10-Q 1 f40596e10vq.htm FORM 10-Q e10vq
Table of Contents

 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
     
þ   Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
For the quarterly period ended March 31, 2008.
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, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
             
Large accelerated filer þ   Accelerated filer o   Non-accelerated filer o   Smaller reporting company o
    (Do not check if a smaller reporting company)
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, 2008, the Registrant had 110,460,242 shares of common stock, par value $0.01 per share, outstanding.
 
 

 


 

UCBH HOLDINGS, INC. AND SUBSIDIARIES
Table of Contents
             
        Page
           
  Financial Statements     1  
  Management’s Discussion and Analysis of Financial Condition and Results of Operations     24  
  Quantitative and Qualitative Disclosures About Market Risk     48  
  Controls and Procedures     48  
 
           
           
  Legal Proceedings     49  
  Risk Factors     49  
  Unregistered Sales of Equity Securities and Use of Proceeds     49  
  Defaults Upon Senior Securities     49  
  Submission of Matters to a Vote of Security Holders     49  
  Other Information     49  
  Exhibits     50  
 
           
SIGNATURES     54  
 EXHIBIT 31.1
 EXHIBIT 31.2
 EXHIBIT 32.0

 


Table of Contents

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

(Dollars in Thousands, Except Share and Par Value Amounts)
(Unaudited)
                 
    March 31,     December 31,  
    2008     2007  
 
               
ASSETS
               
Noninterest bearing cash
  $ 121,657     $ 117,141  
Interest bearing cash
    221,854       202,258  
Federal funds sold
    50,424       26,028  
 
           
 
               
Cash and cash equivalents
    393,935       345,427  
 
           
 
               
Securities purchased under agreements to resell
    150,000       150,000  
Investment and mortgage-backed securities available for sale, at fair value
    2,750,174       2,188,355  
Investment and mortgage-backed securities held to maturity, at cost (fair value of $269,905 and $276,286 at March 31, 2008, and December 31, 2007, respectively)
    264,451       271,485  
Federal Home Loan Bank stock, Federal Reserve Bank stock and other equity investments
    154,531       138,877  
Loans held for sale, net of valuation allowance
    150,026       177,137  
 
               
Loans held in portfolio
    8,203,000       7,832,150  
Allowance for loan losses
    (102,839 )     (80,584 )
 
           
 
               
Loans held in portfolio, net
    8,100,161       7,751,566  
 
           
 
               
Accrued interest receivable
    67,170       61,111  
Premises and equipment, net
    145,119       144,630  
Goodwill
    430,816       436,606  
Core deposit intangibles, net
    21,286       22,526  
Mortgage servicing rights, net
    11,885       12,783  
Other assets
    103,570       103,063  
 
           
 
               
Total assets
  $ 12,743,124     $ 11,803,566  
 
           
 
               
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
Noninterest bearing deposits
  $ 861,508     $ 860,338  
Interest bearing deposits
    7,220,646       6,920,902  
 
           
 
               
Total deposits
    8,082,154       7,781,240  
 
           
Securities sold under agreements to repurchase
    805,000       650,000  
Short-term borrowings and federal funds purchased
    861,789       492,532  
Subordinated debentures
    406,553       406,615  
Accrued interest payable
    26,841       28,169  
Long-term borrowings
    1,385,808       1,372,190  
Other liabilities
    108,073       105,717  
 
           
 
               
Total liabilities
    11,676,218       10,836,463  
 
           
 
               
Commitments and contingencies (Note 17)
               
 
               
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, 2008, and December 31, 2007; 110,436,042 and 104,397,988 shares issued and outstanding at March 31, 2008, and December 31, 2007, respectively
    1,104       1,044  
Additional paid-in capital
    525,212       427,474  
Retained earnings
    552,371       554,568  
Accumulated other comprehensive loss
    (11,781 )     (15,983 )
 
           
 
               
Total stockholders’ equity
    1,066,906       967,103  
 
           
 
               
Total liabilities and stockholders’ equity
  $ 12,743,124     $ 11,803,566  
 
           
See accompanying notes to consolidated financial statements.

-1-


Table of Contents

UCBH HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations

(Dollars in Thousands, Except Per Share Amounts)
(Unaudited)
                 
    Three Months Ended March 31,  
    2008     2007  
 
               
Interest and dividend income:
               
Loans
  $ 140,891     $ 131,651  
Investment and mortgage-backed securities:
               
Taxable
    28,760       23,514  
Tax exempt
    5,888       3,306  
FHLB Stock
    1,277       922  
Federal funds sold and deposits with banks
    2,848       2,289  
Securities purchased under agreements to resell
    2,080       2,264  
 
           
 
               
Total interest and dividend income
    181,744       163,946  
 
           
 
               
Interest expense:
               
Deposits
    63,114       65,994  
Securities sold under agreements to repurchase
    6,577       3,261  
Short-term borrowings and federal funds purchased
    5,868       5,192  
Subordinated debentures
    6,871       4,553  
Long-term borrowings
    16,217       11,116  
 
           
 
               
Total interest expense
    98,647       90,116  
 
           
 
               
Net interest income
    83,097       73,830  
Provision for loan losses
    35,069       1,048  
 
           
 
               
Net interest income after provision for loan losses
    48,028       72,782  
 
           
 
               
Noninterest income:
               
Commercial banking fees
    4,573       4,745  
Service charges on deposits
    2,006       1,529  
Gain (loss) on sale of securities, net
    973       3,076  
Gain on sale of SBA loans, net
    166       765  
Gain on sale of multifamily and commercial real estate loans, net
    742       1,394  
Lower of cost or market adjustment on loans held for sale, net
    (1,428 )     (14 )
Impairment on available for sale securities
    (3,791 )      
Equity loss in other equity investments
    (707 )     (473 )
Other fees
    1,022       1,423  
 
           
 
               
Total noninterest income
    3,556       12,445  
 
           
 
               
Noninterest expense:
               
Personnel
    29,585       24,264  
Occupancy
    5,755       4,848  
Data processing
    2,324       2,280  
Furniture and equipment
    2,096       2,166  
Professional fees and contracted services
    1,760       2,329  
Deposit insurance
    1,167       292  
Communication
    984       701  
Core deposit intangible amortization
    1,240       1,008  
Foreign currency translation (gain) loss
    (2,889 )     296  
Other general and administrative
    6,531       5,711  
 
           
 
               
Total noninterest expense
    48,553       43,895  
 
           
 
               
Income before income tax expense
    3,031       41,332  
Income tax expense
    811       14,301  
 
           
 
               
Net income
  $ 2,220     $ 27,031  
 
           
 
               
Earnings per share:
               
Basic
  $ 0.02     $ 0.27  
Diluted
  $ 0.02     $ 0.26  
 
               
Dividends declared per share
  $ 0.04     $ 0.03  
See accompanying notes to consolidated financial statements.

-2-


Table of Contents

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

(Dollars in Thousands, Except Share and Per Share Amounts)
(Unaudited)
                                                         
                                    Accumulated              
                    Additional             Other     Total        
    Common Stock     Paid-In     Retained     Comprehensive     Stockholders’     Comprehensive  
    Shares     Amount     Capital     Earnings     Loss(1)     Equity     Income  
 
                                                       
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 liability of $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 $0.03 per share
                      (2,997 )           (2,997 )        
 
                                           
 
                                                       
Balance at March 31, 2007
    99,900,138     $ 999     $ 348,932     $ 488,650     $ (17,080 )   $ 821,501          
 
                                           
 
                                                       
Balance at December 31, 2007
    104,397,988     $ 1,044     $ 427,474     $ 554,568     $ (15,983 )   $ 967,103          
 
                                                       
Net income
                      2,220             2,220     $ 2,220  
Other comprehensive income, net of tax liability of $4,498
                            4,202       4,202       4,202  
 
                                                     
Comprehensive income
                                      $ 6,422  
 
                                                     
Stock options exercised, including related tax benefit
    656,834       6       2,954                   2,960          
Stock compensation charge
                  1,499                   1,499          
Stock issue to China Minsheng Banking Corp., Ltd.
    5,381,220       54       93,285                   93,339          
Cash dividend of $0.04 per share
                      (4,417 )           (4,417 )        
 
                                           
 
                                                       
Balance at March 31, 2008
    110,436,042     $ 1,104     $ 525,212     $ 552,371     $ (11,781 )   $ 1,066,906          
 
                                           
 
(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-


Table of Contents

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

(Dollars in Thousands)
(Unaudited)
                 
    Three Months Ended March 31,  
    2008     2007  
 
               
Cash flows from operating activities:
               
Net income
  $ 2,220     $ 27,031  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Provision for loan losses
    35,069       1,048  
Amortization of net deferred loan fees
    (3,167 )     (2,701 )
Amortization of net securities premiums and discounts
    424       (611 )
Federal Home Loan Bank stock dividend
    (1,051 )     (700 )
Amortization of intangibles
    2,178       1,921  
Depreciation and amortization of premises and equipment
    2,605       2,628  
Gain on sale of loans originated in held in portfolio, securities, and other assets, net
    (1,587 )     (2,620 )
Impairment on available for sale securities
    3,791        
Lower of cost or market adjustment on loans held for sale
    1,419       6  
Equity loss in other equity investments
    707       523  
Stock compensation expense, net of tax benefit related to nonqualified stock option grants
    1,161       650  
Excess tax benefit from stock option exercises
    (1,585 )     (1,233 )
Other, net
    3,119       104  
Changes in operating assets and liabilities:
               
Decrease in loans originated in held for sale
    9,864       9,965  
Increase in accrued interest receivable
    (6,059 )     (2,285 )
Decrease in other assets
    579       15,193  
Decrease (increase) in accrued interest payable
    (1,328 )     223  
Decrease in other liabilities
    (504 )     (30,798 )
 
           
 
               
Net cash provided by operating activities
    47,855       18,344  
 
           
 
               
Cash flows from investing activities:
               
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
    44,816       577,155  
Purchases
    (767,044 )     (1,331,188 )
Sales
    206,884       1,056,161  
Called
    3,500       64,963  
Investment and mortgage-backed securities, held to maturity:
               
Principal payments and maturities
    1,794       2,225  
Called
    5,267        
Proceeds from redemption of Federal Home Loan Bank stock
          1,908  
Purchase of Federal Home Loan Bank stock
    (11,622 )     (1,651 )
Proceeds from redemption of Federal Reserve Bank stock
          1,267  
Funding of other equity investments
    (1,737 )     (232 )
Proceeds from the sale of loans originated in held in portfolio
    57,816       88,550  
Loans originated in held in portfolio funded and purchased, net of principal collections
    (467,897 )     (371,401 )
Purchases of premises and other equipment
    (3,304 )     (1,421 )
Other investing activities, net
    41       16  
 
           
 
               
Net cash (used in) provided by investing activities
    (931,486 )     111,352  
 
           
 
               
Cash flows from financing activities:
               
Net increase in demand deposits, NOW, money market and savings accounts
    8,235       72,543  
Net increase in time deposits
    275,667       23,780  
Net increase (decrease) in short-term borrowings
    385,187       (212,757 )
Proceeds from securities sold under agreements to repurchase
    455,000        
Payments of securities sold under agreements to repurchase
    (300,000 )     (101,600 )
Proceeds from long-term borrowings
    19,521       201,362  
Principal payments of long-term borrowings
    (4,638 )     (28,288 )
Proceeds from stock option exercises
    1,375       5,318  
Excess tax benefit from stock option exercises
    1,585       1,233  
Proceeds from stock issued to China Minsheng Banking Corp., Ltd.
    93,339        
Payment of cash dividend on common stock
    (3,132 )     (2,983 )
 
           
 
               
Net cash provided by (used in) financing activities
    932,139       (41,392 )
 
           
 
               
Net increase in cash and cash equivalents
    48,508       88,304  
Cash and cash equivalents at beginning of period
    345,427       354,419  
 
           
 
               
Cash and cash equivalents at end of period
  $ 393,935     $ 442,723  
 
           
See accompanying notes to consolidated financial statements.

-4-


Table of Contents

UCBH HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements

(Unaudited)
1.   Basis of Presentation and Summary of Significant Accounting and Reporting Policies
 
    Basis of Presentation and Principles of Consolidation
 
    The unaudited interim consolidated financial statements include the accounts of UCBH Holdings, Inc. (“UCBH”), the bank holding company of United Commercial Bank (“UCB”), and its consolidated subsidiaries (collectively referred to as the “Company”, “we”, “us” and “our”). 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, 2007.
 
    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, 2007, 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, 2008, 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, 2008, include the results of operations of United Commercial Bank (China) Limited (“UCB China”) (formerly known as Business Development Bank Ltd.), which was acquired on December 11, 2007, and The Chinese American Bank (“CAB”), which was acquired on May 23, 2007.
 
    Use of Estimates and Valuations in Preparation of Financial Statements
 
    The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make various estimates that affect reported amounts and disclosures in our financial statements. These estimates are used in measuring the fair value of certain financial instruments, accounting for goodwill and identifiable intangibles, establishing our provision for loan losses, valuing equity-based compensation awards and assessing the realizability of deferred income taxes. Such estimates are based on available information and on judgments by management of the Company. As such, actual results could differ from these estimates.
 
    Where available, fair value is based on or derived from observable market prices or parameters. Where observable prices or parameters are not available, valuations from outsourced service providers are generally obtained to assist the Company. The valuations performed by the service providers to assist the Company involve some level of estimation and judgment, the degree of which is dependent on the price transparency of the financial instrument being valued and the financial instruments’ complexity. In particular, the residual tranche on our collateralized mortgage-backed securities arising from our commercial real estate loan securitization, certain collateralized debt obligations and mortgage-related asset-backed securities, and certain other investments have no direct observable prices, and as a result, the related valuations that are obtained from third parties require significant estimation and judgment and are therefore subject to significant subjectivity. Reliance on the estimation and judgment process increases in adverse market conditions with decreased liquidity and because of the lack of trading and the resulting lack of clear and observable prices or parameters, such as those experienced during the second half of 2007 and the first quarter of 2008. If such conditions exist for the remainder of 2008, management of the Company would expect continued reliance on these judgments.

-5-


Table of Contents

UCBH HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements

(Unaudited)
    Fair Values
 
    Effective January 1, 2008, the Company determines the fair values of its financial instruments based on the fair value hierarchy delineated in Statement of Financial Accounting Standards (“SFAS”) No. 157, Fair Value Measurements (“SFAS 157”), which requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. SFAS 157 describes three levels of inputs that may be used to measure fair value:
 
    Level 1: Quoted prices for identical financial assets or liabilities in active markets.
 
