, 2005. The decision to accelerate the vesting of the options, which UCBH believes is in the best interests of its stockholders, was made primarily to reduce the impact of recording approximately $16.4 million of noncash compensation expense, net of taxes, over the period of 2006 through 2008 upon the implementation of SFAS No. 123(R). The options acceleration was treated as a modification of the terms of the existing option grants, thereby requiring a new value measurement as of the acceleration date. Any increase between the newly measured value and the original grant price is viewed as additional intrinsic value and may need to be included in future compensation expense under certain conditions related to prospective employee terminations.
Income Taxes
The provision for income taxes is based on income reported for financial statement purposes and differs from the amount of taxes currently payable, since certain income and expense items are reported for financial statement purposes in different periods than those for tax reporting purposes.
The Company accounts for income taxes using the asset and liability approach, the objective of which is to establish deferred tax assets and liabilities for the temporary differences between the financial reporting basis and the tax basis of the Company’s assets and liabilities at enacted tax rates expected to be in effect when such amounts are realized or settled. A valuation allowance is established for deferred tax assets if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. A valuation allowance is established, when necessary, to reduce the deferred tax assets to the amount that is more likely than not to be realized.
Recent Accounting Pronouncements
Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans
In September 2006, the FASB issued SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — an amendment of FASB Statements No. 87, 88, 106 and 132(R). SFAS No. 158 requires an employer to recognize the overfunded or underfunded status of a defined benefit postretirement plan as an asset or liability in its statement of financial position and recognize changes in the funded status in the year in which the changes occur. SFAS No. 158 is effective for fiscal years ending after December 15, 2006. The Company does not expect the adoption of SFAS No. 158 will have a material effect on its consolidated financial position, results of operations or cash flows.
Fair Value Measurements
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. SFAS No. 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS No. 157 clarifies the principle that fair value should be based on the assumptions market participants would use when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. Under the standard, fair value measurements would be separately disclosed by level within the fair value hierarchy. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the impact that adopting SFAS No. 157 will have on its financial statements.

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Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements
In September 2006, the SEC issued Staff Accounting Bulletin (“SAB”) No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements. SAB No. 108 provides interpretive guidance on how the effects of the carryover or reversal of prior year misstatements should be considered in quantifying a current year misstatement. The SEC staff believes that registrants should quantify errors using both a balance sheet and income statement approach and evaluate whether either approach results in quantifying a misstatement that, when all relevant quantitative and qualitative factors considered, is material. SAB No. 108 is effective for fiscal years ending on or after November 15, 2006, with early application encouraged. The Company does not expect the adoption of SAB No. 108 will have a material effect on its consolidated financial position, results of operations or cash flows.
Accounting for Uncertainty in Income Taxes
In July 2006, the Financial Accounting Standards Board (the “FASB”) issued FASB Interpretation No. (“FIN”) 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109. FIN 48 clarifies the accounting for income tax uncertainties that have been recognized in an enterprise’s financial statements in accordance with SFAS No. 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 requires that the Company recognize in the financial statements the impact of a tax position, if that position is more likely than not of being sustained on audit, based on the technical merits of the position. FIN 48 also provides additional guidance on accounting for tax uncertainties, including derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The provisions of FIN 48 are effective for fiscal years beginning after December 15, 2006, with the cumulative effect of the change in accounting principle recorded as an adjustment to opening retained earnings. The Company is currently evaluating the impact that adopting FIN 48 will have on its financial statements.
Accounting for Servicing of Financial Assets
In March 2006, the FASB issued SFAS No. 156, Accounting for Servicing of Financial Assets, an amendment of FASB Statement No. 140. SFAS No. 156 permits entities to choose either to measure servicing rights subsequent to initial valuation at fair value and report changes in fair value in earnings or to amortize the servicing rights in proportion to and over the estimated net servicing income or loss and assess the servicing rights for impairment or the need for an increased obligation. SFAS No. 156 also clarifies when a servicer should separately recognize servicing assets and liabilities, requires that all separately recognized assets and liabilities be initially measured at fair value, if practicable, permits a one-time reclassification of available for sales securities to trading securities by an entity with recognized servicing rights and requires additional disclosures for all separately recognized servicing assets and liabilities. SFAS No. 156 is effective as of the beginning of an entity’s fiscal year that begins after September 15, 2006. The Company is currently evaluating the impact that adopting SFAS No. 156 will have on its financial statements.
Accounting for Certain Hybrid Financial Instruments
In February 2006, the FASB issued SFAS No. 155, Accounting for Certain Hybrid Financial Instruments, an amendment of FASB Statements No. 133 and 140. SFAS No. 155 permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation; clarifies which interest-only strips and principal-only strips are not subject to the requirements of SFAS No. 133; establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation; clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives; and amends SFAS No. 140 to eliminate the prohibition on a qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. The new standard is effective for all financial instruments acquired or issued after the beginning of the Company’s first fiscal year that begins after September 15, 2006. The Company is currently evaluating the impact that adopting SFAS No. 155 will have on its financial statements.

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RESULTS OF OPERATIONS
Financial Highlights (Dollars in Thousands, Except Per Share Amounts)
                                                                 
    Three Months Ended September 30,     Nine Months Ended September 30,  
                    Increase (Decrease)                     Increase (Decrease)  
    2006     2005     Amount     %     2006     2005     Amount     %  
Operating Data:
                                                               
Total interest and dividend income
  $ 137,892     $ 104,046     $ 33,846       32.53     $ 392,350     $ 284,941     $ 107,409       37.70  
Total interest expense
    71,768       43,930       27,838       63.37       194,596       109,813       84,783       77.21  
 
                                                   
Net interest income
    66,124       60,116       6,008       9.99       197,754       175,128       22,626       12.92  
Provision for (recovery of) loan losses
    936       (105 )     1,041       (991.43 )     2,492       2,860       (368 )     (12.87 )
 
                                                   
Net interest income after recovery of (provision for) loan losses
    65,188       60,221       4,967       8.25       195,262       172,268       22,994       13.35  
Total noninterest income
    10,968       4,563       6,405       140.37       35,174       18,277       16,897       92.45  
Total noninterest expense
    37,419       25,971       11,448       44.08       117,298       83,612       33,686       40.29  
 
                                                   
Income before income tax expense
    38,737       38,813       (76 )     (0.20 )     113,138       106,933       6,205       5.80  
Income tax expense
    13,167       13,290       (123 )     (0.93 )     38,743       34,240       4,503       13.15  
 
                                                   
Net income
  $ 25,570     $ 25,523     $ 47       0.18     $ 74,395     $ 72,693     $ 1,702       2.34  
 
                                                   
 
Per Share Data:
                                                               
Basic earnings per share
  $ 0.27     $ 0.28     $ (0.01 )     (3.57 )   $ 0.79     $ 0.79     $        
Diluted earnings per share
    0.26       0.27       (0.01 )     (3.70 )     0.76       0.76              
Dividends declared per share
    0.030       0.025       0.005       20.00       0.090       0.075       0.015       20.00  
 
                                                               
Select Operating Ratios:
                                                               
Return on average assets
    1.24 %     1.43 %   (19 )bp*     (13.29 )     1.22 %     1.44 %   (22 )bp*     (15.28 )
Return on average equity
    15.51       18.97       (346 )     (18.24 )     15.68       18.85       (317 )     (16.82 )
Efficiency ratio (1)
    48.54       40.15       839       20.90       50.36       43.23       713       16.49  
Noninterest expense to average assets
    1.81       1.46       35       23.97       1.93       1.65       28       16.97  
Average equity to average assets
    7.96       7.56       40       5.29       7.80       7.63       17       2.23  
Dividend payout ratio (2)
    11.54       9.26       228       24.62       11.84       9.87       197       19.96  
Net loan charge-offs to average loans
    0.15             15             0.17             17        
                                 
    September 30,   December 31,   Increase (Decrease)
    2006   2005   Amount   %
Financial Condition and Other Data:
                               
Securities purchased under agreements to resell
  $ 175,000     $     $ 175,000        
Investments and mortgage-backed securities available for sale, at fair value
    1,307,791       1,117,724       190,067       17.00  
Investments and mortgage-backed securities held to maturity, at cost
    295,451       308,608       (13,157 )     (4.26 )
Loans held for sale
    123,040       156,740       (33,700 )     (21.50 )
Loans held in portfolio, net
    5,809,695       5,774,118       35,577       0.62  
Total assets
    8,351,727       7,965,637       386,090       4.85  
Deposits
    6,381,492       6,264,169       117,323       1.87  
Securities sold under agreements to repurchase
    300,000             300,000        
Short-term borrowings
    9,787       279,425       (269,638 )     (96.50 )
Long-term borrowings
    731,225       562,033       169,192       30.10  
Subordinated debentures
    150,520       150,520              
Stockholders’ equity
    675,276       603,514       71,762       11.89  
Nonperforming assets
    10,229       19,133       (8,904 )     (46.54 )
 
                               
Selected Ratios:
                               
Loan delinquency ratio
    0.31 %     0.48 %   (17 )bp*     (35.42 )
Nonperforming assets to total assets
    0.12       0.24       (12 )     (50.00 )
Nonperforming loans to total loans
    0.17       0.32       (15 )     (46.88 )
Allowance for loan losses to nonperforming loans
    553.63       337.33       21,630       64.12  
Allowance for loan losses to loans held in portfolio
    0.97       1.11       (14 )     (12.61 )
Total loan to deposit ratio
    93.86       95.71       (185 )     (1.93 )
Stockholders’ equity to total assets
    8.09       7.58       51       6.73  
Bank Regulatory Capital Ratios:
                               
United Commercial Bank:
                               
Total risk-based capital
    11.50 %     10.98 %   52  bp*     4.74  
Tier 1 risk-based capital
    10.56       9.91       65       6.56  
Tier 1 leverage ratio (3)
    8.70       8.26       44       5.33  
UCBH Holdings, Inc. and subsidiaries:
                               
Total risk-based capital
    11.71 %     11.33 %   38  bp*     3.35  
Tier 1 risk-based capital
    10.78       10.26       52       5.07  
Tier 1 leverage ratio (3)
    8.88       8.56       32       3.74  
 
(1)   Represents noninterest expense divided by the total of our net interest income before provision for loan losses and our noninterest income.
 
(2)   Represents dividends declared per share as a percentage of diluted earnings per share.
 
(3)   Represents Tier 1 capital to total average assets.
 
*   Basis point.

