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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-K

ý

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2009ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period
from                   toCommission file number 1-15081


UnionBanCal Corporation(Exact name of registrant as specified in its charter)

Delaware

94-1234979(State of Incorporation)

(I.R.S. Employer Identification No.)


400 California Street
San Francisco, California 94104-1302(Address and zip code of principal executive offices)

Registrant's
telephone number: (415) 765-2969

Securities
registered pursuant to Section 12(b) of the Act:
None
(Title of each class)

Not
applicable
(Name of each exchange on which registered)

Securities
registered pursuant to Section 12(g) of the Act:
Common Stock par value $1.00 per share

Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes o No ý

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes o No ý

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 ý No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to
be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. ý

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.

Large accelerated filer o

Accelerated filer o

Non-accelerated filer ý (Do not check if a
smaller reporting company)

Smaller reporting company o


Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes o No ý

Aggregate market value of voting and non-voting common equity held by non-affiliates of the registrant: Not applicable; all of the voting
stock of the registrant is owned by its parent, The Bank of Tokyo-Mitsubishi UFJ, Ltd.

As
of January 31, 2010, the number of shares outstanding of the registrant's Common Stock was 136,330,829.

DOCUMENTS INCORPORATED BY REFERENCE

None

THE
REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION (I) (1) (a) AND (b) OF FORM 10-K AND IS THEREFORE FILING THIS FORM WITH THE REDUCED
DISCLOSURE FORMAT.



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INDEX



PagePART IITEM 1.

BUSINESS

6General

6Banking Lines of Business

6Employees

7Competition

7Monetary Policy and Economic Conditions

8Supervision and Regulation

8ITEM 1A.

RISK FACTORS

13ITEM 1B.

UNRESOLVED STAFF COMMENTS

24ITEM 2.

PROPERTIES

24ITEM 3.

LEGAL PROCEEDINGS

25PART IIITEM 5.

MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES

25ITEM 6.

SELECTED FINANCIAL DATA

25, F-1ITEM 7.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

25, F-1Introduction

F-2Executive Overview

F-2Critical Accounting Estimates

F-4Financial Performance

F-10Net Interest Income

F-13Analysis of Changes in Net Interest Income

F-15Noninterest Income and Noninterest Expense

F-16Income Tax Expense

F-17Credit Risk Management

F-18Loans

F-19Cross-Border Outstandings

F-21Provision for Credit Losses

F-21Allowances for Credit Losses

F-22Nonperforming Assets

F-27Interest Foregone

F-29Securities

F-29Analysis of Securities

F-30Loan Maturities

F-31Deposits

F-32Borrowed Funds

F-33Capital Adequacy and Regulatory Capital

F-34Quantitative and Qualitative Disclosures About Market Risk

F-35Liquidity Risk

F-39Off-Balance Sheet Arrangements and Aggregate Contractual Obligations and
Commitments

F-41Business Segments

F-44


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PageITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

25, F-35ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

25, F-53ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE

26ITEM 9A.

CONTROLS AND PROCEDURES

26ITEM 9B.

OTHER INFORMATION

26PART IIIITEM 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

27ITEM 11.

EXECUTIVE COMPENSATION

27ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS

27ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE

27ITEM 14.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

27PART IVITEM 15.

EXHIBITS AND CONSOLIDATED FINANCIAL STATEMENT SCHEDULES

28SIGNATURES

II-1


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NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report includes forward-looking statements, which include forecasts of our financial results and condition, expectations for our
operations and business, and our assumptions for those forecasts and expectations. Do not rely unduly on forward-looking statements. Actual results might differ significantly compared to our forecasts
and expectations. See Part I, Item 1A. "Risk Factors," and the other risks described in this report for factors to be considered when reading any forward-looking statements in this
filing.

This
report includes forward-looking statements, which are subject to the "safe harbor" created by section 27A of the Securities Act of 1933, as amended, and section 21E of
the Securities Exchange Act of 1934, as amended. We may make forward-looking statements in our Securities and Exchange Commission (SEC) filings, press releases, news articles and when we are speaking
on behalf of UnionBanCal Corporation. Forward-looking statements can be identified by the fact that they do not relate
strictly to historical or current facts. Often, they include the words "believe," "expect," "target," "anticipate," "intend," "plan," "seek," "estimate," "potential," "project," or words of similar
meaning, or future or conditional verbs such as "will," "would," "should," "could," "might," or "may." These forward-looking statements are intended to provide investors with additional information
with which they may assess our future potential. All of these forward-looking statements are based on assumptions about an uncertain future and are based on information available to us at the date of
these statements. We do not undertake to update forward-looking statements to reflect facts, circumstances, assumptions or events that occur after the date the forward-looking statements are made.

In
this document, for example, we make forward-looking statements, which discuss our expectations about:



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There
are numerous risks and uncertainties that could and will cause actual results to differ materially from those discussed in our forward-looking statements. Many of these factors are
beyond our ability to control or predict and could have a material adverse effect on our financial condition and results of operations or prospects. Such risks and uncertainties include, but are not
limited to those listed in Part I, Item 1A "Risk Factors" and Part II, Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations."

Readers
of this document should not rely unduly on forward-looking information and should consider all uncertainties and risks disclosed throughout this document and in our other reports
to the SEC, including, but not limited to, those discussed below. Any factor described in this report could by itself, or together with one or more other factors, adversely affect our business, future
prospects, results of operations or financial condition.

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PART I

Item 1.   Business

All reports that we file electronically with the Securities and Exchange Commission (SEC), including the Annual Reports on
Form 10-K, Quarterly Reports on Form 10-Q, and current reports on Form 8-K, as well as any amendments to those reports, are accessible at no
cost on our internet website at www.unionbank.com as soon as reasonably practicable after we electronically file such reports with, or furnish them to, the SEC. These filings are also accessible on
the SEC's website at www.sec.gov.

As
used in this Form 10-K, the term "UnionBanCal" and terms such as "we," "us" and "our" refer to UnionBanCal Corporation, Union Bank, N.A., one or more of their
consolidated subsidiaries, or to all of them together.

General

We are a California-based, financial holding and commercial bank holding company whose major subsidiary, Union Bank, N.A., is a commercial bank. (On
December 18, 2008, Union Bank, N.A. changed its name from Union Bank of California, N.A.) Union Bank provides a wide range of financial services to consumers, small businesses, middle-market
companies and major corporations, primarily in California, Oregon, Washington and Texas, as well as nationally and internationally.

On
November 4, 2008, we became a privately held company pursuant to the Agreement and Plan of Merger, dated as of August 18, 2008, by and among UnionBanCal, The Bank of
Tokyo-Mitsubishi UFJ, Ltd. (BTMU), a wholly-owned subsidiary of Mitsubishi UFJ Financial Group, Inc. (MUFG), and Blue Jackets, Inc., a Delaware corporation and a wholly-owned
subsidiary of BTMU (Merger Sub) (the Merger Agreement). All of our issued and outstanding shares of common stock are now owned by BTMU. Prior to the transaction, BTMU owned approximately
64 percent of our outstanding shares of common stock.

The
Merger Agreement provided, among other things, for a cash tender offer by BTMU (the Offer) to purchase all of the publicly held outstanding shares of our common stock at a price of
$73.50 per share in cash (the Offer Price). The offer expired on September 26, 2008, with purchase of the shares being effective on October 1, 2008. After the Offer, BTMU owned
approximately 97 percent of our outstanding common stock. On November 4, 2008, pursuant to the Merger Agreement, Merger Sub was merged with and into UnionBanCal (the Merger), the
separate corporate existence of Merger Sub ceased and UnionBanCal continued as the surviving corporation in the Merger. All remaining publicly held shares of our common stock issued and outstanding
immediately prior to the closing of the Merger were converted into the right to receive an amount in cash equal to the Offer Price.

For
further information regarding the privatization transaction, refer to Note 2 to our Consolidated Financial Statements included in this Form 10-K Report.

Banking Lines of Business

Our operations are divided into two reportable segments. These segments and their financial information are described more fully in "Business Segments" of our
Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) and in Note 24 to our Consolidated Financial Statements included in this
Form 10-K Report.

Retail Banking.Retail Banking offers our customers a wide spectrum of financial products under one convenient umbrella. Our broad line
of checking
and savings, investment, loan and fee-based banking products is designed to meet individual and business needs. These products are offered in 339 full-service branches,
primarily in California. In addition, Retail Banking offers e-banking through our website, check cashing services at our Cash & Save® locations.

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Corporate Banking.Corporate Banking offers a variety of commercial financial services, including commercial loans and project financing,
 real estate
financing, asset-based financing, trade finance and letters of credit, lease financing, customized deposit and global treasury management solutions and selected capital markets products. The Corporate
Banking customers include middle-market companies, large corporations, real estate companies and other more specialized industry customers. In addition, specialized depository services are offered to
title and escrow companies, retailers, domestic financial institutions, bankruptcy trustees and other customers with significant deposit volumes. Corporate Banking includes a registered broker-dealer
and a registered investment advisor, which provide securities brokerage and investment advisory services and manage a proprietary mutual fund family. Corporate Banking also offers loan, deposit and
trust and investment products tailored to our high net worth customers, professional service firms, foundations and endowments through our Private Banking offices. Institutional customers are offered
corporate trust, securities lending and custody (global and domestic) services.

Employees

At January 31, 2010, we had 9,676 full-time equivalent employees.

Competition

Banking is a highly competitive business. We compete actively for loan, deposit, and other financial services business in California, Oregon, Washington and
Texas, as well as nationally and internationally. Our competitors include a large number of state and national banks, thrift institutions, credit unions, finance companies, mortgage banks and major
foreign-affiliated or foreign banks, as well as many financial and nonfinancial firms that offer services similar to those offered by us, including many large securities firms. Some of our competitors
are insurance companies or community or regional banks that have strong local market positions. Other competitors include large financial institutions that have substantial capital, technology and
marketing resources, which are well in excess of ours. Competition in our industry may intensify as a result of the recent and increasing level of consolidation of financial services companies,
particularly in our principal markets resulting from adverse economic and financial market conditions. Such larger financial institutions may have greater access to capital at a lower cost than us,
which may adversely affect our ability to compete effectively. We also experience competition, especially for deposits, from internet-based banking institutions, which have grown rapidly in recent
years. Given the recent financial crises affecting the banking system and financial markets and related volatility and tightening of liquidity in the credit markets, many banks have been aggressively
seeking deposits by utilizing interest rates which lack correlation to the current federal funds market. Although we have not been required to do so, net interest income could be adversely affected
should competitive pressures cause us to increase our interest rates paid on deposits in order to maintain our market share.

Banks,
securities firms, and insurance companies can now combine as a "financial holding company." Financial holding companies can offer virtually any type of financial service,
including banking, securities underwriting, insurance (both agency and underwriting), and merchant banking. Many of our competitors have elected to become financial holding companies, including
several large finance companies, securities firms and insurance companies. A number of foreign banks have either acquired financial holding companies or obtained financial holding company status in
the U.S., further increasing competition in the U.S. market. On October 6, 2008, UnionBanCal Corporation, BTMU and MUFG obtained approval from the Board of Governors of the Federal Reserve
System to become financial holding companies under the Bank Holding Company Act of 1956, as amended (the BHCA). We sought this new status from the Federal Reserve Board to provide us maximum
flexibility to pursue new business opportunities as the banking and financial services industry undergoes rapid and profound changes.

Technology
and other changes increasingly allow parties to complete financial transactions electronically, and in many cases, without banks. For example, consumers can pay bills and
transfer funds over the internet and by telephone without banks. Many non-bank financial service providers have lower overhead costs and are

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subject
to fewer regulatory constraints. If consumers do not use banks to complete their financial transactions, we could potentially lose fee income, deposits and income generated from those
deposits.

Current
federal law has made it easier for out-of-state banks to enter and compete in the states in which we operate. The Riegle-Neal Interstate
Banking and Branching Efficiency Act of 1994 (the Riegle-Neal Act), among other things, eliminated substantially all state law barriers to the acquisition of banks by
out-of-state bank holding companies. A bank holding company may acquire banks in states other than its home state, without regard to the permissibility of such acquisitions
under state law, but subject to any state requirement that the acquired bank has been organized and operating for a minimum period of time (not to exceed five years), and the requirement that the
acquiring bank holding company, prior to or following the proposed acquisition, controls no more than 10 percent of the total amount of deposits of the insured depository institutions in the
United States and no more than 30 percent of such deposits in that state (or such lesser or greater amount as may be established by state law). The Riegle-Neal Act also permits
banks to acquire branches located in another state by purchasing or merging with a bank chartered in that state or a national banking association having its headquarters located in that state.

We
believe that continued emphasis on enhanced services and distribution systems, an expanded customer base, increased productivity and strong credit quality, together with a substantial
capital base, will better position us to meet the challenges provided by this competition.

Monetary Policy and Economic Conditions

Our earnings and businesses are affected not only by general economic conditions (both domestic and international), but also by the monetary policies of various
governmental regulatory authorities of the United States and foreign governments and international agencies. In particular, our earnings and growth may be affected by actions of the Federal Reserve
Board in connection with its implementation of national monetary policy through its open market operations in United States Government securities, control of the discount rate for borrowings by
financial institutions and the federal funds rate and establishment of reserve requirements against both member and non-member financial institutions' deposits. These actions have a
significant effect on the overall growth and distribution of loans and leases, investments and deposits, as well as on the rates earned on securities, loans and leases or paid on deposits. It is
difficult to predict future changes in monetary policies and their effect on our business, particularly in light of the current challenging economic conditions.

Supervision and Regulation

Overview.Bank holding companies and banks are extensively regulated under both federal and state law. This regulation is intended
primarily for the
protection of depositors, the deposit insurance fund, and other clients of the institution, and not for the benefit of the investors in the stock or other securities of the bank holding company. Set
forth below is a summary description of material laws and regulations that relate to our operation and those of our subsidiaries, including Union Bank. This summary description of applicable laws and
regulations does not purport to be complete and is qualified in its entirety by reference to such laws and regulations.

Bank Holding Company Act (BHCA) and the Gramm-Leach-Bliley (GLB) Act.We, MUFG and BTMU are subject to regulation under the BHCA, which
also subjects
us to Federal Reserve Board reporting and examination requirements. Generally, the BHCA restricts our ability to invest in non-banking entities, and we may not acquire more than
5 percent of the voting shares of any domestic bank without the prior approval of the Federal Reserve Board. Our activities are limited, with some exceptions, to banking, the business of
managing or controlling banks, and other activities that the Federal Reserve Board deems to be so closely related to banking as to be a proper incident thereto.

The
GLB Act allows "financial holding companies" to offer banking, insurance, securities and other financial products. Among other things, the GLB Act amended the BHCA in order to
provide a framework for engaging in new financial activities by bank holding companies. In 2008, UnionBanCal Corporation, BTMU

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and
MUFG obtained approval from the Federal Reserve Board to become financial holding companies under the BHCA.

Under
the GLB Act, "financial subsidiaries" of banks may engage in some types of activities beyond those permitted to banks themselves, provided certain conditions are met. At this time,
Union Bank has no plans to form any "financial subsidiaries."

Under
Federal Reserve Board regulations, a bank holding company is required to serve as a source of financial and managerial strength to its subsidiary banks and may not conduct its
operations in an unsafe or unsound manner. Under this policy, the Federal Reserve Board may require a holding company to contribute additional capital to an undercapitalized subsidiary bank.

Comptroller of the Currency.Union Bank, as a national banking association, is subject to broad federal regulation and oversight
extending to all its
operations by the Office of the Comptroller of the Currency (OCC), its primary regulator, and also by the Federal Reserve Board and the Federal Deposit Insurance Corporation (FDIC). As part of this
authority, Union Bank is required to file periodic reports with the OCC and is subject to ongoing examination by the OCC.

The
OCC has extensive enforcement authority over all national banks. If, as a result of an examination of a bank, the OCC determines that the financial condition, capital resources,
asset quality, earnings prospects, management, liquidity, or other aspects of the bank's operations are unsatisfactory or that the bank or its management is violating or has violated any law or
regulations, various remedies are available to the OCC. These remedies include the power to enjoin "unsafe or unsound" practices, to require affirmative action to correct any conditions resulting from
any violation or practice, to issue an administrative order that can be judicially enforced to direct an increase in capital, to restrict the growth of the bank, to assess civil monetary penalties, to
remove officers and directors, and ultimately to terminate the bank's deposit insurance. The OCC, as well as other federal agencies, have adopted regulations and guidelines establishing safety and
soundness standards, including but not limited to such matters as loan underwriting and documentation, internal controls and audit systems, interest rate risk exposure, asset quality and earnings and
compensation and other employee benefits.

Other Regulatory Oversight.Our subsidiaries are also subject to extensive regulation, supervision, and examination by various other
federal and
state regulatory agencies. In addition, Union Bank and its subsidiaries are subject to certain restrictions under the Federal Reserve Act and related regulations, including restrictions on affiliate
transactions. As a holding company, the principal source of our cash has been dividends and interest received from Union Bank. Dividends payable by Union Bank to us are subject to restrictions under a
formula imposed by the OCC unless express approval is given to exceed these limitations. For more information regarding restrictions on loans and dividends by Union Bank to its affiliates and on
transactions with affiliates, see Notes 19 and 23 to our Consolidated Financial Statements included in this Form 10-K Report.

The
Federal Deposit Insurance Act, as amended (FDIA) requires federal bank regulatory authorities to take "prompt corrective action" in dealing with inadequately capitalized banks. The
FDIA establishes five tiers of capital measurement ranging from "well-capitalized" to "critically undercapitalized." It is our policy to maintain capital ratios above the minimum
regulatory requirements for "well-capitalized" institutions for both Union Bank and us. Management believes that, at December 31, 2009, Union Bank and we met the requirements for
"well-capitalized" institutions.

Deposits
of Union Bank are insured up to statutory limits by the FDIC and, accordingly, are subject to deposit insurance assessments. Amendments to the FDIA in 2005-2006
created a new assessment system designed to more closely tie what banks pay for deposit insurance to the risks they pose and adopted a new base schedule of rates that the FDIC can adjust up or down,
depending on the revenue needs of the insurance fund. As a result of this legislation, Union Bank has been subject to annual assessments on deposits since 2007. The initial assessment rate was
approximately 5 basis points. Prior to this change, Union Bank was not

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paying
any insurance assessments on deposits under the FDIC's risk-related assessment system. An FDIC credit for prior contributions offset the assessment in 2007 and part of 2008. As part
of the Deposit Insurance Fund Restoration Plan adopted by the FDIC in October 2008, beginning on April 1, 2009, the FDIC initial base assessment rates were set between 12 and 45 basis points.
In addition, on June 30, 2009, the FDIC imposed a special assessment on banks. Union Bank's special assessment totaled $34 million and was paid on September 30, 2009.

In
November 2009, in light of the challenge to the federal deposit insurance fund from the severe U.S. recession, the FDIC issued a rule mandating that insured depository institutions
prepay their quarterly risk-based assessments to the FDIC for the fourth quarter of 2009, and all of 2010, 2011 and 2012. Union Bank's prepayment totaled $352.6 million and was paid
on December 30, 2009. Under this rule, each depository institution was required to record the entire amount of its prepayment as an asset, or a prepaid expense, and is allowed to count the
payments as a depreciating asset. The prepaid assessments bear a zero-percent risk weight for risk-based capital purposes. The FDIC will not refund or collect additional
prepaid assessments because of a decrease or growth in deposits over the next three years. However, if the prepaid assessment is not exhausted by June 30, 2013, the remaining amount of the
prepayment will be returned to the depository institution. The prepaid assessments are in lieu of additional special assessments at this time; however, there can be no assurance that the FDIC will not
impose additional special assessments or increase annual assessments in the future. Refer to "Management's Discussion and Analysis of Financial Condition and Results of
OperationsExecutive Overview" in Item 7 of this Form 10-K for a discussion of the recently-proposed "financial crisis responsibility fee" which could be imposed
by the federal government on larger financial institutions to repay part of the cost of the government's support of the banking industry in 2008-2009.

There
are additional requirements and restrictions in the laws of the United States and the states of California, Oregon, Texas, and Washington, as well as other states in which Union
Bank and its subsidiaries may conduct operations. These include restrictions on the levels of lending and the nature and amount of investments, as well as activities as an underwriter of securities,
the opening and closing of branches and the acquisition of other financial institutions. The consumer lending and finance activities of Union Bank are also subject to extensive regulation under
various Federal and state laws. These statutes impose requirements on the making, enforcement and collection of consumer loans and on the types of disclosures that must be made in connection with such
loans.

Union
Bank is also subject to the Community Reinvestment Act (CRA). The CRA generally requires the federal banking agencies to evaluate the record of a financial institution in meeting
the needs of local communities, including low- and moderate-income neighborhoods. In addition to substantial penalties and corrective measures that may be required for a violation of
certain fair lending laws, the federal banking agencies may take compliance with such laws and the CRA into account when regulating and supervising other activities, and in evaluating whether to
approve applications for permission to engage in new activities or for acquisitions of other banks or companies or de novo branching. An unsatisfactory rating may be the basis for denying the
application. Based on the most current examination report dated June 1, 2009, Union Bank's compliance with CRA was rated "outstanding."

Union
Bank has branches in Canada and the Cayman Islands. Any international activities of Union Bank are also subject to the laws and regulations of the jurisdiction where business is
being conducted, which may change from time to time and affect Union Bank's business opportunities and competitiveness in these jurisdictions. Furthermore, due to BTMU's controlling ownership of us,
regulatory requirements adopted or enforced by the Government of Japan may have an effect on the activities and investments of Union Bank and us in the future.

The
activities of Union Bank subsidiaries, HighMark Capital Management, Inc. and UnionBanc Investment Services LLC, are subject to the rules and regulations of the SEC, as
well as those of state securities

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regulators.
UnionBanc Investment Services LLC is also subject to the rules and regulations of the Financial Industry Regulatory Authority (FINRA).

Under
Federal Reserve Board rules, Union Bank is affiliated with the HighMark Funds. The HighMark Funds is a registered investment company, subject to the rules and regulations of the
SEC.

Broker/Dealer Regulation.Union Bank is not registered as a broker or dealer. The GLB Act and applicable regulations require us to
conduct
non-exempted securities brokerage or dealer activities through our registered broker-dealer, UnionBanc Investment Services LLC. These laws and regulations also limit compensation we
may pay our bank employees for referrals of brokerage business and limit Union Bank's ability to advertise securities brokerage services.

Bank Secrecy Act.The banking industry is now subject to significantly increased regulatory controls and processes regarding the Bank
Secrecy Act and
anti-money laundering laws. Failure to comply with these additional requirements may adversely affect the ability to obtain regulatory approvals
for future initiatives requiring regulatory approval, including acquisitions. Under the USA PATRIOT Act, federal banking regulators must consider the effectiveness of a financial institution's
anti-money laundering program prior to approving an application for a merger, acquisition or other activities requiring regulatory approval. Failure to comply with these requirements can
also subject an insured depository institution to monetary fines, penalties and other sanctions.

Sarbanes-Oxley Act.In November 2008, we became a privately-held company. All of our issued and outstanding shares of common stock are
now owned by BTMU. We file periodic reports with the SEC in accordance with the reduced disclosure format permitted for certain wholly-owned subsidiaries, and the Sarbanes-Oxley Act applies to us.

Among
other provisions, Section 302(a) of the Sarbanes-Oxley Act requires our Chief Executive Officer and Chief Financial Officer to certify that our quarterly and annual reports
do not contain any untrue statement or omission of a material fact and to make additional certifications as to the adequacy of our internal controls over financial reporting and other matters.

In
response to these requirements, we have established a Disclosure Committee to monitor compliance with these rules. Membership of the Disclosure Committee is comprised of senior
management from throughout our organization whom we believe collectively provide an extensive understanding of our operations. As part of our compliance with the Sarbanes-Oxley Act, we evaluate our
internal control process quarterly and we test and assess our internal controls over financial reporting annually.

Basel Committee Capital Standards.The Basel Committee on Banking Supervision (BIS) proposed new international capital standards for
banking
organizations (Basel II) in June 2004, and the new framework is currently being evaluated and implemented by bank supervisory authorities worldwide. Basel II is an effort to update the original
international bank capital accord (Basel I), which has been in effect since 1988. Basel II is intended to improve the consistency of capital regulations internationally, make regulatory capital more
risk sensitive, and promote enhanced risk-management practices among large, internationally active banking organizations.

We
do not meet the criteria in the new U.S. rules which would make adoption of the new Basel II rules mandatory. However, MUFG, which owns all of our issued and outstanding shares of
common stock through its wholly-owned subsidiary BTMU, is subject to the requirements of the new Basel II under the rules of the Japan Financial Services Agency (JFSA). In addition, the rules of the
JFSA require subsidiaries of Japanese banks and bank holding companies that represent more than 2 percent of the parent's consolidated risk-weighted assets to also comply with Basel
II. Because we meet this criterion, the JFSA requirement will be applicable to us. In order to facilitate the JFSA requirements, we expect to adopt the new Basel II rules as in effect in the U.S.,
subject to approval by our U.S. bank regulators. BTMU is reimbursing us for expenditures that we are incurring

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for
Basel II projects that we would not have undertaken for our own risk management purposes. At this time, the impact on our minimum capital requirements under Basel II is not known.

Customer Information Security.The federal bank regulatory agencies have adopted guidelines for safeguarding confidential, personal
customer
information. The guidelines require each financial institution, under the supervision and ongoing oversight of its Board of Directors or an appropriate committee, to create, implement and maintain a
comprehensive written information security program designed to ensure the security and confidentiality of customer information, protect against any anticipated threats or hazards to the security or
integrity of such information and protect against unauthorized access to or use of such information that could result in substantial harm or inconvenience to any customer. Union Bank has adopted a
customer information security program that has been approved by its Board of Directors.

Privacy.The GLB Act requires financial institutions to implement policies and procedures regarding the disclosure of nonpublic
personal information
about consumers to non-affiliate third parties. In general, the statute requires explanations to consumers on policies and procedures regarding the disclosure of such nonpublic personal
information, and, except as otherwise required by law, prohibits disclosing such information except as provided in the banks' policies and procedures. Union Bank implemented a privacy policy effective
since the GLB Act became law, pursuant to which all of its existing and new customers are notified of the privacy policies. State laws and regulations designed to protect the privacy and security of
customer information also apply to us and our other subsidiaries.



Congress, Treasury and the federal banking regulators have taken broad action since September 2008 to address volatility in the U.S.
financial system and the U.S. recession. In October 2008, the Emergency Economic Stabilization Act of 2008 (the EESA) was enacted. Pursuant to
the EESA, the maximum deposit insurance amount has been increased from $100,000 to $250,000 per depositor through December 31, 2013. Pursuant to its Temporary Liquidity Guarantee Program, the
FDIC has guaranteed newly issued senior unsecured debt of participating financial institutions and their qualifying holding companies. Union Bank elected to participate and, during the first quarter
of 2009, issued $1 billion principal amount of FDIC-guaranteed senior notes under this program.

In
October 2008, the U.S. Treasury enacted a voluntary Capital Purchase Program under its Troubled Asset Relief Program (TARP) pursuant to which the Treasury purchased senior preferred
stock of qualifying U.S. financial institutions. Many banks and bank holding companies participated in this program. UnionBanCal, as a wholly-owned subsidiary of a foreign bank, was not eligible to
participate in the Capital Purchase Program.



The recent economic and political environment has led to a number of proposed legislative, governmental and regulatory initiatives that
may significantly impact our industry. For example, Congress is considering a variety of proposals that would make significant changes to the financial regulatory system and affect the financial
services industry, including greater powers to regulate risk across the financial system; a new Financial Services Oversight Council; a Consumer Financial Protection Agency; potential limits on the
scope of federal preemption of state laws as applied to national banks; restrictions on bank activities intended to protect consumers, such as "cram-down" provisions which would allow
courts to modify mortgage terms in bankruptcy proceedings; and changes in the regulatory agencies. In addition, there have been recent proposals to place new restrictions on the size and activities of
large financial institutions, restrict compensation paid to bank officers, substantially increase fees and taxes, and substantially increase capital and liquidity requirements. These and other
initiatives could significantly change the competitive and operating environment in which we and our subsidiaries operate. We cannot predict whether these or any other

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proposals
will be enacted or the ultimate impact of any such initiatives on our operations, competitive situation, financial condition or results of operations.



In November 2009, the Federal Reserve Board adopted amendments under its Regulation E that impose new restrictions on banks'
abilities to charge overdraft services and fees. The final rule prohibits financial institutions from charging fees for paying overdrafts on ATM and
one-time debit card transactions, unless a consumer consents, or opts in, to the overdraft service for those types of transactions. We expect these amendments to result in decreased
revenues and increased compliance costs for the banking industry and Union Bank.

Financial Information

See our Consolidated Financial Statements starting on page F-53 for financial information about UnionBanCal
Corporation and its subsidiaries.

Item 1A.   Risk Factors

We are subject to numerous risks and uncertainties, including but not limited to the following information:



Commencing in 2007 and continuing throughout 2008 and 2009, adverse financial developments have impacted the U.S. and global economies
and financial markets and present challenges for the banking and financial services industry and for UnionBanCal Corporation.
These developments include a general recession both globally and in the U.S. and have contributed to substantial volatility in the financial markets.

In
response, various significant economic and monetary stimulus measures were enacted by the U.S. Congress. Refer to "Supervision and Regulation" in Item 1 of this
Form 10-K for discussion of these measures.

It
cannot be predicted whether the U.S. governmental actions in the past two years will result in lasting improvement in financial and economic conditions affecting the U.S. banking
industry and the U.S. economy. It also cannot be predicted whether and to what extent the efforts of the U.S. government to combat the recessionary conditions will continue. If, notwithstanding the
government's fiscal and monetary measures, the U.S. economy were to remain in a recessionary condition for an extended period, this would present additional significant challenges for the U.S. banking
and financial services industry and for our company. In addition, as a wholly-owned subsidiary of a foreign bank, we have not been eligible to participate in some federal programs such as the
Department of Treasury's Capital Purchase Program and may not qualify for participation in future federal programs.

Recently,
certain sovereign borrowers have encountered difficulties in financing renewals of their indebtedness. If this trend continues or worsens, it could have adverse impacts on
costs in the global debt markets which could increase funding costs for banks generally.

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Dramatic declines in the housing market in the U.S. in general, and in California in particular, during 2008 and continuing in 2009,
with falling home prices and increasing foreclosures, unemployment and under-employment, have negatively impacted the credit performance of mortgage loans and resulted in significant write-downs of
asset values by financial institutions, including government-sponsored entities as well as commercial and investment banks. These write-downs, initially of mortgage-backed securities but spreading to
credit default swaps and other derivative and cash securities and, more recently, residential, commercial real estate loans and small business and other commercial loans, in turn, have caused many
financial institutions to seek additional capital, to merge with larger and stronger institutions and, in some cases, to fail. These adverse economic conditions have led to an increased level of
commercial and consumer delinquencies, reduced consumer confidence, increased market volatility and widespread reduction of business activity generally. The resulting economic pressure on consumers
and lack of confidence in the financial markets adversely affected our business,
financial condition and results of operations in 2009. In addition, turbulent political and economic conditions in foreign countries have negatively impacted the U.S. financial markets and economy in
general. A worsening of these conditions would likely exacerbate the adverse effects of these difficult market conditions on us and others in the financial institutions industry. In particular, we may
face the following risks in connection with these events:



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We are subject to significant federal and state regulation and supervision, which is primarily for the benefit and protection of our
customers and the Deposit Insurance Fund and not for the benefit of investors in our securities. In the past, our business has been materially affected by these regulations. This will continue and
likely intensify in the future. Laws, regulations or policies, including accounting standards and interpretations, currently affecting us and our subsidiaries may change at any time. Regulatory
authorities may also change their interpretation of these statutes and regulations. Therefore, our business may be adversely affected by changes in laws, regulations, policies or interpretations or
regulatory approaches to compliance and enforcement, as well as by supervisory action or criminal proceedings taken as a result of noncompliance which could result in the imposition of significant
civil money penalties or fines. Changes in laws and regulations may also increase our expenses by imposing additional fees or taxes or restrictions on our operations. Compliance with laws and
regulations, especially new laws and regulations, increases our expenses and diverts management attention from our business operations.

International
laws, regulations and policies affecting us, our subsidiaries and the business we conduct may change at any time and affect our business opportunities and competitiveness
in these jurisdictions. Due to our ownership by BTMU, laws, regulations, policies, fines and other supervisory actions adopted or enforced by the Government of Japan and the Federal Reserve Board may
adversely affect our activities and investments and those of our subsidiaries in the future.

We
maintain systems and procedures designed to comply with applicable laws and regulations. However, some legal/regulatory frameworks provide for the imposition of criminal or civil
penalties (which can be substantial) for noncompliance. In some cases, liability may attach even if the noncompliance was inadvertent or unintentional and even if compliance systems and procedures
were in place at the time. There may be other negative consequences from a finding of noncompliance, including restrictions on certain activities and damage to our reputation.

Additionally,
our business is affected significantly by the fiscal and monetary policies of the U.S. federal government and its agencies. We are particularly affected by the policies of
the Federal Reserve Board, which regulates the supply of money and credit in the U.S. Under long-standing policy of the Federal Reserve Board, a bank holding company is expected to act as
a source of financial and managerial strength for its subsidiary banks. As a result of that policy, we may be required to commit financial and other resources to our subsidiary bank in circumstances
where we might not otherwise do so. Among the instruments of monetary policy available to the Federal Reserve Board are (a) conducting open market operations in U.S. government securities,
(b) changing the discount rates on borrowings by depository institutions and the federal funds rate, and (c) imposing or changing reserve requirements against certain borrowings by banks
and their affiliates. These methods are used in varying degrees and combinations to directly affect the availability of bank loans and deposits, as well as the interest rates charged on loans and paid
on deposits. The policies of the Federal Reserve Board may have a material effect on our business, prospects, results of operations and financial condition.

Refer
to "Supervision and Regulation" in Item 1 of this Form 10-K for discussion of certain recently enacted and proposed laws and regulations that may affect
our business.



When we loan money or commit to loan money, we incur credit risk, or the risk of losses if our borrowers do not repay their loans. We
reserve for credit losses by establishing an allowance through a charge to earnings. The amount of this allowance is based on our assessment of credit losses inherent in our loan portfolio and our
unfunded credit commitments. The process for determining the amount of the allowance is critical to our financial results and condition. It requires difficult, subjective and complex judgments about
the

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future
impact from current economic conditions that might impair the ability of our borrowers to repay their loans.

We
might underestimate the credit losses inherent in our loan portfolio and have credit losses in excess of the amount reserved. Or, we might increase the allowances because of changing
economic conditions, which we conclude have caused losses to be sustained in our portfolio. For example, in a rising interest rate environment, borrowers with adjustable rate loans could see their
payments increase. In the absence of offsetting factors such as increased economic activity and higher wages, this could reduce borrowers' ability to repay their loans, resulting in our increasing the
allowances. Continued volatility in fuel and energy costs could also adversely impact some borrowers' ability to repay their loans. We might also increase the allowances because of unexpected events.
Any increase in the allowances would result in a charge to earnings.



Under current bankruptcy laws, courts cannot force a modification of mortgage and home equity loans secured by primary residences. In
response to the recent financial crisis, legislation has been proposed to allow mortgage loan "cram-downs," which would empower courts to modify the terms of mortgage and home equity loans
including to reduce the principal amount to reflect lower underlying property values. This could result in our writing down the value of our residential mortgage and home equity loans to reflect their
lower loan values. There is also risk that home equity loans in a second lien position (i.e., behind a mortgage) could experience significantly higher losses to the extent they become unsecured
as a result of a cram-down. The availability of principal reductions or other mortgage loan modifications could make bankruptcy a more attractive option for troubled borrowers, leading to
increased bankruptcy filings and accelerated defaults.

Recent
changes in federal rules have imposed new restrictions on banks' abilities to charge overdraft services and fees and can be expected to result in decreased revenues and increased
compliance costs for the industry and Union Bank. See "Supervision and RegulationOther Recent Developments."



We report certain assets, including investments and securities, at fair value. Generally, for assets that are reported at fair value,
we use quoted market prices or valuation models that utilize market data inputs and assumptions to estimate fair value. Because generally accepted accounting principles require fair value measurements
to reflect appropriate adjustments for risks related to liquidity and the use of unobservable assumptions, we may recognize unrealized losses even if we believe that the asset in question presents
minimal credit risk. Given the continued adverse conditions in the capital markets, we may be required to recognize
other-than-temporary impairments in future periods with respect to securities in our portfolio. The amount and timing of any impairment recognized will depend on the severity
and duration of the decline in fair value of the securities and our estimation of the anticipated recovery period.



Significant increases in market interest rates on loans, or the perception that an increase may occur, could adversely affect both our
ability to originate new loans and our ability to grow. Conversely, decreases in interest rates could result in an acceleration of loan prepayments. An increase in market interest rates could also
adversely affect the ability of our floating-rate borrowers to meet their higher payment obligations. If this occurred, it could cause an increase in nonperforming assets and charge offs,
which could adversely affect our business.

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Changes in market interest rates on deposits or other funding sources, including changes in the relationship between
short-term and long-term market interest rates or between different interest rate indices, can impact and has in past years impacted our margin spread, that is, the difference
between the interest rates we charge on interest earning assets, such as loans, and the interest rates we pay on interest bearing liabilities, such as deposits or other borrowings. This impact could
result in a decrease in our interest income relative to interest expense. Recently, the banking industry has operated in an extremely low interest rate environment relative to historical averages. If
a rising rate environment were to ensue, it could present new challenges for the industry and Union Bank.



Checking and savings account balances and other forms of deposits can decrease when our deposit customers perceive alternative
investments, such as the stock market, other non-depository investments or higher yielding deposits, as providing superior expected returns. Technology and other changes have made it more
convenient for bank customers to transfer funds into alternative investments or other deposit accounts, including products offered by other financial institutions or non-bank service
providers. Future increases in short-term interest rates could increase such transfers of deposits to higher yielding deposits or other investments either with us or with external
providers. In addition, our level of deposits may be affected by lack of consumer confidence in financial institutions, which have caused fewer depositors to be willing to maintain deposits that are
not fully insured by the FDIC. While transaction accounts at FDIC-insured banks have been fully-guaranteed by the FDIC since October 2008, this guarantee expired as of December 31,
2009, unless individual banks elected to extend the guarantee, for an additional fee to the FDIC. Union Bank determined not to extend the guarantee as to its deposits. Those developments may cause
depositors to withdraw deposits and place them in other institutions or to invest uninsured funds in investments perceived as being more secure, such as securities issued by the U.S. Treasury. These
consumer preferences may force us to pay higher interest rates or reduce fees to retain deposits and may constrain liquidity as we seek to meet funding needs caused by reduced deposit levels.

In
addition, we have benefited from a "flight to quality" by consumers and businesses seeking the relative safety of bank deposits over the past two years. As interest rates rise from
historically low levels during the current period, our newly acquired deposits may not be as stable or as interest rate insensitive as similar deposits may have been in the past, and as a recovery in
the economy ensues, some existing or prospective deposit customers of banks generally, including Union Bank, may be inclined to pursue other investment alternatives.

Efforts
and initiatives we undertake to retain and increase deposits, including deposit pricing, can increase our costs. When bank customers move money out of bank deposits in favor of
alternative investments or into higher yielding deposits, we can lose a relatively inexpensive source of funds, increasing our funding cost.



Banking is a highly competitive business. We compete actively for loan, deposit, and other financial services business in California,
Oregon and Washington, as well as nationally and internationally. Our competitors include a large number of state and national banks, thrift institutions, credit unions and major foreign-affiliated or
foreign banks, as well as many financial and nonfinancial firms that offer services similar to those offered by us, including many large securities firms. Some of our competitors are community or
regional banks that have strong local market positions. Other competitors include large financial institutions that have substantial capital, technology and marketing resources that are well in excess
of ours. Competition in our

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industry
may further intensify as a result of the recent and increasing level of consolidation of financial services companies, including in our principal markets resulting from adverse economic and
market conditions. Such large financial institutions may have greater access to capital at a lower cost than us, which may adversely affect our ability to compete effectively. We also experience
competition, especially for deposits, from internet-based banking institutions, which have grown rapidly in recent years.



From time to time the Financial Accounting Standards Board and the SEC change the financial accounting and reporting standards that
govern the preparation of our financial statements or new interpretations of existing standards emerge as standard industry practice. These changes can be very difficult to predict and can materially
impact how we record and report our financial condition and results of operations. In some cases, we could be required to apply a new or revised standard retroactively, resulting in our restating
prior period financial statements.



Technology and other changes increasingly allow parties to complete financial transactions electronically, and in many cases, without
banks. For example, consumers can pay bills and transfer funds over the internet and by telephone without banks. Many non-bank financial service providers have lower overhead costs and are
subject to fewer regulatory constraints. If
consumers do not use banks to complete their financial transactions, we could potentially lose fee income, deposits and income generated from those deposits.



Acts or threats of terrorism and actions taken by the U.S. or other governments as a result of such acts or threats and other
international hostilities may result in a disruption of U.S. and global economic and financial conditions and could adversely affect business, economic and financial conditions in the U.S. and
globally and in our principal markets.



We are subject to certain industry-specific economic factors. For example, a significant portion of our total loan portfolio is related
to residential real estate, especially in California. Increases in residential mortgage loan interest rates could have an adverse effect on our operations by depressing new mortgage loan originations,
and could negatively impact our title and escrow deposit levels. Additionally, a continued or further downturn in the residential real estate and housing industries in California could have an adverse
effect on our operations and the quality of our real estate loan portfolio. These factors could adversely impact the quality of our residential construction and residential mortgage portfolios in
various ways, including by decreasing the value of the collateral for our mortgage loans. These factors could also negatively affect the economy in general and thereby our overall loan portfolio.

We
provide financing to businesses in a number of other industries that may be particularly vulnerable to industry-specific economic factors and are impacting the performance of our
commercial real estate and commercial and industrial portfolios. The commercial real estate industry in the U.S., and in California in particular, is being increasingly adversely impacted by the
recessionary environment and lack of liquidity in the financial markets. The home building industry in California has been especially adversely impacted by the deterioration in residential real estate
markets. Poor economic conditions and financial access for commercial real estate developers and homebuilders could continue to adversely affect commercial property values, resulting in higher
nonperforming assets and charge offs in this sector. Our commercial and industrial portfolio, and the communications/media industry, the retail industry, the energy industry and the technology
industry in

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particular,
are also being impacted by recessionary market conditions. Continued volatility in fuel prices and energy costs could adversely affect businesses in several of these industries. Conditions
in the commercial real estate and commercial and industrial markets have led us to take additional provisions against credit losses in these portfolios, as to which we expect a higher level of charge
offs during 2010. Industry-specific risks are beyond our control and could adversely affect our portfolio of loans, potentially resulting in an increase in nonperforming loans or charge offs and a
slowing of growth or reduction in our loan portfolio.



The government of the State of California currently faces economic and fiscal challenges, the long-term impact of which on
the State's economy cannot be predicted with any certainty. A substantial majority of our assets, deposits and fee income are generated in California. As a result, poor economic conditions in
California may cause us to incur losses associated with higher default rates and decreased collateral values in our loan portfolio. Economic conditions in California are subject to various
uncertainties at this time, including significant deterioration in the residential real estate sector and the California state government's budgetary and fiscal difficulties. Under the budget plan
approved by the California Legislature and signed by Governor Arnold Schwarzenegger on February 20, 2009, the State of California reduced services, increased sales and income taxes and other
fees and enacted other expense reduction measures. In addition, California funded a portion of the deficit through additional borrowings, which included registered warrants, a relatively
high-cost form of financing. California voters did not approve ballot measures required to enact the budget during a special election held on May 19, 2009. The rejection of all of
the revenue-related ballot measures resulted in budget deficits which were addressed, at least temporarily, in a California State Budget adopted on July 28, 2009.

On
January 8, 2010, Governor Arnold Schwarzenegger submitted his proposed budget for the 2010 fiscal year. This budget provides for significant spending cuts to services,
including healthcare, transportation and housing. The proposed budget also requires California to obtain $6.9 billion in federal funding. However, there have been no assurances from the federal
government that such funds will be furnished
to California. If such funds are not awarded, California may be forced to further cut state services or raise taxes or fees.

If
the California state government's budgetary and fiscal difficulties continue or economic conditions in California decline further, we expect that our level of problem assets could
increase and our prospects for growth could be impaired.



As of November 4, 2008, BTMU, a wholly-owned subsidiary of MUFG, owned all of the outstanding shares of our common stock. As a
result, BTMU can elect all of our directors and can control the vote on all matters, including: approval of mergers or other business combinations; a sale of all or substantially all of our assets;
issuance of any additional common stock or other equity securities; incurrence of debt other than in the ordinary course of business; the selection and tenure of our Chief Executive Officer; payment
of dividends with respect to our common stock or other equity securities; and other matters that might be favorable to BTMU or MUFG.

A
majority of our directors are independent of BTMU and are not officers or employees of UnionBanCal Corporation or any of our affiliates, including BTMU. However, because of BTMU's
control over the election of our directors, it could at any time change the composition of our Board of Directors so that the Board would not have a majority of independent directors.

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We generally fund our operations independently of BTMU and MUFG and believe our business is not necessarily closely related to the
business or outlook of BTMU or MUFG. However, if BTMU and MUFG's credit ratings were to decline, this could adversely affect our credit ratings.

BTMU
and MUFG are also subject to regulatory oversight, review and supervisory action (which can include fines or penalties) by Japanese and U.S. regulatory authorities. Our business
operations and expansion plans could be negatively affected by regulatory concerns or supervisory action in the U.S. and in Japan against BTMU or MUFG.



The views of BTMU and MUFG regarding possible new businesses, strategies, acquisitions, divestitures or other initiatives, including
compliance and risk management processes, may differ from ours. This may delay or hinder us from pursuing individual initiatives or cause us to incur additional costs and subject us to additional
oversight.

Also,
as part of BTMU's risk management processes, BTMU manages global credit and other types of exposures and concentrations on an aggregate basis, including exposures and
concentrations at UnionBanCal. Therefore, at certain levels or in certain circumstances, our ability to approve certain credits or other banking transactions and categories of customers is subject to
the concurrence of BTMU. We may wish to extend credit or furnish other banking services to the same customers as BTMU. Our ability to do so may be limited for various reasons, including BTMU's
aggregate exposure and marketing policies.

Certain
directors' and officers' ownership interests in MUFG's common stock or service as a director or officer or other employee of both us and BTMU could create or appear to create
potential conflicts of interest, especially since both we and BTMU compete in U.S. banking markets.



As a holding company, a substantial portion of our cash flow typically comes from dividends our bank and non-bank
subsidiaries pay to us. Various statutory provisions restrict the amount of dividends our subsidiaries can pay to us without regulatory approval. In addition, if any of our subsidiaries were to
liquidate, that subsidiary's creditors will be entitled to receive distributions from the assets of that subsidiary to satisfy their claims against it before we, as a holder of an equity interest in
the subsidiary, will be entitled to receive any of the assets of the subsidiary.



We have in the past, and may in the future, seek to expand our business by acquiring other businesses which we believe will enhance our
business. We cannot predict the frequency, size or timing of our acquisitions, as this will depend on the availability of prospective target opportunities at valuation levels we find attractive and
the competition for such opportunities from other parties. There can be no assurance that our acquisitions will have the anticipated positive results, including results related to: the total cost of
integration; the time required to complete the integration; the amount of longer-term cost savings; continued growth; or the overall performance of the acquired company or combined entity.
We also may encounter difficulties in obtaining required regulatory approvals and unexpected contingent liabilities can arise from the businesses we acquire. Integration of an acquired business can be
complex and costly. If we are not able to integrate successfully past or future acquisitions, there is a risk that results of operations could be adversely affected. We may not be successful in
completing any acquisition or investment as this will depend on the

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availability
of prospective target opportunities at valuation levels we find attractive and the competition for such opportunities from other parties.

In
addition, we continue to evaluate the performance of all of our businesses and may sell or restructure a business. Any divestitures or restructurings may result in significant
write-offs, including those related to goodwill and other intangible assets, which could have a material adverse effect on our business, results of operations and financial condition and
may involve additional risks including difficulties in obtaining any required regulatory approvals, the diversion of management's attention from other business concerns, the disruption of our business
and the potential loss of key employees.

We
may not be successful in addressing these or any other significant risks encountered in connection with any acquisition, divestiture or restructuring we might make.



Our business model relies, in part, upon cross-marketing the products and services offered by us and our subsidiaries to our customers.
Laws that restrict our ability to share information about customers within our corporate organization could adversely affect our business, results of operations and financial condition.



Third-party vendors provide key components of our business infrastructure such as internet connections, network access and mutual fund
distribution and we do not control their actions. Among other services provided by these vendors, third-party vendors play a key role in the implementation of our integrated banking platform. Any
problems caused by these third parties, including those as a result of their not providing us their services for any reason or their performing their services poorly, could adversely affect our
ability to deliver products and services to our customers, implement our integrated banking platform and otherwise to conduct our business. Replacing these third-party vendors could also entail
significant delay and expense.



Our success depends, in large part, on our ability to attract and retain key personnel, including executives. Any of our current
employees, including our senior management, may terminate their employment with us at any time. Competition for qualified personnel in our industry can be intense. We may not be successful in
attracting and retaining sufficient qualified personnel. We may also incur increased expenses and be required to divert the attention of other senior executives to recruit replacements for the loss of
any key personnel.

In
the past few years, we have experienced significant turnover among members of management, primarily due to retirement. We must successfully integrate any new management personnel that
we bring into the organization in order to achieve our operating objectives as new management becomes familiar with our business.

In
recent months, the federal bank regulators have published guidance relating to incentive compensation policies at insured depository institutions and a release seeking comment on
whether the FDIC's risk-based deposit insurance assessment system should be changed to account for risks arising from employee compensation programs. Specifically, the FDIC has requested
comment on whether a bank's compensation program should be a basis for adjusting the bank's FDIC assessment rate. It cannot be predicted whether these regulatory initiatives will result in definitive
regulations or policies that will affect compensation at depository institutions, nor whether the effect of any such regulations or policies will be to make it more difficult for banks to attract and
retain skilled personnel.

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There are an increasing number of matters in addition to our core operations which require our attention and resources. These matters
include implementation of our integrated banking platform, adoption of the Basel II capital guidelines, various strategic initiatives, a disruptive economic environment, a challenging regulatory
environment and integration of new employees, including key members of management. Our ability to execute our core operations and to implement other important initiatives may be adversely affected if
our resources are insufficient or if we are unable to allocate available resources effectively.



We are from time to time subject to claims and proceedings related to our present or previous operations. These claims, which could
include supervisory or enforcement actions by bank regulatory authorities, or criminal proceedings by prosecutorial authorities, could involve demands for large monetary amounts, including civil money
penalties or fines imposed by government authorities, and significant defense costs. To mitigate the cost of some of these claims, we maintain insurance coverage in amounts and with deductibles that
we believe are appropriate for our operations. However, our insurance coverage does not cover any civil money penalties or fines imposed by government authorities and may not cover all other claims
that might be brought against us or continue to be available to us at a reasonable cost. As a result, we may be exposed to substantial uninsured liabilities, which could adversely affect our business,
prospects, results of operations and financial condition.



The State of California requires us to file our franchise tax returns as a member of a unitary group that includes MUFG and either all
worldwide affiliates or only U.S. affiliates. Prior to 2009, we elected to file our California franchise tax returns on a worldwide unitary basis. We intend to file our 2009 California tax return
under a water's-edge election. If a water's-edge election is made, it will be effective as of April 1, 2009, and MUFG will be included in our California franchise tax
return through March 31, 2009, MUFG's fiscal year-end. Increases or decreases in MUFG's taxable profits will increase or decrease our effective tax rate. We review MUFG's financial
information on a quarterly basis to determine the rate at which to recognize our California income taxes. However, all of the information relevant to determining the effective California tax rate may
not be available until after the end of the period to which the tax relates, primarily due to MUFG's later fiscal year-end. Our California effective tax rate can change during the calendar
year, or between calendar years, as additional information becomes available. If we understate our tax obligations we could be subject to penalties. Our effective tax rates are also affected by
valuation changes in our deferred tax assets and liabilities, changes in tax laws or their interpretation and by the outcomes of examinations of our income tax returns by the tax authorities.