    Level 2: Quoted prices for similar financial assets or liabilities in active markets; quoted prices for identical or similar financial assets or liabilities in markets that are not active; and valuations derived by models in which the significant inputs and significant value drivers are observable in active markets.
 
    Level 3: Valuations derived by models in which one or more significant inputs or significant value drivers are unobservable. These unobservable assumptions reflect our own estimates of assumptions that market participants would use in pricing the financial asset or liability.
 
    For more information regarding the fair value of the Company’s financial instruments see Note 20 — Fair Values of Financial Assets and Liabilities.
 
    Allowance for Loan Losses
 
    The allowance for loan losses represents our estimate of the losses that are inherent in the loans held in portfolio. Loans held for sale are excluded from any of the information included in Note 9, “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 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. 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. 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.
 
    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 Consolidated Balance Sheets.
 
    Foreign Currency Translation
 
    Assets, liabilities and operations of foreign branches and subsidiaries are recorded based on the functional currency of each entity. For our Hong Kong branch and our Chinese wholly owned subsidiary, UCB China, the functional currency is the U.S. dollar. As such, the resulting remeasurement currency gains and losses on foreign-denominated assets and liabilities are included in net income.

-6-


Table of Contents

UCBH HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements

(Unaudited)
    Reclassifications
 
    Certain reclassifications have been made to prior periods’ consolidated financial statements to conform to the March 31, 2008, presentation.
 
2.   Recent Accounting Pronouncements
 
    Accounting for Fair Value Measurements
 
    Effective January 1, 2008, the Company adopted Statement of Financial Accounting Standards SFAS 157. SFAS 157 defines fair value, establishes a framework for measuring fair value under GAAP and expands disclosures about fair value measurements. Fair value is defined under SFAS 157 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. SFAS 157 also establishes a fair value hierarchy which requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. In February 2008, the FASB decided that an entity need not apply this standard to nonfinancial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis until 2009. Accordingly, our adoption of this standard in 2008 was limited to financial assets and liabilities. The adoption of SFAS 157 did not have a material impact on the Company’s financial position or results of operations.
 
    In conjunction with the adoption of SFAS 157, the Company adopted SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (“SFAS 159”). SFAS 159 provides an irrevocable option to elect fair value for the initial and subsequent measurement for certain financial assets and financial liabilities, on a contract-by-contract basis, with changes in fair value reported in results of operations. The Company did not elect the fair value option for any of its financial assets or financial liabilities on the adoption date. As such, the adoption of SFAS 159 did not have a material impact on the Company’s financial position or results of operations.
 
    Disclosures about Derivative Instruments and Hedging Activities
 
    SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities — an amendment of FASB No. 133, was issued in March 2008. SFAS 161 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. This Statement encourages, but does not require, comparative disclosures for earlier periods at initial adoption. The Company is currently evaluating the impact that adopting SFAS 161 will have on its financial statements.
 
3.   Investment Agreement
 
    On October 7, 2007, UCBH and China Minsheng Banking Corp., Ltd., a Chinese joint stock commercial bank (“Minsheng”), entered into an Investment Agreement (the “Investment Agreement”), pursuant to which Minsheng will acquire 9.9% of the outstanding shares of UCBH common stock (calculated on a post-closing basis) in two phases, with a mutual option to increase Minsheng’s ownership to 20.0% (calculated on a post-closing basis).
 
    On March 5, 2008, UCBH and Minsheng completed the initial closing under the Investment Agreement (the “Initial Closing”) and entered into a Voting Agreement (the “Voting Agreement”). UCBH sold approximately 5.4 million newly issued shares of UCBH common stock, or 4.9% of the total outstanding shares (calculated on a post-closing basis), at $17.79 per share, in exchange for $95.7 million in cash proceeds, $93.3 million after the payment of $2.4

-7-


Table of Contents

UCBH HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements

(Unaudited)
    million in closing costs. Under the Voting Agreement, Minsheng agrees to vote the shares of UCBH it owns (the “Shares”) in favor of persons nominated and recommended by the Board of Directors of UCBH (the “Board”) as directors of the Board and against any person nominated for election as a director by any other person, except for persons designated by Minsheng for nomination to the Board pursuant to an Investor’s Rights and Standstill Agreement between UCBH and Minsheng (the “Investor’s Rights Agreement”). The Investor’s Rights Agreement provides that following the Initial Closing, Minsheng will recommend one person to be appointed to the Board in a newly created Board seat, and if Minsheng’s ownership of UCBH common stock is increased to 20.0% (calculated on a post-closing basis) by mutual agreement, Minsheng will have the right to recommend a second person to be appointed in another newly created Board seat. Under the Voting Agreement, Minsheng also agrees to vote the Shares as directed by the Board except under certain circumstances enumerated in the Voting Agreement.
    The Voting Agreement will terminate on the earliest of (i) the date when Minsheng no longer owns any Shares, (ii) the October 7, 2010 expiration of the standstill period as set forth in the Investor’s Rights Agreement or (iii) the termination of the Investment Agreement by Minsheng as a result of a material breach of the Investment Agreement by UCBH.
 
    In the second phase, which is anticipated to close in 2008, Minsheng will increase its ownership to 9.9% (calculated on a post-closing basis) through, at the discretion of UCBH, a combination of the purchase of secondary shares and/or the issuance of primary shares. By June 30, 2009, conditioned upon mutual agreement and regulatory approvals, Minsheng may increase its share ownership to 20.0% (calculated on a post-closing basis) through, at the discretion of UCBH, a combination of the purchase of secondary shares and/or the issuance of primary shares.
 
4.   Cash and Due from Banks
 
    UCB is required to maintain cash reserves in a noninterest-bearing account at the Federal Reserve Bank (“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, 2008, and December 31, 2007, the reserve requirement was $5.0 million and $6.9 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, 2008, and as of and for the year ended December 31, 2007, were as follows (dollars in thousands):
                 
    March 31,   December 31,
    2008   2007
Average balance outstanding
  $ 150,000     $ 158,863  
Maximum amount outstanding at any month end period
    150,000       200,000  
Balance outstanding at end of period
    150,000       150,000  
Weighted average interest rate during the period
    5.55 %     6.70 %
Weighted average interest rate at end of period
    6.45 %     6.21 %
Weighted average remaining term to maturity at end of period (in years)
    8.92       9.17  

-8-


Table of Contents

UCBH HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(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, 2008, 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
  $ 27,598     $     $ (3,063 )   $ 24,535     $ 12,575     $ (1,907 )   $ 7,344     $ (1,156 )   $ 19,919     $ (3,063 )
U.S. Government sponsored enterprises notes
    23,466             (3,777 )     19,689       19,689       (3,777 )                 19,689       (3,777 )
U.S. Government sponsored enterprises discount notes
    662,853       19,652             682,505                                      
Municipals
    278,849       248       (13,533 )     265,564       212,851       (12,338 )     14,463       (1,195 )     227,314       (13,533 )
Other
    10,000             (2,400 )     7,600                   7,600       (2,400 )     7,600       (2,400 )
 
                                                           
 
                                                                               
Total investment securities available for sale
    1,002,766       19,900       (22,773 )     999,893       245,115       (18,022 )     29,407       (4,751 )     274,522       (22,773 )
 
                                                           
 
                                                                               
Mortgage-backed securities available for sale:
                                                                               
FNMA
    551,691       5,092       (1,651 )     555,132       51,189       (300 )     72,189       (1,351 )     123,378       (1,651 )
GNMA
    469,617       1,235       (981 )     469,871       293,984       (635 )     19,089       (346 )     313,073       (981 )
FHLMC
    188,004       448       (3,712 )     184,740       62,932       (1,623 )     88,408       (2,089 )     151,340       (3,712 )
CMBS
    375,215             (10,560 )     364,655       364,655       (10,560 )                 364,655       (10,560 )
Other
    181,436       57       (5,610 )     175,883       115,292       (3,122 )     47,705       (2,488 )     162,997       (5,610 )
 
                                                           
 
                                                                               
Total mortgage-backed securities available for sale
    1,765,963       6,832       (22,514 )     1,750,281       888,052       (16,240 )     227,391       (6,274 )     1,115,443       (22,514 )
 
                                                           
 
                                                                               
Total investment and mortgage-backed securities available for sale
    2,768,729       26,732       (45,287 )     2,750,174       1,133,167       (34,262 )     256,798       (11,025 )     1,389,965       (45,287 )
 
                                                           
 
                                                                               
Investment securities held to maturity:
                                                                               
Municipal securities
    207,427       5,846       (297 )     212,976       9,554       (224 )     1,098       (73 )     10,652       (297 )
 
                                                           
 
                                                                               
Mortgage-backed securities held to maturity:
                                                                               
FNMA
    4,044             (51 )     3,993                   3,993       (51 )     3,993       (51 )
GNMA
    52,562       171       (211 )     52,522                   11,176       (211 )     11,176       (211 )
FHLMC
    418             (4 )     414                   414       (4 )     414       (4 )
 
                                                           
 
                                                                               
Total mortgage-backed securities held to maturity
    57,024       171       (266 )     56,929                   15,583       (266 )     15,583       (266 )
 
                                                           
 
                                                                               
Total investment and mortgage-backed securities held to maturity
    264,451       6,017       (563 )     269,905       9,554       (224 )     16,681       (339 )     26,235       (563 )
 
                                                           
 
                                                                               
Total securities
  $ 3,033,180     $ 32,749     $ (45,850 )   $ 3,020,079     $ 1,142,721     $ (34,486 )   $ 273,479     $ (11,364 )   $ 1,416,200     $ (45,850 )
 
                                                           
As of March 31, 2008, the net unrealized loss on securities was $13.1 million. The net unrealized loss on securities that are available for sale was $18.6 million. Net of a tax benefit of $6.8 million, the unrealized $11.8 million loss is included in other comprehensive loss as a reduction to stockholders’ equity. The $5.5 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 Balance Sheets. As more fully described in Note 7, from time to time to manage concentration risk and liquidity, the Company may securitize commercial real estate loans and retain such investments (“CMBS”) as well as multifamily loans through the Federal National Mortgage Association (“FNMA”).
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

-9-


Table of Contents

UCBH HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
Federal Home Loan Bank (“FHLB”). 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.
Mortgage-backed securities consist primarily of securities guaranteed by FNMA, GNMA 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 purchased yield and as the securities approach contractual or expected maturity.
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, AA, or A. There have not been any material deteriorations of credit quality that would contribute to other than temporary impairment. The unrealized losses on our municipal 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 contractual or expected maturity.
Other investment securities available for sale is comprised of one collateralized loan obligation. Other mortgage-backed securities available for sale are comprised of private-label residential mortgage-backed securities, collateralized debt obligations backed by trust preferred securities (“TPS”), FNMA and FHLMC preferred stock, and interest-only strips from SBA loans.
Collateralized debt obligations (“CDO”) with an amortized cost basis of $27.6 million and carrying value of $24.5 million at March 31, 2008, include securities backed by REIT trust preferred securities (“TPS”) and bank TPS and which are included in our available-for-sale securities. The carrying value at March 31, 2008 reflects the $3.8 million other than temporary impairment charge that we recognized on two CDOs and which was reflected in our results of operations for the three months ended March 31, 2008.
UCB has the intent and ability to hold its available-for-sale securities until recovery of the carrying value, which could be maturity. As such, with the exception of the two CDOs mentioned in the previous paragraph, UCB has concluded that the decline in value on these available-for-sale securities is temporary, as the decline in value has been driven predominantly by current market conditions and decreased liquidity.

-10-


Table of Contents

UCBH HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
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, 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:
                                                                               
Agency preferred stock
  $ 23,466     $     $ (3,317 )   $ 20,149     $ 20,149     $ (3,317 )   $     $     $ 20,149     $ (3,317 )
Collateralized debt obligations
    31,433             (2,702 )     28,731       12,364       (2,163 )     7,960       (539 )     20,324       (2,702 )
U.S. Government sponsored enterprises notes
    446,916       997       (686 )     447,227       174,453       (498 )     51,804       (188 )     226,257       (686 )
Municipals
    246,632       741       (2,964 )     244,409       160,048       (2,964 )                 160,048       (2,964 )
Other
    10,000             (1,050 )     8,950                   8,950       (1,050 )     8,950       (1,050 )
 
                                                           
 
                                                                               
Total investment securities available for sale
    758,447       1,738       (10,719 )     749,466       367,014       (8,942 )     68,714       (1,777 )     435,728       (10,719 )
 
                                                           
 
                                                                               
Mortgage-backed securities available for sale:
                                                                               
FNMA
    559,979       1,409       (5,250 )     556,138       13,288       (30 )     291,258       (5,220 )     304,546       (5,250 )
GNMA
    77,478       25       (1,770 )     75,733       3,505       (84 )     71,735       (1,686 )     75,240       (1,770 )
FHLMC
    241,243       102       (5,471 )     235,874       699       (2 )     223,597       (5,469 )     224,296       (5,471 )
CMBS
    390,112       835       (5,499 )     385,448       20,753       (5,499 )                 20,753       (5,499 )
Other
    188,006       148       (2,458 )     185,696       10,362       (379 )     139,808       (2,079 )     150,170       (2,458 )
 
                                                           
 
                                                                               
Total mortgage-backed securities available for sale
    1,456,818       2,519       (20,448 )     1,438,889       48,607       (5,994 )     726,398       (14,454 )     775,005       (20,448 )
 
                                                           
 
                                                                               
Total investment and mortgage-backed securities available for sale
    2,215,265       4,257       (31,167 )     2,188,355       415,621       (14,936 )     795,112       (16,231 )     1,210,733       (31,167 )
 
                                                           
 
                                                                               
Investment securities held to maturity:
                                                                               
Municipal securities
    212,647       6,016       (32 )     218,631       3,789       (28 )     417       (4 )     4,206       (32 )
 
                                                           
 
                                                                               
Mortgage-backed securities held to maturity:
                                                                               
FNMA
    4,090             (101 )     3,989                   3,989       (101 )     3,989       (101 )
GNMA
    54,326             (1,071 )     53,255       16,156       (216 )     37,098       (855 )     53,254       (1,071 )
FHLMC
    422             (11 )     411                   411       (11 )     411       (11 )
 
                                                           
 
                                                                               
Total mortgage-backed securities held to maturity
    58,838             (1,183 )     57,655       16,156       (216 )     41,498       (967 )     57,654       (1,183 )
 
                                                           
 
                                                                               
Total investment and mortgage-backed securities held to maturity
    271,485       6,016       (1,215 )     276,286       19,945       (244 )     41,915       (971 )     61,860       (1,215 )
 
                                                           
 
                                                                               
Total securities
  $ 2,486,750     $ 10,273     $ (32,382 )   $ 2,464,641     $ 435,566     $ (15,180 )   $ 837,027     $ (17,202 )   $ 1,272,593     $ (32,382 )
 
                                                           
As of December 31, 2007, the net unrealized loss on securities was $22.1 million. The net unrealized loss on securities that are available for sale was $26.9 million. Net of a tax benefit of $11.3 million, the unrealized $15.6 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, 2007.
CDOs with an amortized cost basis of $31.4 million and carrying value of $28.7 million at December 31, 2007, include securities backed by REIT TPS and bank TPS and which are included in our available-for-sale securities. The carrying value at December 31, 2007 reflects the $11.6 million other than temporary impairment charge that we recognized on two CDOs and which was reflected in our fourth quarter 2007 results of operations.

