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UCBH Holdings 10-Q 2007
e10vq
 

 
 
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 March 31, 2007.
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 April 30, 2007, the Registrant had 99,903,138 shares of common stock, par value $0.01 per share, outstanding.
 
 

 


 

UCBH HOLDINGS, INC. AND SUBSIDIARIES
Table of Contents
         
    Page  
PART I
       
Item 1 Financial Statements
    1  
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations
    16  
Item 3 Quantitative and Qualitative Disclosures About Market Risk
    39  
Item 4 Controls and Procedures
    39  
 
       
PART II
       
Item 1 Legal Proceedings
    40  
Item 1A Risk Factors
    40  
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
    40  
Item 3 Defaults Upon Senior Securities
    40  
Item 4 Submission of Matters to a Vote of Security Holders
    40  
Item 5 Other Information
    40  
Item 6 Exhibits
    41  
 
       
SIGNATURES
    44  

 


 

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)
                 
    March 31,     December 31,  
    2007     2006  
ASSETS
               
Noninterest bearing cash
  $ 90,769     $ 112,343  
Interest bearing cash
    143,863       92,049  
Federal funds sold
    208,091       150,027  
 
           
 
Cash and cash equivalents
    442,723       354,419  
 
           
Securities purchased under agreements to resell
    150,000       175,000  
Investment and mortgage-backed securities available for sale, at fair value
    1,791,076       2,149,456  
Investment and mortgage-backed securities held to maturity, at cost (fair value of $292,877 and $295,446 at March 31, 2007, and December 31, 2006, respectively)
    288,451       290,673  
Federal Home Loan Bank stock, Federal Reserve Bank stock and other equity investments
    111,248       110,775  
Loans held for sale, net of valuation allowance
    115,548       142,861  
Loans held in portfolio
    6,942,843       6,635,660  
Allowance for loan losses
    (62,804 )     (62,015 )
 
           
 
Loans held in portfolio, net
    6,880,039       6,573,645  
 
           
Accrued interest receivable
    53,088       50,803  
Premises and equipment, net
    112,877       115,610  
Goodwill
    228,555       226,780  
Core deposit intangibles, net
    19,516       28,325  
Mortgage servicing rights, net
    12,946       13,273  
Other assets
    100,316       114,794  
 
           
 
Total assets
  $ 10,306,383     $ 10,346,414  
 
           
 
               
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
Noninterest bearing deposits
  $ 746,407     $ 767,714  
Interest bearing deposits
    6,552,761       6,435,131  
 
           
 
               
Total deposits
    7,299,168       7,202,845  
 
           
 
               
Securities sold under agreements to repurchase
    300,000       401,600  
Short-term borrowings
    441,879       654,636  
Subordinated debentures
    240,549       240,549  
Accrued interest payable
    21,241       21,018  
Long-term borrowings
    1,079,747       906,651  
Other liabilities
    102,298       133,044  
 
           
 
Total liabilities
    9,484,882       9,560,343  
 
           
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 March 31, 2007, and December 31, 2006; 99,900,138 and 99,448,181 shares issued and outstanding at March 31, 2007, and December 31, 2006, respectively
    999       994  
Additional paid-in capital
    348,932       341,616  
Retained earnings
    488,650       464,616  
Accumulated other comprehensive loss
    (17,080 )     (21,155 )
 
           
 
Total stockholders’ equity
    821,501       786,071  
 
           
 
Total liabilities and stockholders’ equity
  $ 10,306,383     $ 10,346,414  
 
           
See accompanying notes to consolidated financial statements.

-1-


 

UCBH HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations

(Dollars in Thousands, Except Per Share Amounts)
(Unaudited)
                 
    Three Months Ended March 31,  
    2007     2006  
Interest and dividend income:
               
Loans
  $ 131,651     $ 105,538  
Investment and mortgage-backed securities:
               
Taxable
    23,514       13,757  
Tax exempt
    3,306       2,692  
FHLB Stock
    922       450  
Federal funds sold and deposits with banks
    2,289       1,015  
Securities purchased under agreements to resell
    2,264        
 
           
 
               
Total interest and dividend income
    163,946       123,452  
 
           
 
               
Interest expense:
               
Deposits
    65,994       44,396  
Securities sold under agreements to repurchase
    3,261       29  
Short-term borrowings and federal funds purchased
    5,192       3,445  
Subordinated debentures
    4,553       2,715  
Long-term borrowings
    11,116       7,287  
 
           
 
               
Total interest expense
    90,116       57,872  
 
           
 
               
Net interest income
    73,830       65,580  
Provision for loan losses
    1,048       307  
 
           
 
               
Net interest income after provision for loan losses
    72,782       65,273  
 
           
 
               
Noninterest income:
               
Commercial banking fees
    4,745       4,095  
Service charges on deposits
    1,529       740  
Gain (loss) on sale of securities, net
    3,076       (2 )
Gain on sale of SBA loans, net
    765       581  
Gain on sale of multifamily and commercial real estate loans, net
    1,394       3,911  
Lower of cost or market adjustment on loans held for sale
    (14 )     (97 )
Equity loss in other equity investments
    (473 )     (458 )
Acquisition termination fee
          5,000  
Other fees
    1,423       307  
 
           
 
               
Total noninterest income
    12,445       14,077  
 
           
 
               
Noninterest expense:
               
Personnel
    24,264       25,734  
Occupancy
    4,848       3,699  
Data processing
    2,280       1,969  
Furniture and equipment
    2,166       1,660  
Professional fees and contracted services
    2,329       3,385  
Deposit insurance
    292       211  
Communication
    701       599  
Core deposit intangible amortization
    1,008       555  
Other general and administrative
    6,007       4,936  
 
           
 
               
Total noninterest expense
    43,895       42,748  
 
           
 
               
Income before income tax expense
    41,332       36,602  
Income tax expense
    14,301       13,183  
 
           
 
               
Net income
  $ 27,031     $ 23,419  
 
           
 
               
Earnings per share:
               
Basic
  $ 0.27     $ 0.25  
Diluted
  $ 0.26     $ 0.24  
Dividends declared per share
  $ 0.03     $ 0.03  
See accompanying notes to consolidated financial statements.

-2-


 

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)
                                                         
                                    Accumulated              
                    Additional             Other     Total        
    Common Stock     Paid-In     Retained     Comprehensive     Stockholders’     Comprehensive  
    Shares     Amount     Capital     Earnings     Loss (1)     Equity     Income  
Balance at December 31, 2005
    94,037,878     $ 940     $ 247,340     $ 375,220     $ (19,986 )   $ 603,514          
 
                                                       
Net income
                      23,419             23,419     $ 23,419  
Other comprehensive income, net of tax benefit of $5,320
                            (7,353 )     (7,353 )     (7,353 )
 
                                                     
Comprehensive income
                                      $ 16,066  
 
                                                     
Stock options exercised, including related tax benefit
    199,809       2       1,862                   1,864          
Stock compensation charge
                308                   308          
Cash dividend of $0.030 per share
                      (2,826 )           (2,826 )        
 
                                           
 
                                                       
Balance at March 31, 2006
    94,237,687     $ 942     $ 249,510     $ 395,813     $ (27,339 )   $ 618,926          
 
                                           
 
                                                       
Balance at December 31, 2006
    99,448,181     $ 994     $ 341,616     $ 464,616     $ (21,155 )   $ 786,071          
 
                                                       
Net income
                      27,031             27,031     $ 27,031  
Other comprehensive income, net of tax $2,793
                            4,075       4,075       4,075  
 
                                                     
Comprehensive income
                                      $ 31,106  
 
                                                     
Stock options exercised, including related tax benefit
    451,957       5       6,546                   6,551          
Stock compensation charge
                  770                   770          
Cash dividend of $0.030 per share
                      (2,997 )           (2,997 )        
 
                                           
 
                                                       
Balance at March 31, 2007
    99,900,138     $ 999     $ 348,932     $ 488,650     $ (17,080 )   $ 821,501          
 
                                           
 
(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.

-3-


 

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

(Dollars in Thousands)
(Unaudited)
                 
    Three Months Ended March 31,  
    2007     2006  
Cash flows from operating activities:
               
Net income
  $ 27,031     $ 23,419  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Provision for loan losses
    1,048       307  
Amortization of net deferred loan fees
    (2,701 )     (1,767 )
Amortization of net securities premiums and discounts
    (611 )     (28 )
Federal Home Loan Bank stock dividend
    (700 )     (447 )
Amortization of intangibles
    1,921       1,196  
Depreciation and amortization of premises and equipment
    2,628       2,307  
Gain on sale of loans originated in held in portfolio, securities, and other assets, net
    (2,620 )     (3,979 )
Lower of cost or market adjustment on loans held for sale
    6       97  
Equity loss in other equity investments
    523       458  
Stock compensation expense, net of tax benefit related to nonqualified stock option grants
    650       270  
Excess tax benefit from stock option exercises
    (1,233 )      
Loss on extinguishment of secured borrowings
          5  
Other, net
    104       326  
Changes in operating assets and liabilities:
               
Decrease (increase) in loans originated in held for sale
    9,965       (8,038 )
Increase in accrued interest receivable
    (2,285 )     (2,173 )
Decrease (increase) in other assets
    15,193       (976 )
Increase (decrease) in accrued interest payable
    223       (247 )
Decrease in other liabilities
    (30,798 )     (8,652 )
 
           
 
               
Net cash provided by operating activities
    18,344       2,078  
 
           
 
               
Cash flows from investing activities:
               
Payment of acquisition related expenditures
            (460 )
Purchase of securities purchased under agreements to resell
    (150,000 )      
Proceeds from maturity of securities purchased under agreements to resell
    175,000        
Investment and mortgage-backed securities, available for sale:
               
Principal payments and maturities
    577,155       27,756  
Purchases
    (1,331,188 )     (9,894 )
Sales
    1,056,161       7,231  
Called
    64,963        
Investment and mortgage-backed securities, held to maturity:
               
Principal payments and maturities
    2,225       3,662  
Proceeds from redemption of Federal Home Loan Bank stock
    1,908        
Purchase of Federal Home Loan Bank stock
    (1,651 )     (9,587 )
Proceeds from redemption of Federal Reserve Bank Stock
    1,267        
Funding of other equity investments
    (232 )     (505 )
Proceeds from the sale of loans originated in held in portfolio
    88,550       185,288  
Loans originated in held in portfolio funded and purchased, net of principal collections
    (371,401 )     (247,246 )
Purchases of premises and other equipment
    (1,421 )     (1,873 )
Other investing activities, net
    16       122  
 
           
 
               
Net cash provided by (used in) investing activities
    111,352        (45,506 )
 
           
 
               
Cash flows from financing activities:
               
Net increase (decrease) in demand deposits, NOW, money market and savings accounts
    72,543       (22,949 )
Net increase in time deposits
    23,780       35,281  
Net decrease in short-term borrowings
    (212,757 )     (39,197 )
Proceeds from securities sold under agreements to repurchase
            50,000  
Payments of securities sold under agreements to repurchase
    (101,600 )      
Proceeds from long-term borrowings
    201,362       1,267  
Principal payments of long-term borrowings
    (28,288 )     (2,291 )
Proceeds from stock option exercises
    5,318       1,465  
Excess tax benefit from stock option exercises
    1,233          
Payment of cash dividend on common stock
    (2,983 )     (2,351 )
 
           
 
               
Net cash (used in) provided by financing activities
    (41,392 )     21,225  
 
           
 
               
Net increase (decrease) in cash and cash equivalents
    88,304       (22,203 )
Cash and cash equivalents at beginning of period
    354,419       203,065  
 
           
 
               
Cash and cash equivalents at end of period
  $ 442,723     $ 180,862  
 
           
See accompanying notes to consolidated financial statements.

-4-


 

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 ten 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, 2006.
 
    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, 2006, 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 months ended March 31, 2007, 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 months ended March 31, 2007, include the results of operations of Summit Bank Corporation, which was acquired on December 29, 2006.
 
    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 March 31, 2007, presentation.
 
    Allowance for Loan Losses
 
    The allowance for loan losses represents our estimate of the losses that are inherent in the loans held in portfolio. Similarly, loans held for sale are excluded from any of the information included in Note 8, “Loans Held in Portfolio and Allowance for Loan Losses”. UCB continuously monitors the quality of its loan portfolio and maintains an allowance for loan losses sufficient to absorb losses inherent in the portfolio.
 
