UCBH Holdings, Inc. Reports Fourth Quarter 2008 Financial Results

UCBH Holdings, Inc. (NASDAQ:UCBH), the holding company of United Commercial Bank (UCB™ or the "Bank”), today reported a net loss of $0.51 per share. The loss in the quarter reflects a loan loss provision of $112.1 million and a $10.7 million write-down related to three pooled bank trust preferred securities, partially offset by a $50.1 million tax benefit. Excluding the effect of the securities write-down, the net loss would have been $0.39 per share.

Fourth Quarter 2008 Highlights

• Deposit growth for the fourth quarter was strong at 5.13%, or 20.52% annualized. This strong growth drove the loan-to-deposit ratio down to 94.6% at year-end, further enhancing our already strong liquidity position.
• Capital was further strengthened to a very strong level with a total risk-based capital ratio at 15.49%.
• Allowance for loan losses was at a strong 2.20% of loans held in portfolio. Provisions for loan losses for the quarter were $112.1 million, adding $70.2 million to the allowance for loan losses.
• Despite the economic slowdown, the Company continues to originate loans, focused on prudent underwriting within strict credit guidelines with $353 million in new loan originations.
• Our Greater China operations experienced good growth in loans and deposits, with $11.3 million in net contribution to our bottom line.

Full Year 2008 Highlights

• Net interest income before provision for loans losses increased 4.18%, despite the challenging current economic environment and the Fed Funds rate cuts since Q3 2007.
• Total deposits were $8.97 billion at December 31, 2008, a growth of 15.24%, compared to $7.78 billion at December 31, 2007.
• Total loans were $8.67 billion at December 31, 2008, a growth of 8.26%, compared to $8.01 billion at December 31, 2007.
• Fee income, including commercial banking fee and service fee income, was up 7.4% year over year.
• Provision for loan losses for the year was $222.9 million, adding $109.7 million to the allowance for loan losses.
• Capital raises for the year include $135 million from a public offering of preferred stock in June, $298.7 million from the Treasury Department’s Capital Purchase Program in November, and proceeds of $95.7 million in March and $29.9 million in December from China Minsheng Banking Corp., Ltd.’s two investments in UCBH.

Chairman, President and Chief Executive Officer Thomas S. Wu said, "Our fourth quarter results continue to reflect the unprecedented challenging economic conditions that have affected the industry. In light of the continuing deterioration of the market conditions, we continued our ongoing review of our construction loan portfolio, as well as conducted our comprehensive review during the quarter, which was completed in January 2009.

"Although the 2008 operating environment was very difficult, which led to increased loan loss provisioning, we are pleased with our deposit and loan growth as well as the continued build-up of our capital position. While we anticipate the economic environment to remain challenging in 2009, we are very optimistic about the future profitability growth of UCBH,” concluded Mr. Wu.

Fourth Quarter 2008 Financial Summary

The fourth quarter net loss was $53.7 million. The loss per share was $0.51 for the fourth quarter of 2008.

Net interest income, before provision for loan losses, decreased 16.04% to $72.3 million, from $86.1 million in the fourth quarter of 2007. The decrease was primarily due to the decrease in the net interest margin resulting from the Fed Funds rate cuts since Q3 2007 and the reversal of $9.3 million, equal to 31 basis points, in loan interest income for nonaccrual loans during the fourth quarter of 2008.

The net interest margin on a tax equivalent basis was 2.44% for the fourth quarter of 2008, a 61 basis point decrease from the 3.05% net interest margin for the third quarter of 2008, and a 95 basis point decrease from 3.39% for the fourth quarter of 2007.

Noninterest income was $3.1 million for the fourth quarter of 2008, compared with a noninterest loss of $2.1 million for the corresponding quarter of 2007. Included in the fourth quarter 2008 noninterest income was a $2.2 million foreign exchange gain and a $10.7 million other than temporary impairment on three pooled bank trust preferred securities. The loss in the fourth quarter of 2007 was primarily attributable to an $11.6 million write-down on two REIT-backed CDOs.

Noninterest expense for the fourth quarter of 2008 rose 23.61% to $59.3 million, from $47.9 million in the fourth quarter of 2007. This increase was primarily due to $2.8 million of expenses related to UCBC, which was acquired in December 2007, increase in other real estate owned ("OREO”) expenses of $4.4 million and increase in the FDIC insurance premium of $1.7 million.

We recognized a $42.3 million income tax benefit on our fourth quarter 2008 pretax loss, compared to the $5.8 million income tax provision on pretax income for the fourth quarter of 2007. The income tax benefit was primarily caused by the pretax loss for the fourth quarter of 2008 and tax-exempt interest income and low-income housing credits.

