UnionBanCal Corp. posted an 18% drop in third-quarter net income as the California bank boosted it credit-loss provisions sixfold as credit conditions continue to deteriorate.

The regional bank — which is set to be bought out by majority owner Mitubishi UFJ Financial Group Inc. — reported net income of $104.8 million, or 75 cents a share, down from $127.5 million, or 92 cents a share, a year earlier. Earnings from continuing operations rose to 79 cents from $1.08 a year ago.

Revenue climbed 13% to $721 million.

Analysts polled by Thomson Reuters were looking for earnings of $1.09 a share on $728 million in revenue.

Return on equity — an important profitability measure at financial firms — slid to 9.6% from 12.8%.

The total provision for credit losses soared more than sixfold to $125 million, while it also rose 25% from the second quarter.

Net charge-offs — loans the bank doesn't think are collectible — as a percentage of average total loans surged to 0.53% from 0.02% last year and 0.28% in the second quarter. Nonperforming assets, those near default, climbed to 0.63% of total loans and foreclosed assets, from 0.13% and 0.49%, respectively.

Net interest margin, the difference between interest earned and interest paid out to depositors, increased to 3.67% from 3.51%. Interest bearing deposits fell 3.4%, largely due to a lower "large time" deposits, offset by increased borrowings from the Federal Reserve Bank and the Federal Home Loan Bank.

Last month, Mitsubishi UFJ and UnionBanCal announced plans for the Japanese bank to buy out the California unit's minority shareholders for $73.50 a share. The move highlights the increasing attraction of overseas markets, including the U.S., for Japanese companies chasing growth outside the country's sluggish domestic economy. Mitsubishi also recently made a crucial investment in brokerage Morgan Stanley.

Monday, UnionBanCal said the merger is expected to be completed "as soon as reasonably practicable." Shares closed Friday at $73.35 and there was no premarket trading.

Donna Kardos

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