Major credit rating agencies regularly evaluate the securities of UnionBanCal Corporation and the securities and deposits of Union
Bank, and their ratings of our long-term debt and other securities and also of our short-term obligations are based on a number of factors, including our financial strength,
ability to generate earnings, and other
factors, some of which are not entirely within our control, such as conditions affecting the financial services industry and the economy. In light of the difficulties in the financial services
industry, the financial markets and the economy, there can be no assurance that we will maintain our current long-term and short-term ratings.

If
our long-term or short-term credit ratings suffer downgrades, such downgrades could adversely affect access to liquidity and could significantly increase our
cost of funds, trigger additional collateral or funding

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requirements,
and decrease the number of commercial depositors, investors and counterparties willing to lend to us, thereby curtailing our business operations and reducing our ability to generate
income.

Certain
of our derivative instruments contain provisions that require us to maintain a specified credit rating. If our credit rating were to fall below the specified rating, the
counterparties to these derivative instruments could terminate the contract and demand immediate payment or demand immediate and ongoing full overnight collateralization for those derivative
instruments in net liability positions.

Adverse
changes in the credit ratings of our parent companies, BTMU and MUFG, could also adversely impact our credit ratings.



We are subject to many types of operational risks throughout our organization. Operational risk is the potential loss from our
operations due to factors, such as failures in internal control, systems failures or external events, that do not fall into the market risk or credit risk categories described in "Management's
Discussion and Analysis of Financial Condition and Results of OperationsBusiness Segments." Operational risk includes execution risk related to operational initiatives, including
implementation of our integrated banking platform, reputational risk, legal and compliance risk, the risk of fraud or theft by employees, customers or outsiders, unauthorized transactions by employees
or operational errors, including clerical or record-keeping errors or those resulting from faulty or disabled computer or telecommunications systems. A discussion of risks associated with regulatory
compliance appears above under the caption "The effects of changes in, or supervisory enforcement of, banking or other laws and regulations or governmental fiscal or monetary policies could adversely
affect us."

We
depend on the continued efficacy of our technical systems, operational infrastructure, relationships with third parties and our employees in our day-to-day and
ongoing operations. Our dependence upon automated systems to record and process transactions may further increase the risk that technical system flaws or employee tampering or manipulation of those
systems will result in losses that are difficult to detect. Failures in our internal control or operational systems could impair our ability to operate our business and result in potential liability
to customers, reputational damage and regulatory intervention, any of which could harm our operating results and financial condition.

We
may also be subject to disruptions of our operating systems arising from events that are wholly or partially beyond our control, such as computer hacking or viruses, electrical or
telecommunications outages or unexpected difficulties with the implementation of our integrated banking platform, which may give rise to disruption of service to customers and to financial loss or
liability. Our business recovery plan may not work as intended or may not prevent significant interruptions of our operations.



As a financial institution, our earnings and capital are subject to risks associated with negative public opinion. Negative public
opinion could result from our actual or alleged conduct in any number of activities, including lending practices, the failure of any product or service sold by us to meet our customers' expectations
or applicable regulatory requirements, governmental enforcement actions, corporate governance and acquisitions, or from actions taken by regulators and community organizations in response to those
activities. We generally fund our operations independently of BTMU and MUFG and believe our business is not necessarily closely related to the business or outlook of BTMU or MUFG. However, negative
public opinion could also result from regulatory concerns regarding, or supervisory or other governmental actions in the U.S. or Japan against, us or Union Bank, or BTMU or MUFG. Negative public
opinion can adversely affect our ability to keep and attract and/or retain lending and deposit customers and employees and can expose us to litigation and regulatory action and increased liquidity
risk. Actual or alleged conduct by one of our businesses can result in negative public opinion about our other businesses. Negative public opinion could also affect our credit

23

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Table of Contents

ratings,
which are important for some commercial deposit customers and also to our access to unsecured wholesale or other borrowings; significant changes in these ratings could change the cost and
availability of these sources of funding.



Our risk management framework is made up of various processes and strategies to manage our risk exposure. Types of risk to which we are
subject include liquidity risk, credit risk, market risk, interest rate risk, operational risk, legal risk, compliance risk, reputation risk, fiduciary risk and private equity risk, among others. Our
framework to manage risk, including the framework's underlying assumptions, may not be effective under all conditions and circumstances. If our risk management framework proves ineffective, we could
suffer unexpected losses and could be materially adversely affected.



On November 4, 2008, we became a privately held company pursuant to the Agreement and Plan of Merger, dated as of
August 18, 2008, by and among UnionBanCal, BTMU and Blue Jackets, Inc., a Delaware corporation and a wholly-owned subsidiary of BTMU. All of our issued and outstanding shares of common
stock are now owned by MUFG through its wholly-owned subsidiary BTMU. As such, we would have been no longer required to file periodic reports with the SEC pursuant to the Securities Exchange Act of
1934 (the Exchange Act); however, we have elected to voluntarily register our common stock under the Exchange Act and for so long as we maintain that registration in effect we will be required to
continue to file such periodic reports with the SEC in accordance with a reduced disclosure format permitted for certain wholly-owned subsidiaries.

Our
disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by us in reports we file or submit under the Exchange Act is
accumulated and communicated to management, and recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. Any disclosure controls and procedures or
internal controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.

These
inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls
can be circumvented by the individual acts of some persons, by collusion of two or more people or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in our
control system, misstatements due to error or fraud may occur and not be detected.

Item 1B.   Unresolved Staff Comments

None.

Item 2.   Properties

At December 31, 2009, we operated 335 full service branches in California, 4 full service branches in Oregon and Washington, 1 branch in
Texas and 2 foreign branches. We own the property occupied by 117 of the domestic offices and lease the remaining properties for periods of five to twenty years.

We
own 2 administrative facilities in San Francisco, 2 in Los Angeles, and 3 in San Diego. Other administrative offices in Arizona, California, Illinois, Nevada, New York, Oregon,
Virginia, Texas and Washington operate under leases expiring in one to twenty-six years.

Rental
expense for branches and administrative premises is described in Note 6 to our Consolidated Financial Statements included in this Form 10-K Report.

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Table of Contents

Item 3.   Legal Proceedings

We are subject to various pending and threatened legal actions that arise in the normal course of business. We maintain reserves for losses from
legal actions that are both probable and estimable. In addition, we believe the disposition of all claims currently pending will not have a material adverse effect on our consolidated financial
condition, operating results or liquidity.

PART II

Item 5.   Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

On November 4, 2008 we became a wholly-owned subsidiary of BTMU and our common stock was delisted from the New York Stock Exchange. All of
our issued and outstanding shares of common stock are now held by BTMU, and there is presently no established public trading market for our common stock.

For
the period from January 1 through November 3, 2008, the average daily trading volume of our common stock was 1,550,976 shares. At November 3, 2008, our common
stock closed at $73.48 per share. The following table presents stock quotations for the first three quarters in 2008 and the fourth quarter in 2008 through November 3, 2008.

2008High

LowFirst quarter

$
53.59

$
39.32Second quarter


56.00


39.00Third quarter


74.58


34.81Fourth quarter


74.36


73.02


The following table presents quarterly per share cash dividends declared for 2008.

2008First quarter

$
0.52Second quarter


0.52Third quarter


0.52Fourth quarter





Item 6.   Selected Financial Data

See page F-1 of this Form 10-K Report.

Item 7.   Management's Discussion and Analysis of Financial Condition and Results of Operations

See pages F-1 through F-51 of this Form 10-K Report.

Item 7A.   Quantitative and Qualitative Disclosures About Market Risk

See pages F-35 through F-39 of this Form 10-K Report.

Item 8.   Financial Statements and Supplementary Data

See pages F-53 through F-136 of this Form 10-K Report.

25

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Table of Contents

Item 9.   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A.   Controls and Procedures

Disclosure Controls.Our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer)
have
concluded that the design and operation of our disclosure controls and procedures are effective as of December 31, 2009. This conclusion is based on an evaluation conducted under the
supervision, and with the participation, of management. Disclosure controls and procedures are those controls and procedures which ensure that information required to be disclosed in this filing is
accumulated and communicated to management and is recorded, processed, summarized and reported in a timely manner and in accordance with the SEC's rules and regulations.

Internal Controls Over Financial Reporting.Management's Report on Internal Control Over Financial Reporting regarding the effectiveness
of internal
controls over financial reporting is presented on page F-140. The Report of Independent Registered Public Accounting Firm is presented on page F-137. During the
quarter ended December 31, 2009, there were no changes in our internal controls over financial reporting that materially affected, or are reasonably likely to affect, our internal controls over
financial reporting.

Item 9B.   Other Information

None.

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Table of Contents

PART III

Item 10.   Directors, Executive Officers and Corporate Governance

Certain information called for by this item has been omitted pursuant to General Instruction I(2) of Form 10-K.

Code of Ethics

We have adopted a Code of Ethics applicable to senior financial officers, including our Chief Executive Officer, Chief Financial
Officer and Controller. A copy of this Code of Ethics is posted on our website. To the extent required by SEC rules, we intend to disclose promptly any amendment to, or waiver from any provision of,
the Code of Ethics applicable to senior financial officers on our website. Our website address is www.unionbank.com.

Item 11.   Executive Compensation

The information called for by this item has been omitted pursuant to General Instruction I(2) of Form 10-K.

Item 12.   Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information called for by this item has been omitted pursuant to General Instruction I(2) of Form 10-K.

Item 13.   Certain Relationships and Related Transactions, and Director Independence

The information called for by this item has been omitted pursuant to General Instruction I(2) of Form 10-K.

Item 14.   Principal Accountant Fees and Services

Audit Fees

The following is a description of the fees billed to UnionBanCal by Deloitte & Touche LLP for each of the last two fiscal
years. All fees for 2008 and 2009 were approved by our Audit & Finance Committee.

2008

2009Audit Fees(1)

$
3,816,314

$
3,430,658Audit-Related Fees(2)


946,483


666,545Tax Fees(3)


176,417


241,253Total

$
4,939,214

$
4,338,456


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Table of Contents

The Audit & Finance Committee also considered whether the provision of the services other than audit services is compatible with
maintaining Deloitte & Touche LLP's independence. All of the services described above were approved by the Audit & Finance Committee in accordance with the following policy.

Pre-approval of Services by Deloitte & Touche LLP

The Audit & Finance Committee has adopted a policy for pre-approval of audit and permitted non-audit
services by Deloitte & Touche LLP. The Audit & Finance Committee will consider annually and, if appropriate, approve the provision of audit services by its independent registered
public accounting firm and consider and, if appropriate, pre-approve the provision of certain defined audit and non-audit services; provided, however,
that:



The
Audit & Finance Committee will also consider on a case-by-case basis and, if appropriate, approve, specific engagements that are not otherwise
pre-approved.

Any
proposed engagement that does not fit within the definition of a pre-approved service may be presented to the Audit & Finance Committee for consideration at its
next regular meeting or, if earlier consideration is required, to the Audit & Finance Committee Chair. The Chair reports any specific approval of services at the Audit & Finance
Committee's next regular meeting. The Audit & Finance Committee regularly reviews summary reports detailing all services being provided by its independent registered public accounting firm.

PART IV

Item 15.   Exhibits and Consolidated Financial Statement Schedules

(a)(1)    Financial Statements

Our Consolidated Financial Statements, Management's Report on Internal Control Over Financial Reporting, and the Report of Independent
Registered Public Accounting Firm are set forth on pages F-53 through F-140. (See index on page F-52).

(a)(2)    Financial Statement Schedules

All schedules to our Consolidated Financial Statements are omitted because of the absence of the conditions under which they are
required or because the required information is included in our Consolidated Financial Statements or accompanying notes.

(a)(3)    Exhibits

No.

Description3.1

Restated Certificate of Incorporation of the Registrant(1)3.2

Bylaws of the Registrant(2)


28

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Table of Contents

No.

Description4.1

Trust Indenture between UnionBanCal Corporation and J.P. Morgan Trust Company, National Association, as Trustee, dated December 8, 2003(3)4.2

The Registrant agrees to furnish upon request to the Commission a copy of each instrument defining the rights of holders of long-term debt of the Registrant.10.1

Certain exhibits related to compensatory plans, contracts and arrangements have been omitted pursuant to item 601(b)(10)(c)(6) of Regulation S-K.12.1

Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividend Requirements(4)18.1

Preferability Letter of Independent Registered Public Accounting Firm(5)21.1

Subsidiaries of the Registrant has been omitted pursuant to General Instruction I(2) of Form 10-K23.1

Consent of Deloitte & Touche LLP(4)24.1

Power of Attorney(4)24.2

Resolution of Board of Directors(4)31.1

Certification of the Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(4)31.2

Certification of the Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(4)32.1

Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002(4)32.2

Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002(4)


(1)Incorporated
by reference to the exhibit of the same number to the UnionBanCal Corporation Current Report on Form 8-K
dated November 4, 2008 (SEC File No. 001-15081).(2)Incorporated
by reference to the exhibit of the same number to the UnionBanCal Corporation Current Report on Form 8-K
dated January 27, 2010 (SEC File No. 001-15081).(3)Incorporated
by reference to Exhibit 99.1 to the UnionBanCal Corporation Current Report on Form 8-K dated
December 8, 2003 (SEC File No. 001-15081).(4)Provided
herewith.(5)Incorporated
by reference to the exhibit of the same number to the UnionBanCal Corporation Quarterly Report on Form 10-Q
for the quarter ended June 30, 2009 (SEC File No. 001-15081).


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Table of Contents

UnionBanCal Corporation and Subsidiaries    Management's Discussion and Analysis of Financial Condition  and Results of Operations

Selected Financial Data

(Dollars in thousands)

2005

2006

2007

2008(1)

2009(1)Results of operations:Net interest income(2)

$
1,842,340

$
1,844,393

$
1,732,652

$
2,060,660

$
2,260,422(Reversal of) provision for loan losses(3)


(50,683
)

(5,000
)

81,000


515,000


1,114,000Noninterest income


681,342


759,214


799,539


772,656


727,144Noninterest expense


1,480,057


1,557,949


1,574,201


1,896,696


2,088,501Income (loss) from continuing operations before income taxes(2)


1,094,308


1,050,658


876,990


421,620


(214,935
)Taxable-equivalent adjustment


4,352


6,401


9,272


9,812


11,310Income tax expense (benefit)


357,529


274,720


294,354


127,868


(161,284
)Income (loss) from continuing operations


732,427


769,537


573,364


283,940


(64,961
)Income (loss) from discontinued operations, net of taxes


130,506


(16,541
)

34,730


(15,055
)

Net income (loss)

$
862,933

$
752,996

$
608,094

$
268,885

$
(64,961
)Balance sheet (end of period):Total assets(5)

$
49,416,002

$
52,619,576

$
55,727,748

$
70,121,390

$
85,598,128Total loans


33,095,595


36,671,723


41,204,188


49,585,550


47,228,508Nonperforming assets


61,645


42,365


56,525


436,515


1,349,793Total deposits


39,949,257


41,850,682


42,680,191


46,049,769


68,517,653Medium- and long-term debt


801,095


1,318,847


1,913,622


4,288,488


4,212,184Stockholder's equity


4,559,700


4,571,401


4,737,981


7,484,305


9,580,333Balance sheet (period average)(6):Total assets

$
47,449,564

$
49,846,868

$
53,468,142

$
60,908,355

$
73,766,090Total loans


31,452,606


35,704,129


39,424,327


46,112,105


48,989,567Earning assets


42,786,530


45,077,084


48,968,917


55,556,063


67,418,580Total deposits


39,393,393


40,000,434


42,185,536


43,133,196


56,594,591Stockholder's equity


4,280,085


4,574,185


4,603,022


5,170,795


7,855,190Financial ratios(6):Return on average assets:From continuing operations


1.54
%

1.54
%

1.07
%

0.47
%

(0.09
)%Net income


1.82


1.51


1.14


0.44


(0.09
)Return on average stockholder's equity:From continuing operations


17.11


16.82


12.46


5.49


(0.83
)Net income


20.16


16.46


13.21


5.20


(0.83
)Efficiency ratio(7)


57.99


59.80


60.68


64.24


66.34Net interest margin(2)


4.31


4.09


3.54


3.71


3.35Tangible common equity ratio(3)


8.31


7.84


7.73


6.96


8.29Tier 1 common capital ratio(4)


9.15


8.66


8.28


8.76


11.80Tier 1 risk-based capital ratio(5)


9.17


8.68


8.30


8.78


11.82Total risk-based capital ratio(5)


11.10


11.71


11.21


11.63


14.54Leverage ratio(5)


8.39


8.44


8.27


8.42


9.45Allowance for loan losses to:(8)Total loans


1.06


0.90


0.98


1.49


2.87Nonaccrual loans


596.91


792.32


722.64


177.79


103.03Allowances for credit losses to:(9)Total loans


1.32


1.12


1.20


1.74


3.25Nonaccrual loans


743.58


987.06


884.80


208.01


116.42Net loans charged off (recovered) to average total loans


(0.01
)

0.04


0.03


0.37


1.02Nonperforming assets to total loans, distressed loans held for sale, and foreclosed assets


0.19


0.12


0.14


0.88


2.86Nonperforming assets to total assets(5)


0.12


0.08


0.10


0.62


1.58


(1)On
November 4, 2008, Mitsubishi UFJ Financial Group, Inc. (MUFG), through its wholly owned subsidiary, The Bank of
TokyoMitsubishi UFJ, Ltd. (BTMU), completed its acquisition of all of the remaining outstanding shares of UnionBanCal Corporation (the Company) common stock (the "privatization
transaction"). The Company estimated the fair value of its tangible assets and liabilities as of October 1, 2008 and recorded fair value adjustments to its tangible assets and liabilities
equivalent to the proportionate incremental percentage ownership acquired by BTMU in the privatization transaction. In addition, the Company recorded goodwill and other intangible assets. The
Company's financial condition as of December 31, 2008 reflects the impact of these fair value adjustments and other amounts recorded. The Company's results of operations starting in the fourth
quarter of 2008 include accretion and amortization related to the fair value adjustments.(2)Yields
and interest income are presented on a taxable-equivalent basis using the federal statutory tax rate of 35 percent.(3)The
tangible equity ratio is calculated as tangible equity (stockholder's equity less goodwill and intangible assets net of deferred tax on
total intangibles) divided by tangible assets (total assets less goodwill and intangible assets net of deferred tax on total intangibles). The tangible equity ratio, while not required by
US GAAP, has been included to facilitate the understanding of UnionBanCal's capital structure and financial condition.(4)The
Tier 1 common capital ratio is the ratio of Tier 1 common capital to risk weighted assets. The Tier 1 common capital
ratio, while not required by US GAAP, has been included to facilitate the understanding of UnionBanCal's capital structure and financial condition.(5)End
of period total assets and assets used to calculate all regulatory capital ratios include those of discontinued operations.(6)Period
average balances and average balances used to calculate our financial ratios are based on continuing operations data only, unless
otherwise indicated.(7)The
efficiency ratio is noninterest expense, excluding foreclosed asset expense (income), the provision for losses on off-balance
sheet commitments and low income housing credit (LIHC) investment amortization expense, as a percentage of net interest income (taxable-equivalent basis) and noninterest income, and is calculated for
continuing operations only. LIHC amortization expense was $18.1 million, $21.3 million, $28.5 million, $40.6 million and $49.1 million for the years ended
December 31, 2005, 2006, 2007, 2008 and 2009, respectively.(8)The
allowance for loan losses ratios are calculated using the allowance for loan losses against end of period total loans or total
nonperforming loans, as appropriate. These ratios relate to continuing operations only.(9)The
allowances for credit losses ratios are calculated using the sum of the allowances for loan losses and for losses on
off-balance sheet commitments against end of period total loans or total nonperforming loans, as appropriate. These ratios relate to continuing operations only.


F-1

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Table of Contents

This report includes forward-looking statements, which include forecasts of our financial results and condition, expectations for our operations and
business, and our assumptions for those forecasts and expectations. Do not rely unduly on forward-looking statements. Actual results might differ significantly from our forecasts and expectations.
Please also refer to Part I, Item 1A "Risk Factors" for a discussion of some factors that may cause results to differ.

You
should read the following discussion and analysis of our consolidated financial position and results of our operations for the years ended December 31, 2007, 2008 and 2009
together with our Consolidated Financial Statements and the Notes to Consolidated Financial Statements included in this Form 10-K Report. Averages, as presented in the following
tables, are substantially all based upon daily average balances.

As
used in this Form 10-K Report, the term "UnionBanCal" and terms such as "we," "us" and "our" refer to UnionBanCal Corporation, Union Bank, N.A., one or more of
their consolidated subsidiaries, or to all of them together.

Introduction

We are a California-based, financial holding company and bank holding company whose major subsidiary, Union Bank, N.A. (the Bank), is a commercial bank. We had
consolidated assets of approximately $86 billion at December 31, 2009.

On
November 4, 2008, we became a privately held company (privatization transaction). All of our issued and outstanding shares of common stock are owned by The Bank of Tokyo
Mitsubishi UFJ, Ltd. (BTMU). Prior to the transaction, BTMU owned approximately 64 percent of our outstanding shares of common stock. For further information on UnionBanCal's
privatization transaction, refer to Note 2 to our consolidated financial statements included in this Form 10-K report.

Executive Overview

We are providing you with an overview of what we believe are the most significant factors and developments that impacted our 2009 results and that could impact
our future results. Further detailed information can be found elsewhere in this Form 10-K Report. In addition, we ask that you carefully read this entire document and any other
reports that we refer to in this Form 10-K Report for more detailed information that will assist your understanding of trends, events and uncertainties that impact us.

U.S.
and global economies have experienced a serious recession, unprecedented volatility in the financial markets, and significant deterioration in sectors of the U.S consumer and
business economy, all of which present challenges for the banking and financial services industry. Despite the continued uncertain economic environment, we generated significant deposit growth, as
well as growth in net interest income.

In
2009, our average total loans grew 6 percent from 2008 to $49 billion. This growth was spread across residential real estate, construction, consumer and commercial real
estate, due to increased loan demand and reduced competition.

During
2009, we provided $1,165 million for our allowances for credit losses compared to $550 million in 2008. The increase, which reflects weak economic conditions, was
primarily attributable to higher criticized assets, especially in the commercial real estate portfolio, higher nonaccrual loans, increased uncertainty related to the timing and severity of losses to
be realized in the commercial real estate portfolio and increases in loss factors related to several portfolio sectors, including our consumer and
small business loan portfolios. We anticipate that the economic environment will remain weak and will result in further deterioration in our loan portfolio. See further discussion below in "Allowances
for Credit Losses."

Our
nonperforming assets totaled $437 million and $1.3 billion at December 31, 2008 and 2009, respectively. The increase in nonperforming assets was primarily due to
higher nonaccrual loans in all categories, reflecting weak economic conditions, and a previously disclosed change in accounting policy for

F-2

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Table of Contents

residential
and home equity loans 90 days or more past due, which accounted for $225 million of the increase. Net loans charged off were $499 million in 2009, compared to
$170 million in 2008. The increase in net loans charged off was primarily due to higher commercial, financial, and industrial loan charge offs.

At
December 31, 2008 and 2009, our allowances for credit losses as a percent of total loans were 1.74 percent and 3.25 percent, respectively. At December 31,
2008 and 2009, our allowances for credit losses as a percent of nonaccrual loans were 208 percent and 116 percent, respectively. At December 31, 2008 and 2009, our allowance for
loan losses as a percent of total loans were 1.49 percent and 2.87 percent, respectively. At December 31, 2008 and 2009, our allowance for loan losses as a percent of nonaccrual
loans were 178 percent and 103 percent, respectively.

In
2009, our average total deposits increased 31 percent to $56.6 billion compared to 2008. In 2009, our average noninterest bearing deposits increased 10 percent to
$13.9 billion compared to 2008. In 2009, our average interest bearing deposits increased by 40 percent compared to 2008 to $42.7 billion. The increase reflects the results of
targeted retail and corporate deposit-gathering marketing initiatives throughout Union Bank, including a new industry strategy targeting retail brokerage firm clients and other long standing industry
markets, as well as significant growth in money market account deposits from state and local governments, and institutional escrow clients. Average noninterest bearing deposits represented
25 percent of average total deposits in 2009, compared to 29 percent in 2008. The annualized average all-in-cost of funds improved to 0.84 percent in 2009,
compared to 1.72 percent in 2008.

In
2009, our net interest income (on a taxable-equivalent basis) increased 10 percent from 2008 to $2.3 billion, primarily due to lower rates paid on interest bearing
liabilities, investment securities growth, and purchase price accounting accretions related to our privatization, partially offset by lower yields on earning assets. However, our net interest margin
contracted 36 basis points compared to the same period last year, primarily as a result of a decrease in our interest rate spread (the difference between our earning assets yield and total interest
bearing liabilities rate) attributable to a significant growth in lower yielding interest bearing deposits in banks, which was driven by our excess liquidity.

In
2009, our noninterest income declined 6 percent from 2008 to $727 million, primarily due to lower trust and investment management fees, lower gains from the sales and
distributions from, as well as impairments on, private capital investments and prior year gains on the partial redemption of our Visa Inc. and MasterCard Inc. common stocks. These
decreases were partially offset by gains on the sale of U.S. Treasury and mortgage-backed securities.

In
2009, our noninterest expense grew by 10 percent from 2008 to $2.1 billion. The increase was primarily due to higher intangible asset amortization related to the
privatization transaction, higher regulatory agency fees, higher provision for credit losses on off-balance sheet commitments, and higher expenses related to our low income housing
investments (LIHC).

Our
effective tax rate, reflecting a tax benefit was (71) percent in 2009, compared to 31 percent in 2008. The change in the effective tax rate was primarily due to
pre-tax income in the prior year compared to pre-tax loss in the current year, as well as the impact of tax credits and state income taxes.

On
September 29, 2009, we received a $2.0 billion capital contribution from BTMU. The contribution was made to provide us with additional capital to offset potential future
credit losses consistent with a highly adverse economic scenario. To the extent actual credit losses are lower than those that would be incurred in the highly adverse scenario, we will have excess
capital that could be deployed to support incremental organic growth and acquisitions.

In
the fourth quarter of 2008, we elected to participate in the voluntary Temporary Liquidity Guarantee (TLG) Program established by the FDIC in October 2008. Under the TLG Program, all
senior unsecured debt issued by insured depository institutions between October 14, 2008 and October 31, 2009 with a maturity of more than 30 days was guaranteed by the FDIC. In
the first quarter of 2009, the Bank issued $1.0 billion

F-3

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Table of Contents

principal
amount of Senior Floating Rate Notes guaranteed through the TLG Program, which remained outstanding as of December 31, 2009.

In
January 2010, President Obama announced his intention to propose a Financial Crisis Responsibility Fee that would be imposed on U.S. financial firms with more than $50 billion
in consolidated assets, regardless of whether or not such firms were eligible to receive TARP funds. (As a wholly-owned subsidiary of a foreign bank, we were not eligible for TARP.) The fee is
intended to repay the cost of TARP. The proposed fee will be assessed at approximately 15 basis points of covered liabilities per year. Covered liabilities are defined as an institution's assets minus
Tier 1 capital and FDIC assessed deposits, with adjustments for insurance liabilities covered by state guarantee funds. We cannot predict whether this proposal will be enacted in its current
form or at all.

The
discussion of our financial results is based on results from continuing operations, unless otherwise stated.

Critical Accounting Estimates



UnionBanCal Corporation's consolidated financial statements are prepared in accordance with accounting principles generally accepted in
the United States of America (US GAAP) and the general practices of the banking industry. The financial information contained within our statements is, to a significant extent, financial
information that is based on approximate measures of the financial effects of transactions and events that have already occurred. A variety of factors could affect the ultimate value that is obtained
either when earning income, recognizing an expense, recovering an asset or relieving a liability. In many instances, we use a discount factor and other assumptions to determine the fair value of
assets and liabilities. A change in the discount factor or another important assumption could significantly increase or decrease the values of those assets and liabilities and result in either a
beneficial or an adverse impact to our financial results. We use historical loss factors, adjusted for current conditions, to estimate the inherent credit loss present in our loan and lease portfolio.
Actual losses could differ significantly from the loss factors that we use. Other significant estimates that we use include employee turnover factors for our pension obligation, fair value of certain
derivatives and securities, expected useful lives of our depreciable assets and assumptions regarding our effective income tax rates.

We
enter into derivative contracts to accommodate our customers and for our own risk management purposes. The derivative contracts are primarily swaps and option contracts indexed to
energy commodities, interest rates or foreign currencies. We record these contracts at fair value. When readily available quoted market prices are unavailable, we must extrapolate or estimate a market
price from available observable market data.

Our
most significant estimates are approved by our Risk & Capital Committee, which is comprised of selected senior officers of the Bank. For each financial reporting period, a
review of these estimates is presented to and discussed with the Audit & Finance Committee of our Board of Directors.

All
of our significant accounting policies are identified in Note 1 to our Consolidated Financial Statements included in this Form 10-K Report. The following
describes our most critical accounting policies and our basis for estimating the allowances for credit losses, pension obligations, income taxes, asset impairment, valuation of financial instruments,
annual goodwill impairment and hedge accounting.



The allowances for credit losses, which consist of the allowances for loan and off-balance sheet commitment losses, are
estimates of the losses that may be sustained in our loan and lease portfolio as well as for certain off-balance sheet commitments such as unfunded loan commitments, standby letters of
credit, and commercial lines of credit that are not for sale. The allowances are based on two methods of accounting. The

F-4

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Table of Contents

first
requires that losses be accrued for groups of loans when they are probable of occurring and estimable; the second requires that losses be accrued for individually impaired loans based on the
difference between the value of collateral, present value of estimated future cash flows or price that is observable in the secondary market and the loan balance.

Our
allowances for credit losses have four components: the formula allowance, the specific allowance, the unallocated allowance and the allowance for off-balance sheet
commitments, which is included in other liabilities. Each of these components is determined based upon estimates that can and do change when the actual events occur. The formula allowance uses a model
based, in part, on historical losses as an indicator of future losses and, as a result, could differ from the losses incurred in the future. This history is updated quarterly to include data that, in
management's judgment, makes the historical data more relevant. Moreover, management adjusts the historical loss estimates for current conditions that would more accurately capture probable losses
inherent in the portfolio. The specific allowance uses various techniques to arrive at an estimate of loss. Historical loss information, discounted cash flows, fair market value of collateral and
secondary market information are all used to estimate those losses. The use of these values is inherently subjective and our actual losses could be greater or less than the estimates. The unallocated
allowance is intended to capture losses that are attributable to various economic events, as well as to industry or geographic sectors, whose impact on the portfolio have occurred but have yet to be
recognized in either the formula or specific allowances. Our allowance for off-balance sheet commitments is measured in approximately the same manner as the allowance for our loans but
includes an estimate of likely utilization based upon historical data. At December 31, 2009, our allowance for loan losses was $1,357 million and our allowance for
off-balance sheet commitments was $176 million, based upon our assessment of the probability of loss. For further information regarding our allowance for loan losses, see
"Allowances for Credit Losses" in this Form 10-K Report.



Our pension obligations and related assets of our defined retirement benefit plan are presented in Note 9 to our Consolidated
Financial Statements included in this Form 10-K Report. Plan assets, which consist primarily of marketable equity and debt instruments, are valued using quoted market prices. Plan
obligations and the annual benefit expense are estimated by management utilizing actuarially based data and key assumptions. Key assumptions in measuring the plan obligations and determining the
pension benefit expense are the discount rate, the rate of compensation increases, and the estimated future return on plan assets. Our discount rate is calculated using a yield curve based on Aa3 or
better rated bonds. This yield curve is matched to the anticipated timing of the actuarially determined estimated pension benefit payments to determine the weighted average discount rate. Compensation
increase assumptions are based upon historical experience and anticipated future management actions. Asset returns are based upon the anticipated average rate of earnings expected on the invested
funds of the plan.

Our
net actuarial losses (pretax) decreased $225 million between December 31, 2008 and 2009. Of the total $527 million of net actuarial loss at December 31,
2009, $234 million, which is the excess of the fair value of plan assets over the market-related value of plan assets, is recognized separately through the asset smoothing method over four
years. Approximately $121 million will be subject to amortization over 9.6 years. The remaining $172 million is not currently subject to amortization. The cumulative net actuarial
loss resulted primarily from differences between expected and actual rate of return on plan assets and the discount rate. Included in our 2010 net periodic pension cost will be $12.7 million of
amortization related to net actuarial losses. We estimate that our total 2010 net periodic pension cost will be approximately $3.7 million, assuming $100 million in contributions in
2010. The primary reason for the decrease in net periodic pension cost for 2010 compared to $7 million in 2009 is a higher asset base resulting in higher expected return on assets and an
increase in the discount rate from 5.75 percent to 6.25 percent. The 2010 estimate for net periodic pension cost was actuarially determined using a discount rate of 6.25 percent,
an expected return on plan assets of 8.00 percent and an expected compensation increase assumption of 4.70 percent.

F-5

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Table of Contents

A
50 basis point increase in the discount rate, expected return on plan assets, or the rate of increase in future compensation levels would increase (decrease) 2010 periodic pension cost
by ($13.4) million, ($9.1) million, and $3.9 million, respectively. A 50 basis point decrease in the discount rate, expected return on plan assets, or the rate of increase in future
compensation levels would increase (decrease) 2010 periodic benefit cost by $14.8 million, $9.1 million, and ($3.7) million, respectively.



UnionBanCal and its subsidiaries are subject to the income tax laws of the United States, its states, and other jurisdictions where we
conduct business. These laws are complex and subject to different interpretations. The calculation of our provision for income taxes and related accruals requires the use of estimates and judgment.
Income tax expense includes our estimate of amounts to be reported in our income tax returns, as well as deferred taxes, which arise principally from temporary differences between the period in which
certain income and expenses are recognized for financial accounting purposes and the period in which they are reported in our tax returns. Deferred tax assets are evaluated for realization based on
the expectation of future events, including the reversal of existing temporary differences and our ability to earn future taxable income.

We
provide reserves for unrecognized tax benefits in accordance with the guidance related to accounting for uncertainty in income taxes. In applying the accounting guidance, we consider
the relative risks and merits of positions taken in tax returns filed and to be filed, considering statutory, judicial, and regulatory guidance applicable to those positions. The guidance requires us
to make assumptions and judgments about potential outcomes that lie outside management's control. To the extent the tax authorities disagree with our conclusions, and depending on the final resolution
of those disagreements, our effective tax rate may be materially affected in the period of final settlement with the tax authorities.

The
State of California requires us to file our franchise tax returns as a member of a unitary group that includes MUFG and either all worldwide affiliates or only U.S. affiliates. Prior
to 2009, we filed our California franchise tax returns on a worldwide unitary basis. We intend to make a water's-edge election for our 2009 California tax return, and we have reflected
that election in our 2009 income tax expense. If a water's-edge election is made, it will be effective as of April 1, 2009, and MUFG's worldwide taxable profits (or losses) will be
included in our California franchise tax return through March 31, 2009, MUFG's fiscal year-end. Changes in MUFG's taxable profits will impact our effective tax rate. MUFG's taxable
profits are impacted most significantly by changes in the worldwide economy, and decisions that they may make about the timing of the recognition of credit losses or other matters. When MUFG's taxable
profits rise, our effective tax rate in California will rise, and when they decrease, our rate will decrease. We review MUFG's financial information on a quarterly basis in order to determine the rate
at which to recognize our California income taxes. However, all of the information relevant to determining the effective California tax rate may not be available until after the end of the period to
which the tax relates, primarily due to the difference between our and MUFG's fiscal year-ends. Our California effective tax rate can change during the calendar year or between calendar
years as additional information becomes available. If we understate our tax obligations we could be subject to penalties. Recent amendments to California tax law now impose an automatic
20 percent penalty for an understatement of tax in excess of $1 million for any taxable year beginning on or after January 1, 2003 for which the statute of limitations on
assessment has not expired.



Effective January 1, 2008, we adopted new accounting guidance related to all financial assets and liabilities measured and
reported on a fair value basis. At adoption, there was no impact on our financial position or results of operations. For detailed information on our use of fair valuation of financial instruments and
our related valuation methodologies, see Note 17 to our Consolidated Financial Statements included in this Form 10-K Report.

F-6

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Table of Contents

Fair
value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., exit price) in an orderly transaction between market participants
at the measurement date. In determining fair value, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Observable inputs reflect
market-derived or market-based information obtained from independent sources (e.g., interest rates, yield curves, foreign exchange rates, volatilities and credit curves), while unobservable
inputs reflect our estimates of assumptions that would be considered by market participants. Valuation adjustments may be made to ensure the financial instruments are recorded at fair value. These
adjustments include amounts that reflect counterparty credit quality and that consider our creditworthiness in determining the fair value of our trading liabilities.

Based
on the observability of the inputs used in the valuation, we classify our financial assets and liabilities measured and disclosed at fair value within a three-level hierarchy
(i.e., Level 1, Level 2 and Level 3). This hierarchy ranks the quality and reliability of the information used to determine fair values with Level 1 deemed most
reliable and Level 3 having at least one significant unobservable input. The degree of management judgment required in measuring fair value increases with the higher level of measurement.

Included
in the Level 3 category at December 31, 2008 are collateralized loan obligations (CLO), which are illiquid with limited market activity. These securities were
transferred from securities available for sale to held to maturity in 2009. All of our CLO securities are known as "Cash Flow CLOs." A Cash Flow CLO is a structured finance product that securitizes a
diversified pool of loan assets into multiple classes of notes from the cash flows generated by such loans. Cash Flow CLOs pay the note holders through the receipt of interest and principal repayments
from the underlying loans unlike other types of CLOs that pay note holders through the trading and sale of underlying collateral. We estimate the fair value of our CLOs using a pricing model, as well
as broker quotes. The model inputs are based on internally-developed assumptions, utilizing market data derived from market participants and credit rating agencies. These assumptions include, but are
not limited to, estimated default rates, recovery rates, prepayment rates and reinvestment rates. The fair value of our CLOs increased by $0.3 billion from December 31, 2008 to
$1.5 billion at December 31, 2009. Since no observable credit quality issues (i.e., no projected cash flow
shortages) were present in our CLO portfolio at December 31, 2009, and we do not intend or it is not more likely than not that we will be required to sell the CLO securities before recovery,
the securities were not other-than-temporarily impaired.

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Table of Contents

The
following table reflects financial instruments measured at fair value on a recurring basis as of December 31, 2009.

December 31, 2008

December 31, 2009(Dollars in thousands)

Fair Value

Percentage
of Total

Fair Value

Percentage
of TotalFinancial instruments recorded at fairvalue on a recurring basisAssets:Level 1

$
961,535


10
%
$
12,696,149


55
%Level 2


7,624,037


79


10,746,219


46Level 3


1,203,092


13


6,878


Netting Adjustment(1)


(153,377
)

(2
)

(135,885
)

(1
)Total

$
9,635,287


100
%
$
23,313,361


100
%As a percentage of total Company assets





14
%




27
%Liabilities:Level 1

$
56,470


6
%
$
9,901


2
%Level 2


1,131,570


109


643,115


119Level 3











Netting Adjustment(1)


(153,377
)

(15
)

(111,885
)

(21
)Total

$
1,034,663


100
%
$
541,131


100
%As a percentage of total Company liabilities





2
%




1
%


(1)Amounts
represent the impact of legally enforceable master netting agreements between the same counterparties that allow the Company to net
settle all contracts.




We make estimates and assumptions when preparing our consolidated financial statements for which actual results will not be known for
some time. This includes the recoverability of long-lived assets employed in our business, including those of acquired businesses.

On
April 1, 2009, the Company adopted new accounting guidance related to the determination and recognition of other-than-temporary impairment related to
debt securities. (FASB ASC 320-10, "InvestmentsDebt and Equity Securities"). The new guidance establishes new criteria for determining whether impairment is
other-than-temporary and what portion of any such impairment is recognized in earnings. At adoption, there was no impact on our financial position or results of operations.

Debt
securities available for sale and debt securities held to maturity are subject to impairment testing when a security's fair value is lower than its amortized cost. Debt securities
with unrealized losses are considered other-than-temporarily impaired if we intend to sell the security, if it is more likely than not that we will be required to sell the
security before recovery of its amortized cost basis, or if we do not expect to recover the entire amortized cost basis of the security. Any impairment on securities we intend, or are more likely than
not required, to sell is recognized in earnings as the entire difference between the amortized cost and its fair value. Any impairment on securities we do not intend, or are not more likely than not
required, to sell before recovery is separated into an amount representing the credit loss, which is recognized in earnings, and the amount related to all other factors, which is recognized in other
comprehensive income. The credit loss is measured as the difference
between the present value of expected cash flows, discounted using the security's effective interest rate, and the amortized cost of the security. During 2009, we recognized an insignificant amount of
other-than-temporary impairment on two CLO securities.

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Table of Contents

Quarterly, we evaluate our private capital investments for impairment by reviewing the investee's business model, current and projected financial performance,
liquidity and overall economic and market conditions. During 2009, we recognized an other-than-temporary impairment of $15.5 million for our private capital investment
portfolio.



We review our goodwill for impairment on an annual basis, and whenever events or changes in circumstances indicate that the carrying
amount may not be recoverable. In testing for a potential impairment of goodwill, we estimate the fair value of goodwill allocated to our designated operating units and compare this value to the
aggregate carrying value of goodwill for those operating units. At December 31, 2009, our goodwill balance was $2.4 billion.

Significant
judgment is applied when goodwill is assessed for impairment. This judgment includes developing cash flow projections, selecting appropriate discount rates, identifying
relevant market comparables, incorporating general economic and market conditions and selecting an appropriate control premium. Additionally, significant judgment is involved in determining if an
indicator of impairment has occurred. Such indicators may include: a significant decline in expected future cash flows, a significant adverse change in the business climate, unanticipated competition
and/or slower than expected growth rates.

The
annual goodwill impairment test as of January 1, 2009 was performed during the first quarter of 2009, and no impairment was recognized.

During
the second quarter of 2009, we changed the date of our annual goodwill impairment test from January 1 to April 1. The change was made to more closely align the
impairment testing date with the testing date used by BTMU, as we became a wholly-owned subsidiary of BTMU in the fourth quarter of 2008.

The
change in goodwill impairment testing date is deemed a change in accounting principle. Management believes that the change in accounting principle will not delay, accelerate, or
avoid a goodwill impairment charge. Management determined that the change in accounting principle is preferable under the circumstances and does not result in adjustments to our financial statements
when applied retrospectively.

In
order to transition to the new annual goodwill impairment test date and to ensure that no more than twelve months elapse before the next annual goodwill impairment test is performed,
goodwill impairment testing as of April 1, 2009 was performed during the second quarter of 2009. No impairment was recognized.

Due
to the current uncertainties in the recessionary economic environment, there can be no assurance that our recent estimates relating to our recent goodwill impairment testing will
prove to be accurate predictions of future circumstances. It is possible that we may be required to record charges relating to goodwill impairment losses in future periods either as a result of our
annual impairment testing or upon the occurrence of other triggering events. Any changes relating to any such future impairment losses could be material.



In order to manage the risk of adverse changes in the fair value or cash flows of certain financial instruments (e.g., loans,
debt and securities) associated with changes in interest rates, foreign currency exchange rates, or other factors, derivative instruments are acquired to mitigate such adverse changes that might occur
in the future. Most of the derivative instruments acquired for this purpose qualify for hedge accounting treatment under generally accepted accounting principles.

The
determination of whether a hedging relationship qualifies for hedge accounting requires judgment. For example, before hedge accounting can be applied, the hedging relationship must
be expected to be highly effective, which involves an assessment of past results and future expectations. At the end of each reporting period, a retrospective assessment must be made as to whether the
hedge was highly effective based on the

F-9

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Table of Contents

actual
results for that period. The determination of changes in fair value of the hedged item attributable to the risk being hedged and the hedging instrument also may require judgment if quoted
market prices or sufficient observable market data is unavailable. When a hedge is designated for a group of similar financial instruments, judgments must be made as to whether the individual items in
that group share sufficient similar risks and characteristics to be hedged collectively.

If
a derivative instrument is determined to no longer be highly effective as a designated hedge, hedge accounting is discontinued and the adjustment to the fair value of the derivative
instrument would be recorded in earnings.

Financial Performance

Summary of Financial Performance

Increase (Decrease)For the Years Ended

2008 versus 2007

2009 versus 2008(Dollars in thousands)

2007

2008

2009

Amount

Percent

Amount

PercentResults of OperationsNet interest income(1)

$
1,723,380

$
2,050,848

$
2,249,112

$
327,468


19.0
%
$
198,264


9.7
%Noninterest incomeService charges on deposit accounts


304,362


302,965


290,764


(1,397
)

(0.5
)

(12,201
)

(4.0
)Trust and investment management fees


157,734


165,255


134,997


7,521


4.8


(30,258
)

(18.3
)Trading account activities


65,608


54,530


73,590


(11,078
)

(16.9
)

19,060


35.0Merchant banking fees


44,123


49,546


64,652


5,423


12.3


15,106


30.5Securities gains, net


1,621


44


24,281


(1,577
)

(97.3
)

24,237


nmGains (losses) on private capital investments, net


43,881


11,699


(12,781
)

(32,182
)

(73.3
)

(24,480
)

nmGain on the VISA IPO redemption





14,211





14,211


nm


(14,211
)

(100.0
)Other noninterest income


182,210


174,406


151,641


(7,804
)

(4.3
)

(22,765
)

(13.1
)Total noninterest income


799,539


772,656


727,144


(26,883
)

(3.4
)

(45,512
)

(5.9
)Total revenue


2,522,919


2,823,504


2,976,256


300,585


11.9


152,752


5.4Provision for loan losses


81,000


515,000


1,114,000


434,000


nm


599,000


nmNoninterest expenseSalaries and other compensation


756,974


810,277


798,883


53,303


7.0


(11,394
)

(1.4
)Employee benefits


154,048


167,804


172,773


13,756


8.9


4,969


3.0Salaries and employee benefits


911,022


978,081


971,656


67,059


7.4


(6,425
)

(0.7
)Net occupancy


141,573


154,566


167,082


12,993


9.2


12,516


8.1Intangible asset amortization


4,501


44,935


161,910


40,434


nm


116,975


nmRegulatory Agencies


10,691


23,971


133,616


13,280


nm


109,645


nmLow income housing credit investment amortization


28,496


40,577


49,081


12,081


42.4


8,504


21.0Provision for losses on off-balance sheet commitments


9,000


35,000


51,000


26,000


nm


16,000


45.7Privatization-related expense





90,505


45,882


90,505


nm


(44,623
)

(49.3
)Other noninterest expense


468,918


529,061


508,274


60,143


12.8


(20,787
)

(3.9
)Total noninterest expense


1,574,201


1,896,696


2,088,501


322,495


20.5


191,805


10.1Income (loss) from continuing operations before income taxes


867,718


411,808


(226,245
)

(455,910
)

(52.5
)

(638,053
)

nmIncome tax expense (benefit)


294,354


127,868


(161,284
)

(166,486
)

(56.6
)

(289,152
)

nmIncome (loss) from continuing operations

$
573,364

$
283,940

$
(64,961
)
$
(289,424
)

(50.5
)
$
(348,901
)

nm


(1)Net
interest income does not include any adjustments for fully taxable equivalence.
nm =
not meaningful


F-10

---



Table of Contents

The primary contributors to our financial performance for 2009 compared to 2008 are presented
below.



F-11

---



Table of Contents



The primary contributors to our financial performance for 2008 compared to 2007 are presented below.



F-12

---







Table of Contents

Net Interest Income

The table below shows the major components of net interest income and net interest margin for the periods presented.

Years Ended December 31,2007

2008

2009(Dollars in thousands)

Average
Balance

Interest
Income/
Expense(1)

Average
Yield/
Rate(1)

Average
Balance

Interest
Income/
Expense(1)

Average
Yield/
Rate(1)

Average
Balance

Interest
Income/
Expense(1)

Average
Yield/
Rate(1)AssetsLoans:(2)Commercial, financial and industrial

$
14,595,016

$
972,270


6.66
%
$
17,045,080

$
936,956


5.50
%
$
17,239,150

$
753,288


4.37
%Construction


2,335,157


177,258


7.59


2,585,221


130,022


5.03


2,721,282


80,303


2.95Residential mortgage


12,964,171


697,069


5.38


14,872,261


830,559


5.58


16,269,413


924,896


5.68Commercial mortgage


6,364,705


448,403


7.05


7,793,422


447,662


5.74


8,259,400


370,242


4.48Consumer


2,572,146


199,361


7.75


3,170,513


193,360


6.10


3,840,209


178,797


4.66Lease financing


593,132


23,789


4.01


645,608


18,546


2.87


660,113


21,295


3.23Total Loans


39,424,327


2,518,150


6.39


46,112,105


2,557,105


5.55


48,989,567


2,328,821


4.75Securitiestaxable


8,541,217


440,797


5.16


8,230,740


413,180


5.02


11,943,958


451,157


3.78Securitiestax-exempt


55,771


4,566


8.19


52,510


4,284


8.16


82,302


6,030


7.33Interest bearing deposits in banks


53,978


3,276


6.07


29,352


574


1.96


5,168,329


13,449


0.26Federal funds sold and securities purchased under resale agreements


505,732


26,247


5.19


256,281


6,472


2.53


206,853


371


0.18Trading account assets(3)


387,892


8,648


2.23


875,075


5,814


0.66


1,027,571


1,094


0.11Total earning assets


48,968,917


3,001,684


6.13


55,556,063


2,987,429


5.38


67,418,580


2,800,922


4.15Allowance for loan losses


(336,871
)







(478,661
)







(958,975
)Cash and due from banks


1,902,952








1,951,761








1,248,226Premises and equipment, net


481,650








527,943








671,599Other assets


2,451,494








3,351,249








5,386,660Total assets

$
53,468,142







$
60,908,355







$
73,766,090LiabilitiesDomestic deposits:Transaction accounts

$
14,129,408


409,508


2.90

$
16,066,060


275,795


1.72

$
30,757,333


274,676


0.89Savings and consumer time


4,351,961


116,544


2.68


4,027,824


66,275


1.65


4,617,999


56,479


1.22Large time


9,469,386


465,088


4.91


10,358,779


296,977


2.87


7,286,282


77,146


1.06Total interest bearing deposits


27,950,755


991,140


3.55


30,452,663


639,047


2.10


42,661,614


408,301


0.96Federal funds purchased and securities sold under repurchase agreements


1,142,487


56,299


4.93


2,137,718


47,065


2.20


180,087


137


0.08Net funding allocated from (to) discontinued operations(4)


7,299


377


5.17


36,378


810


2.23








Commercial paper


1,549,681


76,284


4.92


1,319,360


31,767


2.41


536,170


3,095


0.58Other borrowed funds(5)


813,054


42,883


5.27


4,425,435


107,698


2.43


1,928,245


18,310


0.95Medium- and long-term debt


1,776,069


101,096


5.69


2,915,838


99,429


3.41


4,867,602


109,704


2.25Trust notes


14,656


953


6.50


14,204


953


6.71


13,751


953


6.93Total borrowed funds


5,303,246


277,892


5.24


10,848,933


287,722


2.65


7,525,855


132,199


1.76Total interest bearing liabilities


33,254,001


1,269,032


3.82


41,301,596


926,769


2.24


50,187,469


540,500


1.08Noninterest bearing deposits


14,234,781








12,680,533








13,932,977Other liabilities(4)


1,376,338








1,755,431








1,790,454Total liabilities


48,865,120








55,737,560








65,910,900Stockholder's EquityCommon equity


4,603,022








5,170,795








7,855,190Total stockholder's equity


4,603,022








5,170,795








7,855,190Total liabilities and stockholder's equity

$
53,468,142







$
60,908,355







$
73,766,090Reported Net Interest Income/MarginNet interest income/margin (taxable-equivalent basis)





1,732,652


3.54
%




2,060,660


3.71
%




2,260,422


3.35
%Less: taxable-equivalent adjustment





9,272








9,812








11,310Net interest income




$
1,723,380







$
2,050,848







$
2,249,112


Average Assets and Liabilities of
Discontinued Operations for the Year Ended:

December 31, 2007

December 31, 2008

December 31, 2009Assets

$
130,117

$
56,130

$
Liabilities

$
137,416

$
92,508

$
Net Assets (Liabilities)

$
(7,299
)
$
(36,378
)
$



(1)Yields
and interest income are presented on a taxable-equivalent basis using the federal statutory tax rate of 35 percent.(2)Average
balances on loans outstanding include all nonperforming loans and loans held for sale. The amortized portion of net loan origination
fees (costs) is included in interest income on loans, representing an adjustment to the yield.(3)Includes
non-interest earning trading derivative assets.(4)Net
funding allocated from (to) discontinued operations represents the shortage (excess) of assets over liabilities of discontinued
operations. The expense (earning) on funds allocated from (to) discontinued operations is calculated by taking the net balance and applying an earnings rate or a cost of funds equivalent to the
corresponding period's Federal funds purchased rate. The year-to-date expense (earning) amount is the sum of the quarterly amounts.(5)Includes
interest bearing trading liabilities.