Full Year 2008 Financial Summary

Net interest income before provision for loan losses for the year ended December 31, 2008, increased by $13.5 million, or 4.18%, to $336.1 million, compared with $322.6 million for the year 2007.

Noninterest income was $8.9 million for the year ended December 31, 2008, compared to noninterest income of $30.7 million for the year 2007. However, without the $43.1 million other than temporary impairment charge, noninterest income would have been $52.1 million for the year ended December 31, 2008, or 23.3% increase.

Noninterest expense for the year ended December 31, 2008 was $216.3 million, representing a $38.5 million, or 21.67%, increase over the year ended December 31, 2007. The increase was due primarily to increases in personnel expense, the FDIC insurance assessment, and higher OREO expenses. The increase in noninterest expense includes $6.4 million of full year expenses related to UCBC, which was acquired in December 2007. Our efficiency ratio for 2008, after adjusting for the impact of the $43.1 million other than temporary impairment charges on investment securities and $7.1 million of OREO expenses, was 53.91%, which compares to 48.58% for the comparable period of 2007.

We recognized a $50.0 million income tax benefit on pretax income for the year ended December 31, 2008. The income tax benefit was primarily caused by the pretax loss for 2008 and tax-exempt interest income and low-income housing credits.

Credit Quality

• The provision for loan losses was $112.1 million for the fourth quarter of 2008, compared with $43.2 million for the third quarter of 2008, and $14.0 million for the fourth quarter of 2007. The provision for loan losses was $222.9 million for the year ended December 31, 2008, compared with $20.2 million for the year ended December 31, 2007.
• Net loan charge-offs were $43.6 million for the fourth quarter of 2008, or 1.98% annualized, compared with net loan charge-offs of $31.1 million, or 1.40% annualized, in the third quarter of 2008, and $3.9 million, or 0.20% annualized, in the fourth quarter of 2007. Net loan charge-offs were $113.2 million for the year ended December 31, 2008, compared with $9.3 million for the full year 2007.
• Nonperforming assets were $433.8 million, or 3.21% of total assets, at December 31, 2008, compared with $251.6 million, or 1.93% of total assets, at September 30, 2008, and $57.0 million, or 0.48% of total assets, at December 31, 2007. The increase in nonperforming assets continued to reflect further deterioration in the appraised values of certain residential construction loans in distressed areas in California.
• The ratio of allowance for loan losses to loans held in portfolio was 2.20% at December 31, 2008, compared with 1.36% at September 30, 2008, and 1.03% at December 31, 2007. The ratio of the allowance for loan losses and the reserve for unfunded commitments to loans held in portfolio, excluding cash secured loans, was 2.32% at December 31, 2008 and 1.48% at September 30, 2008, compared to 1.13% at December 31, 2007.
• The Company has provided $109.7 million in provision for loan losses in excess of net charge-offs for the year ended December 31, 2008.

Capital Management

Stockholders’ equity was $1.45 billion at December 31, 2008. Period-end assets were $13.53 billion. The Tier I risk-based capital ratio of the Company was 12.98% at December 31, 2008, compared with 8.51% at December 31, 2007. The total risk-based capital ratio was 15.49% as of December 31, 2008, compared with 10.76% at December 31, 2007. These ratios have increased during 2008 as a result of Minsheng’s investments in UCBH in March and December, UCBH’s convertible preferred stock offering in June, and UCBH’s participation in the Treasury’s Capital Purchase Program in November. The Company’s capital ratios exceed regulatory requirements and continue to be categorized as "well capitalized.” The Bank’s capital ratios approximate those of the Company and are also categorized as "well capitalized.”

Below is a summary of our strong capital ratios at December 31, 2008, which are well above all of the regulatory requirements for "well capitalized” banks:

Balance Sheet Highlights

Total loans increased by 8.26% to $8.67 billion at December 31, 2008, from $8.01 billion at December 31, 2007.

Commercial business loans increased by 15.90% to $2.41 billion at December 31, 2008, from $2.08 billion at December 31, 2007. All of the commercial business loan growth during the year was organic. Construction loans increased by 19.10% to $1.98 billion at December 31, 2008, from $1.67 billion at December 31, 2007, primarily due to drawdowns from existing loan commitments. Commercial real estate loans increased by 3.62% to $2.58 billion at December 31, 2008 compared to $2.49 billion at December 31, 2007. Multifamily real estate loans were $1.11 billion at December 31, 2008, compared to $1.19 billion at December 31, 2007.

New loan originations of $353.3 million for the fourth quarter of 2008 were comprised of $334.1 million of commercial loans and $19.2 million of consumer loans. Commercial business loan originations were $147.9 million in the fourth quarter of 2008. Construction loan originations were $77.9 million in the fourth quarter of 2008. Commercial real estate loan originations were $108.3 million in the fourth quarter of 2008.

