**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

**FORM 10-K**

| **x** | **ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934** |
|-------|-----------------------------------------------------------------------------------------------------|

 

**For thefiscal year ended December 31, 2005**

**OR**

| **o** | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934** |
|-------|----------------------------------------------------------------------------------------------------------|

 

**For thetransition period from                  to                  **

**Commission file number 1-15081**

**UnionBanCalCorporation**

(Exact name of registrant asspecified in its charter)

| **Delaware**              |   | **94-1234979**                        |
|---------------------------|--------|---------------------------------------|
| (State of  Incorporation) |   | (I.R.S. Employer  Identification No.) |

 

**400 California StreetSan Francisco, California 94104-1302**

(Address and zip code ofprincipal executive offices)

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

Securities registered pursuantto Section 12(b) of the Act:Common Stock, $1 par value per share(Title of each class)

New York Stock Exchange(Name of each exchange on which registered)

Securities registered pursuantto Section 12(g) of the Act:None

Indicate by check mark if theregistrant is a well-known seasoned issuer, as defined in Rule 405 of theSecurities Act. Yes  þ   No  o

Indicate by check mark if theregistrant is not required to file reports pursuant to Section 13 or Section 15(d) ofthe Act. Yes  o   No  þ

Indicate by check mark whetherthe registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required tofile such reports), and (2) has been subject to such filing requirementsfor the past 90 days. Yes  þ   No  o

Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 of Regulation S-K is notcontained herein, and will not be contained, to the best of registrant’sknowledge, in definitive proxy or information statements incorporated byreference in Part III of this Form 10-K or any amendment tothis Form 10-K.  o

Indicate by check mark whetherthe registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer. See definition of “accelerated filer” and “largeaccelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  þ*       *Accelerated filer  o             Non-acceleratedfiler  o

Indicate by check mark whetherthe registrant is a shell company (as defined in Rule 12b-2 of theAct). Yes  o   No  þ

As of June 30, 2005, theaggregate market value of voting and non-voting common equity held bynon-affiliates of the registrant was $3,744,112,701. The aggregate market valuewas computed by reference to the last sales price of such stock.

As of January 31, 2006,the number of shares outstanding of the registrant’s Common Stock was144,300,456.

**DOCUMENTSINCORPORATED BY REFERENCE**

| Incorporated Document                                                                       | ** ** | ** **    | ** ** | **Location in Form 10-K** |
|---------------------------------------------------------------------------------------------|------------|---------------|------------|--------------------------------|
| Portions of the Proxy  Statement for our April 26, 2006 Annual Meeting of Stockholders |       | Part III |

 

 

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**INDEX**

|                                                                                                                              | **Page** |
|------------------------------------------------------------------------------------------------------------------------------|----------|
| **PART I**                                                                                                              |     |   |   |
| ITEM 1. BUSINESS                                                                                                             |     | 5 |   |
| General                                                                                                                      |     | 5 |   |
| Banking Lines  of Business                                                                                                   |     | 5 |   |
| Employees                                                                                                                    |     | 6 |   |
| Competition                                                                                                                  |     | 6 |   |
| Monetary  Policy and Economic Conditions                                                                                     |     | 6 |   |
| Supervision  and Regulation                                                                                                  |     | 7 |   |
| ITEM 1A. RISK  FACTORS                                                                                                       |     | 11 |   |
| ITEM  1B. UNRESOLVED STAFF COMMENTS                                                                                          |     | 16 |   |
| ITEM 2.  PROPERTIES                                                                                                          |     | 16 |   |
| ITEM 3.  LEGAL PROCEEDINGS                                                                                                   |     | 17 |   |
| ITEM  4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                                 |     | 17 |   |
| EXECUTIVE  OFFICERS OF THE REGISTRANT                                                                                        |     | 18 |   |
| **PART II**                                                                                                             |     |   |   |
| ITEM  5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND  ISSUER PURCHASES OF EQUITY SECURITIES |     | 20 |   |
| ITEM  6. SELECTED FINANCIAL DATA                                                                                             |     | 21, F-1 |   |
| ITEM  7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF  OPERATIONS                         |     | 21, F-1 |   |
| ITEM  7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                         |     | 21, F-33 |   |
| ITEM  8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                            |     | 21, F-48 |   |
| ITEM  9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL  DISCLOSURE                               |     | 21 |   |
| ITEM  9A. CONTROLS AND PROCEDURES                                                                                            |     | 21 |   |
| ITEM 9B.  OTHER INFORMATION                                                                                                  |     | 22 |   |
| **PART III**                                                                                                            |     |   |   |
| ITEM  10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                                                 |     | 22 |   |
| ITEM  11. EXECUTIVE COMPENSATION                                                                                             |     | 23 |   |
| ITEM  12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND  RELATED STOCKHOLDER MATTERS                    |     | 23 |   |
| ITEM  13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                                                     |     | 23 |   |
| ITEM  14. PRINCIPAL ACCOUNTING FEES AND SERVICES                                                                             |     | 23 |   |
| **PART IV**                                                                                                             |     |   |   |
| ITEM  15. EXHIBITS AND CONSOLIDATED FINANCIAL STATEMENT  SCHEDULES                                                           |     | 24 |   |
| SIGNATURES                                                                                                                   |     | II-1 |   |

 

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**NOTE REGARDING FORWARD-LOOKING STATEMENTS**

This report includes forward-looking statements, whichinclude forecasts of our financial results and condition, expectations for ouroperations and business, and our assumptions for those forecasts andexpectations. Do not rely unduly on forward-looking statements. Actual resultsmight differ significantly from our forecasts and expectations. See Item 1A. “RiskFactors.”

This document includes forward-looking information,which is subject to the “safe harbor” created by section 27A of the SecuritiesAct of 1933, as amended, and section 21E of the Securities Exchange Act of1934, as amended. We may make forward-looking statements in ourSEC filings, press releases, news articles, conference calls with analysts andstockholders and when we are speaking on behalf of UnionBanCal Corporation. Forward-lookingstatements can be identified by the fact that they do not relate strictly tohistorical 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 areintended to provide investors with additional information with which they mayassess our future potential. All of these forward-looking statements are basedon assumptions about an uncertain future and are based on information availableto us at the date of these statements. We do not undertake to updateforward-looking statements to reflect facts, circumstances, assumptions orevents 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:

·       Our business strategies, the growth of our business and our competitiveposition

·       Our assessment of significant factors and developments that haveaffected and may affect our results

·       Pending legal and regulatory actions, and future legislative andregulatory developments

·       Increased regulatory controls and processes regarding Bank Secrecy Actand anti-money laundering matters, and their costs and impact on our business

·       The costs and effects of litigation, investigations, regulatoryactions, or similar matters, or adverse facts and developments related thereto

·       Our ability to meet regulatory requirements

·       Credit quality and provision for credit losses

·       The unallocated portion of our allowances for credit losses

·       Net interest income and effects on net interest income, includingexpense from derivative hedges

·       The impact of increases in interest rates and growth in our commercialloan portfolio on our net interest margin

·       Deposit renewals

·       Our ability and intent to hold various assets

·       The formation of financial subsidiaries

·       Our sensitivity to and management of market risk, including changes ininterest rates, and the economic outlook of any particular region of the U.S.

·       The market sensitivity of our securities portfolios, our hedgingstrategies and the asset sensitivity of our balance sheet

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·       Potential dividend restrictions

·       Taxes

·       Off-balance sheet arrangements

·       Critical accounting policies and estimates and the impact of recentaccounting pronouncements

·       Our insurance coverage

·       Estimated pension and health costs and the investment objectives andasset allocation strategy of our pension plan and health plan

·       Decisions to downsize, sell or close units or otherwise change ourbusiness mix

·       Our strategies and expectations regarding capital levels, returningexcess capital to stockholders and strategic acquisitions

·       The impact and timing of the sale of agency securities and reinvestmentof those funds

·       The relationship between our business and that of The Bank ofTokyo-Mitsubishi UFJ, Ltd.

·       The impact of strategic investments on our business and benefits ofmarketing alliances

·       Impact of the sale of our international correspondent banking businessand the timing and transition of the business and customers

There are numerousrisks and uncertainties that could and will cause actual results to differmaterially from those discussed in our forward-looking statements. Many ofthese factors are beyond our ability to control or predict and could have amaterial adverse effect on our stock price, financial condition, and results ofoperations or prospects. Such risks and uncertainties include, but are notlimited to those listed below in Item 1A. “Risk Factors.”

Readers of thisdocument should not rely unduly on forward-looking information and shouldconsider all uncertainties and risks disclosed throughout this document and inour other reports to the SEC, including, but not limited to, those discussedbelow. Any factor described in this report could by itself, or together withone or more other factors, adversely affect our business, future prospects,results of operations or financial condition. There are also other factors thatwe have not described in this report and our other reports that could cause ourresults to differ from our expectations.

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**PART I**

**Item 1.   Business**

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

**General**

UnionBanCal Corporationthrough its banking subsidiary, Union Bank of California, N.A., provides a widerange of financial services to consumers, small businesses, middle-marketcompanies and major corporations, primarily in California, Oregon, andWashington, and nationally and internationally as well. In January 2006,The Bank of Tokyo-Mitsubishi, Ltd. and UFJ Bank Limited merged to form The Bankof Tokyo-Mitsubishi UFJ, Ltd. At December 31, 2005, The Bank ofTokyo-Mitsubishi UFJ, Ltd., our majority owner, which is a wholly-ownedsubsidiary of Mitsubishi UFJ Financial Group, Inc., formerly known asMitsubishi Tokyo Financial Group, Inc., owned approximately 63 percent ofour outstanding common stock.

**Banking Lines of Business**

Our operations are divided into two primary segments,which are described more fully in “Business Segments” of our Management’sDiscussion and Analysis of Financial Condition and Results of Operations and inNote 26 to our Consolidated Financial Statements included in this AnnualReport.

*The Community Banking and Investment Services Group.*   Thisgroup offers its customers a broad spectrum of financial products under oneconvenient umbrella. With a diverse line of checking and savings, investment,loan and fee-based banking products, individual and business clients can allhave their specific needs met. These products are offered in 319 full-servicebranches, primarily in California, as well as in Oregon and Washington. Inaddition, the group offers international and settlement services, e-bankingthrough our website, check cashing services at our Cash & Save®locations and loan and investment products tailored to our high net worthindividual customers through our offices of The Private Bank. Institutionalcustomers are offered employee benefit, 401(k) administration, corporatetrust, securities lending and custody (global and domestic) services. The groupalso includes a registered broker-dealer and a registered investment advisor,which provide securities brokerage and investment advisory services and managea proprietary mutual fund family. Our insurance services group offers ourcustomers a variety of cost-effective risk management services and insuranceproducts.

*TheCommercial Financial Services Group.*   This groupoffers a variety of commercial financial services, including commercial loansand project financing, real estate financing, asset-based financing, tradefinance and letters of credit, lease financing, customized cash managementservices and selected capital markets products. The group’s customers includemiddle-market companies, large corporations, real estate companies and othermore specialized industry customers. In addition, specialized depositoryservices are offered to title and escrow companies, retailers, domesticfinancial institutions, bankruptcy trustees and other customers withsignificant deposit volumes.

In September 2005, wesigned a definitive agreement to sell our international correspondent bankingbusiness to Wachovia Bank, N.A. The principal legal closing took place on October 6,2005 with us receiving $245 million in cash from Wachovia. We will continue tooperate the business over a transition period which is expected to extend intothe second quarter of 2006, during which we expect the majority of ourinternational correspondent bank customers will transfer to Wachovia.

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**Employees**

At January 31, 2006, wehad 10,410 full-time equivalent employees.

**Competition**

Banking is a highly competitive business. We competeactively for loan, deposit, and other financial services business inCalifornia, Oregon and Washington, as well as nationally and internationally.Our competitors include a large number of state and national banks, thriftinstitutions, credit unions, finance companies, mortgage banks and majorforeign-affiliated or foreign banks, as well as many financial andnonfinancial firms that offer services similar to those offered by us,including many large securities firms. Some of our competitors are community orregional banks that have strong local market positions. Other competitorsinclude large financial institutions that have substantial capital, technologyand marketing resources, which are well in excess of ours. Such large financialinstitutions may have greater access to capital at a lower cost than us, whichmay adversely affect our ability to compete effectively.

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

Changes in federal law have made it easier forout-of-state banks to enter and compete in the states in which we operate. TheRiegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (theRiegle-Neal Act), among other things, eliminated substantially all state lawbarriers to the acquisition of banks by out-of-state bank holding companies. Abank holding company may acquire banks in states other than its home state,without regard to the permissibility of such acquisitions under state law, butsubject to any state requirement that the acquired bank has been organized andoperating for a minimum period of time (not to exceed five years), and therequirement that the acquiring bank holding company, prior to or following theproposed acquisition, controls no more than 10 percent of the total amount ofdeposits of the insured depository institutions in the United States and nomore than 30 percent of such deposits in that state (or such lesser or greateramount as may be established by state law). The Riegle-Neal Act also permitsbanks to acquire branches located in another state by purchasing or mergingwith a bank chartered in that state or a national banking association havingits headquarters located in that state.

Banks, securitiesfirms, 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 andunderwriting), and merchant banking. Many of our competitors have elected tobecome financial holding companies. Recently, a number of foreign banks have attainedfinancial holding company status in the U.S., further increasing competition inthe U.S. market. Under current regulatory interpretations, Mitsubishi UFJFinancial Group, Inc. would be required to attain financial holdingcompany status in order for us to be able to become a financial holding company.Mitsubishi UFJ Financial Group, Inc. is not presently a financial holdingcompany.

We believe that continuedemphasis on enhanced services and distribution systems, an expandedcustomer base, increased productivity and strong credit quality, togetherwith a substantial capital base, will position us to meet the challengesprovided by this competition.

**MonetaryPolicy and Economic Conditions**

Our earnings and businessesare affected not only by general economic conditions (both domestic andinternational), but also by the monetary policies of various governmentalregulatory authorities of the United States and foreign governments and internationalagencies. In particular, our earnings and growth 

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may beaffected by actions of the Federal Reserve Board in connection with itsimplementation of national monetary policy through its open market operationsin United States Government securities, control of the discount rate andestablishment of reserve requirements against both member and non-memberfinancial institutions’ deposits. These actions have a significant effect onthe overall growth and distribution of loans and leases, investments anddeposits, as well as on the rates earned on securities, loans and leases orpaid on deposits. It is difficult to predict future changes in monetarypolicies and their effect on our business.

**Supervision and Regulation**

*Overview.**  *Bank holding companies and banksare extensively regulated under both federal and state law. This regulation isintended primarily for the protection of depositors, the deposit insurancefund, and other clients of the institution, and not for the benefit of theinvestors of the bank holding company. Set forth below is a summary descriptionof the material laws and regulations that relate to our operation and those ofour subsidiaries, including Union Bank of California, N.A.

*BankHolding Company Act.**  *We,Mitsubishi UFJ Financial Group, Inc. and The Bank of Tokyo-Mitsubishi UFJ,Ltd., are subject to regulation under the Bank Holding Company Actof 1956, as amended, (BHCA) which subjects us to Federal Reserve Boardreporting and examination requirements. Generally, the BHCA restricts ourability to invest in non-banking entities, and we may notacquire more than 5 percent of the voting shares of any domestic bankwithout the prior approval of the Federal Reserve Board. Our activitiesare limited, with some exceptions, to banking, the business of managingor controlling banks, and other activities, which the Federal ReserveBoard deems to be so closely related to banking as to be a proper incidentthereto.

Under Federal Reserve Board regulations, a bank holdingcompany is required to serve as a source of financial and managerial strengthto its subsidiary banks and may not conduct its operations in an unsafe orunsound manner. Under this policy, the Federal Reserve Board may require aholding company to contribute additional capital to an undercapitalizedsubsidiary bank.

*Comptrollerof the Currency.**  *UnionBank of California, N.A., as a national bank association, is subject to broadfederal regulation and oversight extending to all its operations by the Officeof the Comptroller of the Currency, its primary regulator, and also by theFederal Reserve Board and the Federal Deposit Insurance Corporation. As part ofthis authority, Union Bank of California, N.A., is required to file periodicreports with the Comptroller of the Currency and is subject to periodicexamination by the Comptroller of the Currency.

The Comptroller of the Currency has extensiveenforcement authority over all national banks. If, as a result of anexamination of a bank, the Comptroller of the Currency determines that thefinancial condition, capital resources, asset quality, earnings prospects,management, liquidity, or other aspects of the bank’s operations areunsatisfactory or that the bank or its management is violating or has violatedany law or regulations, various remedies are available to the Comptroller ofthe Currency. These remedies include the power to enjoin “unsafe or unsound”practices, to require affirmative action to correct any conditions resultingfrom any violation or practice, to issue an administrative order that can bejudicially enforced to direct an increase in capital, to restrict the growth ofthe bank, to assess civil monetary penalties, to remove officers and directors,and ultimately to terminate the bank’s deposit insurance. The Comptroller ofthe Currency, as well as other federal agencies, have adopted regulations andguidelines establishing safety and soundness standards, including but notlimited to such matters as loan underwriting and documentation, internalcontrols and audit systems, interest rate risk exposure, asset quality andearnings and compensation and other employee benefits.

*OtherRegulatory Oversight.**  *Oursubsidiaries are also subject to extensive regulation, supervision, andexamination by various other federal and state regulatory agencies. Inaddition, Union Bank of California, N.A. and its subsidiaries are subjectto certain restrictions under the Federal Reserve Act,including restrictions on affiliate transactions. As a holding company,the principal source of our cash has 

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been dividends and interestreceived from Union Bank of California, N.A. Dividends payable by Union Bank ofCalifornia, N.A. to us are subject to restrictions under a formula imposed bythe Office of the Comptroller of the Currency unless express approvalis given to exceed these limitations. For more information regardingrestrictions on loans and dividends by Union Bank of California, N.A. toits affiliates and on transactions with affiliates, see Notes 20 and 25 toour Consolidated Financial Statements included in this Annual Report.

The Federal Deposit Insurance Corporation ImprovementAct of 1991 (FDICIA) requires federal bank regulatory authorities to take “promptcorrective action” in dealing with inadequately capitalized banks. FDICIAestablished five tiers of capital measurement ranging from “well-capitalized”to “critically undercapitalized.” It is our policy to maintain capitalratios above the minimum regulatory requirements for “well-capitalized”institutions for both Union Bank of California, N.A. and us. Managementbelieves that, at December 31, 2005, Union Bank of California, N.A. and wemet the requirements for “well-capitalized” institutions.

The activities of Union Bank of California, N.A.subsidiaries, HighMark Capital Management, Inc. and UnionBanc InvestmentServices LLC are subject to the rules and regulations of the SEC, aswell as those of state securities regulators. UnionBanc Investment Services LLCis also subject to the rules and regulations of the National Associationof Securities Dealers (NASD).

UnionBanc Insurance Services, Inc., (formerlyArmstrong/Robitaille, Inc., John Burnham & Company, and TannerInsurance Brokers, Inc.) is an indirect subsidiary of Union Bank ofCalifornia, N.A., and is subject to the rules and regulations of theCalifornia Department of Insurance, as well as insurance regulators of otherstates.

Deposits of Union Bank of California, N.A. are insuredup to statutory limits by the Federal Deposit Insurance Corporation (FDIC) and,accordingly, are subjected to deposit insurance assessments to maintain theBank Insurance Fund (BIF) and the Savings Association Insurance Fund (SAIF)administered by the FDIC. The Safe and Fair Deposit Insurance Act of 2005,signed into law on February 8, 2006, provides for the merger of the BIFand the SAIF into a single insurance fund called the Deposit Insurance Fund. UnionBank of California, N.A. currently pays no insurance assessments on thesedeposits under the FDIC’s risk-related assessment system.

There are additional requirements and restrictions inthe laws of the United States and the states of California, Oregon, andWashington, as well as other states in which Union Bank of California,N.A. and its subsidiaries may conduct operations. These include restrictions onthe levels of lending and the nature and amount of investments, as well asactivities as an underwriter of securities, the opening and closing ofbranches and the acquisition of other financial institutions. Theconsumer lending and finance activities of Union Bank of California, N.A. arealso subject to extensive regulation under various Federal and state laws. Thesestatutes impose requirements on the making, enforcement and collection ofconsumer loans and on the types of disclosures that need to be made inconnection with such loans.

Union Bank of California, N.A. is also subject to theCommunity Reinvestment Act (CRA). The CRA generally requires the federalbanking agencies to evaluate the record of a financial institution in meetingthe needs of local communities, including low- and moderate-incomeneighborhoods. In addition to substantive penalties and corrective measuresthat may be required for a violation of certain fair lending laws, the federalbanking agencies may take compliance with such laws and CRA into account whenregulating and supervising other activities, and in evaluating whether toapprove applications for permission to engage in new activities or foracquisitions of other banks or companies. An unsatisfactory rating may be thebasis for denying the application. Based on the most current examination reportdated March 31, 2001, Union Bank of California, N.A. was rated “satisfactory.”

The remaining international activities of Union Bankof California, N.A. are subject to the laws and regulations of thejurisdiction where business is being conducted, which may change from timeto time and 

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affect Union Bank ofCalifornia, N.A.’s business opportunities and competitiveness in thesejurisdictions. Furthermore, due to The Bank of Tokyo-Mitsubishi UFJ’s controllingownership of us, regulatory requirements adopted or enforced by theGovernment of Japan may have an effect on the activities and investmentsof Union Bank of California, N.A. and us in the future.