    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). The loss factors are developed from

-5-


 

UCBH HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements-Continued
(Unaudited)
    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 also estimates a reserve related to unfunded commitments and other off-balance sheet credit exposure. In assessing the adequacy of this reserve, UCB uses an approach similar to the 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.
 
2.   Recent Accounting Pronouncements
 
    Fair Value Option for Financial Assets and Financial Liabilities
 
    In February 2007, the Financial Accounting Standards Board (the “FASB”) issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities — Including an Amendment of FASB Statement No. 115. SFAS No. 159 provides entities with an option to report selected financial assets and liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. Early adoption, effective January 1, 2007, is permitted as long as companies adopt SFAS No. 157 concurrently with SFAS No. 159. The Company will adopt SFAS No. 159 effective January 1, 2008. In connection therewith, the Company is in the process of evaluating the impact that adopting SFAS No. 159 will have on its financial position and results of operations.
 
    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 will adopt SFAS. No 157 effective January 1, 2008. In connection therewith, the Company is in the process of evaluating the impact that adopting SFAS No. 157 will have on its financial position and results of operations.
 
    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

-6-


 

UCBH HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements-Continued
(Unaudited)
    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 adopted the provisions of FIN 48 effective January 1, 2007. The impact of adopting FIN 48 resulted in a cumulative effect adjustment with a $2.6 million decrease in goodwill, and an offsetting decrease in current taxes payable. There were no cumulative effect adjustments to the Company’s opening retained earnings as of January 1, 2007. The Company accrued $393,000 in interest expense and no liability for penalties as of March 31, 2007. Additionally, in connection with the adoption of FIN 48, the Company will continue to classify interest and penalties related to unrecognized tax positions as components of interest expense.
 
    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. In accordance with SFAS No. 156, the Company will initially measure mortgage servicing rights at fair value and will continue to subsequently amortize its mortgage servicing rights based on estimated future net servicing income, with quarterly assessments for impairment. The Company adopted the provisions of SFAS No. 156 effective January 1, 2007. The adoption did not have a material impact on the Company’s financial position or results of operations.
 
    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 adoption of SFAS No. 155 did not have a material impact on the Company’s financial position or results of operations.
 
3.   Business Combinations
 
    CAB Holding, LLC
 
    On January 10, 2007, UCBH and CAB Holding, LLC (“CAB”), a Delaware limited liability company registered under the Bank Holding Company Act of 1956, as amended, and the holding company of The Chinese American Bank, entered into an Agreement and Plan of Merger. The value of the transaction is approximately $130.7 million, which is comprised of $65.1 million in cash and the issuance of 3,711,580 shares of UCBH common stock valued at $65.6 million (based on the average closing price for UCBH’s common stock around the announcement date of January 11, 2007). CAB may terminate the transaction for various reasons prior to the consummation of the merger,

-7-


 

UCBH HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements-Continued
(Unaudited)
    including but not limited to a substantial decline in the Average Closing Price (as defined in the agreement), unless UCBH agrees to a corresponding increase in the number of UCBH shares. Similarly, UCBH may terminate the transaction for various reasons prior to the consummation of the merger, including but not limited to a substantial increase in the Average Closing Price, unless CAB agrees to a corresponding reduction in the number of UCBH shares. If either CAB or UCBH terminates the transaction upon certain conditions, such party shall pay a break-up fee to the other. This acquisition increased the Company’s presence in the New York metropolitan area. The transaction, which is subject to regulatory approval, is anticipated to close in the second quarter of 2007. CAB had total assets of $333.0 million and total deposits of $281.7 million as of December 31, 2006.
 
    Business Development Bank Ltd.
 
    On March 26, 2007, UCB entered into two agreements to purchase the Business Development Bank Ltd. (“BDB”), a wholly foreign owned enterprise established and existing under the laws of the People’s Republic of China, for a total consideration of $205.0 million in cash. The parties to the agreements may terminate the transaction for various reasons prior to the consummation of the acquisition. This acquisition will provide the Company with bank branches in Shanghai and Shantou, China and representative offices in Beijing and Guangzhou, China, which will in turn accelerate the implementation of the Company’s Greater China expansion strategy. The transaction is subject to both U.S. regulatory and China Banking Regulatory Commission approvals, and is anticipated to close in the fourth quarter of 2007. BDB had total assets of $217.2 million, total loans of $188.0 million and total deposits of $25.5 million as of December 31, 2006.
 
4.   Cash and Due from Banks
 
    UCB is required to maintain cash reserves in a noninterest-bearing account at the FRB of San Francisco. Through the FRB, the cash in this account in excess of UCB’s reserve requirement (“Federal Funds”) is available for overnight and one day period sales to other institutions with accounts at the FRB. UCB received interest on these sales at the prevailing federal funds rate. At March 31, 2007, and December 31, 2006, the reserve requirement was $8.4 million and $7.6 million, respectively.
 
5.   Securities Purchased Under Agreements to Resell
 
    Information regarding outstanding securities purchased under agreements to resell (the “Resell Agreements”) as of and for the three months ended March 31, 2007, and as of and for the year ended December 31, 2006, were as follows (dollars in thousands):
                 
    March 31,   December 31,
    2007   2006
Average balance outstanding
  $ 125,278     $ 62,740  
Maximum amount outstanding at any month end period
    175,000       175,000  
Balance outstanding at end of period
    150,000       175,000  
Weighted average interest rate during the period
    7.23 %     7.41 %
Weighted average interest rate at end of period
    6.45 %     7.37 %
Weighted average remaining term to maturity at end of period (in years)
    9.9       9.6  
     In first quarter of 2007, two Resell Agreements were terminated for $175.0 million. In addition, in March 2007, UCB entered into two Repurchase Agreements for $150 million.

-8-


 

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, along with the portions of the portfolio with unrealized loss positions at March 31, 2007, were as follows (dollars in thousands):
                                                                                 
            Gross     Gross             Less Than 12 Months     12 Months or More     Total  
    Amortized     Unrealized     Unrealized     Market     Fair     Unrealized     Fair     Unrealized     Fair     Unrealized  
Description   Cost     Gains     Losses     Value     Value     Losses     Value     Losses     Value     Losses  
Investment securities available for sale:
                                                                               
Collateralized debt obligations
  $ 38,445     $     $ (410 )   $ 38,035     $ 29,731     $ (214 )   $ 8,304     $ (196 )   $ 38,035     $ (410 )
U.S. Government sponsored enterprises notes
    583,766       146       (3,809 )     580,103       437,501       (544 )     118,614       (3,265 )     556,115       (3,809 )
U.S. Government sponsored enterprises discount notes
    161,865       17             161,882                                      
Municipals
    52,179       119       (213 )     52,085       31,678       (213 )                 31,678       (213 )
Other
    10,000             (175 )     9,825       9,825       (175 )                 9,825       (175 )
 
                                                           
 
                                                                               
Total investment securities available for sale
    846,255       282       (4,607 )     841,930       508,735       (1,146 )     126,918       (3,461 )     635,653       (4,607 )
 
                                                           
 
                                                                               
Mortgage-backed securities available for sale:
                                                                               
FNMA
    422,447       8       (11,267 )     411,188       133,484       (2,512 )     277,058       (8,755 )     410,542       (11,267 )
GNMA
    81,233       6       (2,656 )     78,583                   78,098       (2,656 )     78,098       (2,656 )
FHLMC
    263,171             (8,215 )     254,956       4,844       (3 )     250,107       (8,212 )     254,951       (8,215 )
Other
    207,591       264       (3,436 )     204,419       24,899       (71 )     166,347       (3,365 )     191,246       (3,436 )
 
                                                           
 
                                                                               
Total mortgage-backed securities available for sale
    974,442       278       (25,574 )     949,146       163,227       (2,586 )     771,610       (22,988 )     934,837       (25,574 )
 
                                                           
 
                                                                               
Total investment and mortgage-backed securities available for sale
    1,820,697       560       (30,181 )     1,791,076       671,962       (3,732 )     898,528       (26,449 )     1,570,490       (30,181 )
 
                                                           
 
                                                                               
Investment securities held to maturity:
                                                                               
Municipal securities
    222,662       6,276       (32 )     228,906       3,662       (26 )     416       (6 )     4,078       (32 )
 
                                                           
 
                                                                               
Mortgage-backed securities held to maturity:
                                                                               
FNMA
    4,326             (158 )     4,168                   4,168       (159 )     4,168       (159 )
GNMA
    60,925             (1,641 )     59,284                   59,284       (1,641 )     59,284       (1,641 )
FHLMC
    538             (19 )     519                   519       (19 )     519       (19 )
 
                                                           
 
                                                                               
Total mortgage-backed securities held to maturity
    65,789             (1,818 )     63,971                   63,971       (1,819 )     63,971       (1,819 )
 
                                                           
 
                                                                               
Total investment and mortgage-backed securities held to maturity
    288,451       6,276       (1,850 )     292,877       3,662       (26 )     64,387       (1,825 )     68,049       (1,851 )
 
                                                           
Total securities
  $ 2,109,148     $ 6,836     $ (32,031 )   $ 2,083,953     $ 675,624     $ (3,758 )   $ 962,915     $ (28,274 )   $ 1,638,539     $ (32,032 )
 
                                                           

As of March 31, 2007, the net unrealized loss on securities was $25.2 million. The net unrealized loss on securities that are available for sale was $29.6 million. Net of a tax benefit of $12.6 million, the unrealized $17.1 million loss is included in other comprehensive loss as a reduction to stockholders’ equity. The $4.4 million net unrealized 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 months ended March 31, 2007. Additionally, certain securities that UCB holds have unrealized losses that extend for periods in excess of twelve months. These securities are comprised primarily of U.S. Government sponsored enterprise notes, mortgage-backed securities and municipal securities. Mortgage-backed securities consist primarily of securities guaranteed by FNMA, GMNA and FHLMC, as well as certain collateralized mortgage obligations. These securities are collateralized by residential mortgage loans and may be prepaid at par prior to maturity. The unrealized losses on our mortgage-backed securities resulted from rising interest rates subsequent to purchase. The unrealized losses will decline as interest rates fall to the purchase yield and as the securities approach contractual or expected maturity.

-9-


 

UCBH HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements-Continued
(Unaudited)
    The municipal securities are issued by states and their political subdivisions in the U.S. These securities either have bond insurance or guarantees that provide investment grade ratings of AAA or AA. There have been no deteriorations of credit quality that would contribute to impairment. The unrealized losses will decline as interest rates fall to the purchase yield and as the securities approach contractual or expected maturity.
 
    Since UCB has the intent and ability to hold its available-for-sale securities until recovery of the par amount, which could be maturity, UCB has concluded that the decline in value on these securities is temporary.
 