-11-


Table of Contents

UCBH HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
7. Securitization Activities
The Company engages in securitization activities related to commercial real estate and multi-family mortgage loans and consumer residential mortgage loans to manage concentration risk and liquidity. Special purpose entities (“SPE”) are typically used to facilitate the commercial real estate securitization transactions. The Company typically retains interests in the securitized financial assets as one or more tranches of the securitization. These retained interests are included in the Company’s Consolidated Balance Sheets in available-for-sale investment securities and are reflected at fair value. Any resulting changes in fair value are reflected in other comprehensive income, unless the change in fair value is considered other than temporary.
During the three months ended March 31, 2008, UCB securitized $45.8 million of residential mortgage loans with servicing rights retained through FNMA. No loans were securitized during the three months ended March 31, 2007.
8. Loans Held for Sale
The components of loans held for sale as of March 31, 2008, and December 31, 2007, were as follows (dollars in thousands):
                 
    March 31,     December 31,  
    2008     2007  
 
               
Commercial:
               
Secured by real estate — nonresidential
  $ 151,595     $ 175,474  
Business
    223       1,109  
 
           
 
               
Total commercial loans
    151,818       176,583  
 
           
 
               
Consumer:
               
Residential mortgage (one to four family)
          927  
 
           
 
               
Loans held for sale (1)
    151,818       177,510  
Valuation allowance
    (1,792 )     (373 )
 
           
 
               
Net loans held for sale
  $ 150,026     $ 177,137  
 
           
 
(1)   Amounts reflect net unamortized deferred loan fees, purchase premiums and discounts of $265,000 and $322,000 at March 31, 2008, and December 31, 2007, respectively.

-12-


Table of Contents

UCBH HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
9. Loans Held in Portfolio and Allowance for Loan Losses
The components of loans held in portfolio as of March 31, 2008, and December 31, 2007, were as follows (dollars in thousands):
                 
    March 31,     December 31,  
    2008     2007  
Commercial:
               
Secured by real estate — nonresidential
  $ 2,368,861     $ 2,317,501  
Secured by real estate — multifamily
    1,208,201       1,186,177  
Construction
    1,831,195       1,666,550  
Business
    2,225,938       2,076,597  
 
           
 
               
Total commercial loans
    7,634,195       7,246,825  
 
           
 
               
Consumer:
               
Residential mortgage (one-to-four family)
    501,636       518,674  
Other (1)
    67,169       66,651  
 
           
Total consumer loans
    568,805       585,325  
 
           
Loans held in portfolio (2)
    8,203,000       7,832,150  
Allowance for loan losses
    (102,839 )     (80,584 )
 
           
Net loans held in portfolio
  $ 8,100,161     $ 7,751,566  
 
           
 
(1)   Amount includes deposit overdrafts of $2.7 million and $6.7 million at March 31, 2008, and December 31, 2007, respectively.
 
(2)   Amounts reflect net unamortized deferred loan fees, purchase premiums and discounts of $15.7 million and $17.9 million at March 31, 2008, and December 31, 2007, respectively.
The activity in the allowance for loan losses and allowance for losses related to unfunded commitments for the three months ended March 31, 2008 and 2007, were as follows (dollars in thousands):
                                                 
    March 31, 2008     March 31, 2007  
            Allowance for                     Allowance for        
            Losses - Unfunded                     Losses - Unfunded        
    Allowance for     Commitments     Total Allowance for     Allowance for     Commitments     Total Allowance for  
    Loan Losses     (1)     Losses     Loan Losses     (1)     Losses  
Balance at beginning of period
  $ 80,584     $ 4,793     $ 85,377     $ 62,015     $ 6,833     $ 68,848  
Provision for losses
    34,599       470       35,069       2,545       (1,497 )     1,048  
Loans charged off
    (12,355 )           (12,355 )     (1,772 )           (1,772 )
Recoveries of loans previously charged off
    11             11       16             16  
 
                                   
Balance at end of period
  $ 102,839     $ 5,263     $ 108,102     $ 62,804     $ 5,336     $ 68,140  
 
                                   
 
(1)   Included in “Other liabilities” in the Consolidated Balance Sheets.
The provision for loan losses was $35.1 million for the three months ended March 31, 2008, compared to $1.0 million for the three months ended March 31, 2007. The extreme dislocation in the financial markets, which began in the fourth quarter of 2007, and which has continued to negatively affect the economy and the financial services sectors in 2008, has resulted in additional deterioration in the housing and land values in certain California and Nevada markets such as Riverside County, San Bernardino County, the Greater Sacramento area, Imperial County, the High Desert and the Central Valley. As such, in the three months ended March 31, 2008, the Company increased its general and specific valuation allowance in its residential construction loan portfolio.

-13-


Table of Contents

UCBH HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
The higher net charge-offs of $12.3 million in the three months ended March 31, 2008 as compared to $1.8 million for the three months ended March 31, 2007 was due to the additional deterioration of our residential construction loan portfolio, as discussed in the previous paragraphs.
10.   Goodwill and Goodwill Impairment
 
    Assets and liabilities of companies acquired in purchase transactions are recorded at fair value at the date of acquisition. Goodwill represents the excess purchase price over the fair value of net assets acquired, plus any identifiable intangibles. Goodwill is not amortized but is reviewed for potential impairment on an annual basis, or when events and circumstances indicate a potential impairment. The impairment test is performed in two phases at the reporting unit level. The first step compares the fair value of the reporting unit with its carrying amount, including goodwill. If the fair value of the reporting unit exceeds its carrying amount, goodwill of the reporting unit is not considered impaired. However, if the carrying amount of the reporting unit exceeds its fair value, an additional step has to be performed. The additional step compares the implied fair value of the reporting unit’s goodwill with the carrying amount of such goodwill. An impairment loss is recorded to the extent that the carrying value of the goodwill exceeds its implied fair value.
 
    Our annual goodwill impairment analysis is conducted in September. However, because of the continued deteriorating conditions during the quarter ended March 31, 2008, it was determined that an interim goodwill impairment analysis needed to be performed. Therefore, goodwill in our reporting units was tested for impairment beginning in the latter part of March 2008. Based on the results of our analysis, which included the first step procedures cited in the previous paragraph, it was determined that goodwill at the reporting units was not impaired at March 31, 2008.
 
    During the three months ended March 31, 2008, an adjustment of $1.1 million was recorded to reflect the under-recognition of amortization in 2007 associated with a time deposit discount arising from our acquisition of Summit Bank. The adjustment increased interest expense $1.1 million and decreased goodwill by a like amount. The adjustment is the correction of an error that was identified in 2007 and is deemed immaterial to the expected 2008 full year results of operations.
 
11.   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, 2008, and as of and for the year ended December 31, 2007, were as follows (dollars in thousands):
                 
    March 31,   December 31,
    2008   2007
Average balance outstanding
  $ 789,293     $ 400,615  
Maximum amount outstanding at any month end period
    850,000       650,000  
Balance outstanding at end of period
    805,000       650,000  
Weighted average interest rate during the period
    3.95 %     4.21 %
Weighted average interest rate at end of period
    3.72 %     4.04 %
Weighted average remaining term to maturity at end of period (in years)
    7.35       8.63  

-14-


Table of Contents

UCBH HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
Long-Term and Short-Term Borrowings
Information regarding outstanding long-term and short-term borrowings as of and for the three months ended March 31, 2008, and as of and for the year ended December 31, 2007, were as follows (dollars in thousands):
                 
    March 31,   December 31,
    2008   2007
 
               
Short-term borrowings:
               
Federal Home Loan Bank advances and other short-term borrowings:
               
Average balance outstanding
  $ 650,811     $ 299,713  
Maximum amount outstanding at any month end period
    723,789       637,787  
Balance outstanding at end of period
    723,789       414,532  
Weighted average interest rate during the period
    3.12 %     5.15 %
Weighted average interest rate at end of period
    2.57 %     4.05 %
Weighted average remaining term to maturity at end of period (in years)
    0.03       0.08  
 
               
Federal funds purchased:
               
Balance outstanding at end of period
  $ 138,000     $ 78,000  
 
               
Long-term borrowings:
               
Federal Home Loan Bank advances and other long-term borrowings::
               
Average balance outstanding
  $ 1,425,520     $ 1,113,881  
Maximum amount outstanding at any month end period
    1,448,634       1,372,190  
Balance outstanding at end of period
    1,385,808       1,372,190  
Weighted average interest rate during the period
    4.55 %     4.69 %
Weighted average interest rate at end of period
    4.54 %     4.57 %
Weighted average remaining term to maturity at end of period (in years)
    4.9       5.2  
UCB maintains a secured credit facility with the FHLB against which UCB may take advances. The terms of this credit facility requires UCB to maintain in safekeeping with the FHLB eligible collateral of at least 100% of outstanding advances. Short-term and long-term borrowings with the FHLB totaled $574.0 million and $1.3 billion at March 31, 2008, and $236.0 million and $1.33 billion at December 31, 2007, respectively. At March 31, 2008, the advances were secured with $437.8 million of mortgage-backed securities and $3.69 billion of loans, and at December 31, 2007, $18.0 million of mortgage-backed securities and $4.15 billion of loans secured the advances. At March 31, 2008, credit availability under this facility was approximately $614.0 million.
12. 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, 2008 and 2007, were 9,880,200 shares and 2,856,300 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.

-15-


Table of Contents

UCBH HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
The reconciliation of the numerators and denominators of basic and diluted earnings per share for the three months ended March 31, 2008 and 2007 is as follows (dollars in thousands, except shares and per share amounts):
                         
    Income     Shares     Per Share  
    (Numerator)     (Denominator)     Amount  
Three months ended March 31, 2008:
                       
Net income — basic
  $ 2,220       106,128,270     $ 0.02  
Effect of stock options
          1,865,959          
 
                   
Net income — diluted
  $ 2,220       107,994,229     $ 0.02  
 
                   
 
                       
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  
 
                   
13.   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 option awards provide for accelerated vesting if there is a change in control, as defined in the Plan. As of March 31, 2008, the Company had 2,120,149 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. 123(R). Awards granted after January 1, 2006 are valued at fair value in accordance with provisions of SFAS 123(R) 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. 123(R) and the results for prior periods have not been restated. The Company estimated forfeiture rates for the first quarter of 2008 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.

-16-


Table of Contents

UCBH HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
Options outstanding under the Company’s stock option plan as of March 31, 2008, and changes during the three months ended March 31, 2008, were as follows (dollars in thousands, except weighted average exercise price):
                                 
                    Weighted Average    
            Weighted Average   Remaining    
    Number of   Exercise   Contractual   Aggregate Intrinsic
    Shares   Price   Term   Value
Options outstanding at December 31, 2007
    13,895,938     $ 13.18       5.38     $ 47,713  
Granted
    1,495,500       13.26                  
Exercised
    (656,834 )     2.10                  
Cancelled
    (30,234 )     19.34                  
Forfeited
    (15,766 )     17.23                  
 
                               
Options outstanding at March 31, 2008
    14,688,604     $ 13.67       5.80     $ 9,407  
 
                               
Shares exercisable at March 31, 2008
    12,221,186     $ 13.42       5.08     $ 9,407  
 
                               
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, 2008. 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, 2008 and 2007 was $4.5 million and $3.2 million, respectively. Cash received from option exercises for the quarters ended March 31, 2008 and 2007 was $1.4 million and $5.3 million, respectively. The tax benefit realized for the tax deductions from option exercises for the three months ended March 31, 2008 and 2007, totaled $1.6 million and $1.2 million, respectively.
The range of exercise prices for options outstanding at March 31, 2008 is as follows:
                                         
            Weighted Average   Weighted Average           Weighted Average
    Options   Exercise   Remaining   Options   Exercise
Exercise Price   Outstanding   Price   Life   Exercisable   Price
$1.88-$1.99
    540,664     $ 1.88       1.00       540,664     $ 1.88  
$2.00-$5.99
    121,824       2.91       2.00       121,824       2.91  
$6.00-$6.99
    3,411,774       6.15       3.07       3,411,774       6.15  
$7.00-$8.99
    261,808       7.21       3.77       261,808       7.21  
$9.00-$10.99
    518,334       10.11       4.61       518,334       10.11  
$11.00-$13.99
    1,791,633       13.12       9.07       297,633       12.38  
$14.00-$15.99
    473,164       15.00       5.92       414,166       14.89  
$16.00-$18.09
    2,019,269       17.31       7.84       1,225,112       17.29  
$18.10-$19.99
    4,998,334       18.83       6.39       4,878,071       18.83  
$20.00-$21.99
    551,800       21.05       6.82       551,800       21.05  
 
                                       
Total/Average
    14,688,604       13.67       5.80       12,221,186       13.42  
 
                                       
As of March 31, 2008, there was $12.8 million of total unrecognized compensation cost, net of estimated forfeitures, related to nonvested options under the Plan. Such cost is expected to be recognized over the next three years. The total fair value of options that vested during the three months ended March 31, 2008 and 2007 was $2.3 million and $1.3 million, respectively.