*GLB Act.**  *The Gramm-Leach-Bliley (GLB) Actallows “financial holding companies” to offer banking, insurance, securitiesand other financial products. Among other things, the GLB Act amended section 4of the BHCA in order to provide a framework for engaging in new financialactivities by bank holding companies. A bank holding company may elect tobecome a financial holding company if all of its subsidiary insured depositoryinstitutions are well-capitalized and well-managed. The Federal Reserve Boardmay determine to not allow the election to become effective if it finds thatthe subsidiary depository institutions are not well-capitalized andwell-managed. Under current Federal Reserve Board interpretations, a foreignbank holding company, which controls a subsidiary U.S. bank holding company,such as Mitsubishi UFJ Financial Group, Inc., must make the election. Inaddition, the foreign bank holding company (if it is a bank itself) must bewell-capitalized and well-managed in accordance with standards comparable tothose required of U.S. banks as determined by the Federal Reserve Board and itsU.S. bank subsidiaries must have a “satisfactory” or better CRA rating. MitsubishiUFJ Financial Group, Inc. is not presently a financial holding company underthe GLB Act.

Under the GLB Act, “financialsubsidiaries” of banks may engage in some types of activities beyond thosepermitted to banks themselves, provided certain conditions are met. UnionBank of California, N.A., has no plans to seek to form any “financialsubsidiaries” in the near future.

*BankSecrecy Act.**  *Thebanking industry is now subject to significantly increased regulatory controlsand processes regarding the Bank Secrecy Act and anti-money laundering matters.This may adversely affect the ability to obtain regulatory approvals for futureinitiatives requiring regulatory approval, including acquisitions. Under theUSA PATRIOT Act, federal banking regulators must consider the effectiveness ofa financial institution’s anti-money laundering program prior to approving anapplication for a merger, acquisition or other activities requiring regulatoryapproval. For information regarding certain regulatory matters that mayadversely affect our ability to expand through acquisitions, see “RegulatoryMatters” in Management’s Discussion and Analysis of Financial Condition andResults of Operations.

*Sarbanes-OxleyAct.**  *OnJuly 30, 2002, in response to various high profile corporate scandals, theUnited States Congress enacted the Sarbanes-Oxley Act of 2002. TheSarbanes-Oxley Act aims to restore the credibility lost as a result of thesescandals by addressing, among other issues, corporate governance, auditing andaccounting, executive compensation, and enhanced and timely disclosure ofcorporate information. The New York Stock Exchange has adopted, and the SEC hasapproved, additional corporate governance rules. The new rules areintended to allow stockholders to more easily and effectively monitor theperformance of companies and directors.

Among other provisions, Section 302(a) ofthe Sarbanes-Oxley Act requires that our Chief Executive Officer and ChiefFinancial Officer certify that our quarterly and annual reports do not containany untrue statement or omission of a material fact. Specific requirements ofthe certifications include having these officers confirm that they areresponsible for establishing, maintaining and regularly evaluating theeffectiveness of our disclosure controls and procedures; they have made certaindisclosures to our auditors and Audit Committee about our internal controls;and they have included information in our quarterly and annual reports abouttheir evaluation and whether there have been significant changes in ourinternal controls or in other factors that could significantly affect internalcontrols subsequent to their evaluation.

In addition, Section 404of the Sarbanes-Oxley Act and the SEC’s rules and regulations thereunderrequire our management to evaluate, with the participation of our principalexecutive and principal financial officers, the effectiveness, as of the end ofeach fiscal year, of our internal control over financial reporting. Ourmanagement must then provide a report on our internal control over financialreporting that contains, among other things, a statement of theirresponsibility for establishing and maintaining adequate internal 

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controlover financial reporting, and a statement identifying the framework we used toevaluate the effectiveness of our internal control over financial reporting.

In response to these requirements, we have establisheda Disclosure Committee to monitor compliance with these rules. Membership ofthe Disclosure Committee is comprised of senior management from throughout ourorganization whom we believe collectively provide an extensive understanding ofour operations. As part of our compliance with Section 302 of theSarbanes-Oxley Act, we evaluate our internal control process quarterly and wetest and assess our internal controls over financial reporting annually, incompliance with Section 404 of the Sarbanes-Oxley Act.

*BaselCommittee Capital Standards.**  *TheBasel Committee on Banking Supervision (BIS) proposed new international capitalstandards for banking organizations (Basel II) in June 2004, and theproposal is currently being evaluated 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 improvethe consistency of capital regulations internationally, make regulatory capitalmore risk sensitive, and promote enhanced risk-management practices amonglarge, internationally active banking organizations. The ultimate timing forimplementation of Basel II and the specifics of capital assessments foraddressing operational risk are still uncertain. The U.S. banking andthrift agencies have issued a joint release outlining a comprehensive plan toincorporate the advanced risk and capital measurement methodologies of Basel IIinto regulations and supervisory guidance for U.S. institutions. On October 6,2005, an advance notice of proposed rulemaking, setting forth proposedrevisions to the current risk-based capital rules, were issued. These proposed rules aredesigned to align more closely risk-based capital requirements with the riskinherent in various exposures and may mitigate competitive inequalities thatmay arise when Basel II is implemented for the most complex internationallyactive banking organizations. Final regulations are currently expected to beadopted in 2006 and to become effective in 2008. We are evaluating what effect these proposed rules and the newcapital requirements that may arise out of a new BIS capital accord may have onour minimum capital requirements. U.S. banking regulators have stated that theten largest U.S. bank holding companies will be required to adopt the new BaselII standard, and that others may “opt in.” We are not one of the ten largestU.S. bank holding companies.

*CustomerInformation Security.**  *TheFederal Reserve Board and other bank regulatory agencies have adopted finalguidelines for safeguarding confidential, personal customer information. Theguidelines required each financial institution, under the supervision andongoing oversight of its Board of Directors or an appropriate committeethereof, to create, implement and maintain a comprehensive written informationsecurity program designed to ensure the security and confidentiality ofcustomer information, protect against any anticipated threats or hazards to thesecurity or integrity of such information and protect against unauthorizedaccess or use of such information that could result in substantial harm orinconvenience to any customer. Union Bank of California, N.A., has adopted acustomer information security program that has been approved by its Board ofDirectors.

*Privacy.**  *The GLB Act requires financialinstitutions to implement policies and procedures regarding the disclosure ofnonpublic personal information about consumers to non-affiliate third parties. Ingeneral, the statute requires explanations to consumers on policies andprocedures regarding the disclosure of such nonpublic personal information,and, except as otherwise required by law, prohibits disclosing such informationexcept as provided in the banks’ policies and procedures. Union Bank ofCalifornia, N.A., implemented a privacy policy effective since the GLB Actbecame law, pursuant to which all of its existing and new customers arenotified of the privacy policies. State laws and regulations designed toprotect the privacy and security of customer information also apply toUnionBanCal Corporation and its subsidiaries.

UnionBanCal Corporation and Union Bank of California,N.A. cannot be certain of the effect, if any, of the foregoing legislative andregulatory developments on their business.

**See ourConsolidated Financial Statements starting on page F-48 forfinancial information about UnionBanCal Corporation and its subsidiaries.**

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*Future Legislation*

Future changes in the laws,regulations, or policies that impact Union Bank of California, N.A., our othersubsidiaries and us cannot be predicted and may have a material effect on ourbusiness and earnings. Legislation relating to banking and other financialservices has been introduced from time to time in Congress and is likely to beintroduced in the future. If enacted, such legislation could significantlychange the competitive environment in which we and our subsidiaries operate. Wecannot predict whether these or any other proposals will be enacted or theultimate impact of any such legislation on our competitive situation, financialcondition or results of operations.

**Item 1A.   Risk Factors**

***Industry Factors***

*Fluctuations ininterest rates could adversely affect our business*

Significant increasesin market interest rates, or the perception that an increase may occur, couldadversely affect both our ability to originate new loans and our ability togrow. Conversely, decreases in interest rates could result in an accelerationof loan prepayments. An increase in market interest rates could also adverselyaffect the ability of our floating-rate borrowers to meet their higher paymentobligations. If this occurred, it could cause an increase in nonperformingassets and charge-offs, which could adversely affect our business.

Significantincreases in market interest rates could also affect our cost of funds byrequiring us to increase the rates we pay on interest bearing deposits andother liabilities and by providing an incentive for depositors to more rapidlymove funds into higher yielding deposits and investments. Also, such increasesin market rates could have a depressing effect on real estate sales andrefinancing transactions which, in turn, could result in a decrease in thedeposits from our title and escrow businesses.

*Fluctuations ininterest rates could adversely affect our margin spread*

Changesin market interest rates, including changes in the relationship betweenshort-term and long-term market interest rates or between different interestrate indices, can impact our margin spread, that is, the difference between theinterest rates we charge on interest earning assets, such as loans, and theinterest rates we pay on interest bearing liabilities, such as deposits orother borrowings. The impact could result in a decrease in our interest incomerelative to interest expense.

*The continuing war onterrorism could adversely affect U.S. and global economic conditions*

Actsor threats of terrorism and actions taken by the U.S. or other governments as aresult of such acts or threats and other international hostilities may resultin a disruption of U.S. and global economic and financial conditions and couldadversely affect business and economic and financial conditions in the U.S. andglobally, generally and in our principal markets.

*Substantial competitioncould adversely affect us*

Bankingis a highly competitive business. We compete actively for loan, deposit, andother financial services business in California, Oregon and Washington, as wellas nationally. Our competitors include a large number of state and nationalbanks, thrift institutions, credit unions and major foreign-affiliated orforeign banks, as well as many financial and nonfinancial firms that offerservices similar to those offered by us, including many large securities firms.Some of our competitors are community or regional banks that have strong localmarket positions. Other competitors include large financial institutions thathave substantial capital, technology and marketing resources that are well inexcess of ours. Such large financial 

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institutions may have greater access to capital at a lower cost thanus, which may adversely affect our ability to compete effectively.

*Adverse effects of, orchanges in, banking or other laws and regulations or governmental fiscal or monetarypolicies could adversely affect us*

We are subject tosignificant federal and state regulation and supervision, which is primarilyfor the benefit and protection of our customers and not for the benefit ofinvestors. In the past, our business has been materially affected by theseregulations. This will likely continue in the future. Laws, regulations orpolicies, including accounting standards and interpretations, currentlyaffecting us and our subsidiaries may change at any time. Regulatoryauthorities may also change their interpretation of these statutes andregulations. Therefore, our business may be adversely affected by changes inlaws, regulations, policies or interpretations or regulatory approaches tocompliance and enforcement. International laws, regulations and policiesaffecting us, our subsidiaries and the business we conduct may change at anytime and affect our business opportunities and competitiveness in thesejurisdictions. Due to The Bank of Tokyo-Mitsubishi UFJ’s controlling ownershipof us, laws, regulations and policies adopted or enforced by the Government ofJapan and the Federal Reserve Board may adversely affect our activities andinvestments and those of our subsidiaries in the future.

Additionally, ourbusiness is affected significantly by the fiscal and monetary policies of theU.S. federal government and its agencies. We are particularly affected by thepolicies of the Federal Reserve Board , which regulates the supply of money andcredit in the U.S. Under long-standing policy of the Federal Reserve Board, abank holding company is expected to act as a source of financial strength forits subsidiary banks. As a result of that policy, we may be required to commitfinancial and other resources to our subsidiary bank in circumstances where wemight not otherwise do so. Among the instruments of monetary policy availableto the Federal Reserve Board are (a) conducting open market operations inU.S. government securities, (b) changing the discount rates on borrowingsby depository institutions, and (c) imposing or changing reserverequirements against certain borrowings by banks and their affiliates. Thesemethods are used in varying degrees and combinations to directly affect theavailability of bank loans and deposits, as well as the interest rates chargedon loans and paid on deposits. The policies of the Federal Reserve Board mayhave a material effect on our business, prospects, results of operations andfinancial condition.

Refer to “Supervision andRegulation” above and “Regulatory Matters” in our Management Discussion andAnalysis of Financial Condition and Results of Operations in this Annual Reportfor discussion of other laws and regulations, including the Bank Secrecy Actand other anti-money laundering laws and regulations that may have a materialeffect on our business, prospects, results of operations and financialcondition.

*Changes in accountingstandards could materially impact our financial statements*

Fromtime to time the Financial Accounting Standards Board and the SEC change thefinancial accounting and reporting standards that govern the preparation of ourfinancial statements. These changes can be very difficult to predict and canmaterially impact how we record and report our financial condition and resultsof operations. In some cases, we could be required to apply a new or revisedstandard retroactively, resulting in our restating prior period financialstatements.

*There are an increasingnumber of non-bank competitors providing financial services*

Technologyand other changes increasingly allow parties to complete financial transactionselectronically, and in many cases, without banks. For example, consumers canpay bills and transfer funds over the internet and by telephone without banks.Many non-bank financial service providers have lower overhead costs and aresubject to fewer regulatory constraints. If consumers do not use banks tocomplete 

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their financial transactions, we could potentially lose fee income,deposits and income generated from those deposits.

***Company Factors***

*Adverse Californiaeconomic conditions could adversely affect our business*

Asubstantial majority of our assets, deposits and fee income are generated inCalifornia, and a substantial majority of our residential real estate loans arein California. As a result, poor economic conditions in California may cause usto incur losses associated with higher default rates and decreased collateralvalues in our loan portfolio. Economic conditions in California are subject tovarious uncertainties at this time, including the pace and scope of therecovery in the technology sector, and the California state government’scontinuing budgetary and fiscal challenges. If economic conditions inCalifornia decline, we expect that our level of problem assets could increaseand our prospects for growth could be impaired. The California state governmentcontinues to face fiscal challenges, the long-term impact of which on the State’seconomy cannot be predicted with any certainty.

*Adverse economicfactors affecting certain industries we serve could adversely affect ourbusiness*

Weare subject to certain industry-specific economic factors. For example, asignificant and increasing portion of our total loan portfolio is related toresidential real estate, especially in California. Accordingly, a downturn inthe real estate and housing industries in California could have an adverseeffect on our operations and the quality of our real estate loan portfolio.Increases in residential mortgage loan interest rates could also have anadverse effect on our operations by depressing new mortgage loan originations.We provide financing to businesses in a number of other industries that may beparticularly vulnerable to industry-specific economic factors, including thecommercial real estate industry, the communications/media industry, the retailindustry, the power industry and the technology industry. Recent increases infuel prices and energy costs have adversely affected businesses in several ofthese industries. Industry-specific risks are beyond our control and couldadversely affect our portfolio of loans, potentially resulting in an increasein nonperforming loans or charge-offs and a slowing of growth or reduction inour loan portfolio.

*We are not able tooffer all of the financial services and products of a financial holding company*

Banks,securities firms, and insurance companies can now combine as a “financialholding company.” Financial holding companies can offer virtually any type offinancial service, including banking, securities underwriting, insurance (bothagency and underwriting), and merchant banking. Many of our competitors haveelected to become financial holding companies. Recently, a number of foreignbanks have attained financial holding company status in the U.S., furtherincreasing competition in the U.S. market. Under current regulatoryinterpretations, Mitsubishi UFJ Financial Group, Inc. would be required toattain financial holding company status in order for us to be able to become afinancial holding company. Mitsubishi UFJ Financial Group, Inc. is notpresently a financial holding company.

*Our stockholder votesare controlled by The Bank of Tokyo-Mitsubishi UFJ; our interests and those ofour minority stockholders may not be the same as those of The Bank ofTokyo-Mitsubishi UFJ*

The Bank ofTokyo-Mitsubishi UFJ, a wholly-owned subsidiary of Mitsubishi UFJ FinancialGroup, Inc., owns a majority of the outstanding shares of our commonstock. As a result, The Bank of Tokyo-Mitsubishi UFJ can elect all of ourdirectors and can control the vote on all matters, including: approval ofmergers or other business combinations; a sale of all or substantially all ofour assets; issuance of any additional common stock or other equity securities;incurrence of debt other than in the ordinary course of business; the selectionand tenure of our Chief Executive Officer; payment of dividends with 

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respectto our common stock or other equity securities; and other matters that might befavorable to The Bank of Tokyo-Mitsubishi UFJ.

TheBank of Tokyo-Mitsubishi UFJ’s ability to prevent an unsolicited bid for us orany other change in control could also have an adverse effect on the marketprice for our common stock. A majority of our directors are independent of TheBank of Tokyo-Mitsubishi UFJ and are not officers or employees of UnionBanCalCorporation or any of our affiliates, including The Bank of Tokyo-Mitsubishi UFJ.However, because of The Bank of Tokyo-Mitsubishi UFJ’s control over theelection of our directors, we could designate ourselves as a “controlledcompany” under the New York Stock Exchange rules and could change thecomposition of our Board of Directors so that the Board would not have amajority of independent directors.

*Possible future salesof our shares by The Bank of Tokyo-Mitsubishi UFJ could adversely affect themarket for our stock*

TheBank of Tokyo-Mitsubishi UFJ may sell shares of our common stock in compliancewith the federal securities laws. By virtue of The Bank of Tokyo-MitsubishiUFJ’s current control of us, The Bank of Tokyo-Mitsubishi UFJ could sell largeamounts of shares of our common stock by causing us to file a registrationstatement that would allow it to sell shares more easily. In addition, The Bankof Tokyo-Mitsubishi UFJ could sell shares of our common stock withoutregistration under certain circumstances, such as in a “private placement.”Although we can make no prediction as to the effect, if any, that such saleswould have on the market price of our common stock, sales of substantialamounts of our common stock, or the perception that such sales could occur,could adversely affect the market price of our common stock. If The Bank ofTokyo-Mitsubishi UFJ sells or transfers shares of our common stock as a block,another person or entity could become our controlling stockholder.

The Bank of Tokyo-Mitsubishi UFJ’s andMitsubishi UFJ Financial Group, Inc.’s financial condition could adverselyaffect our operations

Wefund our operations independently of The Bank of Tokyo-Mitsubishi UFJ andMitsubishi UFJ Financial Group, Inc. and believe our business is notnecessarily closely related to the business or outlook of The Bank of Tokyo-MitsubishiUFJ or Mitsubishi UFJ Financial Group, Inc. However, The Bank ofTokyo-Mitsubishi UFJ’s and Mitsubishi UFJ Financial Group, Inc.’s creditratings may affect our credit ratings. The Bank of Tokyo-Mitsubishi UFJ andMitsubishi UFJ Financial Group, Inc. are also subject to regulatoryoversight and review by Japanese and U.S. regulatory authorities. Our businessoperations and expansion plans could be negatively affected by regulatoryconcerns related to the Japanese financial system, The Bank of Tokyo-MitsubishiUFJ or Mitsubishi UFJ Financial Group, Inc., and other developmentsconcerning The Bank of Tokyo-Mitsubishi UFJ or Mitsubishi UFJ Financial Group, Inc.,which may result in capital constraints as well as additional Japanese and U.S.regulatory constraints.

*Potentialconflicts of interest with The Bank of Tokyo-Mitsubishi UFJ could adverselyaffect us*

TheBank of Tokyo-Mitsubishi UFJ’s view of possible new businesses, strategies,acquisitions, divestitures or other initiatives may differ from ours. This maydelay or hinder us from pursuing such initiatives.

Also,as part of The Bank of Tokyo-Mitsubishi UFJ’s normal risk management processes,The Bank of Tokyo-Mitsubishi UFJ manages global credit and other types ofexposures and concentrations on an aggregate basis, including exposures andconcentrations at UnionBanCal Corporation. Therefore, at certain levels or incertain circumstances, our ability to approve certain credits or other bankingtransactions and categories of customers is subject to the concurrence of TheBank of Tokyo-Mitsubishi UFJ. We may wish to extend credit or furnish otherbanking services to the same customers as The Bank of Tokyo-Mitsubishi 

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UFJ. Our ability to do so may be limited for various reasons, includingThe Bank of Tokyo-Mitsubishi UFJ’s aggregate exposure and marketing policies.

Certaindirectors’ and officers’ ownership interests in Mitsubishi UFJ Financial Group’scommon stock or service as a director or officer or other employee of both usand The Bank of Tokyo-Mitsubishi UFJ could create or appear to create potentialconflicts of interest, especially since both of us compete in U.S. bankingmarkets.

*Restrictions ondividends and other distributions could limit amounts payable to us*

Asa holding company, a substantial portion of our cash flow typically comes fromdividends our bank and nonbank subsidiaries pay to us. Various statutoryprovisions restrict the amount of dividends our subsidiaries can pay to uswithout regulatory approval. In addition, if any of our subsidiaries were toliquidate, that subsidiary’s creditors will be entitled to receivedistributions from the assets of that subsidiary to satisfy their claimsagainst it before we, as a holder of an equity interest in the subsidiary, willbe entitled to receive any of the assets of the subsidiary.