    The amortized cost and approximate market value of investment and mortgage-backed securities classified as available for sale and held to maturity, along with the portions of the portfolio with unrealized loss positions at December 31, 2006, were as follows (dollars in thousands):
                                                                                 
            Gross     Gross             Less Than 12 Months     12 Months or More     Total  
    Amortized     Unrealized     Unrealized     Market     Fair     Unrealized     Fair     Unrealized     Fair     Unrealized  
Description   Cost     Gains     Losses     Value     Value     Losses     Value     Losses     Value     Losses  
 
                                                                               
Investment securities available for sale:
                                                                               
Collateralized debt obligations
  $ 38,445     $ 5     $ (316 )   $ 38,134     $ 14,888     $ (113 )   $ 8,296     $ (203 )   $ 23,184     $ (316 )
U.S. Government sponsored enterprises notes
    588,621       120       (5,701 )     583,040       263,885       (1,566 )     125,194       (4,135 )     389,079       (5,701 )
U.S. Government sponsored enterprises discount notes
    249,024       61             249,085                                      
U.S. Treasury Bills.
    73,183       17             73,200                                      
Municipals
    58,325                   58,325                                      
Commercial paper
    49,952                   49,952                                      
Other
    10,000             (125 )     9,875       9,875       (125 )                 9,875       (125 )
 
                                                           
 
                                                                               
Total investment securities available for sale
    1,067,550       203       (6,142 )     1,061,611       288,648       (1,804 )     133,490       (4,338 )     422,138       (6,142 )
 
                                                           
 
                                                                               
Mortgage-backed securities available for sale:
                                                                               
FNMA
    515,711       391       (13,405 )     502,697       148,236       (3,025 )     284,506       (10,380 )     432,742       (13,405 )
GNMA
    87,866             (3,261 )     84,605                   78,742       (3,261 )     78,742       (3,261 )
FHLMC
    313,991       140       (9,847 )     304,284       7,424       (32 )     255,779       (9,815 )     263,203       (9,847 )
Other
    200,832       16       (4,589 )     196,259                   171,423       (4,589 )     171,423       (4,589 )
 
                                                           
 
                                                                               
Total mortgage-backed securities available for sale
    1,118,400       547       (31,102 )     1,087,845       155,660       (3,057 )     790,450       (28,045 )     946,110       (31,102 )
 
                                                           
 
                                                                               
Total investment and mortgage-backed securities available for sale
    2,185,950       750       (37,244 )     2,149,456       444,308       (4,861 )     923,940       (32,383 )     1,368,248       (37,244 )
 
                                                           
 
                                                                               
Investment securities held to maturity:
                                                                               
Municipal securities
    222,638       6,750       (30 )     229,358       4,531       (24 )     416       (6 )     4,947       (30 )
 
                                                           
 
                                                                               
Mortgage-backed securities held to maturity:
                                                                               
FNMA
    4,372             (172 )     4,200                   4,200       (172 )     4,200       (172 )
GNMA
    63,122             (1,755 )     61,367                   61,367       (1,755 )     61,367       (1,755 )
FHLMC
    541             (20 )     521                   521       (20 )     521       (20 )
 
                                                           
 
                                                                               
Total mortgage-backed securities held to maturity
    68,035             (1,947 )     66,088                   66,088       (1,947 )     66,088       (1,947 )
 
                                                           
 
                                                                               
Total investment and mortgage-backed securities held to maturity
    290,673       6,750       (1,977 )     295,446       4,531       (24 )     66,504       (1,953 )     71,035       (1,977 )
 
                                                           
 
                                                                               
Total securities
  $ 2,476,623     $ 7,500     $ (39,221 )   $ 2,444,902     $ 448,839     $ (4,885 )   $ 990,444     $ (34,336 )   $ 1,439,283     $ (39,221 )
 
                                                           
 
    As of December 31, 2006, the net unrealized loss on securities was $31.7 million. The net unrealized loss on securities that are available for sale was $36.5 million. Net of a tax benefit of $15.3 million, the unrealized $21.2 million loss is included in other comprehensive loss as a reduction to stockholders’ equity. The $4.8 million net unrealized 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 year ended December 31, 2006.
 
7.   Loans Held for Sale
 
    The components of loans held for sale as of March 31, 2007, and December 31, 2006, were as follows (dollars in thousands):
                 
    March 31,     December 31,  
    2007     2006  
Commercial:
               
Secured by real estate — nonresidential
  $ 113,172     $ 141,348  
Business
    1,181       1,203  
 
           
 
               
Total commercial loans
    114,353       142,551  
 
           
 
               
Consumer:
               
Residential mortgage (one to four family)
    1,195       310  
 
           
 
               
Loans held for sale (1)
  $ 115,548     $ 142,861  
 
           
 
(1)   Amounts reflect net unamortized deferred loan fees, purchase premiums and discounts of $198,000 and $213,000 at March 31, 2007, and December 31, 2006, respectively.

-10-


 

UCBH HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements-Continued
(Unaudited)
8.   Loans Held in Portfolio and Allowance for Loan Losses
 
    The components of loans held in portfolio as of March 31, 2007, and December 31, 2006, were as follows (dollars in thousands):
                 
    March 31,     December 31,  
    2007     2006  
Commercial:
               
Secured by real estate — nonresidential
  $ 2,479,457     $ 2,341,572  
Secured by real estate — multifamily
    1,313,606       1,275,594  
Construction
    1,154,176       1,054,302  
Business
    1,488,723       1,461,322  
 
           
 
               
Total commercial loans
    6,435,962       6,132,790  
 
           
 
               
Consumer:
               
Residential mortgage (one-to-four family)
    455,328       448,895  
Other (1)
    51,553       53,975  
 
           
 
               
Total consumer loans
    506,881       502,870  
 
           
 
               
Loans held in portfolio (2)
    6,942,843       6,635,660  
Allowance for loan losses
    (62,804 )     (62,015 )
 
           
 
Net loans held in portfolio
  $ 6,880,039     $ 6,573,645  
 
           
 
(1)   Amount includes deposit overdrafts of $2.4 million and $999,000 at March 31, 2007, and December 31, 2006, respectively.
 
(2)   Amounts reflect net unamortized deferred loan fees, purchase premiums and discounts of $21.0 million and $25.8 million at March 31, 2007, and December 31, 2006, respectively.
The activity in the allowance for loan losses and allowance for losses related to unfunded commitments for the three months ended March 31, 2007 and 2006, were as follows (dollars in thousands):
                                                 
    2007     2006  
            Allowance for                     Allowance for        
            Losses –     Total             Losses –     Total  
    Allowance for     Unfunded     Allowance for     Allowance for     Unfunded     Allowance for  
    Loan Losses     Commitments     Losses     Loan Losses     Commitments     Losses  
Balance at beginning of period
  $ 62,015     $ 6,833     $ 68,848     $ 64,542     $ 3,402     $ 67,944  
Provision for losses
    2,545       (1,497 )     1,048       (4 )     311       307  
Loans charged off
    (1,772 )           (1,772 )     (2,853 )           (2,853 )
Recoveries of loans previously charged off
    16             16       121             121  
 
                                   
 
Balance at end of period
  $ 62,804     $ 5,336     $ 68,140     $ 61,806     $ 3,713     $ 65,519  
 
                                   
The overall allowance for loan losses increased $789,000 from December 31, 2006. This change includes a $2.9 million reduction from changes in loss factors and a $1.8 million reduction from net loan charge-offs. These reductions to the allowance for loan losses were offset by increases in specific reserves of $3.4 million and $2.1 million net increase arising from migrations in loan quality on loans analyzed in the general allowance category.
The allowance for unfunded commitments decreased $1.5 million from December 31, 2006. The decrease was a result from the change in the loss factor which decreased the reserve by $2.1 million, which was partially offset by an increase in the unfunded commitments which resulted in an increase of $548,000 in the reserve.

-11-


 

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 three months ended March 31, 2007, and as of and for the year ended December 31, 2006, were as follows (dollars in thousands):
                 
    March 31,   December 31,
    2007   2006
Average balance outstanding
    318,956     $ 162,124  
Maximum amount outstanding at any month end period
    312,215       401,600  
Balance outstanding at end of period
    300,000       401,600  
Weighted average interest rate during the period
    4.09 %     3.56 %
Weighted average interest rate at end of period
    4.43 %     3.71 %
Weighted average remaining term to maturity at end of period (in years)
    7.9       6.1  
During January 2007, the five Repurchase Agreements amounting to $101.6 million assumed by UCB in connection with the Summit Bank Corporation acquisition matured.
Short-Term Borrowings
Information regarding outstanding short-term borrowings as of and for the three months ended March 31, 2007, and as of and for the year ended December 31, 2006, were as follows (dollars in thousands):
                 
    March 31,     December 31,  
Federal Home Loan Bank advances and other short-term borrowings:   2007     2006  
Average balance outstanding
  $ 401,428     $ 224,234  
Maximum amount outstanding at any month end period
    637,787       654,636  
Balance outstanding at end of period
    441,879       654,636  
Weighted average interest rate during the period
    5.16 %     4.52 %
Weighted average interest rate at end of period
    5.29 %     5.21 %
Weighted average remaining term to maturity at end of period (in years)
           
    Short-term borrowings with the FHLB totaled $340 million at March 31, 2007, and $534.2 million at December 31, 2006. At March 31, 2007, the advances were secured with $38.7 million of mortgage-backed securities and $3.77 billion of loans, and at December 31, 2006, the advances were secured with $41.6 million of mortgage-backed securities and $3.34 billion of loans secured the advances.
 
10.   Earnings Per Share
 
    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 March 31, 2007 and 2006, were 2,856,300 shares and 6,424,849 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 unearned compensation and certain deferred tax benefits related to stock options.
The reconciliation of the numerators and denominators of basic and diluted earnings per share for the three months ended March 31, 2007 and 2006, is as follows (dollars in thousands, except shares and per share amounts):
                         
    Income     Shares     Per Share  
    (Numerator)     (Denominator)     Amount  
Three months ended March 31, 2007:
                       
Net income – basic
  $ 27,031       99,731,221     $ 0.27  
Effect of stock options
          3,531,505          
 
                   
 
                       
Net income – diluted
  $ 27,031       103,262,726     $ 0.26  
 
                   
 
                       
Three months ended March 31, 2006:
                       
Net income – basic
  $ 23,419       94,114,819     $ 0.25  
Effect of stock options
          3,744,738          
 
                   
 
Net income – diluted
  $ 23,419       97,859,557     $ 0.24  
 
                   

-12-


 

UCBH HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements-Continued
(Unaudited)
11.   Stock-Based Compensation
 
    The Company has one stock option plan, the 2006 Equity Incentive Plan, as amended (the “Plan”). 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 UCBH’s Board of Directors and are granted at the fair market value of UCBH’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 March 31, 2007, the Company had 456,818 shares of common stock reserved for the issuance of options under the Plan.
 
    The Company used the modified prospective method of adoption. Under this adoption method, compensation expense recognized subsequent to adoption includes (a) compensation cost 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 cost 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. 123R. Awards granted after January 1, 2006 are valued at fair value in accordance with provisions of SFAS 123R and recognized on a straight-line basis over the service periods of each award. No share-based employee compensation cost has been reflected in the Company’s results of operations prior to the adoption of SFAS No. 123R and the results for prior periods have not been restated. The Company estimated forfeiture rates for the first quarter of 2007 based on its historical experience.
 
    In order to estimate the fair value of stock options, the Company used the Black-Scholes option valuation model, which was developed for use in estimating the fair value of publicly traded options which have no vesting restrictions and are fully transferable. Option valuation models require the input of highly subjective assumptions and these assumptions can vary over time.
Options activity outstanding under the Company’s stock option plan as of March 31, 2007 and changes during the three months ended March 31, 2007 were as follows (dollars in thousands, except weighted average exercise price):
                                 
                    Weighted    
            Weighted   Average    
            Average   Remaining   Aggregate
    Number of   Exercise   Contractual   Intrinsic
    Shares   Price   Term   Value
Options outstanding at December 31, 2006
    14,834,395     $ 12.78       5.82     $ 70,878  
 
                               
 
                               
Granted
    472,600       17.61                  
Exercised
    (451,957 )     11.77                  
Canceled
    (16,933 )     17.35                  
Expired
    (39,400 )     20.56                  
 
                               
 
                               
Options outstanding at March 31, 2007
    14,798,705     $ 12.94       5.79     $ 191,513  
 
                               
The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value that would have been received by all the option holders had all option holders exercised their respective options on March 31, 2007. The amount of aggregate intrinsic value will change based on the fair market value of the Company’s common stock.
The aggregate intrinsic value of options exercised during the quarters ended March 31, 2007 and 2006 was $3.2 million and $2.1 million, respectively. Cash received from option exercises for the quarters ended March 31, 2007 and 2006 was $5.3 million and $1.5 million, respectively. The tax benefit realized for the tax deductions from option exercises totaled $1.2 million and $399,000, respectively.
The range of exercise prices for options outstanding at March 31, 2007 is as follows:
                                         
            Weighted   Weighted           Weighted
            Average   Average           Average
    Options   Exercise   Remaining   Options   Exercise
Exercise Price   Outstanding   Price   Life   Exercisable   Price
$1.88-$2.25
    1,481,402     $ 1.88       1.75       1,481,402     $ 1.88  
$2.26-$4.51
    126,324       2.90       3.00       126,324       2.90  
$4.52-$6.77
    3,750,458       6.15       4.07       3,750,458       6.15  
$6.78-$9.03
    264,158       7.21       4.76       264,158       7.21  
$9.04-$11.29
    523,666       10.12       5.55       523,666       10.12  
$11.30-$13.55
    299,433       12.38       6.05       299,433       12.38  
$13.56-$15.81
    493,164       15.00       6.78       401,664       14.82  
$15.82-$18.07
    1,921,500       17.37       8.64       832,201       17.15  
$18.08-$20.33
    5,233,800       18.84       7.11       5,004,634       18.83  
$20.33-$22.59
    704,800       21.28       6.15       704,800       21.28  
 
                                       
 
                                       
Total/Average
    14,798,705       12.94       5.79       13,388,740       12.44  
 
                                       
As of March 31, 2007, there was $11.6 million of total unrecognized compensation cost, net of estimated forfeitures, related to nonvested options under the Plan. Such cost is expected to be recognized in less than three years. The total fair value of shares vested during the periods ended March 31, 2007 and 2006 was $61.5 million and $69.8 million, respectively.