-17-


Table of Contents

UCBH HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
14. Income Taxes
The Company recognizes the accrual of interest and any associated penalties related to unrecognized tax benefits in income before income taxes in the Consolidated Statements of Operations. The amount of interest and penalties for the three months ended March 31, 2008 and 2007 was immaterial.
The Company has established unrecognized tax benefits that the Company believes are adequate in relation to the potential for additional assessments. Once established, the Company will adjust unrecognized tax benefits only when additional information is available or when an event occurs which necessitates a change. The Company believes that the resolution of tax matters will not have a material effect on its financial position or results of operations. Nonetheless, a resolution could have a material impact on such financial position or results of operations for a particular future period and on the Company’s effective income tax rate for the period in which such resolution occurs.
15. 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 $1.0 million and $1.1 million at March 31, 2008, and December 31, 2007, 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.
16. 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, 2008, and December 31, 2007, were as follows (dollars in thousands):
                 
    March 31,   December 31,
    2008   2007
Commitments to extend credit:
               
Consumer (including residential mortgage)
  $ 93,099     $ 101,978  
Commercial (excluding construction)
    1,631,403       1,488,733  
Construction
    1,023,835       1,101,515  
Letters of credit
    220,752       183,792  
Foreign exchange contracts receivable
    (748,268 )     (806,310 )
Foreign exchange contracts payable
    748,268       806,380  
Put options to buy
    17,094       7,600  
Put options to sell
    (17,094 )     (7,600 )
Interest rate floor contract
    25,000       25,000  
Unfunded CRA investment commitments
    5,849       6,996  
Other
    905       1,928  
 
               
Total
  $ 3,000,843     $ 2,910,012  
 
               
17. 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.

-18-


Table of Contents

UCBH HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
18. Supplemental Cash Flow Information
The supplemental cash flow information for the three months ended March 31, 2008 and 2007 was as follows (dollars in thousands):
                 
    2008     2007  
 
               
Cash paid during the period for:
               
Interest
  $ 99,975     $ 89,893  
Income taxes
    587       13,817  
 
               
Noncash investing and financing activities:
               
Transfer of loans from held for sale to held in portfolio
  $ 2,246     $ 36,253  
Transfer of loans to held for sale from held in portfolio
    28,611       39,746  
Loan securitizations:
               
Loans originated in held in portfolio sold
    45,762        
Mortgage-backed securities acquired
    (45,737 )      
Mortgage servicing rights acquired
    (25 )      
19. 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, UCB Securities Corporation, UCB China 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 following is segment information for the three months ended March 31, 2008 and 2007 (dollars in thousands):
                                                 
    Domestic           Total   UCBH Holdings,        
    Banking   Other   Segments   Inc.   Intersegment   Consolidated
 
                                               
Three Months Ended March 31, 2008:
                                               
Total interest and dividend income
  $ 169,931     $ 23,346     $ 193,277     $ 3     $ (11,536 )   $ 181,744  
Net interest income (expense)
    79,645       8,635       88,280       (5,183 )           83,097  
Net income (loss)
    4,576       6,008       10,584       2,220       (10,584 )     2,220  
 
                                               
Three Months Ended March 31, 2007:
                                               
Total interest and dividend income
  $ 158,605     $ 8,434     $ 167,039     $ 2     $ (3,095 )   $ 163,946  
Net interest income (expense)
    75,423       2,989       78,412       (4,582 )           73,830  
Net income (loss)
    29,902       948       30,850       27,031       (30,850 )     27,031  
20. Fair Values of Financial Assets and Liabilities
Fair value is defined under SFAS 157 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for such asset or liability, in an orderly transaction between market participants on the measurement date. In determining fair value, the Company uses various methods including market, income and cost approaches. Based on these approaches, the Company often utilizes certain assumptions that market participants would use in pricing an asset or liability, including assumptions about risk and or the risks inherent in the inputs to the valuation technique.

-19-


Table of Contents

UCBH HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
SFAS 157 also establishes a fair value hierarchy which ranks the quality and reliability of the information to be used to determine fair values. The Company has designed its methodologies to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The Company groups its assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are:
Level 1: Quoted prices for identical financial assets or liabilities in active markets.
Level 2: Quoted prices for similar financial assets or liabilities in active markets; quoted prices for identical or similar financial assets or liabilities in markets that are not active; and valuations derived by models in which the significant inputs and significant value drivers are observable in active markets.
Level 3: Valuations derived by models in which one or more significant inputs or significant value drivers are unobservable. These unobservable assumptions reflect our own estimates of assumptions that market participants would use in pricing the financial asset or liability.
Determination of Fair Value
The Company measures fair value using the procedures described below for all assets and liabilities measured at fair value:
When determining the fair value measurements for financial assets and liabilities required to be recorded and reflected at and/or marked to fair value, the Company considers the principal or most advantageous market in which it would transact, and considers assumptions that market participants would take into account when pricing the asset or liability. When possible, the Company uses quoted market prices from active and observable markets to determine fair value for identical assets and liabilities. When identical assets and liabilities are not traded in active markets, the Company looks to market observable information for similar assets and liabilities. However, certain of the Company’s assets and liabilities are not actively traded in observable markets and as such, the Company must use alternative valuation techniques to derive a fair value measurement. The information obtained from third parties is typically derived from models that take into account market-based or independently sourced market parameters, such as interest rates, currency rates, credit default, and prepayment rates. Financial assets or liabilities that are valued using externally generated models are classified by the Company according to the lowest level input or value driver that is most significant to the valuation. As such, a financial asset or liability may be classified in Level 3, although there may be significant inputs that are readily observable.
It should be noted that the resulting fair value measurements derived from alternative valuation techniques oftentimes result in a fair value that cannot be determined with precision and may not be realized in an actual sale or immediate settlement of the underlying financial asset or liability. Additionally, there may be inherent weaknesses in any calculation technique, and changes in the underlying key assumptions used, such as discount rates and estimates of future credit defaults, prepayments rates and future cash flows, that could significantly affect the results of current or future fair values.
The Company’s principal markets for its investment securities portfolios are the secondary institutional markets, with exit pricing that is reflective of bid level pricing in those markets. Derivative instruments are primarily transacted in the institutional dealer market and priced with observable market assumptions at a mid-market valuation point. For loans that are expected to be securitized, fair value is determined based upon observable pricing of securities prices of similar products and when appropriate includes adjustments to account for credit spreads, interest rates, collateral types, credit quality and prepayment rates. The principal market for loans held for sale and loans expected to be securitized is the secondary market in which loans trade as either whole loans or securities.

-20-


Table of Contents

UCBH HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
The following is a description of the major categories of our financial assets and liabilities that are reflected at fair value, on either a recurring or nonrecurring basis:
Agency Preferred and Exchange Traded Equity Securities — are valued based on quoted market prices from the exchange and are categorized in Level 1 of the fair value hierarchy.
Commercial Mortgage Backed Securities (“CMBS”) and Asset Backed Securities (“ABS”) — includes private Commercial Mortgage Backed Securities and related retained interests, private Collateralized Mortgage Obligations, Small Business Association pooled securities, Small Business Association interest-only strips, Collateralized Loan Obligations, bank trust preferred security CDOs and REIT trust preferred security CDOs.
CMBS and ABS may be valued utilizing external price/spread data. When position-specific data are not observable, the valuation is based on quoted market prices of comparable bonds. Valuation levels of CMBS and ABS indices are used as an additional data point for benchmarking purposes. Interest-only securities are valued as a function of projected prepayment rates and required market yields, using current market assumptions at the measurement date. CDOs are valued based on an evaluation which takes into consideration the underlying collateral performance and pricing, behavior of the tranche under various cumulative loss, interest deferral, prepayment and liquidity scenarios. Fair value for retained interests in CMBS is based on the present value of expected future cash flows using best estimates for the key assumptions, which include forecasted credit defaults and losses, prepayment rates, forward yield curves and discount rates commensurate with the risks involved.
CMBS and ABS are categorized in Level 2 of the fair value hierarchy. If significant inputs such as prepayment, default assumptions and discount rate are not observable, such securities are categorized in Level 3 of the fair value hierarchy.
U.S. Government and Agency Securities — includes our Callable Agency Securities, Agency Mortgage-Backed Securities and Agency Collateralized Mortgage Obligations and which are valued using quoted market prices for similar securities. Accordingly, these securities are categorized in Level 2 of the fair value hierarchy.
Municipal Bonds — are estimated using recently executed transactions, market price quotations for similar securities and pricing models that factor in, where applicable, interest rates, bond or credit default swap spreads and volatility. These bonds are categorized in Level 2 of the fair value hierarchy.
Loans Held for Sale — are carried at the lower of cost or market value. The fair value of these loans is based on what secondary markets are currently offering for portfolios with similar characteristics. Due to recent market conditions, the prices we receive for our loans held for sale have significant inputs that are not observable. As such, loans held for sale that have been written down to their cost basis during the three months ended March 31, 2008, are categorized in Level 3 of the fair value hierarchy.
Mortgage Servicing Rights (“MSR’s”) — are estimated using a valuation model that calculates the present value of estimated future net servicing income. The model incorporates assumptions including estimates of prepayment speeds, discount rates, cost to service, escrow account earnings, contractual servicing fee income, ancillary income and late fees. Since the adoption of SFAS No. 156, we record MSR’s at estimated fair value, but carry them at the lower of cost or market value. MSR’s are classified as being measured on a recurring basis per FASB Staff Position No. 157-2, Effective Date of FASB Statement No. 157. Fair value measurements of our MSR’s use significant unobservable inputs. Accordingly, we categorize MSR’s in Level 3 of the fair value hierarchy.

-21-


Table of Contents

UCBH HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
Impaired Loans — are measured for impairment using the practical expedient in FASB Statement No. 114, Accounting by Creditors for Impairment of a Loan, whereby fair value of the loan is based on the fair value of the loan’s collateral, provided the loan is collateral dependent. The fair value measurements of loan collateral can include real estate appraisals, comparable real estate sales information, cash flow projections, realization estimates, etc., all of which can include observable and unobservable inputs. As a result, the categorization of impaired loans can be either Level 2 or Level 3 of the fair value hierarchy, depending on the nature of the inputs used for measuring the related collateral’s fair value. As of March 31, 2008, impaired loans were categorized as level 3 due to recent real estate market conditions resulting in inactive market data which in turn required the use of unobservable inputs and assumptions in our fair value measurements.
Derivative Contracts — consist primarily of foreign currency forward, option contracts, and swaps. Substantially all of these derivative contracts are traded in over-the-counter markets, where quoted market prices are not readily available. As such, fair value is measured using pricing models that utilize primarily market observable inputs, such as yield curves and option volatilities, and accordingly are categorized in Level 2 of the fair value hierarchy.
Assets and liabilities measured at fair value at March 31, 2008, on a recurring basis are summarized below (dollars in thousands):
                                 
    Total     Level 1     Level 2     Level 3  
Investment and mortgage-backed securities available for sale
  $ 2,750,174     $ 19,688     $ 2,679,896     $ 50,590  
Mortgage servicing rights.
    16,075                   16,075  
Net other financial assets (1)
    806             806        
 
                       
Total
  $ 2,767,055     $ 19,688     $ 2,680,702     $ 66,665  
 
                       
Net other financial liabilities (1)
  $ (3,242 )   $     $ (3,242 )   $  
 
                       
 
(1)   Derivatives are included in this category.
The changes in Level 3 assets and liabilities measured at fair value on a recurring basis are summarized as follows (dollars in thousands):
                                                 
                    Total Unrealized                    
                    Gains (Losses)                    
            Realized Gains     Included in Other     Purchased, Sales,              
    Beginning Balance     (Losses) Included     Comprehensive     Other Settlements     Transfers In and/or     Ending Balance  
    January 1, 2008     in Income     Income     and Issuances, Net     (Out) of Level 3     March 31, 2008  
Investment securities available for sale
  $ 59,029     $ (3,791 )   $ (3,100 )   $ (1,548 )   $     $ 50,590  
Mortgage servicing rights
    17,070       (253 )           (742 ) (1)           16,075  
 
                                   
Total assets
  $ 76,099     $ (4,044 )   $ (3,100 )   $ (2,290 )   $     $ 66,665  
 
                                   
 
(1)   Includes change in fair value.

-22-


Table of Contents

UCBH HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
The Company measures certain financial assets at fair value on a nonrecurring basis. For financial assets measured at fair value on a nonrecurring basis in the quarter ended March 31, 2008, that were still held on the Consolidated Balance Sheet at March 31, 2008, the following table presents the carrying value of those assets measured at fair value on a nonrecurring basis for which impairment was recognized in the current period:
                                                 
                                    Total Realized     Financial Statement  
    Total     Level 1     Level 2     Level 3     Gains (Losses)     Effect  
Loans held for sale
  $ 98,094     $     $     $ 98,094     $ (1,428 )   Income Statement
Impaired loans
    156,418                   156,418       (12,375 )   Income Statement
21. Subsequent Events
On January 24, 2008, UCBH’s Board of Directors declared a quarterly cash dividend of $0.04 per share of common stock. The dividend will be paid on April 11, 2008, to stockholders of record as of March 31, 2008. On April 24, 2008, UCBH’s Board of Directors declared a quarterly cash dividend of $0.04 per share of common stock. The dividend will be paid on July 11, 2008, to stockholders of record as of June 30, 2008.