*Our ability to makeacquisitions is subject to regulatory constraints and risks associated with potentialacquisitions or divestitures or restructurings may adversely affect us*

Ourability to obtain regulatory approval of acquisitions is subject to constraintsrelated to the Bank Secrecy Act and the CRA, as described above in “Business—Supervisionand Regulation” and below in “Management’s Discussion and Analysis of FinancialCondition and Results of Operations—Regulatory Matters.” Subject to our abilityto address successfully these regulatory concerns, we may seek to acquire orinvest in financial and non-financial companies that complement our business.We may not be successful in completing any such acquisition or investment asthis will depend on the availability of prospective target opportunities atvaluation levels we find attractive and the competition for such opportunitiesfrom other parties. In addition, we continue to evaluate the performance of allof our businesses and business lines and may sell a business or business line.Any acquisitions, divestitures or restructurings may result in the issuance ofpotentially dilutive equity securities, significant write-offs, including thoserelated to goodwill and other intangible assets, and/or the incurrence of debt,any of which could have a material adverse effect on our business, results ofoperations and financial condition. Acquisitions, divestitures orrestructurings could involve numerous additional risks including difficultiesin obtaining any required regulatory approvals and in the assimilation orseparation of operations, services, products and personnel, the diversion ofmanagement’s attention from other business concerns, higher than expecteddeposit attrition, divestitures required by regulatory authorities, thedisruption of our business, the potential loss of key employees and unexpectedcontingent liabilities arising from any business we might acquire. We may notbe successful in addressing these or any other significant risks encountered.

*Privacy restrictionscould adversely affect our business*

Ourbusiness model relies, in part, upon cross-marketing the services offered by usand our subsidiaries to our customers. Laws that restrict our ability to shareinformation about customers within our corporate organization could adverselyaffect our business, results of operations and financial condition.

*We rely*on third parties for important productsand services

Third-partyvendors provide key components of our business infrastructure such as internetconnections, network access and mutual fund distribution and we do not controltheir actions. Any problems caused by these third parties, including as aresult of their not providing us their services for any reason or theirperforming their services poorly, could adversely affect our ability to deliverproducts and 

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services to our customers and otherwise to conduct our business.Replacing these third-party vendors could also entail significant delay andexpense.

*Our business couldsuffer if we fail to attract and retain skilled personnel*

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

*Significant legalactions could subject us to substantial uninsured liabilities*

Weare from time to time subject to claims related to our operations. These claimsand legal actions, including supervisory or enforcement actions by ourregulators, could involve large monetary claims and significant defense costs.To protect ourselves from the cost of these claims, we maintain insurancecoverage in amounts and with deductibles that we believe are appropriate forour operations. However, our insurance coverage may not cover all claimsagainst 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 adverselyaffect our business, prospects, results of operations and financial condition.

*Changes in our taxrates could affect our future results*

TheState of California requires us to file our franchise tax returns as a memberof a unitary group that includes Mitsubishi UFJ Financial Group and either allworldwide affiliates or only U.S. affiliates. Our future effective tax ratescould be favorably or unfavorably affected by increases or decreases inMitsubishi UFJ Financial Group’s taxable profits, which in turn are affected bychanges in the worldwide economy, especially in Japan, and decisions that theymay make about the timing of the recognition of credit losses or other matters.Our effective tax rates could also be affected by changes in the valuation ofour deferred tax assets and liabilities, changes in tax laws or theirinterpretation, or by the outcomes of examinations of our income tax returns bythe Internal Revenue Service and other tax authorities.

**Item 1B.   Unresolved Staff Comments**

None.

**Item 2.   Properties**

At December 31, 2005, we operated 315 fullservice branches in California, 4 full service branches in Oregon andWashington, and 20 international offices, which will be closed during 2006. Weown the property occupied by 104 of the domestic offices and lease theremaining properties for periods of five to twenty years.

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

Rental expense for branchesand administrative premises is described in Note 6 to our ConsolidatedFinancial Statements included in this Annual Report.

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**Item 3.   Legal Proceedings**

We are subject to various pending and threatened legalactions that arise in the normal course of business. We maintain reservesfor losses from legal actions that are both probable and estimable.

Grafton Partners LP v. Union Bank of California wascommenced in Alameda County Superior Court on March 12, 2003 and wassettled on December 23, 2005. The suit concerned a “Ponzi” schemeperpetrated by PinnFund, USA, located in San Diego, California. In accordancewith the terms of the settlement, $22 million was paid, $16 million of whichwas paid by the Company’s insurance carriers. The disposition of this claim didnot have a material adverse effect on our financial condition or results ofoperations.

In addition, we believe thedisposition of all other claims currently pending will also not have a materialadverse effect on our financial position or results of operations.

**Item**4.   Submissionof Matters to a Vote of Security Holders

None.

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**EXECUTIVEOFFICERS OF THE REGISTRANT**

Thefollowing information pertains to our executive officers as of December 31,2005:

| Executive Officer | ** ** | **Age** | ** ** | **Principal   Occupations For The Past Five Years**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|-------------------|------------|---------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Tetsuo Shimura    |       | 67      |       | Mr. Shimura has  served as Chairman of UnionBanCal Corporation and Union Bank of California,  N.A. since October 2003. He previously served on the Boards of Directors  of UnionBanCal Corporation and Union Bank of California, N.A. from  June 1997 to July 1998. Mr. Shimura has served in the  following positions at The Bank of Tokyo-Mitsubishi UFJ, Ltd.: Deputy  President from July 2001 to June 2003, Chief Executive, Global  Corporate Banking Business Unit from July 2000 to July 2001 and  Senior Managing Director from June 1998 to July 2001.  Mr. Shimura has been a director of UnionBanCal Corporation and Union  Bank of California, N.A. since October 2003.                                                                                                                                                                                                                                |
| Takashi Morimura  |       | 53      |       | Mr. Morimura has served as President and Chief  Executive Officer of UnionBanCal Corporation and Union Bank of California,  N.A., since May 2005 and served as Vice Chairman of UnionBanCal  Corporation and Union Bank of California, N.A., from July 2004 to  May 2005. Mr. Morimura served as General Manager, Global Corporate  Banking IT Planning Office of The Bank of Tokyo-Mitsubishi UFJ, Ltd. from  July 2000 to June 2004, and as Deputy General Manager, Overseas  Planning Division of The Bank of Tokyo-Mitsubishi UFJ, Ltd. from  September 1999 to June 2000. Mr. Morimura was elected a non-board  member Director of The Bank of Tokyo-Mitsubishi UFJ, Ltd. in June 2002  and a non-board member Managing Director of The Bank of Tokyo-Mitsubishi UFJ,  Ltd. in May 2005. Mr. Morimura has been a Director of UnionBanCal  Corporation and Union Bank of California. N.A. since July 2004. |
| Philip B. Flynn   |       | 48      |       | Mr. Flynn has served as Vice Chairman and Chief  Operating Officer of UnionBanCal Corporation and Union Bank of California,  N.A., since March 2005. He served as Vice Chairman and head of the  Commercial Financial Services Group of UnionBanCal Corporation and Union Bank  of California, N.A., from April 2004 to March 2005. He served as  Executive Vice President and Chief Credit Officer of UnionBanCal Corporation  and Union Bank of California, N.A., from September 2000 to  April 2004, as Executive Vice President and head of Specialized Lending  from May 2000 to September 2000 and as Executive Vice President and head  of the Commercial Banking Group from June 1998 to May 2000.  Mr. Flynn has been a Director of UnionBanCal Corporation and Union Bank  of California, N.A. since April 2004.                                                                                                         |
| David I. Matson   |       | 61      |       | Mr. Matson has  served as Vice Chairman and Chief Financial Officer of UnionBanCal  Corporation and Union Bank of California, N.A. since March 2005 and  served as Executive Vice President and Chief Financial Officer of UnionBanCal  Corporation and Union Bank of California, N.A. from July 1998 to  March 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |

 

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| Executive Officer          | ** ** | **Age** | ** ** | **Principal   Occupations For The Past Five Years**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|----------------------------|------------|---------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Masashi Oka                |       | 50      |       | Mr. Oka has served as Vice Chairman,  Administration & Support of UnionBanCal Corporation and Union Bank  of California, N.A., since July 2005. Beginning in 1998, Mr. Oka  held the following positions with The Bank of Tokyo-Mitsubishi UFJ, Ltd.:  Chief Manager, Corporate Banking Division No. 2 until April 2001;  General Manager, Syndications Office, Structured Finance Division until  October 2002; General Manager, Global Syndications Office, Debt Finance  Division until June 2004; and General Manager & Global Head,  Syndicated Finance Division until May 2005. From April 2005 until  June 2005, Mr. Oka was Chairman of the Japan Syndication and  Loan-Trading Association. Mr. Oka has been a non-board member Director  of The Bank of Tokyo-Mitsubishi UFJ, Ltd. since June 2005. Mr. Oka  has been a Director of UnionBanCal Corporation and Union Bank of California,  N.A. since October 2005. |
| Linda F. Betzer            |       | 59      |       | Ms. Betzer has served as Executive Vice  President and head of the Operations and Customer Services Group of  UnionBanCal Corporation and Union Bank of California, N.A. since  January 2000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| JoAnn M. Bourne            |       | 50      |       | Ms. Bourne has served as Executive Vice  President since April 2000 and as head of the Commercial Deposits and  Treasury Management Group of UnionBanCal Corporation and Union Bank of  California, N.A. since April 2003. She served as head of the Commercial  Banking Group from January 2002 to April 2003 and managed the  Commercial Deposit Services Division from June 1997 to  January 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| Bruce H. Cabral            |       | 50      |       | Mr. Cabral has served as Executive Vice  President since March 2000 and as Chief Credit Officer of UnionBanCal  Corporation and Union Bank of California, N.A. since April 2004. He  served as Deputy Chief Credit Officer from November 2002 until  April 2004. Prior to this position, Mr. Cabral was a Senior Credit  Officer responsible for Real Estate Lending and National Banking.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| Paul E. Fearer             |       | 62      |       | Mr. Fearer has served as Executive Vice  President and Director of Human Resources of UnionBanCal Corporation and  Union Bank of California, N.A. since April 1996.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| Ronald H. Kendrick         |       | 64      |       | Mr. Kendrick has served as Executive Vice  President and head of the Community Banking Group of UnionBanCal Corporation  and Union Bank of California, N.A. since December 2000. He served as  Executive Vice President and Southern California Area Executive of Union Bank  of California, N.A. from March 1994 to December 2000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| John H. McGuckin, Jr. |       | 59      |       | Mr. McGuckin  has served as Executive Vice President, General Counsel and Secretary of  UnionBanCal Corporation and Union Bank of California, N.A. since  September 2000. He served as Executive Vice President and General  Counsel of UnionBanCal Corporation from January 1998 to  September 2000 and served as Executive Vice President and General  Counsel of Union Bank of California, N.A. from April 1996 until  September 2000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |

 

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| Executive Officer | ** ** | **Age** | ** ** | **Principal   Occupations For The Past Five Years**                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|-------------------|------------|---------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| James Yee         |       | 52      |       | Mr. Yee has served as Executive Vice President  and Chief Information Officer for UnionBanCal Corporation and Union Bank of  California, N.A. since May 2005. Prior to joining UnionBanCal  Corporation, he served as Senior Vice President, Information Technology, for  Charles Schwab & Company from April 2004 to April 2005 and  Senior Vice President and Chief Information Officer of Pacific  Exchange, Inc. from April 2000 to March 2003. |

 

The term of office of an executive officer extendsuntil the officer resigns, is removed, retires, or is otherwise disqualifiedfor service. There are no family relationships among the executive officers.

**PART II**

**Item 5.   Market for Registrant’s CommonEquity, Related Stockholder Matters, and Issuer Purchases of Equity Securities**

Ourcommon stock is traded on the New York Stock Exchange under the symbol UB. Asof January 31, 2006, our common stock was held by 3,032 stockholders ofrecord. At December 31, 2005, The Bank of Tokyo-Mitsubishi UFJ heldapproximately 63 percent of our common stock. During 2004 and 2005, the averagedaily trading volume of our common stock was 263,184 shares and 308,178 shares,respectively. At December 31, 2003, 2004 and 2005, our common stock closedat $57.54 per share, $64.48 per share, and $68.72 per share, respectively. Thefollowing table presents stock quotations for each quarterly period for the twoyears ended December 31, 2004 and 2005.

| ** **     | ** ** | **2004** | ** ** | **2005** | ** ** |
|----------------|------------|----------|------------|----------|------------|
| ** **     | ** ** | **High** | ** ** | **Low**  | ** ** | **High** | ** ** | **Low** | ** ** |
| First quarter  |       | $        | 58.26      |     | $          | 50.80 |   | $ | 63.99 |   | $ | 59.70 |   |
| Second quarter |       | 57.59    |       | 49.51    |       | 68.00 |   | 58.00 |   |
| Third quarter  |       | 59.79    |       | 56.24    |       | 71.97 |   | 66.38 |   |
| Fourth quarter |       | 64.78    |       | 59.10    |       | 70.45 |   | 65.68 |   |
|                |            |          |            |          |            |  |  |  |  |  |  |  |  |

 

The followingtable presents quarterly per share cash dividends declared for 2004 and 2005:

| ** **     | ** ** | **2004** | ** ** | **2005** | ** ** |
|----------------|------------|----------|------------|----------|------------|
| First quarter  |       | $        | 0.31       |     | $          | 0.36 |   |
| Second quarter |       | 0.36     |       | 0.41     |       |
| Third quarter  |       | 0.36     |       | 0.41     |       |
| Fourth quarter |       | 0.36     |       | 0.41     |       |
|                |            |          |            |          |            |  |  |

 

On October 26, 2005, our Board of Directorsapproved a quarterly common stock dividend of $0.41 per share for the fourthquarter of 2005. Future dividends will depend upon our earnings, financialcondition, capital requirements and other factors as our Board of Directors maydeem relevant.

We offer a dividend reinvestment and stock purchaseplan that allows stockholders to reinvest dividends in our common stock atmarket price. The Bank of Tokyo-Mitsubishi UFJ did not participate in the planduring 2004 and 2005. For further information about this plan, see Note 15 toour Consolidated Financial Statements included in this Annual Report.

Our ability to declare and pay dividends is affectedby certain regulatory restrictions. See Note 20 to our ConsolidatedFinancial Statements included in this Annual Report.

20

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Thefollowing table presents repurchases by us of our equity securities during thefourth quarter 2005:

| **Period**                                          | ** ** | **Total Number of  Shares Purchased** | ** ** | **Average Price Paid  per Share** | ** ** | **Total Number  of Shares Purchased  as Part of Publicly  Announced Programs** | ** ** | **Dollar  Value of Shares That  May Yet Be  Purchased  Under the Programs** | ** ** |
|-----------------------------------------------------|------------|------------------------------------------------------|------------|--------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------|------------|
| **October 2005******(October 25-31, 2005) |       |                                                 | 149,200    |                                             |       |                                                                                                              | $          | 67.47                                                                                                          |       |   |   | 149,200 |   |   |   | $ | 152,012,772 |   |   |
| **November 2005**(November 1-17, 2005)    |       |                                                 | 327,000    |                                             |       |                                                                                                              | $          | 67.29                                                                                                          |       |   |   | 327,000 |   |   |   | $ | 130,009,370 |   |   |
| **December 2005**(December 5-31, 2005)    |       |                                                 | 410,000    |                                             |       |                                                                                                              | $          | 67.50                                                                                                          |       |   |   | 410,000 |   |   |   | $ | 102,334,370 | (1) |   |
| **Total**                                           |       |                                                 | 886,200    |                                             |       |                                                                                                              | $          | 67.42                                                                                                          |       |   |   | 886,200 |   |   |   |   |   |   |

----

(1)    In the fourth quarter of 2005, UnionBanCal Corporationused $59.7 million from the $200 million repurchase program announcedApril 21, 2005.

**Item 6.   SelectedFinancial Data**

See page F-1 ofthis Annual Report.

**Item 7.   Management’s Discussion and Analysisof Financial Condition and Results of Operations**

See pages F-1through F-47 of this Annual Report.

**Item 7A.   Quantitativeand Qualitative Disclosures About Market Risk**

See pages F-33 throughF-37 of this Annual Report.

**Item 8.   Consolidated Financial Statementsand Supplementary Data**

See pages F-48 throughF-109 of this Annual Report.

**Item 9.   Changes in and Disagreementswith Accountants on Accounting and Financial Disclosure**

None.

**Item 9A.   Controls and Procedures**

*Disclosure Controls.  *Our Chief Executive Officer (principal executiveofficer) and Chief Financial Officer (principal financial officer) haveconcluded that the design and operation of our disclosure controls andprocedures are effective as of December 31, 2005. This conclusion is basedon an evaluation conducted under the supervision and with the participation ofmanagement. Disclosure controls and procedures are those controls andprocedures which ensure that information required to be disclosed in thisfiling is accumulated and communicated to management and is recorded,processed, summarized and reported in a timely manner and in accordance withSecurities and Exchange Commission rules and regulations.

*I*nternal Controls Over Financial Reporting.   Management’s Report on Internal Control OverFinancial Reporting regarding the effectiveness of internal controls overfinancial reporting is presented on page F-111. The Report ofIndependent Registered Public Accounting Firm is presented on page F-112.During the quarter ended December 31, 2005, there were no changes in ourinternal controls over 

21

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*financialreporting that materially affected, or are reasonably likely to affect, ourinternal controls over financial reporting.*

**Item 9B**.   Other Information

None.

**PART III**

**Item 10.   Directors and Executive Officersof the Registrant**

Reference is made to the information contained in thesection entitled “Election of Directors-Nominees” of our Proxy Statement forour April 26, 2006 Annual Meeting of Stockholders for incorporation byreference of information concerning directors and persons nominated to becomedirectors of UnionBanCal Corporation. See “Executive Officers of the Registrant”on pages 18 - 20 of this Annual Report for information regarding executiveofficers of UnionBanCal Corporation.

UnionBanCal Corporation has a separately designatedstanding Audit Committee established in accordance with Section 3(a)(58)(A) ofthe Securities Exchange Act of 1934. The members of the Audit Committee are L.Dale Crandall (Chair), David R. Andrews, Michael J. Gillfillan, Mary S. Metzand Dean A. Yoost, all of whom are independent under the New York StockExchange Corporate Governance Rules. Of these Audit Committee members, Mr. Crandallis an audit committee financial expert as determined by the Board of Directors withinthe applicable definition of the Securities and Exchange Commission.

Information concerning Section 16(a) beneficialownership reporting compliance is incorporated by reference from the text underthe caption “Section 16(a) Beneficial Ownership Reporting Compliance”in the Proxy Statement for our April 26, 2006 Annual Meeting ofStockholders.

***CorporateGovernance***

We have adopted thefollowing:

·       ACode of Ethics applicable to senior financial officers, including our ChiefExecutive Officer, Chief Financial Officer and Controller;

·       BusinessStandards for Ethical Conduct, which is a code of ethics and conduct applicableto all officers and employees;

·       ACode of Ethics applicable to directors of UnionBanCal Corporation and UnionBank of California, N.A.;

·       CorporateGovernance Guidelines to promote the effective functioning of the activities ofthe UnionBanCal Corporation Board of Directors and to promote a common set ofexpectations as to how the Board, its Committees, individual directors andmanagement should perform their functions; and

·       Chartersfor the Committees of the Board, including the Audit Committee, CorporateGovernance Committee and Executive Compensation & Benefits Committee.

A copy of each of thesecommittee charters, Codes of Ethics, Business Standards for Ethical  Conduct and Corporate Governance Guidelinesis posted on our website, or is available, without charge, upon the written requestof any stockholder directed to the Secretary of UnionBanCal Corporation, 400California Street, San Francisco, California 94104-1302. We intend todisclose promptly any amendment to, or waiver from any provision of, the Codeof Ethics applicable to senior financial officers, and any waiver from anyprovision of the Code of Ethics applicable to directors or the BusinessStandards for Ethical Conduct applicable to executive officers, on our website.Our website address is www.uboc.com.

22

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**Item 11.   Executive Compensation**

Information concerningexecutive compensation is incorporated by reference from the text under thecaptions “Executive Compensation” and “Director Compensation” in the ProxyStatement for our April 26, 2006 Annual Meeting of Stockholders. Additionalinformation regarding our directors is incorporated by reference from the textunder the caption “Compensation Committee Interlocks and Insider Participation”in the Proxy Statement for our April 26, 2006 Annual Meeting ofStockholders.

**Item 12.   Security Ownership of Certain BeneficialOwners and Management and Related Stockholder Matters**

Information concerning ownership of the equity stockof UnionBanCal Corporation by certain beneficial owners and management isincorporated by reference from the text under the captions “PrincipalStockholders” and  “Security Ownership byManagement” in the Proxy Statement for our April 26, 2006 Annual Meetingof Stockholders.

Thefollowing table provides information relating to our equity compensation plansas of December 31, 2005:

| ** **                                        | ** ** | **Number of securities  to be issued  upon exercise of  outstanding options,  warrants, and rights  (a)** | ** ** | **Weighted-average  exercise price of  outstanding options,  warrants, and rights  (b)** | ** ** | **Number of securities  remaining available for  future issuance under  equity compensation plans  (excluding securities  reflected in column a)  (c)** | ** ** |
|---------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| Equity compensation  approved by stockholders     |       |                                                                                                                                                   | 8,696,589  |                                                                                                              |       |                                                                                                                                                                                                                | $          | 45.26 |   |   |   | 5,445,979 |   |   |
| Equity compensation  not approved by stockholders |       |                                                                                                                                                   | —     |                                                                                                              |       |                                                                                                                                                                                                                | —     |   |   |   | — |   |   |
|                                              |       |                                                                                                                                                   | 8,696,589  |                                                                                                              |       |                                                                                                                                                                                                                | $          | 45.26 |   |   |   | 5,445,979 |   |   |

 

All equity compensation planshave been approved by our stockholders. At December 31, 2005, there were5,445,979 shares of common stock available for future issuance as either stockoptions or restricted stock under the Stock Plans. For additional informationconcerning our equity compensation plans, see Note 16 to our ConsolidatedFinancial Statements included in this Annual Report.