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Three Months Ended September 30, 2006, Compared to Three Months Ended September 30, 2005
The consolidated net income of the Company increased by $47,000, or 0.2%, to $25.6 million for the three months ended September 30, 2006, compared to $25.5 million for the same period in 2005. The annualized ROE and ROA ratios for the three months ended September 30, 2006, were 15.51% and 1.24%, respectively. These amounts compare with a ROE of 18.97% and ROA of 1.43% for the three months ended September 30, 2005. The declines in the ratios are reflective of net income remaining unchanged and the growth in assets and equity, primarily as a result of the Company’s expansion and acquisitions that were consummated in the latter part of 2005. The efficiency ratio was 48.54% for the three months ended September 30, 2006, compared with 40.15% for the same period in 2005. The efficiency ratio increase is reflective of the growth in noninterest expense that exceeded the growth in net interest income and noninterest income, resulting from the Company’s expansion and acquisitions. Diluted earnings per share were $0.26 for the three months ended September 30, 2006, compared with $0.27 for the same period in 2005.
Net Interest Income and Net Interest Margin. The increase in net interest income for the three months ended September 30, 2006, compared to same period in 2005 was principally due to a $1.02 billion increase in average interest-earning assets, which resulted primarily from organic loan growth along with the Pacifica Bancorp, Inc. (“Pacifica”) and Asian American Bank & Trust Company (“AABT”) acquisitions. The average cost of deposits increased 120 basis points from 2.39% for the three months ended September 30, 2005, to 3.59% for the three months ended September 30, 2006, as a result of increased market interest rates during the past twelve months, the change in the composition of deposits and the procurement of certificates of deposit from brokers, which typically carry higher interest rates. These factors were partially offset by a 99 basis point increase in average loan yields reflecting the repricing of adjustable-rate loans as market interest rate indices continued to rise. The yield on taxable securities also increased for the three months ended September 30, 2006, compared to the same period in 2005 as a result of the purchase of higher-yielding securities during the latter half of 2005.

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The following table reflects the distribution of average assets, liabilities and stockholders’ equity, as well as the amounts of interest income and resultant yields earned from average interest-earning assets, and the amounts of interest expense and resultant rates paid on average interest-bearing liabilities for the three months ended September 30, 2006 and 2005 (dollars in thousands):
                                                 
    2006     2005  
                    Average                     Average  
            Interest     Yields             Interest     Yields  
    Average     Income/     Earned/     Average     Income/     Earned/  
    Balance     Expense     Rates Paid     Balance     Expense     Rates Paid  
Nontaxable equivalent basis:
                                               
Interest-earning assets
                                               
Loans (1)(2)
  $ 6,082,253     $ 114,752       7.55 %   $ 5,349,239     $ 87,684       6.56 %
Taxable securities (3)
    1,326,243       16,220       4.89       1,193,646       13,439       4.50  
Nontaxable securities (3)
    224,155       2,686       4.79       225,537       2,692       4.77  
FHLB Stock
    53,780       1,313       9.77       75,606       5       0.03  
Securities purchased under agreements to resell
    66,304       1,239       7.47                    
Other
    134,479       1,682       5.00       19,439       226       4.65  
 
                                       
 
                                               
Total interest-earning assets
    7,887,214       137,892       6.99       6,863,467       104,046       6.06  
Noninterest-earning assets
    393,819                     258,604                
 
                                       
 
                                               
Total assets
  $ 8,281,033     $ 137,892             $ 7,122,071     $ 104,046          
 
                                       
 
                                               
Interest-bearing liabilities:
                                               
Deposits:
                                               
NOW, checking and money market accounts
  $ 1,375,736     $ 12,055       3.51     $ 1,149,827     $ 5,778       2.01  
Savings accounts
    687,193       2,376       1.38       783,867       2,183       1.11  
Time deposits
    3,700,199       42,271       4.57       3,196,213       25,449       3.18  
 
                                       
 
                                               
Total interest-bearing deposits
    5,763,128       56,702       3.94       5,129,907       33,410       2.61  
Securities sold under agreements to repurchase
    214,130       1,908       3.56                    
Short-term borrowings and federal funds purchased
    123,595       1,523       4.93       444,756       4,062       3.65  
Long- term borrowings
    696,942       8,540       4.90       351,986       4,491       5.10  
Subordinated debentures
    150,520       3,095       8.22       110,034       1,967       7.15  
 
                                       
 
                                               
Total interest-bearing liabilities
    6,948,315       71,768       4.13       6,036,683       43,930       2.91  
Noninterest-bearing deposits
    558,512                     451,726                
Other noninterest-bearing liabilities
    114,831                     95,447                
Stockholders’ equity
    659,375                     538,215                
 
                                       
 
                                               
Total liabilities and stockholders’ equity
  $ 8,281,033     $ 71,768             $ 7,122,071     $ 43,930          
 
                                       
 
Net interest-earning assets/net interest income/net interest rate spread (4)
  $ 938,899     $ 66,124       2.86 %   $ 826,784     $ 60,116       3.15 %
 
                                   
 
                                               
Net interest margin (5)
                    3.35 %                     3.50 %
 
                                           
 
                                               
Ratio of interest-earning assets to interest-bearing liabilities
    1.14 x                     1.14 x                
 
                                           
 
                                               
Tax equivalent basis:
                                               
Total interest-earning assets (6)
  $ 7,887,214     $ 139,338       7.07 %   $ 6,863,467     $ 105,346       6.14 %
Total interest-bearing liabilities
    6,948,315       71,768       4.13       6,036,683       43,930       2.91  
 
                                       
 
                                               
Net interest-earning assets/net interest income/net interest rate spread (4)
  $ 938,899     $ 67,570       2.94 %   $ 826,784     $ 61,416       3.23 %
 
                                   
 
                                               
Net interest margin (5)
                    3.43 %                     3.58 %
 
                                           
 
                                               
Average cost of deposits:
                                               
Total interest-bearing deposits
  $ 5,763,128     $ 56,702       3.94 %   $ 5,129,907     $ 33,410       2.61 %
Noninterest-bearing deposits
    558,512                     451,726                
 
                                       
 
                                               
Total deposits
  $ 6,321,640     $ 56,702       3.59 %   $ 5,581,633     $ 33,410       2.39 %
 
                                   
 
(1)   Nonaccrual loans are included in the table for computation purposes; however, interest for such loans is recognized on a cash basis.
 
(2)   Average loans include loans held for sale.
 
(3)   Average yield on investment securities is computed using historical cost balances; the yield information does not give effect to changes in fair value that are reflected as a component of stockholders’ equity.
 
(4)   Interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.
 
(5)   Net interest margin represents net interest income divided by average interest-earning assets.
 
(6)   Interest income from nontaxable securities has been adjusted to a tax equivalent basis using a statutory federal income tax rate of 35.0%. Interest income from nontaxable investment securities calculated on a tax equivalent basis was $4.1 million and $4.0 million for the three months ended September 30, 2006 and 2005, respectively.
The net interest margin is calculated on a tax equivalent basis, which takes into account the tax benefits associated with certain interest-earning assets of the Company that qualify for federal tax exemptions or credits. The decline in the net interest margin for the three months ended September 30, 2006, compared to the same period in 2005 reflects the impact of increased costs of money market accounts and certificates of deposit resulting from higher

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market interest rates, the runoff of savings accounts due to the current market interest rates, the change in the composition of deposits and the procurement of costlier certificates of deposit from brokers, all of which were partially offset by higher loan yields.
Provision for Loan Losses. The provision for loan losses amounted to $936,000 for the three months ended September 30, 2006, as compared to a $105,000 recovery of loan losses for same period in 2005. The recovery of loan losses for the three months ended September 30, 2005, was a result of improved loan quality and risk grades, and changes in the loan portfolio mix. See “Credit Risk Management” for more information on how we determine the appropriate level for the allowances for loan losses and unfunded lending commitments.
Noninterest Income. Noninterest income increased by $6.4 million, or 140.4%, for the three months ended September 30, 2006, compared with the same period in 2005. The increase was primarily attributable to an increase in commercial banking fees, an increase in gain on sale of multifamily and commercial real estate loans and no current provision made for the lower of cost or market valuation related to loans held for sale. UCB increased its commercial banking fees to $3.7 million for the three months ended September 30, 2006, compared to $2.7 million for the same period in 2005. The increase reflects the growth in trade finance activity, merchant card activity and other commercial banking fees. Gain on sale of commercial and multifamily real estate loans increased to $5.2 million for the three months ended September 30, 2006, from $1.3 million for the same period in 2005 as a result of increased sales volume and higher pricing spreads. Additionally, the three months ended September 30, 2005, reflect a $773,000 unrealized loss resulting from a lower of cost or market adjustment on the multifamily real estate loans transferred from held for sale to held in portfolio.
Noninterest Expense. Noninterest expense increased $11.4 million, or 44.1%, for the three months ended September 30, 2006, compared with the same period in 2005. The increase resulted principally from increases in personnel expenses, occupancy expenses, data processing, core deposit intangible amortization and other general and administrative expenses. For the three months ended September 30, 2006, personnel expenses increased $7.0 million, or 54.3%, from the same period in 2005 due to additional staffing required to support the growth of UCB’s commercial banking business, the opening of new branches, the additional staffing resulting from the Pacifica and AABT acquisitions and the expansion of UCB’s infrastructure to support a larger and growing organization. Personnel expenses also included $642,000 in stock compensation expense related to the 2006 adoption of SFAS No. 123(R). Occupancy expenses increased by $1.4 million, or 46.4%, for the three months ended September 30, 2006, compared to the same period in 2005 as a result of the opening of new branches and the additional branches resulting from the Pacifica and AABT acquisitions. Data processing expenses increased $559,000, or 32.9%, for the three months ended September 30, 2006, compared to same period in 2005 primarily as a result of organic growth of the organization and from the Pacifica and AABT acquisitions. Core deposit intangible amortization increased $463,000, or 225.9%, for the three months ended September 30, 2006, compared to the same period in 2005 as a result of additional amortization related to the core deposit intangibles associated with the Pacifica and AABT acquisitions. Other general and administrative expenses increased by $1.7 million, or 46.1%, for the three months ended September 30, 2006, compared to the same period in 2005 primarily as a result of increased advertising expenses related to the expansion of UCB, market promotions, merchant card expenses and foreign exchange losses.
Income Tax Expense. The effective tax rate for the three months ended September 30, 2006, was 34.0%, compared with 34.2% for the three months ended September 30, 2005. The effective tax rate for the three months ended September 30, 2006, reflect an income tax benefit adjustment of $1.0 million related to the additional Enterprise Zone tax credits for the years ending prior to December 31, 2005. The effective tax rates are generally lower than the combined federal and state statutory rate of 42.0%, primarily due to federal and state tax credits and incentives, and tax-exempt income.
Nine Months Ended September 30, 2006, Compared to Nine Months Ended September 30, 2005
The consolidated net income of the Company for the nine months ended September 30, 2006, increased by $1.7 million, or 2.3%, to $74.4 million, compared to $72.7 million for the same period in 2005. The annualized ROE and ROA ratios for the nine months ended September 30, 2006, were 15.68% and 1.22%, respectively. These amounts compare with ROE of 18.85% and ROA of 1.44% for the nine months ended September 30, 2005. The