F-13

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Table of Contents

Net interest income in 2009, on a taxable-equivalent basis, increased 10 percent from 2008 and our net interest margin decreased by 36 basis points from
2008, primarily as a result of a decrease in our interest rate spread (the difference between our earning assets yield and total interest bearing liabilities rate) attributable to a significant growth
in lower yielding interest bearing deposits in banks, which was driven by our excess liquidity. These results were primarily due to the following:



Net
interest income in 2008, on a taxable-equivalent basis, increased 19 percent from 2007 and our net interest margin increased by 17 basis points. These results were primarily
due to the following:



F-14

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Table of Contents

Analysis of Changes in Net Interest Income

The following table shows the changes in the components of net interest income on a taxable-equivalent basis for 2007, 2008 and 2009. The changes in net interest
income between periods have been reflected as attributable either to volume or to rate changes. For purposes of this table, changes that are not solely due to volume or rate changes are allocated to
rate. Loan fees of $65 million, $82 million and $182 million for the years ended 2007, 2008 and 2009, respectively, are included in this table. Adjustments have not been made for
interest received from a prior period.

Years Ended December 31,2008 versus 2007

2009 versus 2008Increase (decrease) due to change in

Increase (decrease) due to change in(Dollars in thousands)

Average
Volume

Average
Rate

Net
Change

Average
Volume

Average
Rate

Net
ChangeChanges in Interest Income(1)Loans:Commercial, financial and industrial

$
163,174

$
(198,488
)
$
(35,314
)
$
10,674

$
(194,342
)
$
(183,668
)Construction


18,980


(66,216
)

(47,236
)

6,844


(56,563
)

(49,719
)Residential mortgage


102,655


30,835


133,490


77,961


16,376


94,337Commercial mortgage


100,725


(101,466
)

(741
)

26,747


(104,167
)

(77,420
)Consumer


46,373


(52,374
)

(6,001
)

40,851


(55,414
)

(14,563
)Lease financing


2,104


(7,347
)

(5,243
)

416


2,333


2,749Total Loans


434,011


(395,056
)

38,955


163,493


(391,777
)

(228,284
)Securitiestaxable


(16,021
)

(11,596
)

(27,617
)

186,404


(148,427
)

37,977Securitiestax-exempt


(267
)

(15
)

(282
)

2,431


(685
)

1,746Interest bearing deposits in banks


(1,495
)

(1,207
)

(2,702
)

100,724


(87,849
)

12,875Federal funds sold and securities purchased under resale agreements


(12,947
)

(6,828
)

(19,775
)

(1,251
)

(4,850
)

(6,101
)Trading account assets


10,864


(13,698
)

(2,834
)

1,006


(5,726
)

(4,720
)Total earning assets


414,145


(428,400
)

(14,255
)

452,807


(639,314
)

(186,507
)Changes in Interest ExpenseDeposits:Transaction accounts


56,163


(189,876
)

(133,713
)

252,690


(253,809
)

(1,119
)Savings and consumer time


(8,687
)

(41,582
)

(50,269
)

9,738


(19,534
)

(9,796
)Large time


43,669


(211,780
)

(168,111
)

(88,181
)

(131,650
)

(219,831
)Total interest bearing deposits


91,145


(443,238
)

(352,093
)

174,247


(404,993
)

(230,746
)Federal funds purchased and securities sold under repurchase agreements


49,065


(58,299
)

(9,234
)

(43,068
)

(3,860
)

(46,928
)Net funding allocated from (to) discontinued operations


1,503


(1,070
)

433


(811
)

1


(810
)Commercial paper


(11,332
)

(33,185
)

(44,517
)

(18,875
)

(9,797
)

(28,672
)Other borrowed funds


190,372


(125,557
)

64,815


(60,682
)

(28,706
)

(89,388
)Medium- and long-term debt


64,853


(66,520
)

(1,667
)

66,555


(56,280
)

10,275Trust notes


(29
)

29





(30
)

30


Total borrowed funds


294,432


(284,602
)

9,830


(56,911
)

(98,612
)

(155,523
)Total interest bearing liabilities


385,577


(727,840
)

(342,263
)

117,336


(503,605
)

(386,269
)Changes in net interest income

$
28,568

$
299,440

$
328,008

$
335,471

$
(135,709
)
$
199,762


(1)Interest
income is presented on a taxable-equivalent basis using the federal statutory tax rate of 35 percent.


F-15

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Table of Contents

Noninterest Income and Noninterest Expense

The following tables detail our noninterest income and noninterest expense that exceeded 1 percent of our total revenues for the years ended
December 31, 2007, 2008 and 2009.

Noninterest Income

Increase (Decrease)Years Ended December 31,Years Ended December 31,

2008 versus 2007

2009 versus 2008(Dollars in thousands)

2007

2008

2009

Amount

Percent

Amount

PercentService charges on deposit accounts

$
304,362

$
302,965

$
290,764

$
(1,397
)


%
$
(12,201
)

(4
)%Trust and investment management fees


157,734


165,255


134,997


7,521


5


(30,258
)

(18
)Trading account activities


65,608


54,530


73,590


(11,078
)

(17
)

19,060


35Merchant banking fees


44,123


49,546


64,652


5,423


12


15,106


30Brokerage commissions and fees


39,839


38,891


33,584


(948
)

(2
)

(5,307
)

(14
)Card processing fees, net


30,307


31,553


32,512


1,246


4


959


3Securities gains, net


1,621


44


24,281


(1,577
)

(97
)

24,237


nmGains (losses) on private capital investments, net


43,881


11,699


(12,781
)

(32,182
)

(73
)

(24,480
)

nmGain on the VISA IPO redemption





14,211





14,211


nm


(14,211
)

(100
)Other


112,064


103,962


85,545


(8,102
)

(7
)

(18,417
)

(18
)Total noninterest income

$
799,539

$
772,656

$
727,144

$
(26,883
)

(3
)%
$
(45,512
)

(6
)%


nm =
not meaningful


Noninterest Expense

Increase (Decrease)Years Ended December 31,Years Ended December 31,

2008 versus 2007

2009 versus 2008(Dollars in thousands)

2007

2008

2009

Amount

Percent

Amount

PercentSalaries and other compensation

$
756,974

$
810,277

$
798,883

$
53,303


7
%
$
(11,394
)

(1
)%Employee benefits


154,048


167,804


172,773


13,756


9


4,969


3Salaries and employee benefits


911,022


978,081


971,656


67,059


7


(6,425
)

(1
)Net occupancy


141,573


154,566


167,082


12,993


9


12,516


8Intangible asset amortization


4,501


44,935


161,910


40,434


nm


116,975


nmRegulatory Agencies


10,691


23,971


133,616


13,280


nm


109,645


nmOutside services


75,939


78,933


89,289


2,994


4


10,356


13Professional services


67,021


70,886


70,055


3,865


6


(831
)

(1
)Equipment


63,607


61,571


66,236


(2,036
)

(3
)

4,665


8Software


57,114


60,448


62,950


3,334


6


2,502


4Advertising and public relations


40,690


51,144


49,886


10,454


26


(1,258
)

(2
)Low income housing credit investment amortization


28,496


40,577


49,081


12,081


42


8,504


21Communications


36,499


37,067


36,960


568


2


(107
)

Data processing


33,052


32,090


33,250


(962
)

(3
)

1,160


4Foreclosed asset expense


110


1,019


6,339


909


nm


5,320


nmProvision for losses on off-balance sheet commitments


9,000


35,000


51,000


26,000


nm


16,000


46Privatization-related expense





90,505


45,882


90,505


nm


(44,623
)

(49
)Other


94,886


135,903


93,309


41,017


43


(42,594
)

(31
)Total noninterest expense

$
1,574,201

$
1,896,696

$
2,088,501

$
322,495


20
%
$
191,805


10
%


nm =
not meaningful


F-16

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Table of Contents




Income Tax Expense

Years Ended December 31,(Dollars in thousands)

2007

2008

2009Income (loss) from continuing operations before income taxes

$
867,718

$
411,808

$
(226,245
)Income tax expense (benefit)


294,354


127,868


(161,284
)Effective tax rate


34
%

31
%

(71
)%


A negative effective tax rate in the above table indicates a net income tax benefit.

The
change in the effective tax rate in 2009 compared to 2008 was primarily due to pre-tax income in the prior year compared to pre-tax loss in the current year,
as well as the impact of tax credits and state income taxes.

The
lower effective tax rate in 2008 compared to 2007 was primarily due to the effect of higher tax credits and lower income before taxes.

We
intend to make a water's-edge election for our 2009 California tax return, and we have reflected that election in our 2009 income tax expense. We filed our 2007 and 2008
California franchise tax returns on the worldwide unitary basis, incorporating the financial results of MUFG and its worldwide affiliates.

In
the normal course of business, the tax returns of UnionBanCal and its subsidiaries are subject to review and examination by various tax authorities. In the course of its examination
of our federal tax returns for the years 1998 through 2004, the IRS has disallowed the tax deductions claimed with respect to certain leveraged leasing transactions, referred to as
"lease-in/lease-outs" (LILOs). We believe our tax treatment of these LILOs was consistent with applicable tax law, regulations and case law, and we intend to defend our
position vigorously. We have paid the balance of tax and interest assessed, and have filed a refund suit in the Court of Federal Claims. A trial date has not yet been set.

Accounting
for uncertain tax positions establishes a "more-likely-than-not" recognition threshold that must be met before a tax benefit can be
recognized in the financial statements. For tax positions that meet the more-likely-than-not threshold, an enterprise should recognize the largest amount of tax
benefit that is greater than 50 percent likely of being realized upon final settlement with the taxing authority. We recognized a $49.3 million reduction to the beginning balance of
retained earnings upon adoption of the accounting guidance related to uncertain tax positions on January 1, 2007.

The
amounts of unrecognized tax benefits at December 31, 2007, 2008 and 2009 were $137.7 million, $191.0 million and $201.7 million, respectively. Of these
amounts, $53.1 million, $64.0 million and $71.0 million, respectively, would affect the effective tax rate, if recognized. Unrecognized tax benefits that do not affect the
effective tax rate would result in adjustments to other income tax accounts, primarily deferred taxes. Accrued interest expense on unrecognized tax benefits at December 31, 2007, 2008 and 2009,
was $10.5 million and $15.8 million and $0.6 million, respectively. The net changes to unrecognized tax benefits and accrued interest resulted in an increase in our effective tax
rate of 0.1 percent in 2007, 3.5 percent in 2008 and 3.9 percent in 2009. The increases in 2008 and 2009 were due to the addition to our reserves for uncertain state income tax
positions.

For
additional information regarding income tax expense, including a reconciliation between the effective tax rate and the statutory tax rate and changes in unrecognized tax benefits,
see Note 11 to our Consolidated Financial Statements included in this Form 10-K Report.

F-17

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Table of Contents

Credit Risk Management

Our principal business activity is the extension of credit in the form of loans and credit substitutes to individuals and businesses. Our policies and applicable
laws and regulations governing the extension of credit require risk analysis including an extensive evaluation of the purpose of the request and the borrower's ability and willingness to repay us as
scheduled. Our evaluation also includes ongoing portfolio and credit management through portfolio diversification, lending limit constraints, credit review and approval policies, and extensive
internal monitoring.

We
manage and control credit risk through diversification of the portfolio by type of loan, industry concentration, dollar limits on multiple loans to the same borrower, geographic
distribution and type of borrower. Geographic diversification of loans originated through our branch network is generally within
California, Oregon, Washington and Texas, which we consider to be our principal markets. In addition, we originate and participate in lending activities outside these states, as well as
internationally.

In
analyzing our loan portfolios, we apply specific monitoring policies and procedures that vary according to the relative risk profile and other characteristics of the loans within the
various portfolios. Our residential, consumer and certain small commercial loans and leases are relatively homogeneous and no single loan is individually significant in terms of its size or potential
risk of loss. Therefore, we review these portfolios by analyzing their performance as a pool of loans. In contrast, our monitoring process for the larger commercial, financial and industrial,
construction, commercial mortgage, leases, and foreign loan portfolios includes a periodic review of individual loans. Loans that are performing, but have shown some signs of weakness, are subjected
to more stringent reporting and oversight. We review these loans to assess the ability of the borrowing entity to continue to service all of its interest and principal obligations and, as a result,
may adjust the risk grade of the loan accordingly. In the event that we believe that full collection of principal and interest is not reasonably assured, the loan is appropriately downgraded and, if
warranted, placed on nonaccrual status, even though the loan may be current as to principal and interest payments.

We
have a Credit Risk Committee, chaired by the Chief Risk Officer and composed of the Chief Credit Officer for Corporate and Commercial Real Estate, the Chief Credit Officer for Retail
Banking and other executive and senior officers, that establishes our overall risk appetite, portfolio concentration limits, and credit risk rating methodology. This committee is supported by the
Credit Policy Forum, composed of Group Senior Credit Officers that have responsibility for establishing credit policy, credit underwriting criteria, and other risk management controls. Credit
Administration, under the direction of the Chief Credit Officer and their designated Group Senior Credit Officers, are responsible for administering the credit approval process and related policies.
Policies require an evaluation of credit requests and ongoing reviews of existing credits in order to verify that we know with whom we are doing business, that the purpose of the credit is acceptable,
and that the borrower is able and willing to repay as agreed. Furthermore, policies require prompt identification and quantification of asset quality deterioration or potential loss.

Another
part of the control process is the Independent Risk Monitoring Group for Credit (IRMG-Credit), which reports to the Audit & Finance Committee of the Board of
Directors and provides both the Board of Directors and executive management with an independent assessment of the level of credit risk and the effectiveness of the credit management process.
IRMG-Credit routinely reviews the accuracy and timeliness of risk grades assigned to individual borrowers with the goal of ensuring that the business unit credit risk identification
process is functioning properly. This group also assesses compliance with credit policies and underwriting standards at the business unit level. Additionally, IRMG-Credit reviews and
provides commentary on proposed changes to credit policies, practices and underwriting guidelines. IRMG-Credit summarizes its significant findings on a regular basis and provides
recommendations for corrective action when credit management or control deficiencies are identified.

F-18

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Table of Contents

Loans

The following table shows loans outstanding by loan type and as a percentage of total loans for 2005 through 2009.

Increase (Decrease)
December 31, 2009 From:December 31,

December 31, 2008(Dollars in millions)

2005

2006

2007

2008

2009

Amount

PercentCommercial, financial and industrial

$
11,451


35
%
$
12,945


35
%
$
14,564


35
%
$
18,469


37
%
$
15,258


32
%
$
(3,211
)

(17.4
)%Construction


1,447


4


2,176


6


2,407


6


2,744


6


2,429


5


(315
)

(11.5
)Mortgage:Residential


11,380


34


12,344


34


13,827


34


15,881


32


16,716


35


835


5.3Commercial


5,683


17


6,028


16


7,021


17


8,186


17


8,246


18


60


0.7Total mortgage


17,063


51


18,372


50


20,848


51


24,067


49


24,962


53


895


3.7Consumer:Installment


891


3


1,137


3


1,327


3


2,202


4


2,244


5


42


1.9Revolving lines of credit


1,611


5


1,401


4


1,334


3


1,436


3


1,673


4


237


16.5Total consumer


2,502


8


2,538


7


2,661


6


3,638


7


3,917


9


279


7.7Lease financing


580


2


581


2


655


2


646


1


654


1


8


1.2Total loans held for investment


33,043


100


36,612


100


41,135


100


49,564


100


47,220


100


(2,344
)

(4.7
)Total loans held for sale


53





60





69





22





9





(13
)

(59.1
)Total loans

$
33,096


100
%
$
36,672


100
%
$
41,204


100
%
$
49,586


100
%
$
47,229


100
%
$
(2,357
)

(4.8
)%


Commercial, Financial and Industrial Loans

Commercial, financial and industrial loans represent one of the largest categories in the loan portfolio. These loans are extended principally to corporations,
middle-market businesses and small businesses, with no industry concentration exceeding 10 percent of total loans.

Our
commercial market lending originates primarily through our commercial banking offices. These offices, which rely extensively on relationship-oriented banking, provide a variety of
services including cash management services, lines of credit, accounts receivable and inventory financing. Separately, we originate or participate in a wide variety of financial services to major
corporations. These services include traditional commercial banking and specialized financing tailored to the needs of each customer's specific industry. We are active in, among other sectors, the oil
and gas, communications, entertainment, healthcare, retailing, power and utilities and financial services industries.

The
commercial, financial and industrial loan portfolio decreased from December 31, 2008 to December 31, 2009 mainly due to a decline in the utilization rate of revolving
credit lines by existing customers, our aggressive and proactive portfolio management, our tighter underwriting standards, and a slight decline in loan demand in many sectors as a result of the
difficult economic environment. However, average commercial financial and industrial loans for 2009 increased by $194 million to $17.2 billion.

Construction and Commercial Mortgage Loans

We engage in real estate lending that includes commercial mortgage loans and construction loans secured by deeds of trust.

Construction
loans are extended primarily to commercial property developers and to residential builders. As of December 31, 2009, the construction loan portfolio consisted of
approximately 90 percent in the commercial income producing real estate industry and 10 percent with residential homebuilders. The construction loan portfolio decreased 12 percent
from December 31, 2008 to December 31, 2009 due to the decline in the homebuilder portfolio which decreased by approximately 57 percent, or $316 million.

F-19

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Table of Contents

Additionally,
operating conditions continue to weaken for our commercial property developers, and as a result, we continue to experience negative risk grade trends in the overall portfolio.

Geographically,
the outstanding construction loan portfolio was concentrated 45 percent in California and 55 percent out of state as of December 31, 2009. The
largest out of state concentration was 14 percent in Washington. The California outstandings are distributed as follows: 39 percent in the Los Angeles/Orange County region, including the
Inland Empire, 26 percent in the San Francisco Bay Area, 16 percent in Sacramento and the Central Valley, 14 percent in San Diego, and 5 percent in the Central Coast
region.

The
commercial mortgage loan portfolio consists of loans secured by commercial income properties primarily in California. The commercial mortgage portfolio increased slightly from
December 31, 2008 to December 31, 2009 due to continued moderate originations and a reduced rate of early loan repayments associated with the tightening of the credit markets.

Residential Mortgage Loans

We originate residential mortgage loans, secured by one-to-four family residential properties, through our multiple channel network
(including branches, private bankers, mortgage brokers, and loan-by-phone) throughout California, Oregon and Washington, and we periodically purchase loans in our market area.

At
December 31, 2009, 71 percent of our residential mortgage loans were interest only, none of which are negative amortizing. At origination, these interest only loans had
relatively high credit scores and had weighted average loan-to-value (LTV) ratios of approximately 66 percent. The remainder of the portfolio consists of a small amount
of balloon loans and regular amortizing loans.

We
do not have a program for originating or purchasing subprime loan products. However, we have loan products that allow a customer to move more quickly through the loan origination
process by reducing the need to verify the income or assets of the customer. We refer to these as Portfolio Express loans. Portfolio Express loans are only available to existing clients for
no-cash-out/rate and term refinance of existing residential mortgages with the Bank and eliminate the verification of both income and assets but must pass a reasonability test.
"Low doc" and "no doc" (discontinued in 2008) loans comprise less than half of our residential loan portfolio, and the delinquency rates relative to the outstanding balances at December 31,
2009 were slightly less than fully documented loans. At December 31, 2009, the total amount of "no doc" and "low doc" loans past due 30 days or more was $178.6 million, compared
to $75.3 million at December 31, 2008. The total amount of residential mortgages delinquent 30 days or more was $367.3 million at December 31, 2009, compared to
$172.3 million at December 31, 2008. Although delinquencies have risen since December 31, 2008 as a result of the declining real estate market and downturn in the economy, the
delinquency rate remains low compared to the industry average for California prime loans. We believe that our underwriting standards remain conservative and as described above, programs with higher
risk have been discontinued.

We
hold most of the loans we originate. However, we sell some of our 30-year, fixed rate loans, except for the Community Reinvestment Act (CRA) qualifying loans.

Consumer Loans

We originate consumer loans, such as auto loans and home equity loans and lines, through our branch network, Private Banking Offices and via the internet. The
increase in consumer loans from December 31, 2008 was primarily in our FlexEquity line/loan product. The FlexEquity line/loan allows our customers the flexibility to manage a line of credit
with as many as four fixed rate loans under a single product. When customers convert all or a portion of their FlexEquity lines to fixed rate loans, these new loans are classified as installment
loans. As a result of the continuing decline in the overall property values in California, we have reduced our maximum loan to value limits on all second trust deed programs we offer. At origination,
these loans had relatively high credit scores and had weighted-average loan-to-value (LTV) ratios of approximately

F-20

---



Table of Contents

60 percent.
Our total home equity loans and lines delinquent 30 days or more were $39.4 million at December 31, 2009, compared to $28.3 million at
December 31, 2008. Our annual review program
reviews all equity secured lines with a commitment amount of $200,000 or more and an origination date between 2004-2008, and includes obtaining an updated credit report as well as an
updated value on the property to reassess our LTV position. Action is taken to reduce or freeze limits, as applicable and pursuant to applicable laws and regulations, to minimize additional exposure
in a declining market. In addition, to help mitigate the overall effect of the declining real estate market on new originations, we reduced by 5 percent the maximum LTV allowable for any owner
or non owner occupied property valued over $250,000. The change was effective January 1, 2009.

Lease Financing

We offer two types of leases to our customers: direct financing leases, where the assets leased are acquired without additional financing from other sources; and
leveraged leases, where a substantial portion of the financing is provided by debt with no recourse to us. At December 31, 2009, we had leveraged leases of $549.0 million, which were net
of non-recourse debt of approximately $1.1 billion. We utilize a number of special purpose entities for our leveraged leases. These entities do not function as vehicles to shift
liabilities to other parties or to deconsolidate affiliates for financial reporting purposes. As allowed by US GAAP and by law, the gross lease receivable is offset by the qualifying
non-recourse debt. In leveraged lease transactions, the third-party lender may only look to the collateral value of the leased assets for repayment.

Cross-Border Outstandings

Our cross-border outstandings reflect certain additional economic and political risks that are not reflected in domestic outstandings. These risks include those
arising from exchange rate fluctuations and restrictions on the transfer of funds. The following table sets forth our cross-border outstandings as of December 31, 2008 and 2009 for Canada, the
only country where such outstandings exceeded one percent of total assets. The cross-border outstandings were compiled based upon category and domicile of ultimate risk and are comprised of balances
with banks, trading account assets, securities available for sale, securities purchased under resale agreements, loans, accrued interest receivable, acceptances outstanding and investments with
foreign entities. For the country shown in the table below, any significant local currency outstandings are funded by local currency borrowings.

(Dollars in millions)

Financial
Institutions

Public
Sector
Entities

Corporations
and Other
Borrowers

Total
OutstandingsDecember 31, 2008Canada

$
111

$


$
796

$
907December 31, 2009Canada

$
88

$


$
837

$
925


Provision for Credit Losses

We recorded a provision for loan losses of $515 million and $1,114 million in 2008 and 2009, respectively. We recorded a provision for losses on
off-balance sheet commitments of $35 million and $51 million in 2008 and 2009, respectively. The provisions for loan losses and for losses on off-balance sheet
commitments are charged to income to bring our total allowances for credit losses to a level deemed appropriate by management based on the factors discussed under "Allowances for Credit Losses" below.

F-21

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Table of Contents

Allowances for Credit Losses



We maintain allowances for credit losses (defined as both the allowance for loan losses and the allowance for off-balance
sheet commitment losses) to absorb losses inherent in the loan portfolio as well as for leases and off-balance sheet commitments. The allowances are based on our regular, quarterly
assessments of the probable estimated
losses inherent in the loan portfolio and unused commitments to provide financing. Our methodology for measuring the appropriate level of the allowances relies on several key elements, which include
the formula allowance, the specific allowance for identified problem credit exposures, the unallocated allowance and the allowance for off-balance sheet commitments.

The
formula allowance is calculated by applying loss factors to outstanding loans and certain unused commitments, in each case based on the internal risk grade of such loans, leases and
commitments. Changes in risk grades affect the amount of the formula allowance. Loss factors are based on our historical loss experience and may be adjusted for significant factors that, in
management's judgment, affect the collectibility of the portfolio as of the evaluation date. Loss factors are developed in the following ways:



We
believe that an economic cycle is a period in which both upturns and downturns in the economy have been reflected. We calculate loss factors over a time interval that spans what we
believe constitutes a complete and representative economic cycle.

Loan
loss factors, which are used in determining our formula allowance, are adjusted quarterly primarily based upon the changes in the level of historical net charge offs and parameter
updates by management. We estimate our probable losses inherent in the portfolio based on a loss confirmation period. The loss confirmation period is the estimated average period of time between a
material adverse event affecting the creditworthiness of a borrower and the subsequent recognition of a loss. Based upon our evaluation process, we believe that, for our non-criticized,
risk-graded loans, on average, losses are sustained approximately 10 quarters after an adverse event in the creditor's financial condition has taken place. For our criticized
risk-graded loans, we measure the losses based upon the remaining life of the loan. See definition of criticized credits under "Changes in the Allocated (Formula
and Specific) Allowances" in this section of our Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A). For pool-managed
credits, the loss confirmation period is 4 quarters for all products.

Furthermore,
based on management's judgment, our methodology permits adjustments to any loss factor used in the computation of the formula allowance for significant factors, which affect
the collectibility of
the portfolio as of the evaluation date, but are not reflected in the loss factors. By assessing the probable estimated losses inherent in the loan portfolio on a quarterly basis, we are able to
adjust specific and inherent loss estimates based upon the most recent information that has become available. This includes changing the number of periods that are included in the calculation of the
loss factors and adjusting qualitative factors to be representative of the economic cycle that we expect will impact the portfolio. Updates of the loss confirmation period are done when significant
events cause us to reexamine our data.

A
specific allowance is established in cases where management has identified significant conditions or circumstances related to a credit or a portfolio segment that management believes
indicate the probability that a loss has been incurred. This amount may be determined either by a method prescribed by accounting

F-22

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Table of Contents

guidance
related to accounting for an impairment of a loan or methods that include a range of probable outcomes based upon certain qualitative factors.

The
unallocated allowance is composed of attribution factors, which are based upon management's evaluation of various conditions that are not directly measured in the determination of
the formula and specific allowances. The conditions evaluated in connection with the unallocated allowance may include existing general economic and business conditions affecting the key lending
areas, credit quality trends, collateral values, loan volumes and concentrations, specific industry conditions within portfolio segments, recent loss experience in particular segments of the
portfolio, duration of the current business cycle, bank regulatory examination results and findings of our internal credit examiners. Although our assessments of these conditions are reviewed
quarterly with our senior credit officers, there can be no assurance that the adverse impact of any of these conditions on us will not be in excess of our expectations.

The
allowances for credit losses are based upon estimates of probable losses inherent in the loan portfolio and certain off-balance sheet commitments. The actual losses can
vary from the estimated amounts. Our methodology includes several features that are intended to reduce the differences between estimated and actual losses. The loss migration model that is used to
establish the loan loss factors for individually graded loans is designed to be self-correcting by taking into account our loss experience over prescribed periods. In addition, by basing
the loan loss factors over a period reflective of an economic cycle, recent loss data that may not be reflective of prospective losses going forward will not have an undue influence on the calculated
loss factors.

The
following table reflects the related allowance for loan losses allocated to a loan category at the period end and percentage of the allocation to the period end loan balance of that
loan category, as set forth in the "Loans" table on page F-19.

December 31,(Dollars in thousands)

2005

2006

2007Commercial, financial, and industrial

$
169,700


1.48
%
$
150,600


1.16
%
$
172,800


1.19
%Construction


19,800


1.37


34,600


1.59


57,300


2.38Mortgage:Residential


3,400


0.03


3,700


0.03


4,100


0.03Commercial


72,500


1.28


73,600


1.22


70,900


1.01Total mortgage


75,900


0.44


77,300


0.42


75,000


0.36Consumer:Installment


1,900


0.21


1,200


0.11


2,900


0.22Revolving lines of credit


2,000


0.12


1,800


0.13


3,700


0.28Total consumer


3,900


0.16


3,000


0.12


6,600


0.25Lease financing


17,200


2.97


6,500


1.12


6,100


0.93Total allocated allowance


286,500


0.87


272,000


0.74


317,800


0.77Unallocated


65,032





59,077





84,926Total allowance for loan losses

$
351,532


1.06
%
$
331,077


0.90
%
$
402,726


0.98
%


F-23

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Table of Contents

Increase (Decrease)
December 31, 2009 FromDecember 31,

December 31, 2008(Dollars in thousands)

2008

2009

Amount

PercentCommercial, financial, and industrial

$
339,777


1.84
%
$
445,500


2.92
%
$
105,723


31
%Construction


139,088


5.07


251,100


10.34


112,012


81Mortgage:Residential


40,200


0.25


121,400


0.73


81,200


202Commercial


119,159


1.46


260,700


3.16


141,541


119Total mortgage


159,359


0.66


382,100


1.53


222,741


140Consumer:Installment


3,100


0.14


2,300


0.10


(800
)

(26
)Revolving lines of credit


23,600


1.64


80,100


4.79


56,500


239Total consumer


26,700


0.73


82,400


2.10


55,700


209Lease financing


3,800


0.59


5,000


0.76


1,200


32Total allocated allowance


668,724


1.35


1,166,100


2.47


497,376


74Unallocated


69,043





190,900





121,857


176Total allowance for loan losses

$
737,767


1.49
%
$
1,357,000


2.87
%
$
619,233


84
%




At December 31, 2007, 2008 and 2009, our total allowances for credit losses were 885 percent, 208 percent and
116 percent of total nonaccrual loans, respectively. At December 31, 2007, 2008 and 2009, our total allowances for loan losses were 723 percent, 178 percent and
103 percent of total nonaccrual loans, respectively.

In
addition, the allowances incorporate the results of measuring impaired loans as provided in the accounting standards that prescribe the measurement methods, income recognition and
disclosures related to impaired loans. At December 31, 2007, 2008 and 2009, total impaired loans were $56 million, $415 million and $1,317 million, respectively, and the
associated impairment allowances were $11 million, $107 million and $223 million, respectively.

As
a result of management's assessment of the relevant factors, including the credit quality of our loan portfolio, the negative impact from the economic slowdown on our lending
portfolios (especially our commercial real estate portfolio) and changes in the composition of the loan portfolio, we recorded a provision for loan losses of $1,114 million in 2009, compared to
$515 million in 2008.

Overall,
our loan portfolio experienced higher criticized assets, especially in the commercial real estate portfolio, higher nonaccrual loans, and increases in certain loss factors
related to our consumer and small business portfolios, reflecting the continued weak economic environment.

We
expect the elevated level of provision for credit losses, which we experienced in 2009, to continue in 2010. The factors driving the increase in our projected credit provision during
2010 include management's belief that the economic environment remains weak and will result in further deterioration in our loan portfolio.

During
the first quarter of 2009, the loss confirmation period (LCP) for residential mortgages and home equity loans and lines of credit products was updated to better reflect the impact
of recent economic conditions on losses within these portfolios. As a result of our analyses and peer surveys, the LCP for consumer home equity loans and residential mortgages was changed from between
1.5 years and 2 years, to 1 year, which resulted in a lower provision for credit losses in the first quarter of 2009. In addition, during the second quarter

F-24

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Table of Contents

of
2009, we reduced our commercial loan portfolio loss factors based on past charge off experience over a slightly shorter economic time frame, further adjusted for an updated analysis of the severity
of the economic cycle.

Other
than the above mentioned LCP change and change in our commercial loan portfolio loss factors, as well as for the refinement in estimates and assumptions regarding the effects of
economic and business conditions on borrowers and other factors, which affected the assessment of the unallocated allowance, there were no other significant changes during 2007, 2008 and 2009, in
estimation methods or assumptions that affected our methodology for assessing the appropriateness of the formula and specific or unallocated allowances for credit losses.

The
following table sets forth the components of the allowances for credit losses.

December 31,

Increase
December 31, 2009 From
December 31, 2008(Dollars in millions)

2007

2008

2009

Amount

PercentAllocated allowance:Formula

$
395

$
682

$
1,110

$
428


63
%Specific


12


112


232


120


107Total allocated allowance


407


794


1,342


548


69Unallocated allowance


86


69


191


122


177Total allowances for credit losses

$
493

$
863

$
1,533

$
670


78
%




The increase in the formula allowance from December 31, 2008 was primarily due to an increase in criticized credits (as defined
below), especially in the commercial real estate portfolio, higher nonaccrual loans and higher loss factors for most our lending portfolios as a result of the prolonged negative impact of the weak
economy.

The
specific allowance increase from December 31, 2008 to December 31, 2009 was primarily reflective of an increase in nonaccrual loans, partially offset by the amount of
loss inherent in these loans. At December 31, 2008, the specific allowance increased from December 31, 2007, primarily reflective of an increase in nonaccrual loans and the amount of
loss inherent in these loans, partly offset by an $8 million adjustment for impaired loans related to our privatization.

The
total allocated allowance includes the allowance for losses related to off-balance sheet exposures such as unfunded commitments and letters of credit.

At
December 31, 2009, the allocated portion of the allowances for credit losses included $745 million related to special mention and classified credits (criticized
credits), compared to $408 million at December 31, 2008 and $124 million at December 31, 2007. Special mention and classified credits are those that are internally risk
graded as "special mention," "substandard" or "doubtful." Special mention credits are potentially weak, as the borrower has begun to exhibit deteriorating trends, which, if not corrected, could
jeopardize repayment of the loan and result in further downgrade. Substandard credits have well-defined weaknesses, which, if not corrected, could jeopardize the full satisfaction of the
debt. A credit classified as "doubtful" has critical weaknesses that make full collection improbable.



The unallocated allowance at December 31, 2007, 2008 and 2009 was $86 million, $69 million and
$191 million, respectively. The increase from 2008 to 2009 was primarily due to deteriorating trends in the commercial real estate income property markets, the effect of budgetary problems
within the state of California and its local governments and the negative impact of high unemployment and significant residential property devaluations.

F-25

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Table of Contents



The following table sets forth a reconciliation of changes in our allowances for credit losses.

Increase (Decrease)
December 31, 2009 From:Years Ended December 31,

December 31, 2008(Dollars in thousands)

2005

2006

2007

2008

2009

Amount

PercentBalance, beginning of period

$
399,156

$
351,532

$
331,077

$
402,726

$
737,767

$
335,041


83
%Loans charged off:Commercial, financial and industrial


19,962


36,520


12,177


118,780


305,628


186,848


nmConstruction


118








31,903


70,833


38,930


nmCommercial mortgage


2,062








1,205


72,868


71,663


nmResidential mortgage


9


336


92


6,706


39,966


33,260


nmConsumer


4,532


3,777


6,335


18,688


42,729


24,041


nmLease financing


19,862


22














Total loans charged off


46,545


40,655


18,604


177,282


532,024


354,742


nmRecoveries of loans previously charged off:Commercial, financial and industrial


47,526


19,135


6,953


5,358


29,620


24,262


nmConstruction


34








631


1,383


752


nmCommercial mortgage


63


2





18


275


257


nmResidential mortgage


10


71


336


2


25


23


nmConsumer


1,716


1,513


1,082


1,099


1,311


212


19Lease financing


206


4,486


118


213





(213
)

(100
)Total recoveries of loans previously charged off


49,555


25,207


8,489


7,321


32,614


25,293


nmNet loans charged off (recovered)


(3,010
)

15,448


10,115


169,961


499,410


329,449


nm(Reversal of) provision for loan losses


(50,683
)

(5,000
)

81,000


515,000


1,114,000


599,000


116Privatizationadjustment for impaired loans











(8,417
)

2,062


10,479


nmForeign translation adjustment and other net additions (deductions)


49


(7
)

764


(1,581
)

2,581


4,162


nmEnding balance of allowance for loan losses

$
351,532

$
331,077

$
402,726

$
737,767

$
1,357,000

$
619,233


84Allowance for losses on off-balance sheet commitments


86,375


81,374


90,374


125,374


176,374


51,000


41Allowances for credit losses

$
437,907

$
412,451

$
493,100

$
863,141

$
1,533,374

$
670,233


78Allowances for loan losses to total loans(1)


1.06
%

0.90
%

0.98
%

1.49
%

2.87
%Allowances for credit losses to total loans(2)


1.32


1.12


1.20


1.74


3.25(Reversal of) provision for loan losses to net loans charged off (recovered)


nm


(32.37
)

800.79


303.01


223.06Net loans charged off (recovered) to average total loans


(0.01
)

0.04


0.03


0.37


1.02


(1)The
allowance for loan losses ratios are calculated using the allowance for loan losses against end of period total loans. These ratios
relate to continuing operations only.(2)The
allowance for credit losses ratios are calculated using the sum of the allowances for loan losses and for losses on
off-balance sheet commitments against end of period total loans. These ratios relate to continuing operations only. nm - not meaningful


F-26

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Table of Contents




Total loans charged off in 2009 increased from the prior year primarily as a result of market softness on commercial real estate dependent loans,
and the impact of the recession on newspaper, financial institution and municipality loans, in particular. The increase was also a result of an increase in
unemployment, and a curtailment of personal income coupled with declining residential property values. Charge offs reflect the realization of losses in the portfolio that were recognized previously
through provisions for credit losses.

Loan
recoveries in 2009 increased from 2008. Fluctuations in loan recoveries from year-to-year are due to variability in timing of recoveries and tend to trail
the periods in which charge offs are recorded.

Nonperforming Assets

Nonperforming assets consist of nonaccrual loans, restructured loans that are nonperforming and foreclosed assets. Nonaccrual loans are those for which management
has discontinued accrual of interest because there exists significant uncertainty as to the full and timely collection of either principal or interest or such loans have become contractually past due
90 days with respect to principal or interest. Effective on January 1, 2009, consumer home equity loans and one-to-four single family residential loans were
placed on nonaccrual status when these loans are delinquent 90 days or more, or in foreclosure. Previously, these loans were not placed on nonaccrual status. However, before and after this
nonaccrual accounting policy change, the loss content was charged off on or before the loans were 180 days past due. As a result of this nonaccrual accounting policy change, home equity and
one-to-four family residential loans totaling $225 million ($10 million of which is restructured) have been placed on nonaccrual status as of December 31,
2009. For a more detailed discussion of the accounting for nonaccrual loans, see Note 1 to our Consolidated Financial Statements included in this Form 10-K Report.

Restructured
loans are loans in which the Bank has formally restructured all or a significant portion of the loan and provided a concession in the form of debt forgiveness, a
modification of interest rate and/or payment terms. Any impairment, not previously recorded, is accounted for at the time of restructuring. Restructured loans are separately disclosed as nonperforming
assets for the calendar year of restructuring. If a restructured loan was negotiated at a market rate at the date of restructuring and performs under the modified terms for a sustained period, it may
be disclosed as performing assets in the subsequent calendar year.

Foreclosed
assets include property where the Bank acquired title through foreclosure or "deed in lieu" of foreclosure.

F-27

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Table of Contents

The
following table sets forth an analysis of nonperforming assets.

Increase (Decrease)
December 31, 2009 From:December 31,

December 31, 2008(Dollars in thousands)

2005

2006

2007

2008

2009

Amount

PercentCommercial, financial and industrial

$
50,073

$
7,552

$
29,293

$
260,272

$
335,581

$
75,309


28.9
%Construction








13,662


98,934


335,085


236,151


nmCommercial mortgage


8,819


19,187


12,775


55,750


414,429


358,679


nmResidential mortgage














194,482


194,482


nmConsumer














20,492


20,492


nmLease financing





15,047








108


108


nmRestructurednonaccrual














16,954


16,954


nmTotal nonaccrual loans


58,892


41,786


55,730


414,956


1,317,131


902,175


nmRestructured LoansForeclosed assets


2,753


579


795


20,214


32,662


12,448


61.6Restructurednonperforming











1,345





(1,345
)

(100.0
)Total nonperforming assets

$
61,645

$
42,365

$
56,525

$
436,515

$
1,349,793

$
913,278


nmRestructured loans that continue to accrue interest

$


$


$


$


$
3,811

$
3,811


nmAllowances for loan losses

$
351,532

$
331,077

$
402,726

$
737,767

$
1,357,000

$
619,233


83.9
%Allowances for credit losses

$
437,907

$
412,451

$
493,100

$
863,141

$
1,533,374

$
670,233


77.7
%Nonaccrual loans to total loans


0.18
%

0.11
%

0.14
%

0.84
%

2.79
%Allowance for loan losses to nonaccrual loans(1)


596.91


792.32


722.64


177.79


103.03Allowances for credit losses to nonaccrual loans(2)


743.58


987.06


884.80


208.01


116.42Nonperforming assets to total loans, distressed loans held for sale, and foreclosed assets


0.19


0.12


0.14


0.88


2.86Nonperforming assets to total assets


0.12


0.08


0.10


0.62


1.58


(1)The
allowance for loan losses to nonaccrual loans ratios are calculated using the allowance for loan losses against end of period total
nonaccrual loans. These ratios relate to continuing operations only.(2)The
allowances for credit losses to nonaccrual loans ratios are calculated using the sum of the allowances for loan losses and for losses on
off-balance sheet commitments against end of period total nonaccrual loans. These ratios relate to continuing operations only. nm - not meaningful


The increase in nonaccrual loans from December 31, 2008 to December 31, 2009 was primarily due to an increase in commercial,
construction and commercial mortgage loans, primarily within the commercial real estate industry sector. Additionally, we had increases in residential and consumer home equity nonaccrual loans due to
the change in our nonaccrual accounting policy effective January 1, 2009. During 2008 and

F-28

---



Table of Contents

2009,
we had $4 million and $84 million in sales of nonperforming loans, respectively. Losses from these sales were reflected in charge offs.

The
following table sets forth an analysis of loans contractually past due 90 days or more as to interest or principal and still accruing, but not included in nonaccrual loans
above.

Increase (Decrease) December 31, 2009 FromDecember 31,

December 31, 2008(Dollars in thousands)

2005

2006

2007

2008

2009

Amount

PercentCommercial, financial and industrial

$
187

$
3,085

$
3,797

$
2,529

$
4,393

$
1,864


73.7
%Construction


677

















Mortgage:Residential


2,784


2,359


13,359


59,940





(59,940
)

(100.0
)Commercial


499


2,155





181


413


232


nmTotal mortgage


3,283


4,514


13,359


60,121


413


(59,708
)

(99.3
)Consumer and other


819


1,706


2,982


8,097


229


(7,868
)

(97.2
)Total loans 90 days or more past due and still accruing

$
4,966

$
9,305

$
20,138

$
70,747

$
5,035

$
(65,712
)

(92.9
)%


nm - not meaningful


The decline in loans contractually past due 90 days or more from December 31, 2008 to December 31, 2009 was primarily due to
the change in our nonaccrual policy for residential and consumer home equity loans described above.

Interest Foregone

If interest that was due on the book balances of all nonaccrual and restructured loans (including loans that were, but are no longer, on nonaccrual) had been
accrued under their original terms, we would have recognized an additional $54.0 million of interest income in 2009.

After
designation as a nonaccrual loan, we recognized interest income on a cash basis of $4.3 million and $9.7 million for loans that were on nonaccrual status during 2008
and 2009, respectively.

Securities

Management of the securities portfolio involves the maximization of return while maintaining prudent levels of quality, market risk and liquidity. At
December 31, 2009, approximately 99 percent of our securities, based upon carrying value, were investment grade. The amortized cost, gross unrealized gains, gross unrealized losses and
fair values of securities are detailed in Note 3 to our Consolidated Financial Statements included in this Form 10-K Report.

Our
securities available for sale are recorded at fair value with the change in fair value recognized in accumulated other comprehensive income. Our ALM Securities portfolio, which
consists of available for sale U.S. government, state and municipal, and mortgage-backed securities held for Asset and Liability Management (ALM) purposes, totaled $22.4 billion at
December 31, 2009. ALM Securities are valued at fair value by a pricing service whose prices can be corroborated by recent security trading activities.

Our
asset-backed securities primarily consist of CLO securities, which are known as Cash Flow CLOs. A Cash Flow CLO is a structured finance product that securitizes a diversified pool of
loan assets into multiple classes of notes from the cash flows generated by such loans. Cash Flow CLOs pay the note holders through the receipt of interest and principal repayments from the underlying
loans unlike other types of CLOs that pay note holders through the trading and sale of underlying collateral. During the first quarter of 2009, we reassessed

F-29

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Table of Contents

the
classification of our CLOs. On February 28, 2009, we reclassified $1.1 billion at fair value, from available for sale to held to maturity. The related unrealized pre-tax
loss of $589 million included in accumulated other comprehensive income (OCI) remained in OCI and is being amortized as a yield adjustment through earnings over the remaining terms of the CLOs.
However, there is no impact on earnings, as an equal fair value discount on the securities is being accreted through earnings over the remaining terms of the CLOs. No gain or loss was recognized at
the time of reclassification. We consider the held to maturity classification to be more appropriate because we have the ability and the intent to hold these securities to maturity.

At
December 31, 2009, the fair value of our CLO securities had increased by $259.0 million from December 31, 2008, primarily due to an increase in liquidity in the
marketplace. We estimate the fair value of our CLOs using a pricing model, as well as broker quotes. The model is based on internally-developed assumptions, utilizing market data derived from market
participants and credit rating agencies. These assumptions include, but are not limited to, estimated default rates, recovery rates, prepayment rates and reinvestment rates. At December 31,
2009, 20 percent of our CLO securities were rated single-A or better by two major rating agencies.

We
conduct a formal review of investment securities on a quarterly basis for the presence of other-than-temporary impairment. Based on this analysis, an
insignificant amount of impairment was recognized on two CLO securities during the year. Since no observable credit quality issues were present in the remaining CLO portfolio at December 31,
2009, the Company concluded that these securities were not other-than-temporarily impaired.

Analysis of Securities

The following tables show the remaining contractual maturities and expected yields of the securities based upon amortized cost at December 31, 2009. The
fair value of our securities available for sale portfolio at December 31, 2009 was $22.6 billion, compared to $8.2 billion at December 31, 2008.

Included
in our securities available for sale portfolio at December 31, 2008 and 2009 were ALM Securities of $6.8 billion and $22.4 billion, respectively. These
securities had an expected weighted average maturity of 2.9 years and 2.2 years, respectively.

Securities Available For Sale

December 31, 2009MaturityOne Year
or Less

Over One Year
Through
Five Years

Over Five Years
Through
Ten Years

Over Ten Years

Total
Amortized Cost(Dollars in thousands)

Amount

Yield

Amount

Yield

Amount

Yield

Amount

Yield

Amount

YieldU.S. Treasury

$
299,488


0.32
%
$




%
$




%
$




%
$
299,488


0.32
%Other U.S. government


3,500,019


0.58


8,811,607


1.61














12,311,626


1.32Residential mortgage-backed securitiesagency(1)(2)


13


4.40


309,668


3.69


1,441,601


3.83


7,464,489


4.12


9,215,771


4.06Residential mortgage-backed securitiesnon-agency(1)(2)














13,468


5.07


441,178


5.37


454,646


5.36State and municipal


1,845


7.43


10,072


6.83


11,007


3.56


20,363


5.41


43,287


5.36Asset-backed and debt securities








23,482


7.25


21,326


3.94


67,801


7.02


112,609


6.48Equity securities(3)


























74,791


Total securities available for sale

$
3,801,365


0.56
%
$
9,154,829


1.70
%
$
1,487,402


3.84
%
$
7,993,831


4.22
%
$
22,512,218


2.54
%


F-30

---



Table of Contents

Securities Held to Maturity

December 31, 2009
MaturityOne Year
or Less

Over One Year
Through
Five Years

Over Five Years
Through
Ten Years

Over
Ten Years

Total
Amortized Cost(Dollars in thousands)

Amount

Yield

Amount

Yield

Amount

Yield

Amount

Yield

Amount

YieldCollateralized loan obligations

$




%
$
9,941


3.98
%
$
1,364,314


1.10
%
$
384,461


1.03
%
$
1,758,716


1.10
%Foreign securities


96


0.25




















96


0.25Total securities held to maturity

$
96


0.25
%
$
9,941


3.98
%
$
1,364,314


1.10
%
$
384,461


1.03
%
$
1,758,812


1.10
%


(1)Although
the mortgage-backed securities have been ascribed to periods based upon their contractual maturities, principal payments are
received prior to maturity because borrowers have the right to repay their obligations at any time.(2)See
discussion of expected duration in "Quantitative and Qualitative Disclosures About Market Risk."(3)Equity
securities do not have a stated maturity and are included in the total column only.


Loan Maturities

The following table presents our loans by contractual maturity except for loans held for sale, which are presented based on the period when the sale is expected
to take place.

December 31, 2009(Dollars in thousands)

One Year
or Less

Over One Year
Through
Five Years

Over
Five Years

TotalCommercial, financial and industrial

$
2,830,073

$
10,265,915

$
2,162,093

$
15,258,081Construction


1,259,983


906,763


262,263


2,429,009Mortgage:Residential


257


12,718


16,703,073


16,716,048Commercial


931,979


2,208,694


5,105,105


8,245,778Total mortgage


932,236


2,221,412


21,808,178


24,961,826Consumer:Installment


2,893


55,835


2,185,511


2,244,239Revolving lines of credit


1,526,653


139,628


6,561


1,672,842Total consumer


1,529,546


195,463


2,192,072


3,917,081Lease financing


8,229


73,006


572,508


653,743Total loans held to maturity


6,560,067


13,662,559


26,997,114


47,219,740Total loans held for sale


8,768








8,768Total loans

$
6,568,835

$
13,662,559

$
26,997,114

$
47,228,508Allowance for loan losses











1,357,000Loans, net










$
45,871,508Total fixed rate loans due after one year










$
10,598,627Total variable rate loans due after one year











30,061,046Total loans due after one year










$
40,659,673


F-31

---



Table of Contents

Deposits

The following table presents our deposits as of December 31, 2008 and 2009.

December 31,

Increase (Decrease)
December 31, 2009 From
December 31, 2008(Dollars in thousands)

2008

2009

Amount

PercentInterest checking

$
665,766

$
849,283

$
183,517


28
%Money market


19,265,507


39,952,337


20,686,830


107Total interest bearing transaction accounts


19,931,273


40,801,620


20,870,347


105Savings


2,065,950


3,716,566


1,650,616


80Time


10,485,673


9,440,478


(1,045,195
)

(10
)Total interest bearing deposits(1)


32,482,896


53,958,664


21,475,768


66Noninterest bearing deposits


13,566,873


14,558,989


992,116


7Total deposits

$
46,049,769

$
68,517,653

$
22,467,884


49
%(1) Total interest bearing deposits include:Brokered Deposits:Money market

$


$
5,340,452

$
5,340,452


nmTime


567,564


979,352


411,788


73Total brokered deposits


567,564


6,319,804


5,752,240


nmNonbrokered deposits


31,915,332


47,638,860


15,723,528


49Total interest bearing deposits

$
32,482,896

$
53,958,664

$
21,475,768


66
%


nm = not meaningful


Money market deposits experienced significant growth as a result of targeted retail and corporate deposit-gathering marketing initiatives
throughout Union Bank, including a new industry strategy targeting retail brokerage firm clients and other long-standing industry markets, a "flight to quality" as depositors sought the
safety of deposits at insured depository institutions in light of the economic conditions, as well as significant growth in money market account deposits from state and local governments, and
institutional escrow clients.

Our
brokered deposits, as defined in accordance with regulatory reporting guidance, increased in 2009 from 2008, primarily due to growth in money market account balances in new
relationships established with brokerage firms to place their underlying clients' cash accounts with Union Bank to optimize yield and provide FDIC deposit insurance coverage. We expect that a
significant portion of these balances will have similar relationship characteristics to our other commercial deposit balances.

The
following table presents domestic time deposits of $100,000 and over by maturity.