The average loan yield decreased to 5.52% for the quarter ended December 31, 2008, from 7.75% for the quarter ended December 31, 2007, primarily as a result of the Fed Funds rate cuts since Q3 2007 and the reversal of $9.3 million in loan interest for nonaccrual loans during the fourth quarter of 2008.

The investment securities portfolio, including available for sale and held to maturity, was $3.24 billion at December 31, 2008, compared with $2.46 billion at December 31, 2007. The investment securities portfolio was 24.0% of total assets at December 31, 2008, compared with 20.8% of total assets at December 31, 2007.

Total deposits increased by 15.24% to $8.97 billion at December 31, 2008, from $7.78 billion at December 31, 2007. The average cost of deposits for the quarter ended December 31, 2008 was 2.64%, a decrease of 101 basis points, from 3.65% for the quarter ended December 31, 2007. The cost of deposits at December 31, 2008 was 2.47%, reflecting management’s continued focus on disciplined deposit pricing of our deposit generation strategy and the impact of the Fed Funds rate cuts.

In accordance with our policy, the Company is evaluating the goodwill associated with our domestic and international reporting units. We anticipate the evaluation, which is being conducted in conformity with Statement of Financial Accounting Standards No. 142 "Goodwill and Other Intangible Assets”, to be completed prior to the filing of our report on Form 10-K for 2008.

Fourth Quarter Earnings Teleconference and Webcast

UCBH will hold a conference call with an accompanying slide presentation to be webcast on January 23, 2009 at 8:00 a.m. Pacific time to discuss the financial results for the Company’s fourth quarter and fiscal 2008, as well as its outlook for 2009. The audio webcast and slide presentation will be available through a link on the Investor Relations page of the Company’s web site at www.ucbh.com. If you are unable to listen to the webcast live, an archived replay with the slide presentation will be available at www.ucbh.com.

About UCBH Holdings, Inc.

UCBH Holdings, Inc., with $13.53 billion in assets as of December 31, 2008, is the holding company for United Commercial Bank, a state-chartered commercial bank, which is a leading bank in the United States serving the Chinese communities and American companies doing business in Greater China. Together, the Bank and its subsidiaries, including United Commercial Bank (China) Limited, operate 51 California branches/offices located in the San Francisco Bay Area, Sacramento, Stockton, Los Angeles and Orange counties, nine branches in New York, five branches in metropolitan Atlanta, three branches in New England, two branches in the Pacific Northwest, a branch in Houston, branches in Hong Kong, Shanghai and Shantou, China, and representative offices in Beijing, Guangzhou and Shenzhen, China, and Taipei, Taiwan. UCB, with headquarters in San Francisco, provides commercial banking services to small- and medium-sized businesses and professionals in a variety of industries, as well as consumer and private client services to individuals. The Bank offers a full range of lending activities, including commercial real estate and construction loans, commercial credit facilities, international trade finance, asset-based financing, cash management, loans guaranteed by the U.S. Small Business Administration, commercial, multifamily and residential mortgages, home equity lines of credit, and online banking services for businesses and consumers. For additional information, visit the web site for United Commercial Bank at www.ibankUNITED.com or the web site for UCBH Holdings, Inc. at www.ucbh.com.

Forward-Looking Statements

Certain statements contained in this release may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based upon specific assumptions that may or may not prove correct. Forward-looking statements are also subject to known and unknown risks, uncertainties and other factors relating to the Company’s and the Bank’s operations and business environment, all of which are difficult to predict, and many of which are beyond the control of the Company and the Bank. The factors include, among others: the current dislocations in global credit and capital markets; economic and business conditions in the areas and markets in which the Company and the Bank operate, particularly those affecting loans secured by real estate; deterioration or improvement in the ability of the Bank’s borrowers to pay their debts to the Bank; market fluctuations such as those affecting interest and foreign exchange rates and the value of securities in which the Bank invests; competition from other financial institutions, whether banks, investment banks, insurance companies or others; the ability of the Bank to assimilate acquisitions, enter new markets and lines of business, and open new branches, successfully; changes in business strategies; changes in tax law and governmental regulation of financial institutions; demographic changes; and other risks and uncertainties, including those discussed in the documents the Company files with the Securities and Exchange Commission ("SEC”). The foregoing may cause the actual results and performance of the Company and the Bank to be materially different from the results and performance indicated or suggested by the forward-looking statements. Further description of the risks and uncertainties are included in detail in the Company’s current, quarterly and annual reports, as filed with the SEC.