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UnionBanCal Corporation

Q2 2008 Earnings Call

July 21, 2008 11:30 am ET

Executives

John Rice Jr. – Manager Investor Relations

David Matson – Vice Chairman and CFO

Philip Flynn – Vice Chairman, COO

David Anderson – Executive Vice Chairman and Controller

Analysts

Ken Zerbe – Morgan Stanley

Steven Alexopoulos – JP Morgan

Andrea Jao – Lehman Brothers

Brent Christ – Fox-Pitt Kelton Cochran LLC

Julian Castarino – Prospector Partners

Joseph Morford III – RBC Capital Markets

[Brach Vanderlit] – [Gaylon]

Todd Hagerman – Credit Suisse

Operator

Welcome to the second quarter 2008 earnings release conference call. (Operator Instructions) I would now like to turn the conference over to our host, Manager of Investor Relations, Jack Rice.

Jack Rice

Here with me are Phil Flynn, the Vice Chairman and Chief Operating Officer of the company; David Matson, Vice Chairman and Chief Financial Officer. David Anderson, the Executive Vice President and Controller are here as well.

First, Mr. Matson will review second quarter’s financial performance and provide guidance for third quarter 2008 and full year. Mr. Flynn will then provide significant details about performance in our loan and deposit activities with detailed focused on credit quality.

Please note that the press release for the quarter ended June 30, 2008, was released today before the open of the market and has been posted in the Investor Relations portion of the company’s website at www.unionbank.com. That press release contains certain non-GAAP financial measures, which we will discuss during today’s call together with the most directly comparable financial measures calculated in accordance with GAAP and the specific term items excluded in the calculation of each non-GAAP financial measure.

Before we begin, this conference call includes forward-looking statements that involve risks and uncertainties. Forward-looking statements can be identified by looking at the fact that they do not relate strictly to historical or current facts. Often they include the words “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” “project,” “continue,” “forecast,” or words of similar meaning or future conditional verbs such as “will,” “would,” “should,” “could,” or “may.”

A number of important factors could cause actual results to differ materially from those in the forward-looking statements. A complete description of the company, including related risk factors, is discussed in the company’s public filings with the Securities and Exchange Commission. All forward-looking statements included in this conference call are based on information available at the time of the call and the Company assumes no obligation to update any forward-looking statement.

Thank you, and now Mr. Matson with second quarter’s financial review and third quarter’s guidance.

David Matson

Second quarter earnings were $0.97 per share, within the range we forecasted in April. This includes $0.03 per share from the partial redemption of MasterCard shares.

Compared with the first quarter, total revenue increased over 8% with a net interest income up approximately 11%. The strong net interest income growth was due primarily to a 6% increase in average loans, in lower borrowing costs, and our liability sensitive balance sheet which benefits from lower rates.

Lower funding costs and favorable credit spreads more than offset the decline in the yield on loans as both the positive and loan re-priced lower. Consistent with the prevailing rate environment and our balance sheet profile, net interest margin increased a strong 19 basis points to 3.74% for the quarter. We managed the overall level of the bank’s interest rate risk to provide for consistent growth and earnings over time.

In recent quarters, we maintained a liability sensitive interest rate risk profile in order to protect the bank from falling rates. The significant growth in loans in the second quarter 2008 was supported by variable rate funding and growth in the core deposits. Coupled with our ability to price deposits lower and the use of our derivative hedges, the bank was favorably positioned for lower rates.

For the quarter, average non-interest bearing deposits and were 30% of total depots and our all-in cost of funds improved 70 basis points from the first quarter to 1.56%. Sequential quarter loan growth was robust and well diversified. Phil will provide further detail regarding the portfolio shortly.

On a linked quarter basis, core noninterest income rose more than 5%, with a solid growth in service charges on deposit accounts and trading account revenues. Noninterest expense in the second quarter was $419 million including a $5 million provision for off balance sheet credit losses. This was consistent with our April forecast. Total provision for credit losses, which includes the provision for off balance sheet credit losses, was a $100 million for the second quarter, up $20 million from the first quarter.