-13-


 

UCBH HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements-Continued
(Unaudited)
12.   Income Tax Expense
 
    The Company adopted the provisions of FIN 48 on January 1, 2007. The impact of adopting FIN 48 was a cumulative effect adjustment with a $2.6 million decrease in goodwill, and an offsetting decrease in current taxes payable. There were no cumulative effect adjustments to the Company’s opening retained earnings as of January 1, 2007. The Company accrued $393,000 in interest expense and no liability for penalties as of March 31, 2007. Additionally, in connection with the adoption of FIN 48, the Company will continue to classify interest and penalties related to unrecognized tax positions as components of interest expense.
 
    The fiscal years 2003 through 2005 remain open for Internal Revenue Service audit purposes, the years 2002 through 2005 remain open for California Franchise Tax Board purposes and the years 2003 through 2005 remain open for New York State, New York City and Massachusetts purposes. The 2006 federal and state income tax returns have not yet been filed.
 
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 $7.4 million and $6.7 million at March 31, 2007, and December 31, 2006, 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.
 
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 March 31, 2007, and December 31, 2006, were as follows (dollars in thousands):
                 
    March 31,     December 31,  
    2007     2006  
Commitments to extend credit:
               
Consumer (including residential mortgage)
  $ 81,237     $ 83,648  
Commercial (excluding construction)
    1,296,061       1,150,599  
Construction
    948,911       889,294  
Letters of credit
    148,480       140,684  
Foreign exchange contracts receivable
    (464,584 )     (385,301 )
Foreign exchange contracts payable
    195,423       220,515  
Put options to buy
    13,766       5,329  
Put options to sell
    (13,766 )     (5,329 )
Interest rate swap contract
          25,000  
Interest rate floor contract
    25,000       25,000  
Unfunded CRA investment commitments
    3,463       3,623  
 
           
 
               
Total
  $ 2,234,491     $ 2,153,062  
 
           
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.

-14-


 

UCBH HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements-Continued
(Unaudited)
16.   Supplemental Cash Flow Information
 
    The supplemental cash flow information for the three months ended March 31, 2007 and 2006, was as follows (dollars in thousands):
                 
    2007   2006
Cash paid during the period for:
               
Interest
  $ 89,893     $ 58,118  
Income taxes
    13,817       13,754  
 
               
Noncash investing and financing activities:
               
Stock warrants acquired with issuance of commercial loans
  $     $ (129 )
Income tax benefit from stock options exercised
          399  
Transfer of loans from held for sale to held in portfolio
    36,253       827  
Transfer of loans to held for sale from held in portfolio
    39,746       248,644  
Transfer of other real estate owned to other assets from loans held in portfolio
           
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 that it has two reportable segments, “Domestic Banking” and “Other”. “Other” segment consists of the Company’s Hong Kong operations, UCB Investment Services, Inc. and UCB Asset Management, Inc. The “UCBH Holdings, Inc.” column consists of UCBH, which reflects the holding company activities. The intersegment column consists of the UCBH and UCB elimination units, which reflects the elimination of intersegment transactions. Substantially all interest income was earned in the United States and in Hong Kong, China. The determination of interest income earned by country is impracticable and is not disclosed.
 
    The segment information as of March 31, 2007, and December 31, 2006, and for the three months ended March 31, 2007 and 2006, were as follows (dollars in thousands):
                                                 
                            UCBH        
    Domestic           Total   Holdings,        
    Banking   Other   Segments   Inc.   Intersegment   Consolidated
Three Months Ended March 31, 2007:
                                               
Total interest and dividend income
  $ 158,605     $ 8,434     $ 167,039     $ 2     $ (3,095 )   $ 163,946  
Total interest expense
    (83,182 )     (5,445 )     (88,627 )     (4,585 )     3,096       (90,116 )
Net interest income (expense)
    75,423       2,989       78,412       (4,582 )           73,830  
Core deposit intangible impairment loss
    (1,008 )           (1,008 )                 (1,008 )
Income tax benefit (expense)
    (16,364 )     (168 )     (16,532 )     2,231             (14,301 )
Net income (loss)
    29,902       948       30,850       27,031       (30,850 )     27,031  
 
                                               
Three Months Ended March 31, 2006:
                                               
Total interest and dividend income
    120,498       4,450       124,948             (1,496 )     123,452  
Total interest expense
    (53,468 )     (3,168 )     (56,636 )     (2,732 )     1,496       (57,872 )
Net interest income (expense)
    67,030       1,282       68,312       (2,732 )           65,580  
Core deposit intangible impairment loss
    (294 )           (294 )                 (294 )
Income tax benefit (expense)
    (13,564 )     (63 )     (13,627 )     444             (13,183 )
Net income (loss)
    26,131       (1,486 )     24,645       23,416       (24,642 )     23,419  
18.   Subsequent Events
 
    On April 26, 2007, UCBH’s Board of Directors declared a quarterly cash dividend of $0.03 per share of common stock. The dividend will be paid on July 12, 2007, to stockholders of record as of June 30, 2007.

-15-


 

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” and “may”, “might” 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, internationally or locally in areas in which the Company conducts its operations;
  expansion into new market areas;
  fluctuations in the equity and fixed-income markets;
  changes in interest rates;
  asset and liability sensitivity of our balance sheet;
  acquisitions and integration of acquired businesses;
  deterioration in asset or credit quality;
  increases in the levels of losses, customer bankruptcies, claims and assessments;
  deposit renewals and ability to attract and retain core deposits;
  changes in the availability of capital;
  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 meet regulatory requirements; and
  changes in accounting principles generally accepted in the United States of America.
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

-16-


 

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.
MANAGEMENT OVERVIEW
UCBH Holdings, Inc. (“UCBH”) and its consolidated subsidiaries (collectively referred to as the “Company”, “we”, “us” or “our”) is a bank holding company headquartered in San Francisco, California with total assets of $10.31 billion. The Company’s operations are conducted primarily through its banking subsidiary, United Commercial Bank (“UCB”). UCB operates through seventy offices and branches in the United States and Asia and is a leader in providing financial services to Asians in the United States. At March 31, 2007, we had sixty-six domestic branches and offices; twenty-eight in Northern California, twenty-two in Southern California, five in the Atlanta metropolitan area, three in the Boston metropolitan area, five in the New York metropolitan area, two in the Seattle metropolitan area and a branch in Houston. UCB also has a branch in Hong Kong and representative offices in Shanghai and 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 concentration of Asians. We believe that this core banking business performed well during the three months ended March 31, 2007 as the general economic environment both in these markets and generally throughout the United States improved. However, the challenges presented by the general interest rate environment that we must work within did impact the Company’s performance during the three months ended March 31, 2007.
The Company reported earnings for the three months ended March 31, 2007, of $27 million or $0.26 per diluted share. This compares with $23.4 million or $0.24 per diluted share for the three months ended March 31, 2006, and $26.5 million or $0.27 per diluted share for the three months ended December 31, 2006. Return on average equity (“ROE”) was 13.43% and return on average assets (“ROA”) was 1.09% for the three months ended March 31, 2007, compared with a ROE of 15.36% and ROA of 1.18% for the three months ended March 31, 2006, and a ROE of 15.35% and a ROA of 1.25% for the three months ended December 31, 2006.
CORPORATE DEVELOPMENTS
Acquisition of CAB Holding, LLC On January 10, 2007, UCBH and CAB Holding, LLC (“CAB”), a Delaware limited liability company registered under the Bank Holding Company Act of 1956, as amended, and the holding company of The Chinese American Bank, entered into an Agreement and Plan of Merger. The value of the transaction is approximately $130.7 million, which is comprised of $65.1 million in cash and the issuance of 3,711,580 shares of UCBH common stock valued at $65.6 million (based on the average closing price for UCBH’S common stock around the announcement date of January 11, 2007). CAB may terminate the transaction for various reasons prior to the consummation of the merger, including but not limited to a substantial decline in the Average Closing Price (as defined in the agreement), unless UCBH agrees to a corresponding increase in the number of UCBH shares. Similarly, UCBH may terminate the transaction for various reasons prior to the consummation of the merger, including but not limited to a substantial increase in the Average Closing Price, unless CAB agrees to a corresponding reduction in the number of UCBH shares. If either CAB or UCBH terminates the transaction upon certain conditions, such party shall pay a break-up fee to the other. This acquisition increases the Company’s presence in the New York metropolitan area. The transaction, which is subject to regulatory approval, is anticipated to close in the second quarter of 2007. CAB had total assets of $333.0 million and total deposits of $281.7 millions as of December 31, 2006.
Acquisition of Business Development Bank Ltd. On March 26, 2007, UCB entered into two agreements to purchase the Business Development Bank Ltd. (“BDB”), a wholly foreign owned enterprise established and existing under the laws of the People’s Republic of China, for a total consideration of $205.0 million in cash. The parties to the agreements may terminate the transaction for various reasons prior to the consummation of the acquisition. This acquisition will provide the Company with bank branches in Shanghai and Shantou, China and representative offices in Beijing and Guangzhou, China, which will in turn accelerate the implementation of the Company’s Greater China expansion strategy. The transaction is subject to both U.S. regulatory and China Banking Regulatory Commission approvals and is anticipated to close in the fourth quarter of 2007. BDB had total assets of $217.2 million, total loans of $188.0 million and total deposits of $25.5 million as of December 31, 2006.
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, 2006.
Allowance for Loan Losses
The allowance for loan losses represents our estimate of the losses that are inherent in the loans held in portfolio. UCB continuously monitors the quality of its loans held in portfolio and maintains an allowance for loan losses sufficient to absorb losses inherent in the loans held in portfolio. At March 31, 2007, UCB’s total allowance for loan losses was $62.8 million, which represented 0.91% of loans held in portfolio.

-17-


 

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 loans held in portfolio categories as a whole and a specific reserve for loans deemed impaired. Loans that are determined to be impaired are excluded from the general allowance analysis of the loans held in 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 completed its annual methodology review for establishing its loss factors for pass rated and criticized loans. 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 assesses the loss factors that are applied to loan portfolio categories on a quarterly basis, and as part of the assessment concluded during the three months ended March 31, 2007, UCB effected further refinements in the determination of certain 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 pass rated loans in the commercial real estate and construction categories. UCB also refined certain historical and qualitative loss factors during the three months ended March 31, 2007.
The second component of the allowance for loan losses, the specific reserve, applies to loans that are considered 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 overall allowance for loan losses increased $789,000 from December 31, 2006. This change includes a $2.9 million reduction from changes in loss factors and a $1.8 million reduction from net loan charge-offs. These reductions to the allowance for loan losses were offset by increases in specific reserves of $3.4 million and $2.1 million net increase arising from migrations in loan quality on loans analyzed in the general allowance category.
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 an approach similar to the 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.
The allowance for unfunded commitments decreased $1.5 million from December 31, 2006. The decrease was a result from the change in the loss factor which decreased the reserve by $2.1 million, which was partially offset by an increase in the unfunded commitments which resulted in an increase of $548,000 in the reserve.
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 loan losses, which would negatively impact the Company’s results of operations in future periods. UCB continually monitors and evaluates its allowance for loan losses methodology, seeking to refine and enhance the process used to estimate incurred losses in our loan portfolios as appropriate.