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declines in the ratios are reflective of the growth rates of assets and equity that exceeded the growth in net income, primarily as a result of the Company’s expansion and acquisitions that were consummated in the latter part of 2005. Additionally, a tax benefit of $3.9 million associated with the repatriation of earnings from a foreign subsidiary contributed to a higher ROE and ROA for 2005. The efficiency ratio was 50.36% for the nine months ended September 30, 2006, compared with 43.23% for the same period in 2005. The efficiency ratio increase is reflective of the growth in noninterest expense that exceeded the growth in net interest income and noninterest income, resulting from the Company’s expansion and acquisitions. Diluted earnings per share remained at $0.76 for both the nine months ended September 30, 2006 and 2005.
Net Interest Income and Net Interest Margin. The increase in net interest income for the first nine months of 2006 compared to 2005 was principally due to a $1.24 billion increase in average interest-earning assets, which resulted primarily from organic loan growth and the previously discussed Pacifica and AABT acquisitions. The average cost of deposits increased 121 basis points from 2.03% for the nine months ended September 30, 2005, to 3.24% for the nine months ended September 30, 2006, as a result of an increase in market interest rates during the past twelve months, the change in the composition of deposits and the procurement of certificates of deposit from brokers. These factors were partially offset by a 96 basis point increase in average loan yields reflecting the repricing of adjustable-rate loans as market interest rate indices continued to rise. The yield on taxable securities also increased for the nine months ended September 30, 2006, compared to same period in 2005 as a result of the purchase of higher-yielding securities during 2005.

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The following table reflects the distribution of average assets, liabilities and stockholders’ equity, as well as the amounts of interest income and resultant yields earned from average interest-earning assets, and the amounts of interest expense and resultant rates paid on average interest-bearing liabilities for the nine months ended September 30, 2006 and 2005 (dollars in thousands):
                                                 
    2006     2005  
                    Average                     Average  
            Interest     Yields             Interest     Yields  
    Average     Income/     Earned/     Average     Income/     Earned/  
    Balance     Expense     Rates Paid     Balance     Expense     Rates Paid  
Nontaxable equivalent basis:
                                               
Interest-earning assets
                                               
Loans (1)(2)
  $ 6,077,145     $ 331,926       7.28 %   $ 4,930,204     $ 233,544       6.32 %
Taxable securities (3)
    1,247,969       44,895       4.80       1,230,578       41,600       4.51  
Nontaxable securities (3)
    224,898       8,062       4.78       221,063       7,927       4.78  
FHLB Stock
    48,765       2,308       6.31       65,648       645       1.31  
Securities purchased under agreements to resell
    22,344       1,239       7.39                    
Other
    110,620       3,920       4.72       46,603       1,225       3.50  
 
                                       
 
                                               
Total interest-earning assets
    7,731,741       392,350       6.77       6,494,096       284,941       5.85  
Noninterest-earning assets
    377,070                     245,959                
 
                                       
 
                                               
Total assets
  $ 8,108,811     $ 392,350             $ 6,740,055     $ 284,941          
 
                                       
 
                                               
Interest-bearing liabilities:
                                               
Deposits:
                                               
NOW, checking and money market accounts
  $ 1,297,232     $ 29,748       3.06     $ 1,057,833     $ 13,625       1.72  
Savings accounts
    720,637       6,767       1.25       856,576       6,906       1.07  
Time deposits
    3,658,284       114,282       4.17       3,035,668       61,546       2.70  
 
                                       
 
                                               
Total interest-bearing deposits
    5,676,153       150,797       3.54       4,950,077       82,077       2.21  
Securities sold under agreements to repurchase
    101,831       2,829       3.70                    
Short-term borrowings and federal funds purchased
    246,143       8,167       4.42       275,508       7,031       3.40  
Long- term borrowings
    654,684       23,958       4.88       354,146       13,991       5.27  
Subordinated debentures
    149,046       8,845       7.91       127,150       6,714       7.04  
 
                                       
 
                                               
Total interest-bearing liabilities
    6,827,857       194,596       3.80       5,706,881       109,813       2.57  
Noninterest-bearing deposits
    533,698                     432,622                
Other noninterest-bearing liabilities
    114,485                     86,278                
Stockholders’ equity
    632,771                     514,274                
 
                                       
 
                                               
Total liabilities and stockholders’ equity
  $ 8,108,811     $ 194,596             $ 6,740,055     $ 109,813          
 
                                       
 
                                               
Net interest-earning assets/net interest income/net interest rate spread (4)
  $ 903,884     $ 197,754       2.97 %   $ 787,215     $ 175,128       3.28 %
 
                                   
 
                                               
Net interest margin (5)
                    3.41 %                     3.60 %
 
                                           
 
                                               
Ratio of interest-earning assets to interest-bearing liabilities
    1.13 x                     1.14 x                
 
                                           
 
                                               
Tax equivalent basis:
                                               
Total interest-earning assets (6)
  $ 7,731,741     $ 396,691       6.84 %   $ 6,494,096     $ 288,822       5.93 %
Total interest-bearing liabilities
    6,827,857       194,596       3.80       5,706,881       109,813       2.57  
 
                                       
 
                                               
Net interest-earning assets/net interest income/net interest rate spread (4)
  $ 903,884     $ 202,095       3.04 %   $ 787,215     $ 179,009       3.36 %
 
                                   
 
                                               
Net interest margin (5)
                    3.49 %                     3.68 %
 
                                           
 
                                               
Average cost of deposits:
                                               
Total interest-bearing deposits
  $ 5,676,153     $ 150,797       3.54 %   $ 4,950,077     $ 82,077       2.21 %
Noninterest-bearing deposits
    533,698                     432,622                
 
                                       
 
                                               
Total deposits
  $ 6,209,851     $ 150,797       3.24 %   $ 5,382,699     $ 82,077       2.03 %
 
                                   
 
(1)   Nonaccrual loans are included in the table for computation purposes; however, interest for such loans is recognized on a cash basis.
 
(2)   Average loans include loans held for sale.
 
(3)   Average yield on investment securities is computed using historical cost balances; the yield information does not give effect to changes in fair value that are reflected as a component of stockholders’ equity.
 
(4)   Interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.
 
(5)   Net interest margin represents net interest income divided by average interest-earning assets.
 
(6)   Interest income from nontaxable securities has been adjusted to a tax equivalent basis using a statutory federal income tax rate of 35.0%. Interest income from nontaxable investment securities calculated on a tax equivalent basis was $12.4 million and $11.8 million for the nine months ended September 30, 2006 and 2005, respectively.
The decline in the net interest margin for the nine months ended September 30, 2006, compared to same period in 2005 reflects the impact of increased costs of money market accounts and certificates of deposit resulting from higher market interest rates, the runoff of savings accounts due to the current market interest rates, the change in the

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composition of deposits and the procurement of costlier certificates of deposit from brokers, all of which were partially offset by higher loan yields.
Provision for Loan Losses. The provision for loan losses amounted to $2.5 million for the nine months ended September 30, 2006, as compared to $2.9 million for the same period in 2005. The lower provision for 2006 compared to 2005 is reflective of the refinement of the methodology used to determine certain historical, qualitative and economic surcharge loss factors. See “Credit Risk Management” for more information on how we determine the appropriate level for the allowances for loan losses and unfunded lending commitments.
Noninterest Income. Noninterest income increased by $16.9 million, or 92.5%, for the nine months ended September 30, 2006, compared to the same period in 2005. The increase was primarily attributable to the increase in commercial banking fees, increase in gain on sale of multifamily and commercial real estate loans, the recovery of the lower of cost or market adjustment related to loans held for sale, a smaller equity loss in other equity investments and the $5.0 million acquisition termination fee from GEB that was received during the three months ended March 31, 2006. Commercial banking fees increased to $11.2 million for the nine months ended September 30, 2006, compared to $7.6 million for the same period in 2005. The increase reflects the growth in trade finance activity, merchant card activity, other commercial banking fees and fees from UCB Investment Services, Inc. Gain on sale of multifamily and commercial real estate loans increased to $13.4 million for the nine months ended September 30, 2006, from $7.7 million for the same period in 2005 as a result of increased sales volume and higher pricing spreads. The lower of cost or market adjustment related to loans held for sale reflects a $150,000 recovery related to previously recognized write down of loans held for sale to market for the nine months ended September 30, 2006, compared to a $773,000 loss related to multifamily real estate loans transferred from held for sale to held in portfolio. Additionally, UCB had a reduction of equity losses in other equity investments to $761,000 for the nine months ended September 30, 2006, from $1.8 million for the same period in 2005 primarily attributable to $836,000 of equity income from CRA qualified investments.
Noninterest Expense. Noninterest expense increased $33.7 million, or 40.3%, for the nine months ended September 30, 2006, compared to the same period in 2005. The increase resulted principally from increases in personnel expenses, occupancy expenses, data processing expenses, core deposit intangible amortization and other general and administrative expenses. For the nine months ended September 30, 2006, personnel expenses increased $23.6 million, or 55.3%, from the same period in 2005 due to additional staffing required to support the growth of UCB’s commercial banking business, the opening of new branches, the additional staffing resulting from the Pacifica and AABT acquisitions and the expansion of UCB’s infrastructure to support a larger and growing organization. Additionally, severance and retention bonuses related to the Pacifica and AABT acquisitions and other incentive bonuses totaling $5.4 million were recognized during the nine months ended September 30, 2006. Personnel expenses also included $1.5 million in stock compensation expense related to the 2006 adoption of SFAS No. 123(R). Occupancy expenses increased by $2.9 million, or 32.5%, for the nine months ended September 30, 2006, compared to the same period in 2005 as a result of the opening of new branches and the additional branches resulting from the Pacifica and AABT acquisitions. Data processing expenses increased $2.5 million, or 49.2%, for the nine months ended September 30, 2006, compared to same period in 2005 primarily as a result of $714,000 related to the conversion of the loan and deposit systems at Pacifica and AABT. Core deposit intangible amortization increased $943,000, or 126.2%, for the nine months ended September 30, 2006, compared to the same period in 2005 as a result of the additional amortization related to the core deposit intangibles associated with the Pacifica and AABT acquisitions. Other general and administrative expenses increased by $4.1 million, or 36.3%, for the nine months ended September 30, 2006, compared to the same period in 2005 primarily as a result of increased advertising expenses related to UCB’s expansion, market promotions, merchant card expenses and foreign exchange losses. All of these increases were partially offset by a gain on extinguishment of borrowings of $360,000 for the nine months ended September 30, 2006, as compared to a loss on extinguishment of subordinated debentures of $1.3 million for the nine months ended September 30, 2005, which was primarily from the write-off of unamortized 9.375% subordinated debenture issuance costs.
Income Tax Expense. The effective tax rate for the nine months ended September 30, 2006, was 34.2%, compared with 32.0% for the nine months ended September 30, 2005. The effective tax rate for the nine months ended September 30, 2006, reflect an income tax benefit of $2.8 million related to additional Enterprise Zone tax credits for the years ending prior to December 31, 2005. The effective tax rate for the nine months ended September 30, 2005, reflect an income tax benefit of $3.9 million related to UCB’s decision to repatriate earnings from a foreign subsidiary. The effective tax rates are generally lower than the combined federal and state statutory rate of 42.0%, primarily due to federal and state tax credits and incentives, and tax-exempt income.