(Dollars in thousands)

December 31, 2009Three months or less

$
4,420,739Over three months through six months


446,826Over six months through twelve months


748,040Over twelve months


487,636Total domestic time deposits of $100,000 and over

$
6,103,241


We offer certificates of deposit and other time deposits of $100,000 and over at market rates of interest. A large portion of these deposits are
offered to customers, both public and private, who have done business with us for an extended period. Based on our historical experience, we expect that as these deposits mature, the majority will
continue to be renewed at market rates of interest.

F-32

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Table of Contents

Borrowed Funds

The following table presents information on our borrowed funds.

December 31,(Dollars in thousands)

2007

2008

2009Federal funds purchased and securities sold under repurchase agreements with weighted average interest rates of 4.29%, 0.53% and 0.07% at December 31,
2007, 2008 and 2009, respectively(1)

$
1,631,602

$
172,758

$
150,453Commercial paper, with weighted average interest rates of 4.25%, 1.48%, and 0.16% at December 31, 2007, 2008 and 2009, respectively


1,266,656


1,164,327


888,541Other borrowed funds:Federal Home Loan Bank borrowings, with weighted average interest rates of 4.52% and 2.22% at December 31, 2007 and 2008, respectively


949,000


1,850,000


Term federal funds purchased, with weighted average interest rates of 4.79%, 2.60% and 0.19% at December 31, 2007, 2008 and 2009,
respectively


805,970


1,230,060


505,000Federal Reserve Bank Term borrowings, with weighted average interest rate of 0.79% at December 31, 2008





5,000,000


All other borrowed funds, with weighted average interest rates of 5.24%, 5.42% and 1.75% at December 31, 2007, 2008 and 2009, respectively


120,649


116,537


86,934Total borrowed funds

$
4,773,877

$
9,533,682

$
1,630,928Federal funds purchased and securities sold under repurchase agreements:Maximum outstanding at any month end

$
1,823,872

$
4,946,587

$
320,376Average balance during the year


1,142,487


2,137,718


180,087Weighted average interest rate during the year(1)


4.93
%

2.20
%

0.08
%Commercial paper:Maximum outstanding at any month end

$
1,875,647

$
1,699,440

$
888,541Average balance during the year


1,549,681


1,319,360


536,170Weighted average interest rate during the year


4.92
%

2.41
%

0.58
%Other borrowed funds:Federal Home Loan Bank borrowings:Maximum outstanding at any month end

$
949,000

$
2,600,000

$
850,000Average balance during the year


35,312


1,492,456


348,630Weighted average interest rate during the year


4.59
%

2.76
%

1.16
%Term federal funds purchased:Maximum outstanding at any month end

$
2,005,340

$
1,723,839

$
1,233,250Average balance during the year


716,115


882,652


298,055Weighted average interest rate during the year


5.25
%

2.84
%

0.83
%Federal Reserve Bank Term Borrowings:Maximum outstanding at any month end

$


$
5,000,000

$
3,500,000Average balance during the year





1,925,833


1,156,164Weighted average interest rate during the year



%

1.79
%

0.29
%All other borrowed funds:Maximum outstanding at any month end

$
120,649

$
321,012

$
117,056Average balance during the year


61,627


124,494


125,396Weighted average interest rate during the year


5.96
%

5.59
%

6.71
%


(1)Weighted
average interest rates provided relate to external funding and do not reflect expense (earning) allocated on net funding to (from)
discontinued operations.


F-33

---



Table of Contents

Capital Adequacy and Regulatory Capital



We strive to maintain strong capital levels and to use capital effectively. We have historically adhered to a policy of strong capital,
including regulatory capital ratios above the applicable "well-capitalized" thresholds. Strong capital levels improve our ability to absorb unanticipated losses and contribute to higher
ratings by bank regulatory agencies and credit rating agencies.

We
strive to use our capital effectively, with our first priority to support our long-term growth and strategic positioning. Capital is used to fund loan growth and other
balance sheet growth, to reinvest in our core businesses and to fund strategic acquisitions.

Our
primary source of capital is income generated by our operations. On September 29, 2009, we received a $2.0 billion capital contribution from BTMU and made a
corresponding $1.8 billion capital contribution to the Bank.

We
are subject to minimum capital requirements at both the bank and holding company levels, as defined by our bank regulators. We have historically maintained capital levels well above
the minimum thresholds and, where applicable, in excess of the thresholds established by the banking regulators to identify "well-capitalized" institutions.

In
addition, we monitor a variety of US GAAP capital measures and hybrid capital measures to maintain capital levels consistent with our goals. These measures include the tangible
common equity ratio, the Tier 1 common capital ratio and various capital metrics favored by the major credit rating agencies. We analyze these ratios relative to our current financial position,
our projected financial position and peer banks.



The following table, which includes assets of discontinued operations, summarizes our risk-based capital,
risk-weighted assets, and risk-based capital ratios.

December 31,Minimum
Regulatory
Requirement(Dollars in thousands)

2005

2006

2007

2008

2009Capital ComponentsTier 1 capital

$
4,178,160

$
4,333,865

$
4,533,763

$
5,466,713

$
7,484,516Tier 2 capital


876,713


1,509,338


1,590,160


1,773,391


1,718,807Total risk-based capital

$
5,054,873

$
5,843,203

$
6,123,923

$
7,240,104

$
9,203,323Risk-weighted assets

$
45,540,448

$
49,904,203

$
54,606,527

$
62,251,071

$
63,298,173Quarterly average assets

$
49,789,877

$
51,353,681

$
54,843,792

$
64,917,854

$
79,226,967Capital RatiosTotal risk-based capital


11.10
%

11.71
%

11.21
%

11.63
%

14.54
%

8.0
%Tier 1 risk-based capital


9.17


8.68


8.30


8.78


11.82


4.0Leverage ratio(1)


8.39


8.44


8.27


8.42


9.45


4.0


(1)Tier 1
capital divided by quarterly average assets (excluding certain intangible assets).


We and the Bank are subject to various regulations of the federal banking agencies, including minimum capital requirements. We are both required
to maintain minimum ratios of Total and Tier 1 capital to risk-weighted assets and of Tier 1 capital to quarterly average assets (the Leverage ratio).

The
increase in our and Union Bank's capital ratios, compared with December 31, 2008, primarily resulted from the capital contributions discussed above.

F-34

---



Table of Contents

As
of December 31, 2009, the most recent notification from the OCC categorized the Bank as "well-capitalized." This means that the Bank met all regulatory requirements
of "well-capitalized" institutions, which are 10 percent for the Total risk-based capital ratio, 6 percent for the Tier 1 risk-based capital
ratio and 5 percent for the Leverage ratio.

Quantitative and Qualitative Disclosures About Market Risk

Our exposure to market risk primarily exists in interest rate risk in our non-trading balance sheet and, to a much lesser degree, in price risk in our
trading portfolio. The objective of market risk management is to mitigate any undue adverse impact on earnings and capital arising from changes in interest rates and other market variables and to
ensure the Bank has adequate sources of liquidity. This risk management objective supports our broad objective of enhancing shareholder value, which encompasses stable earnings growth over time and
capital stability.

The
Board of Directors, directly or through its appropriate committee, approves our Asset and Liability Management, Investment and Derivatives Policy (ALM Policy), which governs the
management of market risk and guides our investment, derivatives and trading activities. The ALM Policy establishes the Bank's risk tolerance guidelines by outlining standards for measuring market
risk, creates Board-level limits for specific market risks, establishes guidelines for reporting market risk and requires independent review and oversight of market risk activities.

The
Risk & Capital Committee (RCC), comprised of selected senior officers of the Bank, among other things, strives to ensure that the Bank has an effective process to identify,
measure, monitor, and manage market risk as required by the ALM Policy. The RCC provides the broad and strategic guidance of market risk management by formulating high-level strategies for
market risk management and defining the risk/return direction for the Bank, and by approving the investment, derivatives and trading policies that govern the Bank's activities. The Asset Liability
Management Committee (ALCO) is also responsible for the ongoing management of market risk and approves specific risk management programs, including those related to interest rate hedging, investment
securities, wholesale funding and trading activities.

The
Treasurer is primarily responsible for the implementation of risk management strategies approved by ALCO and for operational management of market risk through the funding, investment
and derivatives hedging activities of Corporate Treasury. The managers of the Global Markets Division and the Capital Markets Division are responsible for operational management of price risk through
the trading activities conducted in their respective divisions. The Market Risk Management (MRM) unit is responsible for the monitoring of market risk and MRM functions independently of all operating
and management units. The RCC may delegate to ALCO various decisions pertaining to market risk management as it deems appropriate.

We
have separate and distinct methods for managing the market risk associated with our asset and liability management activities and our trading activities, as described below.



ALCO monitors interest rate risk monthly through a variety of modeling techniques that are used to quantify the sensitivity of Net
Interest Income (NII) and of Economic Value of Equity (EVE) to changes in interest rates. As directed by ALCO, and in consideration of the importance of our demand deposit accounts as a funding
source, NII is adjusted in the policy risk measure to incorporate the effect of certain noninterest income and expense items related to these deposits that are nevertheless sensitive to changes in
interest rates. NII, so adjusted, is termed Economic NII. In managing interest rate risk, ALCO monitors NII sensitivity on both an adjusted ("Economic") and an unadjusted ("Accounting") basis over
various time horizons and in response to a variety of interest rate changes.

Our
NII policy measure involves a simulation of "Earnings-at-Risk" (EaR) in which we estimate the impact that gradual, ramped-on parallel shifts in
the yield curve would have on earnings over a 12-month horizon,

F-35

---



Table of Contents

given
our projected balance sheet profile. We measure and monitor our interest rate risk profile using two calculations of EaR: Accounting NII-at-Risk and Economic
NII-at-Risk, the latter adjusted for the noninterest items described above. Under the policy limits, the negative change in simulated Economic NII in either the up or down 200
basis point shock scenarios may not, except on a temporary basis, exceed 4 percent of Economic NII as measured in the no interest rate change base case scenario.

Our
EaR simulations use a 12-month projected balance sheet in order to model the impact of interest rate changes. Assumptions are made to model the future behavior of deposit
rates and loan spreads based on statistical analysis, management's outlook, and historical experience. The prepayment risks related to residential loans and mortgage-backed securities are measured
using industry estimates of prepayment speeds.

During
the first half of 2009, our interest rate risk profile was more asset sensitive primarily due to significant core deposit growth. Toward the end of 2009, our interest rate risk
profile became closer to neutral as a result of deployment of surplus cash into ALM Securities and execution of receive fixed swaps. During 2009, we added $4 billion of interest rate cap hedges
to protect the Bank from rising interest rates (see discussion of "ALM Derivatives" below).

At
December 31, 2009, Economic NII sensitivity was risk neutral to parallel rate shifts. A +200 basis point parallel shift in rates would increase 12-month Economic
NII by 0.03 percent, while a similar downward shift in rates would decrease it by 3.09 percent. At December 31, 2008, a +200 basis point parallel shift in rates would increase
12-month Economic NII by 0.01 percent, while a similar downward shift in rates would reduce it by 1.75 percent. We caution that significant low levels of current interest
rates and ongoing enhancements to our interest rate risk modeling may make prior year comparisons of Economic NII less meaningful. Economic NII adjusts our reported NII for the effect of certain
noninterest bearing deposit related fee and expense items. Those adjustment items are innately liability sensitive, meaning that reported NII is less liability sensitive than Economic NII.

Economic NII

(Dollars in millions)

December 31,
2008

December 31,
2009+200 basis points

$
0.2

$
0.9as a percentage of base case NII


0.01
%

0.03
%-200 basis points

$
(40.8
)
$
(83.6
)as a percentage of base case NII


(1.75
)%

(3.09
)%


The above table is presented on a continuing operations basis, with all assets and liabilities associated with our discontinued operations
eliminated. We believe that this approach provides the best representation of our risk profiles.

In
the case of non-parallel yield curve changes, our Economic NII will benefit from curve steepening with short-term rates dropping and long-term
rates rising. Conversely, Economic NII will contract if the curve is inverted with short-term rates rising and long-term rates dropping.

In
addition to EaR, we measure the sensitivity of EVE to interest rate shocks. EVE-at-Risk is reviewed and monitored for its compliance with ALCO guidelines. Our
EVE-at-Risk at December 31, 2009, reflects a moderate but similar exposure to rising rates as compared to December 31, 2008. Additionally, our
EVE-at-Risk shows moderate exposure to falling rates, due to the nature of a low rate environment.

We
believe that, together, our NII and EVE simulations provide management with a reasonably comprehensive view of the sensitivity of our operating results and value profile to changes in
interest rates, at least over the measurement horizon. However, as with any financial model, the underlying assumptions are inherently uncertain and subject to refinement as modeling techniques and
theory improve and historical data becomes more readily accessible. Consequently, our simulation models cannot predict with certainty how

F-36

---



Table of Contents

rising
or falling interest rates might impact net interest income. Actual and simulated results will differ to the extent there are variances between actual and assumed interest rate changes, balance
sheet volumes and management strategies, among other factors. Key underlying assumptions include prepayment speeds on mortgage-related assets, changes in market conditions, loan volume and pricing,
deposit volume and price sensitivity, customer preferences and cash flows and maturities of derivative financial instruments.



During 2009, the Bank's risk profile became more asset sensitive over the course of the year due to significant core deposit growth,
termination of ALM fair value swaps and unprecedented low interest rates. As interest rates rose toward the end of 2009 and as the Bank deployed surplus cash into the ALM Securities portfolio and
executed receive fixed swaps, the interest rate risk profile shifted closer to a neutral position. The remaining ALM derivatives portfolio continues to partially offset the risk of lower interest
rates. In managing the interest rate sensitivity of our balance sheet, we use the ALM investment securities portfolio and derivatives positions as the primary tools to adjust our interest rate risk
profile, if necessary. During 2009, the Bank purchased interest rate cap contracts to mitigate the risk from rising rates.



At December 31, 2008 and 2009, our ALM Securities portfolio included $6.8 billion and $22.4 billion, respectively,
of available for sale securities held for ALM purposes. At December 31, 2009, approximately $5.9 billion of the portfolio was pledged to secure trust and public deposits and for other
purposes as required or permitted by law. During 2009, we purchased $22.8 billion and sold $5.0 billion par value of securities, as part of our investment portfolio strategy,
while $2.5 billion par value of ALM Securities matured or were called. The ALM Securities portfolio continues to be prudently managed taking into account all risks including the risk of rising
rates.

The
portfolio is expected to remain predominately comprised of agency mortgage-backed and agency debt securities as our non-agency mortgage-backed securities continue to
mature in 2010. Based on current prepayment projections, the estimated ALM Securities portfolio's effective duration was 2.2 at December 31, 2009, compared to 2.4 at December 31, 2008.
Effective duration is a measure of price sensitivity of a bond portfolio to immediate parallel shifts in interest rates. An effective duration of 2.2 suggests an expected price decrease of
approximately 2.2 percent for an immediate 1.0 percent parallel increase in interest rates.



During 2009, the ALM derivatives portfolio increased by $3.4 billion notional amount due to purchases of $4.0 billion
notional amount of LIBOR cap contracts and execution of $3.0 billion notional amount of receive fixed interest rate swap contracts, offset by maturities of $2.7 billion and terminations
of $950 million notional amount of receive fixed interest rate swaps and floors.

The
fair value of the ALM derivatives portfolio decreased primarily due to the addition of receive fixed interest rate swaps, maturities of interest rate swaps and floor option
contracts, terminations of interest rate swaps, and the realization of interest income. The decrease was partially offset by the addition of cap option contracts, which benefit from the expectation of
higher future interest rates. For additional discussion of derivative instruments and our hedging strategies, see Note 18 to our Consolidated Financial Statements included in this
Form 10-K Report.

F-37

---





Table of Contents

The following table provides the notional value and the fair value of our ALM derivatives portfolio as of December 31, 2007, 2008 and 2009 and the change
in fair value between December 31, 2008 and 2009.

December 31,Increase / (Decrease)
From December 31, 2008
to December 31, 2009(Dollars in thousands)

2007

2008

2009Total gross notional amount of positions held for purposes other than trading:

$
9,250,000

$
5,400,000

$
8,800,000

$
3,400,000Of which, interest rate swaps pay fixed rates of interest:











Fair value of positions held for purposes other than trading:Gross positive fair value


148,036


317,569


97,186


(220,383
)Gross negative fair value


2,015





12,164


12,164Positive fair value of positions, net

$
146,021

$
317,569

$
85,022

$
(232,547
)




We enter into trading account activities primarily as a financial intermediary for customers and, to some extent, for our own account.
By acting as a financial intermediary, we are able to provide our customers with access to a range of products supporting the securities, foreign exchange and derivatives markets. In acting for our
own account, we may take positions in certain securities, foreign exchange and interest rate instruments, subject to various limits in amount, tenor and other respects, with the objective of
generating trading profits.

We
believe that the risks associated with these positions are conservatively managed. We utilize a combination of position limits Value-at-Risk (VaR), and
stop-loss limits, applied at an aggregated level and to various sub-components within those limits. Positions are controlled and reported both in notional and VaR terms. Our
calculation of VaR estimates how high the loss in fair value might be, at a 99 percent confidence level, due to an adverse shift in market prices over a period of ten business days. VaR at the
trading activity level is managed within the maximum limit of $14.0 million established by Board policy for total trading positions. The VaR model incorporates assumptions on key parameters,
including holding period and historical volatility.

The
following table sets forth the average, high and low 10-day, 99 percent VaR for our trading activities for the years ended December 31, 2008 and 2009.

December 31,2008

2009(Dollars in thousands)

Average
VaR

High
VaR

Low
VaR

Average
VaR

High
VaR

Low
VaRForeign exchange

$
307

$
720

$
105

$
319

$
1,401

$
33Securities


285


788


1


182


892


3Interest Rate Derivates


517


2,147


44


973


2,273


336


Consistent with our business strategy of focusing on the sale of capital markets products to customers, we manage our trading risk exposures at
relatively low levels. Our foreign exchange business continues to derive the majority of its revenue from customer-related transactions. We take interbank trading positions only on a limited basis and
we do not take any large or long-term strategic positions in the market for our own portfolio. Similarly, we continue to generate most of our securities trading income from
customer-related transactions.

F-38

---



Table of Contents

As
of December 31, 2009, we had $25.2 billion notional amount of interest rate derivative contracts. We enter into these agreements for customer accommodations and for our
own account, accepting risks up to management approved VaR levels.

As
of December 31, 2009, we had $2.4 billion notional amount of foreign exchange derivative contracts. We enter into these agreements for customer accommodations to support
their hedging and operating needs and for our own account, accepting risks up to management approved VaR levels.

We
market energy derivative contracts to existing energy industry customers, primarily oil and gas producers, in order to meet their hedging needs. All transactions are fully matched to
offsetting (mirror) derivative contracts with third parties to remove our exposure to market risk, with income earned on the credit spread. As of December 31, 2009, we had $3.4 billion
notional amount of energy derivative contracts with approximately half of these energy derivative contracts entered into as an accommodation for customers and the remaining half entered into as
matching contracts to remove our exposure to market risk on our customer accommodation transactions.

The
following table provides the notional value and the fair value of our trading derivatives portfolio as of December 31, 2007, 2008 and 2009 and the change in fair value between
December 31, 2008 and 2009.

December 31,Increase / (Decrease)
From December 31, 2008
to December 31, 2009(Dollars in thousands)

2007

2008

2009Total gross notional amount of positions held for trading purposes:Interest rate

$
12,585,978

$
20,398,695

$
25,226,564

$
4,827,869Foreign exchange(1)


4,665,760


7,112,873


2,407,178


(4,705,695
)Equity





10,914


254,372


243,458Energy


2,900,690


3,757,674


3,405,389


(352,285
)Total

$
20,152,428

$
31,280,156

$
31,293,503

$
13,347Fair value of positions held for trading purposes:Gross positive fair value

$
397,183

$
1,145,208

$
649,300

$
(495,908
)Gross negative fair value


380,313


1,137,724


632,426


(505,298
)Positive fair value of positions, net

$
16,870

$
7,484

$
16,874

$
9,390


(1)Excludes
spot contracts with notional amounts of $1.1 billion, $1.1 billion and $0.3 billion at December 31,
2007, 2008 and 2009, respectively.


Liquidity Risk

Liquidity risk is the risk that the Bank's financial condition or overall safety and soundness is adversely affected by an inability, or perceived inability, to
meet its contractual obligations. The objective of liquidity risk management is to maintain a sufficient amount of liquidity and diversity of funding sources to allow the Bank to meet expected and
unexpected obligations in both stable and adverse conditions.

The
management of liquidity risk is governed by the ALM Policy under the oversight of RCC and the Audit & Finance Committee of the Board. ALCO oversees liquidity risk management
activities. Corporate Treasury formulates the Bank's liquidity and contingency planning strategies and is responsible for identifying, monitoring and reporting on liquidity risk. Market Risk
Management, which is part of the Enterprise Wide Risk Reporting and Analysis unit, partners with Corporate Treasury to establish sound policy and effective risk controls. RCC and ALCO also maintain a
Liquidity Contingency Plan that identifies actions to be taken to help

F-39

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ensure
adequate liquidity if an event should occur that disrupts or adversely affects the Bank's normal funding activities.

Liquidity
risk is managed using a total balance sheet perspective that analyzes all sources and uses of liquidity including loans, investments, deposits and borrowings, as well as
off-balance sheet exposures. Various tools are used to measure and monitor liquidity, including pro-forma forecasting of the sources and uses of cash flow over a
12 month time horizon, stress-testing of the pro-forma forecast and assessment of the Bank's capacity to raise incremental unsecured and secured funding. Stress-testing, which
incorporates both bank-specific and systemic market scenarios that would adversely affect the Bank's liquidity position, facilitates the identification of appropriate remediary measures to
help ensure that the Bank maintains adequate liquidity in adverse conditions. Such measures may include extending the maturity profile of liabilities, adding new funding sources, altering dependency
on certain funding sources and/or selling assets.

The
primary sources of liquidity are core deposits and wholesale funding. Wholesale funding includes unsecured funds raised from interbank and other sources, both domestic and
international. Also included are secured funds raised by selling securities under repurchase agreements and by borrowing from the Federal Home Loan Bank of San Francisco (FHLB). We evaluate and
monitor the stability and reliability of our various funding sources to help ensure that we have sufficient liquidity in adverse circumstances. We generally view our core deposits to be relatively
stable. Secured borrowings via repurchase agreements and advances from the FHLB are also recognized as highly reliable funding sources and we therefore maintain these sources primarily to meet our
contingency funding needs.

Total
deposits grew $22.5 billion from $46.0 billion at December 31, 2008 to $68.5 billion at December 31, 2009 as a result of targeted marketing in
certain market segments and continuing trend for clients to maintain high liquidity positions. Given generally weak demand for lending products in 2009, the proceeds of the increase in deposits were
deployed to reduce wholesale funding, which declined from $16.4 billion at December 31, 2008 to $8.9 billion at December 31, 2009, and to grow the Bank's securities
portfolio from $8.2 billion at December 31, 2008 to $23.8 billion at December 31, 2009.

Core
deposits, which consist of total deposits excluding brokered deposits and deposits $100,000 and over, provide us with a sizable source of relatively stable and low-cost
funds. At December 31, 2009, our core deposits totaled $55.7 billion, and combined with stockholder's equity, funded 76.2 percent of our $85.6 billion in total assets. Most
of the remaining funding was provided by wholesale borrowings from secured and unsecured sources of varying maturities.

The
Bank has pledged collateral under secured borrowing facilities with the FHLB and the Federal Reserve Bank of San Francisco (FRB). The Bank borrowed under the Term Auction Facility
(TAF) through the FRB during the year, but as of year end there were no outstanding borrowings. As of December 31, 2009, the Bank had $2.0 billion of borrowings outstanding with the FHLB
and the Bank had a remaining combined unused borrowing capacity of $18.3 billion from the FHLB and the FRB.

Our
securities portfolio provides liquidity through either securities sales or repurchase agreements. During 2009, capacity under repurchase agreements increased $15.6 billion
from $1.5 billion at December 31, 2008 to $17.1 billion at December 31, 2009.

The
Bank has a $4.0 billion unsecured Bank Note Program. As of December 31, 2009, the remaining available funding under the Bank Note Program was approximately
$2.6 billion. We do not have any firm commitments in place to sell securities under the Bank Note Program. At December 31, 2009, a total of $1.0 billion of TLG Program guaranteed
debt was outstanding which consisted entirely of medium-term notes.

In
addition to the funding provided by the Bank, we raise funds at the holding company level. UnionBanCal Corporation has in place a shelf registration with the SEC permitting ready
access to the public debt markets. As of December 31, 2009, $1.5 billion of debt or other securities were available for issuance under this shelf registration. We do not have firm
commitments in place to sell securities under this shelf registration.

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Table of Contents

We believe that these sources, in addition to our core deposits and equity capital, provide a stable funding base. Management does not rely on any one source of
liquidity and manages availability in response to changing balance sheet needs.

The
costs and ability to raise funds are influenced by our credit ratings. Our credit ratings could be impacted by changes in the credit ratings of BTMU and MUFG. The following table
provides our credit ratings as of December 31, 2009.

Union Bank,
N.A.

UnionBanCal
CorporationStandard & Poor's

Long-term

A+

AShort-term

A-1

A-1Moody's

Long-term

A2

Short-term

P-1

Fitch

Long-term

A

AShort-term

F1

F1DBRS

Long-term

A (high)

AShort-term

R-1 (middle)

R-1 (low)


Off-Balance Sheet Arrangements and Aggregate Contractual Obligations and Commitments

Off-balance sheet arrangements are any contractual arrangement to which an unconsolidated entity is a party, under which we have: (1) any
obligation under a guarantee contract; (2) a retained or contingent interest in assets transferred to an unconsolidated entity or similar arrangement that serves as credit, liquidity or market
risk support to that entity for such assets; (3) any obligation under certain derivative instruments; or (4) any obligation under a material variable interest held by us in an
unconsolidated entity that provides financing, liquidity, market risk or credit risk support to us, or engages in leasing, hedging or research and development services with us.

Our
most significant off-balance sheet arrangements are limited to obligations under guarantee contracts such as financial and performance standby letters of credit for our
credit customers, commercial letters of credit, unfunded commitments to lend, commitments to sell mortgage loans and commitments to fund investments in various CRA related investments and venture
capital investments. To a lesser extent, we enter into contractual guarantees of agented sales of low income housing tax credit investments that require us to perform under those guarantees if there
are breaches of performance of the underlying income-producing properties. As part of our leasing activities, we may be lessor to special purpose entities to which we provide financing for large
equipment leasing projects.

It
is our belief that none of these arrangements expose us to any greater risk of loss than is already reflected on our balance sheet. We do not have any off-balance sheet
arrangements in which we have any retained or contingent interest (as we do not transfer or sell our assets to entities in which we have a continuing involvement), nor any variable interests in any
unconsolidated entity to which we may be a party, except for those leasing arrangements described previously.

The
following table presents, as of December 31, 2009, our significant and determinable contractual obligations by payment date, except for obligations under our pension and
postretirement plans, which are

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included
in Note 9 to our Consolidated Financial Statements included in this Form 10-K Report, and accrued interest payable, which is not significant.

December 31, 2009(Dollars in thousands)

One Year
or less

Over
One Year
through
Three Years

Over
Three Years
through
Five Years

Over Five
Years

TotalTime deposits

$
8,501,043

$
667,328

$
264,732

$
7,375

$
9,440,478Medium- and long-term debt(1)


1,001,000


2,000,000


400,000


700,000


4,101,000Junior subordinated debt payable to subsidiary grantor trust(1)











13,000


13,000Operating leases (premises)


66,549


117,811


101,775


218,169


504,304Purchase obligations


39,265


61,783


7,600


7,600


116,248Total debt and operating leases

$
9,607,857

$
2,846,922

$
774,107

$
946,144

$
14,175,030


(1)These
interest bearing obligations are principally used to fund interest earning assets. As such, interest payments on contractual
obligations were excluded from disclosed amounts as the potential cash outflows would have corresponding cash inflows from interest earning assets.


The payment amounts in the above table represent those amounts contractually due to the recipient and do not include any unamortized premiums or
discounts, hedge basis adjustments or other similar carrying value adjustments. Contractual obligations presented do not include $201.7 million of unrecognized income tax benefits. Of this
amount, $198.8 million has been paid. At this time it is highly uncertain whether and when we would be required to pay the remaining $2.9 million of unrecognized tax benefits.

Purchase
obligations include any legally binding contractual obligations that require us to spend more than $1,000,000 annually under the contract. Payments are shown through the date of
contract termination. Purchase obligations in the table above include purchases of hardware, software licenses and printing. For information regarding our sources of liquidity to meet these
obligations, see "Liquidity Risk" in the preceding section.

The
following table presents our significant commitments to fund as of December 31, 2008 and 2009.

December 31,(Dollars in thousands)

2008

2009Commitments to extend credit

$
21,746,133

$
21,771,188Standby letters of credit


4,588,552


4,651,236Commercial letters of credit


50,590


43,127Risk participations in bankers' acceptances


23,925


68Commitments to fund principal investments


111,237


88,392Commitments to fund low-income housing credit (LIHC) investments


139,449


150,227


Commitments to extend credit are legally binding agreements to lend to a customer provided there are no violations of any condition established in
the contract. Commitments have fixed expiration dates or other termination clauses and may require maintenance of compensatory balances. Since many of the
commitments to extend credit may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash flow requirements.

Standby
and commercial letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. Standby letters of credit generally are
contingent upon the failure of the customer to perform according to the terms of the underlying contract with the third party, while

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commercial
letters of credit are issued specifically to facilitate foreign or domestic trade transactions. Additionally, we enter into risk participations in bankers' acceptances wherein a fee is
received to guarantee a portion of the credit risk on an acceptance of another bank. The majority of these types of commitments have terms of one year or less. At December 31, 2009, the
carrying value of our risk participations in bankers' acceptances and our standby and commercial letters of credit totaled $5.8 million. Estimated exposure to loss related to these commitments
is included in the allowance for losses on off-balance sheet commitments. The carrying value of the standby and commercial letters of credit and the allowance for losses on
off-balance sheet commitments are included in other liabilities on the consolidated balance sheet.

The
credit risk involved in issuing loan commitments and standby and commercial letters of credit is essentially the same as that involved in extending loans to customers and is
represented by the contractual amount of these instruments. Collateral may be obtained based on our credit assessment of the customer.

Principal
investments include direct investments in private and public companies and indirect investments in private equity funds. We issue commitments to provide equity and mezzanine
capital financing to private and public companies through either direct investments in specific companies or through investment funds and partnerships. The timing of future cash requirements to fund
such commitments is generally dependent on the investment cycle. This cycle, the period over which privately-held companies are funded by private equity investors and ultimately sold,
merged or taken public through an initial offering, can vary based on overall market conditions as well as the nature and type of industry in which the companies operate.

We
invest in either guaranteed or unguaranteed LIHC investments. The guaranteed LIHC investments carry a minimum rate of return guarantee by an entity we believe to be creditworthy. The
unguaranteed LIHC investments carry partial guarantees covering the timely completion of projects, availability of tax credits and operating deficit thresholds from the issuer. For these LIHC
investments, we have committed to provide additional funding as stipulated by our investment participation.

We
are the fund manager for limited liability companies issuing LIHC investments. LIHC investments provide tax benefits to investors in the form of tax deductions from operating losses
and tax credits. To
facilitate the sale of these LIHC investments, we guarantee a minimum rate of return throughout the investment term of over a twelve-year weighted average period. Additionally, we receive
guarantees which include the timely completion of projects, availability of tax credits and operating deficit thresholds from the limited liability partnerships/corporations issuing the LIHC
investments that reduce our ultimate exposure to loss. Our maximum exposure to loss under these guarantees is limited to a return of investor capital and minimum investment yield, which was
$193.0 million as of December 31, 2009. We believe the risk that we would be required to pay investors for a yield deficiency is low, based on the continued performance of the underlying
properties. We have a reserve of $6.8 million recorded related to these guarantees, which represents the remaining unamortized fair value of the guarantee fees that were recognized at
inception.

We
have rental commitments under long-term operating lease agreements, as reflected in the above table on contractual obligations.

We
guarantee our subsidiaries' leveraged lease transactions with terms ranging from fifteen to thirty years. Following the original funding of these leveraged lease transactions, we have
no material obligation to be satisfied. As of December 31, 2009, we had no exposure to loss for these agreements.

We
conduct securities lending transactions for institutional customers as a fully disclosed agent. At times, securities lending indemnifications are issued to guarantee that a security
lending customer will be made whole in the event the borrower does not return the security subject to the lending agreement and collateral held is insufficient to cover the market value of the
security. All lending transactions are collateralized, primarily by cash. The amount of securities lent with indemnifications was $1.4 billion and $1.9 billion at December 31,
2008 and 2009, respectively. The market value of the associated collateral was $1.4 billion and $2.0 billion at December 31, 2008 and 2009, respectively. At December 31,
2009, we had no exposure

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that
would require us to pay under this securities lending indemnification, since the collateral market value exceeded the securities lent.

We
occasionally enter into financial guarantee contracts where a premium is received from another financial institution counterparty to guarantee a portion of the credit risk on interest
rate swap contracts entered into between the financial institution and its customer. We become liable to pay the financial institution only if the financial institution is unable to collect amounts
owed to them by their customer. As of December 31, 2009, the maximum exposure to loss under these contracts totaled $43.5 million. The risk that we would be required to perform under
these guarantees varies based on the creditworthiness of the other financial institution's customer. Credit risk grades are assigned by us based on the estimated probability of default. The risk of
default is considered low for those with superior to good credit ratings, moderate for those with satisfactory to adequate credit ratings, and high for those considered special mention, substandard,
doubtful and loss. Based on these criteria, at December 31, 2009, we had a maximum exposure to loss under these contracts with a low, moderate, and high risk of payment
exposure of $9.6 million, $25.5 million, and $8.4 million, respectively. At December 31, 2009, we maintained a reserve of $1.5 million for losses related to these
guarantees.

We
are a member of the Visa USA network (Visa). Visa's bylaws obligate its members to indemnify Visa for losses in connection with the settlement of certain antitrust lawsuits. Our
indemnification obligation is limited to our proportionate share. We had a liability of $4.3 million and $4.2 million at December 31, 2008 and 2009, respectively, representing the
estimated fair value of our obligations under the indemnity provisions. The decrease in this liability from December 31, 2008 to December 31, 2009 was primarily due to a
$700 million contribution Visa made on behalf of members to the litigation escrow account in the second quarter of 2009, offset by our revised assessment of the likely settlement amount for one
of the cases. The $4.2 million liability represents our estimate of the fair value of our proportionate share of the sum of Visa's remaining amount owed to American Express under the previously
executed settlement agreement plus our estimate of Visa's future settlements under pending lawsuits, after subtracting the balance in Visa's escrow account. Our maximum exposure to loss for the
remaining pending Visa antitrust lawsuits is not determinable, as it is dependent on the outcome of the litigation, but any loss should be proportionate to our ownership interest in Visa. At
December 31, 2009, the risk that we would be required to pay as a result of this guarantee is considered to be low, based on Visa's continued cash funding of the escrow account to pay its
antitrust lawsuit settlements.

We
are subject to various pending and threatened legal actions that arise in the normal course of business. Reserves for losses from legal actions that are both probable and estimable
are recorded at the time of that determination. Management believes that the disposition of all claims currently pending will not have a material adverse effect on our consolidated financial
condition, operating results or liquidity.

Business Segments

As a result of a corporate reorganization in the fourth quarter of 2009, we evaluated our business segments. Under the new organizational structure, we have three
operating segments: Retail Banking Group, Corporate Banking Group and Pacific Rim Corporate Group. Based on accounting guidance, the Corporate Banking Group and Pacific Rim Corporate Group segments
have been aggregated together. We have two reportable business segments: Retail Banking and Corporate Banking.

Prior
to this reorganization, the various operating segments were aggregated into two reportable business segments formerly known as "Retail Banking" and "Wholesale Banking". Our new
reportable business segment structure is similar to the previous structure. However, the Global and Wealth Markets Division, which was previously included in Retail Banking, is now included in
Corporate Banking. Additionally, the goodwill, intangible assets, and related amortization/accretion associated with our privatization transaction previously were included in our segment results. To
align with the chief operating decision maker's view of our segments, we have adjusted our 2008 and 2009 reportable business segment results to exclude privatization-related

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goodwill,
intangible assets, and related amortization/accretion from our reportable business segment results and included such amounts in "Other."

The
risk-adjusted return on capital (RAROC) methodology used seeks to attribute economic capital to business units consistent with the level of risk they assume. These risks
are primarily credit and operational, given that market risk is not assumed by the business units. Credit risk is the potential loss in economic value due to the likelihood that the obligor will not
perform as agreed. Operational risk is the potential loss due to all other factors, such as failures in internal control, system failures or external events. Market risk is the potential loss in fair
value due to changes in interest rates, currency rates and equity prices. RAROC may be one of several measures that is used to measure business unit compensation.

The
table that follows reflects the condensed income statements, selected average balance sheet items, and selected financial ratios, including changes from the prior year, for each of
our reportable business segments. The information presented does not necessarily represent the businesses' financial condition and results of operations as if they were independent entities. We
reflect a "market view" perspective in measuring our business segments. The market view is a measurement of our customer markets aggregated to show all revenues generated and expenses incurred from
all products and services sold to those customers regardless of where product areas organizationally report. Therefore, revenues and expenses are included in both the business segment that provides
the service and the business segment that manages the customer relationship. The duplicative results from this internal management accounting view are reflected in "Reconciling Items." The market view
approach fosters cross-selling with a total profitability view of the products and services being managed. For example, the Securities Trading and Sales unit within the Global and Wealth Markets
Division is a business unit that manages the fixed income securities activities for all retail and corporate customers throughout the Bank. This unit retains and also allocates revenues and expenses
to divisions responsible for such retail and commercial customer relationships.

Unlike
financial accounting, there is no authoritative body of guidance for management accounting equivalent to US GAAP. Consequently, reported results are not necessarily
comparable with those presented by other companies.

The
RAROC measurement methodology recognizes credit expense for expected losses arising from credit risk and attributes economic capital related to unexpected losses arising from credit,
market and operational risks. As a result of the methodology used by the RAROC model to calculate expected losses, differences between the provision for credit losses and credit expense in any one
period could be significant.

However,
over an economic cycle, the cumulative provision for credit losses and credit expense for expected losses should be substantially the same. Business unit results are based on an
internal management reporting system used by management to measure the performance of the units and UnionBanCal as a whole. Our management reporting system identifies balance sheet and income
statement items for each business unit based on internal management accounting policies. Net interest income is determined using our internal funds transfer pricing system, which assigns a cost of
funds to assets or a credit for funds to liabilities and capital, based on their type, maturity or repricing characteristics. Noninterest income and expense directly or indirectly attributable to a
business unit are assigned to that business. The business units are assigned the costs of products and services directly attributable to their business activity through standard unit cost accounting
based on volume of usage. All other corporate expenses (overhead) are allocated to the business units based on a predetermined percentage of usage.

The
reportable business segment results for the prior periods have been adjusted to reflect changes in the transfer pricing methodology, the organizational changes that have occurred,
our discontinued operations and the market view contribution. Our discontinued operations consist of three separate businesses: international correspondent banking, retirement recordkeeping services
and insurance brokerage business.

F-45

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Table of Contents

Retail Banking





Corporate BankingAs of and for the Year
Ended December 31,

2008 vs. 2009
Increase/(decrease)

As of and for the Year
Ended December 31,

2008 vs. 2009
Increase/(decrease)2007

2008

2009

Amount

Percent

2007

2008

2009

Amount

PercentResults of operations after performancecenter earnings (dollars in thousands):Net interest income (expense)

$
702,211

$
767,164

$
841,859

$
74,695


10
%
$
840,381

$
1,073,530

$
1,549,404

$
475,874


44
%Noninterest income (expense)


311,056


302,558


283,072


(19,486
)

(6
)

521,723


513,053


479,177


(33,876
)

(7
)Total revenue


1,013,267


1,069,722


1,124,931


55,209


5


1,362,104


1,586,583


2,028,581


441,998


28Noninterest expense (income)


740,626


803,091


818,479


15,388


2


741,952


820,178


906,944


86,766


11Credit expense (income)


24,643


26,986


27,794


808


3


112,209


196,639


338,667


142,028


72Income (loss) from continuing operations before income taxes


247,998


239,645


278,658


39,013


16


507,943


569,766


782,970


213,204


37Income tax expense (benefit)


94,859


91,664


108,955


17,291


19


142,442


146,556


219,954


73,398


50Income (loss) from continuing operations


153,139


147,981


169,703


21,722


15


365,501


423,210


563,016


139,806


33Income (loss) from discontinued operations, net of income taxes





























Net income (loss)

$
153,139

$
147,981

$
169,703

$
21,722


15

$
365,501

$
423,210

$
563,016

$
139,806


33Average balances (dollars in millions):Total loans(1)

$
16,471

$
18,991

$
21,112

$
2,121


11

$
24,055

$
28,485

$
29,903

$
1,418


5Total assets


17,232


19,777


21,926


2,149


11


28,869


33,507


35,549


2,042


6Total deposits(1)


16,618


16,720


19,384


2,664


16


20,946


21,315


35,749


14,434


68Financial ratios:Risk adjusted return on capital


33
%

30
%

32
%







16
%

15
%

16
%Return on average assets


0.89


0.75


0.77








1.27


1.26


1.58Efficiency ratio(2)


73.08


74.98


72.65








52.38


49.14


42.04


Other





Reconciling ItemsAs of and for the Year
Ended December 31,

2008 vs. 2009
Increase/(decrease)

As of and for the Year
Ended December 31,2007

2008

2009

Amount

Percent

2007

2008

2009Results of operations after performance center earnings (dollars in thousands):Net interest income (expense)

$
218,302

$
250,960

$
(86,462
)
$
(337,422
)

(134
)%
$
(37,514
)
$
(40,806
)
$
(55,689
)Noninterest income (expense)


19,212


14,427


24,869


10,442


72


(52,452
)

(57,382
)

(59,974
)Total revenue


237,514


265,387


(61,593
)

(326,980
)

(123
)

(89,966
)

(98,188
)

(115,663
)Noninterest expense (income)


126,342


312,705


403,254


90,549


29


(34,719
)

(39,278
)

(40,176
)Credit expense (income)


(55,206
)

292,081


748,400


456,319


nm


(646
)

(706
)

(861
)Income (loss) from continuing operations before income taxes


166,378


(339,399
)

(1,213,247
)

(873,848
)

nm


(54,601
)

(58,204
)

(74,626
)Income tax expense (benefit)


77,938


(88,089
)

(461,014
)

(372,925
)

nm


(20,885
)

(22,263
)

(29,179
)Income (loss) from continuing operations


88,440


(251,310
)

(752,233
)

(500,923
)

nm


(33,716
)

(35,941
)

(45,447
)Income (loss) from discontinued operations, net of income taxes


34,730


(15,055
)




15,055


100








Net income (loss)

$
123,170

$
(266,365
)
$
(752,233
)
$
(485,868
)

nm

$
(33,716
)
$
(35,941
)
$
(45,447
)Average balances (dollars in millions):Total loans(1)

$
14

$
(77
)
$
(358
)
$
(281
)

(365
)
$
(1,116
)
$
(1,287
)
$
(1,667
)Total assets


8,501


8,933


17,977


9,044


101


(1,134
)

(1,309
)

(1,686
)Total deposits(1)


5,552


6,090


2,752


(3,338
)

(55
)

(930
)

(992
)

(1,290
)Financial ratios:Risk adjusted return on capital


na


na


naReturn on average assets


na


na


naEfficiency ratio(2)


na


na


na


UnionBanCal
CorporationAs of and for the Year
Ended December 31,

2008 vs. 2009
Increase/(decrease)2007

2008

2009

Amount

PercentResults of operations after performance center earnings (dollars in thousands):Net interest income (expense)

$
1,723,380

$
2,050,848

$
2,249,112

$
198,264


10
%Noninterest income (expense)


799,539


772,656


727,144


(45,512
)

(6
)Total revenue


2,522,919


2,823,504


2,976,256


152,752


5Noninterest expense (income)


1,574,201


1,896,696


2,088,501


191,805


10Credit expense (income)


81,000


515,000


1,114,000


599,000


116Income (loss) from continuing operations before income taxes


867,718


411,808


(226,245
)

(638,053
)

nmIncome tax expense (benefit)


294,354


127,868


(161,284
)

(289,152
)

nmIncome (loss) from continuing operations


573,364


283,940


(64,961
)

(348,901
)

(123
)Income (loss) from discontinued operations, net of income taxes


34,730


(15,055
)




15,055


100Net income (loss)

$
608,094

$
268,885

$
(64,961
)
$
(333,846
)

(124
)Average balances (dollars in millions):Total loans(1)

$
39,424

$
46,112

$
48,990

$
2,878


6Total assets


53,468


60,908


73,766


12,858


21Total deposits(1)


42,186


43,133


56,595


13,462


31Financial ratios:Risk adjusted return on capital


na


na


naReturn on average assets


1.07
%

0.47
%

(0.09
)%Efficiency ratio(2)


60.68


64.24


66.34


(1)Represents
loans and deposits for each business segment after allocation between the segments of loans and deposits originated in one segment
but managed by another segment.(2)The
efficiency ratio is noninterest expense, excluding foreclosed asset expense (income), the provision for losses on off-balance
sheet commitments, and low income housing investment credit (LIHC) amortization expense, as a percentage of net interest income and noninterest income.
na =
not applicable

nm =
not meaningful


F-46

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Table of Contents



Retail Banking provides deposit and credit financial products delivered through our branches and relationship managers to individuals
and small businesses. Retail banking is focused on executing a strategy that will identify targeted opportunities within the consumer and small business markets, and develop product, marketing and
sales strategies to attract new customers in these identified target markets.

During
2009, net income of Retail Banking increased compared to 2008, resulting from a 10 percent increase in net interest income, partially offset by a 6 percent decrease
in noninterest income and a 2 percent increase in noninterest expense. The increase in net interest income was primarily due to the growth in loans and interest bearing deposits.

Average
asset growth for 2009 compared to 2008 was primarily driven by an 11 percent growth in average loans, mainly in residential mortgages. Additionally, the focus on home
equity loans and more effective cross-selling efforts have resulted in an overall growth in consumer loans.

Average
deposits increased 16 percent in 2009 compared to 2008. This increase was primarily due to the Retail Banking's strategy which continues to focus on attracting consumer
and small business deposits through marketing activities, increasing customer cross-sell, relationship management, increasing and improving sales resources, establishing new locations and
products. We expect that a larger branch network, along with this Retail Banking strategy, will improve growth prospects when combined with more robust efforts in the telephone and internet channels.

Noninterest
income decreased in 2009 compared to 2008 by 6 percent mainly as a result of lower service charges on deposits resulting from changes in customer overdraft behavior.
Noninterest expense increased by 2 percent in 2009 compared to 2008. This increase was primarily due to higher FDIC
deposit insurance assessment rates, including the impact of a one-time special FDIC assessment, and increased staff costs.

Retail Bankingis comprised of the following major divisions: Retail Banking Branches and Consumer Asset Management.



The
Retail Banking Branches Division is organized geographically. We serve our customers in the following ways:



Through
alliances with other financial institutions, the Consumer Asset Management Division offers additional products and services, such as credit cards and merchant services.

Our
Retail Banking Branches and Consumer Asset Management Divisions compete with larger banks by attempting to provide service quality superior to that of our major competitors. The
primary means of competing with community banks include our branch network and our technology to deliver banking services.

F-47

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Table of Contents

We
also offer convenient banking hours to consumers through our drive-through banking locations and selected branches that are open seven days a week.

These
divisions compete with a number of commercial banks, internet banks, savings associations and credit unions, as well as more specialized financial service providers such as
investment brokerage companies, consumer finance companies, and residential real estate lenders.



Corporate Banking offers financing, depository and cash management services to middle market and large corporate businesses primarily
headquartered in the western U.S. Corporate Banking continues to focus on specific geographic markets and industry segments such as energy, institutional trusts, entertainment and real estate.
Relationship managers provide credit services, including commercial loans, accounts receivable and inventory financing, project financing, lease financing, trade financing and real estate financing.
In addition to credit services, Corporate Banking offers a broad range of depository and global treasury solutions delivered through deposit managers with significant industry expertise and experience
in businesses of all sizes including numerous vertical industry niches such as U.S. correspondent banks and government entities, as well as investment and risk management products.

The
main strategy of our Corporate Banking business units is to target industries and companies for which we can reasonably expect to be one of a customer's primary banks. Consistent
with this strategy, Corporate Banking business units attempt to serve a large part of the targeted customers' credit and depository needs. The Corporate Banking business units compete with other banks
primarily on the basis of the quality of our relationship managers, the level of industry expertise, the delivery of quality customer service, and our reputation as a "business bank." We also compete
with a variety of other financial services companies as well as non-bank companies. Competitors include other major California banks, as well as regional, national and international banks.
In addition, we compete with investment banks, commercial finance companies, leasing companies and insurance companies.

During
2009, net income of Corporate Banking increased 33 percent, compared to 2008, resulting from a 44 percent increase in net interest income, partially offset by a
7 percent decrease in noninterest income, an 11 percent increase in noninterest expense and higher credit expense. The increase in net interest income was mainly due to higher loan
volume and higher deposits.

During
2009, average loans increased 5 percent compared to 2008 and includes increases in our commercial and industrial loan portfolio, our real estate construction portfolio, and
our commercial real estate portfolio, mainly related to Energy Capital Services and Real Estate Industries groups.

During
2009, average deposits increased 68 percent compared to 2008. Money market deposits experienced significant growth as a result of long-term corporate
deposit-gathering strategies, a "flight to quality" and entry into new business niches. These new niches provided funding from large institutional accounts, including brokerage firms. These
relationships reflect execution of a business strategy to obtain deposits from brokerage and institutional clients. In addition, state and local government and Corporate Banking deposits experienced
significant growth.

Noninterest
income decreased 7 percent in 2009, compared to 2008, primarily due to lower trust and investment management fees and lower gains on private capital investments as
well as impairment losses, partially offset by higher deposit fees, merchant banking fees and trading income. Noninterest expense increased 11 percent in 2009 compared to 2008 primarily due to
higher FDIC deposit insurance assessment rates, including the impact of a one-time special FDIC assessment.

Corporate
Banking initiatives continue to include expanding commercial and loan relationship strategies that include originating, underwriting and syndicating loans in core competency
markets, such as the California middle market, corporate banking, commercial real estate, institutional trusts, energy, equipment

F-48

---



Table of Contents

leasing
and commercial finance. Corporate Deposits and Global Treasury Management Division provides a full range of depository and treasury management products and solutions.

Corporate Bankingis comprised of the following main divisions:



F-49

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Table of Contents



The net loss increased from ($266.4) million in 2008 to ($752.2) million in 2009, primarily due to lower net interest income, higher
loan loss provision and higher noninterest expense.