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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, because 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.
As part of the computation of the income tax provision, estimates and assumptions must be made regarding the deductibility of certain expenses and the treatment of tax contingencies. There is a possibility that these estimates and assumption may be disallowed as part of an audit by the various taxing authorities that the Company is subject to. Any differences between items taken as deductions in our tax provision computations and those allowed by the taxing authorities could result in additional income tax expense in future periods.
The Company adopted the provisions of FIN 48 effective January 1, 2007. See management’s discussion over “recent accounting pronouncements” for management’s evaluation of FIN 48.
Recent Accounting Pronouncements
Fair Value Option for Financial Assets and Financial Liabilities
In February 2007, the Financial Accounting Standards Board (the “FASB”) issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities — Including an Amendment of FASB Statement No. 115. SFAS No. 159 provides entities with an option to report selected financial assets and liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. Early adoption, effective January 1, 2007, is permitted as long as companies adopt SFAS No. 157 concurrently with SFAS No. 159. The Company will adopt SFAS No. 159 effective January 1, 2008. In connection therewith, the Company is in the process of evaluating the impact that adopting SFAS No. 159 will have on its financial position and results of operations.
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 will adopt SFAS. No 157 effective January 1, 2008. In connection therewith, the Company is in the process of evaluating the impact that adopting SFAS No. 157 will have on its financial position and results of operations.
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

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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 adopted the provisions of FIN 48 effective January 1, 2007. The impact of adopting FIN 48 resulted in a cumulative effect adjustment with a $2.6 million decrease in goodwill, and an offsetting decrease in current taxes payable. There were no cumulative effect adjustments to the Company’s opening retained earnings as of January 1, 2007. The Company accrued $393,000 for interest and no liability for penalties as of March 31, 2007. Additionally, in connection with the adoption of FIN 48, the Company will continue to classify interest and penalties related to unrecognized tax positions as components of interest expense.
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. In accordance with SFAS No. 156, the Company will initially measure mortgage servicing rights at fair value and will continue to subsequently amortize its mortgage servicing rights based on estimated future net servicing income, with quarterly assessments for impairment. The Company adopted the provisions of SFAS No. 156 effective January 1, 2007. The adoption did not have a material impact on the Company’s financial position or results of operations.
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 adoption of SFAS No. 155 did not have a material impact on the Company’s financial position or results of operations.

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RESULTS OF OPERATIONS
Financial Highlights (Dollars in Thousands, Except Per Share Amounts)
                                 
    Three Months Ended March 31,  
                    Increase (Decrease)  
    2007     2006     Amount     %  
Operating Data:
                               
Total interest & dividend income
  $ 163,946     $ 123,452     $ 40,494       32.80 %
 
                             
Total interest expense
    (90,116 )     (57,872 )     32,244       55.72  
 
                         
Net interest income
    73,830       65,580       8,250       12.58  
Provision for loan losses
    (1,048 )     (307 )     741       241.37  
 
                         
Net interest income after provision for loan losses
    72,782       65,273       7,509       11.50  
Total noninterest income
    12,445       14,077       (1,632 )     (11.59 )
Total noninterest expense
    (43,895 )     (42,748 )     1,147       2.68  
 
                         
Income before income tax expense
    41,332       36,602       4,730       12.92  
Income tax expense
    (14,301 )     (13,183 )     1,118       8.48  
 
                         
Net income
  $ 27,031     $ 23,419     $ 3,612       15.42  
 
                         
 
                               
Per Share Data:
                               
Basic earnings per share
  $ 0.27     $ 0.25     $ 0.02       8.00 %
Diluted earnings per share
  $ 0.26       0.24       0.02       8.33  
 
                               
Dividends declared per share
  $ 0.030       0.030              
 
                               
Return on average assets
    1.09 %     1.18 %     (9 )*     (7.63 )%
Return on average equity
    13.43       15.36       (193 )     (12.57 )
Efficiency ratio (1)
    50.88       53.66       (278 )     (5.18 )
Noninterest expense to average assets
    1.77       2.15       (38 )     (17.67 )
Average equity to average assets
    8.11       7.68       43       5.60  
Dividend payout ratio (2)
    11.54       12.50       (96 )     (7.68 )
Net loan charge-offs to average loans held in portfolio
    0.10       0.18       (8 )     (44.44 )
Interest rate spread (3)
    2.79       3.14       (35 )     (11.15 )
Net interest margin (3)
    3.26       3.54       (28 )     (7.91 )
                                 
    March 31,   December 31,   Increase (Decrease)
    2007   2006   Amount   %
Financial Condition and Other Data:
                               
Loans held in portfolio, net
  $ 6,880,039     $ 6,573,645     $ 306,394       4.66 %
Securities purchased under agreements to resell
    150,000       175,000       (25,000 )     (14.29 )
Securities available for sale
    1,791,076       2,149,456       (358,380 )     (16.67 )
Securities held to maturity
    288,451       290,673       (2,222 )     (0.76 )
Total assets
    10,306,383       10,346,414       (40,031 )     (0.39 )
Deposits
    7,299,168       7,202,845       96,323       1.34  
Securities sold under agreements to repurchase
    300,000       401,600       (101,600 )     (25.30 )
Subordinated debentures
    240,549       240,549              
Short-term borrowings
    441,879       654,636       (212,757 )     (35.50 )
Long-term borrowings
    1,079,747       906,651       173,096       19.09  
Total liabilities
    9,484,882       9,560,343       (75,461 )     (0.79 )
Stockholders’ equity (4)
    821,501       786,071       35,430       4.51  
Nonperforming assets
    24,657       15,198       9,459       62.24  
Ratio of stockholders’ equity to total assets
    7.97 %     7.60 %     37 *     4.87  
 
                               
Asset Quality Data:
                               
Loan delinquency ratio
    0.93 %     0.84 %     9 *     10.71 %
Nonperforming assets to total assets
    0.24       0.15       9       60.00  
Nonperforming loans to loans held in portfolio
    0.31       0.19       12       63.16  
Allowance for loan losses to loans held in portfolio
    0.91       0.93       (3 )     (3.23 )
Allowance for loan losses to nonperforming loans
    288.48       503.73       (21,525 )     (42.73 )
Total loan to deposit ratio
    96.70       94.11       259       2.72  

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    Three Months Ended March 31,  
            Increase (Decrease)
    2007   2006   Amount   %
Bank Regulatory Capital Ratios:
                               
United Commercial Bank and subsidiaries:
                               
Tier 1 risk-based capital
    9.66 %     9.67 %     (1 )*     (0.10 )%
Total risk-based capital
    10.49       10.53       (4 )     (0.38 )
Tier 1 leverage
    8.21       9.30       (109 )     (11.72 )
UCBH Holdings, Inc. and subsidiaries:
                               
Tier 1 risk-based capital
    10.03       9.86       17       1.72  
Total risk-based capital
    10.86       10.72       13       1.21  
Tier 1 leverage ratio
    8.50       9.50       (100 )     (10.53 )
 
(1)   Represents noninterest expense divided by the total of our net interest income before provision for loan losses and our noninterest income.
 
(2)   Dividends declared per share as a percentage of diluted earnings per share.
 
(3)   Calculated on a tax equivalent basis. Interest income from tax-exempt investment securities calculated on a tax equivalent basis was $2.1 million and $1.4 million for the three months ended March 31, 2007 and 2006, respectively.
 
(4)   In conjunction with the acquisition of Summit Bank Corporation on December 29, 2006, UCBH issued 4.8 million shares of common stock.
 
*   Basis point
Three Months Ended March 31, 2007, Compared to Three Months Ended March 31, 2006
The consolidated net income of the Company for the three months ended March 31, 2007, increased by $3.6 million, or 15.42%, to $27.0 million, compared to $23.4 million for the same period in 2006. The ROE and ROA ratios for the three months ended March 31, 2007, were 13.43% and 1.09%, respectively. These amounts compare with the ROE ratio of 15.36% and the ROA ratio of 1.18% for the three months ended March 31, 2006. The 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 the Summit Bank Corporation (“Summit”) acquisition that was consummated on December 29, 2006. The efficiency ratio was 50.88% for the three months ended March 31, 2007, compared with 53.66% for the same period in 2006. The decrease in the efficiency ratio 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 and $0.24 for the three months ended March 31, 2007 and 2006, respectively.

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Net Interest Income and Net Interest Margin. 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 March 31, 2007 and 2006 (dollars in thousands):
                                                 
    2007     2006  
                    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)
  $ 6,839,200     $ 131,652       7.70 %   $ 6,037,540     $ 105,538       6.99 %
Taxable securities (3)
    1,857,226       23,514       5.06       1,179,163       13,757       4.67  
Tax exempt securities (3)
    274,676       3,306       4.81       225,580       2,692       4.77  
FHLB Stock
    68,805       922       5.36       44,474       450       4.05  
Securities purchased under agreements to resell
    125,278       2,264       7.23                    
Other
    154,056       2,289       5.94       96,818       1,015       4.19  
 
                                       
 
                                               
Total interest-earning assets
    9,319,241       163,947       7.04       7,583,575       123,452       6.51  
Noninterest-earning assets
    600,442                     358,413                
 
                                       
 
                                               
Total assets
  $ 9,919,683     $ 163,947             $ 7,941,988     $ 123,452          
 
                                       
 
                                               
Interest-bearing liabilities:
                                               
Deposits:
                                               
NOW, checking and money market accounts
  $ 1,478,541     $ 12,477       3.38     $ 1,212,276     $ 7,774       2.57  
Savings accounts
    692,003       1,726       1.00       779,183       2,278       1.17  
Time deposits
    4,230,874       51,791       4.90       3,622,005       34,344       3.79  
 
                                       
 
                                               
Total interest-bearing deposits
    6,401,418       65,994       4.12       5,613,464       44,396       3.16  
Securities sold under agreements to repurchase
    318,956       3,261       4.09       2,778       29       4.18  
Short-term borrowings and federal funds purchased
    401,428       5,192       5.17       360,357       3,445       3.82  
Long-term borrowings
    943,810       11,116       4.71       580,093       7,287       5.02  
Subordinated debentures
    240,549       4,553       7.57       146,050       2,715       7.44  
 
                                       
 
                                               
Total interest-bearing liabilities
    8,306163       90,116       4.34       6,702,742       57,872       3.45  
Noninterest-bearing deposits
    695,668                     511,445                
Other noninterest-bearing liabilities
    113,038                     117,871                
Stockholders’ equity
    804,814                     609,930                
 
                                       
 
                                               
Total liabilities and stockholders’ equity
  $ 9,919,683     $ 90,116             $ 7,941,988     $ 57,872          
 
                                       
 
                                               
Net interest-earning assets/net interest income/net interest rate spread (4)
  $ 1,013,078     $ 73,831       2.70 %   $ 880,833     $ 65,580       3.06 %
 
                                   
 
                                               
Net interest margin (5)
                    3.17 %                     3.46 %
 
                                           
 
                                               
Ratio of interest-earning assets to interest-bearing liabilities
    1.12 x                     1.13 x                
 
                                           
 
                                               
Tax equivalent basis:
                                               
Total interest-earning assets (6)
  $ 9,319,241       166,033       7.13 %   $ 7,583,575       124,902       6.59 %
Total interest-bearing liabilities
    8,306,163       90,116       4.34       6,702,742       57,872       3.45  
 
                                       
 
                                               
Net interest-earning assets/net interest income/net interest rate spread (4)
  $ 1,013,078     $ 75,917       2.79 %   $ 880,833     $ 67,030       3.14 %
 
                                   
 
                                               
Net interest margin (5)
                    3.26 %                     3.54 %
 
                                           
 
                                               
Average cost of deposits:
                                               
Total interest-bearing deposits
  $ 6,401,418     $ 65,994       4.12 %   $ 5,613,464     $ 44,396       3.16 %
Noninterest-bearing deposits
    695,668                     511,445                
 
                                       
 
                                               
Total deposits
  $ 7,097,086     $ 65,994       3.72 %   $ 6,124,909     $ 44,396       2.90 %
 
                                   