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BALANCE SHEET ANALYSIS
Investment Securities
The amortized cost and market value of the investment portfolio at September 30, 2006, and December 31, 2005, were as follows (dollars in thousands):
                                 
    September 30, 2006     December 31, 2005  
    Amortized     Market     Amortized     Market  
    Cost     Value     Cost     Value  
Investment securities available for sale:
                               
Trust preferred securities
  $ 38,445     $ 38,235     $ 33,443     $ 32,946  
U.S. Government sponsored enterprises
    210,895       206,913       159,655       155,185  
Other
    10,000       10,014       11,012       10,911  
 
                       
 
                               
Total investment securities available for sale
    259,340       255,162       204,110       199,042  
 
                       
 
                               
Mortgage-backed securities available for sale:
                               
FNMA
    509,104       494,225       355,135       344,190  
GNMA
    83,415       79,934       88,184       85,033  
FHLMC
    300,429       290,318       302,540       292,316  
Other
    192,473       188,152       202,264       197,143  
 
                       
 
                               
Total mortgage-backed securities available for sale
    1,085,421       1,052,629       948,123       918,682  
 
                       
 
                               
Total investment and mortgage-backed securities available for sale
    1,344,761       1,307,791       1,152,233       1,117,724  
 
                       
 
                               
Investment securities held to maturity:
                               
Municipals
    224,588       232,202       225,573       232,279  
 
                       
 
                               
Mortgage-backed securities held to maturity:
                               
FNMA
    4,417       4,237       5,112       4,923  
GNMA
    65,903       63,980       77,261       76,133  
FHLMC
    543       522       662       639  
 
                       
 
                               
Total mortgage-backed securities held to maturity
    70,863       68,739       83,035       81,695  
 
                       
 
                               
Total investment and mortgage-backed securities held to maturity
    295,451       300,941       308,608       313,974  
 
                       
 
                               
Total investment and mortgage-backed securities
  $ 1,640,212     $ 1,608,732     $ 1,460,841     $ 1,431,698  
 
                       
The investment portfolio increased by $176.9 million from December 31, 2005. This increase is primarily due to UCB’s securitization of residential mortgage loans with mortgage servicing rights retained through the Federal National Mortgage Association (“FNMA”) for $174.7 million of mortgage-backed securities on September 1, 2006. UCB securitized these loans to improve the Company’s and UCB’s risk-based capital. UCB intends to continue restructuring its balance sheet through growth of its loan portfolio and decreasing its securities concentration.
As of September 30, 2006, the carrying value and the market value of the available for sale investment portfolio were $1.34 billion and $1.31 billion, respectively. The total net of tax unrealized loss on these securities was $21.4 million and is reflected as accumulated other comprehensive loss in stockholders’ equity. The difference between the carrying value and market value of securities that are held to maturity, aggregating a gain of $5.5 million, has not been recognized in the financial statements as of September 30, 2006. Additionally, certain securities that UCB holds have unrealized losses that extend for periods in excess of twelve months. However, since the unrealized losses are solely attributable to movement in market interest rates and UCB has the intent and ability to hold these securities until recovery of such unrealized loss, UCB has concluded that the decline in value on these securities is temporary.

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Loans
The components of UCB’s loans held in portfolio by amount for each major loan category at September 30, 2006, and December 31, 2005, were as follows (dollars in thousands):
                 
    September 30,     December 31,  
    2006     2005  
Commercial:
               
Secured by real estate — nonresidential
  $ 1,974,364     $ 2,307,381  
Secured by real estate — multifamily
    1,360,624       1,506,848  
Construction
    879,494       494,841  
Business
    1,155,049       863,935  
 
           
 
               
Total commercial
    5,369,531       5,173,005  
 
           
 
               
Consumer:
               
Residential mortgage (one-to-four family)
    441,366       613,988  
Other
    55,428       51,667  
 
           
 
               
Total consumer
    496,794       665,655  
 
           
 
               
Loans held in portfolio (1)
    5,866,325       5,838,660  
Allowance for loan losses
    (56,630 )     (64,542 )
 
           
 
               
Loans held in portfolio, net
  $ 5,809,695     $ 5,774,118  
 
           
 
(1)   Amounts reflect net unamortized deferred loan fees of $8.9 million and $7.4 million at September 30, 2006, and December 31, 2005, respectively.
During the nine months ended September 30, 2006, total loans held in portfolio increased by $27.7 million. This increase resulted primarily from organic growth in commercial construction and business loans offset by a transfer of commercial real estate loans of $381.3 million from held in portfolio to held for sale. Commercial loans at September 30, 2006, increased 3.8% from the December 31, 2005, balance. Consumer loans decreased 25.4% at September 30, 2006, from the December 31, 2005, balance. The decrease is primarily due to the UCB’s securitization of $176.1 million of residential mortgage loans with servicing rights retained through the FNMA on September 1, 2006.
UCB periodically identifies loans that it intends to sell, and when such a determination is made, the loans are classified as held for sale. For the nine months ended September 30, 2006, UCB transferred $381.8 million of loans from held in portfolio to held for sale. UCB also transferred at market value, $80.5 million of loans that were either determined to lack market interest or did not meet our pricing requirements from held for sale to held in portfolio during the nine months ended September 30, 2006. The components of the loans held for sale by amount for each major loan category at September 30, 2006, and December 31, 2005, were as follows (dollars in thousands):
                 
    September 30,     December 31,  
    2006     2005  
Commercial:
               
Secured by real estate — nonresidential
  $ 120,738     $ 154,087  
Business
    1,224       2,653  
 
           
 
               
Total commercial
    121,962       156,740  
 
           
 
               
Consumer:
               
Residential mortgage (one-to-four family)
    1,078        
 
           
 
               
Loans held for sale (1)
  $ 123,040     $ 156,740  
 
           
 
(1)   Amounts reflect net unamortized deferred loan fees of $214,000 and $372,000 at September 30, 2006, and December 31, 2005, respectively.

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Consistent with UCB’s stated long-term objectives for the next five years, UCB will be systematically reducing its concentration in commercial real estate loans, while increasing its concentration in commercial business loans.
New loan commitments related to loans held for sale and held in portfolio for the three and nine months ended September 30, 2006 and 2005, were as follows (dollars in thousands):
                                 
    Three Months Ended September 30,     Nine Months Ended September 30,  
    2006     2005     2006     2005  
Loans held for sale:
                               
Commercial:
                               
Secured by real estate — nonresidential
  $ 6,263     $ 11,293     $ 39,188     $ 50,396  
Secured by real estate — multifamily
          90,989             489,968  
 
                       
 
                               
Total commercial loans
    6,263       102,282       39,188       540,364  
 
                       
 
                               
Consumer:
                               
Residential mortgage (one-to-four family)
    1,846             3,097       325  
 
                       
 
                               
Total loans held for sale commitments (1)
    8,109       102,282       42,285       540,689  
 
                       
 
                               
Loans held in portfolio:
                               
Commercial:
                               
Secured by real estate — nonresidential
    211,040       274,192       583,092       858,759  
Secured by real estate — multifamily
    30,204       166,865       164,440       411,424  
Construction
    301,446       140,747       787,304       449,692  
Business
    325,799       230,708       888,564       536,734  
 
                       
 
                               
Total commercial loans
    868,489       812,512       2,423,400       2,256,609  
 
                       
 
                               
Consumer:
                               
Residential mortgage (one-to-four family)
    24,457       65,129       70,817       153,204  
Other
    7,832       10,382       24,377       30,730  
 
                       
 
                               
Total consumer loans
    32,289       75,511       95,194       183,934  
 
                       
 
                               
Total loans held in portfolio commitments (1)
    900,778       888,023       2,518,594       2,440,543  
 
                       
 
                               
Total loan commitments (1)
  $ 908,887     $ 990,305     $ 2,560,879     $ 2,981,232  
 
                       
 
(1)   Excludes commitments related to loan participations.