At quarter end, our capital levels were strong with our tangible common equity ratio at 7.22%. We continue to believe that our capital strength is a competitive advantage, and we will continue to manage our capital conservatively.

Now let us provide our financial outlook for the third quarter and full year. Uncertainties in the economy and the financial markets make forecasting financial performance more difficult than usual. Our estimate of third quarter and full year results is based on the best information available to us today. The forecast information I will provide to you is on a continuing operations basis. Our current forecast anticipates no change to the Fed Funds Rate for the remainder of 2008.

Our expectations for the third quarter earnings from continuing operations are $1.10 to $1.20 per share. On a sequential quarter basis, we expect net interest income to increase approximately 3%. We expect total average non-interest bearing deposits in the third quarter to decline approximately 2% from the second quarter. Average total loans are expected to grow approximately 3% on a sequential quarter basis.

We estimate non-interest income will be approximately 2%, up approximately 2% compared to the second quarter. We forecast noninterest expense to increase approximately 2%. We estimate total provision for credit losses will be in the range of $65 to $85 million for the quarter. We estimate an effective tax rate of approximately 32% equal to the effective tax rate in the first half of the year. Our third quarter forecast assumes no material share repurchases during the quarter and approximately 138 million average shares outstanding.

For full year 2008, we are raising our range for earnings from continuing operations to $4.20 to $4.45 per share, with a total provision for credit losses of approximately $290 to $340 million. Our provision forecast reflects our assumption that economic conditions in our primary markets will continue to be weak in the second half of 2008.

Now on to Phil and the remainder of the presentation, Phil.

Philip Flynn

This morning I will provide more detail on our second quarter results and our outlook for the balance of the year. We continue to generate strong core earnings, driven by robust loan growth, stable deposits, and expanded net interest margin and disciplined expense management. With these strong results, we now expect to achieve higher 2008 earnings per share than previously forecasted despite somewhat higher loan loss provisions.

In addition to discussing our earnings expectations, I will provide detail on our loans, particularly the homebuilder and residential mortgage portfolios, as well deposits, noninterest income and expenses, the loan loss reserve, and comment on California economy.

Loan growth was much stronger than expected this quarter with average growth of 6.5% or $2.8 billion over the first quarter, almost a billion more than what we anticipated three months ago. Growth was spread across the entire portfolio, with commercial loans up about $1.3 billion, commercial real estate mortgages up about $600 million, and residential mortgages up about $500 million.

Commercial loan growth was well diversified. In general, we are seeing the benefits of having a strong balance sheet and ample capital in this difficult period. Many of our competitors have been forced to substantially reduce their lending activities due to capital constraints, allowing us to grow while maintaining strict underwriting standards and attractive spreads.

We had encouraging deposit results this quarter. Noninterest bearing deposits were about $300 million higher than the first quarter and interest bearing core deposits were up about $350 million. Net interest income was 11% higher than the first quarter, $23 million more than expected. For the third quarter in a row, our net interest margin increased to 374 basis points, up 19 basis points from the first quarter. The combination of loan growth, higher deposits, and lower rates paid on interest bearing deposits were responsible for the increase in net interest margin.

Our noninterest income grew approximately 2% from the first quarter, principally driven by higher deposit fees, energy and interest rate derivatives income, and trust income. We reported noninterest expense of $419 million, up slightly from what we expected due to an increase in advertising in support of our retail segmentation strategy and the recording of $5 million in off balance sheet credit provisions. Between the strength of our net interest income and moderate expense growth, core earnings were up 15% or $38 million better than the first quarter.

I’d now like to turn to the credit results we reported and discuss the $100 million loan loss provision. We had net charge-offs of only $31 million in the second quarter, a low 28 basis points of total average loans. Our nonperforming assets increased by $93 million to $225 million at quarter end or 49 basis points on the loan portfolio. These credit results are significantly better than peer banks which have recently reported.