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(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 $2.1 million and $1.4 million for the three months ended March 31, 2007 and 2006, respectively.
The increase in net interest income for the three months ended March 31, 2007, compared to the same period in 2006 was principally due to a $1.74 billion increase in average interest-earning assets, which resulted primarily from organic loan growth along with increases resulting from the Summit acquisition. The average cost of deposits increased 82 basis points from 2.90% for the three months ended March 31, 2006, to 3.72% for the three months ended March 31, 2007, 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 71 basis point increase in average loan yields reflecting the timing of the repricing of adjustable-rate loans, as well as the continued change in our loan portfolio mix. The yield on taxable securities also increased for the three months ended March 31, 2007, compared to the same period in 2006 as a result of purchases of higher-yielding securities during 2006.
The decline in the net interest margin for the three months ended March 31, 2007, compared to same period in 2006 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 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 for 2007 is reflective of loan growth, changes in the mix of the loan portfolio, reductions in certain historical and qualitative loss factors, increases in specific reserves and in classified loans, and charge-offs, all of which combined resulted in a net reduction in the provision as compared with 2006. 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 decreased by $1.6 million, or 11.59%, for the three months ended March 31, 2007, compared to the same period in 2006. The net decrease was the result of a non-recurring acquisition termination fee from Great Eastern Bank of $5.0 million recorded in 2006 which was partially offset by the increase in the gain on sale of securities of $3.1 million in 2007. Commercial banking fees increased to $4.7 million for the three months ended March 31, 2007, compared to $4.1 million for the same period in 2006. The increase reflects the growth in trade finance activity, merchant card activity, other commercial banking fees and fees earned by UCB Investment Services, Inc. Gain on sale of multifamily and commercial real estate loans decreased to $1.4 million for the three months ended March 31, 2007, from $3.9 million for the same period in 2006 as a result of decreased sales volume.
Noninterest Expense. Noninterest expense increased $1.1 million, or 2.68%, for the three months ended March 31, 2007, compared to the same period in 2006. Non-interest expense in the first quarter of 2006 included $4.4 million of incentive bonuses and $1.2 million of legal expenses associated with the terminated acquisition of Great Eastern Bank. For the three months ended March 31, 2007, personnel expenses increased $2.5 million, or 11.86%, excluding the incentive bonuses, from the same period in 2006 and 2007. The increase in personnel expenses reflects the additional staffing required to support the growth of UCB’s commercial banking business, the opening of new branches, the additional staffing resulting from the Summit acquisition and the expansion of UCB’s infrastructure to support a larger and growing organization. Additionally, severance and retention bonuses related to the Summit acquisition and other incentive bonuses totaling $0.4 million were recognized during the three months ended March 31, 2007. Personnel expenses also included $770,000 in stock compensation expense for the three months ended March 31, 2007, compared to $308,000 for the same period in 2006. Occupancy expenses increased $1.1 million, or 31.06%, for the three months ended March 31, 2007, compared to the same period in 2006 as a result of the opening of new branches and the operations of Summit. Data processing expenses increased $311,000, or 15.79%, for the three months ended March 31, 2007, compared to same period in 2006 primarily as a result of $300,000 related to the conversion of the loan and deposit systems at Summit. Core deposit intangible amortization increased $453,000, or 81.62%, for the three months ended March 31, 2007, compared to the same period in 2006 as a result of the additional amortization of the core deposit intangibles associated with the Summit acquisition. Other general and administrative expenses increased by $1.1 million, or 21.80%, for the three months ended March 31, 2007, compared to the same period in 2006 primarily as a result of increased advertising expenses related to UCB’s expansion, market promotions, merchant card expenses and foreign exchange losses.
Income Tax Expense. The effective tax rate for the three months ended March 31, 2007, was 34.6%, compared with 36.0% for the three months ended March 31, 2006. 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, tax-exempt income, and the net impact of our operating in multiple tax jurisdictions, both within and outside of the United States.

-24-


 

BALANCE SHEET ANALYSIS
Investment Securities
The amortized cost and approximate market value of investment and mortgage-backed securities classified as available for sale and held to maturity, along with the portions of the portfolio with unrealized loss positions at March 31, 2007, were as follows (dollars in thousands):
                                                                                 
            Gross     Gross             Less Than 12 Months     12 Months or More     Total  
    Amortized     Unrealized     Unrealized     Market     Fair     Unrealized     Fair     Unrealized     Fair     Unrealized  
Description   Cost     Gains     Losses     Value     Value     Losses     Value     Losses     Value     Losses  
Investment securities available for sale:
                                                                               
Collateralized debt obligations
  $ 38,445     $     $ (410 )   $ 38,035     $ 29,731     $ (214 )   $ 8,304     $ (196 )   $ 38,035     $ (410 )
U.S. Government sponsored enterprises notes
    583,766       146       (3,809 )     580,103       437,501       (544 )     118,614       (3,265 )     556,115       (3,809 )
U.S. Government sponsored enterprises discount notes
    161,865       17             161,882                                      
Municipals
    52,179       119       (213 )     52,085       31,678       (213 )                 31,678       (213 )
Other
    10,000             (175 )     9,825       9,825       (175 )                 9,825       (175 )
 
                                                           
 
                                                                               
Total investment securities available for sale
    846,255       282       (4,607 )     841,930       508,735       (1,146 )     126,918       (3,461 )     635,653       (4,607 )
 
                                                           
 
                                                                               
Mortgage-backed securities available for sale:
                                                                               
FNMA
    422,447       8       (11,267 )     411,188       133,484       (2,512 )     277,058       (8,755 )     410,542       (11,267 )
GNMA
    81,233       6       (2,656 )     78,583                   78,098       (2,656 )     78,098       (2,656 )
FHLMC
    263,171             (8,215 )     254,956       4,844       (3 )     250,107       (8,212 )     254,951       (8,215 )
Other
    207,591       264       (3,436 )     204,419       24,899       (71 )     166,347       (3,365 )     191,246       (3,436 )
 
                                                           
 
                                                                               
Total mortgage-backed securities available for sale
    974,442       278       (25,574 )     949,146       163,227       (2,586 )     771,610       (22,988 )     934,837       (25,574 )
 
                                                           
 
                                                                               
Total investment and mortgage-backed securities available for sale
    1,820,697       560       (30,181 )     1,791,076       671,962       (3,732 )     898,528       (26,449 )     1,570,490       (30,181 )
 
                                                           
 
                                                                               
Investment securities held to maturity:
                                                                               
Municipal securities
    222,662       6,276       (32 )     228,906       3,662       (26 )     416       (6 )     4,078       (32 )
 
                                                           
 
                                                                               
Mortgage-backed securities held to maturity:
                                                                               
FNMA
    4,326             (158 )     4,168                   4,168       (159 )     4,168       (159 )
GNMA
    60,925             (1,641 )     59,284                   59,284       (1,641 )     59,284       (1,641 )
FHLMC
    538             (19 )     519                   519       (19 )     519       (19 )
 
                                                           
 
                                                                               
Total mortgage-backed securities held to maturity
    65,789             (1,818 )     63,971                   63,971       (1,819 )     63,971       (1,819 )
 
                                                           
 
                                                                               
Total investment and mortgage-backed securities held to maturity
    288,451       6,276       (1,850 )     292,877       3,662       (26 )     64,387       (1,825 )     68,049       (1,851 )
 
                                                           
Total securities
  $ 2,109,148     $ 6,836     $ (32,031 )   $ 2,083,953     $ 675,624     $ (3,758 )   $ 962,915     $ (28,274 )   $ 1,638,539     $ (32,032 )
 
                                                           
The investment portfolio decreased by $360.6 million from December 31, 2006. This decrease is primarily due to the sale and maturity of securities available for sale.
As of March 31, 2007, the amortized cost and the market value of the available for sale investment securities portfolio were $1.82 billion and $1.79 billion, respectively. The total net of tax unrealized loss on these securities was $16.8 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 net unrealized gain of $4.4 million, has not been recognized in the financial statements as of March 31, 2007. Additionally, certain securities that UCB holds have unrealized losses that extend for periods in excess of twelve months. These securities are comprised primarily of U.S. Government sponsored enterprise notes, mortgage-backed securities and municipal securities. The U.S. Government sponsored enterprise notes are issued by one of the several government sponsored enterprises, such as FNMA, Government National Mortgage Association (“GNMA”) or Federal Home Loan Bank. The unrealized losses associated with these securities resulted from rising interest rates subsequent to purchase. The unrealized losses will decline as interest rates fall to the purchased yield and as the securities approach maturity.

-25-


 

The amortized cost and approximate market value of investment and mortgage-backed securities classified as available for sale and held to maturity, along with the portions of the portfolio with unrealized loss positions at December 31, 2006, were as follows (dollars in thousands):
                                                                                 
            Gross     Gross             Less Than 12 Months     12 Months or More     Total  
    Amortized     Unrealized     Unrealized     Market     Fair     Unrealized     Fair     Unrealized     Fair     Unrealized  
Description   Cost     Gains     Losses     Value     Value     Losses     Value     Losses     Value     Losses  
 
                                                                               
Investment securities available for sale:
                                                                               
Collateralized debt obligations
  $ 38,445     $ 5     $ (316 )   $ 38,134     $ 14,888     $ (113 )   $ 8,296     $ (203 )   $ 23,184     $ (316 )
U.S. Government sponsored enterprises notes
    588,621       120       (5,701 )     583,040       263,885       (1,566 )     125,194       (4,135 )     389,079       (5,701 )
U.S. Government sponsored enterprises discount notes
    249,024       61             249,085                                      
U.S. Treasury Bills.
    73,183       17             73,200                                      
Municipals
    58,325                   58,325                                      
Commercial paper
    49,952                   49,952                                      
Other
    10,000             (125 )     9,875       9,875       (125 )                 9,875       (125 )
 
                                                           
 
                                                                               
Total investment securities available for sale
    1,067,550       203       (6,142 )     1,061,611       288,648       (1,804 )     133,490       (4,338 )     422,138       (6,142 )
 
                                                           
 
                                                                               
Mortgage-backed securities available for sale:
                                                                               
FNMA
    515,711       391       (13,405 )     502,697       148,236       (3,025 )     284,506       (10,380 )     432,742       (13,405 )
GNMA
    87,866             (3,261 )     84,605                   78,742       (3,261 )     78,742       (3,261 )
FHLMC
    313,991       140       (9,847 )     304,284       7,424       (32 )     255,779       (9,815 )     263,203       (9,847 )
Other
    200,832       16       (4,589 )     196,259                   171,423       (4,589 )     171,423       (4,589 )
 
                                                           
 
                                                                               
Total mortgage-backed securities available for sale
    1,118,400       547       (31,102 )     1,087,845       155,660       (3,057 )     790,450       (28,045 )     946,110       (31,102 )
 
                                                           
 
                                                                               
Total investment and mortgage-backed securities available for sale
    2,185,950       750       (37,244 )     2,149,456       444,308       (4,861 )     923,940       (32,383 )     1,368,248       (37,244 )
 
                                                           
 
                                                                               
Investment securities held to maturity:
                                                                               
Municipal securities
    222,638       6,750       (30 )     229,358       4,531       (24 )     416       (6 )     4,947       (30 )
 
                                                           
 
                                                                               
Mortgage-backed securities held to maturity:
                                                                               
FNMA
    4,372             (172 )     4,200                   4,200       (172 )     4,200       (172 )
GNMA
    63,122             (1,755 )     61,367                   61,367       (1,755 )     61,367       (1,755 )
FHLMC
    541             (20 )     521                   521       (20 )     521       (20 )
 
                                                           
 
                                                                               
Total mortgage-backed securities held to maturity
    68,035             (1,947 )     66,088                   66,088       (1,947 )     66,088       (1,947 )
 
                                                           
 
                                                                               
Total investment and mortgage-backed securities held to maturity
    290,673       6,750       (1,977 )     295,446       4,531       (24 )     66,504       (1,953 )     71,035       (1,977 )
 
                                                           
 
                                                                               
Total securities
  $ 2,476,623     $ 7,500     $ (39,221 )   $ 2,444,902     $ 448,839     $ (4,885 )   $ 990,444     $ (34,336 )   $ 1,439,283     $ (39,221 )
 
                                                           
Loans
The components of UCB’s loans held in portfolio for each major loan category at March 31, 2007, and December 31, 2006, were as follows (dollars in thousands):
                 
    March 31,     December 31,  
    2007     2006  
Commercial:
               
Secured by real estate — nonresidential
  $ 2,479,457     $ 2,341,572  
Secured by real estate — multifamily
    1,313,606       1,275,594  
Construction
    1,154,176       1,054,302  
Business
    1,488,723       1,461,322  
 
           
 
               
Total commercial
    6,435,962       6,132,790  
 
           
 
               
Consumer:
               
Residential mortgage (one-to-four family)
    455,328       448,895  
Other
    51,553       53,975  
 
           
 
               
Total consumer
    506,881       502,870  
 
           
 
               
Loans held in portfolio (1)
    6,942,843       6,635,660  
Allowance for loan losses
    (62,804 )     (62,015 )
 
           
 
               
Loans held in portfolio, net
  $ 6,880,039     $ 6,573,645  
 
           
 
(1)   Amounts reflect net unamortized deferred loan fees, purchase premiums discounts of $21.0 million and $25.8 million at March 31, 2007, and December 31, 2006, respectively.
During the three months ended March 31, 2007, loans held in portfolio increased by $307 million. This increase resulted primarily from organic growth in commercial construction and business loans, which was offset by a transfer of commercial real estate loans of $38.7 million from held in portfolio to held for sale. Commercial loans at March 31, 2007, increased 4.9% from the December 31, 2006, balance. Consumer loans increased 0.8% at March 31, 2007, from the December 31, 2006, balance.