**Item 13.   Certain Relationships and RelatedTransactions**

Information concerningcertain relationships and related transactions with officers, directors, andThe Bank of Tokyo-Mitsubishi UFJ, Ltd. is incorporated by reference from thetext under the caption “Transactions with Management and Others” of the ProxyStatement for our April 26, 2006 Annual Meeting of Stockholders.

**Item 14.   Principal Accounting Fees and Services**

Reference is made to theinformation contained in the section entitled, “Ratification of Selection ofIndependent Registered Public Accounting Firm” of the Proxy Statement for our April 26,2006 Annual Meeting of Stockholders for incorporation by reference ofinformation concerning principal accounting fees and services.

23

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**PART IV**

**Item 15.   Exhibits and Consolidated FinancialStatement Schedules**

**(a)(1)   Financial Statements**

Our Consolidated FinancialStatements, Management’s Report on Internal Control Over Financial Reporting,and the Report of Independent Registered Public Accounting Firm are set forthon pages F-49 through F-113. (See index on page F-48).

**(a)(2)   FinancialStatement Schedules**

All schedules to ourConsolidated Financial Statements are omitted because of the absence of theconditions under which they are required or because the required information isincluded in our Consolidated Financial Statements or accompanying notes.

**(a)(3)   Exhibits**

| No.   | ** ** | **Description**                                                                                                                                                 |
|-------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1   |       | Restated Certificate of Incorporation of the  Registrant(1)                                                                                                     |
| 3.2   |       | Bylaws of the Registrant(1)                                                                                                                                     |
| 4.1   |       | Trust Indenture between  UnionBanCal Corporation and the First National Bank of Chicago, as Trustee,  dated February 19, 1999(2)                           |
| 4.2   |       | Trust Indenture between  UnionBanCal Corporation and J.P. Morgan Trust Company, National Association,  as Trustee, dated December 8, 2003(3)               |
| 4.3   |       | 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  |       | UnionBanCal Corporation  Management Stock Plan*(4)                                                                                                              |
| 10.2  |       | Union Bank of California  Deferred Compensation Plan*(5)                                                                                                        |
| 10.3  |       | Union Bank of California  Senior Management Bonus Plan*(6)                                                                                                      |
| 10.4  |       | Union Bank of California,  N.A. Supplemental Executive Retirement Plan*(7)                                                                                      |
| 10.5  |       | Union Bank Financial  Services Reimbursement Program*(8)                                                                                                        |
| 10.6  |       | 1997 UnionBanCal  Corporation Performance Share Plan*(9)                                                                                                        |
| 10.7  |       | Form of Performance  Share Agreement under the 1997 UnionBanCal Corporation Performance Share Plan*(10)                                                    |
| 10.8  |       | Service Agreement Between  Union Bank of California, N.A. and The Bank of Tokyo-Mitsubishi, Ltd. dated  October 1, 1997*(11)                               |
| 10.9  |       | Year 2000 UnionBanCal  Corporation Management Stock Plan*(12)                                                                                                   |
| 10.10 |       | Form of 2005  Nonqualified Stock Option Agreement under the Year 2000 UnionBanCal  Corporation Management Stock Plan*(13)                                  |
| 10.11 |       | Form of 2004  Nonqualified Stock Option Agreement under the Year 2000 UnionBanCal  Corporation Management Stock Plan*(14)                                  |
| 10.12 |       | Form of 2004  Nonqualified Stock Option Agreement for Non-employee Directors under the Year  2000 UnionBanCal Corporation Management Stock Plan*(15)       |
| 10.13 |       | Terms and Conditions  Applicable to Non-employee Director Stock Unit Awards under the Year 2000 UnionBanCal  Corporation Management Stock Plan*(16)             |

24

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| 10.14 |   | Forms of Restricted  Stock Agreement for Non-employee Directors under the Year 2000 UnionBanCal  Corporation Management Stock Plan*(27)                                                                                        |
|-------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.15 |   | Union Bank of California,  N.A. Supplemental Retirement Plan for Policy Making Officers*(17)                                                                                                                                   |
| 10.16 |   | Form of  Change-of-Control Agreement, dated as of May 1, 2003, between  UnionBanCal Corporation and each of the policy-making officers of UnionBanCal  Corporation*(18)                                              |
| 10.17 |   | Union Bank of California,  N.A. Separation Pay Plan*(19)                                                                                                                                                                       |
| 10.18 |   | Philip B. Flynn Employment  Agreement (effective April 1, 2004)*(20)                                                                                                                                                      |
| 10.19 |   | Philip B. Flynn Amendment  of Employment Agreement (effective May 1, 2005)*(21)                                                                                                                                           |
| 10.20 |   | David I. Matson Employment  Agreement (effective January 1, 1998)*(22)                                                                                                                                                    |
| 10.21 |   | David I. Matson Amendment  of Employment Agreement (effective May 1, 2005)*(23)                                                                                                                                           |
| 10.22 |   | Written Descriptions of  Compensation Arrangements for UnionBanCal Non-Employee Directors*(24)                                                                                                                                 |
| 10.23 |   | Written Description of  Compensation Arrangements for Union Bank of California, N.A. Non-Employee  Directors*(25)                                                                                                              |
| 10.24 |   | Purchase and Assumption  Agreement by and among Union Bank of California N.A., Union Bank of  California International, and Union Bank of California Servicos LTDA. and  Wachovia Bank, N.A. dated September 21, 2005(26) |
| 10.25 |   | Repurchase Agreement  between UnionBanCal Corporation and The Bank of Tokyo Mitsubishi, Ltd., dated  as of February 23, 2005(27)                                                                                          |
| 12.1  |   | Computation of Ratio of  Earnings to Combined Fixed Charges and Preferred Stock Dividend Requirements(27)                                                                                                                      |
| 21.1  |   | Subsidiaries of the  Registrant(27)                                                                                                                                                                                            |
| 23.1  |   | Consent of  Deloitte & Touche LLP(27)                                                                                                                                                                                 |
| 24.1  |   | Power of Attorney(27)                                                                                                                                                                                                          |
| 24.2  |   | Resolution of Board of  Directors(27)                                                                                                                                                                                          |
| 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(27)                              |
| 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(27)                              |
| 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(27)                                                          |
| 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(27)                                                          |

----

 (1)  Incorporatedby reference to the exhibit of the same number to the UnionBanCal CorporationQuarterly Report on Form 10-Q for the quarter ended September 30,2003(SEC File No. 001-15081).

 (2)  Incorporatedby reference to the exhibit of the same number to the UnionBanCal CorporationCurrent Report on Form 8-K dated February 19, 1999 (SEC FileNo. 000-28118).

 (3)  Incorporatedby reference to Exhibit 99.1 to the UnionBanCal Corporation Current Reporton Form 8-K dated December 8, 2003 (SEC File No. 001-15081).

 (4)  Incorporatedby reference to the exhibit of the same number to the UnionBanCal CorporationAnnual Report on Form 10-K for the year ended December 31, 1997(SEC File No. 000-28118).

 (5)  Incorporated by reference to theexhibit of the same number to the UnionBanCal Corporation Annual Report onForm 10-K for the year ended December 31, 1996 (SEC FileNo. 000-28118).

25

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 (6)  Incorporatedby reference to Exhibit C to the UnionBanCal Corporation Definitive ProxyStatement on Schedule 14A filed on March 27, 2001 (SEC File No. 001-15081).

 (7)  Incorporatedby reference to Exhibit 10.6 to the UnionBanCal Corporation Annual Reporton Form 10-K for the year ended December 31, 1996 (SEC FileNo. 000-28118).

 (8)  Incorporatedby reference to Exhibit 10.14 to the UnionBanCal Corporation CurrentReport on Form 8-K dated April 1, 1996 (SEC File No. 000-28118).

 (9)  Incorporatedby reference to Appendix B to the UnionBanCal Corporation Definitive ProxyStatement on Schedule 14A filed on March 26, 2004 (SEC File No. 001-15081).

 (10)Incorporatedby reference to Exhibit 10.2 to the UnionBanCal Corporation Current Reporton Form 8-K dated March 22, 2005 (SEC File No. 001-15081).

 (11)Incorporatedby reference to Exhibit 10.10 to the UnionBanCal Corporation Annual Reporton Form 10-K for the year ended December 31, 1997 (SEC FileNo. 000-28118).

 (12)Incorporatedby reference to Appendix A to the UnionBanCal Corporation Definitive ProxyStatement on Schedule 14A filed on March 25, 2005 (SEC File No. 001-15081).

 (13)Incorporatedby reference to Exhibit 10.4 to the UnionBanCal Corporation Current Reporton Form 8-K dated March 22, 2005 (SEC File No. 001-15081).

 (14)Incorporatedby reference to Exhibit 10.3 to the UnionBanCal Corporation Current Reporton Form 8-K dated March 22, 2005 (SEC File No. 001-15081).

 (15)Incorporatedby reference to Exhibit 10.5 to the UnionBanCal Corporation Current Reporton Form 8-K dated March 22, 2005 (SEC File No. 001-15081).

 (16)Incorporatedby reference to Exhibit 10.6 to the UnionBanCal Corporation Current Reporton Form 8-K dated March 22, 2005 (SEC File No. 001-15081).

 (17)Incorporatedby reference to Exhibit 10.10 to the UnionBanCal Corporation QuarterlyReport on Form 10-Q for the quarter ended June 30, 2000 (SECFile No. 001-15081).

 (18)Incorporatedby reference to Exhibit 10.1 to the UnionBanCal Corporation QuarterlyReport on Form 10-Q for the quarter ended June 30, 2003 (SECFile No. 001-15081).

 (19)Incorporatedby reference to Exhibit 10.1 to the UnionBanCal Corporation Current Reporton Form 8-K dated March 22, 2005 (SEC File No. 001-15081).

 (20)Incorporatedby reference to Exhibit 10.1 to the UnionBanCal Corporation QuarterlyReport on Form 10-Q for the quarter ended March 31, 2004 (SECFile No. 001-15081).

 (21)Incorporatedby reference to Exhibit 10.1 to the UnionBanCal Corporation QuarterlyReport on Form 10-Q for the quarter ended June 30, 2005 (SECFile No. 001-15081).

 (22)Incorporatedby reference to Exhibit 10.13 to the UnionBanCal Corporation Annual Reporton Form 10-K for the year ended December 31, 2002 (SEC FileNo. 001-15081)

 (23)Incorporatedby reference to Exhibit 10.2 to the UnionBanCal Corporation QuarterlyReport on Form 10-Q for the quarter ended June 30, 2005 (SECFile No. 001-15081).

 (24)Incorporatedby reference to (i) Exhibit 10.1 to the UnionBanCal CorporationCurrent Report on Form 8-K dated July 27, 2005 (SEC FileNo. 001-15081) and (ii) Item 1 of the UnionBanCal CorporationCurrent Report on Form 8-K dated October 26, 2005 (SEC FileNo. 001-15081).

 (25)Incorporatedby reference to Exhibit 10.1 to the UnionBanCal Corporation Current Reporton Form 8-K dated December 7, 2005 (SEC File No. 001-15081).

 (26)Incorporatedby reference to Exhibit 10.1 to the UnionBanCal Corporation QuarterlyReport on Form 10-Q for the quarter ended September 30, 2005(SEC File No. 001-15081).

 (27)Providedherewith.

   *Managementcontract or compensatory plan, contract or arrangement.

26

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**UnionBanCalCorporation and Subsidiaries**

**Management’sDiscussion and Analysis of Financial Conditionand Results of Operations**

**Selected Financial Data**

| ** **                                                                                  | ** ** | **As of and for the Years Ended December 31,** | ** ** |
|---------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------|------------|
| **(Dollars in thousands, except per share data)**             | ** ** | **2001**                                                                               | ** ** | **2002** | ** ** | **2003** | ** ** | **2004** | ** ** | **2005** | ** ** |
| **Results of operations:**                                                                  |       |                                                                                   |       |   |   |   |   |   |   |   |   |
| Net interest income(1)                                                                      |       | $                                                                                      | 1,498,342  |   | $ | 1,544,284 |   | $ | 1,550,057 |   | $ | 1,627,761 |   | $ | 1,843,466 |   |
| (Reversal of)  provision for loan losses                                                    |       | 289,970                                                                                |       | 175,000 |   | 72,799 |   | (45,757 | ) | (50,683 | ) |
| Noninterest income                                                                          |       | 611,229                                                                                |       | 621,516 |   | 712,956 |   | 912,823 |   | 804,787 |   |
| Noninterest expense                                                                         |       | 1,148,878                                                                              |       | 1,252,356 |   | 1,363,934 |   | 1,473,589 |   | 1,607,246 |   |
| Income before income  taxes(1)                                                              |       | 670,723                                                                                |       | 738,444 |   | 826,280 |   | 1,112,752 |   | 1,091,690 |   |
| Taxable-equivalent  adjustment                                                              |       | 2,057                                                                                  |       | 2,587 |   | 2,553 |   | 3,745 |   | 4,352 |   |
| Income tax expense                                                                          |       | 216,101                                                                                |       | 231,190 |   | 271,193 |   | 398,933 |   | 356,698 |   |
| Income from  continuing operations                                                          |       | 452,565                                                                                |       | 504,667 |   | 552,534 |   | 710,074 |   | 730,640 |   |
| Income from  discontinued operations, net of taxes                                          |       | 28,863                                                                                 |       | 23,236 |   | 34,605 |   | 22,460 |   | 132,293 |   |
| Net income                                                                                  |       | $                                                                                      | 481,428    |   | $ | 527,903 |   | $ | 587,139 |   | $ | 732,534 |   | $ | 862,933 |   |
| **Per common share:**                                                                       |       |                                                                                   |       |   |   |   |   |   |   |   |   |
| Basic earnings:                                                                             |       |                                                                                   |       |   |   |   |   |   |   |   |   |
| From continuing  operations                                                                 |       | $                                                                                      | 2.87       |   | $ | 3.26 |   | $ | 3.71 |   | $ | 4.81 |   | $ | 5.04 |   |
| Net income                                                                                  |       | 3.05                                                                                   |       | 3.41 |   | 3.94 |   | 4.96 |   | 5.95 |   |
| Diluted earnings:                                                                           |       |                                                                                   |       |   |   |   |   |   |   |   |   |
| From continuing  operations                                                                 |       | 2.85                                                                                   |       | 3.23 |   | 3.67 |   | 4.72 |   | 4.94 |   |
| Net income                                                                                  |       | 3.04                                                                                   |       | 3.38 |   | 3.90 |   | 4.87 |   | 5.84 |   |
| Dividends(2)                                                                                |       | 1.00                                                                                   |       | 1.09 |   | 1.21 |   | 1.39 |   | 1.59 |   |
| Book value (end of  period)                                                                 |       | 22.66                                                                                  |       | 24.94 |   | 25.66 |   | 28.93 |   | 31.62 |   |
| Common shares outstanding  (end of period)                                                  |       | 156,483,511                                                                            |       | 150,702,363 |   | 145,758,156 |   | 148,359,918 |   | 144,207,072 |   |
| Weighted average  common shares outstanding (basic)                                         |       | 157,844,745                                                                            |       | 154,757,817 |   | 148,917,249 |   | 147,767,238 |   | 145,109,058 |   |
| Weighted average  common shares outstanding   (diluted)                                     |       | 158,623,454                                                                            |       | 156,414,940 |   | 150,645,193 |   | 150,302,831 |   | 147,791,565 |   |
| **Balance sheet (end of period):**                                                          |       |                                                                                   |       |   |   |   |   |   |   |   |   |
| Total assets                                                                                |       | $                                                                                      | 36,038,746 |   | $ | 40,169,773 |   | $ | 42,498,467 |   | $ | 48,098,021 |   | $ | 49,416,002 |   |
| Total loans                                                                                 |       | 23,943,697                                                                             |       | 25,255,413 |   | 24,375,156 |   | 29,109,415 |   | 33,095,595 |   |
| Nonaccrual loans                                                                            |       | 491,885                                                                                |       | 336,689 |   | 280,361 |   | 142,573 |   | 58,892 |   |
| Nonperforming assets                                                                        |       | 492,482                                                                                |       | 337,404 |   | 286,050 |   | 149,855 |   | 61,645 |   |
| Total deposits                                                                              |       | 26,960,064                                                                             |       | 31,110,985 |   | 33,947,806 |   | 38,719,506 |   | 40,082,239 |   |
| Medium and long-term  debt                                                                  |       | 399,657                                                                                |       | 418,360 |   | 820,488 |   | 816,113 |   | 801,095 |   |
| Junior subordinated  debt                                                                   |       | —                                                                                 |       | — |   | 363,940 |   | 15,790 |   | 15,338 |   |
| Trust preferred  securities                                                                 |       | 363,928                                                                                |       | 365,696 |   | — |   | — |   | — |   |
| Stockholders’ equity                                                                   |       | 3,546,242                                                                              |       | 3,758,189 |   | 3,740,436 |   | 4,292,244 |   | 4,559,700 |   |
| **Balance  sheet (period average):**                                                        |       |                                                                                   |       |   |   |   |   |   |   |   |   |
| Total assets                                                                                |       | $                                                                                      | 33,275,190 |   | $ | 34,615,481 |   | $ | 38,572,615 |   | $ | 43,158,714 |   | $ | 47,610,818 |   |
| Total loans                                                                                 |       | 24,945,204                                                                             |       | 24,643,533 |   | 24,927,797 |   | 26,047,852 |   | 31,452,606 |   |
| Earning assets                                                                              |       | 30,228,732                                                                             |       | 31,676,523 |   | 34,925,332 |   | 39,033,107 |   | 42,796,688 |   |
| Total deposits                                                                              |       | 25,155,280                                                                             |       | 27,321,455 |   | 32,016,157 |   | 36,006,833 |   | 39,543,986 |   |
| Stockholders’ equity                                                                   |       | 3,467,719                                                                              |       | 3,739,530 |   | 3,831,032 |   | 4,050,202 |   | 4,280,085 |   |
| **Financial ratios:**                                                                       |       |                                                                                   |       |   |   |   |   |   |   |   |   |
| Return on average assets:                                                                   |       |                                                                                   |       |   |   |   |   |   |   |   |   |
| From continuing  operations                                                                 |       | 1.36                                                                                   | %          | 1.46 | % | 1.43 | % | 1.65 | % | 1.53 | % |
| Net income                                                                                  |       | 1.45                                                                                   |       | 1.53 |   | 1.52 |   | 1.70 |   | 1.81 |   |
| Return on average  stockholders’ equity:                                               |       |                                                                                   |       |   |   |   |   |   |   |   |   |
| From continuing  operations                                                                 |       | 13.05                                                                                  |       | 13.50 |   | 14.42 |   | 17.53 |   | 17.07 |   |
| Net income                                                                                  |       | 13.88                                                                                  |       | 14.12 |   | 15.33 |   | 18.09 |   | 20.16 |   |
| Efficiency ratio(3)                                                                         |       | 54.46                                                                                  |       | 57.82 |   | 60.27 |   | 57.95 |   | 60.75 |   |
| Net interest margin(1)                                                                      |       | 4.96                                                                                   |       | 4.88 |   | 4.44 |   | 4.17 |   | 4.31 |   |
| Dividend payout ratio                                                                       |       | 34.84                                                                                  |       | 33.44 |   | 32.61 |   | 28.90 |   | 31.55 |   |
| Tangible equity ratio                                                                       |       | 9.62                                                                                   |       | 8.93 |   | 8.20 |   | 7.94 |   | 8.31 |   |
| Tier 1 risk-based  capital ratio                                                            |       | 11.47                                                                                  |       | 11.18 |   | 11.31 |   | 9.71 |   | 9.17 |   |
| Total risk-based  capital ratio                                                             |       | 13.35                                                                                  |       | 12.93 |   | 14.14 |   | 12.17 |   | 11.10 |   |
| Leverage ratio                                                                              |       | 10.53                                                                                  |       | 9.75 |   | 9.03 |   | 8.09 |   | 8.39 |   |
| Allowances for credit  losses to total loans(4)                                             |       | 2.65                                                                                   |       | 2.41 |   | 2.19 |   | 1.65 |   | 1.32 |   |
| Allowances for credit  losses to nonaccrual loans(4)                                        |       | 129.00                                                                                 |       | 180.94 |   | 190.08 |   | 337.74 |   | 743.58 |   |
| Net loans charged off  (recovered) to average total loans                                   |       | 1.08                                                                                   |       | 0.84 |   | 0.64 |   | 0.09 |   | (0.01 | ) |
| Nonperforming assets  to total loans, distressed loans held for sale, and foreclosed assets |       | 2.06                                                                                   |       | 1.34 |   | 1.17 |   | 0.51 |   | 0.19 |   |
| Nonperforming assets  to total assets                                                       |       | 1.37                                                                                   |       | 0.84 |   | 0.67 |   | 0.31 |   | 0.12 |   |

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(1)    Amounts are on a taxable-equivalent basis using thefederal statutory tax rate of 35 percent.