-23-


Table of Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
FORWARD LOOKING STATEMENTS
This document, including information included or incorporated by reference in this document, contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements provide current expectations or forecasts of future events and include, among other things:
  statements with respect to UCBH Holdings, Inc. and its consolidated subsidiaries’ (collectively, the “Company”) beliefs, plans, objectives, goals, guidelines, expectations, anticipations, and future financial condition, results of operations and performance; and
  statements preceded or identified by words, such as “expects”, “anticipates”, “intends”, “plans”, “believes”, “seeks”, “estimates”, “will”, “should”, “could”, “projects” 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;
  further expansion into China, as well as new Asia Pacific market areas;
  fluctuations in the equity and fixed-income markets;
  changes in interest rates and the resultant impact on our net interest margin;
  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;
  the availability and cost 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;
  the potential effects of technological changes;
  legislation or regulatory changes, both domestically as well as internationally, 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 statements

-24-


Table of Contents

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 $12.74 billion. The Company’s operations are conducted primarily through its banking subsidiary, United Commercial Bank (“UCB”). UCB operates through seventy-seven 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, 2008, we had seventy domestic branches and offices; twenty-nine in Northern California, twenty-two in Southern California, five in the Atlanta metropolitan area, three in the Boston metropolitan area, eight in the New York metropolitan area, two in the Seattle metropolitan area and a branch in Houston. UCB also has offices and branches in Hong Kong, Shanghai and Shantou, China and representative offices in Beijing, Guangzhou, 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. The challenges presented by the general interest rate and current economic environment that we must work within did impact the Company’s performance during the three months ended March 31, 2008.
The Company reported earnings for the three months ended March 31, 2008, of $2.2 million or $0.02 per diluted share. This compares with $27.0 million or $0.26 per diluted share for the three months ended March 31, 2007, and $16.2 million or $0.15 per diluted share for the three months ended December 31, 2007. Return on average equity (“ROE”) was 0.89% and return on average assets (“ROA”) was 0.07% for the three months ended March 31, 2008, compared with a ROE of 13.43% and ROA of 1.09% for the three months ended March 31, 2007, and a ROE of 6.79% and a ROA of 0.58% for the three months ended December 31, 2007.
CORPORATE DEVELOPMENTS
Investment Agreement with China Minsheng Banking Corp., Ltd. On October 7, 2007, UCBH and China Minsheng Banking Corp., Ltd., a Chinese joint stock commercial bank (“Minsheng”), entered into an Investment Agreement (the “Investment Agreement”), pursuant to which Minsheng will acquire 9.9% of the outstanding shares of UCBH common stock (calculated on a post-closing basis) in two phases, with a mutual option to increase Minsheng’s ownership to 20.0% (calculated on a post-closing basis).
On March 5, 2008, UCBH and Minsheng completed the initial closing under the Investment Agreement (the “Initial Closing”) and entered into a Voting Agreement (the “Voting Agreement”). UCBH sold approximately 5.4 million newly issued shares of UCBH common stock, or 4.9% of the total outstanding shares (calculated on a post-closing basis), at $17.79 per share, in exchange for $95.7 million in cash proceeds, $93.3 million after the payment of $2.4 million in closing costs. Under the Voting Agreement, Minsheng agrees to vote the shares of UCBH it owns (the “Shares”) in favor of persons nominated and recommended by the Board of Directors of UCBH (the “Board”) as directors of the Board and against any person nominated for election as a director by any other person, except for persons designated by Minsheng for nomination to the Board pursuant to an Investor’s Rights and Standstill Agreement between UCBH and Minsheng (the “Investor’s Rights Agreement”). The Investor’s Rights Agreement provides that following the Initial Closing, Minsheng will recommend one person to be appointed to the Board in a newly created Board seat, and if Minsheng’s ownership of UCBH common stock is increased to 20.0% (calculated on a post-closing basis) by mutual agreement, Minsheng will have the right to recommend a second person to be appointed in another newly created Board seat. Under the Voting Agreement, Minsheng also agrees to vote the Shares as directed by the Board except under certain circumstances enumerated in the Voting Agreement.
The Voting Agreement will terminate on the earliest of (i) the date when Minsheng no longer owns any Shares, (ii) the October 7, 2010 expiration of the standstill period as set forth in the Investor’s Rights Agreement or (iii) the

-25-


Table of Contents

termination of the Investment Agreement by Minsheng as a result of a material breach of the Investment Agreement by UCBH.
In the second phase, which is anticipated to close in 2008, Minsheng will increase its ownership to 9.9% (calculated on a post-closing basis) through, at the discretion of UCBH, a combination of the purchase of secondary shares and/or the issuance of primary shares. By June 30, 2009, conditioned upon mutual agreement and regulatory approvals, Minsheng may increase its share ownership to 20.0% (calculated on a post-closing basis) through, at the discretion of UCBH, a combination of the purchase of secondary shares and/or the issuance of primary shares.
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, 2007.
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, 2008, UCB’s total allowance for loan losses was $102.8 million, which represented 1.25% of loans held in portfolio.
UCB’s methodology for assessing the adequacy of the allowance for loan losses includes the evaluation of two distinct components: a general allowance applied to 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.
The loss factors are developed from actual historic losses, and reflect comparative analysis with peer group loss rates and expected losses, which are 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, 2008, UCB effected further refinements in the determination of certain loss factors. In addition, UCB performs its annual allowance methodology review during the second quarter of each year, however, during 2008 the allowance methodology was performed during the first quarter of 2008. The annual methodology review primarily addresses the approaches, assumptions, and data inputs used in the quantitative support for the loss factors, and focused primarily on the continued development of the expected loss approach.
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

-26-


Table of Contents

fair value of the collateral, reduced by estimated disposition costs, is used in place of the discounted cash flow analysis.
Additions to the allowance for loan losses are made by charges to the provision for loan losses. Credit exposures deemed to be uncollectible are charged against the allowance for loan losses. Recoveries of previously charged off amounts are credited to the allowance for loan losses.
The allowance for loan losses increased $22.2 million from $80.6 million at December 31, 2007 to $102.8 million at March 31, 2008. The increase is due primarily to a $35.1 million provision for loan losses recorded in the three months ended March 31, 2008. The increased provision for loan losses was the result of increases in classified construction loans and specific reserves on construction loans geographically located in distressed areas that include Riverside County, San Bernardino County, the Greater Sacramento area, Imperial County, the High Desert and the Central Valley, all of which are in California and Nevada. This increase was partially offset by a $5.5 million loss reserve reduction from the reduction of historical and qualitative loss factors related primarily to our commercial business loan portfolio. The reduction in the commercial business loan portfolio’s historical and qualitative loss factors was based on our quarterly loss factor assessment and is due to the portfolio exhibiting delinquency and criticized/classified loan levels that remain relatively low as compared to our long term historical trends. In addition we had net charge-offs of $12.3 million during the three months ended March 31, 2008.
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 Consolidated Balance Sheets.
The reserve for unfunded commitments increased $293,000 from December 31, 2007, to March 31, 2008, due to increased levels of unfunded commitments and growth in the trade finance business.
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 processes used to estimate incurred losses in our loan portfolios as appropriate.
Impaired Loans
A loan is considered to be impaired when it is probable that all of the principal and interest due under the terms of the original loan agreement may not be collected. Impairment is measured using the practical expedient allowed by SFAS No. 114, whereby the fair value of the loan is based on the fair value of the loan’s collateral, provided that the loan is collateral dependent. Fair value is measured based on an appraisal prepared by an independent appraiser. Subsequent to receiving the appraisal, a quarterly review is made as part of the review of the allowance for loan losses to determine whether the value set forth in the appraisal is still applicable. These reviews use unobservable inputs and assumptions such as changes in economic conditions, changes in local market conditions, etc., to evaluate the applicability of the appraisal. Impaired loans are initially categorized as nonrecurring Level 2 but may move to Level 3 if the value set forth by the independent appraisals is significantly adjusted as a result of the quarterly review processes.
Valuations of Financial Instruments
The Company holds fixed income mortgage and asset-backed securities, exchange traded equity securities, retained interests in securitizations, investments in private equity, venture capital and other nonpublic investments, over-the-

-27-


Table of Contents

counter foreign exchange derivative contracts and other financial instruments. The Company holds its investment securities to meet and manage liquidity needs and interest rate and foreign exchange risks.
A significant portion of the Company’s financial instruments described in the previous paragraph are carried at fair value. In total, the financial instruments that are carried at fair value on a recurring basis at March 31, 2008 and December 31, 2007, are approximately 21.6% and 18.5% of total assets, respectively.
Wherever possible, we base our fair values on observable market prices for identical assets or similar assets and liabilities, or other inputs that are observable or can be corroborated by observable market data. Where observable prices or inputs are not available, valuation models from outsourced service providers are utilized to assist the Company. The valuation models involve some level of estimation and judgment, the degree of which is dependent on the price transparency for the respective financial instrument’s market and related complexity. Reliance on estimation and judgment increases in adverse market conditions with decreased liquidity and because of the lack of trading and the resulting lack of clear and observable prices or parameters, such as those experienced during the latter half of 2007 and the first quarter of 2008. If such conditions continue throughout the remainder of 2008, we would expect continued reliance on these estimates and judgments. As a result, the fair values that we have assigned to these assets may not necessarily represent amounts that could be ultimately realized upon their disposal or settlement. When or if the liquidity returns to the markets, the valuations will revert to using the related observable inputs in verifying the values calculated using valuation models.
Any declines in a specific investment security’s fair value that are determined to be other than temporary, result in a write-down of the investment security and a corresponding charge to noninterest income. During the three months ended March 31, 2008, as a result of continued deteriorating market conditions, the Company recognized other than temporary impairments totaling $3.8 million.
Goodwill
Business acquisitions often result in the recognition of goodwill, which represents the value attributable to the unidentifiable intangible elements in our acquired businesses. Goodwill is initially recorded at fair value and is subsequently evaluated at least annually for impairment in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 142. The Company performs this annual test as of September 30 of each year. Evaluations are also performed on a more frequent basis if events or circumstances indicate that an impairment could have taken place. Such events could include, among others, a significant adverse change in the business climate, an adverse action by a regulator, an unanticipated change in the competitive environment, and a decision to change the operations or dispose of a reporting unit.
The first step in this evaluation process is to determine if a potential impairment exists in any of the Company’s reporting units, and, if required from the results of this step, a second step measures the amount of any impairment loss. The computations required by both steps one and two call for us to make a number of estimates and assumptions.
In completing step one, we determine the fair value of the reporting unit that is being evaluated. There are a number of methods that we can use in completing this step, including market capitalization and the discounted present value of management’s estimates of future cash or income flows.
If step one indicates a potential impairment of a reporting unit, step two requires us to estimate the “implied fair value” of that unit. This process estimates the fair value of the unit’s individual assets and liabilities in the same manner as if a purchase of the reporting unit were taking place. To do this, we must determine the fair value of the assets, liabilities and identifiable intangible assets of the reporting unit based upon the best available information. If the value of goodwill calculated in step two is less than the carrying amount of goodwill for the reporting unit, an impairment is indicated and the carrying value of goodwill is written down to the calculated value.
Our annual goodwill impairment analysis is conducted in September. However, because of the continued deteriorating conditions during the quarter ended March 31, 2008, it was determined that an interim goodwill impairment analysis needed to be performed. Therefore, goodwill in our reporting units was tested for impairment beginning in the latter part of March 2008. Based on the results of our analysis, which included the first step

-28-


Table of Contents

procedures cited in the previous paragraph, it was determined that goodwill at the reporting units was not impaired at March 31, 2008.
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.
Recent Accounting Pronouncements
Accounting for Fair Value Measurements
Effective January 1, 2008, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 157, Fair Value Measurements (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value under accounting principles generally accepted in the United States (“GAAP”) and expands disclosures about fair value measurements. Fair value is defined under SFAS 157 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. SFAS 157 also establishes a fair value hierarchy which requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The adoption of SFAS 157 did not have a material impact on the Company’s financial position or results of operations.
In conjunction with the adoption of SFAS 157, the Company adopted SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (“SFAS 159”). SFAS 159 provides an irrevocable option to elect fair value for the initial and subsequent measurement for certain financial assets and financial liabilities, on a contract-by-contract basis, with changes in fair value reported in results of operations. The Company did not elect the fair value option for any of its financial assets or financial liabilities on the adoption date. As such, the adoption of SFAS 159 did not have a material impact on the Company’s financial position or results of operations.
Disclosures about Derivative Instruments and Hedging Activities
SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities — an amendment of FASB No. 133, was issued in March 2008. SFAS 161 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. This Statement encourages, but does not require, comparative disclosures for earlier periods at initial adoption. The Company is currently evaluating the impact that adopting SFAS 161 will have on its financial statements.

-29-


Table of Contents

RESULTS OF OPERATIONS
Financial Highlights (Dollars in Thousands, Except Per Share Amounts)
                                 
    Three Months Ended March 31,  
                    Increase (Decrease)  
    2008     2007     Amount     %  
 
                               
Operating Data:
                               
Total interest & dividend income
  $ 181,744     $ 163,946     $ 17,798       10.86 %
Total interest expense
    98,647       90,116       8,531       9.47  
 
                         
Net interest income
    83,097       73,830       9,267       12.55  
Provision for loan losses
    35,069       1,048       34,021       3,246.28  
 
                         
Net interest income after provision for loan losses
    48,028       72,782       (24,754 )     (34.01 )
Total noninterest income
    3,556       12,445       (8,889 )     (71.43 )
Total noninterest expense
    48,553       43,895       4,658       10.61  
 
                         
Income before income tax expense
    3,031       41,332       (38,301 )     (92.67 )
Income tax expense
    (811 )     (14,301 )     (13,490 )     (94.33 )
 
                         
Net income
  $ 2,220     $ 27,031     $ (24,811 )     (91.79 )
 
                         
 
                               
Per Share Data:
                               
Basic earnings per share
  $ 0.02     $ 0.27     $ (0.25 )     (92.59 )%
Diluted earnings per share
  $ 0.02     $ 0.26       (0.24 )     (92.31 )
 
                               
Dividends declared per share
  $ 0.04     $ 0.03       0.01       33.33  
 
                               
Select Operating Ratios:
                               
Return on average assets
    0.07 %     1.09 %     (1.02) *     (93.58 )%
Return on average equity
    0.89       13.43       (12.54 )     (93.37 )
Efficiency ratio (1)
    56.03       50.88       5.15       10.12  
Noninterest expense to average assets
    1.59       1.77       (0.18 )     (10.17 )
Average equity to average assets
    8.17       8.11       0.06       0.74  
Dividend payout ratio (2)
    200.00       11.54       188.46       1,633.10  
Net loan charge-offs to average loans held in portfolio
    0.62       0.10       0.52       520.00  
Interest rate spread (3)
    2.56       2.79       (0.23 )     (8.24 )
Net interest margin (3)
    2.93       3.26       (0.33 )     (10.12 )
                                 
    March 31,   December 31,   Increase (Decrease)
    2008   2007   Amount   %
 
                               
Financial Condition and Other Data:
                               
Loans held in portfolio, net
  $ 8,100,161     $ 7,751,566     $ 348,595       4.50 %
Securities purchased under agreements to resell
    150,000       150,000              
Securities available for sale
    2,750,174       2,188,355       561,819       25.67  
Securities held to maturity
    264,451       271,485       (7,034 )     (2.59 )
Total assets
    12,743,124       11,803,566       939,558       7.96  
Deposits
    8,082,154       7,781,240       300,914       3.87  
Securities sold under agreements to repurchase
    805,000       650,000       155,000       23.85  
Subordinated debentures
    406,553       406,615       (62 )     (0.02 )
Short-term borrowings
    723,789       414,532       309,257       74.60  
Federal funds purchased
    138,000       78,000       60,000       76.92  
Long-term borrowings
    1,385,808       1,372,190       13,618       0.99  
Total liabilities
    11,676,218       10,836,463       839,755       7.75  
Stockholders’ equity
    1,066,906       967,103       99,803       10.32  
Nonperforming assets
    185,050       57,029       128,021       224.48  
Ratio of stockholders’ equity to total assets
    8.37 %     8.19 %     0.18 *     2.20  
 
                               
Asset Quality Data:
                               
Loan delinquency ratio
    1.48 %     0.89 %     0.59 *     66.29 %
Nonperforming assets to total assets
    1.45       0.48       0.97       202.08  
Nonperforming loans to loans held in portfolio
    2.21       0.68       1.53       225.00  
Allowance for loan losses to loans held in portfolio
    1.25       1.03       0.22       21.36  
Allowance for loan losses to nonperforming loans
    56.70       151.52       (94.82 )     (62.58 )
Total loan to deposit ratio
    103.35       102.93       0.42       0.41  
 
                               
Bank Regulatory Capital Ratios:
                               
United Commercial Bank and subsidiaries:
                               
Tier 1 risk-based capital
    8.82 %     8.55 %     0.27 *     3.16 %
Total risk-based capital
    11.20       10.80       0.40       3.70  
Tier 1 leverage
    7.33       7.42       (0.09 )     (1.21 )
UCBH Holdings, Inc. and subsidiaries:
                               
Tier 1 risk-based capital
    9.17       8.51       0.66       7.76  
Total risk-based capital
    11.55       10.76       0.79       7.34  
Tier 1 leverage ratio
    7.62       7.39       0.23       3.11  

-30-


Table of Contents

 
(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 $3.2 million and $2.1 million for the three months ended March 31, 2008 and 2007, respectively.
 