"Other"
includes the following items:



The
2009 financial results were impacted by the following factors:



F-50

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Table of Contents



The
2008 financial results were impacted by the following factors:



F-51

---







Table of Contents

UnionBanCal Corporation and Subsidiaries

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



PageConsolidated Statements of Income for the Years Ended December 31, 2007, 2008 and 2009

F-53Consolidated Balance Sheets as of December 31, 2008 and 2009

F-54Consolidated Statements of Changes in Stockholder's Equity for the Years Ended December 31, 2007, 2008
and 2009

F-55Consolidated Statements of Cash Flows for the Years Ended December 31, 2007, 2008 and
2009

F-56Notes to Consolidated Financial StatementsNote 1Summary of Significant Accounting Policies and Nature of
Operations

F-57Note 2Privatization

F-69Note 3Securities

F-73Note 4Loans and Allowance for Loan Losses

F-79Note 5Goodwill and Other Intangible Assets

F-81Note 6Premises and Equipment

F-83Note 7Other Assets

F-85Note 8Deposits

F-86Note 9Employee Pension and Other Postretirement
Benefits

F-86Note 10Other Noninterest Income and Noninterest
Expense

F-95Note 11Income Taxes

F-96Note 12Borrowed Funds

F-99Note 13Medium- and Long-Term Debt

F-100Note 14UnionBanCal CorporationJunior Subordinated Debt Payable
to Subsidiary Grantor Trust

F-102Note 15Management Stock Plans

F-103Note 16Concentrations of Credit Risk

F-108Note 17Fair Value Measurement and Fair Value of Financial
Instruments

F-108Note 18Derivative Instruments

F-117Note 19Restrictions on Cash and Due from Banks, Securities, Loans and
Dividends

F-123Note 20Regulatory Capital Requirements

F-124Note 21Other Comprehensive Income (Loss)

F-126Note 22Commitments, Contingencies and Guarantees

F-127Note 23Transactions with Affiliates

F-129Note 24Business Segments

F-130Note 25Condensed UnionBanCal Corporation Unconsolidated Financial
Statements (Parent Company)

F-133Note 26Summary of Quarterly Financial Information (Unaudited)

F-136Note 27Subsequent Events

F-136Report of Independent Registered Public Accounting Firm

F-137Management's Report on Internal Control Over Financial Reporting

F-140


F-52

---





Table of Contents

UnionBanCal Corporation and Subsidiaries  Consolidated Statements of Income

Years Ended December 31,(Amounts in thousands)

2007

2008

2009Interest IncomeLoans

$
2,511,552

$
2,549,512

$
2,319,643Securities


443,685


415,870


455,184Interest bearing deposits in banks


3,276


574


13,449Federal funds sold and securities purchased under resale agreements


26,247


6,472


371Trading account assets


7,652


5,189


965Total interest income


2,992,412


2,977,617


2,789,612Interest ExpenseDeposits


991,140


639,047


408,301Federal funds purchased and securities sold under repurchase agreements


56,676


47,875


137Commercial paper


76,284


31,767


3,095Other borrowed funds


42,883


107,698


18,310Medium- and long-term debt


101,096


99,429


109,704Trust notes


953


953


953Total interest expense


1,269,032


926,769


540,500Net Interest Income


1,723,380


2,050,848


2,249,112Provision for loan losses


81,000


515,000


1,114,000Net interest income after provision for loan losses


1,642,380


1,535,848


1,135,112Noninterest IncomeService charges on deposit accounts


304,362


302,965


290,764Trust and investment management fees


157,734


165,255


134,997Trading account activities


65,608


54,530


73,590Merchant banking fees


44,123


49,546


64,652Brokerage commissions and fees


39,839


38,891


33,584Card processing fees, net


30,307


31,553


32,512Securities gains, net


1,621


44


24,281Other


155,945


129,872


72,764Total noninterest income


799,539


772,656


727,144Noninterest ExpenseSalaries and employee benefits


911,022


978,081


971,656Net occupancy


141,573


154,566


167,082Intangible asset amortization


4,501


44,935


161,910Regulatory agencies


10,691


23,971


133,616Outside services


75,939


78,933


89,289Professional services


67,021


70,886


70,055Equipment


63,607


61,571


66,236Software


57,114


60,448


62,950Foreclosed asset expense


110


1,019


6,339Provision for losses on off-balance sheet commitments


9,000


35,000


51,000Privatization-related expense





90,505


45,882Other


233,623


296,781


262,486Total noninterest expense


1,574,201


1,896,696


2,088,501Income (loss) from continuing operations before income taxes


867,718


411,808


(226,245
)Income tax expense (benefit)


294,354


127,868


(161,284
)Income (Loss) from Continuing Operations


573,364


283,940


(64,961
)Income (loss) from discontinued operations before income taxes


66,753


(27,368
)

Income tax expense (benefit)


32,023


(12,313
)

Income (Loss) from Discontinued Operations


34,730


(15,055
)

Net Income (Loss)

$
608,094

$
268,885

$
(64,961
)


See accompanying notes to consolidated financial statements.

F-53

---





Table of Contents



UnionBanCal Corporation and Subsidiaries  Consolidated Balance Sheets

December 31,(Dollars in thousands)

2008

2009AssetsCash and due from banks

$
1,568,578

$
1,198,258Interest bearing deposits in banks


2,872,698


6,585,029Federal funds sold and securities purchased under resale agreements


63,069


442,552Total cash and cash equivalents


4,504,345


8,225,839Trading account assets:Pledged as collateral


6,283


15,168Held in portfolio


1,210,496


710,480Securities available for sale:Pledged as collateral


54,525


2,500Held in portfolio


8,140,013


22,556,329Securities held to maturity (Fair value: 2009, $1,457,654)





1,227,718Loans (net of allowance for credit losses: 2008, $737,767; 2009, $1,357,000)


48,847,783


45,871,508Due from customers on acceptances


23,131


8,514Premises and equipment, net


680,004


674,298Intangible assets


713,485


561,040Goodwill


2,369,326


2,369,326Other assets


3,571,995


3,375,408Assets of discontinued operations to be disposed or sold


4


Total assets

$
70,121,390

$
85,598,128LiabilitiesNoninterest bearing

$
13,566,873

$
14,558,989Interest bearing


32,482,896


53,958,664Total deposits


46,049,769


68,517,653Federal funds purchased and securities sold under repurchase agreements


172,758


150,453Commercial paper


1,164,327


888,541Other borrowed funds


8,196,597


591,934Trading account liabilities


1,034,663


538,894Acceptances outstanding


23,131


8,514Other liabilities


1,685,412


1,096,095Medium- and long-term debt


4,288,488


4,212,184Junior subordinated debt payable to subsidiary grantor trust


13,980


13,527Liabilities of discontinued operations to be extinguished or assumed


7,960


Total liabilities


62,637,085


76,017,795Commitments, contingencies and guaranteesSee Note 24Stockholder's EquityPreferred stock:Authorized 5,000,000 shares, no shares issued or outstanding at December 31, 2008 and 2009





Common stock, par value $1 per share:Authorized 300,000,000 shares, issued 136,330,829 shares in 2008 and 2009


136,331


136,331Additional paid-in capital


3,195,023


5,195,023Retained earnings


4,964,802


4,899,841Accumulated other comprehensive loss


(811,851
)

(650,862
)Total stockholder's equity


7,484,305


9,580,333Total liabilities and stockholder's equity

$
70,121,390

$
85,598,128


See accompanying notes to consolidated financial statements.

F-54

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Table of Contents



UnionBanCal Corporation and Subsidiaries  Consolidated Statements of Changes in Stockholder's Equity

(In thousands, except shares)

Number
of shares

Common
stock

Additional
paid-in
capital

Treasury
stock

Retained
earnings

Accumulated
other
comprehensive
income (loss)

Total
stock-
holder's
equityBALANCE DECEMBER 31, 2006


156,460,057

$
156,460

$
1,083,649

$
(1,064,606
)
$
4,655,272

$
(259,374
)
$
4,571,401Comprehensive income:Net income-2007














608,094





608,094Other comprehensive income (loss), net of tax:Net change in unrealized losses on cash flow hedges

















50,968


50,968Net change in unrealized losses on securities available for sale

















(71,285
)

(71,285
)Foreign currency translation adjustment

















517


517Pension and other benefits adjustment

















(3,949
)

(3,949
)Total comprehensive income, net of tax




















584,345Adjustment for uncertain tax positions














(49,300
)




(49,300
)Adjustment for changes in timing of cash flows relating to income taxes generated by leveraged leases














(20,803
)




(20,803
)Stock options exercised


800,850


801


32,498











33,299Restricted stock granted, net of forfeitures


288,305


288


(288
)










Restricted stock and performance share units vested


10,309


10


(10
)










Excess tax benefitstock based compensation








4,616











4,616Compensation expensestock options








12,999











12,999Compensation expenserestricted stock








14,413











14,413Compensation expenserestricted stock units, performance share units and other share-based compensation








5,860











5,860Common stock repurchased(1)











(137,978
)







(137,978
)Dividends declared on common stock, $2.03 per share(2)














(280,871
)




(280,871
)Net change





1,099


70,088


(137,978
)

257,120


(23,749
)

166,580BALANCE DECEMBER 31, 2007


157,559,521

$
157,559

$
1,153,737

$
(1,202,584
)
$
4,912,392

$
(283,123
)
$
4,737,981Comprehensive loss:Net income-2008














268,885





268,885Other comprehensive income (loss), net of tax:Net change in unrealized losses on cash flow hedges(3)

















59,633


59,633Net change in unrealized losses on securities available for sale(3)

















(388,079
)

(388,079
)Foreign currency translation adjustment

















(1,853
)

(1,853
)Pension and other benefits adjustment

















(412,608
)

(412,608
)Total comprehensive loss, net of tax




















(474,022
)Split-Dollar Life Insurance adjustment














(236
)




(236
)Income tax benefit on dividends on share-based payment awards adjustment








451











451Capital contribution from The Bank of Tokyo-Mitsubishi UFJ, Ltd. (BTMU)








1,000,000











1,000,000Stock options exercised


2,307,005


2,307


107,471











109,778Stock option payouts as a result of privatization(4)(5)








(173,396
)










(173,396
)Restricted stock granted, net of forfeitures


20,198


20


(20
)










Performance share and restricted stock units, and other share based compensation payouts as a result of privatization(4)(5)








(30,193
)










(30,193
)Excess tax benefitstock based compensation








61,109











61,109Compensation expensestock options








23,831











23,831Compensation expenserestricted stock








41,557











41,557Compensation expenserestricted stock units, performance share units and other share-based compensation








18,054











18,054Common stock repurchased(1)











(2,214
)







(2,214
)Common and treasury stock cancellation(4)


(23,555,895
)

(23,555
)

(1,181,243
)

1,204,798








Adjustments related to privatization(4)








2,173,665








214,179


2,387,844Dividends declared on common stock, $1.56 per share(2)














(216,239
)




(216,239
)Net change





(21,228
)

2,041,286


1,202,584


52,410


(528,728
)

2,746,324BALANCE DECEMBER 31, 2008


136,330,829

$
136,331

$
3,195,023

$


$
4,964,802

$
(811,851
)
$
7,484,305Comprehensive income:Net loss-2009














(64,961
)




(64,961
)Other comprehensive income (loss), net of tax:Net change in unrealized gains on cash flow hedges(3)

















(54,010
)

(54,010
)Net change in unrealized losses on securities(3)

















56,401


56,401Foreign currency translation adjustment

















1,376


1,376Net change in pension and other benefits

















157,222


157,222Total comprehensive income, net of tax




















96,028Capital contribution from BTMU








2,000,000











2,000,000Net change








2,000,000





(64,961
)

160,989


2,096,028BALANCE DECEMBER 31, 2009


136,330,829

$
136,331

$
5,195,023

$


$
4,899,841

$
(650,862
)
$
9,580,333


(1)Common
stock repurchased includes commission costs.(2)Dividends
are based on UnionBanCal Corporation's shares outstanding as of the declaration date.(3)Includes
amortization of privatization adjustments. See Note 2 to these consolidated financial statements for additional information
on the Company's privatization transaction.(4)See
Note 2 to these consolidated financial statements for a description of the Company's privatization.(5)See
Note 15 to these consolidated financial statements for a description of payouts relating to compensation plans, which were
canceled on November 4, 2008 as a result of the Company's privatization.


See accompanying notes to consolidated financial statements.

F-55

---





Table of Contents



UnionBanCal Corporation and Subsidiaries        Consolidated Statements of Cash Flows

For the Years Ended December 31,(Dollars in thousands)

2007

2008

2009Cash Flows from Operating Activities:Net income (loss)

$
608,094

$
268,885

$
(64,961
)Income (loss) from discontinued operations, net of taxes


34,730


(15,055
)

Income (loss) from continuing operations, net of taxes


573,364


283,940


(64,961
)Adjustments to reconcile net income to net cash provided by (used in) operating activities:Provision for loan losses


81,000


515,000


1,114,000Provision for losses on off-balance sheet commitments


9,000


35,000


51,000Depreciation, amortization and accretion


117,980


143,859


154,777Stock-based compensationstock options and other share-based compensation


33,272


83,442


Deferred income taxes


(24,764
)

(181,046
)

(121,772
)Net gains on sales of securities


(1,621
)

(44
)

(24,281
)Net decrease (increase) in trading account assets


(227,012
)

(613,446
)

491,131Net decrease (increase) in prepaid expenses


(37,898
)

431,566


(432,875
)Net decrease (increase) in fees and other receivable


11,468


86,627


(29,587
)Net increase in other assets


(235,202
)

(510,702
)

(302,342
)Net increase (decrease) in accrued expenses


82,368


493,858


(415,602
)Net increase (decrease) in trading account liabilities


92,921


683,606


(495,769
)Net increase (decrease) in other liabilities


(78,173
)

274,777


(197,670
)Loans originated for resale


(680,541
)

(428,301
)

(65,337
)Net proceeds from sale of loans originated for resale


669,333


389,833


47,547Excess tax benefitstock-based compensation


(4,616
)

(61,109
)

Other, net


34,820


(399,652
)

171,678Discontinued operations, net


60,563


77,222


(6,027
)Total adjustments


(97,102
)

1,020,490


(61,129
)Net cash provided by (used in) operating activities


476,262


1,304,430


(126,090
)Cash Flows from Investing Activities:Proceeds from sales of securities available for sale


352,568


14,647


5,295,472Proceeds from matured and called securities available for sale


1,806,844


1,554,813


2,536,986Purchases of securities available for sale


(1,970,887
)

(1,936,558
)

(23,295,394
)Proceeds from matured securities held to maturity








8,322Purchases of premises and equipment, net


(104,680
)

(95,405
)

(100,527
)Net decrease (increase) in loans


(4,604,981
)

(8,841,250
)

1,863,514Other, net





(5,031
)

(809
)Discontinued operations, net


3,241


3,732


Net cash used in investing activities


(4,517,895
)

(9,305,052
)

(13,692,436
)Cash Flows from Financing Activities:Net increase in deposits


829,509


3,369,578


22,467,884Net increase (decrease) in federal funds purchased and securities sold under repurchase agreements


547,675


(1,458,844
)

(22,305
)Net increase (decrease) in commercial paper and other borrowed funds


1,048,715


5,218,649


(6,880,449
)Capital contribution from the Bank of Tokyo-Mitsubishi UFJ, Ltd. (BTMU)





1,000,000


2,000,000Common stock repurchased


(137,978
)

(2,214
)

Proceeds from issuance of medium- and long-term debt


749,250


2,276,000


1,625,000Repayment of medium- and long-term debt


(200,000
)




(1,650,000
)Payments of cash dividends


(274,974
)

(287,995
)

Stock options exercised


37,915


170,887


Share-based compensation payouts as a result of privatization





(203,589
)

Other, net


1,267


(1,853
)

1,376Discontinued operations, net


(20,170
)

(96,591
)

(1,929
)Net cash provided by financing activities


2,581,209


9,984,028


17,539,577Net increase (decrease) in cash and cash equivalents


(1,460,424
)

1,983,406


3,721,051Cash and cash equivalents at beginning of year


3,981,435


2,521,633


4,504,345Effect of exchange rate changes on cash and cash equivalents


622


(694
)

443Cash and cash equivalents at end of year

$
2,521,633

$
4,504,345

$
8,225,839Cash Paid During the Year For:Interest

$
1,337,976

$
938,895

$
562,050Income taxes


305,803


236,931


209,579Supplemental Schedule of Noncash Investing and Financing Activities:Securities available for sale transferred to securities held to maturity

$


$


$
1,144,036Loans transferred to foreclosed assets (OREO)


1,571


32,506


66,225Term borrowingissued in current year, but settled after end of year





1,000,000





See accompanying notes to consolidated financial statements.

F-56

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Table of Contents

UnionBanCal Corporation and Subsidiaries        Notes to Consolidated Financial Statements  December 31, 2007, 2008 and 2009

Note 1Summary of Significant Accounting Policies and Nature of Operations



UnionBanCal Corporation, a wholly-owned subsidiary of The Bank of Tokyo-Mitsubishi UFJ, Ltd. (BTMU), is a financial holding
company and commercial bank holding company whose major subsidiary, Union Bank, N.A. (the Bank), is a commercial bank. UnionBanCal Corporation and its subsidiaries (the Company) provide a wide range
of financial services to consumers, small businesses, middle-market companies and major corporations, primarily in California, Oregon, Washington, and Texas as well as nationally and internationally.

See
Note 2 for information on the Company's privatization transaction.



The consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany transactions and
balances have been eliminated. The Company accounts for investments over which it exerts significant influence using the equity method of accounting. Investments where the Company does not exert
significant influence are accounted for at cost. Investments, both under the equity method of accounting and at cost, are included in other assets.

The
accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America (US GAAP) and general practice within the
banking industry. The policies that materially affect the determination of financial position, results of operations and cash flows are summarized below.

The
preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ
from those estimates. Certain amounts for prior periods may have been reclassified to conform to current financial statement presentation.



For purposes of reporting cash flows, cash and cash equivalents include cash and due from banks, interest bearing deposits in banks,
and federal funds sold and securities purchased under resale agreements, which have original maturities less than 90 days.



Transactions involving purchases of securities under agreements to resell (reverse repurchase agreements or reverse repos) or sales of
securities under agreements to repurchase (repurchase agreements or repos) are accounted for as collateralized financings except where the Company does not have an agreement to sell (or purchase) the
same or substantially the same securities before maturity at a fixed or determinable price. The Company's policy is to obtain possession of collateral with a market value equal to or in excess of the
principal amount loaned under resale
agreements. Collateral is valued daily, and the Company may require counterparties to deposit additional collateral or return collateral pledged, when appropriate.

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2007, 2008 and 2009 (Continued)

Note 1Summary of Significant Accounting Policies and Nature of Operations (Continued)



Trading account assets are recorded at fair value and consist of securities and loans that management acquires with the intent to hold
for short periods of time in order to take advantage of anticipated changes in market values. Substantially all of the securities have a high degree of liquidity and readily determinable market value.
Interest earned, paid, or accrued on trading account assets is included in interest income using a method that produces a level yield. Realized gains and losses from the sale or close-out
of trading account positions and unrealized market value adjustments are recognized in noninterest income.

Also
included in trading account assets are the unrealized gains related to a variety of derivative contracts, primarily interest rate swaps and options, energy derivative contracts and
foreign exchange contracts, entered into either for trading purposes, based on management's intent at inception, or as an accommodation to customers.

Derivatives
held or issued for trading or customer accommodation are carried at fair value, with realized and unrealized changes in fair values on contracts included in noninterest
income in the period in which the changes occur. Unrealized gains and losses are reported gross and included in trading account assets and trading account liabilities, respectively. Cash flows are
reported net as operating activities.

Total
unrealized losses on trading account securities totaled $0.4 million at December 31, 2009.



Securities for which management has both the intent and ability to hold to maturity are classified as held to maturity and are carried
at amortized cost. The Company's held to
maturity securities consist of the collateralized loan obligation (CLO) portfolio. Debt securities and equity securities with readily determinable market values that are not classified as trading
assets or held to maturity are classified as available for sale and are carried at fair value, with the unrealized gains or losses reported net of taxes as a component of accumulated other
comprehensive income (loss) in stockholder's equity until realized.

Interest
income on debt securities classified as either available for sale or held to maturity includes the amortization of premiums and the accretion of discounts using a method that
produces a level yield and is included in interest income on securities.

The
Company recognizes other-than-temporary impairment on its securities available for sale and held to maturity portfolios when it does not expect to recover its
amortized cost in any individual security. A debt security is subject to impairment testing when its fair value is lower than its amortized cost at the end of a reporting period. Typical debt
securities in the portfolio that are subject to testing for other-than-temporary impairment are CLOs and non-agency residential mortgage-backed securities. In
determining whether impairment is other than temporary, the Company considers expected cash flows utilizing a number of assumptions such as recovery rates, default rates and reinvestment rates,
business models, current and projected financial performance, and overall economic conditions.

Debt
securities with unrealized losses are considered other-than-temporarily impaired if the Company intends to sell the security, if it is more likely than not
that the Company will be required to sell the security before recovery of its amortized cost basis, or the Company does not expect to recover the entire amortized cost basis of the security. Any
impairment on securities the Company intends, or is more likely than not required to sell, is recognized in earnings as the entire difference between the amortized cost and its fair value. Any

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2007, 2008 and 2009 (Continued)

Note 1Summary of Significant Accounting Policies and Nature of Operations (Continued)

impairment
on securities the Company does not intend or it is not more likely than not required to sell before recovery is separated into an amount representing the credit loss, which is recognized in
earnings, and the amount related to all other factors, which is recognized in other comprehensive income. The credit loss is measured as the difference between the present value of expected cash
flows, discounted using the security's effective interest rate, and the amortized cost of the security.

Marketable
equity securities are subject to testing for other-than-temporary impairment when there is a severe or sustained decline in market price below the
amount recorded for that investment. The Company considers the issuer's financial condition, capital strength, and near-term prospects in assessing whether
other-than-temporary impairment exists.

Realized
gains and losses on the sale of and credit losses related to other-than-temporary impairment on available for sale securities are included in noninterest
income as securities gains (losses), net. The specific identification method is used to calculate realized gains and losses on sales.

Securities
available for sale that are pledged under an agreement to repurchase and which may be sold or repledged under that agreement have been separately identified as pledged as
collateral.



Loans are reported at the principal amounts outstanding, net of unamortized nonrefundable loan fees, related direct loan origination
costs and fair value adjustments related to the Company's privatization. Deferred net fees and costs related to loans held for investment are recognized in interest income on an effective yield basis
over the contractual loan term.

Loans
held for sale are carried at the lower of cost or fair value on an individual basis for commercial loans and on an aggregate basis for residential mortgage loans. Changes in value
are recognized in other noninterest income. Nonrefundable fees and direct loan origination costs related to loans held for sale are deferred and recognized as a component of the gain or loss on sale.
Interest income is accrued principally on a simple interest basis.

Loans
purchased with evidence of credit quality deterioration since their origination are recorded initially at fair value with no allowance for loan losses. Interest income is
recognized based on the excess of future expected cash flows over the purchase price versus contractual cash flows. Subsequently, such loans are considered impaired if it becomes probable that the
Company will be unable to collect the initial expected future cash flows. At that time, the Company will establish an allowance for loan losses up to the amount expected at acquisition. An increase in
cash flows previously expected is recorded as interest income prospectively over the remaining life of the loan.

Loans
purchased without evidence of credit deterioration since origination are recorded at the present value of amounts to be received discounted at current interest rates at which
similar loans would be made to borrowers with similar credit ratings and for similar maturities with the allowance for loan losses carried over. The difference between the recorded value and the par
value of the loans is reflected in interest income over the life of the loan.

Nonaccrual
loans are those for which management has discontinued accrual of interest because there exists significant uncertainty as to the full and timely collection of either principal
or interest or such loans have become contractually past due 90 days with respect to principal or interest. Interest accruals are continued for

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2007, 2008 and 2009 (Continued)

Note 1Summary of Significant Accounting Policies and Nature of Operations (Continued)

certain
small business loans that are processed centrally, consumer loans, and one-to-four family residential mortgage loans. These loans are charged off or written down to
their net realizable value based on delinquency time frames that range from 120 to 270 days, depending on the type of credit that has been extended. Effective January 1, 2009, consumer
equity loans and one-to-four single family residential loans are placed on nonaccrual when these loans are delinquent 90 days or more, or in foreclosure. Interest
accruals are also continued for loans that are both well-secured and in the process of collection. For this purpose, loans are considered well-secured if they are
collateralized by property having a net realizable value in excess of the amount of principal and accrued interest outstanding or are guaranteed by a financially responsible and willing party. Loans
are considered "in the process of collection" if collection is proceeding in due course either through legal action or other actions that are reasonably expected to result in the prompt repayment of
the debt or in its restoration to current status.

When
a loan is placed on nonaccrual, all previously accrued but uncollected interest is reversed against current period operating results. When full collection of the outstanding
principal balance is in doubt, subsequent payments received are first applied to unpaid principal and then to uncollected interest. A loan may be returned to accrual status at such time as the loan is
brought fully current as to both principal and interest, and, in management's judgment, such a loan is considered to be fully collectible on a timely basis. However, the Company's policy also allows
management to continue the recognition of interest income on certain loans designated as nonaccrual. This portion of the nonaccrual portfolio is referred to as "Cash Basis Nonaccrual" loans. This
policy only applies to loans that are well-secured and in management's judgment are considered to be fully collectible but the timely collection of payments is in doubt. Although the
accrual of interest is suspended, interest income is recognized as it is received.

Loans
are considered impaired when, based on current information, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan
agreement, including interest payments. Impaired loans are carried at the lower of the recorded investment in the loan, the present value of expected future cash flows discounted at the loan's
effective rate, or the fair value of the collateral, if the loan is collateral dependent. Additionally, some impaired loans with commitments of less than $2.5 million are aggregated for the
purpose of measuring impairment using historical loss factors as a means of measurement. Excluded from the impairment analysis are large groups of smaller balance homogeneous loans such as consumer
and residential mortgage loans, which are evaluated on a pool basis.

The
Company offers primarily two types of leases to customers: 1) direct financing leases where the assets leased are acquired without additional financing from other sources, and
2) leveraged leases where a substantial portion of the financing is provided by debt with no recourse to the Company. Direct financing leases are carried net of unearned income, unamortized
nonrefundable fees and related direct
costs associated with the origination or purchase of leases. Leveraged leases are carried net of nonrecourse debt.



The Company maintains an allowance for loan losses to absorb losses inherent in the loan portfolio. The allowance is based on ongoing,
quarterly assessments of the probable estimated losses inherent in the loan portfolio. The allowance is increased by the provision for loan losses, which is charged against current period operating
results and decreased by the amount of charge offs, net of recoveries. The Company's methodology for assessing the appropriateness of the allowance consists of several key elements, which include the
formula allowance, the specific allowance and the unallocated allowance.

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2007, 2008 and 2009 (Continued)

Note 1Summary of Significant Accounting Policies and Nature of Operations (Continued)

The
formula allowance is calculated by applying loss factors to outstanding loans. Loss factors are based on the Company's historical loss experience and may be adjusted for significant
factors that, in management's judgment, affect the collectibility of the portfolio as of the evaluation date. The Company derives the loss factors for most commercial loans from a loss migration model
and, for pooled loans, by using expected net charge offs. Pooled loans are homogeneous in nature and include consumer and residential mortgage loans, and certain small commercial loans. Estimated
losses are based on a loss confirmation period, which is the estimated average period of time between a material adverse event affecting the creditworthiness of a borrower for
non-criticized, risk-graded credits or through the remaining life of the loan for criticized, risk-graded credits, and the subsequent recognition of a loss.

Specific
allowances are established in cases where management has identified significant conditions or circumstances related to a credit that management believes indicate that a probable
loss has been incurred in excess of the amount determined by the application of the formula allowance. The specific allowance also includes impaired leases.

The
unallocated allowance is composed of attribution factors, which are based upon management's evaluation of various conditions that are not directly measured in the determination of
the formula and specific allowances. The conditions evaluated in connection with the unallocated allowance may include existing general economic and business conditions affecting the key lending areas
of the Company, credit quality trends, collateral values, loan volumes and concentrations, specific industry conditions within portfolio segments, recent loss experience in particular segments of the
portfolio, duration of the current
business cycle, bank regulatory examination results and findings of the Company's internal credit examiners.

The
allowance also incorporates the results of measuring impaired loans. Impairment is recognized as a component of the existing allowance for loan losses.



Premises and equipment are carried at cost, less accumulated depreciation and amortization, and fair value adjustments related to the
Company's privatization. Depreciation and amortization are calculated using the straight-line method over the estimated useful life of each asset. Lives of premises range from ten to forty
years; lives of furniture, fixtures and equipment range from three to eight years. Leasehold improvements are amortized over the term of the respective lease or the estimated life of the improvement,
whichever is shorter.

Long-lived
assets that are held are evaluated periodically for impairment when events or changes in circumstances indicate that the carrying amount may not be recoverable.
Impairment is determined if the expected undiscounted future cash flows of a long-lived asset is lower than its carrying value. In the event of impairment, the Company recognizes a loss
for the difference between the carrying amount and the fair value of the asset. The impairment loss is reflected in noninterest expense.



Intangible assets represent purchased assets that lack physical substance and can be separately distinguished from goodwill because of
contractual or other legal rights or because the asset is capable of being sold or exchanged. Intangible assets are recorded at fair value at the date of acquisition.

Intangible
assets that have infinite lives are tested for impairment at least annually.

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UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2007, 2008 and 2009 (Continued)

Note 1Summary of Significant Accounting Policies and Nature of Operations (Continued)

Intangible
assets that have finite lives, which include core deposit intangibles, customer relationships and trade name, are amortized either using the straight-line method
or a method that patterns the manner in which the economic benefit is consumed. Intangible assets are typically amortized over their estimated periods of benefit, which range from six to forty years.
The Company periodically evaluates the recoverability of intangible assets and takes into account events or circumstances that warrant revised estimates of useful lives or that indicate that
impairment exists.



Other real estate owned (OREO) represents the collateral acquired through foreclosure in full or partial satisfaction of the related
loan. OREO is recorded at the lower of the loan's unpaid principal balance or its fair value as established by a current appraisal, adjusted for disposition costs. Any write-down at the
date of transfer is charged to the allowance for loan losses. OREO values, recorded in other assets, are reviewed on an ongoing basis and any decline in value is recognized as foreclosed asset expense
in the current period. The net operating results from these assets are included in the current period in noninterest expense as foreclosed asset expense (income).



The Company invests in private capital investments which include direct investments in private companies and indirect investments in
private equity funds. These investments are accounted for based on the cost or equity method of accounting depending on whether the Company has significant influence over the investee. These
investments are initially recorded at cost. Under the equity method the investment is adjusted for the Company's share of investee's net income or loss for the period. Under the cost method dividends
received are recognized in other noninterest income and dividends received in excess of the investee's earnings are considered a return of investment and are recorded as a reduction of investment
cost. These investments are evaluated for other-than-temporary impairment if events or conditions indicate that it is probable that the carrying value of the investment will
not be fully recovered in the foreseeable future. If an investment is determined to be impaired, it is written down to its current fair value. Fair value is estimated based on a company's business
model, current and projected financial performance, liquidity and overall economic and market conditions. As a practical expedient, fair value can also be estimated as the net asset value (NAV) of the
fund.

The
Company invests in limited liability partnerships and other entities operating qualified affordable housing projects to receive tax benefits in the form of tax deductions from
operating losses and tax credits. These low-income housing credit (LIHC) investments provide tax benefits to investors in the form of tax deductions from operating losses and tax credits.
The unguaranteed LIHC investments are initially recorded at cost, and the carrying value is amortized as an expense over the period of available tax credits and tax benefits.

The
Company also invests in guaranteed LIHC investments where the availability of tax credits are guaranteed by a creditworthy entity. The investments are initially recorded at cost and
amortized over the period the tax credits are allocated to provide a constant effective yield.

The
Company invests in limited liability partnerships that operate renewable energy projects. Tax credits, taxable income and distributions associated with these renewable energy
projects are allocated to investors according to the terms of the partnership agreements. These investments are accounted for under the equity method, with the initial investment recorded at cost and
the carrying value adjusted for partnership allocations

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UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2007, 2008 and 2009 (Continued)

Note 1Summary of Significant Accounting Policies and Nature of Operations (Continued)

received.
These investments are tested annually for impairment, based on projected operating results and realizability of tax credits.

All
these investments are included within other assets and any other-than temporary impairment is recognized in other noninterest income.



The Company enters into a variety of derivative contracts as a means of reducing the Company's interest rate and foreign exchange
exposures. All derivative instruments are recorded at fair value and included in other assets or other liabilities. At inception, the Company designates a derivative instrument as: a hedge of the fair
value of a recognized asset or liability (i.e., fair value hedge), a hedge of the variability in the expected future cash flows associated with an existing recognized asset or liability or a
probable forecasted transaction (i.e., cash flow hedge), or as a free-standing derivative (i.e., economic hedge). For free-standing derivatives, the change in
fair value is recognized in earnings.

The
Company applies hedge accounting to certain of its derivatives. To qualify for hedge accounting, a derivative must be highly effective in achieving offsetting changes in the hedged
item attributable to the risk being hedged. For both fair value hedges and cash flow hedges, any ineffectiveness (i.e., the amount, which may arise during the hedging relationship, by which the
gain or loss on the designated derivative instrument does not exactly offset the gain or loss on the hedged item attributable to the hedged risk) is recognized in noninterest expense in the period in
which it arises. For qualifying fair value hedges of interest bearing assets or liabilities, the change in the fair value of the hedged item and the hedging instrument, to the extent effective, is
completely offset with no impact on earnings. For qualifying cash flow hedges, the unrealized changes in fair value, to the extent effective, are recognized in other comprehensive income. Amounts
realized on cash flow hedges related to variable rate loans and deposit liabilities are recognized in net interest income in the period in which the cash flow from the hedged item is recognized in
earnings. The fair value of cash flow hedges related to forecasted transactions is recognized as an adjustment to the carrying value of the asset or liability in the period when the forecasted
transaction occurs or in noninterest expense if the forecasted transaction no longer is expected to occur.

If
a derivative instrument is determined to no longer be highly effective as a designated hedge, hedge accounting is discontinued and the adjustment to fair value of the derivative
instrument would be recorded in earnings.



The Company enters into a variety of lease contracts generally for premises and equipment. Lease contracts that do not transfer
substantially all of the benefits and risks of ownership and do not meet the accounting requirements for capital lease classification are treated as operating leases. The Company accounts for the
payments of rent on these contracts on a straight-line basis over the lease term. At inception of the lease term, any periods for which no rents are paid and/or escalation clauses are
stipulated in the lease contract are included in the determination of the rent expense and recognized ratably over the lease term.

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2007, 2008 and 2009 (Continued)

Note 1Summary of Significant Accounting Policies and Nature of Operations (Continued)

The Company records liabilities for legal obligations associated with the future retirement of buildings and leasehold improvements at fair value when incurred. The assets are increased
by the related liability and depreciated over the estimated useful life of that asset.



Assets, liabilities and results of operations for foreign branches are recorded based on the functional currency (i.e., the
local currency) of each branch. Assets and liabilities denominated in foreign currencies are translated into U.S. dollars using the period end spot foreign exchange rates. Revenues and expenses are
translated daily using end of day spot foreign exchange rates, with resulting gains or losses included in stockholder's equity, as a component of accumulated other comprehensive income (loss), on a
net-of-tax basis.



The Company files consolidated federal and combined state income tax returns. Amounts provided for income tax expense are based on
income reported for financial statement purposes, rather than amounts reported on the Company's income tax return. Interest income, interest expense and penalties pertaining to the settlement, or
expected settlement, of prior years' tax issues are recognized in income tax expense. Deferred taxes, which arise principally from temporary differences between the period in which certain income and
expenses are recognized for financial accounting purposes and the period in which they affect taxable income, are included in the amounts provided for income taxes. Under this method, the computation
of the net deferred tax liability or asset gives current recognition to changes in the tax laws. Deferred tax assets are recognized when they meet a
"more-likely-than-not" threshold. For tax positions that meet the more-likely-than-not threshold, the largest amount of tax
benefit that is greater than 50 percent likely of being realized upon ultimate settlement with the taxing authority is recognized.



The Company maintains an allowance for losses on off-balance sheet commitments to absorb losses inherent in those
commitments upon funding. The commitments include unfunded loan commitments, standby letters of credit and commercial lines of credit that are not for sale. The Company's methodology for assessing the
appropriateness of this allowance is the same as that used for the allowance for loan losses and incorporates an assumption based upon historical information of likely utilization. See accounting
policy "Allowance for Loan Losses." The allowance for losses on off-balance sheet commitments is classified as other liabilities and the
change in this allowance is recognized in noninterest expense.



The Company provides a variety of pension and other postretirement benefit plans for eligible employees and retirees. Provisions for
the costs of these employee pension and other postretirement benefit plans are accrued and charged to expense when the benefit is earned.



Trust notes are accounted for as liabilities on the balance sheet. Interest on trust notes is treated as interest expense on an accrual
basis.

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UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2007, 2008 and 2009 (Continued)

Note 1Summary of Significant Accounting Policies and Nature of Operations (Continued)

Additional
information on the trust notes can be found in Note 14 to these consolidated financial statements.



In June 2009, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2009-01,
"Topic-105-Generally Accepted Accounting Principles amendments based
on Statement of Financial Accounting Standards No. 168The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles." The
new guidance establishes the FASB Accounting Standards Codification (FASB ASC) as the single source of authoritative US GAAP. The FASB ASC does not significantly change current
US GAAP and merely restructures the information in a topical format. The FASB ASC was effective July 1, 2009 and the technical references to US GAAP included in these consolidated
financial statements are provided under the new FASB ASC structure with the prior terminology included parenthetically within this note. At adoption, there was no impact from this change on the
Company's financial position or results of operations.



In December 2007, the FASB issued new guidance impacting FASB ASC 805, "Business Combinations" (formerly Statement of Financial
Accounting Standards (SFAS) No. 141R, "Business Combinations"). The guidance requires that all business combinations be accounted for under the "acquisition method." The guidance requires that
the assets, liabilities and noncontrolling interests of a business combination be measured at fair value at the acquisition date. The acquisition date is defined as the date an acquirer obtains
control of the entity, which is typically the closing date. The guidance requires that all acquisition and restructuring related costs be expensed as incurred and that any contingent consideration be
measured at fair value and recorded as either equity or a liability with the liability remeasured at fair value in subsequent periods. The guidance was effective January 1, 2009. At adoption,
there was no impact on the Company's financial position or results of operations.



In December 2007, the FASB issued new guidance impacting FASB ASC 810-10, "Consolidations" (formerly SFAS
No. 160, "Noncontrolling Interests in Consolidated Financial Statementsan amendment to ARB No. 51"). The guidance requires that a noncontrolling interest (formerly
minority interest) be measured at fair value at the acquisition date and be presented in the equity section on the balance sheet. The guidance requires that purchases or sales of equity interests that
do not result in a change in control be accounted for as equity transactions with no resulting gain or loss. If control is lost, the noncontrolling interest is remeasured to fair value and a gain or
loss is recorded. The guidance was effective January 1, 2009. At adoption, there was no impact on the Company's financial position or results of operations.



In March 2008, the FASB issued new guidance impacting FASB ASC 815-10, "Derivatives and Hedging" (formerly
SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activitiesan amendment of FASB Statement No. 133"). The guidance requires expanded qualitative,
quantitative and credit-risk

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UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2007, 2008 and 2009 (Continued)

Note 1Summary of Significant Accounting Policies and Nature of Operations (Continued)

disclosures
of derivative instruments and hedging activities. These disclosures include more detailed information about gains and losses, location of derivative instruments in financial statements,
and credit-risk-related contingent features in derivative instruments. The guidance also requires the disclosure of all significant concentrations of credit risks arising from
derivative instruments. The guidance, which applies only to disclosures, was effective January 1, 2009. Disclosures required under this Statement are included in Note 18 to these
consolidated financial statements.



In April 2008, the FASB issued new guidance impacting FASB ASC 350-30, "IntangiblesGoodwill and
Other" (formerly Staff Position (FSP) FAS 142-3, "Determination of the Useful Life of Intangible Assets"). The guidance requires that an entity consider its own assumptions about
the renewal or extension period, adjusted for entity-specific factors, when determining the useful life of a recognized intangible asset. In the absence of that experience, an entity should consider
market participant assumptions. The guidance was effective January 1, 2009. At adoption there was no impact on the Company's financial position or results of operations.



In December 2008, the FASB issued new guidance impacting FASB ASC 715-20-50, "Compensation
Retirement BenefitsDefined Benefit PlansDisclosure" (formerly FSP FAS 132(R)-1, "Employers' Disclosures about Postretirement Benefit Plan Assets"),
which expands the disclosure requirements related to an employer's defined benefit pension or other postretirement plan. The guidance requires additional disclosure information, including how a
company makes investment allocation decisions, the fair value of each major category of plan assets and the
nature and amount of concentration risk within or across those plan asset categories. Additionally, the guidance requires disclosures about the valuation of plan assets, including the level within the
fair value hierarchy in which fair value measurements of plan assets fall and information about the inputs and valuation techniques used to measure the fair value of plan assets. The guidance, which
applies only to disclosures, was effective December 31, 2009. Disclosures required under this Statement are included in Note 9 to these consolidated financial statements.



In April 2009, the FASB issued new guidance impacting FASB ASC 805-10, "Business Combinations" (formerly
FSP FAS 141(R)-1, "Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies"). The guidance requires that an asset or
liability assumed in a business combination that arises from a contingency be recognized at fair value on the acquisition date if fair value can be determined during the measurement period. If fair
value cannot be determined during the measurement period, the accounting for the acquired contingency should follow existing accounting guidance. The guidance was effective January 1, 2009. At
adoption, there was no impact on the Company's financial position or results of operations.



In April 2009, the FASB issued new guidance impacting FASB ASC 820-10, "Fair Value Measurements and Disclosures" (formerly
FSP FAS 157-4, "Determining Fair Value When the Volume and Level of Activity for

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UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2007, 2008 and 2009 (Continued)

Note 1Summary of Significant Accounting Policies and Nature of Operations (Continued)

the
Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly"). The guidance provides additional information for estimating fair value when the volume and
level of activity for an asset or liability has significantly decreased. The guidance provides factors to consider when determining whether there has been a significant decline in volume or level of
activity. The guidance also affirms that the objective of a fair value measurement is the price that would be received to sell an asset in an orderly transaction under current market conditions, even
if the market is inactive. The guidance was effective April 1, 2009. At adoption, there was no impact on the Company's financial position or results of operations.



In April 2009, the FASB issued new guidance impacting FASB ASC 320-10, "Investments-Debt and Equity Securities"
(formerly FSP FAS 115-2 and FAS 124-2, "Recognition and Presentation of Other-Than-Temporary Impairments"). The guidance amends the
determination and recognition of other-than-temporary impairment criteria related to debt securities. The guidance establishes new criteria for determining whether impairment
is other-than-temporary and what portion of any such impairment is recognized in earnings. A company is required to assert whether it intends or it is more likely than not that
it will need to sell a security with an unrealized loss before full recovery of the amortized cost basis. If it is likely that a security will be sold prior to full recovery, the security must be
written down to its current fair value and the entire loss recognized in earnings immediately. If it is likely that the security will not be sold prior to recovery, but the amortized cost basis will
not be collected, the security must be written down to its current fair value. However, in that case, only the credit loss component shall be recognized in earnings immediately with the remaining
non-credit related loss portion recorded in other comprehensive income. The guidance was effective April 1, 2009. At adoption, there was no impact on the Company's financial
position or results of operations.



In May 2009, the FASB issued FASB ASC 855-10, "Subsequent Events" (formerly SFAS No. 165, "Subsequent Events"),
which requires an evaluation of events or transactions that occur after the balance sheet date through the date that the financial statements are issued or available to be issued. The guidance also
provides information about when such a subsequent event should be recognized in the financial statements and requires the disclosure of the date through which subsequent events were evaluated and
whether that represents the date the financial statements were issued or available to be issued. The guidance was effective June 30, 2009. In February 2010, the FASB issued FASB ASU
2010-09, "Amendments to Certain Recognition and Disclosure Requirements," which amends the above subsequent event guidance to remove the requirement to disclose the actual date through
which subsequent events have been evaluated. This guidance was effective upon issuance. At adoption of both of the above guidance, there was no impact on the Company's financial position or results of
operations. The Company evaluates the impact of subsequent events through the date that its financial statements are issued. Disclosures required under this guidance are included in Note 27 to
these consolidated financial statements.



In December 2009, the FASB issued ASU 2009-16, "Accounting for Transfers of Financial Assets" which formally codifies SFAS
No. 166, "Accounting for Transfers of Financial Assetsan amendment of FASB Statement 140," which was issued in June 2009. The guidance eliminates the concept of qualifying special
purpose entities (QSPEs) and modifies financial asset derecognition criteria. The elimination of the exception

F-67

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2007, 2008 and 2009 (Continued)

Note 1Summary of Significant Accounting Policies and Nature of Operations (Continued)

for
QSPEs will likely result in many sponsors that transferred financial assets to such vehicles to consolidate them. The derecognition modifications require that companies consider all arrangements
such that the transferred financial asset is legally isolated from the transferor and any of its consolidated affiliates when determining whether derecognition is appropriate for a transferred
financial asset. For a transfer of a portion of a financial asset to be derecognized, it must meet the definition of a participating interest. The guidance also requires that all beneficial interests
retained in transferred financial assets be initially measured at fair value. Disclosures are amended to require description of a company's continuing involvement with transferred financial assets and
details regarding financial or other support provided. The guidance is effective January 1, 2010. Management believes that adopting this guidance will not have a material impact on the
Company's financial position or results of operations.



In December 2009, the FASB issued ASU 2009-17, "Improvements to Financial Reporting by Enterprises Involved with Variable
Interest Entities" which formally codifies SFAS No. 167, "Amendments to FASB Interpretation No. 46(R)" which was issued in June 2009. The guidance changes the method of analyzing which
party shall consolidate a variable interest entity (VIE) by providing revised criteria for determining the primary beneficiary. A company would be required to determine the primary beneficiary of a
VIE on a continual basis based on a qualitative assessment of which party, if any, has the power to direct activities and the right to receive benefits or the obligation to absorb losses. The guidance
also states that if power is shared by multiple parties such that no one party has the power to direct the activities, then no party shall consolidate the VIE. Disclosures are also amended to require
disclosure of continuing involvement with VIEs and judgments used in the consolidation analysis such as the method, significant judgments and assumptions used for determining the primary beneficiary.
The guidance is effective January 1, 2010. As a result of reviewing the Company's variable interest entities and the determination of the primary beneficiary, the Company expects to consolidate
certain Low Income Housing Tax Credit investment funds. At adoption, management expects to recognize additional assets of approximately $300 million upon consolidation of these entities.
Management believes that adopting this guidance will not have a material impact on the Company's results of operations.



In August 2009, the FASB issued ASU 2009-05, "Measuring Liabilities at Fair Value." This guidance amends FASB ASC
820-10, "Fair Value Measurements and Disclosures" to clarify that, if available, an entity should measure the fair value of a liability using a quoted price in an active market. If such
information is not available, an entity should use a valuation technique based on the quoted price when the liability or similar liabilities are traded as assets, if available, which should not be
adjusted for any transfer restrictions. The guidance also emphasizes that an entity should maximize the use of relevant observable inputs and minimize the use of unobservable inputs. The guidance was
effective October 1, 2009. At adoption, there was no impact on the Company's financial position or results of operations.



In October 2009, the FASB issued ASU 2009-12, "Investments in Certain Entities That Calculate Net Asset Value per Share (or
Its Equivalent)." This guidance amends FASB ASC 820-10, "Fair Value Measurements and Disclosures" to state that if an investment does not have a readily determinable fair value

F-68

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2007, 2008 and 2009 (Continued)

Note 1Summary of Significant Accounting Policies and Nature of Operations (Continued)

and
has all the attributes of an investment company, a reporting entity is permitted, as a practical expedient, to estimate fair value using the investment's net asset per share (NAV). The NAV should
be calculated as of the reporting entity's measurement date and, if not, the NAV must be adjusted for significant market events since its calculation. This guidance also precludes a reporting entity
from using this practical expedient if it is probable that it will sell the investment at a price other than NAV. The guidance also requires enhanced disclosures about the nature and risk of such
investments. The guidance was effective October 1, 2009. At adoption, there was no material impact on the Company's financial position or results of operations. Disclosures required under this
guidance are included in Note 17 to these consolidated financial statements.



In January 2009, the FASB issued ASU 2010-06, "Improving Disclosures about Fair Value Measurements." This guidance amends
FASB ASC 820-10, "Fair Value Measurements and Disclosures" with respect to disclosures. Specifically, this guidance requires the disclosure of transfers in and out of Level 1 and
Level 2 and a gross presentation within the Level 3 rollforward. This guidance also clarifies that the information should be presented by class of financial asset or liability and that a
discussion of valuation techniques and inputs is required for Level 2 and Level 3 recurring and nonrecurring fair value measurements. The guidance is effective March 31, 2010
except for the gross presentation within the Level 3 rollforward, which is effective March 31, 2011. Management believes that adopting this guidance will not have a significant impact on
the Company's financial position or results of operations.

Note 2Privatization

On November 4, 2008, the Company became a privately held company (privatization transaction) pursuant to the Agreement and Plan of Merger, dated as of August 18, 2008, by
and among the Company, BTMU, a wholly-owned subsidiary of Mitsubishi UFJ Financial Group, Inc. (MUFG), and Blue Jackets, Inc., a Delaware corporation and a wholly-owned subsidiary of
BTMU (Merger Sub) (the Merger Agreement). All of the Company's issued and outstanding shares of common stock are now owned by BTMU. Prior to the transaction, BTMU owned approximately 64 percent
of the Company's outstanding shares of common stock.

The
Merger Agreement provided, among other things, for a cash tender offer by BTMU (the Offer) to purchase all of the publicly held outstanding shares of the Company's common stock at a
price of $73.50 per share in cash (the Offer Price). The Offer expired on September 26, 2008, with purchase of the shares being effective on October 1, 2008. After the Offer, BTMU owned
approximately 97 percent of the Company's outstanding common stock. On November 4, 2008, pursuant to the Merger Agreement, Merger Sub was merged with and into the Company (the Merger),
the separate corporate existence of
Merger Sub ceased and the Company continued as the surviving corporation in the Merger. All remaining publicly held shares of the Company's common stock issued and outstanding immediately prior to the
closing of the Merger were converted into the right to receive the Offer Price.

The
privatization transaction was accounted for as a business combination and the purchase price was pushed down to the Company's consolidated financial statements. Accordingly, the
purchase price paid by BTMU plus related purchase accounting adjustments have been reflected on the Company's consolidated balance sheet as of October 1, 2008. This resulted in a new basis of
accounting which reflects an adjustment for the estimated fair value of the Company's assets and liabilities. On October 1, 2008, BTMU owned approximately 97 percent of the Company's
common stock and acquired the remaining 3 percent on

F-69

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2007, 2008 and 2009 (Continued)

Note 2Privatization (Continued)

November 4,
2008. The difference in the fair value between these dates was deemed to be immaterial. Accordingly, the Company recorded all fair value adjustments on October 1, 2008.

The
fair value adjustment of the Company's assets and liabilities was required to reflect only the proportionate incremental percentage of shares acquired by BTMU in the privatization
transaction, which was 35.58 percent. Therefore, the historical book value of the Company's tangible assets and liabilities plus 35.58 percent of the differential between the fair value
and the book value of such assets and liabilities as of October 1, 2008 was reflected on the Company's consolidated balance sheet.

In
addition, certain new identifiable intangible assets, such as customer relationships, customer deposit intangibles (CDI) and trade name, have been recorded at 35.58 percent of
their estimated fair value at October 1, 2008. After all of the fair value adjustments to the Company's assets and liabilities were assigned, the remainder of the purchase price was recorded as
goodwill. None of the fair value adjustments are deductible for tax purposes. However, purchase accounting allows for the establishment of deferred tax liabilities on intangibles (other than
goodwill), which will be reflected as a tax benefit on the Company's future consolidated statements of income in proportion to and over the amortization period of the related intangible asset.

Goodwill
previously recorded by BTMU, which totaled $335 million, was pushed down to the Company's consolidated balance sheet as part of the privatization transaction. In
addition, CDI totaling $92 million and a fair value adjustment to loans of negative $15 million, which were previously recorded by BTMU, had also been pushed down to the Company's
consolidated balance sheet.

The
following table summarizes the purchase price and the computation of goodwill as of October 1, 2008:

(Dollars in millions, except per share amount)Shares purchased by BTMU


49,904,762Offer price

$
73.50Purchase price


3,668Capitalized acquisition costs


15Total

$
3,683Stockholder's equity as of September 30, 2008

$
4,693Minority interest ratio


35.58
%Minority interest as of September 30, 2008


1,670Other adjustment


8Minority interest acquired by BTMU


1,678Goodwill


2,005Fair value adjustments


(326
)Goodwill pushed-down from BTMU


335Total goodwill recorded

$
2,014


F-70

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2007, 2008 and 2009 (Continued)

Note 2Privatization (Continued)

The following table summarizes the allocation of goodwill by operating business segments as of October 1, 2008:

(Dollars in millions)Retail Banking

$
954Corporate Banking


1,046Other


14Total

$
2,014


Management estimated the fair value of its assets and liabilities as of October 1, 2008. Among the balances adjusted were identifiable
assets related to loans, leases and premises and equipment, and liabilities related to debt.