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As a result of changing the loan origination focus to commercial business loans, UCB is originating more loans that reprice in shorter periods. Construction loans, commercial business loans and SBA loans generally have monthly repricing terms. Commercial real estate loans generally reprice monthly or are intermediate fixed, meaning that the loans have interest rates that are fixed for a period, typically five years, after which the loans generally reprice monthly or become due and payable. Multifamily real estate loans are generally intermediate fixed rate loans. Residential mortgage (one-to-four family) loans may carry an adjustable rate that reprice semiannually or annually; fixed rate, meaning that the loans have interest rates that are fixed over the term of the loans, typically 15 or 30 years; or have interest rates that are fixed for a period, typically five years, and then generally reprice semiannually or annually, thereafter. The components of gross loans held in portfolio by interest type for each major loan category at September 30, 2006, were as follows (dollars in thousands):
                                 
            Intermediate              
    Adjustable     Fixed     Fixed     Total  
Commercial:
                               
Secured by real estate — nonresidential
  $ 818,931     $ 429,218     $ 731,980     $ 1,980,129  
Secured by real estate — multifamily
    353,401       857,122       146,894       1,357,417  
Construction
    819,256             66,031       885,287  
Business
    1,032,155       2,349       120,941       1,155,445  
 
                       
 
                               
Total commercial
    3,023,743       1,288,689       1,065,846       5,378,278  
 
                       
 
                               
Consumer:
                               
Residential mortgage (one-to-four family)
    64,207       216,252       161,018       441,477  
Other
    49,927             5,501       55,428  
 
                       
 
                               
Total consumer
    114,134       216,252       166,519       496,905  
 
                       
 
                               
Gross loans held in portfolio (1)
  $ 3,137,877     $ 1,504,941     $ 1,232,365     $ 5,875,183  
 
                       
 
(1)   Amounts do not reflect net deferred loan fees of $8.9 million at September 30, 2006.
Deposits
The balances and rates paid for categories of deposits at September 30, 2006, and December 31, 2005, were as follows (dollars in thousands):
                                 
    September 30, 2006     December 31, 2005  
            Weighted             Weighted  
            Average             Average  
    Amount     Rate     Amount     Rate  
NOW, checking and money market accounts
  $ 1,957,365       2.27 %   $ 1,784,065       1.65 %
Savings accounts
    903,768       2.09       946,714       1.85  
Time deposits:
                               
Less than $100,000
    1,202,329       4.34       1,203,001       2.69  
$100,000 or greater
    2,318,030       4.79       2,330,389       3.98  
 
                           
 
                               
Total time deposits
    3,520,359       4.64       3,533,390       3.54  
 
                           
 
                               
Total deposits
  $ 6,381,492       3.55 %   $ 6,264,169       2.75 %
 
                           
Deposits have traditionally been UCB’s primary source of funding to use in its lending and investment activities. At September 30, 2006, 55.2% of UCB’s deposits were time deposits, 30.7% were negotiable order of withdrawal (“NOW”) accounts, demand deposits and money market accounts, and 14.1% were savings accounts. By comparison, at December 31, 2005, 56.4% of UCB’s deposits were time deposits, 28.5% were NOW accounts, demand deposits and money market accounts, and 15.1% were savings accounts. With the exception of state and federal government entities contributing 6.7% to total deposits at September 30, 2006, no other material portion of UCB’s deposits were from or were dependent upon any one customer, source or industry.

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Included in time deposits at September 30, 2006, is $2.32 billion of deposits of $100,000 or greater, compared to $2.33 billion at December 31, 2005. Such deposits made up 36.3% of total deposits at September 30, 2006, compared to 37.2% at December 31, 2005. Also included in time deposits are $105.4 million and $156.8 million of brokered deposits at September 30, 2006, and December 31, 2005, respectively.
Borrowings
Borrowings as of and for the nine months ended September 30, 2006, and the year ended December 31, 2005, were as follows (dollars in thousands):
                 
    September 30,   December 31,
    2006   2005
Securities sold under agreements to repurchase:
               
Average balance outstanding
  $ 101,832     $  
Maximum amount outstanding at any month end period
    300,000        
Balance outstanding at end of period
    300,000        
Weighted average interest rate during the period
    3.70 %     %
Weighted average interest rate at end of period
    3.15 %     %
Weighted average remaining term to maturity at end of period (in years)
    8.4        
 
               
Short-term borrowings:
               
FHLB of San Francisco and Seattle advances and other short-term borrowings:
               
Average balance outstanding
  $ 245,333     $ 301,400  
Maximum amount outstanding at any month end period
    482,317       566,169  
Balance outstanding at end of period
    9,787       279,425  
Weighted average interest rate during the period
    4.41 %     3.51 %
Weighted average interest rate at end of period
    4.15 %     4.09 %
Weighted average remaining term to maturity at end of period (in years)
           
 
               
Long-term borrowings:
               
FHLB of San Francisco, Seattle and Boston advances:
               
Average balance outstanding
  $ 654,684     $ 361,677  
Maximum amount outstanding at any month end period
    731,225       562,033  
Balance outstanding at end of period
    731,225       562,033  
Weighted average interest rate during the period
    4.88 %     5.15 %
Weighted average interest rate at end of period
    4.81 %     4.76 %
Weighted average remaining term to maturity at end of period (in years)
    5.1       5.2  
UCB maintains borrowing lines with numerous correspondent banks and brokers and with the Federal Home Loan Banks of San Francisco, Seattle and Boston (collectively referred to as the “FHLB”) to supplement its supply of lendable funds and to manage liquidity. Such borrowings are generally secured with mortgage loans and/or securities with a market value at least equal to outstanding balances. In addition to loans and securities, advances from the FHLB are typically secured by a pledge of UCB’s stock in the FHLB. UCB had $726.8 million of FHLB advances outstanding at September 30, 2006, and $788.0 million outstanding at December 31, 2005. At September 30, 2006, UCB had $1.71 billion of additional FHLB borrowings available for future borrowing capacity.
UCB recorded certain loan sale transactions as secured borrowings as of September 30, 2006, and December 31, 2005, since these transactions did not qualify for sales treatment under SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities. The secured borrowings amounted to $4.4 million at September 30, 2006, and $19.1 million at December 31, 2005. During the nine months ended September 30, 2006, $7.2 million of the loans related to the December 31, 2005, secured borrowings qualified for sales treatment, resulting in a gain on sale of loans of $222,000. Additionally during the nine months ended September 30, 2006, UCB repaid $11.9 million as a result of the purchaser electing to remove the loans from the sale transaction.

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Subordinated Debentures
UCBH established special purpose trusts in 1997, 2001, 2002 and 2005 for the sole purpose of issuing guaranteed preferred beneficial interests in its junior subordinated debentures (the “Capital Securities”) and investing the proceeds thereof in the junior subordinated debentures issued by UCBH. Payment of distributions out of the monies held by the trusts and payments on liquidation of the trusts or the redemption of the Capital Securities are guaranteed by UCBH to the extent the trusts have funds available. The obligations of UCBH under the guarantees and the junior subordinated debentures are subordinate and junior in right of payment to all indebtedness of UCBH and will be structurally subordinated to all liabilities and obligations of UCBH’s subsidiaries. UCBH had $150.5 million of subordinated debentures outstanding at September 30, 2006, and December 31, 2005.

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RISK ELEMENTS
Since risk is inherent in substantially all of the Company’s operations, management of risk is integral to its successful operations and is also a key determinant of its overall performance. We manage all major aspects of our business through an integrated risk infrastructure that includes planning and review processes. We evaluate our risk and returns to produce sustainable revenue, to reduce earnings volatility and increase shareholder value. As part of this evaluation, we apply various strategies to identify, manage and reduce the risks to which the Company’s operations are exposed, namely credit, operational, market and interest rate, and liquidity risks.
We evaluate risk through various management committees with the oversight of the Board of Directors. The key risk management committees of the Company are:
  Enterprise Risk Management Committee, which reviews credit, operational, market and liquidity risk.
  Credit Risk Management Committee, which reviews credit policies, products, and problem assets risk.
  Market Risk Management Committee, which reviews securities, loans and borrowings to assess yield, market and interest rate risk.
  Operational Risk Management Committee, which reviews those risks not covered by the Credit Risk Management and the Market Risk Management Committees.
Management has established control processes and procedures to align risk-taking and risk management throughout our organization. Each of our business groups is responsible for identifying, quantifying, mitigating and managing all risks associated with their operations. In addition, each business unit prepares and executes business plans, which must address the changing nature of these risks making them best able to take actions to manage and mitigate those risks.
Credit Risk Management
Credit risk is the possibility of loss from the failure of a borrower or contractual counterparty to fully perform under the terms of a credit-related contract. Credit risk arises primarily from UCB’s lending activities, as well as from other on- and off-balance-sheet credit instruments.
Effective management of credit risk is essential in maintaining a safe and sound financial institution. We have in place a set of formal loan policies and procedures, which provide UCB with a framework for consistent loan underwriting and a basis for sound credit decisions. In addition, UCB has a well-defined set of standards for evaluating its loan portfolio and management utilizes a comprehensive loan grading system to identify the risk potential in the portfolio. Loans are periodically reviewed with regard to the borrower’s ability to repay the loan during which a risk grade is assigned to the loan. The reviews include evaluations of various factors, including the borrower’s debt capacity and financial flexibility, the borrower’s earnings, the sources of repayment, the level and nature of any contingencies, the quality of any collateral, and the industry in which the borrower operates. The reviews also address an evaluation of historical information as well as subjective assessments and interpretations. Further, an independent internal credit review function periodically conducts reviews of UCB’s lending operations and loan portfolios. These reviews are designed to place an emphasis on the early detection of problem credits so that action plans can be developed and implemented on a timely basis to mitigate any potential losses.
We also assign a loss rating to each credit facility. These loss ratings are determined by borrower and by type of collateral, based principally upon our own historical loss experience or on independent verifiable data that help to estimate these ratings. The ratings are used as a tool to monitor a loan’s performance and also in estimating any potential loss associated with it.

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Another aspect of UCB’s credit risk management strategy is to maintain diversification in the loan portfolio. The components of UCB’s loans held in portfolio by amount and percentage of gross loans held in portfolio for each major loan category at September 30, 2006, and December 31, 2005, were as follows (dollars in thousands):
                                 
    September 30, 2006     December 31, 2005  
    Amount     %     Amount     %  
Commercial:
                               
Secured by real estate — nonresidential
  $ 1,974,364       33.66     $ 2,307,381       39.52  
Secured by real estate — multifamily
    1,360,624       23.19       1,506,848       25.81  
Construction
    879,494       15.00       494,841       8.47  
Business
    1,155,049       19.69       863,935       14.80  
 
                       
 
                               
Total commercial
    5,369,531       91.54       5,173,005       88.60  
 
                       
 
                               
Consumer:
                               
Residential mortgage (one-to-four family)
    441,366       7.52       613,988       10.52  
Other
    55,428       0.94       51,667       0.88  
 
                       
 
                               
Total consumer
    496,794       8.46       665,655       11.40  
 
                       
 
                               
Loans held in portfolio (1)
  $ 5,866,325       100.00     $ 5,838,660       100.00  
 
                       
 
(1)   Amounts reflect net unamortized deferred loan fees of $8.9 million and $7.4 million at September 30, 2006, and December 31, 2005, respectively.
UCB actively monitors the levels of loans as a percentage of its portfolio and of its risk-based capital. Consistent with our planned long-term objectives, UCB will continue to systematically reduce the concentration in commercial and multifamily real estate loans while increasing the portfolio of commercial business loans. During the nine months ended September 30, 2006, $171.5 million in commercial real estate loans were sold. Additionally, $381.3 million of commercial real estate loans were transferred from held in portfolio to held for sale, in an effort to further reduce UCB’s concentration of commercial real estate loans.
UCB also manages its loan portfolio to avoid the risk of undue concentration of credits in a particular industry, trade group or property type. UCB has no significant exposure to highly leveraged transactions or to any individual customer or counterparty.
Nonperforming Assets
Nonperforming assets include nonaccrual and restructured loans and other real estate owned (“OREO”). Loans are generally placed on nonaccrual status when a loan becomes 90 days past due as to principal and interest, unless the loan is both well secured and in the process of collection. Loans may be placed on nonaccrual earlier if, in management’s opinion, the full and timely collection of principal or interest becomes uncertain. When a loan is placed on nonaccrual status, any accrued but unpaid interest is reversed and charged against interest income. UCB charges off loans when it determines that collection becomes unlikely. OREO, of which UCB had none at September 30, 2006, is acquired primarily through or in lieu of foreclosure on loans secured by real estate.