Despite these relatively strong results, we took a larger provision than we’d expected. In the past three quarters, we’ve added $240 million to our loan loss reserve and experienced only $48 million in net charge-offs. We continue to position our balance sheet for a difficult economic environment, and we continue to believe that we’ve built a very resilient credit portfolio to date clearly outperforming peer banks.

I’d like to give you a brief update on our homebuilder portfolio. We have outstanding loans of $700 million, with total commitments of $1.2 billion. Outstandings were down by $115 million and total commitments down by $200 million during the quarter. We have eight loans totally $104 million on nonaccrual. Total reserves held against this portfolio are now $115 million. We released a portion of the unallocated reserve attributed to the homebuilders this quarter because we believe that our current reserves are adequate to see us through the current downturn.

Our residential mortgages totaling approximately $15 billion continue to perform extraordinary well in this environment with only 51 basis points or $75 million of total delinquencies, less than one-sixth the California prime industry average. We had only $26 million of loans in foreclosure at quarter end. We have a very strong residential mortgage pipeline, in excess of $1.6 billion at quarter end. With fewer active competitors, we’ve been able to maintain strict underwriting guidelines and still book more than $2.4 billion in new loans through the first half of the year. The quality of the new loans continue to mirror the whole portfolio with average FICO scores of over 750 and LTVs of less than 65%, and the residential mortgage portfolios continues to be geographically diverse across the state.

The HELOC portfolio has $3 billion of outstandings and another $3.4 billion in undrawn commitments. The average FICO scores of these borrowers is about 740 with an average loan balance of about $70,000 and an average LTV of about 60%.

Net charge-offs totaled only 20 basis points compared to the first quarter AVA average of about 80 basis points. Total delinquencies were 34 basis points against the California industry average of about 178 basis points. The geographic concentrations are diverse statewide. Overall we continue to believe that we really do not have a lot of problems in either of these portfolios.

I’d now like to discuss our outlook for the balance of the year. For the third quarter, we expect growth and net interest income of about 3% to 4%, or approximately $15 to $20 million. This is being driven by growth in average loans of about $1.5 billion or 3% to 4%. Growth during the quarter is expected to come from approximately $600 million in commercial loans, $600 million from residential mortgages, and the remainder spread evenly between the commercial mortgage and consumer loan portfolios, and we expect to see similar loan growth in the fourth quarter.

Overall, we expect 2008 average loan growth of about 17% or $6.6 billion over 2007. We anticipate the core deposits will be flat in the third quarter and grow about $700 million in the fourth. For the fourth quarter, we expect loan growth to drive net interest income up about 2%. As our loan growth continues to outpace our core deposit growth, we anticipate the net interest margin to run in the 3.7% range for the rest of the year. We expect noninterest income to increase about 2% in the third quarter, and we expect to end the year about 2% over our original guidance. Noninterest expenses are expected to average about $420 million per quarter.

Our strong core earnings continue to serve us well as we face a difficult economic situation. This outlook has caused us to take a conservative view toward credit quality for the remainder of the year. We’re anticipating loan loss provisions of $65 to $85 million for the third quarter and $290 to $340 million in total for the year. We expect charge-offs in each of the next two quarters to be slightly higher than the second quarter levels. We believe that these ranges are in line with an economy that has entered a recession, resulting in deterioration across the portfolio.

Despite the higher levels of loan loss provisions, we forecast third quarter earnings per share range of $1.10 to $1.20 and full year EPS of $4.20 to $4.45 on a continuing ops basis, higher than we thought three months ago.

Finally, I’d like to spend some time on what we see happening in the California economy. California’s been hit hard by the housing market slowdown, problems in the financial sector, and rising gasoline and diesel prices. The unemployment rate rose to 6.9% in June, which is higher than the national average. California lost almost 124,000 jobs in the construction and financial sectors over the past 12 months. Home prices are down on average 35% in the past year with reductions in housing starts at 37%.