The
following table summarizes the adjusted balance sheet as of October 1, 2008:

(Dollars in millions)AssetsTotal cash and cash equivalents

$
2,464Trading account assets


729Securities available for sale


8,295Loans (net of allowance for loan losses)


47,437Due from customers on acceptances


22Premises and equipment, net


657Intangible assets


756Goodwill


2,369Other assets


2,528Assets of discontinued operations to be disposed or sold


5Total assets

$
65,262LiabilitiesTotal deposits

$
42,356Federal funds purchased and securities sold under repurchase agreements


1,760Commercial paper


1,660Other borrowed funds


6,719Trading account liabilities


507Acceptances outstanding


22Other liabilities


1,319Medium- and long-term debt


3,803Junior subordinated debt payable to subsidiary grantor trust


14Liabilities of discontinued operations to be extinguished or assumed


22Total liabilities


58,182Total stockholder's equity


7,080Total liabilities and stockholder's equity

$
65,262


F-71

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2007, 2008 and 2009 (Continued)

Note 2Privatization (Continued)

The Company assigned amounts to intangible assets at October 1, 2008 as follows:

(Dollars in millions)

Fair Value at
October 1, 2008

Life (years)Core deposit intangibles

$
484


10Customer relationships


57


22Trade name


109


40Other


10


7Total

$
660


The Company recorded amortization (accretion) of the fair value adjustments by category for the years ended December 31, 2008 and 2009 as
follows:

For the year ended
December 31,(Dollars in thousands)

2008

2009Securities

$
(3,258
)
$
(31,984
)Loans


(14,350
)

(92,885
)Cash flow hedges


4,141


13,088Premises and equipment


2,119


6,390Intangible assets


42,254


160,338Long-term debt


1,113


3,640Total amortization

$
32,019

$
58,587


The Company recorded expenses for the privatization transaction for the years ended December 31, 2008 and 2009 as follows:

For the year ended
December 31,(Dollars in thousands)

2008

2009Salaries and employee benefits(1)

$
65,047

$
44,380Professional services


22,029


1,502Other


3,429


Total

$
90,505

$
45,882


---

As part of the Merger Agreement, all outstanding stock options, performance share units, restricted stock units and stock units were cancelled and
settled or will be settled in cash, and all unvested restricted stock awards vested. The unamortized expense for stock options, performance share units and restricted stock units was accelerated in
2008. The amounts that were settled for stock options, performance share units, restricted stock units and stock units were recorded as a reduction to additional paid-in capital of
$203.6 million. The acceleration and vesting of these awards resulted in stock-based compensation expense of $47.3 million in 2008.

F-72

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2007, 2008 and 2009 (Continued)

Note 2Privatization (Continued)

Additionally,
as part of the Merger Agreement, certain officers and other employees of the Company were granted bridge compensation awards, which vest over the interim period during
which no long-term incentive compensation awards are in place up to April 2011. The total amount awarded was $71.8 million, and $17.7 million and $44.4 million were
amortized and recorded as compensation expense in 2008 and 2009, respectively.

Note 3Securities

The amortized cost, gross unrealized gains, gross unrealized losses, and fair values of securities are presented below.

Securities Available for Sale

December 31,2007

2008

2009(Dollars in thousands)

Fair Value

Amortized
Cost(1)

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair Value

Amortized
Cost(1)

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair ValueU.S. Treasury

$
1,008

$


$


$


$


$
299,488

$
189

$


$
299,677Other U.S. government


712,108


761,000


17,988





778,988


12,311,626


13,165


47,373


12,277,418Residential mortgage-backed securitiesagency


4,964,370


5,371,181


87,803


12,038


5,446,946


9,215,771


171,513


25,161


9,362,123Residential mortgage-backed securitiesnon-agency


757,609


639,679





124,592


515,087


454,646


36


63,243


391,439State and municipal


56,756


52,749


2,185


87


54,847


43,287


1,830


21


45,096Asset-backed and debt securities


1,948,855


1,837,287


48,921


597,310


1,288,898


112,609


1,598


6,072


108,135Equity securities


13,061


109,919


126


355


109,690


74,791


441


291


74,941Foreign securities


1,393


82








82











Total securities available for sale

$
8,455,160

$
8,771,897

$
157,023

$
734,382

$
8,194,538

$
22,512,218

$
188,772

$
142,161

$
22,558,829


Securities Held to Maturity

December 31, 2009Recognized in
Other Comprehensive
Income (OCI)(2)



Not recognized
in OCI(2)(Dollars in thousands)

Amortized
Cost(1)

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Carrying
Value

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair ValueCLOs

$
1,758,716

$


$
531,094

$
1,227,622

$
231,135

$
1,199

$
1,457,558Foreign securities


96








96








96Total securities held to maturity

$
1,758,812

$


$
531,094

$
1,227,718

$
231,135

$
1,199

$
1,457,654


---

For the years ended December 31, 2007, 2008 and 2009, interest income included $2.9 million, $5.9 million and
$4.1 million, respectively, from non-taxable securities.

F-73

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2007, 2008 and 2009 (Continued)

Note 3Securities (Continued)

Transfer of Securities from Available for Sale to Held to Maturity

The Company's CLOs consist of Cash Flow CLOs. A Cash Flow CLO is a structured finance product that securitizes a diversified pool of
loan assets into multiple classes of notes from the cash flows generated by such loans. Cash Flow CLOs pay the note holders through the receipt of interest and principal repayments from the underlying
loans unlike other types of CLOs that pay note holders through the trading and sale of underlying collateral. During the first quarter of 2009, management reassessed the classification of its CLOs. On
February 28, 2009, the Company reclassified its CLOs, which totaled $1.1 billion at fair value, from available for sale to held to maturity. The related unrealized pre-tax
loss of $589 million included in accumulated OCI at the date of reclassification remained in OCI and is being amortized as a yield adjustment through earnings over the remaining terms of the
CLOs. However, there is no impact on earnings, as an equal fair value discount on the securities is being accreted through earnings over the remaining terms of the CLOs. No gain or loss was recognized
at the time of reclassification. Accordingly, no change was recorded in the amortized cost basis of the securities as a result of the transfer. The Company considers the held to maturity
classification to be more appropriate because the Company has the ability and the intent to hold these securities to maturity.

The
amortized cost and fair value of securities, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right
to call or prepay obligations, with or without call or prepayment penalties.

Maturity Schedule of Securities

Securities Available for Sale(1)

December 31, 2009(Dollars in thousands)

Amortized
Cost

Fair
ValueDue in one year or less

$
3,801,365

$
3,804,260Due after one year through five years


9,154,829


9,124,894Due after five years through ten years


1,487,402


1,526,028Due after ten years


7,993,831


8,028,706Equity securities(2)


74,791


74,941Total securities available for sale

$
22,512,218

$
22,558,829


Securities Held to Maturity

December 31, 2009(Dollars in thousands)

Amortized
Cost(3)

Fair
ValueDue in one year or less

$
96

$
96Due after one year through five years


9,941


8,603Due after five years through ten years


1,364,314


1,158,042Due after ten years


384,461


290,913Total securities held to maturity

$
1,758,812

$
1,457,654


(1)The
remaining contractual maturities of mortgage-backed securities are classified without regard to prepayments. The contractual maturity of
these securities is not a reliable indicator of their expected life since borrowers have the right to repay their obligations at any time.(2)Equity
securities do not have a stated maturity.(3)Amortized
cost reflects fair value adjustments as a result of the Company's privatization. Refer to Note 2 to these condensed
consolidated financial statements.


F-74

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2007, 2008 and 2009 (Continued)

Note 3Securities (Continued)

The proceeds from sales of securities, gross realized gains and gross realized losses are shown below.

Securities

December 31,(Dollars in thousands)

2007

2008

2009Proceeds from sales

$
352,568

$
14,647

$
5,295,472Gross realized gains


1,608


74


27,491Gross realized losses





30


42


Analysis of Unrealized Losses on Securities

At December 31, 2008 and 2009, the Company's securities available for sale, shown below, were in a continuous unrealized loss
position for the periods less than 12 months and 12 months or more.

Securities Available for Sale

December 31, 2008Less than 12 months

12 months or more

Total(Dollars in thousands)

Fair
Value

Unrealized
Losses

Count

Fair
Value

Unrealized
Losses

Count

Fair
Value

Unrealized
Losses

CountResidential mortgage-backed securitiesagency

$
188,741

$
2,035


25

$
607,171

$
10,003


84

$
795,912

$
12,038


109Residential mortgage-backed securitiesnon-agency


331,123


52,533


10


183,964


72,059


9

$
515,087

$
124,592


19State and municipal


3,242


74


5


1,669


13


7


4,911


87


12Asset-backed and debt securities


38,221


9,261


3


1,088,480


588,049


218


1,126,701


597,310


221Equity securities


5,085


355


3











5,085


355


3Total securities available for sale

$
566,412

$
64,258


46

$
1,881,284

$
670,124


318

$
2,447,696

$
734,382


364




December 31, 2009Less than 12 months

12 months or more

Total(Dollars in thousands)

Fair
Value

Unrealized
Losses

Count

Fair
Value

Unrealized
Losses

Count

Fair
Value

Unrealized
Losses

CountOther U.S. government

$
8,682,501

$
47,373


106

$


$





$
8,682,501

$
47,373


106Residential mortgage-backed securitiesagency


2,928,456


24,628


61


232,670


533


28


3,161,126


25,161


89Residential mortgage-backed securitiesnon-agency











362,471


63,243


17


362,471


63,243


17State and municipal


760


1


2


1,498


20


6


2,258


21


8Asset-backed and debt securities


27,325


2,218


3


62,427


3,853


9


89,752


6,072


12Equity securities











164


291


2


164


291


2Total securities available for sale

$
11,639,042

$
74,220


172

$
659,230

$
67,940


62

$
12,298,272

$
142,161


234


F-75

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2007, 2008 and 2009 (Continued)

Note 3Securities (Continued)

Securities Held to Maturity

December 31, 2009Less than 12 months

12 months or more

Total(Dollars in thousands)

Fair
Value

Unrealized
Losses

Count

Fair
Value

Unrealized
Losses

Count

Fair
Value

Unrealized
Losses

CountCLOs

$
103,921

$
26,412


21

$
1,353,637

$
505,881


201

$
1,457,558

$
532,293


222Total securities held to maturity

$
103,921

$
26,412


21

$
1,353,637

$
505,881


201

$
1,457,558

$
532,293


222


The Company's securities are primarily investments in debt securities. Debt securities available for sale and debt securities held to maturity are
subject to quarterly impairment testing when a security's fair value is lower than its amortized cost. Debt securities with unrealized losses are considered
other-than-temporarily impaired if the Company intends to sell the security, if it is more likely than not that the Company will be required to sell the security before
recovery of its amortized cost basis, or the Company does not expect to recover the entire amortized cost basis of the security. Any impairment on securities the Company intends, or is more likely
than not required, to sell is recognized in earnings as the entire difference between the amortized cost and its fair value. Any impairment on securities the Company does not intend or it is not more
likely than not required to sell before recovery is separated into an amount representing the credit loss, which is recognized in earnings, and the amount related to all other factors, which is
recognized in other comprehensive income. The credit loss is measured as the difference between the present value of expected cash flows, discounted using the security's effective interest rate, and
the amortized cost of the security.

The
following describes the nature of the Company's investments, the causes of impairment, the severity and duration of the impairment, if applicable, and the conclusions reached on the
temporary or other-than-temporary status of the unrealized losses.

At
December 31, 2009, the Company did not have the intent to sell temporarily impaired securities until a recovery of the fair value, which may be maturity, and it is more likely
than not that the Company will not have to sell the securities prior to recovery of fair value.



Other U.S. Government securities are securities issued by one of the several Government-Sponsored Enterprises (GSEs) such as Fannie
Mae, Freddie Mac, Federal Home Loan Banks or Federal Farm Credit Banks. They are not backed by the full faith and credit of the United States government. These securities are issued with a stated
interest rate and mature in less than five years. The unrealized losses on other U.S. Government securities resulted from higher interest rates subsequent to purchase and not credit quality. As a
result, the securities were not other-than-temporarily impaired at December 31, 2009.



Agency residential mortgage-backed securities consist of securities guaranteed by a GSE such as Fannie Mae, Freddie Mac, and Ginnie
Mae. These securities are collateralized by residential mortgage loans and may be prepaid at par prior to maturity. The unrealized losses on agency residential mortgage-backed securities resulted from
higher interest rates subsequent to purchase and not credit quality. As a result, the securities were not other-than-temporarily impaired at December 31, 2009.

F-76

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2007, 2008 and 2009 (Continued)

Note 3Securities (Continued)



Non-agency residential mortgage backed securities are issued by financial institutions with no guarantee from GSEs. These
securities are collateralized by residential mortgage loans and may be prepaid at par prior to maturity. The securities are primarily rated investment grade. The unrealized losses on
non-agency residential mortgage-backed securities resulted from declining credit quality of underlying collateral and additional credit spreads widening since purchase. The Company
estimated loss projections for each security by assessing the loans collateralizing each security. The Company estimates the portion of loss attributable to credit based on the expected cash flows of
the underlying collateral provided by a third-party vendor using industry consensus estimates of current key assumptions, such as default rates, loss severity and prepayment rates. Based on this
assessment of expected credit losses of each security, the Company concluded these securities were not other-than-temporarily impaired at December 31, 2009.



State and municipal securities are primarily securities issued by state and local governments to finance operating expenses and various
projects. These securities are issued at a stated interest rate and have varying expected maturities ranging up to 30 years. The unrealized losses on the state and municipal securities resulted
from higher interest rates subsequent to purchase and not
from credit quality. As a result, the securities were not other-than-temporarily impaired at December 31, 2009.



Asset-backed and debt securities in a loss position at December 31, 2009 consist of $83.3 million in privately placed
debt securities issued by power and utilities companies and $6.4 million in commercial mortgage-backed securities. Expected cash flows of debt securities to power and utilities companies are
assessed to determine if the amortized cost basis of the securities is recoverable. Based on this assessment, the Company concluded that these securities were not
other-than-temporarily impaired as of December 31, 2009.



CLOs are classified as held to maturity (see discussion above). Certain of these CLOs are highly illiquid securities for which fair
values are difficult to obtain. Unrealized losses arise from widening credit spreads, credit quality of the underlying collateral, uncertainty regarding the valuation of such securities and the
market's opinion of the performance of the fund managers. Cash flow analysis of the underlying collateral provides an estimate of other-than-temporary impairment, which is
performed quarterly when the fair value of a security is lower than its amortized cost. Any security with a change in credit rating is also subject to cash flow analysis to determine whether or not an
other-than-temporary impairment exists. The fair value of the CLO portfolio was adversely impacted in 2008 and 2009 by the overall financial market crisis. Although none of the
CLOs in the Company's portfolio contain subprime loan assets, widening credit spreads caused their value to decline. An analysis was performed as of December 31, 2009 to determine whether any
of the unrealized losses related to CLOs was believed to be other-than-temporary. Based on this analysis, an insignificant amount of impairment was recognized on two CLO
securities during 2009. Since no observable credit quality issues were present in the remaining CLO portfolio at December 31, 2009, the Company concluded that these securities were not
other-than-temporarily impaired.

F-77

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2007, 2008 and 2009 (Continued)

Note 3Securities (Continued)



Transactions involving purchases of securities under agreements to resell (reverse repurchase agreements or reverse repos) or sales of
securities under agreements to repurchase (repurchase agreements or repos) are accounted for as collateralized financings except where the Company does not have an agreement to sell (or purchase) the
same or substantially the same securities before maturity at a fixed or determinable price. The Company's policy is to obtain possession of collateral with a market value equal to or in excess of the
principal amount loaned under resale agreements. Collateral is valued daily, and the Company may require counterparties to deposit additional collateral or return collateral pledged, when appropriate.

The
Company reports securities pledged as collateral in secured borrowings and other arrangements when the secured party can sell or repledge the securities. Trading and available for
sale securities pledged as collateral, which totaled $15.2 million and $2.5 million, respectively, at December 31, 2009, have been separately identified on the consolidated
balance sheet. If the secured party cannot resell or repledge the securities that have been placed as collateral, those securities are not separately identified. At December 31, 2009, the
Company had $5.9 billion of securities available for sale pledged as collateral where the secured party cannot resell or repledge such securities. These available for sale securities have been
pledged to secure borrowings ($0.4 billion), to support unrealized losses on derivative transactions reported in trading liabilities ($0.3 billion) and to secure public and trust
department deposits ($5.2 billion).

At
December 31, 2008, the Company did not accept any securities as collateral that it is permitted by contract to sell or repledge. At December 31, 2009, the Company
accepted securities as collateral that it is permitted by contract to sell or repledge of $442.6 million ($434.6 million of which has been repledged to secure public agency or bankruptcy
deposits and to cover short sells.) These securities were received as collateral for secured lending and to obtain qualified securities to meet the Company's collateral needs.

F-78

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2007, 2008 and 2009 (Continued)

Note 4Loans and Allowance for Loan Losses

A summary of loans, net of unearned interest and fees (costs) of $14 million and $53 million, at December 31, 2008 and 2009, respectively, is as follows:

December 31,(Dollars in thousands)

2008

2009Commercial, financial and industrial(1)

$
18,469,023

$
15,258,081Construction


2,744,062


2,429,009Mortgage:Residential


15,880,835


16,716,048Commercial


8,186,388


8,245,778Total mortgage


24,067,223


24,961,826Consumer:Installment


2,201,602


2,244,239Revolving lines of credit


1,435,494


1,672,842Total consumer


3,637,096


3,917,081Lease financing


645,765


653,743Total loans held for investment


49,563,169


47,219,740Total loans held for sale


22,381


8,768Total loans


49,585,550


47,228,508Allowance for loan losses


737,767


1,357,000Loans, net

$
48,847,783

$
45,871,508


(1)Included
in commercial, financial and industrial loans at December 31, 2008 and 2009 were overdrafts from various deposit accounts of
$68.6 million and $25.5 million, respectively.


Changes in the allowance for loan losses were as follows:

Years Ended December 31,(Dollars in thousands)

2007

2008

2009Balance, beginning of year

$
331,077

$
402,726

$
737,767Loans charged off


18,604


177,282


532,024Recoveries of loans previously charged off


8,489


7,321


32,614Total net loans charged off


10,115


169,961


499,410Provision for allowance for loan losses


81,000


515,000


1,114,000Privatizationadjustment for impaired loans





(8,417
)

2,062Foreign translation adjustment


764


(1,581
)

2,581Ending balance of allowance for loan losses


402,726


737,767


1,357,000Allowance for off-balance sheet commitment losses


90,374


125,374


176,374Allowances for credit losses balance, end of year

$
493,100

$
863,141

$
1,533,374


The provision for loan losses increased by $599 million to $1.1 billion in 2009 from $515 million in 2008, primarily due to
higher criticized assets, especially in the commercial real estate portfolio, higher

F-79

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2007, 2008 and 2009 (Continued)

Note 4Loans and Allowance for Loan Losses (Continued)

nonaccrual
loans, increased uncertainty related to the timing and severity of losses to be realized in the commercial real estate portfolio and increases in loss factors related to several portfolio
sectors, including the consumer and small business portfolios.

Nonaccrual
loans totaled $415.0 million and $1.3 billion at December 31, 2008 and 2009, respectively. There were $1 million and $20.8 million (none and
$3.8 million of which were on accrual status at December 31, 2008 and 2009, respectively) of troubled debt restructured loans (TDRs) at December 31, 2008 and 2009, respectively.
Effective January 1, 2009, consumer home equity loans and one-to-four single family residential loans were placed on nonaccrual status when these loans are delinquent
90 days or more, or in foreclosure. Previously, these loans were not placed on nonaccrual status. However, before and after this nonaccrual accounting policy change, the loss content was
charged off on or before the loans were 180 days past due. As a result of this nonaccrual accounting policy change, home equity and one-to-four family residential loans
totaling $225.3 million ($10.3 million of which are restructured loans) have been placed on nonaccrual status as of December 31, 2009. Loans 90 days past due and still
accruing totaled $70.7 million and $5.0 million at December 31, 2008 and 2009, respectively.



Impaired loans include commercial, financial and industrial, construction, commercial mortgage, residential mortgage and consumer loans
designated as nonaccrual. When the value of an impaired loan is less than the recorded investment in the loan, a portion of the Company's allowance for loan losses is allocated as an impairment
allowance.

The
Company's policy for recognition of interest income, charge offs of loans, and application of payments on impaired loans is the same as the policy applied to nonaccrual loans.

The
following table sets forth information about the Company's impaired loans.

December 31,(Dollars in thousands)

2007

2008

2009Impaired loans with an allowance

$
55,522

$
410,494

$
1,266,253Impaired loans without an allowance(1)


208


5,807


50,878Total impaired loans(2)

$
55,730

$
416,301

$
1,317,131Allowance for impaired loans

$
11,250

$
106,835

$
223,080Average balance of impaired loans during the year

$
40,460

$
262,722

$
1,139,195Interest income recognized on loans in nonaccrual status during the year

$
3,912

$
4,315

$
9,704


(1)These
loans do not require an allowance for credit losses since the fair values of the impaired loans equal or exceed the recorded
investments in the loans. Included in this category was $1 million of nonperforming TDRs at December 31, 2008.(2)Total
impaired loans were evaluated for impairment using four measurement methods as follows: $41 million, $324 million and
$175 million were evaluated using the present value of the expected future cash flows at December 31, 2007, 2008 and 2009, respectively; $0 million, $3 million and
$675 million were evaluated using the fair value of the collateral at December 31, 2007, 2008 and 2009, respectively; $15 million, $89 million and $447 million were
evaluated using historical loss factors at December 31, 2007, 2008 and 2009, respectively; and $0 million, $0 million and $3 million were evaluated based on the observable
market for the indebtedness at December 31, 2007, 2008 and 2009, respectively.


F-80

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2007, 2008 and 2009 (Continued)

Note 4Loans and Allowance for Loan Losses (Continued)






In some cases, the Company makes loans to related parties including its directors, executive officers, and their affiliated companies.
Such loans are recorded in loans on the consolidated balance sheet. Related party loans outstanding to individuals who served as directors or executive officers and their affiliated companies at
anytime during the year totaled $17 million and $7 million at December 31, 2008 and 2009, respectively. In the opinion of management, these related party loans were made on
substantially the same terms, including interest rates and collateral requirements, as those terms prevailing in the market at the date these loans were made. During 2008 and 2009, there were no loans
to related parties that were charged off. Additionally, at December 31, 2008 and 2009, there were no loans to related parties that were nonperforming.

During
2008, the Company extended credit to BTMU, in the form of overdrafts in BTMU's accounts with the Company in the ordinary course of business. There were no overdraft balances
outstanding as of December 31, 2008 and 2009.

Note 5Goodwill and Other Intangible Assets



The changes in the carrying amount of goodwill, which is reported on a continuing operations basis, during 2007, 2008 and 2009, are
shown in the table below.

As
part of the Company's privatization transaction, $2.0 billion of goodwill was recorded on October 1, 2008. For further information, see Note 2 to these
consolidated financial statements.

(Dollars in thousands)

2007

2008

2009Goodwill, beginning of year

$
360,058

$
355,287

$
2,369,326Adjustment of goodwill related to retirement recordkeeping business sale


(4,771
)




Goodwill related to privatization transaction





2,014,039


Goodwill, end of year

$
355,287

$
2,369,326

$
2,369,326Goodwill by reportable business segment:Retail Banking

$
198,965

$
1,152,648

$
1,152,648Corporate Banking


156,322


1,216,678


1,216,678Goodwill, end of year

$
355,287

$
2,369,326

$
2,369,326


The Company reviews its goodwill for impairment on an annual basis, and whenever events or changes in circumstances indicate that the carrying
amounts may not be recoverable. The annual goodwill impairment test as of January 1, 2009 was performed during the first quarter of 2009, and no impairment was recognized.

During
the second quarter of 2009, the Company changed the date of its annual goodwill impairment test from January 1st to April 1st. The change was made to more
closely align the impairment testing date with the testing date used by BTMU, as the Company became a wholly owned subsidiary of BTMU in the fourth quarter of 2008.

F-81

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2007, 2008 and 2009 (Continued)

Note 5Goodwill and Other Intangible Assets (Continued)

The
change in goodwill impairment testing date was deemed a change in accounting principle. Management believes that the change in accounting principle will not delay, accelerate, or
avoid a goodwill impairment charge. Management determined that the change in accounting principle is preferable under the circumstances and does not result in adjustments to the Company's financial
statements when applied retrospectively.

In
order to transition to the new annual goodwill impairment test date and to ensure that no more than twelve months elapse before the next annual goodwill impairment test is performed,
goodwill impairment testing as of April 1, 2009 was performed during the second quarter of 2009. No impairment was recognized.



The table below reflects the Company's identifiable intangible assets and accumulated amortization at December 31, 2008 and
2009.

As
part of the privatization transaction, the Company recorded $752 million of intangible assets (CDI of $576 million, trade name of $109 million, customer
relationships of $57 million and other of $10 million) on October 1, 2008. For further information, see Note 2 to these consolidated financial statements.

December 31, 2008

December 31, 2009Dollars in thousands

Gross
Carrying
Amount

Accumulated
Amortization

Net
Carrying
Amount

Gross
Carrying
Amount

Accumulated
Amortization

Net
Carrying
AmountCore deposit intangibles

$
619,398

$
(79,585
)
$
539,813

$
619,398

$
(233,042
)
$
386,356Trade name


108,733


(683
)

108,050


108,733


(3,430
)

105,303Customer relationships


53,761


(1,323
)

52,438


53,761


(5,531
)

48,230Other


9,555





9,555


9,555


(1,498
)

8,057Subtotalintangibles with a definite useful life

$
791,447

$
(81,591
)
$
709,856

$
791,447

$
(243,501
)
$
547,946Other intangibles with an indefinite useful life


3,629





3,629


13,094





13,094Total intangibles

$
795,076

$
(81,591
)
$
713,485

$
804,541

$
(243,501
)
$
561,040


Total amortization expense on for 2007, 2008 and 2009 was $4.5 million, $44.9 million and $161.9 million, respectively.

F-82

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2007, 2008 and 2009 (Continued)

Note 5Goodwill and Other Intangible Assets (Continued)

Estimated
future amortization expense on a continuing operations basis at December 31, 2009 is as follows.

(Dollars in thousands)

Core Deposit
Intangibles (CDI)

Trade Name

Customer
Relationships

Other

Total Identifiable
Intangible AssetsYears ending December 31, :2010

$
114,029

$
2,747

$
4,246

$
1,488

$
122,5102011


88,015


2,747


3,968


1,322


96,0522012


69,260


2,747


3,679


873


76,5592013


44,743


2,747


3,436


852


51,7782014


31,803


2,747


3,232


712


38,494Thereafter


38,506


91,568


29,669


2,810


162,553Total estimated amortization expense

$
386,356

$
105,303

$
48,230

$
8,057

$
547,946


Note 6Premises and Equipment

Premises and equipment are carried at cost, less accumulated depreciation and amortization. Software in development is included in other assets. As of December 31, 2008 and 2009,
the amounts were as follows:

December 31,2008

2009(Dollars in thousands)

Cost(1)

Accumulated
Depreciation and
Amortization

Net Book
Value(1)

Cost(1)

Accumulated
Depreciation and
Amortization

Net Book
Value(1)Land

$
133,965

$


$
133,965

$
134,286

$


$
134,286Premises


601,088


276,476


324,612


605,822


307,204


298,618Leasehold improvements


267,739


173,277


94,462


286,482


189,967


96,515Furniture, fixtures and equipment


656,813


529,848


126,965


694,400


549,521


144,879Total

$
1,659,605

$
979,601

$
680,004

$
1,720,990

$
1,046,692

$
674,298


(1)Cost
has been updated to reflect fair value adjustments as a result of the Company's privatization.


Please see Note 2 to these consolidated financial statements for further detail.

F-83

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2007, 2008 and 2009 (Continued)

Note 6Premises and Equipment (Continued)

Rental,
depreciation and amortization expenses were as follows:

Years ended December 31,(Dollars in thousands)

2007

2008

2009Rental expense of premises

$
54,534

$
59,055

$
68,532Less: rental income


10,367


11,415


11,719Net rental expense

$
44,167

$
47,640

$
56,813Other net rental expense, primarily for equipment

$
406

$
414

$
375Depreciation and amortization of premises and equipment

$
83,921

$
88,221

$
96,446


Future minimum lease payments at December 31, 2009 are as follows:

(Dollars in thousands)Years ending December 31,:2010

$
66,5492011


60,5112012


57,3002013


54,4102014


47,365Thereafter


218,169Total minimum operating lease payments

$
504,304Minimum rental income due in the future under subleases

$
1,509


The Company's leases are for land, branch or office space. A majority of the leases provide for the payment of taxes, maintenance, insurance, and
certain other expenses applicable to the leased premises. Many of the leases contain extension provisions and escalation clauses. These leases are generally renewable and may in certain cases contain
renewal provisions and options to expand or contract space, terminate or purchase the leased premises at predetermined contractual dates. In addition, escalation clauses may exist, which are tied to
either a predetermined rate or may change based on a specified percentage increase or the Consumer Price Index.

At
December 31, 2008 and 2009, the Company had recorded a liability of $4.3 million, for asset retirement obligations. These obligations include environmental remediation
on buildings and the removal of leasehold improvements from leased premises to be vacated. Additional obligations for hazardous material disposal and premise restoration are not estimable due to the
uncertainty of disposal or lease termination dates.

F-84

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2007, 2008 and 2009 (Continued)

Note 7Other Assets



The following table shows the balances of private capital and other investments at the end of 2008 and 2009.

December 31,(Dollars in thousands)

2008

2009Private capital and other investments:Private capital investmentscost basis

$
153,077

$
119,121Private capital investmentsequity method





46,296LIHC investmentsguaranteed


219,851


185,779LIHC investmentsunguaranteed


329,027


319,031Renewable energy investments


165,749


305,917Total private capital and other investments

$
867,704

$
976,144


The Company invests in private capital funds either directly in privately held companies or indirectly through private equity funds. These
investments are accounted for based on the cost or equity method depending on whether the Company has significant influence over the investee. The investments' fair value is estimated when events or
conditions indicate that it is probable that the carrying value of the investment will not be fully recovered in the foreseeable future. Fair value is estimated based on the company's business model,
current and projected financial performance, liquidity and overall economic and market conditions. As a practical expedient, fair value can also be estimated as the NAV of the fund. If fair value is
estimated to be below cost, an evaluation for other-than-temporary impairment is performed. If any of the factors used to determine fair value indicate that a recovery is
unlikely or will not occur for a reasonable period of time, an other-than-temporary impairment is recorded. Based on this analysis, the Company recorded $15.5 million of
other-than-temporary impairment in 2009 on its private capital investments.

The
Company also invests in limited liability partnerships and other entities operating qualified affordable housing projects to receive tax benefits in the form of tax deductions from
operating losses and tax credits. These LIHC investments provide tax benefits to investors in the form of tax deductions from operating losses and tax credits. The unguaranteed LIHC investments are
initially recorded at cost, and the carrying value is amortized over the period of available tax credits and tax benefits. As of December 31, 2008 and 2009, this category also includes
$43.0 million and $34.8 million, respectively, of investments in real estate private equity funds that are compliant with the Community Reinvestment Acts Standards (CRA investments).
These investments are tested annually for impairment. During 2009, the Company recorded $2.3 million and $8.1 million of other-than-temporary impairment on its
unguaranteed LIHC and CRA investments, respectively.

The
Company also invests in guaranteed LIHC investments where the availability of tax credits are guaranteed by a creditworthy entity. The investments are initially recorded at cost and
amortized over the period the tax credits are allocated to provide a constant effective yield. These investments are tested annually for impairment. The Company had no
other-than-temporary impairment during the year on its guaranteed LIHC investments.

The
Company invests in limited liability partnerships that operate renewable energy projects. Tax credits, taxable income and distributions associated with these renewable energy
projects are allocated to investors according to the terms of the partnership agreements. These investments are accounted for under the equity

F-85

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2007, 2008 and 2009 (Continued)

Note 7Other Assets (Continued)

method,
with the initial investment recorded at cost and the carrying value adjusted for the Company's share of partnership net income and distributions received. These investments are tested annually
for impairment, based on projected operating results and expected realizability of tax credits. The Company had no other-than-temporary impairment during the year on its
renewable energy investments.



The Company records foreclosed assets at the lower of cost or fair value, less selling expenses. At December 31, 2008 and 2009,
the value of foreclosed assets was $20.2 million and $32.7 million, respectively.



At December 31, 2009, the FDIC insurance prepaid balance was $331.7 million. There was no such balance at
December 31, 2008.

Note 8Deposits

At December 31, 2009, the Company had $939.4 million in domestic interest bearing time deposits with a remaining term of greater than one year, of which
$487.6 million exceeded $100,000. Maturity information for all domestic interest bearing time deposits with a remaining term of greater than one year is summarized below.

(Dollars in thousands)

December 31, 2009Due after one year through two years

$
523,257Due after two years through three years


144,071Due after three years through four years


146,699Due after four years through five years


118,033Due after five years


7,376Total

$
939,436


Note 9Employee Pension and Other Postretirement Benefits

The following information includes both continuing and discontinued operations.



The Company maintains the Union Bank Retirement Plan (the Pension Plan), which is a noncontributory qualified defined benefit pension
plan covering substantially all of the domestic employees of the Company. The Pension Plan provides retirement benefits based on years of credited service and the final average compensation amount, as
defined in the Pension Plan. Employees become eligible for this Plan after one year of service and become fully vested after five years of service. The Company's funding policy is to make
contributions between the minimum required and the maximum deductible amount as allowed by the Internal Revenue Code. Contributions are intended to provide not only for benefits attributed to services
to date, but also for those expected to be earned in the future.

F-86

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2007, 2008 and 2009 (Continued)

Note 9Employee Pension and Other Postretirement Benefits (Continued)



The Company maintains the Union Bank Employee Health Benefit Plan, which is a qualified plan and in part provides certain healthcare
benefits for its retired employees and life insurance benefits for those employees who retired prior to January 1, 2001, which together are presented as "Other Benefits." The healthcare cost is
shared between the Company and the retiree. The life insurance plan is noncontributory. The accounting for the Other Benefits Plan anticipates future cost-sharing changes that are
consistent with the Company's intent to maintain a level of cost-sharing at approximately 25 to 50 percent, depending on the retiree's age and length of service with the Company.
Assets set aside to cover such obligations are primarily invested in mutual funds and insurance contracts.

The
following table sets forth the fair value of the assets in the Company's pension plan and other benefit plan as of December 31, 2008 and 2009.

Pension Plan

Other Benefits PlanYears Ended December 31,

Years Ended December 31,(Dollars in thousands)

2008

2009

2008

2009Change in plan assetsFair value of plan assets, beginning of year

$
1,744,500

$
1,209,291

$
173,603

$
125,052Actual return on plan assets


(356,352
)

266,974


(32,538
)

31,117Fair value adjustment amount related to the Company's privatization


(133,803
)




(13,480
)

Employer contributions





100,000


8,831


11,933Plan participants' contributions








4,239


4,361Benefits paid


(45,054
)

(48,963
)

(15,603
)

(17,847
)Fair value of plan assets, end of year

$
1,209,291

$
1,527,302

$
125,052

$
154,616


The investment objective for the Company's Pension Plan and Other Benefits Plan is to maximize total return within reasonable and prudent levels
of risk. The Plans' asset allocation strategy is the principal determinant in achieving expected investment returns on the Plans' assets. The asset allocation strategy favors equities, with a target
allocation of 65 percent in equity securities, 25 percent in debt securities, and 10 percent in real estate investments. Additionally, the Other Benefit Plan holds investments in
an insurance contract with Hartford Life that is separate from the target allocation. Actual asset allocations may fluctuate within acceptable ranges due to market value variability. If market
fluctuations cause an asset class to fall outside of its strategic asset allocation range, the portfolio will be rebalanced as appropriate. A core equity position of domestic large cap and small cap
stocks will be maintained, in conjunction with a diversified portfolio of international equities and fixed income securities. Plan asset performance is compared against established indices and peer
groups to evaluate whether the risk associated with the portfolio is appropriate for the level of return.

The
Company periodically reviews the Plans' strategic asset allocation policy and the expected long-term rate of return for plan assets. The investment return volatility of
different asset classes and the liability structure of the plans are evaluated to determine whether adjustments are required to the Plans' strategic asset allocation policy, taking into account the
principles established in the Company's funding policy. Management periodically reviews and adjusts the long-term rate of return on assets assumption for the Plans based on the expected
long-term rate of return for the asset classes and their weightings in the Plans' strategic asset

F-87

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2007, 2008 and 2009 (Continued)

Note 9Employee Pension and Other Postretirement Benefits (Continued)

allocation
policy and taking into account the prevailing economic and regulatory climate and practices of other companies both within and outside our industry.

The
following table provides the fair value by level within the fair value hierarchy of the Company's period-end assets by major asset category for the Pension Plan and Other
Benefits Plan.
For information about the fair value hierarchy levels, refer to Note 17. The Plans do not hold any equity or debt securities issued by the Company or any related parties.

December 31, 2009(Dollars in thousands)

Level 1

Level 2

Level 3

TotalPension Plan Investments:Money market funds

$
12,110

$


$


$
12,110U.S. Government securities


41,182








41,182Corporate bonds





161,224





161,224Equity securities


144,240








144,240Real estate funds








52,488


52,488Limited partnerships





97,201





97,201Common collective funds





336,620





336,620Mutual funds


680,653








680,653Other





584


1,000


1,584Total Plan Investments

$
878,185

$
595,629

$
53,488

$
1,527,302




Level 3 Assets for year ended December 31, 2009(Dollars in thousands)

Real Estate Funds

Other

TotalBeginning balanceJanuary 1, 2009

$
79,579

$


$
79,579Unrealized gains (losses)(1)


(28,211
)

81


(28,130
)Purchases, issuances, and settlements


1,120


919


2,039Ending balanceDecember 31, 2009

$
52,488

$
1,000

$
53,488


(1)There
were no level 3 plan assets sold during the year.




December 31, 2009(Dollars in thousands)

Level 1

Level 2

Level 3

TotalOther Postretirement Retirement Benefits Plan Investments:Money market funds

$
9

$


$


$
9Common collective funds





33,349





33,349Mutual funds


85,737








85,737Pooled separate account





35,521





35,521Total Plan Investments

$
85,746

$
68,870

$


$
154,616


F-88

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2007, 2008 and 2009 (Continued)

Note 9Employee Pension and Other Postretirement Benefits (Continued)

A description of the valuation methodologies used to determine the fair value of the Plans' assets included within the tables above is as follows:



Money market funds represent cash and maintain a constant NAV of $1. These money market funds are classified as Level 1
measurements based on unadjusted prices for identical securities in an active market.



U.S. treasury securities are fixed income securities that are debt instruments issued by the United States Department of the
Treasury. These securities are valued by a third-party pricing provider using secondary transactions in an active market for identical securities. U.S. treasury securities are classified as
Level 1 measurements based on unadjusted prices for identical instruments in active markets.

U.S agency
securities are fixed income securities and are valued by a third party pricing provider using secondary transactions in an active market for identical securities. These
securities are classified as Level 1 measurements based on unadjusted prices for identical instruments in active markets.



Corporate bonds are fixed income securities in investment-grade bonds of U.S. issuers from diverse industries. These securities
are classified as Level 2 based on valuations provided by a third-party pricing provider using quoted market prices in an active market for similar securities.



Equity securities are common stock and the fair value is recorded based on quoted market prices obtained from an exchange. These
securities are classified as Level 1 measurements based on unadjusted prices for identical instruments in active markets.



Real estate funds invest in real estate property with a focus on apartment complexes and retail shopping centers. The valuations of
these investments require significant judgment due to the absence of quoted market prices, lack of liquidity and the scarcity of observable sales of similar assets. The values are estimated by
adjusting the previous quarter's NAV for current quarterly income and depreciation activity. These funds are classified as Level 3 measurements due to the use of significant unobservable inputs
and judgment to estimate fair value.



Limited partnerships invest in equity securities of diverse foreign companies in developed markets across diverse industries. Limited
partnerships are valued using the NAV of the partnership at the end of the period. These partnerships are classified as Level 2 measurements due to the use of quoted market prices of the
underlying securities in actively traded markets as the primary input to derive the NAV.

F-89

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2007, 2008 and 2009 (Continued)

Note 9Employee Pension and Other Postretirement Benefits (Continued)



Common collective funds invest in bonds of U.S. and foreign issuers and in equity securities of U.S. and foreign real
estate companies. These funds are valued using the NAV of the fund at the end of the period. These funds are classified as Level 2 measurements due to the use of quoted market prices of the
underlying securities in actively traded markets as the primary input to derive the NAV.



Mutual funds invest in equity securities that seek to track the performance of the Standard & Poor's 500, S&P Completion
and the EAFE® indexes. These funds are valued using an exchange traded NAV at the end of the period. These mutual funds are classified as Level 1 measurements based on unadjusted
quoted prices for identical instruments in active markets.



The pooled separate account is an investment with Hartford Life Company. The investment consists of four funds that mainly invest in
U.S. agency guaranteed mortgage-backed securities, investment-grade bonds of U.S. issuers from diverse industries, and exchange traded equity securities of U.S. and foreign
companies. These funds are valued using quoted market prices of the funds' underlying investments to derive the funds' NAV at the end of the period. The investment is comprised of equity securities
and U.S. bonds. This investment is classified as Level 2 measurements due to the use of quoted market prices of the underlying securities in actively traded markets as the primary input
to derive the NAV.

The
following table sets forth the benefit obligation activity and the funded status for each of the Company's plans at December 31, 2008 and 2009. In addition, the table sets
forth the over/(under)
funded status at December 31, 2008 and 2009. This pension benefits table does not include the obligations for the Executive Supplemental Benefit Plans (ESBPs).

Pension Benefits

Other BenefitsYears Ended December 31,

Years Ended December 31,(Dollars in thousands)

2008

2009

2008

2009Accumulated benefit obligation

$
1,291,710

$
1,304,460Change in projected benefit obligationProjected benefit obligation, beginning of year

$
1,305,848

$
1,454,343

$
200,060

$
218,690Service cost


50,166


52,375


7,941


8,370Interest cost


78,085


83,067


11,391


11,283Plan participants' contributions








4,239


4,361Fair value adjustment amount related to the Company's privatization


(73,374
)




(7,823
)

Actuarial loss (gain)


138,672


(86,628
)

17,798


(203
)Medicare part D employer subsidy payments








687


813Benefits paid


(45,054
)

(48,963
)

(15,603
)

(17,847
)Projected benefit obligation, end of year


1,454,343


1,454,194


218,690


225,467Fair value of plan assets, end of year


1,209,291


1,527,302


125,052


154,616Over/(under) funded status

$
(245,052
)
$
73,108

$
(93,638
)
$
(70,851
)


F-90

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2007, 2008 and 2009 (Continued)

Note 9Employee Pension and Other Postretirement Benefits (Continued)

The following table illustrates the changes that were reflected in accumulated other comprehensive income during 2007, 2008 and 2009. The pension
benefits table does not include the ESBPs.

Pension Benefits

Other Benefits(Dollars in thousands)

Net Actuarial
(Gain)/Loss

Prior Service
Costs

Transition
Assets

Net Actuarial
(Gain)/Loss

Prior Service
Costs (Credits)Amounts Recognized in Other Comprehensive Loss:Balance, December 31, 2006

$
203,162

$
256

$
12,210

$
46,365

$
(961
)Arising during the year


14,254








12,782


Recognized in net income during the year


(16,009
)

(256
)

(2,035
)

(3,774
)

96Balance, December 31, 2007

$
201,407

$


$
10,175

$
55,373

$
(865
)Arising during the year


628,761








63,660


Fair value adjustment amount related to the Company's privatization


(69,012
)




(3,077
)

(16,533
)

282Recognized in net income during the year


(9,049
)




(1,854
)

(2,971
)

88Balance, December 31, 2008

$
752,107

$


$
5,244

$
99,529

$
(495
)Arising during the year


(212,992
)







(21,316
)

Recognized in net loss during the year


(12,180
)




(1,311
)

(6,989
)

62Balance, December 31, 2009

$
526,935

$


$
3,933

$
71,224

$
(433
)


At December 31, 2008 and 2009, the following amounts were recognized in accumulated other comprehensive loss for pension, including ESBPs,
and other benefits.

December 31, 2008(Dollars in thousands)

Pension Benefits

Other BenefitsGross

Tax

Net of Tax

Gross

Tax

Net of TaxTransition liability

$


$


$


$
5,244

$
1,986

$
3,258Net actuarial loss


752,107


296,219


455,888


99,529


38,702


60,827Prior service costs (credits)











(495
)

(188
)

(307
)Pension and other benefits adjustment


752,107


296,219


455,888


104,278


40,500


63,778Executive Supplemental Benefits PlansNet actuarial loss


18,975


7,305


11,670








Prior service costs (credits)

















Executive supplemental benefits plans adjustment


18,975


7,305


11,670








Pension and other benefits adjustment

$
771,082

$
303,524

$
467,558

$
104,278

$
40,500

$
63,778


F-91

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2007, 2008 and 2009 (Continued)

Note 9Employee Pension and Other Postretirement Benefits (Continued)

December 31, 2009(Dollars in thousands)

Pension Benefits

Other BenefitsGross

Tax

Net of Tax

Gross

Tax

Net of TaxTransition liability

$


$


$


$
3,933

$
1,471

$
2,462Net actuarial loss


526,935


207,749


319,186


71,224


27,581


43,643Prior service costs (credits)











(433
)

(164
)

(269
)Pension and other benefits adjustment


526,935


207,749


319,186


74,724


28,888


45,836Executive Supplemental Benefits PlansNet actuarial loss


14,728


5,636


9,092








Prior service costs (credits)

















Executive supplemental benefits plans adjustment


14,728


5,636


9,092








Pension and other benefits adjustment

$
541,663

$
213,385

$
328,278

$
74,724

$
28,888

$
45,836


The
Company expects to make cash contributions of $12 million to the Other Benefits Plan for postretirement benefits and $100 million to the Pension Plan in 2010.



The following pension and postretirement benefit payments, which reflect expected future service, as appropriate, are expected to be
paid over the next 10 years and Medicare Part D Subsidies are expected to be received over the next 10 years. This table does not include the ESBPs.

(Dollars in thousands)

Pension
Benefits

Postretirement
Benefits

Medical Part D
SubsidiesYears ending December 31,:2010

$
54,729

$
13,683

$
8522011


59,069


14,778


8992012


64,308


15,652


9462013


70,052


16,660


9902014


76,173


17,535


1,032Years 2015-2019


484,006


100,845


5,708


F-92

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2007, 2008 and 2009 (Continued)

Note 9Employee Pension and Other Postretirement Benefits (Continued)

The following tables summarize the assumptions used in computing the present value of the benefit obligations and the net periodic benefit cost.

Pension Benefits

Other BenefitsYears Ended December 31,

Years Ended December 31,2008

2009

2008

2009Discount rate in determining net periodic benefit cost(1)


6.00
%

5.75
%

6.00
%

5.75
%Discount rate in determining benefit obligations at year end


5.75


6.25


5.75


6.00Rate of increase in future compensation levels for determining net periodic benefit cost


4.70


4.70





Rate of increase in future compensation levels for determining benefit obligations at year end


4.70


4.70





Expected return on plan assets


8.00


8.00


8.00


8.00


(1)The
discount rate of 7.25 percent was used for fair value adjustments related to the Company's privatization as of October 1,
2008.


Pension Benefits

Other Benefits

Superannuation, SERP and ESBPYears Ended December 31,

Years Ended December 31,

Years Ended December 31,(Dollars in thousands)2007

2008

2009

2007

2008

2009

2007

2008

2009Components of net periodic benefit costService cost

$
50,234

$
50,173

$
52,375

$
8,127

$
7,941

$
8,370

$
1,068

$
930

$
908Interest cost


71,191


78,085


83,067


11,004


11,391


11,283


3,446


3,453


3,757Expected return on plan assets


(126,344
)

(133,737
)

(140,610
)

(13,912
)

(13,271
)

(10,004
)







Amortization of prior service cost (credits)


256








(96
)

(88
)

(62
)

478


184


Amortization of transition amount











2,035


1,854


1,311








Recognized net actuarial loss


16,009


9,049


12,180


3,774


2,925


6,989


1,562


1,543


1,781Total net periodic benefit cost

$
11,346

$
3,570

$
7,012

$
10,932

$
10,752

$
17,887

$
6,554

$
6,110

$
6,446


F-93

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2007, 2008 and 2009 (Continued)

Note 9Employee Pension and Other Postretirement Benefits (Continued)

At December 31, 2008 and 2009, the following amounts were forecasted to be recognized in 2009 and 2010 net periodic benefit costs,
respectively.

Years ended December 31,2009

2010(Dollars in thousands)

Pension Benefits

Other Benefits

Pension Benefits

Other BenefitsTransition liability

$


$
1,311

$


$
1,311Net actuarial loss


12,218


8,612





5,450Prior service costs (credits)





(62
)

12,709


(62
)Amounts to be reclassified from accumulated other comprehensive loss

$
12,218

$
9,861

$
12,709

$
6,699


The Company's assumed weighted-average healthcare cost trend rates are as follows.

Years ended December 31,2007

2008

2009Healthcare cost trend rate assumed for next year


9.36
%

9.36
%

9.38
%Rate to which cost trend rate is assumed to
decline (the ultimate trend rate)


5.00
%

5.00
%

5.00
%Year the rate reaches the ultimate trend rate


2013


2014


2018


The healthcare cost trend rate assumptions have a significant effect on the amounts reported for the Health Plan. A
one-percentage-point change in assumed healthcare cost trend rates would have the following effects.

(Dollars in thousands)

1-Percentage-
Point Increase

1-Percentage-
Point DecreaseEffect on total of service and interest cost components

$
2,890

$
(2,387
)Effect on postretirement benefit obligation


24,878


(21,117
)




The Company has several ESBPs, which provide eligible employees with supplemental retirement benefits. The plans are nonqualified
defined benefit plans and unfunded. The accrued liability for ESBPs included in other liabilities on the Company's consolidated balance sheets was $67 million and $65 million at
December 31, 2008 and 2009, respectively.



The Company has a defined contribution plan authorized under Section 401(k) of the Internal Revenue Code. All benefits-eligible
employees are eligible to participate in the plan. Employees may contribute up to 25 percent of their pre-tax covered compensation or up to 10 percent of their
after-tax covered compensation through salary deductions to a combined maximum of 25 percent. The Company contributes 50 percent of every pre-tax dollar an
employee contributes up to the first 6 percent of the employee's pre-tax covered compensation. Employees are fully vested in the employer's contributions immediately. In addition,
the

F-94

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2007, 2008 and 2009 (Continued)

Note 9Employee Pension and Other Postretirement Benefits (Continued)

Company
may make a discretionary annual profit-sharing contribution up to 2.5 percent of an employee's pay. This profit-sharing contribution is for all eligible employees, regardless of whether
an employee is participating in the 401(k) plan, and is dependent upon on the Company's annual financial performance. All employer contributions are tax deductible by the Company. The Company's
combined matching contribution expense was $20 million, $20 million and $19 million for the years ended December 31, 2007, 2008 and 2009, respectively.

Note 10Other Noninterest Income and Noninterest Expense

The details of other noninterest income and noninterest expense are as follows.

Other Noninterest Income

Years Ended December 31,(Dollars in thousands)

2007

2008

2009Standby letters of credit fees

$
21,914

$
25,407

$
31,906Trade related commission and fees


7,968


8,027


7,191Gains on sale of nonmortgage loans, net


531


460


698Private capital and other investment income (loss)


58,583


41,208


(12,876
)Other


66,949


54,770


45,845Total other noninterest income

$
155,945

$
129,872

$
72,764


Other Noninterest Expense

Years Ended December 31,(Dollars in thousands)

2007

2008

2009Advertising and public relations

$
40,690

$
51,144

$
49,886Low income housing credit investment amortization


28,496


40,577


49,081Communications


36,499


37,067


36,960Data processing


33,052


32,090


33,250Printing and office supplies


15,983


19,033


21,329Travel


19,385


23,982


20,559Other


59,518


92,888


51,421Total other noninterest expense

$
233,623

$
296,781

$
262,486


F-95

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2007, 2008 and 2009 (Continued)

Note 11Income Taxes

The following table is an analysis of the effective tax rate on continuing operations.

Years Ended December 31,2007

2008

2009Federal income tax rate


35
%

35
%

(35
)%Net tax effects of:State income taxes, net of federal incometax benefit


4


7


(5
)Tax-exempt interest income





(1
)

(3
)Tax credits


(5
)

(14
)

(30
)Unrecognized tax benefits





4


4Other








(2
)Effective tax rate


34
%

31
%

(71
)%


A negative federal income tax rate in the above table indicates an expected income tax benefit on the loss from continuing operations before
taxes.