*   Basis point
Three Months Ended March 31, 2008, Compared to Three Months Ended March 31, 2007
The consolidated net income of the Company for the three months ended March 31, 2008, decreased by $24.8 million, or 91.79%, to $2.2 million, compared to $27.0 million for the same period in 2007. The decrease in net income during the three months ended March 31, 2008 as compared to the three months ended March 31, 2007 was primarily attributable to an increased loan loss provision of $35.1 million recorded in the first quarter of 2008 compared with $1.0 million for the first quarter of 2007. Included in noninterest income for the three-month period ended March 31, 2008, is the recognition of a $3.8 million write-down on two non-bank REIT TPS CDOs, a $1.4 million charge for a lower of cost or market (LOCOM) adjustment on commercial real estate loans held for sale, and a gain on sale of loans of $908,000, compared to $2.2 million for the first quarter of 2007. Noninterest expense included foreign exchange gains amounting to $2.9 million for the three months ended March 31, 2008, compared to a foreign exchange loss of $296,000 for the same period in 2007. These gains arise due to the remeasurement of non U.S. dollar denominated financial assets and liabilities on UCB China’s balance sheet, as the functional and reporting currency of UCB China is currently the U.S. dollar.

-31-


Table of Contents

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, 2008 and 2007 (dollars in thousands):
                                                 
    2008     2007  
                    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)
  $ 8,168,317     $ 140,891       6.94 %   $ 6,839,200     $ 131,652       7.70 %
Taxable securities (3)
    2,273,755       28,760       5.09       1,857,226       23,514       5.06  
Tax exempt securities (3)
    476,686       5,888       4.97       274,676       3,306       4.81  
FHLB Stock
    95,080       1,277       5.40       68,805       922       5.36  
Securities purchased under agreements to resell
    150,000       2,080       5.58       125,278       2,264       7.23  
Other
    247,602       2,848       4.63       154,056       2,289       5.94  
 
                                       
Total interest-earning assets
    11,411,440       181,744       6.41       9,319,241       163,947       7.04  
Noninterest-earning assets
    833,698                     600,442                
 
                                       
Total assets
  $ 12,245,138     $ 181,744             $ 9,919,683     $ 163,947          
 
                                       
 
                                               
Interest-bearing liabilities:
                                               
Deposits:
                                               
NOW, checking and money market accounts
  $ 1,524,722     $ 10,157       2.68     $ 1,478,541     $ 12,477       3.38  
Savings accounts
    754,290       1,420       0.76       692,003       1,726       1.00  
Time deposits
    4,618,366       51,537       4.49       4,230,874       51,791       4.90  
 
                                       
Total interest-bearing deposits
    6,897,378       63,114       3.68       6,401,418       65,994       4.12  
Securities sold under agreements to repurchase
    789,505       6,577       3.35       318,956       3,261       4.09  
Short-term borrowings and federal funds purchased
    775,536       5,868       3.04       401,430       5,192       5.17  
Long-term borrowings
    1,425,520       16,217       4.58       943,810       11,116       4.71  
Subordinated debentures
    406,589       6,871       6.80       240,549       4,553       7.57  
 
                                       
Total interest-bearing liabilities
    10,294,528       98,647       3.85       8,306,163       90,116       4.34  
Noninterest-bearing deposits
    834,689                     695,668                
Other noninterest-bearing liabilities
    115,705                     113,038                
Stockholders’ equity
    1,000,216                     804,814                
 
                                       
Total liabilities and stockholders’ equity
  $ 12,245,138     $ 98,647             $ 9,919,683     $ 90,116          
 
                                       
Net interest-earning assets/net interest income/net interest rate spread (4)
  $ 1,116,912     $ 83,097       2.56 %   $ 1,013,078     $ 73,831       2.70 %
 
                                   
Net interest margin (5)
                    2.93 %                     3.17 %
 
                                           
Ratio of interest-earning assets to interest-bearing liabilities
    1.11x                       1.12x                  
 
                                           
 
                                               
Tax equivalent basis:
                                               
Total interest-earning assets (6)
  $ 11,411,440       184,915       6.52 %   $ 9,319,241       166,033       7.13 %
Total interest-bearing liabilities
    10,294,528       98,647       3.85       8,306,163       90,116       4.34  
 
                                       
 
                                               
Net interest-earning assets/net interest income/net interest rate spread (4)
  $ 1,116,912     $ 86,268       2.67 %   $ 1,013,078     $ 75,917       2.79 %
 
                                   
Net interest margin (5)
                    3.04 %                     3.26 %
 
                                           
 
                                               
Average cost of deposits:
                                               
Total interest-bearing deposits
  $ 6,897,378     $ 63,114       3.68 %   $ 6,401,418     $ 65,994       4.12 %
Noninterest-bearing deposits
    834,689                     695,668                
 
                                       
Total deposits
  $ 7,732,067     $ 65,114       3.28 %   $ 7,097,086     $ 65,994       3.72 %
 
                                   
 
(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 $3.2 million and $2.1 million for the three months ended March 31, 2008 and 2007, respectively.
The increase in net interest income for the three months ended March 31, 2008, compared to the same period in 2007 was principally due to a $2.1 billion increase in average interest-earning assets, which resulted primarily from organic loan growth along with increases resulting from the CAB and UCB China acquisitions. The average cost of deposits decreased 44 basis points from 3.72% for the three months ended March 31, 2007, to 3.28% for the three

-32-


Table of Contents

months ended March 31, 2008, as a result of a decrease 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 76 basis point decrease 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, 2008, compared to the same period in 2007 as a result of purchases of higher-yielding securities during 2008.
The decline in the net interest margin for the three months ended March 31, 2008, compared to same period in 2007 reflects the effect of the reduction in the Fed Funds rates of 50 basis points and 75 basis points, respectively, in January and March of 2008 and the reversal of prior period accrued interest on nonperforming construction loans being downgraded during the first quarter of 2008. Finally, during the three months ended March 31, 2008, an adjustment of $1.1 million was recorded to interest expense to reflect the under-recognition of amortization in 2007 associated with a time deposit discount arising from our acquisition of Summit Bank. The adjustment increased interest expense $1.1 million and decreased goodwill by a like amount. The adjustment is the correction of an error that was identified in 2007 and is deemed immaterial to the expected 2008 full year results of operations.
Provision for Loan Losses. The provision for loan losses increased to $35.1 million in the three months ended March 31, 2008, compared to $1.0 million for the three months ended March 31, 2007. The increased provision for loan losses was the result of increases in classified construction loans and specific reserves on construction loans geographically located in distressed areas that include Riverside County, San Bernardino County, the Greater Sacramento area, Imperial County, the High Desert and the Central Valley, all of which are in California and Nevada. This increase was partially offset by a $5.5 million loss reserve reduction from the reduction of historical and qualitative loss factors related primarily to our commercial business loan portfolio. The reduction in the commercial business loan portfolio’s historical and qualitative loss factors was based on our quarterly loss factor assessment and is due to the portfolio exhibiting delinquency and criticized/classified loan levels that remain relatively low as compared to our long term historical trends.
Noninterest Income. Noninterest income decreased by $8.9 million, or 71.43%, for the three months ended March 31, 2008, compared to the same period in 2007. The net decrease was primarily the result of a $3.8 million write-down on two non-bank REIT TPS CDOs and a $1.4 million charge for a LOCOM adjustment on commercial real estate loans held for sale. Gain on sale of loans decreased to $908,000 for the three months ended March 31, 2008, from $2.2 million for the same period in 2007 due to decreased sales volume resulting from the current economic and market conditions.
Noninterest Expense. Noninterest expense increased $4.7 million, or 10.6%, for the three months ended March 31, 2008, compared to the same period in 2007. For the three months ended March 31, 2008, personnel expenses increased $5.3 million, or 21.93%. 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 CAB and UCB China acquisitions and the expansion of UCB’s infrastructure to support a larger and growing organization. Personnel expenses also included $1.5 million in stock compensation expense for the three months ended March 31, 2008, compared to $770,000 for the same period in 2007. Occupancy expenses increased $0.9 million, or 18.71%, for the three months ended March 31, 2008, compared to the same period in 2007 as a result of the opening of new branches and the operations of CAB and UCB China. We had foreign exchange gains amounting to $2.9 million for the three months ended March 31, 2008. These gains arise due to the remeasurement of non U.S. dollar denominated financial assets and liabilities on UCB China’s balance sheet, as the functional and reporting currency of UCB China is currently the U.S. dollar.
Income Tax Expense. The effective tax rate for the three months ended March 31, 2008, was 26.76%, compared with 34.6% for the three months ended March 31, 2007. The lower effective tax rate was primarily due to an increase in tax-exempt income during the three months ended March 31, 2008, as compared to the three months ended March 31, 2007.

-33-


Table of Contents

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, 2008, 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
  $ 27,598     $     $ (3,063 )   $ 24,535     $ 12,575     $ (1,907 )   $ 7,344     $ (1,156 )   $ 19,919     $ (3,063 )
U.S. Government sponsored enterprises notes
    23,466             (3,777 )     19,689       19,689       (3,777 )                 19,689       (3,777 )
U.S. Government sponsored enterprises discount notes
    662,853       19,652             682,505                                      
Municipals
    278,849       248       (13,533 )     265,564       212,851       (12,338 )     14,463       (1,195 )     227,314       (13,533 )
Other
    10,000             (2,400 )     7,600                   7,600       (2,400 )     7,600       (2,400 )
 
                                                           
Total investment securities available for sale
    1,002,766       19,900       (22,773 )     999,893       245,115       (18,022 )     29,407       (4,751 )     274,522       (22,773 )
 
                                                           
Mortgage-backed securities available for sale:
                                                                               
FNMA
    551,691       5,092       (1,651 )     555,132       51,189       (300 )     72,189       (1,351 )     123,378       (1,651 )
GNMA
    469,617       1,235       (981 )     469,871       293,984       (635 )     19,089       (346 )     313,073       (981 )
FHLMC
    188,004       448       (3,712 )     184,740       62,932       (1,623 )     88,408       (2,089 )     151,340       (3,712 )
CMBS
    375,215             (10,560 )     364,655       364,655       (10,560 )                 364,655       (10,560 )
Other
    181,436       57       (5,610 )     175,883       115,292       (3,122 )     47,705       (2,488 )     162,997       (5,610 )
 
                                                           
Total mortgage-backed securities available for sale
    1,765,963       6,832       (22,514 )     1,750,281       888,052       (16,240 )     227,391       (6,274 )     1,115,443       (22,514 )
 
                                                           
Total investment and mortgage-backed securities available for sale
    2,768,729       26,732       (45,287 )     2,750,174       1,133,167       (34,262 )     256,798       (11,025 )     1,389,965       (45,287 )
 
                                                           
Investment securities held to maturity:
                                                                               
Municipal securities
    207,427       5,846       (297 )     212,976       9,554       (224 )     1,098       (73 )     10,652       (297 )
 
                                                           
Mortgage-backed securities held to maturity:
                                                                               
FNMA
    4,044             (51 )     3,993                   3,993       (51 )     3,993       (51 )
GNMA
    52,562       171       (211 )     52,522                   11,176       (211 )     11,176       (211 )
FHLMC
    418             (4 )     414                   414       (4 )     414       (4 )
 
                                                           
Total mortgage-backed securities held to maturity
    57,024       171       (266 )     56,929                   15,583       (266 )     15,583       (266 )
 
                                                           
Total investment and mortgage-backed securities held to maturity
    264,451       6,017       (563 )     269,905       9,554       (224 )     16,681       (339 )     26,235       (563 )
 
                                                           
Total securities
  $ 3,033,180     $ 32,749     $ (45,850 )   $ 3,020,079     $ 1,142,721     $ (34,486 )   $ 273,479     $ (11,364 )   $ 1,416,200     $ (45,850 )
 
                                                           
The investment portfolio increased by $554.8 million in the three months ended March 31, 2008. This increase is primarily due to purchases of GNMA securities and U.S. Government sponsored enterprises discount notes during the first quarter of 2008.
As of March 31, 2008, the amortized cost and the market value of the available for sale investment securities portfolio were $2.77 billion and $2.75 billion, respectively. The total net of tax unrealized loss on these securities was $11.8 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 $5.5 million, has not been recognized in the financial statements as of March 31, 2008. Additionally, certain securities that UCB holds have unrealized losses that extend for periods in excess of twelve months. These securities are comprised primarily of mortgage-backed securities and municipal securities. 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.