(2)    Dividends per share reflect dividends declared onUnionBanCal Corporation’s common stock outstanding as of the declaration date.

(3)    The efficiency ratio is noninterest expense, excludingforeclosed asset expense (income) and the provision for losses on off-balancesheet commitments, as a percentage of net interest income (taxable-equivalentbasis) and noninterest income and is calculated for continuing operations only.

(4)    Includes allowance for losses on off-balance sheetcommitments.

F-1

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***This report includesforward looking statements, which include forecasts of our financial resultsand condition, expectations for our operations and business, and ourassumptions for those forecasts and expectations. Do not rely unduly onforward-looking statements. Actual results might differ significantly from ourforecasts and expectations. Please refer to Part I Item 1A “RiskFactors” for a discussion of some factors that may cause results to differ.***

You should read the following discussion and analysisof our consolidated financial position and results of our operations for theyears ended December 31, 2003, 2004 and 2005 together with ourConsolidated Financial Statements and the Notes to Consolidated FinancialStatements included in this Annual Report. Averages, as presented in thefollowing tables, are substantially all based upon daily average balances.

**Introduction**

We are a California-based, commercial bank holdingcompany with consolidated assets of $49.4 billion at December 31,2005. At December 31, 2005, The Bank of Tokyo-Mitsubishi UFJ our majorityowner, owned approximately 63 percent of our outstanding common stock.

**ExecutiveOverview**

We are providing you with anoverview of what we believe are the most significant factors and developmentsthat impacted our 2005 results and that could impact our future results. We askthat you carefully read the rest of this document for more detailed informationthat will complete your understanding of trends, events and uncertainties thatimpact us.

We experienced strong growthin loans and deposits during 2005. Average loans grew by $5.4 billion with abalanced portfolio mix while average core deposits grew by over $3.5 billion.Core deposits are noninterest and interest bearing deposits, excluding largetime deposits. During 2005, we were one of the very few large banks to expandour net interest margin which increased by 14 basis points for the full year. Ourdeposit gathering and the resultant net interest margin are hallmarks of ourfranchise. While deposit-gathering were challenges for most banks, wemaintained our high level of average deposit balances throughout 2005.

Throughout 2005, our overallcredit quality continued its improving trend, which allowed us to reverse $47million of our provision for credit losses (provision for loan and off-balancesheet commitment losses combined) even while average loans grew 21 percent overDecember 31, 2004. Our nonaccrual loans total $59 million compared to $143million at December 31, 2004. Loan payoffs and charge-offs, loans sales,the resumption to accrual status and a decline in new inflows contributed tothe decline in nonaccrual loans.

For the year ended December 31,2005, our net interest income rose 13 percent compared to the year ended December 31,2004. Our net interest income growth reflects the impact of higher interestrates and increased average loan balances primarily from strong loan demand andthe Jackson Federal Bank acquisition in October 2004 and a substantialincrease in deposits, offset by lower income from our derivative hedges. During2005, we sold $1.5 billion in agency securities with an average yield of 2.66percent in order to rebalance our securities portfolio. We are reinvesting $1billion of the proceeds into AAA-rated non-agency mortgage-backed securities,which was completed in February 2006. This action and gradual increases ininterest rates coupled with anticipated growth in our commercial loan portfolioshould continue to positively impact our net interest income in 2006.

Noninterest income declinedin 2005 compared with 2004. Excluding the $102 million in gains related to thesale of our merchant card portfolio and a building in 2004, our noninterestincome declined by $6 million as a result of lower service charges on ourdeposit accounts, card processing fees and a $50 million loss on sales ofsecurities available for sale offset by increases in trust and investmentmanagement fees and merchant banking fees.

F-2

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Noninterest expense grewduring 2005 compared with 2004, primarily from merit increases and incentivesand vendor billings in 2005 and from the investments we made in bankacquisitions and de novo branches in 2004. We believe that the investments wemade in our banking activities will bring opportunities for growth in ourbusiness by increasing our customer base and expanding the services we provide.

During 2005, we continued ourpractice of returning excess capital to our shareholders by repurchasing $389million of our common shares in the open market, including $200 million fromour majority stockholder, The Bank of Tokyo-Mitsubishi UFJ, and by increasingour cash dividend to $0.41 per share per quarter.

In October 2005, we sold our internationalcorrespondent banking business for $245 million and recorded a pretax gain of$229 million after direct costs associated with the transaction of $4 millionand a foreign currency translation adjustment of $12 million, which wasreclassified from accumulated other comprehensive income and included innoninterest income. We will continue to operate this business during atransition period, and expect to exit from the international correspondentbanking business during the second quarter 2006. Additionally, we expect nomaterial impact on our future earnings per share as a result of this sale. Thistransaction has been accounted for as a discontinued operation; therefore, allsubsequent discussion of our results is focused on continuing operations unlessotherwise stated.

**DiscontinuedOperations**

During the third quarter2005, we committed to a plan to exit our international correspondent bankingbusiness and entered into a definitive agreement to sell this business toWachovia Bank, N.A. This business consisted of international payment and tradeprocessing along with the related lending activities. The principal legalclosing of the transaction occurred on October 6, 2005 and we received$245 million. We will continue to operate this business over a transitionperiod that may extend through second quarter 2006.

This transaction has beenaccounted for as a discontinued operation and all prior periods, except wherespecifically mentioned, have been restated to reflect this accountingtreatment. All of the assets and liabilities of the discontinued operationshave been separately identified on our consolidated balance sheet and theassets are shown at the lower of cost or fair value less costs to dispose. Theaverage net assets or liabilities of our discontinued operations are reflectedin our analysis of net interest margin. For the detailed components of ourassets and liabilities from discontinued operations, see Note 2 “DiscontinuedOperations” to the Consolidated Financial Statements included in this AnnualReport.

Included in our net incomeare the net results of our discontinued operations. For the years ended December 31,2004 and 2005, income from discontinued operations included the following:

| ** **                                               | ** ** | **For the years ended   December 31,** | ** ** |
|----------------------------------------------------------|------------|-----------------------------------------------------------------|------------|
| **(Dollars in thousands)**                     | ** ** | **2004**                                                        | ** ** | **2005** | ** ** |
| Net interest income                                      |       | $                                                               | 21,207     |   | $ | 20,252 |   |
| Provision for loan  losses                               |       | 10,757                                                          |       | 6,683 |   |
| Noninterest income                                       |       | 76,482                                                          |       | 298,725 |   |
| Noninterest expense                                      |       | 50,593                                                          |       | 106,712 |   |
| Income from  discontinued operations before income taxes |       | 36,339                                                          |       | 205,582 |   |
| Income tax expense                                       |       | 13,879                                                          |       | 73,289 |   |
| Income from discontinued  operations                     |       | $                                                               | 22,460     |   | $ | 132,293 |   |

 

Net interest income for theyears ended 2004 and 2005, included the allocation of interest expense fromcontinuing operations of approximately $0.8 million and $15.5 million,respectively. Interest expense 

F-3

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allocated to discontinuedoperations is calculated based on its average net assets and the correspondingcost of funds rate equivalent to the average federal funds purchased rate forthe period. Included in noninterest income was the recognition of the $228.8million net gain on the sale of this business. Included in noninterest expense for the year ended December 31,2005 was approximately $22.0 million of severance expense and $3 million ofimpairment on software in development. In addition, compliance related expenseswere $2.1 million and $32.8 million for the years ended December 31, 2004and 2005, respectively. We expect to spend approximately $10 million oncompliance related actiivities during 2006. Expenses related to thetermination of lease contracts related to this business are not included inthese results. Upon ceasing to use the leased premises during the first sixmonths of 2006, we expect to record lease premise related expenses. We do notbelieve the amount of this expense will be material.

The remaining discussion of our financial results isbased on results from continuing operations, unless otherwise stated.

**CriticalAccounting Policies**

*General*

UnionBanCal Corporation’sconsolidated financial statements are prepared in accordance with accountingprinciples generally accepted in the United States of America (US GAAP) and thegeneral practices of the banking industry. The financial information containedwithin our statements is, to a significant extent, financial information thatis based on approximate measures of the financial effects of transactions andevents that have already occurred. A variety of factors could affect theultimate value that is obtained either when earning income, recognizing anexpense, recovering an asset or relieving a liability. In many instances, weuse a discount factor to determine the present value of assets and liabilities.A change in the discount factor could increase or decrease the values of thoseassets and liabilities and such a change would result in either a beneficial oradverse impact to our financial results. We use historical loss factors,adjusted for current conditions, to determine the inherent loss that may bepresent in our loan and lease portfolio. Actual losses could differsignificantly from the loss factors that we use. Other significant estimatesthat we use are employee turnover factors for pension purposes, residual valuesin our leasing portfolio, fair value of our derivatives and securities,expected useful lives of our depreciable assets and assumptions regarding oureffective income tax rates. We enter into derivative contracts to accommodateour customers and for our own risk management purposes. The derivativecontracts are generally energy, foreign exchange, interest rate swap andinterest rate option contracts, although we could enter into other types ofderivative contracts. We value these contracts at fair value, using eitherreadily available, market quoted prices or from information that can beextrapolated to approximate a market price. We are subject to US GAAP that maychange from one previously acceptable method to another method. Although theeconomics of our transactions would be the same, the timing of events thatwould impact our transactions could change.

Our most significantestimates are approved by our Chief Executive Officer (CEO) Forum, which iscomprised of our most senior officers. For each financial reporting period, areview of these estimates is presented to and discussed with the AuditCommittee of our Board of Directors.

All of our significant accounting policies areidentified in Note 1 to our Consolidated Financial Statements included inthis Annual Report. The following describes our most critical accountingpolicies and our basis for estimating the allowances for credit losses, pensionobligations and asset impairment.

*Allowancesfor Credit Losses*

The allowances for creditlosses, which consist of the allowances for loan and off-balance sheetcommitment losses are estimates of the losses that may be sustained in our loanand lease portfolio as well as for certain off-balance sheet commitments suchas unfunded commitments, commercial letters of credit, and financialguarantees. The allowances are based on two principles of accounting: (1) Statementof 

F-4

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Financial AccountingStandards (SFAS) No. 5, “Accounting for Contingencies,” which requiresthat losses be accrued when they are probable of occurring and estimable; and (2) SFASNo. 114, “Accounting by Creditors for Impairment of a Loan” and SFAS No. 118,“Accounting by Creditors for Impairment of a Loan—Income Recognition andDisclosures,” which require that losses be accrued based on the differencesbetween the value of collateral, present value of future cash flows or valuesthat are 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 andthe allowance for off-balance sheet commitments, which is included in otherliabilities. Each of these components is determined based upon estimates thatcan and do change when the actual events occur. The formula allowance uses amodel based, in part, on historical losses as an indicator of future lossesand, as a result, could differ from the losses incurred in the future. Thishistory is updated quarterly to include any data that makes the historical datamore relevant. Moreover, management adjusts the historical loss estimates forconditions that more accurately capture probable losses inherent in theportfolio. The specific allowance uses various techniques to arrive at anestimate of loss. Historical loss information, discounted cash flows, fairmarket value of collateral and secondary market information are all used toestimate those losses. The use of these values is inherently subjective and ouractual losses could be greater or less than the estimates. The unallocatedallowance captures losses that are attributable to various economic events, aswell as to industry or geographic sectors whose impact on the portfolio haveoccurred but have yet to be recognized in either the formula or specific allowances.Our allowance for off-balance sheet commitments is measured in approximatelythe same manner as the allowance for our loans but includes an estimate of thelikelihood of draw. At December 31, 2005, our allowance for loan losseswas $352 million and our allowance for off-balance sheet commitments was $86million, based upon our assessment of the probability of loss. For furtherinformation regarding our allowance for loan losses, see “Allowances for CreditLosses” in this Management’s Discussion and Analysis of Financial Condition andResults of Operations.

*PensionObligations*

*Our pensionobligations and related assets of our defined retirement benefit plan arepresented in Note 9 to our Consolidated Financial Statements included in thisAnnual Report. Plan assets, which consist primarily of marketable equity anddebt instruments, are valued using market quotations. Plan obligations and theannual benefit expense are determined by independent actuaries and through keyassumptions. Key assumptions in measuring the plan obligations are the discountrate, the rate of compensation increases, and the estimated future return onplan assets. In determining the discount rate, we use the yield onhigh-quality, fixed-income investments currently available with maturitiescorresponding to the anticipated timing of the future benefit payments.Compensation increase assumptions are based upon historical experience andanticipated future management actions. Asset returns are based upon theanticipated average rate of earnings expected on the invested funds of theplan. The 2005 net periodic pension cost was $36 million, which increased overthe 2004 net periodic pension cost of $22 million primarily due to a decreasein the assumed discount rate from 6.25 percent to 5.75 percent. This drop inthe discount rate accounted for most of the $87.8 million actuarial lossincluded in our pension benefit obligation at December 31, 2005. Theunrecognized net actuarial loss increased by $63.4 million, which will resultin $6.6 million of additional pension expense included in our 2006 results. Ofthe total $384 million of unrecognized net actuarial loss as of December 31,2005, approximately $290 million will be subject to amortization over 9.6years. The remaining $94 million is not currently subject to amortization. Theunrecognized net actuarial loss resulted from differences between expected andactual assumptions of rate of return on plan assets and the discount rate.Included in the 2006 net periodic pension cost will be $30 million ofamortization related to the unrecognized net actuarial loss. We estimate ourtotal 2006 net periodic pension cost will be approximately $37 million,assuming a 2006 contribution of $100 million. The primary reason for theincrease in net periodic pension cost for 2006 compared to 2005 is the decreasein the assumed discount rate from 5.75 percent to 5.50 percent. The 2006estimate for net*

F-5

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*periodicpension cost was actuarially determined using a discount rate of 5.50 percent,an expected return on plan assets of 8.25 percent and an expected compensationincrease assumption of 4.70 percent. A 50 basis point increase in either thediscount rate, expected return on plan assets, or the rate of increase infuture compensation levels would decrease (increase) 2006 periodic pension costby $14.1 million, $6.9 million, and ($4.6) million, respectively. A 50basis point decrease in either the discount rate, expected return on planassets, or the rate of increase in future compensation levels would increase (decrease)2006 periodic benefit cost by $12.6 million, $6.9 million, and ($4.7) million,respectively.*

*AssetImpairment*

We make estimates andassumptions when preparing our consolidated financial statements for whichactual results will not be known for some time. This includes therecoverability of long-lived assets employed in our business, including thoseof acquired businesses, and other-than-temporary impairment in our securitiesportfolio. We test goodwill from our acquisitions for impairment at least annuallyor more frequently if events or circumstances indicate that there may be causefor conducting an interim test. In testing for a potential impairment ofgoodwill, we estimated the fair value of each of our reporting units (generallydefined as the level in which segment performance is analyzed) and comparedthis value to the carrying value of each reporting unit. The estimated fairvalue of goodwill was established using a market approach method for ourbanking units and a discounted cash flow model for our trust and insuranceservice units. We determined that the estimated fair value of each reportingunit was greater than its carrying value, therefore no impairment existed forthe year ended 2005. Quarterly, we test our private capital investments forimpairment by reviewing the investee’s business model, current and projectedfinancial performance, liquidity and overall economic and market conditions. Inaddition, we test our debt securities below Aa investment grade for impairmentquarterly and during 2005 we recognized $0.6 million of other-than-temporaryimpairment in the collateralized loan obligation (CLO) portfolio. Impairmenttesting of these securities requires the use of a number of assumptions relatedto cash flows, recovery rates, default rates, market valuations andreinvestment of cash flows during the reinvestment period. This portfolio ofsecurities is highly diversified, which we believe should mitigate the riskthat downturns in any one industry segment will significantly impair the portfolio.Our higher grade debt securities are not tested for other-than-temporaryimpairment since we have the ability and intent to hold them until our cost hasbeen recovered.

F-6

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**Financial Performance**

**Summary of Financial Performance**

| ** **                                                | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **Increase (Decrease)**   | ** ** |
|-----------------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|--------------------------------|------------|
| ** **                                                | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **2004 versus 2003** | ** ** | ** ** | ** ** | **2005 versus 2004** | ** ** |
| **(Dollars in thousands)**                      | ** ** | **2003**   | ** ** | **2004**   | ** ** | **2005**   | ** ** | ** ** | ** ** | **Amount**                     | ** ** | **Percent** | ** ** | ** ** | ** ** | **Amount** | ** ** | **Percent** | ** ** |
| **Results of Operations**                                 |       |       |       |       |       |       |       |       |       |                           |       |   |   |   |   |   |   |   |   |
| Net interest income(1)                                    |       | $          | 1,547,504  |       | $          | 1,624,016  |       | $          | 1,839,114  |                           |       |   | $ | 76,512 |   | 4.9 | % |   |   | $ | 215,098 |   | 13.2 | % |
| Noninterest income                                        |       |       |       |       |       |       |       |       |       |                           |       |   |   |   |   |   |   |   |   |
| Service charges on  deposit accounts                      |       | 304,717    |       | 335,207    |       | 323,865    |       |       |       | 30,490                         |       | 10.0 |   |   |   | (11,342 | ) | (3.4 | ) |
| Trust and investment  management fees                     |       | 136,347    |       | 153,083    |       | 173,518    |       |       |       | 16,736                         |       | 12.3 |   |   |   | 20,435 |   | 13.3 |   |
| Insurance commissions                                     |       | 62,652     |       | 77,874     |       | 78,915     |       |       |       | 15,222                         |       | 24.3 |   |   |   | 1,041 |   | 1.3 |   |
| Securities losses,  net                                   |       | (1,851     | )          | (12,085    | )          | (50,039    | )          |       |       | (10,234                        | )          | nm |   |   |   | (37,954 | ) | nm |   |
| Gain on private  capital investments, net                 |       | (128       | )          | 26,278     |       | 27,187     |       |       |       | 26,406                         |       | nm |   |   |   | 909 |   | 3.5 |   |
| Gain on sale of  merchant card portfolio                  |       | —     |       | 93,000     |       | —     |       |       |       | 93,000                         |       | nm |   |   |   | (93,000 | ) | nm |   |
| Other noninterest income                                  |       | 211,219    |       | 239,466    |       | 251,341    |       |       |       | 28,247                         |       | 13.4 |   |   |   | 11,875 |   | 5.0 |   |
| Total noninterest income                                  |       | 712,956    |       | 912,823    |       | 804,787    |       |       |       | 199,867                        |       | 28.0 |   |   |   | (108,036 | ) | (11.8 | ) |
| Total revenue                                             |       | 2,260,460  |       | 2,536,839  |       | 2,643,901  |       |       |       | 276,379                        |       | 12.2 |   |   |   | 107,062 |   | 4.2 |   |
| (Reversal of)  provision for loan losses(2)          |       | 72,799     |       | (45,757    | )          | (50,683    | )          |       |       | 118,556                        |       | nm |   |   |   | 4,926 |   | 10.8 |   |
| Noninterest expense                                       |       |       |       |       |       |       |       |       |       |                           |       |   |   |   |   |   |   |   |   |
| Salaries and employee  benefits                           |       | 780,740    |       | 848,717    |       | 934,354    |       |       |       | 67,977                         |       | 8.7 |   |   |   | 85,637 |   | 10.1 |   |
| Net occupancy                                             |       | 120,434    |       | 127,720    |       | 141,299    |       |       |       | 7,286                          |       | 6.0 |   |   |   | 13,579 |   | 10.6 |   |
| Outside services                                          |       | 65,088     |       | 74,978     |       | 117,190    |       |       |       | 9,890                          |       | 15.2 |   |   |   | 42,212 |   | 56.3 |   |
| Provision for losses  on off-balance sheet commitments(2) |       | —     |       | —     |       | 4,000      |       |       |       | —                         |       | — |   |   |   | 4,000 |   | nm |   |
| Other noninterest expense                                 |       | 397,672    |       | 422,174    |       | 410,403    |       |       |       | 24,502                         |       | 6.2 |   |   |   | (11,771 | ) | (2.8 | ) |
| Total noninterest expense                                 |       | 1,363,934  |       | 1,473,589  |       | 1,607,246  |       |       |       | 109,655                        |       | 8.0 |   |   |   | 133,657 |   | 9.1 |   |
| Income from continuing operations before                  |       |       |       |       |       |       |       |       |       |                           |       |   |   |   |   |   |   |   |   |
| income taxes                                              |       | 823,727    |       | 1,109,007  |       | 1,087,338  |       |       |       | 285,280                        |       | 34.6 |   |   |   | (21,669 | ) | (2.0 | ) |
| Income tax expense                                        |       | 271,193    |       | 398,933    |       | 356,698    |       |       |       | 127,740                        |       | 47.1 |   |   |   | (42,235 | ) | (10.6 | ) |
| Income from  continuing operations                        |       | 552,534    |       | 710,074    |       | 730,640    |       |       |       | 157,540                        |       | 28.5 |   |   |   | 20,566 |   | 2.9 |   |
| Income from discontinued operations before                |       |       |       |       |       |       |       |       |       |                           |       |   |   |   |   |   |   |   |   |
| income taxes                                              |       | 56,239     |       | 36,339     |       | 205,582    |       |       |       | (19,900                        | )          | (35.4 | ) |   |   | 169,243 |   | nm |   |
| Income tax expense                                        |       | 21,634     |       | 13,879     |       | 73,289     |       |       |       | (7,755                         | )          | (35.8 | ) |   |   | 59,410 |   | nm |   |
| Income from  discontinued operations                      |       | 34,605     |       | 22,460     |       | 132,293    |       |       |       | (12,145                        | )          | (35.1 | ) |   |   | 109,833 |   | nm |   |
| Net income                                                |       | $          | 587,139    |       | $          | 732,534    |       | $          | 862,933    |                           |       |   | $ | 145,395 |   | 24.8 | % |   |   | $ | 130,399 |   | 17.8 | % |

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(1)    Net interest income does not include any adjustmentsfor fully taxable equivalence.