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UCB’s nonperforming assets as of September 30, 2006, and December 31, 2005, were as follows (dollars in thousands):
                 
    September 30,     December 31,  
    2006     2005  
Commercial loans:
               
Secured by real estate — nonresidential
  $ 5,679     $ 12,792  
Business
    4,177       5,903  
 
           
 
               
Total commercial loans
    9,856       18,695  
 
           
 
               
Consumer loans:
               
Residential mortgage (one-to-four family)
    373       388  
Other
          50  
 
           
 
               
Total consumer loans
    373       438  
 
           
 
               
Total nonaccrual loans
    10,229       19,133  
Other real estate owned (OREO)
           
 
           
 
               
Total nonperforming assets
  $ 10,299     $ 19,133  
 
           
 
               
Nonperforming assets to total assets
    0.12 %     0.24 %
Nonaccrual loans to total loans
    0.17       0.32  
Nonperforming assets to total loans and OREO
    0.17       0.32  
 
               
Total loans
  $ 5,989,365     $ 5,995,400  
Gross income not recognized on nonaccrual loans
    698       790  
Accruing loans contractually past due 90 days or more
    4,574       5,374  
Loans classified as troubled debt restructurings and not included above
    8,655       10,827  
The level of UCB’s nonperforming assets decreased as of September 30, 2006, compared to December 31, 2005. The decrease was a result of the payoff of one nonaccrual commercial real estate loan, loan payments and various loan charge-offs, partially offset by four additional commercial business loans being moved to nonaccrual loans.
Loans classified as troubled debt restructurings reflected in the table above at September 30, 2006, represents one commercial real estate loan, which is a nonresidential loan secured by real estate. This loan has been classified as a performing restructured loan as a result of UCB making interest rate concessions on a separate loan for $1.3 million to the same obligor and is secured by the same property. The separate loan of $1.3 million is included in the nonaccrual commercial real estate in the table above.
Included in nonaccrual loans are loans that we have determined to be impaired. Loans, other than those included in large groups of smaller-balance homogeneous loans, are considered to be impaired when, based on current information and events, it is probable that UCB will be unable to collect all amounts due in accordance with the contractual terms of the loan agreement, including scheduled interest payments. The amount of a loan’s impairment is measured based on either the present value of expected cash flows, the observable market price of the loan, or the fair value of the collateral securing the loan.
At September 30, 2006, and December 31, 2005, UCB’s investment in loans that were considered impaired was $13.1 million and $24.5 million, respectively. Estimated losses on impaired loans are added to the allowance for loan losses through the provision for loan losses. At September 30, 2006, the allowance for loan losses included $2.9 million for impaired loans with a $7.0 million recorded investment. At December 31, 2005, the allowance included $3.2 million for impaired loans with a recorded investment of $16.3 million.
Management cannot predict the extent to which economic conditions in UCB’s market areas may change or the full impact that such changes may have on UCB’s loan portfolio. Accordingly, there can be no assurances that additional loans will not become 90 days or more past due, be placed on nonaccrual status, or become impaired or restructured loans or OREO in the future.

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Allowances for Credit Losses
Allowance for Loan Losses. The allowance for loan losses represents our estimate of the losses that are inherent in the loan portfolio. UCB continuously monitors the quality of its loan portfolio and maintains an allowance for loan losses sufficient to absorb losses inherent in the portfolio.
UCB’s methodology for assessing the adequacy of the allowance for loan losses includes the evaluation of two distinct components: a general allowance applied to loan portfolio categories as a whole and a specific allowance for loans deemed impaired. Loans that are determined to be impaired are excluded from the general allowance analysis of the loan portfolio and are assessed individually.
In determining the general allowance, UCB applies loss factors, differentiated by an internal credit risk rating system, to its major loan portfolio categories (based primarily on loan type). UCB’s risk rating system is applied at the individual loan level within each of the major loan portfolio categories. The credit quality of the loan portfolio is regularly assessed through ongoing review.
As of June 30, 2006, UCB improved its methodologies for establishing its loss factors. The loss factors are developed from actual historic losses and reflect comparative analysis with peer group loss rates and expected losses, which is in turn based on estimated probabilities of default and loss given default. Additionally, loss factors incorporate qualitative adjustments that reflect an assessment of internal and external influences on credit quality that have not yet been reflected in the historical loss or risk-rating data. These influences may include elements such as portfolio credit quality trends and changes in concentrations, growth, or credit underwriting. UCB’s qualitative adjustments also include an economic surcharge factor to adjust loss factors in recognition of the impact various macro-economic factors have on portfolio performance. The quantitative analysis also resulted in establishing a minimum loss factor for each of the major loan portfolio categories to better reflect minimum inherent loss in all portfolios including those with limited historic loss experience.
UCB regularly assesses the loss factors that are applied to loan portfolio categories, and as part of the assessment concluded during the three months ended September 30, 2006, UCB effected a further refinement in the methodology employed in establishing appropriate loss factors. This refinement focused primarily on the continued development of the expected loss approach and resulted in a revision and lowering of the loss factors applied to criticized and classified loans, which was applicable to all of the major loan portfolio categories.
The second component of the allowance for loan losses, the specific reserve, applies to loans that are deemed impaired. A loan is considered impaired when it is probable that UCB will not be able to collect all amounts due, including interest payments, in accordance with the loan’s contractual terms. Unless the loan is collateral-dependent, loan impairment is measured based on the present value of expected future cash flows that have been discounted at the loan’s effective interest rate. If the loan is collateral-dependent, either the observable market price or the current fair value of the collateral, reduced by estimated disposition costs, is used in place of the discounted cash flow analysis.

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The components of the allowance for loan losses and the allowance for losses related to unfunded commitments for the three and nine months ended September 30, 2006 and 2005, were as follows (dollars in thousands):
                                 
    Three Months Ended September 30,     Nine Months Ended September 30,  
    2006     2005     2006     2005  
Balance at beginning of period:
                               
Allowance for loan losses
  $ 59,035     $ 58,508     $ 64,542     $ 56,472  
Allowance for losses — unfunded commitments
    5,224       4,807       3,402       3,940  
 
                       
 
                               
Total allowance for losses at beginning of year
    64,259       63,315       67,944       60,412  
 
                               
Provision for (recovery of) loan losses
    936       (105 )     2,492       2,860  
 
                               
Charge-offs:
                               
Commercial:
                               
Secured by real estate — nonresidential
    (340 )           (792 )      
Business
    (2,162 )     (72 )     (7,143 )     (209 )
 
                       
 
                               
Total commercial
    (2,502 )     (72 )     (7,935 )     (209 )
 
                       
 
                               
Consumer:
                               
Other
    (5 )     (26 )     (55 )     (26 )
 
                       
 
                               
Total charge-offs
    (2,507 )     (98 )     (7,990 )     (235 )
 
                       
 
                               
Recoveries:
                               
Commercial:
                               
Secured by real estate — nonresidential
                128        
Business
    152       4       252       61  
 
                       
 
                               
Total commercial
    152       4       380       61  
 
                       
 
                               
Consumer:
                               
Residential mortgage (one-to-four family)
          33             33  
Other
    18       1       32       19  
 
                       
 
                               
Total consumer
    18       34       32       52  
 
                       
 
                               
Total recoveries
    170       38       412       113  
 
                       
 
                               
Net charge-offs
    (2,337 )     (60 )     (7,578 )     (122 )
 
                       
 
                               
Total allowance for losses at end of period
  $ 62,858     $ 63,150     $ 62,858     $ 63,150  
 
                       
 
                               
Allowance for loan losses
  $ 56,630     $ 57,501     $ 56,630     $ 57,501  
Allowance for losses — unfunded commitments
    6,228       5,649       6,228       5,649  
 
                       
 
                               
Total allowance for losses at end of period
  $ 62,858     $ 63,150     $ 62,858     $ 63,150  
 
                       
 
                               
Allowance for loan losses to loans held in portfolio
    0.97 %     1.10 %     0.97 %     1.10 %
Net charge-offs to average loans outstanding (1)
    0.15             0.17        
 
(1)   Average loans balance includes loans held for sale.
The decrease in the allowance for loan losses at September 30, 2006, compared to December 31, 2005, primarily reflects the net loan charge-offs of $7.6 million for the nine months ended September 30, 2006. In addition, UCB recognized a $936,000 and $2.5 million provision for loan losses for the three and nine months ended September 30, 2006, respectively. The effect of all general allowance and specific reserve changes during the three months ended September 30, 2006, resulted in a net reduction of $2.4 million in the allowance for loan losses, including a $1.9 million reduction in the allowance for loan losses from changes in loss factors and a $3.3 million increase from loan growth. The allowance for loan losses was also reduced by $2.5 million for gross loan charge-offs and $1.5 million from migration in loan quality and repayments or sale of criticized loans.
The Federal Reserve has consistently raised interest rates during 2005 and through most of the nine months ended September 30, 2006. As interest rates rise, additional pressure may be placed on our borrowers’ abilities to meet their contractual loan obligations, which may result in future increases to the allowance for loan losses and, in turn, higher provisions for loan losses. In addition, it is probable that the allowance for loan losses may increase in future