-34-


Table of Contents

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, 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:
                                                                               
Agency preferred stock
  $ 23,466     $     $ (3,317 )   $ 20,149     $ 20,149     $ (3,317 )   $     $     $ 20,149     $ (3,317 )
Collateralized debt obligations
    31,433             (2,702 )     28,731       12,364       (2,163 )     7,960       (539 )     20,324       (2,702 )
U.S. Government sponsored enterprises notes
    446,916       997       (686 )     447,227       174,453       (498 )     51,804       (188 )     226,257       (686 )
Municipals
    246,632       741       (2,964 )     244,409       160,048       (2,964 )                 160,048       (2,964 )
Other
    10,000             (1,050 )     8,950                   8,950       (1,050 )     8,950       (1,050 )
 
                                                           
Total investment securities available for sale
    758,447       1,738       (10,719 )     749,466       367,014       (8,942 )     68,714       (1,777 )     435,728       (10,719 )
 
                                                           
Mortgage-backed securities available for sale:
                                                                               
FNMA
    559,979       1,409       (5,250 )     556,138       13,288       (30 )     291,258       (5,220 )     304,546       (5,250 )
GNMA
    77,478       25       (1,770 )     75,733       3,505       (84 )     71,735       (1,686 )     75,240       (1,770 )
FHLMC
    241,243       102       (5,471 )     235,874       699       (2 )     223,597       (5,469 )     224,296       (5,471 )
CMBS
    390,112       835       (5,499 )     385,448       20,753       (5,499 )                 20,753       (5,499 )
Other
    188,006       148       (2,458 )     185,696       10,362       (379 )     139,808       (2,079 )     150,170       (2,458 )
 
                                                           
Total mortgage-backed securities available for sale
    1,456,818       2,519       (20,448 )     1,438,889       48,607       (5,994 )     726,398       (14,454 )     775,005       (20,448 )
 
                                                           
Total investment and mortgage-backed securities available for sale
    2,215,265       4,257       (31,167 )     2,188,355       415,621       (14,936 )     795,112       (16,231 )     1,210,733       (31,167 )
 
                                                           
Investment securities held to maturity:
                                                                               
Municipal securities
    212,647       6,016       (32 )     218,631       3,789       (28 )     417       (4 )     4,206       (32 )
 
                                                           
Mortgage-backed securities held to maturity:
                                                                               
FNMA
    4,090             (101 )     3,989                   3,989       (101 )     3,989       (101 )
GNMA
    54,326             (1,071 )     53,255       16,156       (216 )     37,098       (855 )     53,254       (1,071 )
FHLMC
    422             (11 )     411                   411       (11 )     411       (11 )
 
                                                           
Total mortgage-backed securities held to maturity
    58,838             (1,183 )     57,655       16,156       (216 )     41,498       (967 )     57,654       (1,183 )
 
                                                           
Total investment and mortgage-backed securities held to maturity
    271,485       6,016       (1,215 )     276,286       19,945       (244 )     41,915       (971 )     61,860       (1,215 )
 
                                                           
Total securities
  $ 2,486,750     $ 10,273     $ (32,382 )   $ 2,464,641     $ 435,566     $ (15,180 )   $ 837,027     $ (17,202 )   $ 1,272,593     $ (32,382 )
 
                                                           

-35-


Table of Contents

Loans
The components of UCB’s loans held in portfolio for each major loan category at March 31, 2008, and December 31, 2007, were as follows (dollars in thousands):
                 
    March 31,     December 31,  
    2008     2007  
 
               
Commercial:
               
Secured by real estate — nonresidential
  $ 2,368,861     $ 2,317,501  
Secured by real estate — multifamily
    1,208,201       1,186,177  
Construction
    1,831,195       1,666,550  
Business
    2,225,938       2,076,597  
 
           
 
               
Total commercial
    7,634,195       7,246,825  
 
           
 
               
Consumer:
               
Residential mortgage (one-to-four family)
    501,636       518,674  
Other
    67,169       66,651  
 
           
 
               
Total consumer
    568,805       585,325  
 
           
 
               
Loans held in portfolio (1)
    8,203,000       7,832,150  
Allowance for loan losses
    (102,839 )     (80,584 )
 
           
 
               
Loans held in portfolio, net
  $ 8,100,161     $ 7,751,566  
 
           
 
(1)   Amounts reflect net unamortized deferred loan fees, purchase premiums discounts of $15.7 million and $17.9 million at March 31, 2008, and December 31, 2007, respectively.
During the three months ended March 31, 2008, loans held in portfolio increased by $370.9 million. This increase resulted primarily from organic growth in commercial loans, which was offset by a transfer of commercial real estate loans of $28.0 million from held in portfolio to held for sale. Commercial loans at March 31, 2008, increased 5.35% from the December 31, 2007, balance. Consumer loans decreased 2.82% at March 31, 2008, from the December 31, 2007, balance.
At March 31, 2008, and December 31, 2007, UCB had cash secured loans of $296.1 million and $284.5 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, 2008, UCB transferred $28.6 million of loans from held in portfolio to held for sale. UCB also transferred at market value, $2.2 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, 2008. On April 1, 2008, UCB transferred approximately $100.6 million in commercial real estate loans held for sale to held in portfolio. The loans held for sale for each major loan category at March 31, 2008, and December 31, 2007, were as follows (dollars in thousands):

-36-


Table of Contents

                 
    March 31,     December 31,  
    2008     2007  
 
               
Commercial:
               
Secured by real estate — nonresidential
  $ 151,595     $ 175,474  
Business
    223       1,109  
 
           
 
               
Total commercial
    151,818       176,583  
 
           
 
               
Consumer:
               
Residential mortgage (one-to-four family)
          927  
 
           
 
               
Loans held for sale (1)
    151,818       177,510  
Valuation allowance
    (1,792 )     (373 )
 
           
 
               
Net loans held for sale
  $ 150,026     $ 177,137  
 
           
 
(1)   Amounts reflect net unamortized deferred loan fees of $265,000 and $322,000 at March 31, 2008, and December 31, 2007, respectively.
Consistent with UCB’s stated long-term objectives, 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, 2008 and 2007, were as follows (dollars in thousands):
                 
    March 31,     March 31,  
    2008     2007  
 
               
Loans held for sale:
               
Commercial:
               
Secured by real estate — nonresidential
  $ 6,025     $ 16,331  
Secured by real estate — multifamily
           
 
           
 
               
Total commercial loans
    6,025       16,331  
 
           
 
               
Consumer:
               
Residential mortgage (one-to-four family)
          1,190  
 
           
Total loans held for sale commitments (1)
    6,025       17,521  
 
           
 
               
Loans held in portfolio:
               
Commercial:
               
Secured by real estate — nonresidential
    244,070       270,118  
Secured by real estate — multifamily
    93,744       117,913  
Construction
    138,991       284,657  
Business
    481,536       288,678  
 
           
 
               
Total commercial loans
    958,341       961,366  
 
           
 
               
Consumer:
               
Residential mortgage (one-to-four family)
    43,683       30,701  
Other
    12,918       6,513  
 
           
 
               
Total consumer loans
    56,601       37,214  
 
           
 
               
Total loans held in portfolio commitments (1)
    1,014,942       998,580  
 
           
 
               
Total loan commitments (1)
  $ 1,020,967     $ 1,016,101  
 
           
 
(1)   Amounts do not reflect commitments related to loan participations.

-37-


Table of Contents

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, 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, 2008, were as follows (dollars in thousands):
                                 
            Intermediate              
    Adjustable     Fixed     Fixed     Total  
 
                               
Commercial:
                               
Secured by real estate — nonresidential
  $ 996,693     $ 348,884     $ 1,034,775     $ 2,380,352  
Secured by real estate — multifamily
    399,002       679,913       126,697       1,205,612  
Construction
    1,777,321             60,262       1,837,583  
Business
    2,019,278       9,584       197,247       2,226,109  
 
                       
 
                               
Total commercial
    5,192,294       1,038,381       1,418,981       7,649,656  
 
                       
 
                               
Consumer:
                               
Residential mortgage (one-to-four family)
    71,190       245,293       185,355       501,838  
Other
    63,847             3,391       67,238  
 
                       
 
                               
Total consumer
    135,037       245,293       188,746       569,076  
 
                       
 
                               
Gross loans held in portfolio (1)
  $ 5,327,331     $ 1,283,674     $ 1,607,727     $ 8,218,732  
 
                       
 
(1)   Amounts do not reflect net deferred loan fees, purchase premiums and discounts of $15.7 million at March 31, 2008.
Adjustable-rate loans increased $327.0 million from December 31, 2007, to March 31, 2008. Intermediate fixed-rate loans increased $3.3 million from December 31, 2007, to March 31, 2008. Fixed-rate loans increased $38.3 million from December 31, 2007, to March 31, 2008.
Deposits
The balances and rates paid for categories of deposits at March 31, 2008, and December 31, 2007, were as follows (dollars in thousands):
                                 
    March 31, 2008     December 31, 2007  
            Weighted             Weighted  
            Average             Average  
    Amount     Rate     Amount     Rate  
NOW, checking and money market accounts
  $ 2,443,219       1.52 %   $ 2,417,630       1.91 %
Savings accounts
    969,312       1.71       986,664       1.94  
Time deposits:
                               
Less than $100,000
    1,792,235       2.82       1,423,935       4.48  
$100,000 or greater
    2,877,388       4.41       2,953,011       4.60  
 
                           
 
                               
Total time deposits
    4,669,623       3.80       4,376,946       4.56  
 
                           
 
                               
Total deposits
  $ 8,082,154       2.86 %   $ 7,781,240       3.40 %
 
                           
Deposits have traditionally been UCB’s primary source of funding to use in its lending and investment activities. At March 31, 2008, 57.78% of UCB’s deposits were time deposits, 30.23% were negotiable order of withdrawal (“NOW”) accounts, checking and money market accounts, and 11.99% were savings accounts. By comparison, at December 31, 2007, 56.2% of UCB’s deposits were time deposits, 31.1% were NOW accounts, checking and money market accounts, and 12.7% were savings accounts. With the exception of state and federal government entities

-38-


Table of Contents

contributing 6.6% and 6.8% to total deposits as of March 31, 2008 and December 31, 2007, 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, 2008, are $2.88 billion of deposits of $100,000 or greater, compared to $2.95 billion at December 31, 2007. Such deposits made up 35.6% of total deposits at March 31, 2008, compared to 38.0% at December 31, 2007. Also included in time deposits are $518.8 million and $163.5 million of brokered deposits at March 31, 2008, and December 31, 2007, respectively.
Borrowings
Borrowings as of and for the three months ended March 31, 2008, and the year ended December 31, 2007, were as follows (dollars in thousands):
                 
    March 31,   December 31,
    2008   2007
 
               
Securities sold under agreements to repurchase:
               
Average balance outstanding
  $ 789,293     $ 400,615  
Maximum amount outstanding at any month end period
    850,000       650,000  
Balance outstanding at end of period
    805,000       650,000  
Weighted average interest rate during the period
    3.95 %     4.21 %
Weighted average interest rate at end of period
    3.72 %     4.04 %
Weighted average remaining term to maturity at end of period (in years)
    7.35       8.63  
 
               
Short-term borrowings:
               
FHLB advances and other short-term borrowings:
               
Average balance outstanding
  $ 650,811     $ 299,713  
Maximum amount outstanding at any month end period
    723,789       637,787  
Balance outstanding at end of period
    723,789       414,532  
Weighted average interest rate during the period
    3.12 %     5.15 %
Weighted average interest rate at end of period
    2.57 %     4.05 %
Weighted average remaining term to maturity at end of period (in years)
    0.03       0.08  
 
               
Federal funds purchased:
               
Balance outstanding at end of period
  $ 138,000     $ 78,000  
 
               
Long-term borrowings:
               
FHLB advances and other long-term borrowing:
               
Average balance outstanding
  $ 1,425,520     $ 1,113,881  
Maximum amount outstanding at any month end period
    1,448,634       1,372,190  
Balance outstanding at end of period
    1,385,808       1,372,190  
Weighted average interest rate during the period
    4.55 %     4.69 %
Weighted average interest rate at end of period
    4.54 %     4.57 %
Weighted average remaining term to maturity at end of period (in years)
    4.9       5.2  
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 $1.90 billion and $1.57 billion of FHLB advances outstanding at March 31, 2008, and December 31, 2007, respectively. At March 31, 2008, UCB had $614.0 million of additional FHLB borrowings available for future borrowing capacity.
Subordinated Debentures
UCBH formed or acquired special purpose trusts in 1997, 2001, 2002, 2005, 2006 and 2007 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

-39-


Table of Contents

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 $406.6 million of subordinated debentures outstanding at March 31, 2008, and December 31, 2007.
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.

-40-


Table of Contents

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, 2008, and December 31, 2007, were as follows (dollars in thousands):
                                 
    March 31, 2008     December 31, 2007  
    Amount     %     Amount     %  
 
                               
Commercial:
                               
Secured by real estate — nonresidential
  $ 2,368,861       28.88     $ 2,317,501       29.59  
Secured by real estate — multifamily
    1,208,201       14.73       1,186,177       15.14  
Construction
    1,831,195       22.32       1,666,550       21.28  
Business
    2,225,938       27.14       2,076,597       26.51  
 
                       
Total commercial
    7,634,195       93.07       7,246,825       92.52  
 
                       
 
                               
Consumer:
                               
Residential mortgage (one-to-four family)
    501,636       6.11       518,674       6.62  
Other
    67,169       0.82       66,651       0.86  
 
                       
Total consumer
    568,805       6.93       585,325       7.48  
 
                       
Loans held in portfolio (1)
  $ 8,203,000       100.00     $ 7,832,150       100.00  
 
                       
 
(1)   Amounts reflect net unamortized deferred loan fees, purchase premiums and discounts of $15.7 million and $17.9 million at March 31, 2008, and December 31, 2007, 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, 2008, $42.1 million in commercial real estate loans were sold. Additionally, $28.0 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 in the following table include nonaccrual and restructured loans from loans held in portfolio and other real estate owned (“OREO”), but exclude any loans held for sale and accruing loans contractually past due 90 days or more. 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.

-41-


Table of Contents

UCB’s nonperforming assets from loans held in portfolio and OREO as of March 31, 2008, and December 31, 2007, were as follows (dollars in thousands):
                 
    March 31,     December 31,  
    2008     2007  
Commercial loans:
               
Secured by real estate — nonresidential
  $ 51,117     $ 18,086  
Secured by real estate — multifamily
    1,568       4,032  
Construction
    112,660       15,799  
Business
    15,670       14,713  
 
           
Total commercial loans
    181,015       52,630  
 
           
 
               
Consumer loans:
               
Residential mortgage (one-to-four family)
    344       349  
Other
          206  
 
           
Total consumer loans
    344       555  
 
           
Total nonaccrual loans from loans held in portfolio
    181,359       53,185  
Other real estate owned
    3,691       3,844  
 
           
Total nonperforming assets (1)
  $ 185,050     $ 57,029  
 
           
Nonperforming assets to total assets
    1.45 %     0.48 %
Nonaccrual loans to loans held in portfolio
    2.21       0.68  
Nonperforming assets to loans held in portfolio and other real estate owned
    2.25       0.73  
 
               
Loans held in portfolio
  $ 8,203,000     $ 7,832,150  
Gross interest income recognized on impaired loans
    237       139  
Gross interest income not recognized on nonaccrual loans
    5,459       1,877  
Accruing loans contractually past due 90 days or more
    29,757       43,820  
Loans classified as troubled debt restructurings and not included above
    8,401       8,466  
 
(1)   Nonperforming assets exclude loans held for sale and loans contractually past due 90 days or more but still accruing.
The level of UCB’s nonperforming assets increased as of March 31, 2008, compared to December 31, 2007. The increase was a result primarily of a downgrade in construction loans following the extensive review of UCB’s construction loan portfolio in California and Nevada during the latter part of the quarter.
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, 2008, and December 31, 2007, UCB’s investment in loans that were considered to be impaired was $156.4 million and $83.2 million, respectively. Estimated losses on impaired loans are added to the allowance for loan losses through the provision for loan losses. At March 31, 2008, the allowance for loan losses included $15.6 million for impaired loans with an $87.3 million recorded investment. At December 31, 2007, the allowance included $7.9 million for impaired loans with a recorded investment of $32.4 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. In addition, additional review of construction loans in our nondistressed areas may cause additional downgrades in classification and impairments which might require additional specific valuation allowances. 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, which could in turn have an adverse impact on our financial position and results of operations.