(2)    Beginning in 2005, the net change in the allowance forlosses on off-balance sheet commitments was recognized separately from thechange in the allowance for loan losses. Prior periods have not been restatedfor this change.

nm = not meaningful

*The primary contributors to our continuingoperations financial performance for 2005 compared to 2004 are presented below.*

·  Our net interest income wasfavorably influenced by higher earning asset volumes in each of our major loancategories, higher average yields on our earning assets and strong depositgrowth. Offsetting these positive influences to our net interest margin werehigher rates on interest bearing liabilities and lower hedge income (See ourdiscussion under “Net Interest Income.”)

·  The reversal of our provisionfor loan losses in 2005 is primarily due to improving credit quality, which ishighly influenced by improvements in our commercial loan portfolio. However,this trend is balanced by increasing uncertainty in the economic outlookcoupled with indications that the improvement in credit quality could bereaching its peak. (See our discussion under “Allowances for Credit Losses.”)

F-7

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·  Our noninterest income wasimpacted by several factors:

—     InMay 2004, we sold ourmerchant card portfolio to NOVA Information Systems. The sale of our merchantcard portfolio reflects our ongoing effort to sharpen our strategic focus. Additionally,the long-term marketing alliance we formed with NOVA will provide us withmarketing fees in the future;

—     A loss of $50.1 million onthe sale of $1.5 billion of government agency securities in our available forsale portfolio during 2005. The sales occurred as a result of our decision torebalance our portfolio by diversifying our agency concentration risk, with theintent of reinvesting in AAA-rated non-agency mortgage-backed securities and tofund our expected loan growth;

—     Service charges on depositaccounts decreased primarily dueto lower account analysis fees, stemming from an increase in the earningscredit rate on commercial deposit balances;

—     Trust and investmentmanagement fees increased from 2004 due to the impact of our acquisition of CNATrust’s (renamed TruSource) assets in August 2004 and the purchase of atrust asset portfolio of an affiliate in December 2004, as well as higherservicing fees related to increased assets under administration. Managed assetsincreased by 6 percent and non-managed assets increased by 2 percent from 2004to 2005. Total assets under administration increased by 2 percent, to $209billion, by December 31, 2005; and

—     Other noninterest incomeincreased, including company-owned life insurance (COLI) income of $7.4million, which was previously reported as anoffset to noninterest expense in 2004; higher merchant banking fees of$4.3 million (mostly related to higher syndication fees); and $3.5 million inmiscellaneous income including a $1.2 million bonus from NOVA due to strongresults from our marketing alliance; partly offset by lower card processingfees of $9.0 million due to the sale of our merchant card portfolio in May 2004.

·  Contributing to our highernoninterest expense were several factors:

—     Salaries and employeebenefits increased mostly from:

·  acquisitions and new branchopenings, which accounted for approximately 18 percent of the increase in oursalaries and other compensation;

·  higher performance-relatedincentive expense from goal achievements and the increased amortization ofrestricted stock;

·  annual merit increases; and

·  higher employee benefits expensemainly due to the impact of the lower discount rate we used to calculate ourfuture pension and other postretirement liabilities (reduced from 6.25 percentfor 2004 to 5.75 percent for 2005) and the change in the classification of COLIincome to other noninterest income, which was $6.3 million in 2004 (previouslyreported as employee benefits expense in the prior year);

—     Net occupancy costs increasedprimarily due to charges associated with the consolidation of offices in SanFrancisco and acquisitions and new branch openings;

—     Outside services expenseincreased primarily as a result of higher costs of services related to titleand escrow balances stemming from a higher earnings credit rate and higherbalances in 2005;

—     Provision for losses onoff-balance sheet commitments increased $4.0 million primarily as a result ofgrowth in the level of commitments; and

F-8

----

—     Other noninterest expensedecreased mainly due to a decrease in expenses related to litigation andprofessional consulting expenses compared to 2004 and net foreclosed asset incomeof $5.6 million as a result of gains on the sales of OREO, partly offset byhigher software expenses related to the purchase and development of software tosupport key technology initiatives and higher expenses related to ouracquisitions.

*The primarycontributors to our continuing operations financial performance for 2004compared to 2003 are presented below.*

·  The reversal of our provisionfor loan losses in 2004 reflected the improvement in credit quality in ourcommercial loan portfolio. Reductions in criticized and classified creditsresulted from pay-offs, loan grade improvements, and loan sales, which reducedour allowances for credit losses. (See our discussion under “Allowances forCredit Losses.”)

·  Our net interest income wasnegatively impacted by generally lower yields on our earning assets, resultingin a lower average yield of 34 basis points on average earning assets, as wellas lower hedge income of $66 million. Net interest income was favorablyinfluenced, however, by higher earning asset volumes, including a higher mix ofresidential mortgages and securities. Strong deposit growth, including anattractive mix of average noninterest bearing deposits to total deposits, alsocontributed favorably to our net interest income, which included lower hedgeincome of $2 million. (See our discussion under “Net Interest Income.”)

·  Our noninterest income wasimpacted by several factors:

—     Service charges on depositaccounts rose primarily from an increase in average demand deposits (excludingtitle and escrow deposits) over 2003 and higher overdraft and ATM transactionfees;

—     Insurance commissionsincreased mostly from our 2003 insurance agency acquisitions;

—     Private capital investmentshad net gains of $26.3 million in 2004 compared to net loss of $0.1 million in2003 as market valuations stabilized and private capital investments were sold;

—     Trust and investmentmanagement fees increased from 2003 due to the impact of our acquisition of CNATrust’s (renamed TruSource) assets in August 2004 and higher servicingfees related to increased assets under administration. Managed assets increasedby 7 percent and non-managed assets increased by 36 percent compared to 2003. Totalassets under administration increased by 33 percent, to $204 billion, by December 31,2004, partly resulting from our acquisition of the corporate trust portfoliofrom our affiliate, BTMU Trust Company, New York, in December 2004;

—     In May 2004, we sold ourmerchant card portfolio to NOVA Information Systems; and

—     A loss of $13.3 million onthe sale of $1.0 billion of agency securities in our available for saleportfolio in 2004. The sale occurred as a result of our decision to useliquidity from low-yielding securities to fund loan growth and to increaseoverall asset-sensitivity in the balance sheet.

·  Contributing to our highernoninterest expense were several factors:

—     Salaries and employeebenefits increased mostly from:

·  Acquisitions and new branchopenings;

·  annual merit increases; and

F-9

----

·  increased employee benefitsexpense due to acquisitions and new branch openings and higher pension expense;

—     Net occupancy costs increasedmostly from our acquisitions and new branch openings, partly offset by a $5.5million write-off of certain leasehold improvements recognized in the prioryear; and

—     Other noninterest expenserose in 2004 as a result of our strategy to diversify our sources of earningsand broaden our branch network through acquisitions and new branch openings andour continued development of online capabilities to complement physicaldistribution through purchased software. In addition, we experienced higherexpenses for customer vendor bills paid by us as a result of a higher earningscredit rate on deposits and increased litigation costs.

F-10

----

**Net Interest Income**

The table below showsthe major components of net interest income and net interest margin for theperiods presented.

| ** **                                                                    | ** ** | **Years Ended December 31,** | ** ** |
|-------------------------------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                                    | ** ** | **2003**                                    | ** ** | **2004** | ** ** | **2005** | ** ** |
| **(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) | ** ** |
| **Assets**                                                                    |       |                                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans:(2)                                                                     |       |                                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Domestic                                                                      |       | $                                           | 24,864,760 |   | $ | 1,371,481 |   |   | 5.52 | % |   | $ | 25,916,631 |   | $ | 1,362,229 |   |   | 5.26 | % |   | $ | 31,238,894 |   | $ | 1,792,513 |   |   | 5.74 | % |   |
| Foreign(3)                                                                    |       | 63,037                                      |       | 3,518 |   |   | 5.58 |   |   | 131,221 |   | 6,209 |   |   | 4.73 |   |   | 213,712 |   | 10,340 |   |   | 4.84 |   |   |
| Securities—taxable                                                       |       | 8,709,564                                   |       | 345,900 |   |   | 3.97 |   |   | 11,701,866 |   | 422,047 |   |   | 3.61 |   |   | 10,262,274 |   | 392,452 |   |   | 3.82 |   |   |
| Securities—tax-exempt                                                    |       | 40,962                                      |       | 4,003 |   |   | 9.77 |   |   | 68,399 |   | 5,551 |   |   | 8.12 |   |   | 66,178 |   | 5,323 |   |   | 8.04 |   |   |
| Interest bearing  deposits in banks                                           |       | 36,754                                      |       | 296 |   |   | 0.81 |   |   | 201,716 |   | 3,417 |   |   | 1.69 |   |   | 112,247 |   | 2,676 |   |   | 2.38 |   |   |
| Federal funds sold  and securities purchased under resale agreements     |       | 893,369                                     |       | 10,203 |   |   | 1.14 |   |   | 719,714 |   | 9,189 |   |   | 1.28 |   |   | 610,735 |   | 20,535 |   |   | 3.36 |   |   |
| Trading account  assets                                                       |       | 316,886                                     |       | 3,599 |   |   | 1.14 |   |   | 293,560 |   | 3,778 |   |   | 1.29 |   |   | 292,648 |   | 4,494 |   |   | 1.54 |   |   |
| Total earning assets                                                          |       | 34,925,332                                  |       | 1,739,000 |   |   | 4.98 |   |   | 39,033,107 |   | 1,812,420 |   |   | 4.64 |   |   | 42,796,688 |   | 2,228,333 |   |   | 5.21 |   |   |
| Allowance for loan  losses(4)                                                 |       | (576,901                                    | )          |   |   |   |   |   |   | (513,165 | ) |   |   |   |   |   |   | (389,398 | ) |   |   |   |   |   |   |
| Cash and due from  banks                                                      |       | 2,123,899                                   |       |   |   |   |   |   |   | 2,171,838 |   |   |   |   |   |   |   | 2,247,905 |   |   |   |   |   |   |   |
| Premises and  equipment, net                                                  |       | 503,981                                     |       |   |   |   |   |   |   | 507,503 |   |   |   |   |   |   |   | 520,084 |   |   |   |   |   |   |   |
| Other assets                                                                  |       | 1,596,304                                   |       |   |   |   |   |   |   | 1,959,431 |   |   |   |   |   |   |   | 2,435,539 |   |   |   |   |   |   |   |
| Total assets                                                                  |       | $                                           | 38,572,615 |   |   |   |   |   |   |   | $ | 43,158,714 |   |   |   |   |   |   |   | $ | 47,610,818 |   |   |   |   |   |   |   |
| **Liabilities**                                                               |       |                                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Domestic deposits:                                                            |       |                                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest bearing                                                              |       | $                                           | 10,371,014 |   | 71,075 |   |   | 0.69 |   |   | $ | 11,712,648 |   | 74,006 |   |   | 0.63 |   |   | $ | 12,843,905 |   | 159,221 |   |   | 1.24 |   |   |
| Savings and consumer  time                                                    |       | 3,976,021                                   |       | 42,715 |   |   | 1.07 |   |   | 4,405,572 |   | 38,374 |   |   | 0.87 |   |   | 4,667,868 |   | 60,248 |   |   | 1.29 |   |   |
| Large time                                                                    |       | 2,313,159                                   |       | 36,596 |   |   | 1.58 |   |   | 2,145,306 |   | 32,499 |   |   | 1.51 |   |   | 2,617,185 |   | 69,816 |   |   | 2.67 |   |   |
| Foreign deposits(3)                                                           |       | 363,582                                     |       | 2,024 |   |   | 0.56 |   |   | 261,102 |   | 1,808 |   |   | 0.69 |   |   | 503,870 |   | 14,066 |   |   | 2.79 |   |   |
| Total interest  bearing deposits                                              |       | 17,023,776                                  |       | 152,410 |   |   | 0.90 |   |   | 18,524,628 |   | 146,687 |   |   | 0.79 |   |   | 20,632,828 |   | 303,351 |   |   | 1.47 |   |   |
| Federal funds  purchased and securities sold under repurchase agreements |       | 405,982                                     |       | 3,408 |   |   | 0.84 |   |   | 596,997 |   | 7,470 |   |   | 1.25 |   |   | 898,107 |   | 25,854 |   |   | 2.88 |   |   |
| Net funding allocated  from (to) discontinued operations(5)              |       | (357,400                                    | )          | (3,003 | ) |   | 0.84 |   |   | (108,425 | ) | (816 | ) |   | 0.75 |   |   | (507,397 | ) | (15,482 | ) |   | 3.05 |   |   |
| Commercial paper                                                              |       | 809,930                                     |       | 8,508 |   |   | 1.05 |   |   | 620,053 |   | 6,899 |   |   | 1.11 |   |   | 1,086,088 |   | 31,672 |   |   | 2.92 |   |   |
| Other borrowed funds                                                          |       | 191,939                                     |       | 5,265 |   |   | 2.74 |   |   | 162,424 |   | 4,866 |   |   | 3.00 |   |   | 168,220 |   | 6,313 |   |   | 3.75 |   |   |
| Medium and long-term  debt                                                    |       | 425,960                                     |       | 7,845 |   |   | 1.84 |   |   | 807,070 |   | 16,773 |   |   | 2.08 |   |   | 807,592 |   | 32,206 |   |   | 3.99 |   |   |
| Trust notes                                                                   |       | 351,575                                     |       | 14,510 |   |   | 4.13 |   |   | 62,480 |   | 2,780 |   |   | 4.45 |   |   | 15,562 |   | 953 |   |   | 6.12 |   |   |
| Total borrowed funds                                                          |       | 1,827,986                                   |       | 36,533 |   |   | 2.00 |   |   | 2,140,599 |   | 37,972 |   |   | 1.77 |   |   | 2,468,172 |   | 81,516 |   |   | 3.30 |   |   |
| Total interest  bearing liabilities                                           |       | 18,851,762                                  |       | 188,943 |   |   | 1.00 |   |   | 20,665,227 |   | 184,659 |   |   | 0.89 |   |   | 23,101,000 |   | 384,867 |   |   | 1.67 |   |   |
| Noninterest bearing  deposits                                                 |       | 14,992,381                                  |       |   |   |   |   |   |   | 17,482,205 |   |   |   |   |   |   |   | 18,911,158 |   |   |   |   |   |   |   |
| Other liabilities(4)                                                          |       | 897,440                                     |       |   |   |   |   |   |   | 961,080 |   |   |   |   |   |   |   | 1,318,575 |   |   |   |   |   |   |   |
| Total liabilities                                                             |       | 34,741,583                                  |       |   |   |   |   |   |   | 39,108,512 |   |   |   |   |   |   |   | 43,330,733 |   |   |   |   |   |   |   |
| **Stockholders’ Equity**                                                 |       |                                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Common equity                                                                 |       | 3,831,032                                   |       |   |   |   |   |   |   | 4,050,202 |   |   |   |   |   |   |   | 4,280,085 |   |   |   |   |   |   |   |
| Total stockholders’  equity                                              |       | 3,831,032                                   |       |   |   |   |   |   |   | 4,050,202 |   |   |   |   |   |   |   | 4,280,085 |   |   |   |   |   |   |   |
| Total liabilities and  stockholders’ equity                              |       | $                                           | 38,572,615 |   |   |   |   |   |   |   | $ | 43,158,714 |   |   |   |   |   |   |   | $ | 47,610,818 |   |   |   |   |   |   |   |
| **Reported Net Interest Income/Margin**                                       |       |                                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net interest income/margin                                                    |       |                                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (taxable-equivalent  basis)                                                   |       |                                        |       | 1,550,057 |   |   | 4.44 | % |   |   |   | 1,627,761 |   |   | 4.17 | % |   |   |   | 1,843,466 |   |   | 4.31 | % |   |
| Less:  taxable-equivalent adjustment                                          |       |                                        |       | 2,553 |   |   |   |   |   |   |   | 3,745 |   |   |   |   |   |   |   | 4,352 |   |   |   |   |   |
| Net interest income                                                           |       |                                        |       | $ | 1,547,504 |   |   |   |   |   |   |   | $ | 1,624,016 |   |   |   |   |   |   |   | $ | 1,839,114 |   |   |   |   |   |

 

| ** **                           | **Average Assets and Liabilities of   Discontinued Operations for the  Year Ended:** | ** ** | ** ** | ** ** | **December 31,  2003** | ** ** | ** ** | ** ** | ** ** | ** ** | **December 31,  2004** | ** ** | ** ** | ** ** | ** ** | ** ** | **December 31,  2005** | ** ** | ** ** | ** ** | ** ** |
|--------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------|------------|------------|------------|-----------------------------|------------|------------|------------|------------|------------|-----------------------------|------------|------------|------------|------------|------------|-----------------------------|------------|------------|------------|------------|
| Assets                               |                                                                                                                              |       |       | $          | 1,897,867                   |       |       |       |       |       | $                           | 2,067,591  |       |       |       |       |                        | $          | 1,897,622  |       |       |   |   |
| Liabilities                          |                                                                                                                              |       |       | $          | 1,540,467                   |       |       |       |       |       | $                           | 1,959,166  |       |       |       |       |                        | $          | 1,390,225  |       |       |   |   |
| Net assets                           |                                                                                                                              |       |       | $          | 357,400                     |       |       |       |       |       | $                           | 108,425    |       |       |       |       |                        | $          | 507,397    |       |       |   |   |
|        |                                                                                                                              |       |       |       |                        |       |       |       |       |       |                        |       |       |       |       |       |                        |       |       |
|                                      |                                                                                                                                   |            |            |            |                             |            |            |            |            |            |                             |            |            |            |            |            |                             |            |            |            |            |  |  |  |  |  |  |  |

----

(1)    Yields and interest income are presented on a taxable-equivalentbasis using the federal statutory tax rate of 35 percent.

(2)    Average balances on loans outstanding include allnonperforming loans and loans held for sale. The amortized portion of net loanorigination fees (costs) is included in interest income on loans, representingan adjustment to the yield.

(3)    Foreign loans and deposits are those loans and depositsoriginated in foreign branches.

(4)    The average allowance related to losses on off-balancesheet commitments was included in other liabilities starting in 2005. Priorperiods have not been restated.

(5)    In September 2005, Union Bank of California, N.A.committed to a plan for disposal of its international correspondent bankingbusiness. All periods presented have been restated to reflect discontinuedoperations. Net funding allocated from (to) discontinued operations representsthe shortage (excess) of assets over liabilities of discontinued operations.The expense (earnings) on funds allocated from (to) discontinued operations arecalculated by taking the net balance of discontinued operations for eachquarter and applying an earnings rate or a cost of funds equivalent to thecorresponding quarter’s fed funds purchased rate.The year-to-date expense(earnings) amount is the sum of the quarterly amounts.

F-11

----

Net interest income in 2005, on a taxable-equivalentbasis, increased 13 percent, and our net interest margin increased by 14 basispoints, from 2004. This increase was primarily due to the following:

·       Favorablechanges in the composition of our earning assets with strong growth in loanbalances including $2.3 billion in average residential mortgages, $1.7 billionin average commercial loans and $1.0 billion in average commercial mortgages, offsetby a $1.4 billion decline in average securities balance;

·       Depositgrowth contributed favorably to our net interest margin in 2005. Averagenoninterest bearing deposits were higher in 2005, compared to 2004, mainly dueto higher average business demand deposits, including demand deposits from our titleand escrow clients and stable consumer demand deposit growth. The ratio ofnoninterest bearing deposits to total deposits was 48 percent in 2005;

·       Yieldson our earning assets were favorably impacted by the increasing interest rateenvironment, resulting in a higher average yield of 57 basis points on averageearning assets, despite being negatively impacted by lower hedge income, whichdecreased by $66.9 million; and

·       In2005, our cost of funds on interest bearing liabilities was negatively impactedby the increasing rate environment, resulting in a higher average cost ofinterest-bearing liabilities of 78 basis points, including lower hedge income,which decreased by $7.6 million.

We use derivatives to hedge expected changes in theyields on our variable rate loans and term certificates of deposit (CDs), andto convert our long-term, fixed-rate borrowings to floating rate. Throughout2005, these derivative positions have provided less net interest income than in2004, as positions matured and as interest rates rose. However, as we expected,the declines in hedge income have been offset by increased yields on theunderlying variable rate loans. For the twelve months ended December 31,2004 and 2005, we had hedge income of $92.2 million and $17.7 million,respectively.