-26-


 

At March 31, 2007, and December 31, 2006, UCB had cash secured loans of $234.0 million and $292.0 million, respectively, which were primarily commercial business loans.
In connection with its credit risk management efforts, UCB periodically sells commercial real estate loans to help manage its loan concentrations. As a result, UCB periodically identifies certain loans that it intends to sell. When such a determination is made, these loans are classified as held for sale. During the three months ended March 31, 2007, UCB transferred $39.7 million of loans from held in portfolio to held for sale. UCB also transferred at market value, $36.3 million of loans that did not attract a potential buyer or meet our pricing requirements from held for sale to held in portfolio during the three months ended March 31, 2007. The loans held for sale for each major loan category at March 31, 2007, and December 31, 2006, were as follows (dollars in thousands):
                 
    March 31,     December 31,  
    2007     2006  
Commercial:
               
Secured by real estate — nonresidential
  $ 113,172     $ 141,348  
Business
    1,181       1,203  
 
           
 
               
Total commercial
    114,353       142,551  
 
           
 
               
Consumer:
               
Residential mortgage (one-to-four family)
    1,195       310  
 
           
 
               
Loans held for sale (1)
  $ 115,548     $ 142,861  
 
           
 
(1)   Amounts reflect net unamortized deferred loan fees of $198,000 and $213,000 at March 31, 2007, and December 31, 2006, respectively.
Consistent with UCB’s stated long-term objectives for the next five years, UCB intends to continue to systematically reduce its concentration in commercial real estate loans while increasing its concentration in commercial business loans.
Loan commitments related to loans held for sale and held in portfolio for three months ended March 31, 2007 and 2006, were as follows (dollars in thousands):
                 
    March 31,     March 31,  
    2007     2006  
Loans held for sale:
               
Commercial:
               
Secured by real estate — nonresidential
  $ 16,331     $ 22,325  
Secured by real estate — multifamily
           
 
           
 
               
Total commercial loans
    16,331       22,325  
 
           
 
               
Consumer:
               
Residential mortgage (one-to-four family)
    1,190        
 
           
 
               
Total loans held for sale commitments (1)
    17,521       22,325  
 
           
 
               
Loans held in portfolio:
               
Commercial:
               
Secured by real estate — nonresidential
    270,118       185,081  
Secured by real estate — multifamily
    117,913       85,122  
Construction
    284,657       178,891  
Business
    288,678       230,519  
 
           
 
               
Total commercial loans
    961,366       679,613  
 
           
 
               
Consumer:
               
Residential mortgage (one-to-four family)
    30,701       18,865  
Other
    6,513       7,256  
 
           
 
               
Total consumer loans
    37,214       26,121  
 
           
 
               
Total loans held in portfolio commitments (1)
    998,580       705,734  
 
           
 
               
Total loan commitments (1)
  $ 1,016,101     $ 728,059  
 
           
 
(1)   Amounts do not reflect commitments related to loan participations.
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. Residential mortgage (one-to-four family) loans may be adjustable rate that reprice semiannually or annually; fixed rate,

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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 March 31, 2007, were as follows (dollars in thousands):
                                 
            Intermediate              
    Adjustable     Fixed     Fixed     Total  
Commercial:
                               
Secured by real estate — nonresidential
  $ 965,732     $ 436,070     $ 1,095,128     $ 2,496,930  
Secured by real estate — multifamily
    367,426       818,972       124,297       1,310,695  
Construction
    1,060,553             99,648       1,160,201  
Business
    1,361,654       2,297       124,995       1,488,946  
 
                       
 
                               
Total commercial
    3,755,365       1,257,339       1,444,068       6,456,772  
 
                       
 
                               
Consumer:
                               
Residential mortgage (one-to-four family)
    70,733       210,593       174,166       455,492  
Other
    48,681             2,871       51,552  
 
                       
 
                               
Total consumer
    119,414       210,593       177,037       507,044  
 
                       
 
                               
Gross loans held in portfolio (1)
  $ 3,874,779     $ 1,467,932     $ 1,621,105     $ 6,963,816  
 
                       
 
(1)   Amounts do not reflect net deferred loan fees, purchase premiums and discounts of $21.0 million at March 31, 2007.
Adjustable-rate loans increased $125.6 million from December 31, 2006, to March 31, 2007. Intermediate fixed-rate loans increased $23.9 million from December 31, 2006, to March 31, 2007. Fixed-rate loans increased $152.8 million from December 31, 2006, to March 31, 2007.
Deposits
The balances and rates paid for categories of deposits at March 31, 2007, and December 31, 2006, were as follows (dollars in thousands):
                                 
    March 31, 2007     December 31, 2006  
            Weighted             Weighted  
            Average             Average  
    Amount     Rate     Amount     Rate  
NOW, checking and money market accounts
  $ 2,268,672       2.16 %   $ 2,194,176       2.18 %
Savings accounts
    940,719       2.09       942,672       2.14  
Time deposits:
                               
Less than $100,000
    1,262,422       4.36       1,410,162       4.60  
$100,000 or greater
    2,827,355       4.69       2,655,835       4.91  
 
                           
 
                               
Total time deposits
    4,089,777       4.89       4,065,997       4.80  
 
                           
 
                               
Total deposits
  $ 7,299,168       3.68 %   $ 7,202,845       3.66 %
 
                           
Deposits have traditionally been UCB’s primary source of funding to use in its lending and investment activities. At March 31, 2007, 56.0% of UCB’s deposits were time deposits, 31.1% were negotiable order of withdrawal (“NOW”) accounts, demand deposits and money market accounts, and 12.9% were savings accounts. By comparison, at December 31, 2006, 56.4% of UCB’s deposits were time deposits, 30.5% were NOW accounts, demand deposits and money market accounts, and 13.1% were savings accounts. With the exception of state and federal government entities contributing 6.2% and 6.4% to total deposits as of March 31, 2007 and December 31, 2006, respectively, no other material portion of UCB’s deposits were from or were dependent upon any one customer, source or industry.
Included in time deposits at March 31, 2007, are $2.83 billion of deposits of $100,000 or greater, compared to $2.66 billion at December 31, 2006. Such deposits made up 38.7% of total deposits at March 31, 2007, compared to 36.9% at December 31, 2006. Also included in time deposits are $169.7 million and $179.3 million of brokered deposits at March 31, 2007, and December 31, 2006, respectively.

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Borrowings
Borrowings as of and for the three months ended March 31, 2007, and the year ended December 31, 2006, were as follows (dollars in thousands):
                 
    March 31,   December 31,
    2007   2006
Securities sold under agreements to repurchase:
               
Average balance outstanding
  $ 318,956     $ 162,124  
Maximum amount outstanding at any month end period
    312,215       401,600  
Balance outstanding at end of period
    300,000       401,600  
Weighted average interest rate during the period
    4.09 %     3.56 %
Weighted average interest rate at end of period
    4.43 %     3.71 %
Weighted average remaining term to maturity at end of period (in years)
    7.9       6.1  
 
               
Short-term borrowings:
               
FHLB advances and other short-term borrowings:
               
Average balance outstanding
  $ 401,428     $ 224,234  
Maximum amount outstanding at any month end period
    637,787       654,636  
Balance outstanding at end of period
    441,879       654,636  
Weighted average interest rate during the period
    5.16 %     4.52 %
Weighted average interest rate at end of period
    5.29 %     5.21 %
Weighted average remaining term to maturity at end of period (in years)
           
 
               
Long-term borrowings:
               
FHLB advances:
               
Average balance outstanding
  $ 943,810     $ 683,978  
Maximum amount outstanding at any month end period
    1,079,747       906,651  
Balance outstanding at end of period
    1,079,747       906,651  
Weighted average interest rate during the period
    4.71 %     4.89 %
Weighted average interest rate at end of period
    4.65 %     4.72 %
Weighted average remaining term to maturity at end of period (in years)
    6.0       5.4  
UCB maintains borrowing lines with certain correspondent banks and brokers and with the Federal Home Loan Banks of San Francisco, Atlanta, Boston and Seattle (collectively referred to as the “FHLB”) to supplement its supply of lendable funds and to help manage liquidity. Such borrowings are generally secured with mortgage loans and/or securities with a market value at least equal to outstanding borrowings. In addition to loans and securities, advances from the FHLB are typically secured by a pledge of FHLB stock owned by UCB. UCB had $1.41 billion and $1.43 billion of FHLB advances outstanding at March 31, 2007, and December 31, 2006, respectively. At March 31, 2007, UCB had $951.5 million of additional FHLB borrowings available for future borrowing capacity.
Subordinated Debentures
UCBH formed or acquired special purpose trusts in 1997, 2001, 2002, 2005 and 2006 for the 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 $240.5 million of subordinated debentures outstanding at March 31, 2007, and December 31, 2006.

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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, interest rate and market, 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, and interest rate and market risk; and
  Operational Risk Management Committee, which reviews those risks not covered by the Credit Risk Management and 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.
UCB also assigns 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 loans held in 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 March 31, 2007, and December 31, 2006, were as follows (dollars in thousands):
                                 
    March 31, 2007     December 31, 2006  
    Amount     %     Amount     %  
Commercial:
                               
Secured by real estate — nonresidential
  $ 2,479,457       35.71     $ 2,341,572       35.29  
Secured by real estate — multifamily
    1,313,606       18.92       1,275,594       19.22  
Construction
    1,154,176       16.62       1,054,302       15.89  
Business
    1,488,723       21.44       1,461,322       22.02  
 
                       
 
                               
Total commercial
    6,435,962       92.69       6,132,790       92.42  
 
                       
 
                               
Consumer:
                               
Residential mortgage (one-to-four family)
    455,328       6.56       448,895       6.76  
Other
    51,553       0.75       53,975       0.82  
 
                       
 
                               
Total consumer
    506,881       7.31       502,870       7.58  
 
                       
 
                               
Loans held in portfolio (1)
  $ 6,942,843       100.00     $ 6,635,660       100.00  
 
                       
 
(1)   Amounts reflect net unamortized deferred loan fees, purchase premiums and discounts of $21.0 million and $25.8 million at March 31, 2007, and December 31, 2006, respectively.
UCB actively monitors the levels of loans as a percentage of its loans held in 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 three months ended March 31, 2007, $63.6 million in commercial real estate loans were sold. Additionally, $21.3 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 loans held in 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 from loans held in portfolio and other real estate owned (“OREO”), but exclude any loans held for sale. 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 is acquired primarily through or in lieu of foreclosure on loans secured by real estate.

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UCB’s nonperforming assets from loans held in portfolio and OREO as of March 31, 2007, and December 31, 2006, were as follows (dollars in thousands):
                 
    March 31,     December 31,  
    2007     2006  
Commercial loans:
               
Secured by real estate — nonresidential
  $ 5,549     $ 5,604  
Secured by real estate — multifamily
    914        
Construction
    9,221        
Business
    5,723       6,339  
 
           
 
               
Total commercial loans
    21,407       11,943  
 
           
 
               
Consumer loans:
               
Residential mortgage (one-to-four family)
    363       368  
Other
           
 
           
 
               
Total consumer loans
    363       368  
 
           
 
               
Total nonaccrual loans from loans held in portfolio
    21,770       12,311  
Other real estate owned
    2,887       2,887  
 
           
 
               
Total nonperforming assets
  $ 24,657     $ 15,198  
 
           
 
               
Nonperforming assets to total assets
    0.24 %     0.15 %
Nonaccrual loans to loans held in portfolio
    0.31       0.19  
Nonperforming assets to loans held in portfolio and other real estate owned
    0.36       0.23  
 
               
Loans held in portfolio
  $ 6,942,843     $ 6,635,660  
Gross interest income recognized on impaired loans
    49       80  
Gross interest income not recognized on nonaccrual loans
    948       955  
Accruing loans contractually past due 90 days or more
    16,476       4,339  
Loans classified as troubled debt restructurings and not included above
    8,571       8,614  
The level of UCB’s nonperforming assets increased as of March 31, 2007, compared to December 31, 2006. The increase was a result primarily of a $9.2 million construction loan moving into nonaccrual status.
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 March 31, 2007, and December 31, 2006, UCB’s investment in loans that were considered to be impaired was $31.9 million and $12.0 million, respectively. Estimated losses on impaired loans are added to the allowance for loan losses through the provision for loan losses. At March 31, 2007, the allowance for loan losses included $3.0 million for impaired loans with a $17.0 million recorded investment. At December 31, 2006, the allowance included $1.4 million for impaired loans with a recorded investment of $6.9 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 assurance 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, exclusive of loans held for sale. 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 reserve 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 completed its annual methodology review for establishing its loss factors for pass rated and criticized loans. 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 on a quarterly basis, and as part of the assessment concluded during the three months ended March 31, 2007, UCB effected further refinements in the determination of certain 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. UCB also refined certain historical, qualitative and economic surcharge pass rate factors during three months ended March 31, 2007.
The second component of the allowance for loan losses, the specific reserve, applies to loans that are considered 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 allowance for losses related to unfunded commitments for the three months ended March 31, 2007 and 2006, were as follows (dollars in thousands):
The increase in loan charge-offs in 2006 relates primarily to three borrowers whose loans were fully reserved prior to being charged off.
                 