-42-


Table of Contents

Allowances for Credit Losses
Allowance for Loan Losses. The components of the allowance for loan losses and allowance for losses related to unfunded commitments for the three months ended March 31, 2008 and 2007 were as follows (dollars in thousands):
                 
    2008     2007  
Balance at beginning of period:
               
Allowance for loan losses
  $ 80,584     $ 62,015  
Allowance for losses — unfunded commitments
    4,793       6,833  
 
           
Total allowance for losses at beginning of year
    85,377       68,848  
 
               
Provision for loan losses
    35,069       1,048  
 
               
Charge-offs:
               
Commercial:
               
Construction
    (8,586 )      
Business
    (2,617 )     (1,772 )
Secured by real estate — nonresidential
    (683 )      
Secured by real estate — multifamily
    (189 )      
 
           
Total commercial
    (12,075 )     (1,772 )
 
           
 
               
Consumer:
               
Other
    (280 )      
 
           
Total charge-offs
    (12,355 )     (1,772 )
 
           
 
               
Recoveries:
               
Commercial:
               
Secured by real estate — nonresidential
    5       2  
Business
    5       12  
 
           
Total commercial
    10       14  
 
           
 
               
Consumer:
               
Other
    1       2  
 
           
Total recoveries
    11       16  
 
           
Net charge-offs
    (12,344 )     (1,756 )
 
           
Total allowance for losses at end of period
  $ 108,102     $ 68,140  
 
           
Allowance for loan losses
  $ 102,839     $ 62,804  
Allowance for losses — unfunded commitments
    5,263       5,336  
 
           
Total allowance for losses at end of year
  $ 108,102     $ 68,140  
 
           
Allowance for loan losses to loans held in portfolio
    1.25 %     0.91 %
Net charge-offs to average loans held in portfolio
    0.62       0.10  
The allowance for loan losses increased $22.2 million from $80.6 million at December 31, 2007 to $102.8 million at March 31, 2008. The increase is due primarily to a $35.1 million provision for loan losses recorded in the three months ended March 31, 2008. The increased provision for loan losses was the result of increases in classified construction loans and specific reserves on construction loans geographically located in distressed areas that include Riverside County, San Bernardino County, the Greater Sacramento area, Imperial County, the High Desert and the Central Valley, all of which are in California and Nevada. This increase was partially offset by a $5.5 million loss reserve reduction from the reduction of historical and qualitative loss factors related primarily to our commercial business loan portfolio. The reduction in the commercial business loan portfolio’s historical and qualitative loss factors was based on our quarterly loss factor assessment and is due to the portfolio exhibiting delinquency and criticized/classified loan levels that remain relatively low as compared to our long term historical trends. In addition, we had net charge-offs of $12.3 million during the three months ended March 31, 2008.

-43-


Table of Contents

If the economic and credit turmoil that began in the latter part of 2007 continues, or 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 commercial business loans. Commercial business loans 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 approach used in the development of the allowance for loan losses. The overall reserve increased $293,000 from December 31, 2007, due to increased levels of unfunded commitments and growth in the trade finance business. The reserve for unfunded commitments is included in other liabilities on the Consolidated Balance Sheets. Commitments to extend credit at March 31, 2008, and December 31, 2007, were $2.75 billion and $2.69 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 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

-44-


Table of Contents

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. The Company does not apply hedge accounting under FAS 133, Accounting for Derivative Instruments and Hedging Activities, to any of these economic hedges.
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, 2008, has not changed substantially from December 31, 2007. 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, 2007, 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, 2008, UCBH received $6.5 million in dividends from UCB. At March 31, 2008, $277.1 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.

-45-


Table of Contents

As mentioned earlier, UCB’s primary source of funding is its deposits. For the three months ended March 31, 2008, deposit increases resulted in net cash inflows of $283.9 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 secured by a pledge of FHLB stock that UCB holds. UCB had $1.90 billion and $1.57 billion of FHLB advances outstanding at March 31, 2008, and December 31, 2007, respectively. At March 31, 2008, UCB had $614.0 million of additional FHLB borrowings available for future borrowing capacity. At March 31, 2008, UCB had $805.0 million of securities sold under agreements to repurchase. The Company also has a $35.0 million unsecured borrowing line with Wells Fargo Bank. As of March 31, 2008, $5.0 million was drawn against this line.
At March 31, 2008, the Company had $574.0 million of FHLB short-term, fixed-rate advances that mature within one year. The $1.33 billion in long-term advances mature between May 13, 2008, and November 30, 2020. As of March 31, 2008, $1.02 billion of these advances may be terminated at the option of the FHLB. For the three months ended March 31, 2008, the activity in short-term FHLB borrowings resulted in a net cash inflow of $338.0 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, 2008, loan sales provided $61.9 million in cash inflows.
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, 2008, investment securities activities resulted in an increase in investment securities holdings and a net cash outflow of $504.8 million.
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, 2008, loan growth resulted in a net cash outflow of $1.02 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.
One ratio that can be used to monitor the stability of our funding composition is the “loan to deposit ratio.” This ratio reflects the percent of loans that are funded by our interest and noninterest bearing deposits, which we consider to be relatively stable funding sources. A ratio below 100% indicates that our loan portfolio is completely funded by such deposits. The ratio was 102% for both March 31, 2008 and December 31, 2007.
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, 2008, 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 loan securitizations. In such securitizations, UCB will exchange either multifamily or residential (one-to-four family) mortgage loans for securities issued by FNMA. On

-46-


Table of Contents

certain occasions, UCB will securitize commercial real estate loans through a qualified special purpose entity (“QSPE”). QSPE’s are passive entities with limited permitted activities. UCB will exchange the commercial real estate loans for commercial mortgage-backed securities (“CMBS”). 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. Commercial real estate mortgages are included in the 100% risk weighted category. FNMA securities, however, are classified at a 20% risk weight and CMBS securities are classified based on the external rating of the securities, which could range from a 20% risk weight for AAA and AA rated securities to 200% for below-investment grade securities.
These 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.
Total stockholders’ equity at March 31, 2008, was $1.07 billion, an increase of 10.32% over the $967.1 million at December 31, 2007. The increase reflects the retention of earnings and the issuances of new shares of stock in connection with the completion of the first phase under the Investment Agreement with China Minsheng Banking Corp., Ltd. on March 5, 2008. UCB’s and the Company’s total risk-based, Tier 1 risk-based and Tier 1 leverage ratios at March 31, 2008, and December 31, 2007, were as follows:
                 
    March 31,   December 31,
    2008   2007
 
               
United Commercial Bank:
               
Tier 1 leverage
    7.33 %     7.42 %
Tier 1 risk-based capital
    8.82       8.55  
Total risk-based capital
    11.20       10.80  
 
               
UCBH Holdings, Inc. and subsidiaries:
               
Tier 1 leverage
    7.62 %     7.39 %
Tier 1 risk-based capital
    9.17       8.51  
Total risk-based capital
    11.55       10.76  
The increase in the risk-based capital ratios as of March 31, 2008, compared to December 31, 2007, relates primarily to the infusion of $95.7 million of new capital from China Minsheng Banking Corp., Ltd. in March, 2008.
UCB is a California state-chartered commercial bank and its deposits are insured by the FDIC up to the applicable legal limits. UCB is supervised, examined and regulated by the State of California Department of Financial Institutions (“DFI”), as well as by the FDIC. In addition, our wholly owned subsidiary, UCB China, is subject to the regulatory oversight of the China Banking Regulatory Commission in China (“CBRC”) and by the Hong Kong Monetary Authority for our Hong Kong branch. Our broker dealer, UCB Investment Services, is subject to the regulatory oversight of the Financial Industry Regulatory Authority. Any of these regulatory agencies may take formal enforcement action if they determine that the financial condition, capital resources, asset quality, earnings prospects, management or liquidity aspects of UCB’s operations are unsatisfactory. These agencies may also take action if UCB or its management is violating or has violated any law or regulation.
UCB’s wholly owned subsidiaries, UCB China and UCB Investment Services, are both subject to regulatory capital requirements. As of March 31, 2008 and December 31, 2007, both subsidiaries met or exceeded such requirements.
UCBH has continuously paid quarterly dividends on its common stock since 2000. UCBH paid out dividends of $0.04 per share for a total payment of $3.1 million for the three months ended March 31, 2008. The payment of dividends during 2008 had the effect of reducing the Company’s Tier 1 leverage ratio by 3 basis points and the total risk-based capital ratio by 3 basis points.

-47-


Table of Contents

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.

-48-


Table of Contents

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, 2007, which could materially affect our business, financial condition and/or future operating results.
As of March 31, 2008, 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, 2007. 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.

-49-


Table of Contents

Item 6. Exhibits
                                 
Index to Exhibits
Exhibit       Incorporated by Reference   Filed
Number   Exhibit Description   Form   File No.   Exhibit   Filing Date   Herewith
 
                               
2.1
  Agreement and Plan of Merger by and among UCBH Holdings, Inc. (“Buyer”), UCBH Merger Sub, Inc., a wholly owned subsidiary of Buyer, and Pacifica Bancorp, Inc. dated May 23, 2005   10-Q   000-24947     2.1     August 9, 2005        
 
                               
2.2
  Agreement and Plan of Merger by and among UCBH Holdings, Inc. (“Buyer”), United Commercial Bank, a wholly owned subsidiary of Buyer, and Asian American Bank & Trust Company dated August 2, 2005   10-Q   000-24947     2.2     November 9, 2005        
 
                               
2.3
  Agreement and Plan of Merger by and among UCBH Holdings, Inc. (“Buyer”), United Commercial Bank, a wholly owned subsidiary of Buyer, and Great Eastern Bank dated October 13, 2005   S-4   000-24947     2.1     December 12, 2005        
 
                               
2.4
  Agreement and Plan of Merger by and among UCBH Holdings, Inc. (“Buyer”), UCB Merger, LLC, a wholly owned subsidiary of Buyer, and Summit Bank Corporation dated September 18, 2006   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   10-Q   000-24947     2.5     May 10, 2007        
 
                               
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   10-Q   000-24947     2.6     May 10, 2007        
 
                               
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   10-Q   000-24947     2.7     May 10, 2007        
 
                               
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   8-K   000-24947     3.1     March 29, 2007        

-50-


Table of Contents

                                 
Index to Exhibits
Exhibit       Incorporated by Reference   Filed
Number   Exhibit Description   Form   File No.   Exhibit   Filing Date   Herewith
 
                               
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        
 
                               
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   10-Q   000-24947     4.12     May 10, 2007        
 
                               
4.13
  Floating Rate Junior Subordinated Debentures between United Commercial Bank and Wilmington Trust Company, as trustee, dated June 21, 2007   10-Q   000-24947     4.13     August 9, 2007        

-51-


Table of Contents

                                 
Index to Exhibits
Exhibit       Incorporated by Reference   Filed
Number   Exhibit Description   Form   File No.   Exhibit   Filing Date   Herewith
 
                               
4.14
  Amendment No. 1 to Rights Agreement dated March 5, 2008 by and between UCBH Holdings, Inc. and Mellon Investor Services LLC   8-K   000-24947     4.1     March 6, 2008        
 
                               
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     10.1     May 1, 2008        
 
                               
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 and certain other Executive Vice Presidents of UCBH Holdings, Inc. or United Commercial Bank   8-K   000-24947     10.1     May 2, 2007        
 
                               
10.5
  Form of Change in Control Agreement among UCBH Holdings, Inc., United Commercial Bank and Daniel Gautsch   8-K   000-24947     10.1     June 8, 2005        
 
                               
10.6
  Form of Change in Control Agreement among UCBH Holdings, Inc., United Commercial Bank and Dennis Wu   8-K   000-24947     10.1     June 13, 2005        
 
                               
10.7
  Form of Change in Control Agreement among UCBH Holdings, Inc., United Commercial Bank and certain Senior Vice Presidents of UCBH Holdings, Inc. or United Commercial Bank   8-K   000-24947     10.1     August 15, 2007        
 
                               
10.8
  UCBH Holdings, Inc. Amended and Restated 2006 Equity Incentive Plan, (formerly known as UCBH Holdings, Inc. 2006 Equity Incentive Plan)   S-8   333-143774     4.2     June 15, 2007        
 
                               
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     10.2     August 15, 2007        
 
                               
10.11
  Form of Indemnification Agreement of United Commercial Bank.   8-K   000-24947     10.3     August 15, 2007        

-52-


Table of Contents

                                 
Index to Exhibits
Exhibit       Incorporated by Reference   Filed
Number   Exhibit Description   Form   File No.   Exhibit   Filing Date   Herewith
 
                               
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        
 
                               
10.13
  Investment Agreement dated October 7, 2007 by and between UCBH Holdings, Inc. and China Minsheng Banking Corp., Ltd.   8-K   000-24947     10.1     March 6, 2008        
 
                               
10.14
  Investor’s Rights and Standstill Agreement dated October 7, 2007 by and between UCBH Holdings, Inc. and China Minsheng Banking Corp., Ltd.   8-K   000-24947     10.2     March 6, 2008        
 
                               
10.15
  Voting Agreement dated March 5, 2008 by and between UCBH Holdings, Inc. and China Minsheng Banking Corp., Ltd.   8-K   000-24947     10.3     March 6, 2008        
 
                               
14.1
  Code of Conduct, as amended on August 14, 2004   8-K   000-24947     14.1     September 1, 2004        
 
                               
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 Jonathan H. Downing                       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 Jonathan H. Downing                         (1 )
 
(1)   Furnished herewith

-53-


Table of Contents

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
         
  UCBH HOLDINGS, INC.
 
 
Date: May 9, 2008  /s/ Thomas S. Wu    
  Thomas S. Wu   
  Chairman, President and Chief Executive Officer (Principal Executive Officer)   
 
     
Date: May 9, 2008  /s/ Jonathan H. Downing    
  Jonathan H. Downing   
  Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)   
 

-54-