Fortunately, Union Bank continues to demonstrate the capital strength in earnings power. Even in these unpredictable times, we believe that we will achieve our goals of revenues which exceed those of 2006, positive operating leverage, and declining efficiency ratio, and EPS growth without the benefit of share buybacks.

We’d now be happy to take your questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Ken Zerbe - Morgan Stanley.

Ken Zerbe – Morgan Stanley

On the asset and liability matching and your comments that you made beginning of the presentation were that you’re funding your loan growth with variable rate funding. Are those new loans actually being offset? Are the loans themselves variable rate or you still trying to position yourselves to be even more liability sensitive than you currently are?

David Matson

Well what we have been doing in terms of our funding, and the reference was one the liability side, not the asset side, and what we’re doing is we’re doing more secured types of financing than unsecured and those are more variable rather than more fixed.

Ken Zerbe – Morgan Stanley

Could you just comment upon the quality or maybe the unrealized marks in your securities portfolio whether CLOs or GSE exposure, etcetera?

David Matson

Let me deal with GSE first. Basically we do not have any sub debt, preferred securities, common, and anything along that side. The only thing that we have are the Freddie bonds and Fannie bonds totals around $300 million, MBSs for both Freddie and Fannie and that’s 5.2 and the impact on our OCI is very minimal.

Philip Flynn

Ken, on the CLOs, the mark against OCI actually improved by about $20 million during the second quarter, so at least for the last three months that market is showing some stability.

Ken Zerbe – Morgan Stanley

In terms of provisions, I understand your comments that obviously you have fairly strong reserves given low credit losses, but any reason or what’s the logic for why provisions are actually going to come down in third quarter given the environment continues to deteriorate.

Philip Flynn

Ken, that’s our best estimate. I think a thing to remember about Union Bank’s loan portfolio is we do not have a credit card portfolio, so we’re not generating losses there. We believe that given how much testing it’s had to date, our residential mortgage and HELOC portfolios are not going to generate a lot of losses.

The one portfolio that has shown very systemic risk and a lot of downgrades of course is the homebuilders, and we believe at this point as that portfolio decreases that the reserves that we have against are adequate to see us through that downturn in homebuilders with $115 million against outstandings of $700.

Other than that, we’re not seeing systemic downgrades throughout the whole portfolio. On top of all of that, we believe our loan growth, which has been driving quite of bit of reserving for the past three quarters, will be running at about half of the rate it did for the first half of 2008. Now if we’re wrong about that and loan growth continues to be very strong, we may be at the upper end of the range that we talked about. But we believe right now that the provision guidance coming down for the past two quarters is accurate.

Operator

Your next question comes from Steven Alexopoulos - JP Morgan.

Steven Alexopoulos – JP Morgan

Looking at that a slightly different way with the provision, if we look at the 100 million this quarter, since you indicated you didn’t provide for homebuilder loans, do you have some color on which portfolios you did provide for and what was the source of that coming in above your prior guidance?

Philip Flynn

Sure, the drivers of the provisioning this quarter was several things, just downgrades across the portfolio reflecting a weaker economy, (As I just said, nothing systemic but just an up tick in downgrades across the whole set of loan types we have.) loan growth was substantial; that drove some of it.. We had $31 million of net charge-offs, which we’ve chosen to continue to replenish. And generally, we believe in this environment, we should take a very conservative posture toward provisioning.

Steven Alexopoulos – JP Morgan

What were the charge-offs associated with residential mortgage?

Philip Flynn

Like almost nothing.

Steven Alexopoulos – JP Morgan

Do you have the basis points of what was charged off this quarter there?

Philip Flynn

No, I can go look it up, but we’re probably talking about $1 to $2 million. So whatever $1 to $2 million is, $2 million on $15 billion, my math isn’t that good. How many basis points is that? It’s not many.

Steven Alexopoulos – JP Morgan

Looking at the $4.20 to $.4.45 full year guidance, what are you using for the first half earnings per share? Is that $1.86 from continuing operations?