The
effective tax rates on discontinued operations for the years ended December 31, 2007 and 2008 were 48 percent and 45 percent, respectively. There were no
discontinued operations in 2009. The effective tax rates on discontinued operations for 2007 and 2008 were higher than the statutory rate. The higher rate in 2007 was due to the nondeductibility of
penalties. The higher rate in 2008 was due to the impact of the difference between the tax basis and the book basis of the insurance brokerage business (IBB), resulting in a higher tax benefit on the
sale of the subsidiary.

The
components of income tax expense were as follows.

Years Ended December 31,(Dollars in thousands)

2007

2008

2009Taxes currently payable:Federal

$
249,271

$
216,856

$
(69,450
)State


62,728


86,797


24,030Foreign


7,119


5,261


5,908Total currently payable


319,118


308,914


(39,512
)Taxes deferred:Federal


(23,839
)

(163,716
)

(90,738
)State


(357
)

(17,029
)

(28,317
)Foreign


(568
)

(301
)

(2,717
)Total deferred


(24,764
)

(181,046
)

(121,772
)Total income tax expense (benefit) on continuing operations


294,354


127,868


(161,284
)Income tax expense (benefit) on discontinued operations


32,023


(12,313
)

Total income tax expense (benefit)

$
326,377

$
115,555

$
(161,284
)


F-96

---



Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2007, 2008 and 2009 (Continued)

Note 11Income Taxes (Continued)

The components of the Company's net deferred tax balances as of December 31, 2008 and 2009, which reflect the impact of the fair value
adjustments related to the Company's privatization in 2008, were as follows.

December 31,(Dollars in thousands)

2008

2009Deferred tax assets:Allowance for loan and off-balance sheet commitment losses

$
355,001

$
614,014Accrued income and expense


78,603


86,929Unrealized losses on pension benefits


354,408


266,437Unrealized net losses on securities available for sale


331,162


282,091Fair value adjustments for loans related to the Company's privatization


110,958


74,257State taxes


66,059


Other


66,606


131,788Total deferred tax assets


1,362,797


1,455,516Deferred tax liabilities:Leasing


447,944


508,404Basis differences for premises and equipment


52,851


51,882Intangible assets


276,837


218,591Pension liabilities


250,082


325,907Unrealized net gains on cash flow hedges


52,299


11,145State taxes





30,714Other


455


8,252Total deferred tax liabilities


1,080,468


1,154,895Net deferred tax asset

$
282,329

$
300,621


Deferred tax assets as of December 31, 2009 include federal tax credit carry forwards of $56.0 million that expire after 2029.
Deferred tax assets are evaluated for realization based on the expectation of future events, including the reversal of existing temporary differences and our ability to earn future taxable income. It
is management's opinion that no valuation allowance is necessary because the tax benefits from the Company's deferred tax assets are expected to be realized through carrybacks to prior taxable years,
future reversals of existing temporary differences or in future tax returns.

The
Company has filed its 2008 California franchise tax returns on the worldwide unitary basis, incorporating the financial results of MUFG and its worldwide affiliates. The Company
intends to make a water's-edge election for its 2009 California tax return, and has reflected that election in its state income tax expense for 2009.

F-97

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2007, 2008 and 2009 (Continued)

Note 11Income Taxes (Continued)

The
changes in unrecognized tax benefits were as follows.

Years Ended December 31,(Dollars in thousands)

2007

2008

2009Balance, beginning of year

$
137,386

$
137,682

$
190,971Gross increases as a result of tax positions taken during prior periods


6,821


49,518


10,246Gross decreases as a result of tax positions taken during prior periods


(11,347
)

(49
)

(2,269
)Gross increases as a result of tax positions taken during current period


15,781


3,952


3,093Reductions as a result of a lapse of the applicable statute of limitations


(10,959
)

(132
)

(359
)Balance, end of year

$
137,682

$
190,971

$
201,682


Included in total unrecognized tax benefits as of December 31, 2007, 2008 and 2009 were $84.6 million, $126.9 million and
$130.7 million, respectively, that, if recognized, would result in adjustments to other income tax accounts, primarily deferred taxes. The amount of unrecognized tax
benefits that would affect the effective tax rate, if recognized, was $53.1 million, $64.0 million and $71.0 million at December 31, 2007, 2008 and 2009, respectively.

Interest
and penalties pertaining to unrecognized tax benefits are recognized in income tax expense. The Company recognized $1.5 million, $5.3 million and
$2.9 million of interest expense during the years ended December 31, 2007, 2008 and 2009, respectively. As of December 31, 2007, 2008 and 2009, the Company had accrued
$10.5 million, $15.8 million and $0.6 million of interest expense, respectively, and no penalties related to unrecognized tax benefits. The Company does not accrue interest income
on income tax refunds until they are realized.

In
2008, California enacted a new statute mandating a 20 percent penalty on corporate tax underpayments outstanding after May 31, 2009. During the second quarter of 2009,
the Company filed amended tax returns and made payments of $187.0 million of tax and $43.7 million of interest with respect to tax positions taken in prior year worldwide unitary tax
returns, which primarily involved the method of apportionment of worldwide income to California. The payments were made in order to protect the Company from potential penalties that may be asserted by
the tax authorities. The Company has filed refund claims and intends to defend its positions. The payments did not affect the recognition or measurement of unrecognized state tax benefits and they had
no impact on income tax expense.

The
Company does not expect any other material increases or decreases to unrecognized tax benefits during the next 12 months. However, the Company is subject to federal and state
tax examinations, as well as ongoing litigation concerning our lease-in/lease-out (LILO) transactions. Therefore, the Company's estimate of unrecognized tax benefits is subject
to change based on new developments and information. The Company's years open to examination are 2005 and forward for federal and 2004 and forward for California and most other state jurisdictions.

F-98

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2007, 2008 and 2009 (Continued)

Note 12Borrowed Funds

The following is a summary of the major categories of borrowed funds:

December 31,(Dollars in thousands)

2008

2009Federal funds purchased and securities sold under repurchase agreements with weighted average interest rates of 0.53% and 0.07% at December 31, 2008
and 2009, respectively(1)

$
172,758

$
150,453Commercial paper, with weighted average interest rates of 1.48% and 0.16% at December 31, 2008 and 2009, respectively


1,164,327


888,541Other borrowed funds:Federal Home Loan Bank borrowings, with weighted average interest rates of 2.22% at December 31, 2008


1,850,000


Term federal funds purchased, with weighted average interest rates of 2.60% and 0.19% at December 31, 2008 and 2009, respectively


1,230,060


505,000Federal Reserve Bank Term borrowings, with weighted average interest rate of 0.79% at December 31, 2008


5,000,000


All other borrowed funds, with weighted average interest rates of 5.42% and 1.75% at December 31, 2008 and 2009, respectively


116,537


86,934Total borrowed funds

$
9,533,682

$
1,630,928Federal funds purchased and securities sold under repurchase agreements:Maximum outstanding at any month end

$
4,946,587

$
320,376Average balance during the year


2,137,718


180,087Weighted average interest rate during the year(1)


2.20
%

0.08
%Commercial paper:Maximum outstanding at any month end

$
1,699,440

$
888,541Average balance during the year


1,319,360


536,170Weighted average interest rate during the year


2.41
%

0.58
%Other borrowed funds:Federal Home Loan Bank borrowings:Maximum outstanding at any month end

$
2,600,000

$
850,000Average balance during the year


1,492,456


348,630Weighted average interest rate during the year


2.76
%

1.16
%Term federal funds purchased:Maximum outstanding at any month end

$
1,723,839

$
1,233,250Average balance during the year


882,652


298,055Weighted average interest rate during the year


2.84
%

0.83
%Federal Reserve Bank Term Borrowings:Maximum outstanding at any month end

$
5,000,000

$
3,500,000Average balance during the year


1,925,833


1,156,164Weighted average interest rate during the year


1.79
%

0.29
%All other borrowed funds:Maximum outstanding at any month end

$
321,012

$
117,056Average balance during the year


124,494


125,396Weighted average interest rate during the year


5.59
%

6.71
%


(1)Weighted
average interest rates provided relate to external funding and do not reflect the expense (earning) allocated on net funding to
(from) discontinued operations.


F-99

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2007, 2008 and 2009 (Continued)

Note 12Borrowed Funds (Continued)




In September 2008, the Company established a $500 million, three-year unsecured revolving credit facility with The Bank of
Tokyo-Mitsubishi UFJ, Ltd. As of December 31, 2009, the Company had no amount outstanding under this facility.

At
December 31, 2009, federal funds purchased and securities sold under repurchase agreements had a weighted average remaining maturity of 4 days. The commercial paper
outstanding had a weighted average remaining maturity of 23 days.

Other
borrowed funds consist primarily of term federal funds purchased, which had weighted average remaining maturity of 25 days at December 31, 2009.

Note 13Medium- and Long-Term Debt

The following is a summary of the Company's medium-term senior debt and long-term subordinated debt:

(Dollars in thousands)

December 31,
2008

December 31,
2009Medium-Term senior debt:Floating rate notes due March 2009. These notes bear interest at 0.02% above 3-month London Interbank Offered Rate (LIBOR)

$
750,000

$
Federal Home Loan Bank Advances: These notes bear either floating (at a spread above 3-month LIBOR) or fixed rate, for a combined weighted average rate of
3.77% at December 31, 2008 and 2.93% at December 31, 2009


2,276,000


2,001,000Floating rate notes due March 2011. These notes, which bear interest at 0.08% above 3-month LIBOR, had a rate of 0.33% at December 31,
2009





500,000Floating rate notes due March 2012. These notes, which bear interest at 0.20% above 3-month LIBOR, had a rate of 0.45% at December 31,
2009





500,000Long-Term subordinated debt:Fixed rate 5.25% notes due December 2013


451,930


434,362Fixed rate 5.95% notes due May 2016


810,558


776,822Total medium- and long-term debt

$
4,288,488

$
4,212,184




On March 23, 2007, the Bank issued $750 million of floating rate senior bank notes (Senior Notes) due on March 23,
2009. The Senior Notes were issued at 100 percent of their face value, and bear a floating interest rate of 3-month LIBOR plus 2 basis points. Interest was payable and reset
quarterly in March, June, September and December of each year, with the first interest payment and interest reset date on June 23, 2007. The Senior Notes were not redeemable at the option of
the Bank prior to maturity or subject to repayment at the option of the holders prior to maturity. In March 2009, the Bank's $750 million of Senior Notes matured and were repaid at par plus
accrued interest.

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2007, 2008 and 2009 (Continued)

Note 13Medium- and Long-Term Debt (Continued)

Starting
in the second quarter of 2008, the Bank borrowed periodically from the Federal Home Loan Bank of San Francisco (FHLB) on a medium-term basis. The advances are
secured by certain of the Bank's assets and bear either a fixed or floating interest rate. The floating rates are tied to the 3-month LIBOR plus a spread, reset every 90 days. At
December 31, 2009, the $2.0 billion in FHLB advances had a weighted average remaining maturity of approximately 14 months.

As
of December 31, 2008 and 2009, the Company had pledged loans and securities of $40.2 billion, and $38.0 billion, respectively, as collateral for short- and
medium-term advances from the Federal Reserve Bank and FHLB.

In
October 2008, the Federal Deposit Insurance Corporation (FDIC) established the Temporary Liquidity Guarantee (TLG) Program. On March 16, 2009, the Bank issued
$1.0 billion principal amount of Senior Floating Rate Notes under the TLG Program. The proceeds thereof were used for general corporate purposes. Of the $1.0 billion of senior notes,
$500 million in principal amount bear interest at a rate equal to three-month LIBOR plus 0.08 percent per annum and mature on March 16, 2011 (2011 Notes). The remaining
$500 million in principal amount bear interest at a rate equal to three-month LIBOR plus 0.20 percent per annum and mature on March 16, 2012 (2012 Notes). In connection with the
FDIC guarantee under the TLG Program, a fee of 1 percent per annum is charged to the Bank on the
$1.0 billion of senior notes. The interest on the 2011 Notes and the 2012 Notes is payable and reset quarterly on the 16th of March, June, September and December of each
year.

Under
the TLG Program, as amended on June 3, 2009, the Bank's senior unsecured debt with a maturity of more than 30 days and issued between October 14, 2008 and
October 31, 2009 is guaranteed by the full faith and credit of the United States. For debt issued prior to April 1, 2009, the FDIC guarantee expires upon the earlier of either the
maturity date of the debt or June 30, 2012. For debt issued on or after April 1, 2009, the FDIC guarantee expires upon the earlier of either the maturity date of the debt or
December 31, 2012. The Bank has elected to opt-out of the TLG Program effective January 1, 2010.



On December 8, 2003, the Company issued $400 million of ten-year long-term subordinated debt due
on December 16, 2013. For the year ended December 31, 2009, the weighted average interest rate of the long-term subordinated debt, including the impact of the deferred
issuance costs was 5.37 percent. The notes are junior obligations to the Company's existing and future outstanding senior indebtedness.

At
issuance, the Company had converted its 5.25 percent fixed rate on these notes to a floating rate of interest utilizing a $400 million notional interest rate swap, which
qualified as a fair value hedge. This transaction met all of the requirements for utilizing the shortcut method for measuring effectiveness under US GAAP. In the first quarter of 2009, the
$400 million notional swaps were terminated and not replaced. The Company received $51.7 million in cash, which was treated as a deferred gain and is being recognized over the remaining
contractual life of the subordinated debt. At December 31, 2009, the carrying value of the $400 million subordinated debt included a deferred gain of $34.9 million. The weighted
average interest rate, including the impact of the hedge interest, the amortization of the deferred gain and the deferred issuance costs, was 1.60 percent for the year ended December 31,
2009.

On
May 11, 2006, the Bank issued $700 million of ten-year subordinated notes due on May 11, 2016. The subordinated notes, which were issued at a discount
price of 99.61 percent of their face value, bear a fixed

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2007, 2008 and 2009 (Continued)

Note 13Medium- and Long-Term Debt (Continued)

interest
rate of 5.95 percent, payable semi-annually on May 11 and November 11. For the year ended December 31, 2009, the weighted average interest rate of the
long-term subordinated debt, including the impact of the deferred issuance costs and the fair value adjustment related to the Company's privatization, was 6.76 percent. The
subordinated notes are junior obligations to the Bank's existing and future outstanding senior indebtedness and the claims of depositors and general
creditors of the Bank. The subordinated notes are not redeemable at the option of the Bank prior to maturity or subject to repayment at the option of the holders prior to maturity.

At
issuance, the Bank had converted $700 million of its 5.95 percent fixed rate notes to a floating rate by utilizing interest rate swaps, which qualified as a fair value
hedge. This transaction met all of the requirements for utilizing the shortcut method for measuring hedge effectiveness. In the third quarter 2008 and the first quarter of 2009, the Bank terminated
swaps of $150 million notional and $550 million notional, respectively. These swaps were not replaced. The Bank received a total of $135.4 million in cash for these terminations,
which were treated as deferred gains and are being recognized over the remaining contractual life of the subordinated debt. At December 31, 2009, the carrying value of the $700 million
subordinated debt included the deferred gain of $98.1 million. After including the impact of the amortization of the discount, the deferred issuance costs, the deferred gains, and the fair
value adjustment related to the Company's privatization, the weighted average interest rate of the subordinated notes was 2.43 percent for the year ended December 31, 2009.

Both
fixed rate subordinated debt issuances qualify as Tier 2 risk-based capital under the Federal Reserve Board guidelines for assessing regulatory capital. For the
Company's and the Bank's total risk-based capital ratios, the amount of notes that qualify as capital is reduced as the notes approach maturity. As of December 31, 2008 and 2009,
$1.0 billion and $0.9 billion, respectively, of the notes qualified as risk-based capital for the Company. As of December 31, 2008 and 2009, $0.7 billion of the
notes qualified as risk-based capital for the Bank.

Provisions
of the subordinated notes restrict the Company's ability to engage in mergers, consolidations and transfers of substantially all assets.

Note 14UnionBanCal CorporationJunior Subordinated Debt Payable to Subsidiary Grantor Trust

On March 23, 2000, Business Capital Trust I issued $10 million preferred securities to the public and $0.3 million common securities to the Company. The
proceeds of such issuances were invested by Business Capital Trust I in $10.3 million aggregate principal amount of the Company's 10.875 percent debt securities due
March 8, 2030 (the Trust Notes). The Trust Notes represent the sole asset of Business Capital Trust I. The Trust Notes mature on March 8, 2030, bear interest at the rate of
10.875 percent, payable semi-annually, and are redeemable by the Company at a premium (with premium declining each year) beginning on or after March 8, 2010 through
March 7, 2020 plus any accrued and unpaid interest to the redemption date. On or after March 8, 2020, the Trust Notes are redeemable by the Company at 100 percent of the principal
amount.

Holders
of the preferred and common securities are entitled to cumulative cash distributions at an annual rate of 10.875 percent of the liquidation amount of $1,000 per capital
security. The preferred securities are subject to mandatory redemption upon repayment of the Trust Notes and are callable at a premium (with premium declining each year) at 105.438 percent of
the liquidation amount beginning on or after March 8, 2010 through March 7, 2020 plus any accrued and unpaid interest to the redemption date. On or after March 8, 2020, the
preferred securities are redeemable at 100 percent of the principal. Business Capital

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2007, 2008 and 2009 (Continued)

Note 14UnionBanCal CorporationJunior Subordinated Debt Payable to Subsidiary Grantor Trust (Continued)

Trust I
exists for the sole purpose of issuing the preferred securities and investing the proceeds in the Trust Notes issued by the Company.

On
September 7, 2000, MCB Statutory Trust I completed an offering of 10.6 percent preferred securities of $3.0 million to the public and $0.1 million
common securities to the Company. The proceeds of such issuance were invested by MCB Statutory Trust I in $3.1 million aggregate principal amount of the Company's 10.6 percent
debt securities due September 7, 2030 (the Trust Notes). The Trust Notes represent the sole assets of MCB Statutory Trust I. The Trust Notes mature on September 7, 2030, bear
interest at the rate of 10.6 percent, payable semi-annually and are redeemable by the Company at a premium (with premium declining each year) beginning on or after
September 7, 2010 through September 6, 2020 plus any accrued and unpaid interest to the redemption date. On or after September 7, 2020, the Trust Notes are redeemable by the
Company at 100 percent of the principal amount.

Holders
of the preferred securities and common securities are entitled to cumulative cash distributions at an annual rate of 10.6 percent of the liquidation amount of $1,000 per
capital security. The preferred securities are subject to mandatory redemption upon repayment of the Trust Notes and are callable at a premium (with premium declining each year) at
105.3 percent of the liquidation amount beginning on or after September 7, 2010 through September 6, 2020 plus any accrued and unpaid interest to the redemption date. On or after
September 7, 2020, the preferred securities are redeemable at 100 percent of the principal amount. MCB Statutory Trust I exists for the sole purpose of issuing the preferred
securities and investing the proceeds in the Trust Notes issued by the Company.

The
weighted average interest rate for all Trust Notes was 6.71 percent and 6.93 percent for the years ended December 31, 2008 and 2009, respectively.

Note 15Management Stock Plans

See Note 2 to these consolidated financial statements for information on the Company's privatization. On November 4, 2008, all outstanding awards under the management stock
plans discussed below were canceled in exchange for the right to receive the cash value of those awards. These plans were terminated in December 2008, and no additional awards were granted under these
plans in 2009. The discussion that follows relates to the management stock plan activities through termination in December 2008.

Prior
to their termination, the Company had two management stock plans. The Year 2000 UnionBanCal Corporation Management Stock Plan, as amended (the 2000 Stock Plan), and the UnionBanCal
Corporation Management Stock Plan, restated effective June 1, 1997 (the 1997 Stock Plan), had 20.0 million and 6.6 million shares, respectively, of the Company's common stock
authorized for awards to key employees, outside directors and consultants of the Company at the discretion of the Executive Compensation and Benefits Committee of the Board of Directors (the
Committee). Employees on rotational assignment from BTMU were not eligible for stock awards.

The
Committee determined the term of each stock option grant, up to a maximum of ten years from the date of grant. The exercise price of the options issued under the stock plans could
not be less than the fair market value on the date the option was granted. Beginning in 2006, the value of options was recognized as compensation expense over the vesting period during which the
employees were required to provide service. Prior to January 1, 2006, the Company's unrecognized compensation expense for nonvested restricted stock

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2007, 2008 and 2009 (Continued)

Note 15Management Stock Plans (Continued)

reduced
retained earnings. Subsequent to January 1, 2006, $19 million was reclassified from retained earnings to additional paid-in capital. The value of the restricted stock
at the date of grant was recognized as compensation expense over its vesting period with a corresponding credit adjustment to additional paid-in capital. All cancelled or forfeited options
and restricted stock became available for future grants.

Under
the 2000 Stock Plan, the Company granted stock options and restricted stock. Additionally under the Plan, the Company issued shares of common stock upon the vesting and settlement
of restricted stock units, stock units and performance shares settled in common stock. Under the 1997 Stock Plan, the Company issued shares of common stock upon exercise of outstanding stock options.
The Company issued new shares of common stock for all awards under the stock plans. After taking into account the outstanding stock options and restricted stock, as well as the maximum number of
shares that might be issued upon vesting and settlement of outstanding restricted stock units, stock units and performance shares settled in common stock, a total of 1,095,526 shares and zero shares
were available for future grants under the 2000 Stock Plan at December 31, 2007 and 2008, respectively. The remaining shares under the 1997 Stock Plan were not available for future grants.

The
Committee determined that performance share awards granted in 2006 and later were to be redeemed in shares.



Prior to the Company's privatization, the Company granted options under the 2000 Stock Plan, to various key employees, including
policy-making officers, and to non-employee directors for selected years. Under both the 1997 and 2000 Stock Plans, options granted to employees vested pro-rata on each
anniversary of the grant date and became fully exercisable three years from the grant date, provided that the employee had completed the specified continuous service requirement. Generally, the
options could vest earlier if the employee died, was permanently disabled, or retired under certain grant, age, and service conditions or terminated employment under certain conditions. Options
granted to non-employee directors were fully vested on the grant date and exercisable 331/3 percent on each anniversary under the 1997 Stock Plan, and were fully
vested and exercisable on the grant date under the 2000 Stock Plan.

The
fair value of each option grant was estimated on the date of grant utilizing the Black-Scholes option pricing model and using the assumptions noted in the following table. The
Black-Scholes option pricing model was applied to option tranches based on expected terms that result in ranges of input assumptions, such ranges are disclosed below. Expected volatilities were based
on historical data and implied volatilities from traded options on the Company's stock, and other factors. The Company used historical data to estimate option exercise and employee terminations within
the valuation model. The expected term of an option granted was derived from the output of the option valuation model, which was based on historical data and represented the period of time that the
option granted was expected to be outstanding. The risk-free rate for periods within

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2007, 2008 and 2009 (Continued)

Note 15Management Stock Plans (Continued)

the
contractual life of the option was based on the U.S. Treasury yield curve in effect at the time of grant based on the expected term.

For the Year Ended December 31,2007

2008Weighted-average fair valueper share

$
7.04

$
7.21Risk-free interest rates (a range for 1 to 7 year tenors)


3.71
%

2.2 - 3.3
%Expected volatility


16.9 - 21.0
%

22.2 - 27.4
%Weighted-average expected volatility


19.8
%

24.3
%Expected term (in years)


3.8 - 4.4


3.9 - 4.4Weighted-average expected dividend yield


4.3
%

4.4
%


The total intrinsic value of options exercised during 2007 and 2008 was $16.0 million and $44.5 million, with a corresponding tax
benefit of $5.7 million and $15.9 million, respectively. The total intrinsic value of options that were canceled and settled in cash during 2008 as a result of the Company's
privatization was $173.4 million with a corresponding tax benefit of $61.6 million. The total fair value of options vested during the years ended December 31, 2007 and 2008 was
$20.5 million and $13.0 million, respectively.

The
Company recognized $13.0 million and $23.8 million of compensation cost for share-based payment arrangements related to stock option awards with $5.0 million and
$9.2 million of corresponding tax benefit during the years ended December 31, 2007 and 2008, respectively. In 2008, compensation cost of $12.8 million with a corresponding tax
benefit of $4.9 million was recorded for the acceleration of expense due to the Company's privatization. As of December 31, 2008, there was no unrecognized
compensation cost related to nonvested stock option awards as a result of the termination of the management stock plans in December 2008.



In general, restricted stock awards were granted under the 2000 Stock Plan to key employees, and in 2005, to non-employee
directors. The awards of restricted stock granted to employees vested pro-rata on each anniversary of the grant date and became fully vested four years from the grant date, provided that
the employee had completed the specified continuous service requirement. Generally, they vested earlier if the employee died, was permanently and totally disabled, retired under certain grant, age,
and service conditions or terminated employment under certain conditions. The awards of restricted stock granted to existing non-employee directors in 2005 vested in full in July 2006.
Restricted stockholders had the right to vote their restricted shares and receive dividends. The grant date fair value of awards was equal to the closing price on date of grant.

The
total fair value of the restricted stock awards vested was $15.6 million during 2007 and $52.5 million during 2008, with a corresponding tax benefit of
$5.0 million and $22.6 million, respectively. In 2008, the fair value of the restricted stock awards vested included $44.4 million, with a corresponding tax benefit of
$20.1 million, related to the Company's privatization.

The
Company recognized $14.4 million and $41.6 million of compensation cost for share-based payment arrangements related to restricted stock awards with $5.5 million
and $16.0 million of

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2007, 2008 and 2009 (Continued)

Note 15Management Stock Plans (Continued)

corresponding
tax benefit during the years ended December 31, 2007 and 2008, respectively. In 2008, compensation cost of $29.1 million with a corresponding tax benefit of
$11.2 million was recorded for the acceleration of expense due to the Company's privatization. As of December 31, 2008, there was no unrecognized compensation cost related to nonvested
restricted awards as a result of the termination of the management stock plans in December 2008.



Starting in 2006, the Company granted restricted stock units to non-employee directors. These restricted stock units
consisted of an annual grant, and in
the case of new non-employee directors, an annual grant and an initial grant. In general, the annual grant vested in full on the first anniversary of the grant date, and the initial grant
vested in three equal installments on each of the first three anniversaries of the grant date. The grant date fair value of awards was equal to the closing price on date of grant. The Company
recognized $1.0 million and $2.4 million of compensation cost with a corresponding $0.4 million and $0.9 million in tax benefits related to these grants in 2007 and 2008,
respectively. In 2008, compensation cost of $1.1 million with a corresponding tax benefit of $0.4 million was recorded for the acceleration of expense due to the Company's privatization.
As of December 31, 2008, there was no unrecognized compensation cost related to these restricted stock units as a result of the termination of the management stock plans in December 2008.

The
restricted stock unit participants did not have voting or other stockholder rights. However, the participants' stock unit accounts received dividend equivalents, reflecting the
aggregate dividends earned based on the total number of restricted stock units outstanding, in the form of additional restricted stock units. Participants could elect to defer the delivery of vested
shares of common stock at predetermined dates as defined in the plan agreements. The Company issued new shares under the 2000 Stock Plan upon vesting and settlement of these grants, which were
redeemable only in shares.

Non-employee
directors could irrevocably elect to defer all or a portion of the cash retainer and/or fees payable to them for services on the Board of Directors and its
committees in the form of stock units. At the time of deferral, a bookkeeping account was established on behalf of the director and credited with a number of fully vested stock units. The director
received a number of stock units equal to the number of shares of common stock when the deferred compensation was payable. Dividend equivalents were credited to the stock unit accounts. Stock units
had no voting rights. The Company issued new shares under the 2000 Stock Plan upon settlement of the stock units.

As
a result of the Company's privatization, all restricted stock units and stock units were canceled and either paid out in cash in 2008 or deferred based on the participant's prior
elections or applicable tax requirements and recorded as a liability.



Effective January 1, 1997, the Company established a Performance Share Plan. At the discretion of the Committee, eligible
participants would earn performance share awards to be redeemed in cash and/or shares three years after the date of grant. Performance shares were linked to stockholder value in two ways:
(1) the market price of the Company's common stock; and (2) return on equity, a performance measure closely linked to value creation. Eligible participants generally received grants of
performance shares annually. The plan was amended in 2004 increasing the total number of shares that could be granted under the plan to 2.6 million

F-106

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2007, 2008 and 2009 (Continued)

Note 15Management Stock Plans (Continued)

shares.
The following is a summary of shares granted and available for future grants under the Performance Share Plan.

For the Years Ended December 31,2007

2008Performance shares:Granted


70,614


91,750Available for future grant, year end


2,063,219







All performance shares granted prior to 2006 were redeemable in cash and therefore were accounted for as liabilities. The value of a
performance share under the liability method was equal to the average month-end closing price of the Company's common stock for the final six months of the performance period. All
cancelled or forfeited performance shares would become available for future grants. The following is a summary of performance shares that are redeemable in cash under the Performance Share Plan.

For the Years Ended
December 31,(Dollars in millions)

2007

2008Performance shares granted





Performance shares forfeited





Fair value of performance shares that vested

$
6.7

$
Cash payments made for performance shares that vested

$
7.8

$
5.7Fair value of performance shares that vested and deferred

$


$
Performance shares compensation expense

$
1.7

$
Tax benefit related to compensation expense

$
0.6

$
Liability for cash settlement of performance shares, year end

$
5.7

$



The compensation cost related to these grants that are redeemable in cash was fully recognized as of December 31, 2007.



Prior to the Company's privatization, performance shares granted in 2006 and thereafter were redeemable in shares. The Company issued
new shares under the 2000 Stock Plan upon vesting and settlement of these grants that were redeemable in shares.

As
a result of the Company's privatization, performance shares that were redeemable in shares under the Performance Share Plan were canceled in 2008. In 2009, the Company paid
$25.2 million for the settlement of these grants and deferred $0.1 million. As of December 31, 2008, there was no unrecognized compensation cost related to grants that were
redeemable in shares as a result of the termination of the management stock plans in December 2008.

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2007, 2008 and 2009 (Continued)

Note 15Management Stock Plans (Continued)

The following is a summary of performance shares that are redeemable in shares under the Performance Share Plan.

For the Years Ended December 31,(Dollars in millions, except per share amount)

2007

2008Performance shares granted


70,614


91,750Weighted average grant date fair valueper share

$
63.10

$
51.42Performance shares forfeited


1,500


Fair value of performance shares that vested or cancelled during the year

$
0.6

$
21.0Performance shares compensation expense

$
4.8

$
14.0Tax benefit related to compensation expense

$
1.8

$
5.4Liability for cash settlement of performance shares, year end

$


$
25.3


Note 16Concentrations of Credit Risk

Concentrations of credit risk exist when changes in economic, industry or geographic factors similarly affect groups of counterparties whose aggregate credit exposure is material in
relation to the Company's total credit exposure. The Company's portfolio of financial instruments is broadly diversified along industry, product and geographic lines. However, the Company has certain
concentrations of credit risk in its securities and loan portfolios.

In
connection with the Company's efforts to maintain a diversified portfolio, the Company limits its exposure to any one country or individual credit and monitors this exposure on a
continuous basis. At December 31, 2009, the Company's most significant concentration of credit risk within its securities portfolio was with U.S. Government agencies and GSEs. At
December 31, 2009, the Company's credit exposure included a concentration of available for sale securities issued by U.S. Government agencies and securities guaranteed by GSEs, which totaled
$21.6 billion. At December 31, 2009, the Company also held $391.4 million of private label mortgage-backed securities available for sale, and U.S. Government direct securities of
$300.0 million.

The
Company's most significant concentration of credit risk within its loan portfolio includes residential real estate mortgage loans, loans made to the real estate industry sector,
primarily to construction companies and real estate developers and operators, and loans made to the power and utilities sector. At December 31, 2009, the Company had $16.7 billion in
residential mortgage loans, primarily in California, and $9.8 billion and $3.5 billion in loans made to the real estate industry sector and power and utilities sector, respectively. The
Company also had an additional $2.1 billion and $5.6 billion in unfunded commitments to extend credit to customers in the real estate industry and power and utilities sectors,
respectively.

Note 17Fair Value Measurement and Fair Value of Financial Instruments

Effective January 1, 2008, the Company adopted FASB ASC 820-10, "Fair Value Measurements and Disclosures" (formerly SFAS No. 157, "Fair Value Measurements") for
most fair value measurements required for financial assets and liabilities. The Company deferred application of this guidance for one year and adopted the guidance effective January 1, 2009 for
nonrecurring measurements of fair value for non-financial assets

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2007, 2008 and 2009 (Continued)

Note 17Fair Value Measurement and Fair Value of Financial Instruments (Continued)

and
liabilities, such as goodwill, intangible assets and other real estate owned. At adoption, there was no effect on the Company's financial position or results of operations.



Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., an exit price)
in an orderly transaction between willing market participants at the measurement date. In determining fair value, the Company maximizes the use of observable market inputs and minimizes the use of
unobservable inputs. Observable inputs reflect market-derived or market-based information obtained from independent sources, while unobservable inputs reflect the Company's estimate about market data.
Based on the observability of the significant inputs used, the Company classifies its fair value measurements in accordance with the three-level hierarchy. This hierarchy is based on the quality and
reliability of the information used to determine fair value.

Level 1:
Valuations are based on quoted prices in active markets for identical assets or liabilities. Since the valuations are based on quoted prices that are readily available in
an active market, they do not entail a significant degree of judgment.

Level 2:
Valuations are based on quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and
model-based valuations for which all significant assumptions are observable or can be corroborated by observable market data.

Level 3:
Valuations are based on at least one significant unobservable input that is supported by little or no market activity and is significant to the fair value measurement.
Values are determined using pricing models and discounted cash flow models that include management judgment and estimation which may be significant.

In
assigning the appropriate levels, the Company performs a detailed analysis of the assets and liabilities that are measured at fair value. In certain cases, the inputs used to measure
fair value may fall into different levels of the fair value hierarchy. The level within which the fair value measurement is categorized is based on the lowest level input that is significant to the
fair value measurement in its entirety. Therefore, an item may be classified in Level 3 even though there may be many significant inputs that are readily observable.



The Company has an established and documented process for determining fair value for financial assets and financial liabilities that
are measured at fair value on either a recurring or nonrecurring basis. When available, quoted market prices are used to determine fair value. If quoted market prices are not available, fair value is
based upon valuation techniques that use, where possible, current market-based or independently sourced parameters, such as interest rates, yield curves, foreign exchange rates, volatilities and
credit curves. Valuation adjustments may be made to ensure the financial instruments are recorded at fair value. These adjustments include amounts that reflect counterparty credit quality and that
consider the Company's

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2007, 2008 and 2009 (Continued)

Note 17Fair Value Measurement and Fair Value of Financial Instruments (Continued)

creditworthiness
in determining the fair value of its trading liabilities. A description of the valuation methodologies used for certain financial assets and financial liabilities measured at fair
value is as follows:

Recurring
Fair Value Measurements:

Trading
Account Assets:    Trading account assets are recorded at fair value and primarily consist of securities and derivatives held for trading purposes. See discussion below
on securities available for sale, which utilize the same valuation methodology as trading account securities. See also discussion below on derivatives valuation.

Securities
Available for Sale:    Securities available for sale are recorded at fair value based on readily available quoted market prices, if available. If such quoted market
prices are not available, management utilizes third-party pricing services and broker quotations from dealers in the specific instruments. If no market prices or broker quotes are available, external
pricing models are used. To the extent possible, these pricing model valuations utilize observable market inputs obtained for similar securities. Typical inputs include LIBOR and U.S. Treasury curves,
benchmark yields, consensus prepayment estimates and credit spreads. Level 1 measured securities include U.S. government and agency securities. Level 2 measured securities include
residential mortgage-backed securities and certain asset-backed securities.

Derivatives:    The
Company's derivatives are primarily traded in over-the-counter markets where quoted market prices are not readily available. The
Company values its derivatives using pricing models that are widely accepted in the financial services industry with inputs that are observable in the market or can be derived from or corroborated by
observable market data. These models reflect the contractual terms of the derivatives including the period to maturity and market observable inputs such as yield curves and option volatility.
Valuation adjustments are made to reflect counterparty credit quality and to consider the creditworthiness of the Company. Derivatives, which are included in trading account assets, trading account
liabilities and other assets, are generally measured as Level 2.

Nonrecurring
Fair Value Measurements:

Loans
Held for Sale:    Residential mortgage and commercial loans held for sale are recorded at the lower of cost or fair value. The fair value of fixed-rate
residential loans is based on whole loan forward prices obtained from GSEs. These loans are classified as Level 2. The fair value of commercial loans held for sale may be based on secondary
market offerings for loans with similar characteristics or a valuation methodology utilizing the appraised value to outstanding loan balance ratio. These loan values are classified as Level 3.

Individually
Impaired Loans:    Individually impaired loans are evaluated and valued at the time the loan is identified as impaired based on the present value of the remaining
expected cash flows. Because the discount factor applied is based on the loan's original effective yield rather than a current market rate, that present value does not represent fair value. However,
as a practical expedient, an impaired loan may be measured based on a loan's observable market price or the underlying collateral securing the loan (provided that the loan is collateral dependent),
which does represent fair value. Collateral may be real estate or business assets including equipment. The value of collateral is determined based on independent appraisals. Appraised values may be
adjusted based on management's historical knowledge, changes in market conditions from the time of valuation, and management's knowledge of the client and the client's business. The loan's market
price is determined using market pricing for similar assets, adjusted for management judgment. Impaired loans are reviewed and evaluated at least quarterly for
additional impairment and adjusted accordingly. Impaired loans that are adjusted to fair value based on underlying collateral or the loan's market price are classified as Level 3.

F-110

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2007, 2008 and 2009 (Continued)

Note 17Fair Value Measurement and Fair Value of Financial Instruments (Continued)

Private
Equity and CRA Investments:    Private equity and CRA investments are recorded either at cost or using the equity method and are evaluated for impairment. The valuation
of these investments requires significant management judgment due to the absence of quoted market prices, lack of liquidity and the long-term nature of these assets. When required, the
fair value of the investments was estimated using the NAV of the fund or based on the investee's business model, current and projected financial performance, liquidity and overall economic and market
conditions. Private equity and CRA investment measurements are generally classified as Level 3.

OREO:    OREO
represents collateral acquired through foreclosure and is recorded at the lower of the loan's unpaid principal balance or the collateral's fair value, adjusted
for disposition costs. OREO values are reviewed on an ongoing basis and any decline in value is recorded as a fair value adjustment. The value of OREO is determined based on independent appraisals and
is generally classified as Level 3.

LIHC
Investments:    LIHC investments represent guaranteed and unguaranteed funds that are recorded using the effective yield or equity method of accounting, with the
investment amortized over the period the tax credits are allocated. These investments are evaluated for impairment based on the realizability of the tax credits and benefits from operating losses.
Realizabilty of the tax credits is based on the qualification of low-income status for the underlying properties. These investments are generally classified as Level 3.



The following tables present financial assets and financial liabilities measured at fair value on a recurring basis as of
December 31, 2008 and 2009, by major category and by valuation hierarchy level.

December 31, 2008(Dollars in thousands)

Level 1

Level 2

Level 3

Netting
Adjustment(1)

Fair ValueAssetsTrading account assets

$
72,860

$
1,203,697

$


$
(59,778
)
$
1,216,779Securities available for sale


888,675


6,102,771


1,203,092





8,194,538Other assets(2)





317,569





(93,599
)

223,970Total assets

$
961,535

$
7,624,037

$
1,203,092

$
(153,377
)
$
9,635,287LiabilitiesTrading account liabilities

$
56,470

$
1,131,570

$


$
(153,377
)
$
1,034,663Total liabilities

$
56,470

$
1,131,570

$


$
(153,377
)
$
1,034,663


(1)Amounts
represent the impact of legally enforceable master netting agreements between the same counterparties that allow the Company to net
settle all contracts.(2)Other
assets include nontrading derivative assets.


F-111

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2007, 2008 and 2009 (Continued)

Note 17Fair Value Measurement and Fair Value of Financial Instruments (Continued)






December 31, 2009(Dollars in thousands)

Level 1

Level 2

Level 3

Netting
Adjustment(1)

Fair ValueAssetsTrading account assets:U.S. Treasury

$
15,430

$


$


$


$
15,430Other U.S. government


28,649











28,649State and municipal





24,878








24,878Commercial paper





74,594








74,594Derivatives


1,453


648,227





(67,583
)

582,097Total trading account assets


45,532


747,699





(67,583
)

725,648Securities available for sale:U.S. Treasury


299,677











299,677Other U.S. government


12,277,418











12,277,418Residential mortgage-backed securitiesagency





9,362,123








9,362,123Residential mortgage-backed securitiesnon-agency





391,439








391,439State and municipal





39,637


5,459





45,096Asset-backed and debt securities





108,135








108,135Equity securities


73,522





1,419





74,941Total securities available for sale


12,650,617


9,901,334


6,878





22,558,829Other assets(2)





97,186





(68,302
)

28,884Total assets

$
12,696,149

$
10,746,219

$
6,878

$
(135,885
)
$
23,313,361LiabilitiesTrading account liabilities:Derivatives

$
1,978

$
630,951

$


$
(101,958
)
$
530,971Securities sold, not yet purchased


7,923











7,923Total trading account liabilities


9,901


630,951





(101,958
)

538,894Other liabilities(2)





12,164





(9,927
)

2,237Total liabilities

$
9,901

$
643,115

$


$
(111,885
)
$
541,131


(1)Amounts
represent the impact of legally enforceable master netting agreements between the same counterparties that allow the Company to net
settle all contracts.(2)Other
assets and liabilities include nontrading derivatives.


F-112

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2007, 2008 and 2009 (Continued)

Note 17Fair Value Measurement and Fair Value of Financial Instruments (Continued)

The following tables present a reconciliation of the assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the years ended
December 31, 2008 and 2009. Level 3 available for sale securities at December 31, 2009 primarily consist of community redevelopment bonds. These bonds were carried at cost, which
approximates fair value.

For the Year Ended
December 31,(Dollars in thousands)

2008

2009Balance, beginning of period

$
1,765,498

$
1,203,092Total gains/(losses) (realized/unrealized):Included in income before taxes


6,770


64Included in other comprehensive income


(320,764
)

(54,721
)Fair value adjustment(1)


(248,816
)Purchases, sales, issuances and settlements


404


2,257Transfers in (out) Level 3(2)





(1,143,814
)Balance, end of period

$
1,203,092

$
6,878Changes in unrealized gains (losses) included in income before taxes for assets and liabilities still held at end of period

$
6,644

$



(1)The
fair value adjustment related to the Company's privatization was reclassified into additional paid-in-capital
within stockholder's equity.(2)The
CLO portfolio was transferred out of Level 3 during the first quarter of 2009 as a result of the reclassification from available
for sale to held to maturity. Held to maturity securities are not measured at fair value on a recurring basis and therefore are not subject to this fair value disclosure requirement.


Fair Value Measurement on a Nonrecurring Basis

Certain financial assets may be measured at fair value on a nonrecurring basis. These assets are subject to fair value adjustments that
result from the application of the lower of cost or fair value accounting or write-downs of individual assets. For assets measured at fair value on a nonrecurring basis during the year ended
December 31, 2008 and 2009 that were still held on the consolidated balance sheet as of the respective periods ended, the following tables present the carrying value of such financial
instruments by the level of valuation assumptions used to determine each fair value adjustment.

December 31, 2008(Dollars in thousands)

Carrying
Value

Level 1

Level 2

Level 3

Loss for the Year
Ended December 31, 2008Loans

$
41,074

$


$


$
41,074

$
(6,216
)Other Assets


16,239








16,239


(3,731
)Total

$
57,313

$


$


$
57,313

$
(9,947
)


F-113

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2007, 2008 and 2009 (Continued)

Note 17Fair Value Measurement and Fair Value of Financial Instruments (Continued)



December 31, 2009(Dollars in thousands)

Carrying
Value

Level 1

Level 2

Level 3

Loss for the Year Ended
December 31, 2009Securities:Held to maturity

$
4,188

$


$


$
4,188

$
(3,168
)Loans:Loans Held for Sale


8,768





8,768





(5,572
)Impaired Loans


589,721








589,721


(283,986
)Other Assets:OREO


15,811








15,811


(5,691
)CRA Investments


6,820








6,820


(8,138
)Private Equity Investments


40,817








40,817


(15,456
)LIHC Investments


6,350








6,350


(2,263
)Total

$
672,475

$


$
8,768

$
663,707

$
(324,274
)


Securities held to maturity consist of two investments that were written down to fair value during the year due to other than temporary
impairment. Fair value was determined using a pricing model and broker quotes. The model uses internally developed assumptions and available market data obtained from market participants and credit
rating agencies.

Loans
include residential mortgage and commercial loans held for sale measured at the lower of cost or fair value and individually impaired loans that are measured based on the fair
value of the underlying collateral or the fair value of the loan. At December 31, 2009 the Company had no commercial loans designated as held for sale. The fair value of fixed-rate
residential mortgage loans was determined using whole loan forward prices obtained from GSEs. The fair value of impaired loans was
determined based on appraised values of the underlying collateral or market pricing for the loan, adjusted for management judgment.

Other
assets consist of private equity, CRA related investments and LIHC investments that were written down to fair value due to impairment, and OREO that was measured at the lower of
cost or fair value. The fair value of OREO was primarily based on independent appraisals and the fair value of the LIHC investment was based on the sum of the value of the remaining tax credits and
the value of the underlying collateral obtained based on market comparables.

CRA
related investments with a total fair value of $6.8 million at December 31, 2009 include investments in real estate private equity funds that are compliant with the
Community Reinvestment Act standards. The fair value of these investments was estimated based on the underlying investee's current and projected financial performance. Generally, these investments
cannot be redeemed with the funds and the return of invested capital and its gains are derived from distributions received upon the liquidation of the underlying assets of the fund. It is estimated
that the underlying assets of the fund would be liquidated within a 10-year period and the Company does not plan to sell any of these investments at this time. The unfunded commitment
related to these investments included in the above nonrecurring fair value table totaled $2.7 million at December 31, 2009.

Private
equity investments with a total fair value of $40.8 million at December 31, 2009 include several investments in private equity funds that primarily invest in oil
and gas, power and real estate companies. The fair value of these investments was estimated based on the underlying investee's current and projected

F-114

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2007, 2008 and 2009 (Continued)

Note 17Fair Value Measurement and Fair Value of Financial Instruments (Continued)

financial
performance, except for the impairment adjustments in the fourth quarter of 2009 where fair value was estimated using NAV. Generally, these investments cannot be redeemed with the funds and
the return of invested capital and its gains are derived from distributions received upon the liquidation of the underlying assets of the fund. It is estimated that the underlying assets of the fund
would be liquidated within a 10-year period and the Company does not plan to sell any of these investments at this time. The unfunded commitment related to these investments included in
the above nonrecurring fair value table totaled $7.4 million at December 31, 2009.



In addition to financial instruments recorded at fair value in the Company's financial statements, the disclosure of the estimated fair
value of financial instruments that are not carried at fair value is also required. Excluded from this disclosure requirement are lease financing arrangements, investments accounted for under the
equity method, employee pension and other
postretirement obligations and all nonfinancial assets and liabilities, including goodwill and other intangible assets such as long-term customer relationships. The fair values presented
are estimates for certain individual financial instruments and do not represent an estimate of the fair value of the Company as a whole.

Certain
financial instruments that are not recognized at fair value on the consolidated balance sheet are carried at amounts that approximate fair value due to their
short-term nature. These financial instruments include cash and due from banks, interest bearing deposits in banks, federal funds sold and purchased, securities purchased under resale
agreements, securities sold under repurchase agreements and commercial paper. In addition, the fair value of deposits with no stated maturity, such as noninterest-bearing demand deposits,
interest-bearing checking, and market rate and other savings are deemed to equal their carrying values.

Private
equity investments including direct investments in privately held companies and indirect investments in private equity funds are carried at amounts that approximate fair value.
Due to the unavailability of quoted market prices, the investments are initially valued based on cost and subsequently valued utilizing available market data to determine if the carrying value of
these investments should be adjusted. Valuations are based on the investee's recent financial performance and future potential, the value of underlying investee's assets, the risks associated with the
particular business, current market conditions, and other relevant factors.

Although
off-balance sheet commitments, which include commitments to extend credit and standby and commercial letters of credit, are not required to be recorded at fair value
on the consolidated balance sheet, they are carried at amounts that approximate fair value. The carrying value of these off-balance sheet instruments represents the unamortized fee income
assessed based on the credit quality and other covenants imposed on the borrower. Since the amount assessed represents the market rate that would be charged for similar agreements, management believes
that the carrying value approximates the fair value of these instruments.

Financial
instruments for which their carrying values do not approximate fair value include loans, interest bearing deposits with stated maturities, other borrowed funds, medium- and
long-term debt, and trust notes.

F-115

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2007, 2008 and 2009 (Continued)

Note 17Fair Value Measurement and Fair Value of Financial Instruments (Continued)

Securities held to maturity:The fair value of CLOs classified as held to maturity was estimated using a
pricing model and broker quotes. The model is based on internally developed assumptions using available market data obtained from market participants and credit rating agencies.

Loans:The fair values of mortgage loans were estimated based on quoted market prices for loans with similar credit and interest rate
risk
characteristics. The fair values of other types of loans were estimated based upon the type of loan and maturity. The fair value of these loans was determined by discounting the future expected cash
flows using the current origination rates for similar loans made to borrowers with similar credit ratings.

Interest bearing deposits:The fair values of savings accounts and certain money market accounts were based on the amounts payable on
demand at the
reporting date. The fair value of fixed maturity certificates of deposit was estimated using a discounted cash flow calculation that applies current interest rates being offered on certificates with
similar maturities.

Other borrowed funds:The fair values of Federal Reserve Bank term borrowings, Federal Home Loan Bank borrowings and term federal funds
purchased
were estimated using a discounted cash flow calculation that applies current market rates for applicable maturities. The carrying values of other short-term borrowed funds were assumed to
approximate their fair value due to their limited duration.

Medium- and long-term debt:The fair value of medium- and long-term debt was estimated using either a discounted cash flow
analysis based on current market interest rates for debt with similar maturities and credit quality or estimated using market quotes.

Trust notes:The fair value of trust notes was estimated using market quotes of similar securities.

The
table below presents the carrying value and estimated fair value of certain financial instruments held by the Company as of December 31, 2008 and 2009.

December 31,2008

2009(Dollars in thousands)

Carrying Value

Fair Value

Carrying Value

Fair ValueAssetsSecurities held to maturity

$


$


$
1,227,718

$
1,457,558Loans, net of allowance for loan losses


48,205,818


47,507,685


45,222,765


44,924,749LiabilitiesInterest bearing deposits


32,482,896


32,528,349


53,958,664


53,969,991Other borrowed funds


8,196,597


8,203,032


591,934


591,953Medium- and long-term debt


4,288,488


4,067,878


4,212,184


4,180,328Junior subordinated debt payable to subsidiary grantor trust


13,980


11,700


13,527


13,076Off-Balance Sheet InstrumentsCommitments to extend credit


92,644


92,644


122,986


122,986Standby and commercial letters of credit


6,465


6,465


5,772


5,772


F-116

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2007, 2008 and 2009 (Continued)

Note 18Derivative Instruments

The Company is a party to certain derivative and other financial instruments that are entered into for the purpose of trading, meeting the needs of customers, and changing the impact on
the Company's operating results due to market fluctuations in currency and/or interest rates.

Credit
and market risks are inherent in derivative instruments. Credit risk is defined as the possibility that a loss may occur from the failure of another party to perform in accordance
with the terms of the contract, which exceeds the value of the existing collateral, if any. The Company utilizes master netting and collateral support annex (CSA) agreements in order to reduce its
exposure to credit risk. Master netting agreements mitigate credit risk by permitting the offset of amounts due from and to individual counterparties in the event of default. The CSA requires the
counterparty with derivatives in a net loss position to provide collateral as prescribed by such agreement. Additionally, the Company considers the potential loss in the event of counterparty default
in estimating the fair value amount of the derivative instrument. Market risk is the possibility that future changes in market conditions may make the financial instrument less valuable.

Derivatives
are used to manage exposure to interest rate and foreign currency risk, generate profits from proprietary trading and assist customers with their risk management objectives.
The Company designates derivative instruments as those used for US GAAP hedge accounting purposes, and those for trading or economic hedge purposes. All derivative instruments are recognized as
assets or liabilities on the consolidated balance sheet at fair value.