Net interest income in2004, on a taxable-equivalent basis, increased 5 percent from 2003. Theincrease was attributable to the following factors:

·       Thegrowth in average earning assets was primarily attributable to an increase in averagesecurities and in average loans. The increase in average securities, which wascomprised primarily of fixed rate securities, reflected liquidity and interestrate risk management actions;

·       Depositgrowth contributed significantly to our lower cost of funds in 2004. Averagenoninterest bearing deposits were higher in 2004, compared to 2003, mainlyattributable to higher average business demand deposits and higher consumerdemand deposit growth;

·       Yieldson our earning assets were impacted by a flattening yield curve and lowerreinvestment rates, resulting in a lower average yield of 34 basis points onaverage earning assets, which was also negatively impacted by lower hedgeincome of $66.1 million; and

·       During2004, our strategy was to take advantage of our higher noninterest bearingdeposit balances by reducing our balances in higher interest rate liabilitiessuch as large certificates of deposit, foreign deposits, commercial paper andother borrowed funds. In addition, we redeemed our higher rate trust preferrednotes in February 2004, which we funded with lower rate subordinated debt(issued in December 2003). The shift to lower rate liabilities resulted ina lower cost of funds on interest bearing liabilities of 11 basis points, whichincluded lower hedge income of $1.7 million.

As a result of these changesand a flattening yield curve environment, our net interest margin decreased by27 basis points.

F-12

----

**Analysisof Changes in Net Interest Income**

Thefollowing table shows the changes in the components of net interest income on ataxable-equivalent basis for 2003, 2004, and 2005. The changes in netinterest income between periods have been reflected as attributable either tovolume or to rate changes. For purposes of this table, changes that are not solelydue to volume or rate changes are allocated to rate. Loan fees of $65 million,$68 million and $79 million for the years ended 2003, 2004 and 2005,respectively, are included in this table. Adjustments have not been made forinterest received from a prior period.

| ** **                                                               | ** ** | **Years Ended December 31,**                         | ** ** |
|--------------------------------------------------------------------------|------------|---------------------------------------------------------------------|------------|
| ** **                                                               | ** ** | **2004 versus 2003**                                      | ** ** | **2005 versus 2004** | ** ** |
| ** **                                                               | ** ** | **Increase (decrease) due to   change in** | ** ** | **Increase (decrease) due to   change in** | ** ** |
| ** **                                                               | ** ** | **Average**                                                         | ** ** | **Average** | ** ** | **Net** | ** ** | **Average** | ** ** | **Average** | ** ** | **Net** | ** ** |
| **(Dollars in thousands)**                                     | ** ** | **Volume**                                                          | ** ** | **Rate** | ** ** | **Change** | ** ** | **Volume** | ** ** | **Rate** | ** ** | **Change** | ** ** |
| **Changes  in Interest Income****(1)**                                   |       |                                                                |       |   |   |   |   |   |   |   |   |   |   |
| Loans:                                                                   |       |                                                                |       |   |   |   |   |   |   |   |   |   |   |
| Domestic                                                                 |       | $                                                                   | 58,063     |   | $ | (67,315 | ) | $ | (9,252 | ) | $ | 279,951 |   | $ | 150,333 |   | $ | 430,284 |   |
| Foreign(2)                                                               |       | 3,805                                                               |       | (1,114 | ) | 2,691 |   | 3,902 |   | 229 |   | 4,131 |   |
| Securities—taxable                                                  |       | 118,794                                                             |       | (42,647 | ) | 76,147 |   | (51,969 | ) | 22,374 |   | (29,595 | ) |
| Securities—tax-exempt                                               |       | 2,681                                                               |       | (1,133 | ) | 1,548 |   | (180 | ) | (48 | ) | (228 | ) |
| Interest bearing deposits in banks                                       |       | 1,336                                                               |       | 1,785 |   | 3,121 |   | (1,512 | ) | 771 |   | (741 | ) |
| Federal funds sold and securities purchased under  resale agreements     |       | (1,980                                                              | )          | 966 |   | (1,014 | ) | (1,395 | ) | 12,741 |   | 11,346 |   |
| Trading account assets                                                   |       | (266                                                                | )          | 445 |   | 179 |   | (12 | ) | 728 |   | 716 |   |
| Total earning assets                                                     |       | 182,433                                                             |       | (109,013 | ) | 73,420 |   | 228,785 |   | 187,128 |   | 415,913 |   |
| **Changes  in Interest Expense**                                         |       |                                                                |       |   |   |   |   |   |   |   |   |   |   |
| Domestic deposits:                                                       |       |                                                                |       |   |   |   |   |   |   |   |   |   |   |
| Interest bearing                                                         |       | 9,257                                                               |       | (6,326 | ) | 2,931 |   | 7,127 |   | 78,088 |   | 85,215 |   |
| Savings and consumer time                                                |       | 4,596                                                               |       | (8,937 | ) | (4,341 | ) | 2,282 |   | 19,592 |   | 21,874 |   |
| Large time                                                               |       | (2,652                                                              | )          | (1,445 | ) | (4,097 | ) | 7,125 |   | 30,192 |   | 37,317 |   |
| Foreign deposits(2)                                                      |       | (574                                                                | )          | 358 |   | (216 | ) | 1,675 |   | 10,583 |   | 12,258 |   |
| Total interest bearing deposits                                          |       | 10,627                                                              |       | (16,350 | ) | (5,723 | ) | 18,209 |   | 138,455 |   | 156,664 |   |
| Federal funds purchased and securities sold under  repurchase agreements |       | 1,605                                                               |       | 2,457 |   | 4,062 |   | 3,764 |   | 14,620 |   | 18,384 |   |
| Net funding allocated from (to) discontinued  operations                 |       | 2,091                                                               |       | 96 |   | 2,187 |   | (2,992 | ) | (11,674 | ) | (14,666 | ) |
| Commercial paper                                                         |       | (1,994                                                              | )          | 385 |   | (1,609 | ) | 5,173 |   | 19,600 |   | 24,773 |   |
| Other borrowed funds                                                     |       | (809                                                                | )          | 410 |   | (399 | ) | 174 |   | 1,273 |   | 1,447 |   |
| Medium and long-term debt                                                |       | 7,012                                                               |       | 1,916 |   | 8,928 |   | 11 |   | 15,422 |   | 15,433 |   |
| Trust notes                                                              |       | (11,940                                                             | )          | 210 |   | (11,730 | ) | (2,088 | ) | 261 |   | (1,827 | ) |
| Total borrowed funds                                                     |       | (4,035                                                              | )          | 5,474 |   | 1,439 |   | 4,042 |   | 39,502 |   | 43,544 |   |
| Total interest bearing liabilities                                       |       | 6,592                                                               |       | (10,876 | ) | (4,284 | ) | 22,251 |   | 177,957 |   | 200,208 |   |
| Changes in net  interest income                                          |       | $                                                                   | 175,841    |   | $ | (98,137 | ) | $ | 77,704 |   | $ | 206,534 |   | $ | 9,171 |   | $ | 215,705 |   |

----

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

(2)            Foreign loans and deposits are those loans and depositsoriginated in foreign branches.

F-13

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**Noninterest Income**

| ** **                               | ** ** | ** **                                  | ** ** | ** **                     | ** ** | ** **                     | ** ** | **Increase (Decrease)**                | ** ** |
|------------------------------------------|------------|---------------------------------------------|------------|--------------------------------|------------|--------------------------------|------------|---------------------------------------------|------------|
| ** **                               | ** ** | ** **                                  | ** ** | ** **                     | ** ** | ** **                     | ** ** | **Years Ended December 31,** | ** ** |
| ** **                               | ** ** | **Years Ended December 31,** | ** ** | **2004 versus 2003** | ** ** | **2005 versus 2004** | ** ** |
| **(Dollars in thousands)**     | ** ** | **2003**                                    | ** ** | **2004**                       | ** ** | **2005**                       | ** ** | **Amount**                                  | ** ** | **Percent** | ** ** | **Amount** | ** ** | **Percent** | ** ** |
| Service charges on  deposit accounts     |       | $                                           | 304,717    |                           | $          | 335,207                        |       | $                                           | 323,865    |   | $ | 30,490 |   |   | 10 | % |   | $ | (11,342 | ) |   | (3 | )% |   |
| Trust and investment  management fees    |       | 136,347                                     |       | 153,083                        |       | 173,518                        |       | 16,736                                      |       |   | 12 |   |   | 20,435 |   |   | 13 |   |   |
| Insurance commissions                    |       | 62,652                                      |       | 77,874                         |       | 78,915                         |       | 15,222                                      |       |   | 24 |   |   | 1,041 |   |   | 1 |   |   |
| Merchant banking fees                    |       | 30,990                                      |       | 39,646                         |       | 43,898                         |       | 8,656                                       |       |   | 28 |   |   | 4,252 |   |   | 11 |   |   |
| Foreign exchange  gains, net             |       | 28,542                                      |       | 32,004                         |       | 33,902                         |       | 3,462                                       |       |   | 12 |   |   | 1,898 |   |   | 6 |   |   |
| Brokerage commissions  and fees          |       | 31,755                                      |       | 33,063                         |       | 30,038                         |       | 1,308                                       |       |   | 4 |   |   | (3,025 | ) |   | (9 | ) |   |
| Card processing fees,  net               |       | 37,520                                      |       | 34,147                         |       | 25,105                         |       | (3,373                                      | )          |   | (9 | ) |   | (9,042 | ) |   | (26 | ) |   |
| Securities losses,  net                  |       | (1,851                                      | )          | (12,085                        | )          | (50,039                        | )          | (10,234                                     | )          |   | nm |   |   | (37,954 | ) |   | nm |   |   |
| Gain on sale of  merchant card portfolio |       | —                                      |       | 93,000                         |       | —                         |       | 93,000                                      |       |   | nm |   |   | (93,000 | ) |   | nm |   |   |
| Gain on private capital investments, net |       | (128                                        | )          | 26,278                         |       | 27,187                         |       | 26,406                                      |       |   | nm |   |   | 909 |   |   | 3 |   |   |
| Other                                    |       | 82,412                                      |       | 100,606                        |       | 118,398                        |       | 18,194                                      |       |   | 22 |   |   | 17,792 |   |   | 18 |   |   |
| Total noninterest  income                |       | $                                           | 712,956    |                           | $          | 912,823                        |       | $                                           | 804,787    |   | $ | 199,867 |   |   | 28 | % |   | $ | (108,036 | ) |   | (12 | )% |   |

----

nm =not meaningful

**Noninterest Expense**

| ** **                                               | ** ** | ** **                                  | ** ** | ** **                     | ** ** | ** **                     | ** ** | **Increase (Decrease)**                | ** ** |
|----------------------------------------------------------|------------|---------------------------------------------|------------|--------------------------------|------------|--------------------------------|------------|---------------------------------------------|------------|
| ** **                                               | ** ** | ** **                                  | ** ** | ** **                     | ** ** | ** **                     | ** ** | **Years Ended December 31,** | ** ** |
| ** **                                               | ** ** | **Years Ended December 31,** | ** ** | **2004 versus 2003** | ** ** | **2005 versus 2004** | ** ** |
| **(Dollars in thousands)**                     | ** ** | **2003**                                    | ** ** | **2004**                       | ** ** | **2005**                       | ** ** | **Amount**                                  | ** ** | **Percent** | ** ** | **Amount** | ** ** | **Percent** | ** ** |
| Salaries and other compensation                          |       | $                                           | 637,482    |                           | $          | 685,753                        |       | $                                           | 748,046    |   | $ | 48,271 |   |   | 8 | % |   | $ | 62,293 |   |   | 9 | % |   |
| Employee benefits                                        |       | 143,258                                     |       | 162,964                        |       | 186,308                        |       | 19,706                                      |       |   | 14 |   |   | 23,344 |   |   | 14 |   |   |
| Salaries and employee benefits                           |       | 780,740                                     |       | 848,717                        |       | 934,354                        |       | 67,977                                      |       |   | 9 |   |   | 85,637 |   |   | 10 |   |   |
| Net occupancy                                            |       | 120,434                                     |       | 127,720                        |       | 141,299                        |       | 7,286                                       |       |   | 6 |   |   | 13,579 |   |   | 11 |   |   |
| Outside services                                         |       | 65,088                                      |       | 74,978                         |       | 117,190                        |       | 9,890                                       |       |   | 15 |   |   | 42,212 |   |   | 56 |   |   |
| Equipment                                                |       | 63,988                                      |       | 67,839                         |       | 68,206                         |       | 3,851                                       |       |   | 6 |   |   | 367 |   |   | 1 |   |   |
| Software                                                 |       | 45,536                                      |       | 51,877                         |       | 58,511                         |       | 6,341                                       |       |   | 14 |   |   | 6,634 |   |   | 13 |   |   |
| Professional services                                    |       | 48,274                                      |       | 48,371                         |       | 45,500                         |       | 97                                          |       |   | — |   |   | (2,871 | ) |   | (6 | ) |   |
| Communications                                           |       | 41,607                                      |       | 42,011                         |       | 41,909                         |       | 404                                         |       |   | 1 |   |   | (102 | ) |   | — |   |   |
| Advertising and public relations                         |       | 39,034                                      |       | 37,965                         |       | 36,803                         |       | (1,069                                      | )          |   | (3 | ) |   | (1,162 | ) |   | (3 | ) |   |
| Data processing                                          |       | 31,726                                      |       | 32,528                         |       | 32,687                         |       | 802                                         |       |   | 3 |   |   | 159 |   |   | — |   |   |
| Intangible asset amortization                            |       | 11,366                                      |       | 19,471                         |       | 19,921                         |       | 8,105                                       |       |   | 71 |   |   | 450 |   |   | 2 |   |   |
| Foreclosed asset expense (income)                        |       | (84                                         | )          | 1,211                          |       | (5,635                         | )          | 1,295                                       |       |   | nm |   |   | (6,846 | ) |   | nm |   |   |
| Provision for losses on off-balance sheet commitments(1) |       | —                                      |       | —                         |       | 4,000                          |       | —                                      |       |   | — |   |   | 4,000 |   |   | nm |   |   |
| Other                                                    |       | 116,225                                     |       | 120,901                        |       | 112,501                        |       | 4,676                                       |       |   | 4 |   |   | (8,400 | ) |   | (7 | ) |   |
| Total noninterest  expense                               |       | $                                           | 1,363,934  |                           | $          | 1,473,589                      |       | $                                           | 1,607,246  |   | $ | 109,655 |   |   | 8 | % |   | $ | 133,657 |   |   | 9 | % |   |

----

nm = not meaningful

(1)            Beginning in 2005, the netchange in the allowance for losses on off-balance sheet commitments wasrecognized separately from the change in the allowance for loan losses. Priorperiods have not been restated.

**Income Tax Expense**

| **(Dollars in thousands)** | ** ** | **2003** | ** ** | **2004** | ** ** | **2005**  | ** ** |
|--------------------------------------|------------|----------|------------|----------|------------|-----------|------------|
| Income before income  taxes          |       | $        | 823,727    |     | $          | 1,109,007 |       | $ | 1,087,338 |   |
| Income tax expense                   |       | 271,193  |       | 398,933  |       | 356,698   |       |
| Effective tax rate                   |       | 33       | %          | 36       | %          | 33        | %          |
|                                      |            |          |            |          |            |           |            |  |  |  |

 

The decrease in the effective tax rate in 2005 is dueto lower California state taxes in 2005 as compared to 2004, and a reduction to2005 federal tax expense of $10.0 million for estimated amounts owed to theInternal Revenue Service (IRS) with respect to certain leveraged leasingtransactions.

F-14

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In the normal course of business, the tax returns ofUnionBanCal Corporation and its subsidiaries are subject to review andexamination by various tax authorities. In the course of its examination of ourfederal tax returns for the years 1998 through 2002, the IRS has disallowed thetax deductions claimed with respect to certain leveraged leasing transactions,referred to as “lease-in/lease-out” (LILOs). We believe our tax treatment ofthese LILOs was consistent with applicable tax law, regulations and case law,and we intend to defend our position vigorously.

In 2003 we made partial payments of the tax andinterest assessed and filed a protest with the IRS Administrative AppealsDivision (Appeals). During 2005 we concluded our discussions with Appealswithout resolution. In the fourth quarter of 2005, we paid the balance of thetax and interest, for a total payment of $95.1 million. In January 2006,we filed refund claims for the tax and interest assessed. If the claims aredenied, we intend to pursue our available legal remedies.

The tax payments did not affect our income tax expensebecause deferred taxes were previously provided on the leveraged leases asrequired by SFAS No. 13 “Accounting For Leases.” We also maintain a taxreserve for interest deficiencies, against which the interest payments wereapplied. The amount of the reserve is based on management’s best estimate ofthe most likely outcome of the matter.

The State of California requires us to file ourfranchise tax returns as a member of a unitary group that includes MitsubishiUFJ Financial Group, Inc. and either all worldwide affiliates or only U.S.affiliates. Since 1996, we have elected to file our California franchise taxreturns on a worldwide unitary basis. The inclusion of Mitsubishi UFJ FinancialGroup’s financial results, which in some years were net losses, has partiallyoffset our net profits subject to California income tax. The inclusion ofMitsubishi UFJ Financial Group’s worldwide property, payroll and sales in thecalculation of the California apportionment factor has also reduced thepercentage of our income subject to California income tax. As a result, oureffective tax rate for California had been significantly lower than thestatutory rate, net of federal benefit, of 7.05 percent.

Changes in Mitsubishi UFJ Financial Group’s taxableprofits will impact our effective tax rate. Mitsubishi UFJ Financial Group’staxable profits are impacted most significantly by changes in the worldwideeconomy, especially in Japan, and decisions that they may make about the timingof the recognition of credit losses or other matters. When Mitsubishi UFJFinancial Group’s worldwide taxable profits rise, our effective tax rate inCalifornia will rise, and when they decrease, our rate will decrease. We reviewMitsubishi UFJ Financial Group’s financial information on a quarterly basis inorder to determine the rate at which to recognize our California income taxes. However,all of the information relevant to determining the effective California taxrate may not be available until after the end of the period to which the taxrelates in part from the differences between our fiscal year-end and MitsubishiUFJ Financial Group’s. The determination of the California effective tax rateinvolves management judgment and estimates, and can change during the calendaryear or between calendar years, as additional information becomes available.

For additional informationregarding income tax expense, including a reconciliation between the effectivetax rate and the statutory tax rate, see Note 11 to our Consolidated FinancialStatements included in this Annual Report.

**Credit Risk Management**

Our principal business activityis the extension of credit in the form of loans and credit substitutes toindividuals and businesses. Our policies and applicable laws and regulationsgoverning the extension of credit require risk analysis including an extensiveevaluation of the purpose of the request and the borrower’s ability andwillingness to repay us as scheduled. Our evaluation also includes ongoingportfolio and credit management through portfolio diversification, lendinglimit constraints, credit review and approval policies, and extensive internalmonitoring.

F-15

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

In analyzing our loan portfolios, we apply specificmonitoring policies and procedures that vary according to the relative riskprofile and other characteristics of the loans within the various portfolios.Our residential, consumer and certain small commercial loans and leases arerelatively homogeneous and no single loan is individually significant in termsof its size or potential risk of loss. Therefore, we review these portfolios byanalyzing their performance as a pool of loans. In contrast, our monitoringprocess for the larger commercial, financial and industrial, construction,commercial mortgage, leases, and foreign loan portfolios includes a periodicreview of individual loans. Loans that are performing but have shown some signsof weakness are subjected to more stringent reporting and oversight. We reviewthese loans to assess the ability of the borrowing entity to continue toservice all of its interest and principal obligations and as a result mayadjust the risk grade of the loan accordingly. In the event that we believethat full collection of principal and interest is not reasonably assured, theloan is appropriately downgraded and, if warranted, placed on nonaccrualstatus, even though the loan may be current as to principal and interestpayments.

We have a Credit Review andManagement Committee chaired by the Chief Credit Officer and composed of the ChiefExecutive Officer and other executive officers that establishes our overallrisk appetite, portfolio concentration limits, and credit risk ratingmethodology. This committee is supported by the Credit Policy Forum, composedof Group Senior Credit Officers that have responsibility for establishingcredit policy, credit underwriting criteria, and other risk managementcontrols. Credit Administration, under the direction of the Chief CreditOfficer and his designated Group Senior Credit Officers, is responsible foradministering the credit approval process and related policies. Policiesrequire an evaluation of credit requests and ongoing reviews of existingcredits in order to ensure that the purpose of the credit is acceptable, andthat the borrower is able and willing to repay as agreed. Furthermore, policiesrequire prompt identification and quantification of asset quality deteriorationor potential loss.

Another part of the controlprocess is the internal credit examination function, which reports to the Boardof Directors and provides both the Board of Directors and executive managementwith an independent assessment of the level of credit risk and theeffectiveness of the credit management process. The Credit Examination Grouproutinely reviews the accuracy and timeliness of risk grades assigned toindividual borrowers to ensure that the business unit credit riskidentification process is functioning properly. This group also assessescompliance with credit policies and underwriting standards at the business unitlevel. Additionally, the Credit Examination Group reviews and providescommentary on proposed changes to credit policies, practices and underwritingguidelines. The Credit Examination Group summarizes its significant findings ona regular basis and provides recommendations for corrective action when creditmanagement or control deficiencies are identified.