Philip Flynn

Well, we were $0.97 and what was the first quarter, $0.89.

Operator

Your next question comes from Andrea Jao - Lehman Brothers.

Andrea Jao – Lehman Brothers

Did I hear you right that for the remainder of the year, your net interest margin will probably be in the $3.70 area?

Philip Flynn

Yes, it’s hard to predict. It ran up a lot in the second quarter.

Andrea Jao – Lehman Brothers

In the margin, how much, if you can share with us, was the contribution of your hedging strategy; and then how much was a drag of interest reversals for nonperformers, if any?

Philip Flynn

There was very little reversals of non-performers. Non-performers are just starting to pick up, so that’s not a big number.

David Matson

The hedge was versus the first half, it’s not that much of a difference between first half versus second half.

Philip Flynn

The only other unusual item that flowed through was a $5 million income reversal related to two LILO transactions we have. You’ve been reading a lot about banks taking big hits on their old lease-in/lease-out transactions. We’ve been accounting for those very conservatively over the years. So with some of these negative court decisions that are coming down, we decided to completely insulate ourselves from economic exposure there. That took $5 million out of net interest income.

Andrea Jao – Lehman Brothers

In the second quarter alone?

Philip Flynn

Yes, there was nothing else exposed after that.

Andrea Jao – Lehman Brothers

With respect to noninterest income, last quarter when you spoke on the call, we didn’t expect service charge in [inaudible] to ramp up as strongly as they did. Could you talk about the drivers there and the sustainability of that?

Philip Flynn

With rates coming down and earnings allowances coming down, we’re starting to get more hard dollar payments for services that we provide to our commercial customers. That’s all. I don’t know how sustainable that is. It probably run at the levels we’re at right now, Andrea.

Andrea Jao – Lehman Brothers

Then even if I take out $7.1 million of the MasterCard gains from other income, other incomes still up a nice amount. Is there anything unusual running in that line item?

Philip Flynn

No, not this quarter.

Operator

Your next question comes from Brent Christ - Fox-Pitt.

Brent Christ – Fox-Pitt Kelton Cochran LLC

Can you talk a little bit more in terms of your loan growth, and in particular the C&I growth, just in general where it’s coming from, maybe what type of competitors you’re taking share from and just some detail on the loan growth?

Philip Flynn

We have thirdly market share in the State of California in the middle market and corporate lending space, with our significant competitors of course being Bank of American and Wells Fargo, who are both doing fine of course. But there’s a lot of other competitors who have had to pull back here because of their own issues particularly with capital. I won’t mention any names, but there are some large banks who are clearly pulling back their lending activities across the county and we see here it in California. So we’ve had really good results from our general commercial lending business here in the State of California.

Our energy business is also doing extraordinarily well, so we’ve had a lot growth there and then some of are other smaller specialty lending businesses are also doing well. So it’s been quite diverse. We’re seeing the benefit of having a very strong balance sheet, ample capital, and weakened competitors.

Brent Christ – Fox-Pitt Kelton Cochran LLC

With your outlook for the back half of the year obviously it sounds like you expect that to continue albeit a little bit slower pace. How are you contemplating balancing your capital position versus your loan growth opportunities just give there seem to be a lot of opportunities out there for you but at the same time it is causing your capital levels to shrink albeit modestly?

Philip Flynn

Well real modestly, we have a lot of capital. You’ve seen us cease doing buybacks, which we had been very significant buyers of our shares in previous years. Capital’s not a constraint for us.

Brent Christ – Fox-Pitt Kelton Cochran LLC

Can you just talk a little bit more about the sequential change in nonperformers and if there’s anything lumpy within the link quarter change?

Philip Flynn

We went up to $225 million. Compared to the industry, that’s an extraordinarily low percentage of the whole portfolio. About half of what’s in there now is from homebuilders, as you would expect, as we go through resolving those issues. Other than that, it’s the nonperformers are spread out all over all kinds of industries. There’s a little bit of commercial companies that are somehow in someway tied to homebuilding, so building supply companies. There’s a few small nonaccruals that popped up there, again as you would expect.