The
table below presents the notional amounts, and the location and fair value amounts of the Company's derivative instruments reported on the consolidated balance sheet, segregated
between derivative instruments

F-117

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2007, 2008 and 2009 (Continued)

Note 18Derivative Instruments (Continued)

designated
and qualifying as hedging instruments under US GAAP and all other derivative instruments as of December 31, 2008 and 2009.

December 31, 2008Asset Derivatives(1)

Liability Derivatives(1)(Dollars in thousands)

Notional
Amount

Balance
Sheet
Location

Fair
Value

Balance
Sheet
Location

Fair
ValueDerivatives designated as hedging instruments under US GAAP:Interest rate contracts(2)

$
5,400,000

Other assets

$
317,569

Other liabilities

$
Total derivatives designated as hedging instruments under US GAAP:

$
5,400,000



$
317,569



$
Derivatives not designated as hedging instruments under US GAAP:Foreign exchange contracts

$
8,207,575

Trading account assets

$
97,161

Trading account liabilities

$
110,099Energy contracts


3,757,674

Trading account assets


355,297

Trading account liabilities


360,005Interest rate contracts


20,398,695

Trading account assets


694,682

Trading account liabilities


670,218Equity contracts


10,914

Trading account assets


680

Trading account liabilities


680Other contracts


6,866

Other assets


301

Other liabilities


(936
)Total derivatives not designated as hedging instruments under US GAAP

$
32,381,724



$
1,148,121



$
1,140,066


(1)Asset
and liability values are presented gross, excluding the impact of legally enforceable master netting and CSA agreements.(2)The
fair value includes unamortized premium of $9.2 million related to terminated contracts.


F-118

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2007, 2008 and 2009 (Continued)

Note 18Derivative Instruments (Continued)




December 31, 2009Asset Derivatives(1)

Liability Derivatives(1)(Dollars in thousands)

Notional
Amount

Balance
Sheet
Location

Fair
Value

Balance
Sheet
Location

Fair
ValueDerivatives designated as hedging instruments under US GAAP:Interest rate contracts(2)

$
8,800,000

Other assets

$
97,186

Other liabilities

$
12,164Total derivatives designated as hedging instruments under US GAAP:

$
8,800,000



$
97,186



$
12,164Derivatives not designated as hedging instruments under US GAAP:Foreign exchange contracts

$
2,701,925

Trading account assets

$
22,398

Trading account liabilities

$
27,097Energy contracts


3,405,389

Trading account assets


166,395

Trading account liabilities


167,640Interest rate contracts


25,226,564

Trading account assets


446,756

Trading account liabilities


424,060Equity contracts


254,372

Trading account assets


14,133

Trading account liabilities


14,133Other contracts


5,350

Other assets


389

Other liabilities


(848
)Total derivatives not designated as hedging instruments under US GAAP

$
31,593,600



$
650,071



$
632,082


(1)Asset
and liability values are presented gross, excluding the impact of legally enforceable master netting and CSA agreements.(2)The
fair value includes unamortized premium of $3.0 million related to terminated contracts.


Certain of the Company's derivative instruments contain provisions that require the Company to maintain a specified credit rating. If the
Company's credit rating was to fall below the specified rating, the counterparties to these derivative instruments could terminate the contract and demand immediate payment or demand immediate and
ongoing full overnight collateralization for those derivative
instruments in net liability positions. At December 31, 2009, the aggregate fair value (including net interest payable/receivable) of all derivative instruments with credit-risk
mitigated contingent features that are in a liability position was $59.6 million. The Company had pledged securities (including accrued interest) of $41.7 million for collateral in the
normal course of business. If all of the credit-risk-related contingent features underlying these agreements had been triggered on December 31, 2009, the Company would
have been required to provide additional collateral of $17.9 million to settle these contracts.



Derivative instruments are integral components of the Company's asset and liability management activities. The Company uses interest
rate derivatives to manage the Company's net interest income sensitivity to changes in market interest rates. These instruments are used to manage interest rate risk relating to specified groups of
assets and liabilities, primarily LIBOR-based commercial loans, certificates of deposit, borrowings, and fixed rate subordinated debt. The following describes the significant hedging strategies of the
Company.

F-119

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2007, 2008 and 2009 (Continued)

Note 18Derivative Instruments (Continued)



The Company engages in several types of cash flow hedging strategies related to forecasted future interest payments, with the hedged
risk being the variability in those payments due to changes in the designated benchmark rate (i.e., U.S. dollar LIBOR). In these strategies, the hedging instruments are matched with groups of
similar variable rate instruments such that the reset tenor of the variable rate instruments and that of the hedging instrument are identical. Cash flow hedging strategies include the utilization of
purchased floor, cap, collars and corridor options and interest rate swaps. At December 31, 2009, the weighted average remaining life of the currently active (excluding any forward positions)
cash flow hedges was approximately 2.2 years.

The
Company uses purchased interest rate floors to hedge the variable cash flows associated with 1-month or 3-month LIBOR indexed loans. Payments received under
the floor contract offset the decline in loan interest income if the relevant LIBOR index falls below the floor's strike rate.

The
Company uses interest rate floor corridors to hedge the variable cash flows associated with 1-month or 3-month LIBOR indexed loans. Net payments to be
received under the floor corridor contracts offset the decline in loan interest income if the relevant LIBOR index falls below the corridor's upper strike rate, but only to the extent the index
remains above the lower strike rate. The corridor will not provide protection from declines in the relevant LIBOR index to the extent it falls below the corridor's lower strike rate.

The
Company uses interest rate collars to hedge the variable cash flows associated with 1-month or 3-month LIBOR indexed loans. Net payments received under the
collar contract offset declines in loan interest income if the relevant LIBOR index falls below the collar's floor strike rate, while net payments paid reduce the increase in loan interest income if
the LIBOR index rises above the collar's cap strike rate.

The
Company uses interest rate swaps to hedge the variable cash flows associated with 1-month or 3-month LIBOR indexed loans. Payments received (or paid) under
the swap contract offset fluctuations in loan interest income caused by changes in the relevant
LIBOR index. As such, these instruments hedge all fluctuations in the loans' interest income caused by changes in the relevant LIBOR index.

The
Company uses purchased interest rate caps to hedge the variable interest cash flows associated with 1-month or 3-month LIBOR indexed borrowings. Payments
received under the cap contract offset the increase in borrowing interest expense if the relevant LIBOR index rises above the cap's strike rate.

The
Company uses purchased interest rate caps to hedge the variable interest cash flows associated with the forecasted issuance and rollover of short-term, fixed rate CDs. In
these hedging relationships, the Company hedges the change in interest rates based on 1-month, 3-month, and 6-month LIBOR, which is consistent with the CDs'
original term to maturity and reflects their repricing frequency. Net payments to be received under the cap contract offset increases in interest expense caused by the relevant LIBOR index rising
above the cap's strike rate.

The
Company uses interest rate cap corridors to hedge the variable cash flows associated with the forecasted issuance and rollover of short-term, fixed rate CDs. In these
hedging relationships, the Company hedges changes in interest rates, either 1-month, 3-month, or 6-month LIBOR, based on the original term to maturity of the CDs.
Net payments received under the cap corridor contract offset increases in deposit interest expense caused by the relevant LIBOR index rising above the corridor's lower strike rate, but only to the
extent

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2007, 2008 and 2009 (Continued)

Note 18Derivative Instruments (Continued)

the
index does not exceed the upper strike rate. The corridor will not provide protection from increases in the relevant LIBOR index to the extent it rises above the corridor's upper strike rate.

Hedging
transactions are structured at inception so that the notional amounts of the hedging instruments are matched to an equal principal amount of loans, CDs, or borrowings, the index
and repricing frequencies of the hedging instruments match those of the loans, CDs, or borrowings and the period in which the designated hedged cash flows occurs is equal to the term of the hedge
instruments. As such, most of the ineffectiveness in the hedging relationship results from the mismatch between the timing of reset dates on the hedging instruments versus those of the loans, CDs or
borrowings.

For
cash flow hedges, the effective portion of the gain or loss on the hedging instruments is reported as a component of other comprehensive income and reclassified into earnings in the
same period or periods during which the hedged cash flows are recognized in net interest income. Gains and losses representing hedge ineffectiveness or hedge components excluded from the assessment of
hedge effectiveness are recognized in noninterest expense in the period in which they arise. Based upon amounts included in accumulated other comprehensive income at December 31, 2009, the
Company expects to realize approximately $34.9 million in net interest income during the twelve months ending December 31, 2010.
This amount could differ from amounts actually realized due to changes in interest rates and the addition of other hedges subsequent to December 31, 2009.

The
following tables present the amount and location of the net gains and losses recorded in the Company's consolidated statements of income and changes in stockholder's equity for
derivatives designated as cash flow hedges for the year ended December 31, 2009.

For the Year Ended December 31, 2009Gain or (Loss) Recognized in
Income on Derivative
Instruments (Ineffective Portion
and Amount Excluded from
Effectiveness Testing)Gain or (Loss) Reclassified from
Accumulated OCI into Income
(Effective Portion)Amount of Gain or (Loss)
Recognized in OCI on
Derivative Instruments
(Effective Portion)(Dollars in thousands)Location

Amount

Location

AmountDerivatives in Cash Flow Hedging RelationshipsInterest Income

$
125,151

NoninterestInterest rate contracts

$
35,928

Interest Expense


15

Expense

$
454Total

$
35,928



$
125,166



$
454




In the first quarter of 2009, the Company terminated all of its interest rate swaps, which were previously used to hedge subordinated
debt. The notional amount of the terminated swaps was $950 million. These swaps were not replaced. As a result of the termination, the Company received $167.7 million in cash, which is
treated as a deferred gain and recognized over the remaining contractual life of the subordinated debt.

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2007, 2008 and 2009 (Continued)

Note 18Derivative Instruments (Continued)

The
following table presents the amount and location of the net gains and losses prior to termination as reported in the consolidated statement of income for derivative instruments
classified as hedging instruments and the related hedged item for the year ended December 31, 2009.

Gain or (Loss) Recognized in Income
For the Year Ended December 31, 2009(Dollars in thousands)

Location

Interest Rate
Swap

Fixed Rate
Subordinated DebtFair Value Hedge

Interest Expense

$
(5,112
)
$
5,112Total



$
(5,112
)
$
5,112




Derivative instruments classified as trading include both derivatives entered into for the Company's own account and as an
accommodation for customers. Derivatives held for trading purposes are included in trading assets or trading liabilities with changes in fair value reflected in trading income or losses. The majority
of the Company's derivative transactions for customers were essentially offset by contracts with third parties that reduce or eliminate market risk exposures.

In
2008, the Company began offering market-linked certificates of deposit. The terms of the market-linked CD allow the client to earn the higher of either a minimum fixed rate of
interest or a return tied to the S&P 500 or the Dow Jones UBS Commodity Index. The Company hedges its exposure to the embedded derivative contained in market-linked CDs with a perfectly matched
over-the-counter call option. Both the embedded derivative and call option are recorded at fair value with the realized and unrealized changes in fair value recorded in
noninterest income within trading account activities.

The
Company has a limited portfolio of market path CDs, which provide the current CD holders with a return tied to the S&P 500 Index. The Company engages in an economic hedging
strategy in which the interest paid based on the S&P 500 Index is exchanged for a fixed rate of interest. The Company accounts
for the derivative embedded in the market path CD separately at fair value. A total return swap that encompasses the value of a series of options that had individually hedged each CD is recorded at
fair value. The fair value of the embedded derivative and hedge instrument are recorded in other assets or other liabilities and the changes in the fair value of the embedded derivative and the hedge
instrument are recognized as interest expense.

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2007, 2008 and 2009 (Continued)

Note 18Derivative Instruments (Continued)

The
following table presents the amount and location of the net gains and losses reported in the consolidated statement of income for derivative instruments classified as trading and
derivatives used as economic hedges for the year ended December 31, 2009.

Gain or (Loss) Recognized in Income
on Derivative InstrumentsFor the Year Ended
December 31, 2009(Dollars in thousands)

Location

AmountTrading Derivatives and Economic Hedges:Interest rate contracts

Trading account activities

$
7,852Foreign exchange contracts

Trading account activities


33,960Energy contracts

Trading account activities


5,785Equity contracts

Trading account activities


2,247Other contracts

Interest expense


(125
)Total



$
49,719


Note 19Restrictions on Cash and Due from Banks, Securities, Loans and Dividends

Federal Reserve Board regulations require the Bank to maintain reserve balances based on the types and amounts of deposits received. The required reserve balances were
$178.7 million and $424.4 million at December 31, 2008 and 2009, respectively.

As
of December 31, 2008 and 2009, securities carried at $5.9 billion for both periods and loans of $40.2 billion and $37.8 billion, respectively, were pledged
as collateral for borrowings, including those to the Federal Reserve Bank and Federal Home Loan Bank, to secure public and trust department deposits, and for repurchase agreements as required by
contract or law.

The
Federal Reserve Act restricts the amount and the terms of both credit and non-credit transactions between a bank and its non-bank affiliates. Such
transactions may not exceed 10 percent of the bank's capital and surplus (which for this purpose represents Tier 1 and Tier 2 capital, as calculated under the
risk-based capital guidelines, plus the balance of the allowance for loan losses excluded from Tier 2 capital) with any single non-bank affiliate and 20 percent
of the bank's capital and surplus with all its non-bank affiliates. Transactions that are extensions of credit may require collateral to be held to provide added security to the bank. See
Note 20 to these consolidated financial statements for further discussion of risk-based capital. At December 31, 2009, $342.1 million remained outstanding on
twenty-seven Bankers Commercial Corporation notes payable to the Bank. The respective notes were fully collateralized with equipment lease assets pledged by Bankers Commercial Corporation. At
December 31, 2009, $12.1 million remained outstanding on a UnionBanCal Leasing Corporation loan payable to the Bank. The loan was fully collateralized with equipment lease assets pledged
by UnionBanCal Leasing Corporation. At December 31, 2009, $33.3 million remained outstanding on the UnionBanCal Equities, Inc. loan payable to the Bank. The loan was fully secured
by loans pledged by UnionBanCal Equities, Inc.

The
declaration of a dividend by the Bank to the Company is subject to the approval of the Office of the Comptroller of the Currency (OCC) if the total of all dividends declared in the
current calendar year plus the preceding two years exceeds the Bank's total net income in the current calendar year plus the preceding two

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2007, 2008 and 2009 (Continued)

Note 19Restrictions on Cash and Due from Banks, Securities, Loans and Dividends (Continued)

years.
The payment of dividends is also limited by minimum capital requirements imposed on national banks by the OCC.

Note 20Regulatory Capital Requirements

The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate
certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a material effect on the Company's consolidated financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of the Company's and
Bank's assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and the Bank's prompt corrective action
classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Prompt corrective action provisions are not applicable to bank holding
companies such as the Company. The Bank is subject to laws and regulations that limit the amount of dividends it can pay to the Company.

Quantitative
measures established by regulation to help ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the table below) of
Total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier 1 capital (as defined) to quarterly average assets (as defined).
Management believes, as of December 31, 2008 and 2009, that the Company and the Bank met all capital adequacy requirements to which they are subject.

The
most recent notification from the OCC categorized the Bank as "well-capitalized" under the regulatory framework for prompt corrective action. To be categorized as
"well-capitalized," the Bank must maintain a minimum total risk-based capital ratio of 10 percent, a Tier 1 risk-based capital ratio of
6 percent, and a Tier 1 leverage ratio of 5 percent. There are no conditions or events since that notification that management believes have changed the Bank's category.

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2007, 2008 and 2009 (Continued)

Note 20Regulatory Capital Requirements (Continued)

The
Company's and the Bank's capital amounts and ratios are presented in the following tables.

Actual

For Capital
Adequacy Purposes(Dollars in thousands)

Amount

Ratio

Amount

RatioCapital Ratios for the Company:As of December 31, 2008:Total capital (to risk-weighted assets)

$
7,240,104


11.63
%
3
$4,980,086

3
8.0
%Tier 1 capital (to risk-weighted assets)


5,466,713


8.78

3
2,490,043

3
4.0Tier 1 capital (to quarterly average assets)(1)


5,466,713


8.42

3
2,596,714

3
4.0As of December 31, 2009:Total capital (to risk-weighted assets)

$
9,203,323


14.54
%
3
$5,063,854

3
8.0
%Tier 1 capital (to risk-weighted assets)


7,484,516


11.82

3
2,531,927

3
4.0Tier 1 capital (to quarterly average assets)(1)


7,484,516


9.45

3
3,169,079

3
4.0


(1)Excludes
certain intangible assets.


Actual

For Capital
Adequacy Purposes

To Be Well-Capitalized
Under Prompt Corrective
Action Provisions(Dollars in thousands)

Amount

Ratio

Amount

Ratio

Amount

RatioCapital Ratios for the Bank:As of December 31, 2008:Total capital (to risk-weighted assets)

$
6,831,099


11.01
%
3
$4,962,078

3
8.0
%
3
$6,202,597

3
10.0
%Tier 1 capital (to risk-weighted assets)


5,380,075


8.67

3
2,481,039

3
4.0

3
3,721,558

3
6.0Tier 1 capital (to quarterly average assets)(1)


5,380,075


8.31

3
2,589,511

3
4.0

3
3,236,888

3
5.0As of December 31, 2009Total capital (to risk-weighted assets)

$
8,685,961


13.73
%
3
$5,061,834

3
8.0
%
3
$6,327,293

3
10.0
%Tier 1 capital (to risk-weighted assets)


7,207,264


11.39

3
2,530,917

3
4.0

3
3,796,376

3
6.0Tier 1 capital (to quarterly average assets)(1)


7,207,264


9.05

3
3,184,373

3
4.0

3
3,980,466

3
5.0


(1)Excludes
certain intangible assets.


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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2007, 2008 and 2009 (Continued)

Note 21Other Comprehensive Income (Loss)

The following table presents the change in each of the components of other comprehensive income (loss) and the related tax effect of the change allocated to each component.

(Dollars in thousands)

Before
Tax
Amount

Tax
Effect

Net of
TaxFor the year ended December 31, 2007:Cash flow hedge activities:Unrealized net gains on hedges arising during the year

$
53,119

$
(20,318
)
$
32,801Less: reclassification adjustment for net losses on hedges included in net income


29,420


(11,253
)

18,167Net change in unrealized losses on hedges


82,539


(31,571
)

50,968Securities available for sale:Unrealized holding losses arising during the year on securities available for sale


(113,820
)

43,536


(70,284
)Less: reclassification adjustment for net gains on securities available for sale included in net income


(1,621
)

620


(1,001
)Net change in unrealized losses on securities available for sale


(115,441
)

44,156


(71,285
)Foreign currency translation adjustment


837


(320
)

517Reclassification adjustment for pension and other benefits included in net income:Amortization of prior service costs


638


(244
)

394Amortization of transition amount


2,035


(778
)

1,257Recognized net actuarial loss


21,341


(8,163
)

13,178Pension and other benefits arising during the year


(30,409
)

11,631


(18,778
)Net pension and other benefits adjustment(1)


(6,395
)

2,446


(3,949
)Net change in accumulated other comprehensive income (loss)

$
(38,460
)
$
14,711

$
(23,749
)For the year ended December 31, 2008:Cash flow hedge activities:Unrealized net gains on hedges arising during the year

$
181,223

$
(70,993
)
$
110,230Reclassification for fair value adjustment(2)


(20,156
)

7,710


(12,446
)Less: accretion of fair value adjustment


4,141


(1,583
)

2,558Less: reclassification adjustment for net gains on hedges included in net income


(83,271
)

32,674


(50,597
)Net change in unrealized gains on hedges


81,937


(32,192
)

49,745Securities available for sale:Unrealized holding losses arising during the year on securities available for sale


(639,190
)

251,138


(388,052
)Reclassification for fair value adjustment(2)


274,271


(107,761
)

166,510Less: accretion of fair value adjustment


(3,258
)

1,280


(1,978
)Less: reclassification adjustment for net gains on securities available for sale included in net income


(44
)

17


(27
)Net change in unrealized losses on securities available for sale


(368,221
)

144,674


(223,547
)Foreign currency translation adjustment


(3,053
)

1,200


(1,853
)Reclassification adjustment for pension and other benefitsincluded in net income:Amortization of prior service costs


88


(32
)

56Amortization of transition amount


1,854


(728
)

1,126Recognized net actuarial loss


13,563


(5,328
)

8,235Pension and other benefits arising during the year


(698,600
)

276,575


(422,025
)Reclassification for fair value adjustment(2)


96,415


(36,880
)

59,535Less: accretion of fair value adjustment








Net pension and other benefits adjustment(1)


(586,680
)

233,607


(353,073
)Net change in accumulated other comprehensive income (loss)

$
(876,017
)
$
347,289

$
(528,728
)For the year ended December 31, 2009:Cash flow hedge activities:Unrealized net gains on hedges arising during the year

$
35,928

$
(14,116
)
$
21,812Less: accretion of fair value adjustment


13,088


(4,976
)

8,112Less: reclassification adjustment for net gains on hedges included in net income


(138,254
)

54,320


(83,934
)Net change in unrealized gains on hedges


(89,238
)

35,228


(54,010
)Securities:Unrealized holding gains arising during the year on securities available for sale


20,115


(7,903
)

12,212Reclassification for fair value adjustment for net gains on securities available for sale included in net income


27,470


(10,793
)

16,677Less: accretion of fair value adjustment on securities available for sale


(12,342
)

4,849


(7,493
)Less: accretion of fair value adjustment on held to maturity securities


(19,641
)

7,717


(11,924
)Less: accretion of net unrealized losses on held to maturity securities


77,300


(30,371
)

46,929Net change in unrealized losses on securities


92,902


(36,501
)

56,401Foreign currency translation adjustment


2,267


(891
)

1,376Reclassification adjustment for pension and other benefits included in net income:Amortization of prior service costs


(62
)

24


(38
)Amortization of transition amount


1,311


(515
)

796Recognized net actuarial loss


20,950


(8,231
)

12,719Pension and other benefits arising during the year


236,774


(93,029
)

143,745Net pension and other benefits adjustment(1)


258,973


(101,751
)

157,222Net change in accumulated other comprehensive income (loss)

$
264,904

$
(103,915
)
$
160,989


(1)For
further information, see Note 9 to these consolidated financial statements.


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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2007, 2008 and 2009 (Continued)

Note 21Other Comprehensive Income (Loss) (Continued)

(2)The
fair value adjustment related to the Company's privatization was reclassified into additional paid-in-capital
within stockholder's equity.


The following table presents accumulated other comprehensive income (loss) balances.

(Dollars in thousands)

Net
Unrealized
Gains (Losses)
on Cash
Flow
Hedges

Net
Unrealized
Losses
on Securities
Available
For Sale

Foreign
Currency
Translation
Adjustment

Pension and
Other
Benefits
Adjustment

Accumulated
Other
Comprehensive
LossBalance, December 31, 2006

$
(27,405
)
$
(57,878
)
$
223

$
(174,314
)
$
(259,374
)Change during the year


50,968


(71,285
)

517


(3,949
)

(23,749
)Balance, December 31, 2007

$
23,563

$
(129,163
)
$
740

$
(178,263
)
$
(283,123
)Change during the year


49,745


(223,547
)

(1,853
)

(353,073
)

(528,728
)Balance, December 31, 2008

$
73,308

$
(352,710
)
$
(1,113
)
$
(531,336
)
$
(811,851
)Change during the year


(54,010
)

56,401


1,376


157,222


160,989Balance, December 31, 2009

$
19,298

$
(296,309
)
$
263

$
(374,114
)
$
(650,862
)


Note 22Commitments, Contingencies and Guarantees

The following table summarizes the Company's significant commitments.

December 31,(Dollars in thousands)

2008

2009Commitments to extend credit

$
21,746,133

$
21,771,188Standby letters of credit


4,588,552


4,651,236Commercial letters of credit


50,590


43,127Risk participations in bankers' acceptances


23,925


68Commitments to fund principal investments


111,237


88,392Commitments to fund low-income housing credit (LIHC) investments


139,449


150,227


Commitments to extend credit are legally binding agreements to lend to a customer provided there are no violations of any condition established in
the contract. Commitments have fixed expiration dates or other termination clauses and may require maintenance of compensatory balances. Since many of the
commitments to extend credit may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash flow requirements.

Standby
and commercial letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. Standby letters of credit generally are
contingent upon the failure of the customer to perform according to the terms of the underlying contract with the third party, while commercial letters of credit are issued specifically to facilitate
foreign or domestic trade transactions. Additionally, the Company enters into risk participations in bankers' acceptances wherein a fee is received to guarantee a portion of the credit risk on an
acceptance of another bank. The majority of these types of commitments have terms of one year or less. At December 31, 2009, the carrying value of the Company's risk participations in bankers'
acceptances and standby and commercial letters of credit totaled $5.8 million. Estimated exposure to loss related to these commitments is covered by the allowance for losses on
off-balance

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2007, 2008 and 2009 (Continued)

Note 22Commitments, Contingencies and Guarantees (Continued)

sheet
commitments. The carrying value of the standby and commercial letters of credit and the allowance for losses on off-balance sheet commitments are included in other liabilities on the
consolidated balance sheet.

The
credit risk involved in issuing loan commitments and standby and commercial letters of credit is essentially the same as that involved in extending loans to customers and is
represented by the contractual amount of these instruments. Collateral may be obtained based on management's credit assessment of the customer.

Principal
investments include direct investments in private and public companies and indirect investments in private equity funds. The Company issues commitments to provide equity and
mezzanine capital financing to private and public companies through either direct investments in specific companies or through investment funds and partnerships. The timing of future cash requirements
to fund such commitments is generally dependent on the investment cycle. This cycle, the period over which privately-held companies are funded by private equity investors and ultimately
sold, merged, or taken public through an initial offering, can vary based on overall market conditions as well as the nature and type of industry in which the companies operate.

The
Company invests in either guaranteed or unguaranteed LIHC investments. The guaranteed LIHC investments carry a minimum rate of return guarantee by a creditworthy entity. The
unguaranteed LIHC investments carry partial guarantees covering the timely completion of projects, availability of tax credits and operating deficit thresholds from the issuer. For these LIHC
investments, the Company has committed to provide additional funding as stipulated by its investment participation.

The
Company is a fund manager for limited liability companies issuing LIHC investments. LIHC investments provide tax benefits to investors in the form of tax deductions from operating
losses and tax
credits. To facilitate the sale of these LIHC investments, the Company guarantees a minimum rate of return throughout the investment term of over a twelve-year weighted average period.
Additionally, the Company receives guarantees which include the timely completion of projects, availability of tax credits and operating deficit thresholds from the limited liability
partnerships/corporations issuing the LIHC investments that reduce the Company's ultimate exposure to loss. As of December 31, 2009, the Company's maximum exposure to loss under these
guarantees is limited to a return of investor capital and minimum investment yield, or $193.0 million. The risk that the Company would be required to pay investors for a yield deficiency is
low, based on the continued satisfactory performance of the underlying properties. The Company has a reserve of $6.8 million recorded related to these guarantees, which represents the remaining
unamortized fair value of the guarantee fees that were recognized at inception.

The
Company has rental commitments under long-term operating lease agreements. For detail of these commitments see Note 6 to these consolidated financial statements.

The
Company conducts securities lending transactions for institutional customers as a fully disclosed agent. At times, securities lending indemnifications are issued to guarantee that a
security lending customer will be made whole in the event the borrower does not return the security subject to the lending agreement and collateral held is insufficient to cover the market value of
the security. All lending transactions are collateralized, primarily by cash. The amount of securities lent with indemnifications was $1.4 billion and $1.9 billion at December 31,
2008 and 2009, respectively. The market value of the associated collateral was $1.4 billion and $2.0 billion at December 31, 2008 and 2009, respectively. As of December 31,
2009, the

F-128

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2007, 2008 and 2009 (Continued)

Note 22Commitments, Contingencies and Guarantees (Continued)

Company
had no exposure that would require it to pay under this securities lending indemnification, since the collateral market value exceeds the securities lent.

The
Company occasionally enters into financial guarantee contracts where a premium is received from another financial institution counterparty to guarantee a portion of the credit risk
on interest rate swap contracts entered into between the financial institution and its customer. The Company becomes liable to pay the financial institution only if the financial institution is unable
to collect amounts owed to them by their customer. As of December 31, 2009, the maximum exposure to loss under these contracts totaled $43.5 million. The risk that the Company would be
required to perform under these guarantees varies based on the creditworthiness of the other financial institution's customer. Credit risk grades are assigned by the Company based on the estimated
probability of default. The risk of default is considered low for those with superior to good credit ratings, moderate for those with satisfactory to adequate credit ratings, and high for those
considered special mention, substandard, doubtful and loss. Based on these criteria, at December 31, 2009, the Company had a maximum exposure to loss under these contracts with a low, moderate,
and high risk of payment exposure of $9.6 million, $25.5 million, and $8.4 million, respectively. At December 31, 2009, the Company maintained a reserve of
$1.5 million for losses related to these guarantees.

The
Company is a member of the Visa USA network (Visa). Visa's bylaws obligate its members to indemnify Visa for losses in connection with the settlement of certain antitrust lawsuits.
The Company's indemnification obligation is limited to its proportionate share. The Company had a liability of $4.3 million and $4.2 million at December 31, 2008 and
December 31, 2009, respectively, representing the estimated fair value of the Company's obligations under the indemnity provisions. The decrease in this liability from December 31, 2008
to December 31, 2009 was primarily due to a $700 million contribution Visa made on behalf of members to the litigation escrow account in the second quarter of 2009, offset by the
Company's revised assessment of the likely settlement amount for one of the cases. The $4.2 million liability represents the Company's estimate of the fair value of its proportionate share of
the sum of Visa's remaining amount owed to American Express under the previously executed settlement agreement plus the Company's estimate of Visa's future settlements under pending lawsuits, after
subtracting the balance in Visa's escrow account. The Company's maximum exposure to loss for the remaining pending Visa antitrust lawsuits is not determinable, as it is dependent on the outcome of the
litigation, but any loss will be proportionate to the Company's ownership interest in Visa. At December 31, 2009, the risk that the Company would be required to pay as a result of this
guarantee is considered to be low, based on Visa's continued cash funding of the escrow account to pay its antitrust lawsuit settlements.

The
Company is subject to various pending and threatened legal actions that arise in the normal course of business. Reserves for losses from legal actions that are both probable and
estimable are recorded at the time of that determination. Management believes that the disposition of all claims currently pending will not have a material adverse effect on the Company's consolidated
financial condition, operating results or liquidity.

Note 23Transactions with Affiliates

For further information on the Company's privatization, see Note 2 to these consolidated financial statements.

The
Company had, and expects to have in the future, banking transactions and other transactions in the ordinary course of business with BTMU and with its affiliates. During 2007, 2008
and 2009, such transactions included, but were not limited to, participation, servicing and remarketing of loans and leases,

F-129

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2007, 2008 and 2009 (Continued)

Note 23Transactions with Affiliates (Continued)

purchase
and sale of acceptances, interest rate derivatives and foreign exchange transactions, funds transfers, custodianships, electronic data processing, investment advice and management, customer
referrals, facility leases, and trust services. The Company also maintains traditional correspondent bank accounts and had a $200 million floating-rate subordinated debt with BTMU,
which was retired in June 2007. In September 2008, the Company established a $500 million, three-year unsecured revolving credit facility with BTMU. As of December 31, 2009,
the Company had no outstanding balance under this facility. In the opinion of management, these transactions were made at rates, terms and conditions prevailing in the market and do not involve more
than the normal risk of collectability or present other unfavorable features. In addition, some compensation for services rendered to the Company is paid to the expatriate officers from BTMU, and
reimbursed by the Company to BTMU under a service agreement.

In
2007, the Bank purchased a membership interest in a U.S. payment services company for $1.4 million from BTMU.

In
December 2008, the Company received a $1.0 billion capital contribution from BTMU, in part to offset the impact of the privatization transaction on the Company's capital.

In
September 2009, the Company received a $2.0 billion capital contribution from BTMU. The contribution was made to provide the Company with additional capital to offset potential
future credit losses consistent with a highly adverse economic scenario.

At
December 31, 2008, the Company had derivative contracts totaling $1.3 billion in notional balances with $8.1 million in net unrealized losses with BTMU and its
affiliates. In 2008, the Company had recorded interest expense of $3.5 million relating to the borrowings under the unsecured revolving credit facility and other correspondent bank accounts.
Additionally, the Company recorded income of $2.0 million and expenses of $1.0 million for fees and revenue sharing arrangements, and income of $22.0 million and expenses of
$4.3 million relating to facility and staff training arrangements.

At
December 31, 2009, the Company had derivative contracts totaling $0.5 billion in notional balances with $17.1 million in net unrealized losses with BTMU and its
affiliates. In 2009, the Company recorded income of $5.8 million and expenses of $2.5 million for fees and revenue sharing arrangements, and income of $33.5 million and expenses
of $4.6 million relating to facility and staff training arrangements.

The
Company guarantees its subsidiaries' leveraged lease transactions with terms ranging from fifteen to thirty years. Following the original funding of these leveraged lease
transactions, the Company does not have any material obligation to be satisfied. As of December 31, 2009, we had no exposure to loss for these agreements.

Note 24Business Segments

As a result of a corporate reorganization in the fourth quarter of 2009, the Company evaluated its business segments. Under the new organizational structure, the Company has three
operating segments: Retail Banking Group, Corporate Banking Group and Pacific Rim Corporate Group. Based on accounting guidance, the Corporate Banking Group and Pacific Rim Corporate Group segments
have been aggregated together. The Company has two reportable business segments: Retail Banking and Corporate Banking.

Prior
to this reorganization, the various operating segments were aggregated into two reportable business segments formerly known as "Retail Banking" and "Wholesale Banking". The
Company's new reportable

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2007, 2008 and 2009 (Continued)

Note 24Business Segments (Continued)

business
segment structure is similar to the previous structure. However, the Global and Wealth Markets division, which was previously included in Retail Banking, is now included in Corporate Banking.
Additionally, the goodwill, intangible assets, and related amortization/accretion associated with the privatization transaction previously were included in the Company's segment results. To align with
the chief operating decision maker's view of these segments, the Company has adjusted the 2008 and 2009 reportable business segment results to exclude privatization-related goodwill, intangible
assets, and related amortization/accretion from the reportable business segment results and included such amounts in "Other."



Other
is comprised of certain non-bank subsidiaries of UnionBanCal Corporation; the transfer pricing center; the earnings associated with the allowance for credit losses; the
amount of the provision for credit losses over/(under) the risk-adjusted return on capital (RAROC) expected loss for the period; the residual costs of support groups; goodwill, intangible
assets, and the related amortization/accretion associated with the Company's privatization transaction; the results of discontinued operations; the elimination of the fully taxable-equivalent basis
amount; and the difference between the marginal tax rate and the consolidated effective tax rate. In addition, "Other" includes Corporate Treasury, which is responsible for Asset-Liability Management
(ALM), wholesale funding, and the ALM investment securities and derivatives hedging portfolios.

The
information, set forth in the table that follows, reflects selected income statement and balance sheet items by business segment. The information presented does not necessarily
represent the business units' financial condition and results of operations were they independent entities. Unlike financial accounting, there is no authoritative body of guidance for management
accounting equivalent to US GAAP. Consequently, reported results are not necessarily comparable with those presented by other companies.

The
information in the table is derived from the internal management reporting system used by management to measure the performance of the individual segments and the Company overall.
The management reporting system assigns balance sheet and income statement items to each operating segment based on internal management accounting policies. Net interest income is determined by the
Company's internal funds transfer pricing system, which assigns a cost of funds or a credit for funds to assets or liabilities based on their type, maturity or repricing characteristics. Noninterest
income and expense directly attributable to an operating segment are assigned to that operating segment. Certain indirect costs, such as operations and technology expense, are allocated to the
segments based on studies of billable unit costs for product or data processing. Other indirect costs, such as corporate overhead, are allocated to an operating segment based on a predetermined
percentage of usage. Under the Company's RAROC methodology, credit expense is charged to

F-131

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2007, 2008 and 2009 (Continued)

Note 24Business Segments (Continued)

an
operating segment based upon expected losses arising from credit risk. In addition, the attribution of economic capital is related to unexpected losses arising from credit, market and operational
risks.

The
Company reflects a "market view" perspective in measuring the business segments. The market view is a measurement of customer markets aggregated to show all revenues generated and
expenses incurred from all products and services sold to those customers regardless of where product areas organizationally report. Therefore, revenues and expenses are included in both the business
segment that provides the service and the business segment that manages the customer relationship. The duplicative results from this internal management accounting view are reflected in "Reconciling
Items."

The
business segment results for prior periods have been restated to reflect changes in the transfer pricing methodology, the organizational changes that have occurred, discontinued
operations and the market view contribution.

Retail Banking

Corporate BankingAs of and for the Year Ended December 31,

As of and for the Year Ended December 31,2007

2008

2009

2007

2008

2009Results of operations (dollars in thousands):Net interest income (expense)

$
702,211

$
767,164

$
841,859

$
840,381

$
1,073,530

$
1,549,404Noninterest income (expense)


311,056


302,558


283,072


521,723


513,053


479,177Total revenue


1,013,267


1,069,722


1,124,931


1,362,104


1,586,583


2,028,581Noninterest expense (income)


740,626


803,091


818,479


741,952


820,178


906,944Credit expense (income)


24,643


26,986


27,794


112,209


196,639


338,667Income (loss) from continuing operations before income taxes


247,998


239,645


278,658


507,943


569,766


782,970Income tax expense (benefit)


94,859


91,664


108,955


142,442


146,556


219,954Income (loss) from continuing operations


153,139


147,981


169,703


365,501


423,210


563,016Income (loss) from discontinued operations, net of income taxes

















Net income (loss)

$
153,139

$
147,981

$
169,703

$
365,501

$
423,210

$
563,016Total assets, end of period (dollars in millions):

$
18,246

$
21,417

$
22,426

$
29,813

$
37,307

$
33,136




Other

Reconciling ItemsAs of and for the Year Ended December 31,

As of and for the Year Ended December 31,2007

2008

2009

2007

2008

2009Results of operations (dollars in thousands):Net interest income (expense)

$
218,302

$
250,960

$
(86,462
)
$
(37,514
)
$
(40,806
)
$
(55,689
)Noninterest income (expense)


19,212


14,427


24,869


(52,452
)

(57,382
)

(59,974
)Total revenue


237,514


265,387


(61,593
)

(89,966
)

(98,188
)

(115,663
)Noninterest expense (income)


126,342


312,705


403,254


(34,719
)

(39,278
)

(40,176
)Credit expense (income)


(55,206
)

292,081


748,400


(646
)

(706
)

(861
)Income (loss) from continuing operations before income taxes


166,378


(339,399
)

(1,213,247
)

(54,601
)

(58,204
)

(74,626
)Income tax expense (benefit)


77,938


(88,089
)

(461,014
)

(20,885
)

(22,263
)

(29,179
)Income (loss) from continuing operations


88,440


(251,310
)

(752,233
)

(33,716
)

(35,941
)

(45,447
)Income (loss) from discontinued operations, net of income taxes


34,730


(15,055
)










Net income (loss)

$
123,170

$
(266,365
)
$
(752,233
)
$
(33,716
)
$
(35,941
)
$
(45,447
)Total assets, end of period (dollars in millions):

$
8,865

$
12,788

$
31,954

$
(1,196
)
$
(1,391
)
$
(1,918
)


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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2007, 2008 and 2009 (Continued)

Note 24Business Segments (Continued)

UnionBanCal CorporationAs of and for the Year End December 31,2007

2008

2009Results of operations (dollars in thousands):Net interest income (expense)

$
1,723,380

$
2,050,848

$
2,249,112Noninterest income (expense)


799,539


772,656


727,144Total revenue


2,522,919


2,823,504


2,976,256Noninterest expense (income)


1,574,201


1,896,696


2,088,501Credit expense (income)


81,000


515,000


1,114,000Income (loss) from continuing operations before income taxes


867,718


411,808


(226,245
)Income tax expense (benefit)


294,354


127,868


(161,284
)Income (loss) from continuing operations


573,364


283,940


(64,961
)Income (loss) from discontinued operations, net of income taxes


34,730


(15,055
)

Net income (loss)

$
608,094

$
268,885

$
(64,961
)Total assets, end of period (dollars in millions):

$
55,728

$
70,121

$
85,598


Note 25Condensed UnionBanCal Corporation Unconsolidated Financial Statements (Parent Company)

Condensed Balance Sheets

December 31,(Dollars in thousands)

2008

2009AssetsCash and cash equivalents

$
113,609

$
309,067Investment in and advances to subsidiaries


7,771,307


9,714,628Other assets


66,923


5,858Total assets

$
7,951,839

$
10,029,553Liabilities and Stockholder's EquityOther liabilities

$
1,624

$
1,331Medium- and long-term debt


451,930


434,362Junior subordinated debt payable to subsidiary grantor trust


13,980


13,527Total liabilities


467,534


449,220Stockholder's equity


7,484,305


9,580,333Total liabilities and stockholder's equity

$
7,951,839

$
10,029,553


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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2007, 2008 and 2009 (Continued)

Note 25Condensed UnionBanCal Corporation Unconsolidated Financial Statements (Parent Company) (Continued)

Condensed Statements of Income

Years Ended December 31,(Dollars in thousands)

2007

2008

2009Income:Cash dividends from bank subsidiary

$
295,500

$
226,000

$
Cash dividends from nonbank subsidiaries


21,340


30,000


Interest income on advances to subsidiaries and deposits in bank


13,484


3,614


713Other income


1





4Total income


330,325


259,614


717Expense:Interest expense


29,569


14,956


7,871Other expense, net


3,516


30,906


4,568Total expense


33,085


45,862


12,439Income (loss) before income taxes and equity in undistributed net income of subsidiaries


297,240


213,752


(11,722
)Income tax benefit


(10,017
)

(9,711
)

(9,022
)Income (loss) before equity in undistributed net income of subsidiaries


307,257


223,463


(2,700
)Equity in undistributed net income (loss) of subsidiaries:Bank subsidiary


271,481


59,159


(66,882
)Nonbank subsidiaries


29,356


(13,737
)

4,621Net Income (Loss)

$
608,094

$
268,885

$
(64,961
)


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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2007, 2008 and 2009 (Continued)

Note 25Condensed UnionBanCal Corporation Unconsolidated Financial Statements (Parent Company) (Continued)

Condensed Statements of Cash Flows

Years Ended December 31,(Dollars in thousands)

2007

2008

2009Cash Flows from Operating Activities:Net income (loss)

$
608,094

$
268,885

$
(64,961
)Adjustments to reconcile net income (loss) to net cash provided by operating activities:Equity in undistributed net income (loss) of subsidiaries


(223,538
)

(45,422
)

62,260Other, net


(21,192
)

(10,315
)

43,549Net cash provided by operating activities


363,364


213,148


40,848Cash Flows from Investing Activities:Investments in and advances to subsidiaries


(85,444
)

(1,123,222
)

(1,853,000
)Repayment of advances to subsidiaries


195,949


34,955


7,610Net cash provided by (used in) investing activities


110,505


(1,088,267
)

(1,845,390
)Cash Flows from Financing Activities:Repayment of long-term debt


(200,000
)




Payments of cash dividends


(274,974
)

(287,995
)

Repurchase of common stock


(137,978
)

(2,214
)

Capital contribution from BTMU





1,000,000


2,000,000Stock options exercised


36,904


120,079


Net cash provided by (used in) financing activities


(576,048
)

829,870


2,000,000Net increase (decrease) in cash and cash equivalents


(102,179
)

(45,249
)

195,458Cash and cash equivalents at beginning of year


261,037


158,858


113,609Cash and cash equivalents at end of year

$
158,858

$
113,609

$
309,067


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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2007, 2008 and 2009 (Continued)

Note 26Summary of Quarterly Financial Information (Unaudited)

Unaudited quarterly results are summarized as follows:

2008 Quarters Ended(Dollars in thousands)

March 31

June 30

September 30

December 31Interest income

$
742,506

$
715,957

$
740,269

$
778,885Interest expense


281,928


205,399


220,523


218,919Net interest income


460,578


510,558


519,746


559,966Provision for loan losses


72,000


95,000


117,000


231,000Noninterest income


195,396


199,626


198,721


178,913Noninterest expense


403,206


419,312


443,812


630,366Income (loss) before income taxes


180,768


195,872


157,655


(122,487
)Income tax expense (benefit)


58,370


61,574


47,549


(39,625
)Income (loss) from continuing operations


122,398


134,298


110,106


(82,862
)Income (loss) from discontinued operations before income tax


(17,585
)

3,068


(8,175
)

(4,676
)Income tax expense (benefit)


(3,777
)

(3,979
)

(2,899
)

(1,658
)Income (loss) from discontinued operations


(13,808
)

7,047


(5,276
)

(3,018
)Net income (loss)

$
108,590

$
141,345

$
104,830

$
(85,880
)




2009 Quarters Ended(Dollars in thousands)

March 31

June 30

September 30

December 31Interest income

$
705,930

$
686,774

$
690,761

$
706,147Interest expense


145,927


136,428


129,725


128,420Net interest income


560,003


550,346


561,036


577,727Provision for loan losses


249,000


360,000


314,000


191,000Noninterest income


174,716


183,213


183,929


185,286Noninterest expense


521,383


532,058


505,815


529,245Income (loss) before income taxes


(35,664
)

(158,499
)

(74,850
)

42,768Income tax expense (benefit)


(25,856
)

(78,492
)

(57,821
)

885Income (loss) from continuing operations


(9,808
)

(80,007
)

(17,029
)

41,883Income from discontinued operations before income tax











Income tax expense











Income from discontinued operations











Net income (loss)

$
(9,808
)
$
(80,007
)
$
(17,029
)
$
41,883


Note 27Subsequent Events

The company has evaluated the potential disclosure of subsequent events through the filing date of this Form 10-K and has determined that there are no subsequent
events required to be disclosed.

F-136

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Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To
the Board of Directors and Stockholder of UnionBanCal Corporation:

We
have audited the accompanying balance sheets of UnionBanCal Corporation and subsidiaries (the "Company") as of December 31, 2008 and 2009, and the related consolidated
statements of income,
stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2009. These financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on our audits.

We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of UnionBanCal Corporation and subsidiaries as of
December 31, 2008 and 2009, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2009, in conformity with accounting
principles generally accepted in the United States of America.

We
have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of
December 31, 2009, based on the criteria established inInternal ControlIntegrated Frameworkissued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated March 10, 2010, expressed an unqualified opinion on the Company's internal control over financial reporting.

/s/
Deloitte & Touche LLP

San
Francisco, California
March 10, 2010

F-137

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Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To
the Board of Directors and Stockholder of UnionBanCal Corporation:

We
have audited the internal control over financial reporting of UnionBanCal Corporation and subsidiaries (the "Company") as of December 31, 2009, based on criteria established in Internal ControlIntegrated
Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission. Because management's
assessment and our audit was conducted to meet the reporting requirements of Section 112 of the Federal Deposit Insurance Corporation Improvement Act (FDICIA), management's assessment and our
audit of the Company's internal control over financial reporting included controls over the preparation of the schedules equivalent to the basic financial statements in accordance with the
instructions for the Consolidated Financial Statement for Bank Holding Companies (Form FR Y-9C). The Company's management is responsible for maintaining effective internal control
over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on the Company's internal control over
financial reporting based on our audit.

We
conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A
company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or
persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that
receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because
of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material
misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to
future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In
our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2009, based on the criteria established in Internal ControlIntegrated
Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission.

We
have not examined and, accordingly, we do not express an opinion or any other form of assurance on management's statement referring to compliance with laws and regulations.

F-138

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Table of Contents

We
have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year
ended December 31, 2009 of the Company and our report dated March 10, 2010 expressed an unqualified opinion on those financial statements.

/s/
Deloitte & Touche LLP

San
Francisco, California
March 10, 2010

F-139

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Table of Contents

UnionBanCal Corporation and Subsidiaries  Management's Report on Internal Control Over Financial Reporting

The management of UnionBanCal Corporation is responsible for establishing and maintaining adequate internal control over financial
reporting, designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles.

We
maintain a system of internal accounting controls to provide reasonable assurance that assets are safeguarded and transactions are executed in accordance with management's
authorization and recorded properly to permit the preparation of consolidated financial statements in accordance with generally accepted accounting principles. Management recognizes that even a highly
effective internal control system has inherent risks, including the possibility of human error and the circumvention or overriding of
controls, and that the effectiveness of an internal control system can change with circumstances. Management has assessed the effectiveness of the Company's internal control over financial reporting
as of December 31, 2009. In making this assessment, management used the criteria set out by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal ControlIntegrated
Framework.Based on our assessment, we concluded that, as of December 31, 2009, the Company's internal
control system over financial reporting is effective based on the criteria established inInternal Control-Integrated Framework.

The
Company's internal control over financial reporting and the Company's consolidated financial statements have been audited by Deloitte & Touche LLP, Independent
Registered Public Accounting Firm.

/S/ MASAAKI TANAKA Masaaki Tanaka President and Chief Executive Officer/S/ JOHN F. WOODS John F. Woods Vice Chairman and Chief Financial Officer/S/ DAVID A. ANDERSON David A. Anderson Executive Vice President and Controller


F-140

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Table of Contents

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, UnionBanCal Corporation has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

UNIONBANCAL CORPORATION (Registrant)By:

/s/ MASAAKI TANAKA Masaaki Tanaka President and Chief Executive OfficerDate:        March 10, 2010


II-1

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Table of Contents

Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of UnionBanCal Corporation and in the capacities
and on the date indicated below.

Signature

Title/s/ MASAAKI TANAKA Masaaki Tanaka

President and Chief Executive Officer
(Principal Executive Officer)/s/ JOHN F. WOODS John F. Woods

Vice Chairman and Chief Financial Officer
(Principal Financial Officer)/s/ DAVID A. ANDERSON David A. Anderson

Executive Vice President and Controller
(Principal Accounting Officer)* Aida M. Alvarez

Director* David R. Andrews

Director* Nicholas B. Binkley

Director* L. Dale Crandall

Director* Murray H. Dashe

Director* Christine Garvey

Director* Michael J. Gillfillan

Director* Mohan S. Gyani

Director* Takeo Hoshi

DirectorYoshiaki Kawamata

Director* Nobuo Kuroyanagi

Director


II-2

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Table of Contents

Signature

Title* J. Fernando Niebla

Director* Kyota Omori

Director* Barbara L. Rambo

Director* Masaaki Tanaka

Director* Dean A. Yoost

Director


*By:

/s/ MORRIS W. HIRSCH Morris W. Hirsch Attorney-in-Fact


Dated:
March 10, 2010

II-3

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Table of Contents

EXHIBIT INDEX

Exhibit
No.

Description3.1

Restated Certificate of Incorporation of the Registrant(1)3.2

Bylaws of the Registrant(2)4.1

Trust Indenture between UnionBanCal Corporation and J.P. Morgan Trust Company, National Association, as Trustee, dated December 8, 2003(3)4.2

The Registrant agrees to furnish upon request to the Commission a copy of each instrument defining the rights of holders of long-term debt of the Registrant.10.1

Certain exhibits related to compensatory plans, contracts and arrangements have been omitted pursuant to item 601(b)(10)(c)(6) of Regulation S-K.12.1

Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividend Requirements(4)18.1

Preferability Letter of Independent Registered Public Accounting Firm(5)21.1

Subsidiaries of the Registrant has been omitted pursuant to General Instruction I(2) of Form 10-K23.1

Consent of Deloitte & Touche LLP(4)24.1

Power of Attorney(4)24.2

Resolution of Board of Directors(4)31.1

Certification of the Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(4)31.2

Certification of the Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(4)32.1

Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002(4)32.2

Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002(4)


(1)Incorporated
by reference to the exhibit of the same number to the UnionBanCal Corporation Current Report on Form 8-K dated
November 4, 2008 (SEC File No. 001-15081).(2)Incorporated
by reference to the exhibit of the same number to the UnionBanCal Corporation Current Report on Form 8-K dated
January 27, 2010 (SEC File No. 001-15081).(3)Incorporated
by reference to Exhibit 99.1 to the UnionBanCal Corporation Current Report on Form 8-K dated
December 8, 2003 (SEC File No. 001-15081).(4)Provided
herewith.(5)Incorporated
by reference to the exhibit of the same number to the UnionBanCal Corporation Quarterly Report on Form 10-Q
for the quarter ended June 30, 2009 (SEC File No. 001-15081).


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