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quarters if we are successful in implementing our strategies for loan growth and for changing the mix of the commercial loan portfolio to reduce multi-family and commercial real estate loans and increase construction and commercial business loans. These latter two loan types generally contain higher credit risk attributes.
Allowance for Unfunded Commitments. UCB also estimates a reserve related to unfunded commitments and other off-balance sheet credit exposure. In assessing the adequacy of this reserve, UCB uses a similar approach used in the development of the allowance for loan losses. The reserve for unfunded commitments is included in other liabilities on the statement of financial position. Commitments to extend credit at September 30, 2006, and December 31, 2005, were $1.88 billion and $1.30 billion, respectively.
Operational Risk Management
Operational risk is the potential for unexpected losses attributable to human error, systems failures, fraud, or inadequate internal controls and procedures. Successful operational risk management is particularly important to a diversified financial services company like ours because of the nature, volume and complexity of our various businesses.
We classify operational risk into two major categories: business-specific and company-wide affecting all business lines. Management of operational risk requires a different strategy for each category. For business-specific risks, the Operational Risk Management Group works with the divisions to ensure consistency in policies, processes and assessments. With respect to company-wide risks, such as information security, business recovery, legal and compliance, the Operational Risk Management Group assesses the risks, develops a consolidated company view and communicates that view to the business groups.
In addition, to help manage company-wide risks, we have specialized support groups, such as the Legal Department, Information Security, Business Recovery, Corporate Finance, Corporate Compliance, and Technology and Operations. These groups assist the lines of business in the development and implementation of risk management practices specific to the needs of the business groups.
Interest Rate and Market Risk Management
Interest rate risk is the potential for loss resulting from adverse changes in the level of interest rates on UCB’s net interest income. Market risk is the potential for loss arising from adverse changes in the prices of UCB’s financial instruments as a result of changes in interest rates or other factors. As a financial institution that engages in transactions involving an array of financial products, UCB is constantly exposed to both interest rate risk and market risk.
Interest rate risk is one of the most significant risks to which UCB is regularly exposed and is managed centrally in the Corporate Treasury function. It is the primary driver behind our market risk exposure and affects both the values of our financial assets and the interest we earn and pay out. A sudden and substantial change in interest rates could negatively affect our earnings if the rates of interest UCB earns on its loans and investments do not change at the same speed, to the same extent, or on the same basis as the interest rates UCB pays on its deposits and borrowings.
One of UCB’s highest priorities is to actively monitor and manage its exposure to interest rate risk. UCB accomplishes this by first evaluating the interest rate risk and, in turn, market risk that is inherent in the makeup of its assets and liabilities. UCB then determines an appropriate level of risk that it is willing to assume considering its business strategy, current operating environment, capital and liquidity requirements as well as our current performance objectives.
Interest rate risk is managed in a number of ways. UCB actively manages the rates on the various types of loans and deposits that it offers its customers. These offering rates are a primary tool for encouraging or discouraging the production of loans with specific characteristics such as repricing frequency, amortization term and maturity; certificates of deposits with longer or shorter terms; and the mix of deposits. Nevertheless, banking is a competitive

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industry and although we endeavor to influence the types of loans and deposits that we produce, market conditions ultimately govern the outcome of those efforts.
UCB also manages market risk through changing the composition of its assets by selling loans with specific repricing characteristics, adjusting the relative size of its investment securities portfolio, which are predominately fixed-rate, and replenishing the investment securities portfolio with securities of specific durations and final maturities. UCB also changes the composition of its liabilities by choosing borrowings with longer or shorter expected maturities.
UCB monitors its interest rate and market sensitivities through the use of a model, which estimates the change in our net portfolio value (“NPV”) and net interest income in the event of a range of assumed changes in market interest rates. NPV is defined as the current market value of our assets, less the current market value of our liabilities, plus or minus the current value of off-balance-sheet items. As market interest rates decline, the average expected lives of our fixed-rate loans and investment securities shorten due to quicker prepayments, causing a relatively moderate increase in their value. The value of our deposit portfolio exhibits only relatively minor movements in a declining interest rate environment, since they are primarily short term in nature. This results in the value of deposits increasing less quickly than the value of assets increasing. As market interest rates rise, the average expected life of our fixed-rate loans and securities lengthens as prepayments decrease, causing a decline in value. The value of our deposits decreases slowly in a rising rate environment, due to the concentration of time deposits in our deposit base, which have terms of one year or less.
UCB may use certain derivative financial instruments for hedging purposes, such as interest rate swaps, caps and floors as part of our hedging program, to help mitigate our interest rate risk. Such instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount that is presented on our balance sheet. See the “Contractual Obligation and Off-Balance-Sheet Arrangements” section for additional information.
The percentage change in UCB’s NPV and net interest income, assuming an immediate change in interest rates of plus or minus 100 and 200 basis points, at September 30, 2006, has not changed substantially from December 31, 2005. See Part II, “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risk Elements” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2005, for the percentage change and UCB’s NPV and net interest income table.
Liquidity Risk Management
Liquidity Management. Liquidity is managed centrally for both UCBH and UCB. UCBH’s cash requirements consist primarily of debt service, operating expenses, income taxes and dividends to its stockholders. UCBH’s cash needs are routinely met through dividends from UCB, investment income and debt issuances. UCB’s primary source of funding is its deposits.
Operational cash flows, while constituting a potential funding source for the Company, are typically not large enough to provide funding in the amounts that fulfill the needs of UCBH and UCB. As a result, the Company utilizes other sources at its disposal to manage its liquidity needs.
For the nine months ended September 30, 2006, UCBH received no dividends from UCB. At September 30, 2006, $244.9 million of dividend capacity was available for UCB to pay UCBH without obtaining regulatory approval. The dividend capacity is dependent upon the continued profitability of UCB and on no significant changes taking place in the current regulatory environment. While we have no current expectation that these two conditions will change, should a change take place to either in the future, this source of funding to UCBH may become more limited or even unavailable.
As mentioned earlier, UCB’s primary source of funding is its deposits. For the nine months ended September 30, 2006, deposit increases resulted in net cash inflows of $117.1 million. Our liquidity may be adversely affected by unexpected withdrawals of deposits, which would require us to seek alternative funding sources, such as federal funds and other borrowings.

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UCB maintains borrowing lines with numerous correspondent banks and brokers to supplement its supply of lendable funds and to manage liquidity. In addition, the FHLB allows member banks to borrow against their eligible loans to help meet liquidity requirements. These borrowing lines are generally secured with mortgage loans and/or securities with a market value at least equal to outstanding balances. In addition to loans and securities, advances from the FHLB are typically secured by a pledge of FHLB stock that UCB holds. UCB had $726.8 million and $788.0 million of FHLB advances outstanding at September 30, 2006, and December 31, 2005, respectively. At September 30, 2006, UCB had $1.71 billion of additional FHLB borrowings available for future borrowing capacity. The Company also has a $20.0 million unsecured borrowing line with Wells Fargo Bank. As of September 30, 2006, no advances had been drawn against this line.
At September 30, 2006, the Company had no short-term, fixed-rate advances that mature within one year. The $726.8 million in long-term advances mature between November 14, 2006 and September 21, 2016. As of September 30, 2006, $566.5 million of these advances may be terminated at the option of the FHLB. For the nine months ended September 30, 2006, the activity in short-term FHLB borrowings resulted in a net cash outflow of $87.0 million, while activity in long-term borrowings resulted in net cash inflows of $25.8 million. Borrowings from the FHLB may increase in the future depending on availability of funds from other sources. However, UCB must maintain its FHLB membership to continue to access this source of funding. In addition, the FHLB may terminate the advances at quarterly intervals at specified periods ranging from three to five years beyond the original advance dates. In the event the FHLB decides to exercise this option, UCB would need to repay the advances using other funding sources.
UCB periodically sells loans that it has originated, which sales may provide an alternative source of funding. During the nine months ended September 30, 2006, loan sales provided $698.8 million in cash inflows. We expect that loan sales will continue to be a tool that we use for liquidity management purposes, as well as to manage our geographical loan concentrations.
While not considered a primary source of funding, the Company’s investment activities can also provide or use cash, depending on the investment strategy being used for the portfolio. During the nine months ended September 30, 2006, investment securities activities resulted in an increase in investment holdings and a net cash outflow of $4.3 million. Our current strategy is to continue reducing our investment portfolio, which will result in continued cash inflows.
Maturing balances in the various loan portfolios also provide additional flexibility in managing cash flows. In most situations, however, loan growth has resulted in cash outflows from a funding standpoint. For the nine months ended September 30, 2006, loan growth resulted in a net cash outflow of $2.74 billion. With the loan growth that we have experienced over the past year, we expect that our lending operations will continue to be a user of funds rather than a source.

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CAPITAL MANAGEMENT
The Company’s Board of Directors is ultimately responsible for approving the policies associated with capital management. The primary goal of our capital management program is to maintain UCB (on a consolidated basis) and the Company at the “well capitalized” level as defined by the federal banking regulators. As of September 30, 2006, both UCB and the Company exceeded the minimum risk-based capital ratios to be considered well capitalized.
Total stockholders’ equity at September 30, 2006, was $675.3 million, an increase of 11.9% over the $603.5 million at December 31, 2005. The Company’s and UCB’s risk-based capital ratios at September 30, 2006, and December 31, 2005, were as follows:
                 
    September 30,   December 31,
    2006   2005
United Commercial Bank:
               
Tier 1 leverage
    8.70 %     8.26 %
Tier 1 risk-based capital
    10.56       9.91  
Total risk-based capital
    11.50       10.98  
 
               
UCBH Holdings, Inc. and subsidiaries:
               
Tier 1 leverage
    8.88 %     8.56 %
Tier 1 risk-based capital
    10.78       10.26  
Total risk-based capital
    11.71       11.33  
UCBH has continuously paid quarterly dividends on its common stock since 2000. For the nine months ended September 30, 2006, dividends paid by UCBH totaled $8.0 million. Dividends declared on January 26, 2006, had the effect of reducing the Company’s Tier 1 leverage ratio by 10 basis points and the total risk-based capital ratio by 13 basis points.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk
For quantitative and qualitative disclosures regarding market risks in our portfolio, see the discussion under “Market Risk Management” included in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Quarterly Report on Form 10-Q.
Item 4. Controls and Procedures
Background of the Restatement
The Company has restated the Consolidated Statement of Cash Flows for the nine months ended September 30, 2005. The restatement does not affect the Company’s Consolidated Statement of Income, Consolidated Balance Sheet or Consolidated Statement of Changes in Stockholders’ Equity and Comprehensive Income as of and for the nine months ended September 30, 2005. Accordingly, the Company’s historical revenues, net income, earnings per share, total assets and regulatory capital remain unchanged.
The restatement resulted solely from the misclassification of cash flows between operating activities and investing activities arising from loans that were originated as held in portfolio and subsequently transferred to held for sale and loans that were originated for sale and subsequently transferred to held in portfolio. In particular, proceeds from sales and repayments related to certain loans, which were initially classified as held in portfolio and subsequently transferred to held for sale, were classified as operating cash flows instead of investing cash flows in accordance with Statement of Financial Accounting Standards No. 102, Statement of Cash Flows-Exemption of Certain Enterprises and Classification of Cash Flows from Certain Securities Acquired for Resale. Accordingly, the restatement will only affect the classification of these activities and the subtotals of cash flows from operating and investing activities presented in the Consolidated Statement of Cash Flows for the nine months ended September 30, 2005, and it will have no impact on the net increase (decrease) in total cash and cash equivalents set forth in such Consolidated Statement of Cash Flows.
Disclosure Controls and Procedures
As of the end of the period covered by this report, UCBH Holdings, Inc. (“UCBH”; UCBH, United Commercial Bank and United Commercial Bank’s wholly owned subsidiaries, collectively referred to as the “Company”) carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in rule 13a-15(e) under the Securities and Exchange Act of 1934) as amended.
In light of the restatement described above, the Company’s Chief Executive Officer and the Chief Financial Officer have reevaluated the Company’s disclosure controls and procedures and concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2006.
Changes in Internal Control Over Financial Reporting
There have been no changes in the Company’s internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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Table of Contents