    2007     2006  
Balance at beginning of period:
               
Allowance for loan losses
  $ 62,015     $ 64,542  
Allowance for losses — unfunded commitments
    6,833       3,402  
 
           
 
               
Total allowance for losses at beginning of year
    68,848       67,944  
 
               
Provision for loan losses
    1,048       307  
Charge-offs:
               
Commercial:
               
Secured by real estate — nonresidential
          452  
Business
    1,772       2,351  
 
           
 
               
Total commercial
    1,772       2,803  
 
           
 
               
Consumer:
               
Other
          50  
 
           
 
Total charge-offs
    1,772       2,853  
 
           
 
               
Recoveries:
               
Commercial:
               
Secured by real estate — nonresidential
    2       81  
Business
    12       30  
 
           
 
               
Total commercial
    14       111  
 
           
Consumer:
               
Residential mortgage (one-to-four family)
           
Other
    2       10  
 
           
 
               
Total consumer
    2       10  
 
           
 
               
Total recoveries
    16       121  
 
           
 
               
Net recoveries (charge-offs)
    (1,756 )     (2,732 )
 
           
 
               
Total allowance for losses at end of period
  $ 68,140     $ 65,519  
 
           
 
               
Allowance for loan losses
  $ 62,804     $ 61,806  
Allowance for losses — unfunded commitments
    5,336       3,713  
 
           
 
               
Total allowance for losses at end of year
  $ 68,140     $ 65,519  
 
           
 
               
Allowance for loan losses to loans held in portfolio
    0.91 %     1.08 %
Net charge-offs to average loans held in portfolio
    0.10       0.18  
The overall allowance for loan losses increased $789,000 from December 31, 2006. This change includes a $2.9 million reduction from changes in loss factors and $1.8 million reduction from net loan charge-offs. These reductions to the allowance for loan losses were offset by increases in specific reserves of $3.4 million and $2.1 million net increase arising from migrations in loan quality on loans analyzed in the general allowance category.
The allowance for unfunded commitments decreased $1.5 million from December 31, 2006. The decrease was a result from the change in the loss factor which decreased the reserve by $2.1 million, which was partially offset by an increase in the unfunded commitments which resulted in an increase of $548,000 in the reserve.
The Federal Reserve has consistently raised interest rates through June 29, 2006, and has not yet communicated its intention regarding interest rates for 2007. If 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 quarters if we are successful in implementing our strategies for loan growth and for changing the mix of the commercial loan portfolio to reduce multifamily 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 an approach similar to the

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approach used in the development of the allowance for loan losses. The overall reserve decreased $1.5 million from December 31, 2006. This change includes a $2.1 million reduction resulting from a change in the loss factor, offset by an increase of $548,000 million arising from increased levels of unfunded commitments. The reserve for unfunded commitments is included in other liabilities on the statement of financial position. Commitments to extend credit at March 31, 2007, and December 31, 2006, were $2.3 billion and $2.1 billion, respectively.
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 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

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maturities. UCB also manages 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 decreasing more 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 March 31, 2007, has not changed substantially from December 31, 2006. 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, 2006, for the percentage change and UCB’s NPV and net interest income table.
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 corporate-wide affecting all business lines. Management of operational risk requires a different strategy for each category. For business-specific risks, the Operational Risk Management Committee works with the divisions to ensure consistency in policies, processes and assessments. With respect to corporate-wide risks, such as information security, business recovery, legal and compliance, the Operational Risk Management Committee assesses the risks, develops a consolidated corporate 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, Information 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.
Liquidity Risk
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 stockholders. UCBH’s cash needs are routinely met through dividends from UCB, investment income and debt issuances. UCB’s cash requirements consist primarily of funding loans and deposit maintenance such as interest payments and deposit withdrawals. UCB’s primary source of funding is its core 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 three months ended March 31, 2007, UCBH received $12.0 million in dividends from UCB. At March 31, 2007, $275.9 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 in the future, the source of funding to UCBH may become more limited or even unavailable. See Note 17 to the Consolidated Financial Statements for the details related to dividend capacities and limitations.
As mentioned earlier, UCB’s primary source of funding is its deposits. For the three months ended March 31, 2007, deposit increases resulted in net cash inflows of $96.3 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.
UCB maintains borrowing lines with numerous correspondent banks and brokers, and several agreements to repurchase securities sold with major brokerage houses 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 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

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secured by a pledge of FHLB stock that UCB holds. UCB had $1.41 billion and $1.43 billion of FHLB advances outstanding at March 31, 2007, and December 31, 2006, respectively. At March 31, 2007, UCB had $951.5 million of additional FHLB borrowings available for future borrowing capacity. At March 31, 2007, UCB had $300.0 million of securities sold under agreements to repurchase. The Company also has a $20 million unsecured borrowing line with Wells Fargo Bank. As of March 31, 2007, no advances had been drawn against this line.
At March 31, 2007, the Company had $340.0 million of FHLB short-term, fixed-rate advances that mature within one year. The $1.07 billion in long-term advances mature between July 6, 2007, and November 30, 2020. As of March 31, 2007, $916.5 million of these advances may be terminated at the option of the FHLB. For the three months ended March 31, 2007, the activity in short-term FHLB borrowings resulted in a net cash outflow of $194.2 million, and activity in long-term borrowings resulted in net cash inflows of $171.7 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 three months ended March 31, 2007, loan sales provided $99.8 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 securities activities can also provide or use cash, depending on the investment strategy being used for the portfolio. During the three months ended March 31, 2007, investment securities activities resulted in a decrease in investment securities holdings and a net cash inflow of $369.3 million. Our current strategy is to continue reducing our investment securities 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 three months ended March 31, 2007, loan growth resulted in a net cash outflow of $1.09 billion. With the loan growth that we have experienced over the past year, we expect that our lending operations will continue to be a use of funds rather than a source.
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 under the regulatory framework for prompt corrective action. As of March 31, 2007, both UCB and the Company exceeded the minimum total risk-based, Tier 1 risked-based and Tier 1 leverage ratios to be considered “well capitalized”.
UCB also manages its risk-based capital levels through internal loan securitizations. In such securitizations, UCB will exchange either multifamily or residential (one-to-four family) mortgage loans for securities issued by FNMA. Residential (one-to-four family) mortgages are generally included in the 50% risk weighted category for risk-based capital purposes. Multifamily loans may receive either a 50% or 100% risk weighting depending on specific loan criteria. FNMA securities, however, are classified at a 20% risk weight.
These internal securitizations do not have a cash flow impact on UCB, since selected loans from its loan portfolio are exchanged for FNMA securities. Such securities are supported by exactly the same loans that were held in UCB’s portfolio. The securities are generally included in the available for sale investment securities portfolio.

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Total stockholders’ equity at March 31, 2007, was $821.5 million, an increase of 4.5% over the $786.1 million at December 31, 2006. The increase reflects the retention of earnings and the issuances of new shares of stock in connection with the Company’s recent acquisitions. UCB’s and the Company’s total risk-based, Tier 1 risk-based and Tier 1 leverage ratios at March 31, 2007, and December 31, 2006, were as follows:
                 
    March 31,     December 31,  
    2007     2006  
United Commercial Bank:
               
Tier 1 leverage
    8.21 %     9.30 %
Tier 1 risk-based capital
    9.65       9.67  
Total risk-based capital
    10.48       10.53  
 
               
UCBH Holdings, Inc. and subsidiaries:
               
Tier 1 leverage
    8.5 %     9.50 %
Tier 1 risk-based capital
    10.03       9.86  
Total risk-based capital
    10.86       10.72  
The decline in the risk-based capital ratios over the past year relates primarily to the Company’s acquisitions, which increased risk–weighted assets, off-balance sheet exposures and goodwill at a rate that outpaced the growth in equity.
UCBH has continuously paid quarterly dividends on its common stock since 2000. UCBH paid out dividends of $0.03 per share for a total payment of $3.0 million for the three months ended March 31, 2007. The payment of dividends during 2007 had the effect of reducing the Company’s Tier 1 leverage ratio by 3 basis points and the total risk-based capital ratio by 4 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
At 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 are collectively referred to as the “Company”) carried out an evaluation, under the supervision and with the participation of the Company’s management, including UCBH’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. Based on this evaluation, UCBH’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report. 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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PART II — OTHER INFORMATION
Item 1. Legal Proceedings
UCBH Holdings, Inc. and subsidiaries have been a party to litigation incidental to various aspects of their 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 position or their 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, 2006, which could materially affect our business, financial condition and/or future operating results.
As of March 31, 2007, 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, 2006. 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
None.
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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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   10-Q   000-24947     2.4     November 14, 2006        
 
                               
2.5
  Agreement and Plan of Merger by and among UCBH Holdings, Inc. (“Buyer”), UCB Merger II, LLC, a wholly owned subsidiary of Buyer, CAB Holding, LLC, CAB International Holding Limited, and Dr. Paul Shi H. Huang dated January 10, 2007                         ü  
 
                               
2.6
  Sale and Purchase Agreement among United Commercial Bank, Charoen Pokphand Group Co., Ltd., M. Thai Group Limited and DEG – Deutsche Investitions and Entwicklungsgesellschaft mbH dated March 26, 2007                         ü  
 
                               
2.7
  Agreement for Transfer of Equity Interest in Business Development Bank Limited by and among Kasikornbank Public Co., Ltd., Charoen Pokphand Group Company Limited, and United Commercial Bank dated March 26, 2007                         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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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        
 
                               
4.9
  Indenture between UCBH Holdings, Inc. and Wilmington Trust Company, as trustee, dated December 15, 2006   10-K   000-24947     4.9     March 1, 2007        
 
                               
4.10
  Junior subordinated indenture between UCBH Holdings, Inc. and Wilmington Trust Company, as trustee, dated December 28, 2006   10-K   000-24947     4.10     March 1, 2007        
 
                               
4.11
  Junior Subordinated Indenture between Summit Bank Corporation and The Bank of New York, as trustee, dated September 30, 2003   10-K   000-24947     4.11     March 1, 2007        
 
                               
4.12
  Registration Rights, Lockup and Standstill Agreement by and among UCBH Holdings, Inc., CAB International Holding Limited and Dr. Paul Shi H. Huang                           ü
 
                               
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        

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Exhibit       Incorporated by Reference   Filed
Number   Exhibit Description   Form   File No.   Exhibit   Filing Date   Herewith
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        
 
                               
10.10
  Form of Indemnification Agreement of UCBH Holdings, Inc.   8-K   000-24947     10.1     May 18, 2006        
 
                               
10.11
  Form of Indemnification Agreement of United Commercial Bank.   8-K   000-24947     10.2     May 18, 2006        
 
                               
10.12
  Post Retirement Compensation Agreement between Pin Pin Chau, Chief Executive Officer of Summit Bank Corporation, and Summit Bank Corporation dated December 20, 2004   10-K   000-24947     10.12     March 1, 2007        
 
                               
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 1, 2007        
 
                               
31.1
  Certificate pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, signed and dated by Thomas S. Wu.                       ü
 
                               
31.2
  Certificate pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, 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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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: May 10, 2007
  /s/ Thomas S. Wu    
 
       
 
  Thomas S. Wu    
 
  Chairman, President and Chief Executive Officer    
 
  (Principal Executive Officer)    
 
       
Date: May 10, 2007
  /s/ Dennis Wu    
 
       
 
  Dennis Wu    
 
  Director, Executive Vice President and Chief Financial Officer    
 
  (Principal Financial and Accounting Officer)    

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