Operator

Your next question comes from Julian Castarino - Prospector Partners.

Julian Castarino – Prospector Partners

Wanted to ask what the current balance of the title and escrow deposits were at the end of the quarter?

Philip Flynn

Boy, it’s getting pretty low. We’re down to less than billion dollars average with second quarter. Our peak a few years ago was $3 billion.

Julian Castarino – Prospector Partners

What’s the balance of title and escrow loans?

Philip Flynn

That comes down proportionately with the deposits. It’s getting quite low now. I don’t even have the number in front of me. I used to keep that because it was a significant number, but it’s very small now.

Julian Castarino – Prospector Partners

But it moves directionally in like the past quarters?

Philip Flynn

Yes, those loans are used to provide arbitrage opportunities for the title companies. It’s down to $350 million in the second quarter.

Julian Castarino – Prospector Partners

The loan growth that’s coming from market share gains are at the expense of your competitors. Would you say what percent of the growth is coming from that? Would you say it’s over 50% or close to 100% or?

Philip Flynn

It’s impossible to put a number around that. All we know is we’re seeing more and more banks exiting credits not because the credits are weak but because they’ve just chosen to exit. Usually that’s a sign that they’re feeling constrained on what they can do. We’re able to maintain very attractive credit spreads and strict underwriting standards and still win transactions, which again is an indication that competitors are weak.

Julian Castarino – Prospector Partners

Your NPA guidance, can you just review that?

Philip Flynn

I didn’t give it. It’s hard to forecast that sort of thing.

Operator

Your next question comes from Joe Morford - RBC Capital Markets.

Joseph Morford III – RBC Capital Markets

Any comments on the recently completed share national credit exam and are those results at all reflected in these two key numbers?

Philip Flynn

It’s not completed as far as the information being disseminated to all the banks. What’s completed is the part we know is our agent at book, and we did very well there, but we’ve not got all the results from all the transactions that we participated.

Joseph Morford III – RBC Capital Markets

So no real sense of an overall level of classifieds for that exam or?

Philip Flynn

Not right now, no. Whatever we know is anecdotal. You don’t get those results officially until August.

Joseph Morford III – RBC Capital Markets

You talked about strong growth in the energy business, how big does that book of business stand at the end of June and maybe what was the growth in the quarter or year-over-year?

Philip Flynn

Energy is up to, I have it lumped in with all my specialized lending groups. I think we’re up to probably $5 to $6 billion in outstanding loans between our power utilities and oil and gas business. It’s a substantial business, as you know. That and real estate are by far the largest two specialty lending areas.

Joseph Morford III – RBC Capital Markets

Then lastly just on the trading line in the fee income category, I think you may have mentioned it was related to some energy and interest rate derivatives, but any more color there and expectations going forward?

Philip Flynn

We’ve been very disciplined about trying to focus on core businesses, and you say us exit a couple of businesses, insurance brokerage as well as retirement recordkeeping. So we’ve exited those fee generating businesses and put a lot of emphasis on fee business that are very related to the core relationship banking model we have. Two of those businesses revolve around helping our customers hedge their interest rate exposures and helping our energy customers hedge their exposure to commodities. Clearly in this environment, particularly on the energy side, our operation in Houston is doing quite well. But I want to emphasize, we’re not speculating for our own book, this customer-driven activity.

Operator

You have a follow-up question from Andrea Jao - Lehman Brothers.

Andrea Jao – Lehman Brothers

I know that you took a $207 million impairment on the COO book back in ’07. I was wondering what the chances are, if you could tell us, of further impairment?