PART II — OTHER INFORMATION
Item 1. Legal Proceedings
UCBH Holdings, Inc.’s wholly owned subsidiary, United Commercial Bank, has been a party to litigation incidental to various aspects of its operations in the ordinary course of business. Management is not currently aware of any litigation that will have a material adverse impact on UCBH Holdings, Inc. and subsidiaries consolidated financial condition or results of operations.
Item 1A. Risk Factors
In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2005, which could materially affect our business, financial condition and/or future operating results.
As of September 30, 2006, there have been no material changes to the risk factors presented in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2005. However, the risks described therein are not necessarily the only risks facing the Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also have a material adverse affect on our business, financial condition and/or future operating results.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On May 23, 2005, UCBH Holdings, Inc. (“UCBH”) entered into an Agreement and Plan of Merger with Pacifica Bancorp, Inc. (“Pacifica”), the holding company of Pacifica Bank, a Washington state-chartered bank. As part of the consideration for the purchase of all outstanding stock of Pacifica, UCBH issued 1,241,194 shares of common stock to Pacifica shareholders pursuant to the terms and conditions of the merger agreement. The California Commissioner of Corporations approved the fairness of the terms and conditions of the offer and sale of these securities. Upon completion of the merger on October 31, 2005, UCBH issued these securities in a transaction exempt from registration requirements under Section 3(a)(10) of the Securities Act of 1933, as amended (the “Securities Act”).
On August 2, 2005, UCBH entered into an Agreement and Plan of Merger with Asian American Bank & Trust Company (“AABT”), a Massachusetts state-chartered banking corporation. As part of the consideration for the purchase of all outstanding stock of AABT, UCBH issued 878,246 shares of common stock to AABT shareholders pursuant to the terms and conditions of the merger agreement. The California Commissioner of Corporations approved the fairness of the terms and conditions of the offer and sale of these securities. Upon completion of the merger on November 28, 2005, UCBH issued these securities in a transaction exempt from registration requirements under Section 3(a)(10) of the Securities Act.
On September 18, 2006, UCBH entered into an Agreement and Plan of Merger with Summit Bank Corporation (“Summit”), the holding company of The Summit National Bank, a national banking association in Georgia. As part of the consideration for the purchase of all outstanding stock of Summit, UCBH will issue up to 4,879,123 shares of common stock to Summit shareholders pursuant to the terms and conditions of the merger agreement The California Commissioner of Corporations has approved the fairness of the terms and conditions of the proposed offer and sale of these securities. Upon completion of the merger, which is subject to certain closing conditions, UCBH will issue these securities in a transaction exempt from registration requirements under Section 3(a)(10) of the Securities Act.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.

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Table of Contents

Item 6. Exhibits
Index to Exhibits
                                 
Exhibit       Incorporated by Reference   Filed
Number   Exhibit Description   Form   File No.   Exhibit   Filing Date   Herewith
 
2.1
  Agreement and Plan of Merger by and among UCBH Holdings, Inc. (“Buyer”), UCBH Merger Sub, Inc., a wholly owned subsidiary of Buyer, and Pacifica Bancorp, Inc. dated May 23, 2005   10-Q   000-24947     2.1     August 9, 2005        
 
                               
2.2
  Agreement and Plan of Merger by and among UCBH Holdings, Inc. (“Buyer”), United Commercial Bank, a wholly owned subsidiary of Buyer, and Asian American Bank & Trust Company dated August 2, 2005   10-Q   000-24947     2.2     November 9, 2005        
 
                               
2.3
  Agreement and Plan of Merger by and among UCBH Holdings, Inc. (“Buyer”), United Commercial Bank, a wholly owned subsidiary of Buyer, and Great Eastern Bank dated October 13, 2005   S-4   000-24947     2.1     December 12, 2005        
 
                               
2.4
  Agreement and Plan of Merger by and among UCBH Holdings, Inc. (“Buyer”), UCB Merger, LLC, a wholly owned subsidiary of Buyer, and Summit Bank Corporation dated September 18, 2006                       ü
 
                               
3.1
  Second Amended and Restated Certificate of Incorporation of UCBH Holdings, Inc.   10-Q   000-24947     3.1     May 10, 2004        
 
                               
3.2
  Amended and Restated Bylaws of UCBH Holdings, Inc., as amended and restated   10-Q   000-24947     3.2     May 10, 2004        
 
                               
3.3
  Certificate of Designation, Preferences and Rights of Series A Participating Preferred Stock (filed as Exhibit A to Exhibit 4.7 hereto)   8-K   000-24947     1     January 29, 2003        
 
                               
4.0
  Form of Stock Certificate of UCBH Holdings, Inc.   S-1   333-58325     4.0     July 1, 1998        
 
                               
4.1
  Indenture of UCBH Holdings, Inc., dated April 17, 1998, between UCBH Holdings, Inc. and Wilmington Trust Company, as trustee   S-4   333-58335     4.1     July 1, 1998        
 
                               
4.2
  Form of Certificate of Series B Junior Subordinated Debenture   S-4   333-58335     4.2     July 1, 1998        
 
                               
4.3
  Certificate of Trust of UCBH Trust Co.   S-4   333-58335     4.3     July 1, 1998        
 
                               
4.4
  Amended and Restated Declaration of Trust of UCBH Trust Co.   S-4   333-58335     4.4     July 1, 1998        
 
                               
4.5
  Form of Series B Capital Security Certificate for UCBH Trust Co.   S-4   333-58335     4.5     July 1, 1998        

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Table of Contents

Index to Exhibits
                                 
Exhibit       Incorporated by Reference   Filed
Number   Exhibit Description   Form   File No.   Exhibit   Filing Date   Herewith
 
4.6
  Form of Series B Guarantee of the Company relating to the Series B Capital Securities   S-4   333-58335     4.6     July 1, 1998        
 
                               
4.7
  Rights Agreement dated as of January 28, 2003   8-K   000-24947     1     January 29, 2003        
 
                               
4.8
  Indenture of UCBH Holdings, Inc., dated September 22, 2005, between UCBH Holdings, Inc. and Wilmington Trust Company, as trustee   10-Q   000-24947     2.2     November 9, 2005        
 
                               
10.1
  Employment Agreement between UCBH Holdings, Inc., United Commercial Bank and Thomas S. Wu   10-Q   000-24947     10.1     November 9, 2004        
 
                               
10.2
  Form of Change in Control Agreement among UCBH Holdings, Inc., United Commercial Bank and Jonathan H. Downing   8-K   000-24947     10.2     June 13, 2005        
 
                               
10.3
  Form of Change in Control Agreement among UCBH Holdings, Inc., United Commercial Bank and Sylvia Loh as well as certain other Executive Vice Presidents of UCBH Holdings, Inc. or United Commercial Bank   10-Q   000-24947     10.3     November 9, 2004        
 
                               
10.4
  Form of Change in Control Agreement among UCBH Holdings, Inc., United Commercial Bank and Ka Wah (Tony) Tsui as well as certain other Senior Vice Presidents of UCBH Holdings, Inc. or United Commercial Bank   10-Q   000-24947     10.4     November 9, 2004        
 
                               
10.5
  Form of Change in Control Agreement among UCBH Holdings, Inc., United Commercial Bank and Daniel Gautsch   8-K   000-24947     10.1     June 8, 2005        
 
                               
10.6
  Form of Change in Control Agreement among UCBH Holdings, Inc., United Commercial Bank and Dennis Wu   8-K   000-24947     10.1     June 13, 2005        
 
                               
10.7
  Form of Change in Control Agreement among UCBH Holdings, Inc., United Commercial Bank and certain Senior Vice Presidents of UCBH Holdings, Inc. or United Commercial Bank   10-Q   000-24947     10.1     April 27, 2006        
 
                               
10.8
  UCBH Holdings, Inc. 2006 Equity Incentive Plan, (formerly known as UCBH Holdings, Inc. 1998 Stock Option Plan)   10-Q   000-24947     10.8     August 9, 2006        
 
                               
10.9
  UCBH Holdings, Inc. Senior Executive Annual Incentive Plan   10-Q   000-24947     10.9     August 9, 2006        

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Table of Contents

Index to Exhibits
                                 
Exhibit       Incorporated by Reference   Filed
Number   Exhibit Description   Form   File No.   Exhibit   Filing Date   Herewith
 
10.10
  Executive Deferred Compensation Plan,
as amended
  8-K   000-24947     10.1     December 20, 2005        
 
                               
10.11
  Director Deferred Compensation Plan   10-K   000-24947     10.7     March 17, 2005        
 
                               
10.12
  Form of Indemnification Agreement of UCBH Holdings, Inc.   8-K   000-24947     10.1     May 18, 2006        
 
                               
10.13
  Form of Indemnification Agreement of United Commercial Bank.   8-K   000-24947     10.2     May 18, 2006        
 
                               
14.1
  Code of Conduct, as amended on August 14, 2004.   8-K   000-24947     14.1     September 1, 2004        
 
                               
21.0
  Subsidiaries of UCBH Holdings, Inc.   10-K   000-24947     21.0     March 16, 2006        
 
                               
31.1
  Certificate pursuant to Rule 13a-14(a) of the Securities Exchange Act, as amended, signed and dated by Thomas S. Wu.                       ü
 
                               
31.2
  Certificate pursuant to Rule 13a-14(a) of the Securities Exchange Act, as amended, signed and dated by Dennis Wu.                       ü
 
                               
32.0
  Certificate pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, signed and dated by Thomas S. Wu and Dennis Wu.                         (1 )
 
(1)   Furnished herewith

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Table of Contents

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.
         
 
  UCBH HOLDINGS, INC.    
 
       
Date: November 14, 2006
  /s/ Thomas S. Wu    
 
 
 
Thomas S. Wu
   
 
  Chairman, President and    
 
  Chief Executive Officer    
 
  (Principal Executive Officer)    
 
       
Date: November 14, 2006
  /s/ Dennis Wu    
 
 
 
Dennis Wu
   
 
  Director, Executive Vice President and    
 
  Chief Financial Officer    
 
  (Principal Financial and Accounting Officer)    

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