Philip Flynn

Well as I mentioned, we’ve taken a mark to the OCI account in equity. During the second quarter that mark actually improved by about $20 million, so the overall fundamentals of that market seemed to have stabilized at least so far. I’m not going to hazard to guess on whether future marks are going to be necessary, Andrea. I’m not sure that in this environment three months make a trend, but we were certainly encouraged by that.

Operator

Your next question comes from Brach Vanderlit - Gaylon.

Brach Vanderlit – Gaylon

If you could just talk for a moment, there seems to be so many crosscurrents in the industry and also for your folks. Just general, what do you attribute your superior performance to relative to peers, number one? Number two, if you could just mention within your California-base where we are in housing dislocation? You mentioned the home price decline, are we toward the latter stages of the dislocation that you expect?

Philip Flynn

The reason why Union Bank is doing so well is that we’ve been very disciplined over this last five or six years in sticking to core lending businesses and not chasing various types of assets that were available in the market in order just to try to increase earnings and get bigger yields. That’s why you see that we didn’t get into the subprime lending business. We avoided much of the leverage loan market that’s out there. We really think that the disciplined we showed this last five or six years is the reason why we’re now able to take advantage of what’s going on in the marketplace.

The second question, this is only my personal view, I think that we’re probably getting into the later innings here. Prices have declined substantially in the inland areas of California for single-family homes. Inland Empire stocked in places like that. You’re starting to see price declines even towards the coastal sections of the state now, which you needed to see.

You’ve got to everything down to some market-clearing price. I’m guessing we’re getting there, but we’re certainly not going to see an up tick this year. I’m hopeful that you’ll get to some stable situation as we get toward the end of this year and early next year and then we’ll have some equilibrium where buyers and sellers are more evenly matched. For us, we continue to stress test this portfolio and we just can’t generate substantial losses out of it because of the very high LTVs that we have and the very high quality borrowers that we had to begin with.

Operator

Your next question comes from Todd Hagerman - Credit Suisse.

Todd Hagerman – Credit Suisse

Phil, if you could just give us a better sense. You have the 90 days past due in the press release, just wondering or curious what the 30-day plus is looking like? Then just together with just the restructured credits, de minimis of course, but as I think about just how your mortgage resets begin to cycle through over the next 18 months or two years or so, are you seeing any pressure there in terms of restructure or anything different in terms of how you’re working with your customers?

Philip Flynn

I don’t have the 30-day number in front of me. The up tick in the 90-day is mostly related to one decent size credit which actually got brought current right after the end of the quarter. That was probably in the range of like $15 to $20 million. So you usually don’t see Union Bank running a big 90 days still accruing number. We’re usually pretty disciplined about collecting or putting on nonaccrual. So I’m sorry, I just don’t have that 30-day number in front of me.

Todd Hagerman – Credit Suisse

I’m assuming there’s an upward pressure there, but nothing, again nothing that significant in terms of dollar numbers I would think.

Philip Flynn

No, as I said, actually there was one credit that was like $15 million of that $51. So otherwise we would have crept up from say $20 to $35, which is pretty modest for a $60 billion bank.

Todd Hagerman – Credit Suisse

Then just secondarily just on the restructured credit and thinking about your mortgage consumer portfolio, again just in terms of the mortgage resets as they come through, are you doing anything a) different in terms of working with the customers or you saying any increasing pressure in terms of the restructured credit as you think forward?

Philip Flynn

That’s not really the problem. We are proactively reaching out as the loans are set to change rate in order to keep the loans on the books generally. We’re not really in a situation where we’ve having to do a lot of restructuring. Rates have come down to the point where that’s not really driving a lot of problems.

Todd Hagerman – Credit Suisse

So again as far as you see, just again given your prime customer-base that what you have or what you see in the pipeline is pretty de minimis?

Philip Flynn

Right, our biggest concern is trying to keep these borrowers here versus have them go somewhere to refi.

Operator

At this time, there are no questions in queue.

John Rice Jr.

Well if there are no more questions, thank you very much for your attendance and your interest and any follow-ups can be directed to me. Everyone out there very likely has my number. Thanks a lot.

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