F-16

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**Loans**

The following table showsloans outstanding by loan type and as a percentage of total loans for 2001through 2005. Information about our loan portfolio is also included in “BusinessSegments.”

| ** **                            | ** ** | ** **            | ** ** | ** **                  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **Increase  (Decrease)  December 31,  2005 From:** | ** ** |
|---------------------------------------|------------|-----------------------|------------|-----------------------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|-------------|------------|------------|------------|------------|------------|------------|------------|--------------------------------------------------------------|------------|
| ** **                            | ** ** | **December 31,** | ** ** | **December 31,  2004** | ** ** |
| **(Dollars in millions)**   | ** ** | **2001**              | ** ** | **2002**                    | ** ** | **2003**   | ** ** | **2004**   | ** ** | **2005**   | ** ** | **Amount** | ** ** | **Percent** | ** ** |
| Domestic:                             |       |                  |       |                        |       |       |       |       |       |       |       |       |       |        |       |       |       |       |       |       |       |                                                         |       |   |   |   |   |   |   |
| Commercial, financial and industrial  |       | $                     | 11,467     |                        | 48         | %          | $          | 10,600     |       | 42         | %          | $          | 8,799      |        | 36         | %          | $          | 9,760      |       | 34         | %          | $                                                            | 11,231     |   | 34 | % |   | $ | 1,471 |   |   |   | 15.1 | % |   |
| Construction                          |       | 1,060                 |       | 4                           |       | 1,285      |       | 5          |       | 1,101      |       | 5          |       | 1,130       |       | 4          |       | 1,447      |       | 4          |       |                                                         | 317        |   |   |   | 28.1 |   |   |
| Mortgage:                             |       |                  |       |                        |       |       |       |       |       |       |       |       |       |        |       |       |       |       |       |       |       |                                                         |       |   |   |   |   |   |   |
| Residential                           |       | 4,788                 |       | 20                          |       | 6,365      |       | 26         |       | 7,464      |       | 31         |       | 9,538       |       | 33         |       | 11,380     |       | 34         |       |                                                         | 1,842      |   |   |   | 19.3 |   |   |
| Commercial                            |       | 3,591                 |       | 15                          |       | 4,150      |       | 16         |       | 4,195      |       | 17         |       | 5,409       |       | 19         |       | 5,683      |       | 17         |       |                                                         | 274        |   |   |   | 5.1 |   |   |
| Total mortgage                        |       | 8,379                 |       | 35                          |       | 10,515     |       | 42         |       | 11,659     |       | 48         |       | 14,947      |       | 52         |       | 17,063     |       | 51         |       |                                                         | 2,116      |   |   |   | 14.2 |   |   |
| Consumer:                             |       |                  |       |                        |       |       |       |       |       |       |       |       |       |        |       |       |       |       |       |       |       |                                                         |       |   |   |   |   |   |   |
| Installment                           |       | 1,200                 |       | 5                           |       | 910        |       | 4          |       | 819        |       | 3          |       | 768         |       | 2          |       | 891        |       | 3          |       |                                                         | 123        |   |   |   | 16. |   |   |
| Revolving lines of credit             |       | 859                   |       | 4                           |       | 1,103      |       | 4          |       | 1,222      |       | 5          |       | 1,582       |       | 5          |       | 1,611      |       | 5          |       |                                                         | 29         |   |   |   | 1.8 |   |   |
| Total consumer                        |       | 2,059                 |       | 9                           |       | 2,013      |       | 8          |       | 2,041      |       | 8          |       | 2,350       |       | 7          |       | 2,502      |       | 8          |       |                                                         | 152        |   |   |   | 6.5 |   |   |
| Lease financing                       |       | 979                   |       | 4                           |       | 813        |       | 3          |       | 664        |       | 3          |       | 609         |       | 2          |       | 580        |       | 2          |       |                                                         | (29        | ) |   |   | (4.8 | ) |   |
| Total loans in domestic offices  |       | 23,944                |       | 100                         |       | 25,226     |       | 100        |       | 24,264     |       | 100        |       | 28,796      |       | 99         |       | 32,823     |       | 99         |       |                                                         | 4,027      |   |   |   | 14.0 |   |   |
| Loans originated in foreign branches  |       | —                |       | —                      |       | 12         |       | —     |       | 99         |       | —     |       | 195         |       | 1          |       | 220        |       | 1          |       |                                                         | 25         |   |   |   | 12.8 |   |   |
| Total loans held for investment       |       | $                     | 23,944     |                        | 100        |       | $          | 25,238     |       | 100        |       | $          | 24,363     |        | 100        |       | $          | 28,991     |       | 100        |       | $                                                            | 33,043     |   | 100 |   |   | $ | 4,052 |   |   |   | 14.0 |   |   |
| Total loans held for sale             |       | —                |       | —                      |       | 17         |       | —     |       | 12         |       | —     |       | 118         |       | —     |       | 53         |       | —     |       |                                                         | (65        | ) |   |   | (55.1 | ) |   |
| Total loans                           |       | $                     | 23,944     |                        | 100        | %          | $          | 25,255     |       | 100        | %          | $          | 24,375     |        | 100        | %          | $          | 29,109     |       | 100        | %          | $                                                            | 33,096     |   | 100 | % |   | $ | 3,987 |   |   |   | 13.7 | % |   |

 

**Commercial,Financial and Industrial Loans**

Commercial, financial and industrialloans represent one of the largest categories in the loan portfolio. Theseloans are extended principally to corporations, middle-market businesses, andsmall businesses, with no industry concentration exceeding 10 percent of totalloans. Although many of our customers are located in California, the portfoliohas a high degree of geographic diversification based upon our customers’revenue bases, which we believe lowers our vulnerability to changes in theeconomic outlook of any particular region of the U.S.

Our commercial market lendingoriginates primarily through our commercial banking offices. These offices,which rely extensively on relationship-oriented banking, provide a variety ofservices including cash management services, lines of credit, accountsreceivable and inventory financing. Separately, we originate or participate ina wide variety of financial services to major corporations. These servicesinclude traditional commercial banking and specialized financing tailored tothe needs of each customer’s specific industry. Presently, we are active in,among other sectors, the oil and gas, communications, media, entertainment,retailing, power and utilities and financial services industries.

The commercial, financial andindustrial loan portfolio increased from December 31, 2004 mainly fromincreased loan demand primarily in the California middle market and specialtysegments, which reflected the improving economy in those markets.

**Constructionand Commercial Mortgage Loans**

We engage in non-residentialreal estate lending that includes commercial mortgage loans and constructionloans secured by deeds of trust. Construction loans are made primarily tocommercial property developers and to residential builders.

F-17

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The construction loan portfolio increase fromDecember 31, 2004 was mainly due to demand for new single-family homes, aswell as apartment, condominium, shopping center and Real Estate InvestmentTrust financing. Additionally, improvement in commercial income property marketsalso accounted for some related growth in development and construction loans.

**Thecommercial mortgage loan portfolio consists of loans on commercial andindustrial projects primarily in California. The increase in commercial mortgagesfrom December 31, 2004**was mainly due to general improvements in commercialincomeproperty markets, which resulted in increasedfinancings and refinancings.

**Residential Mortgage Loans**

We originate residential mortgage loans, secured byone-to-four family residential properties, through our multiple channel network(including branches, mortgage brokers, and loan-by-phone) throughoutCalifornia, Oregon and Washington, and we periodically purchase loans in ourmarket area. At December 31, 2005, 59 percent of our residential mortgageloans were interest only, of which none are negative amortizing. Atorigination, these interest only loans had high credit scores and had weightedaverage loan-to-value (LTV) ratios of approximately 64 percent. The remainderof the portfolio consists of balloon or regular amortizing loans.

The increase in residentialmortgages in 2005 compared to 2004 was primarily driven by adjustable ratemortgages (ARMs). We hold most of the loans we originate, selling only our 30-year,fixed rate loans, except for Community Reinvestment Act (CRA) loans.

**Consumer Loans**

We originate consumer loans,such as auto loans and home equity loans and lines, through our branch network.The primary driver of the increase in consumer loans was our “Flex EquityLine/Loan” product. The “Flex Equity Line/Loan” allows our customers theflexibility to manage a line of credit with as many as four fixed rate loansunder a single product. We offer a “Flex Equity High LTV” product, which allowsour customers to draw up to 100 percent of the value of their real estate or$100 thousand, whichever is less. At December 31, 2005, the amountoutstanding from this product was approximately $5 million.

**Lease Financing**

We primarily offer two typesof leases to our customers:  directfinancing leases, where the assets leased are acquired without additionalfinancing from other sources; and leveraged leases, where a substantial portionof the financing is provided by debt with no recourse to us. Included in ourlease portfolio are leveraged leases of $564 million, which are net ofnon-recourse debt of approximately $1.2 billion. We utilize a number of specialpurpose entities for our leveraged leases. These entities serve legal and taxpurposes and do not function as vehicles to shift liabilities to other partiesor to deconsolidate affiliates for financial reporting purposes. As allowed byUS GAAP and by law, the gross lease receivable is offset by the qualifyingnon-recourse debt. In leveraged lease transactions, the third-party lender mayonly look to the collateral value of the leased assets for repayment. Thedecline of auto lease financing from December 31, 2004 was primarilyattributable to the maturities of our discontinued auto leasing activity. AtDecember 31, 2005, this portfolio had declined to $2.2 million and willfully mature during 2006.

**Cross-Border Outstandings**

Our cross-borderoutstandings, including those that are part of our discontinued operations,reflect certain additional economic and political risks that are not reflectedin domestic outstandings. These risks include those arising from exchange ratefluctuations and restrictions on the transfer of funds. The following tablesets forth our cross-border outstandings as of December 31, 2003,2004, and 2005, for any country where such outstandings exceeded 1 percentof total assets. The cross-border outstandings were compiled 

F-18

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based upon category and domicile of ultimate risk andare comprised of balances with banks, trading account assets, securitiesavailable for sale, securities purchased under resale agreements, loans,accrued interest receivable, acceptances outstanding and investments withforeign entities. For any country shown in the table below, any significantlocal currency outstandings are either hedged or funded by local currencyborrowings.

| ** **                          | ** ** | ** **       | ** ** | **Public**   | ** ** | **Corporations**   | ** ** | ** **       | ** ** |
|-------------------------------------|------------|------------------|------------|--------------|------------|--------------------|------------|------------------|------------|
| ** **                          | ** ** | **Financial**    | ** ** | **Sector**   | ** ** | **and Other** | ** ** | **Total**        | ** ** |
| **(Dollars in millions)** | ** ** | **Institutions** | ** ** | **Entities** | ** ** | **Borrowers**      | ** ** | **Outstandings** | ** ** |
| December 31,  2003  Korea      |       |             | $          | 630          |       |               |       | $                | —     |   |   |   | $ | 28 |   |   |   | $ | 658 |   |   |
| December 31,  2004  Korea      |       |             | $          | 615          |       |               |       | $                | —     |   |   |   | $ | 3 |   |   |   | $ | 618 |   |   |
| December 31, 2005  None        |       |             | $          | —       |       |               |       | $                | —     |   |   |   | $ | — |   |   |   | $ | — |   |   |

 

**Provision for LoanLosses**

We recorded a reversal of theprovision for loan losses of $51 million in 2005, compared to  $46 million in 2004. Provisions for loanlosses are charged to income to bring our allowance for loan losses to a leveldeemed appropriate by management based on the factors discussed under “Allowancesfor Credit Losses” below. During 2005, we began to recognize changes in ourallowance for losses on off-balance sheet commitments separately from ourallowance for loan losses and recognized a provision of $4 million innoninterest expense.

**Allowances for Credit Losses**

*Policy and Methodology*

We maintain allowances for credit losses (defined asboth the allowance for loan and off-balance sheet commitment losses) to absorblosses inherent in the loan portfolio as well as for leases and off-balancesheet commitments. The allowances are based on our regular, quarterlyassessments of the probable estimated losses inherent in the loan portfolio andunused commitments to provide financing. Our methodology for measuring theappropriate level of the allowances relies on several key elements, whichinclude the formula allowance, specific allowances for identified problemcredit exposures, and the unallocated allowance.

The formula allowanceis calculated by applying loss factors to outstanding loans and certain unusedcommitments, in each case based on the internal risk grade of such loans,leases and commitments. Changes in risk grades affect the amount of the formulaallowance. Loss factors are based on our historical loss experience and may beadjusted for significant factors that, in management’s judgment, affect thecollectibility of the portfolio as of the evaluation date. Loss factors aredeveloped in the following ways:

·       lossfactors for individually graded credits are derived from a migration model thattracks historical losses over a period, such as an economic cycle, which webelieve captures the inherent losses in our loan portfolio; and

·       pooledloan loss factors (not individually graded loans) are based on expected netcharge-offs. Pooled loans are loans that are homogeneous in nature, such asconsumer installment, home equity, residential mortgage loans and certain smallcommercial loans.

We believe that an economic cycle is a period in whichboth upturns and downturns in the economy have been reflected. We calculateloss factors over a time interval that spans what we believe constitutes acomplete and representative economic cycle.

F-19

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Loan loss factors, which are used in determining ourformula allowance, are adjusted quarterly primarily based upon the level ofhistorical net charge-offs and losses expected by management in the near term. We  estimate our expected losses based on a lossconfirmation period. The loss confirmation period is the estimated averageperiod of time between a material adverse event affecting the credit-worthinessof a borrower and the subsequent recognition of a loss.  Based upon our evaluation process, we believethat, for our non-criticized, risk-graded loans, on average, losses aresustained approximately 10 quarters after an adverse event in the creditor’sfinancial condition has taken place. For our criticized risk-graded loans, wemeasure the losses based upon the remaining life of the loan. See definition ofcriticized credits under “*Changes in theFormula and Specific Allowances*” in this section of the ”Management’sDiscussion and Analysis of Financial Condition and Results of Operations.” Similarly,for pool-managed credits, the loss confirmation period varies by product, butranges between one and two years.

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

Specific allowances are established in cases wheremanagement has identified significant conditions or circumstances related to acredit or a portfolio segment that management believes indicate the probabilitythat a loss has been incurred. This amount may be determined either by a methodprescribed by SFAS No. 114, or methods that include a range of probableoutcomes based upon certain qualitative factors.

The unallocatedallowance is based on management’s evaluation of conditions that are notdirectly reflected in the determination of the formula and specific allowances.Prior to 2004, certain losses that had previously been considered in thedetermination of the unallocated allowance have been incorporated into ourformula allowance through the change made to recognize losses based on a lossconfirmation period, thereby eliminating the need to reflect them in ourunallocated allowance. The evaluation of the inherent loss with respect to theconditions listed below is subject to a higher degree of uncertainty becausethey may not be identified with specific problem credits or portfolio segments.The conditions evaluated in connection with the unallocated allowance mayinclude the following, which could exist at the balance sheet date:

·       generaleconomic and business conditions affecting our key lending areas;

·       creditquality trends (including trends in nonperforming loans expected to result fromexisting conditions);

·       collateralvalues;

·       loanvolumes and concentrations;

·       specificindustry conditions within portfolio segments;

·       recentloss experience in particular segments of the portfolio;

·       durationof the current economic cycle;

·       bankregulatory examination results; and

·       findingsof our internal credit examiners.

F-20

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Executive managementreviews these conditions quarterly in discussion with our senior creditofficers. To the extent that any of these conditions is evidenced by aspecifically identifiable problem credit or portfolio segment as of theevaluation date, management’s estimate of the effect of such conditions may bereflected as a specific allowance, applicable to such credit or portfoliosegment. Where any of these conditions is not evidenced by a specificallyidentifiable problem credit or portfolio segment as of the evaluation date,management’s evaluation of the probable loss related to such condition isreflected in the unallocated allowance.

The allowances for credit losses are based uponestimates of probable losses inherent in the loan portfolio and certainoff-balance sheet commitments. The actual losses can vary from the estimatedamounts. Our methodology includes several features that are intended to reducethe differences between estimated and actual losses. The loss migration modelthat is used to establish the loan loss factors for individually graded loansis designed to be self-correcting by taking into account our loss experienceover prescribed periods. In addition, by basing the loan loss factors over aperiod reflective of an economic cycle, recent loss data that may not be reflectiveof prospective losses going forward will not have an undue influence on thecalculated loss factors.

The following table reflectsthe allowance for loan losses allocated to each respective loan category atperiod end and as a percentage of the total period end balance of that loancategory, as set forth in the “Loans” table on page F-17. Forperiods prior to 2004, the allowance for loan losses included the allowance forlosses on off-balance sheet commitments. As a result, the percentage allocatedto each loan by type for 2004 and 2005 would be higher absent any other changesaffecting the loss factors and risk grades.

F-21

----

 

| ** **                                   | ** ** | **December 31,** | ** ** |
|----------------------------------------------|------------|-----------------------|------------|
| **(Dollars in thousands)**         | ** ** | **2001**              | ** ** | **2002** | ** ** | **2003** | ** ** |
| Domestic:                                    |       |                  |       |   |   |   |   |   |   |   |   |   |   |
| Commercial, financial, and  industrial  |       | $                     | 399,900    |   | 3.49 | % | $ | 314,873 |   | 2.97 | % | $ | 276,306 |   | 3.14 | % |
| Construction                                 |       | 12,300                |       | 1.16 |   | 24,900 |   | 1.94 |   | 16,400 |   | 1.49 |   |
| Mortgage:                                    |       |                  |       |   |   |   |   |   |   |   |   |   |   |
| Residential                                  |       | 1,400                 |       | 0.03 |   | 1,900 |   | 0.03 |   | 2,200 |   | 0.03 |   |
| Commercial                                   |       | 21,100                |       | 0.59 |   | 28,519 |   | 0.69 |   | 24,756 |   | 0.59 |   |
| Total mortgage                               |       | 22,500                |       | 0.27 |   | 30,419 |   | 0.29 |   | 26,956 |   | 0.23 |   |
| Consumer:                                    |       |                  |       |   |   |   |   |   |   |   |   |   |   |
| Installment                                  |       | 9,700                 |       | 0.81 |   | 6,400 |   | 0.70 |   | 3,000 |   | 0.37 |   |
| Revolving lines of credit                    |       | 4,800                 |       | 0.56 |   | 6,100 |   | 0.55 |   | 5,300 |   | 0.43 |   |
| Total consumer                               |       | 14,500                |       | 0.70 |   | 12,500 |   | 0.62 |   | 8,300 |   | 0.41 |   |
| Lease financing                              |       | 12,000                |       | 1.23 |   | 30,690 |   | 3.77 |   | 29,800 |   | 4.49 |   |
| Total domestic allowance                     |       | 461,200               |       | 1.93 |   | 413,382 |   | 1.64 |   | 357,762 |   | 1.47 |   |
| Foreign Allowance(1)                         |       | 1,800                 |       | nm |   | 1,400 |   | 11.67 |   | 2,200 |   | 2.22 |   |
| Unallocated                                  |       | 171,509               |       |   |   | 194,408 |   |   |   | 172,948 |   |   |   |
| Total allowance for loan  losses             |       | $                     | 634,509    |   | 2.65 | % | $ | 609,190 |   | 2.41 | % | $ | 532,910 |   | 2.19 | % |

 

| ** **                             | ** ** | ** **            | ** ** | ** **                     | ** ** | ** **                                                 | ** ** | ** **                                                  | ** ** | **Increase (Decrease)**                | ** ** |
|----------------------------------------|------------|-----------------------|------------|--------------------------------|------------|------------------------------------------------------------|------------|-------------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                             | ** ** | ** **            | ** ** | ** **                     | ** ** | ** **                                                 | ** ** | ** **                                                  | ** ** | **Years Ended December 31,** | ** ** |
| ** **                             | ** ** | **December 31,** | ** ** | **2005 versus 2004** | ** ** |
| **(Dollars in thousands)**   | ** ** | **2004**              | ** ** | **2005**                       | ** ** | **    Amount    ** | ** ** | **    Percent    ** | ** ** |
| Domestic:                              |       |                  |       |                           |       |                                                       |       |                                                        |       |                                        |       |   |   |   | ** ** | ** ** |   |
| Commercial, financial, and  industrial |       | $                     | 179,577    |                           | 1.84       | %                                                          | $          | 163,900                                                     |       | 1.46                                        | %          |   | $ | (15,677 | ) |   |   | (9 | )% |   |
| Construction                           |       | 14,843                |       | 1.31                           |       | 19,800                                                     |       | 1.37                                                        |       |                                        | 4,957      |   |   |   | 33 |   |   |
| Mortgage:                              |       |                  |       |                           |       |                                                       |       |                                                        |       |                                        |       |   |   |   |   |   |   |
| Residential                            |       | 2,900                 |       | 0.03                           |       | 3,400                                                      |       | 0.03                                                        |       |                                        | 500        |   |   |   | 17 |   |   |
| Commercial                             |       | 83,414                |       | 1.54                           |       | 72,500                                                     |       | 1.28                                                        |       |                                        | (10,914    | ) |   |   | (13 | ) |   |
| Total mortgage                         |       | 86,314                |       | 0.58                           |       | 75,900                                                     |       | 0.44                                                        |       |                                        | (10,414    | ) |   |   | (12 | ) |   |
| Consumer:                              |       |                  |       |                           |       |                                                       |       |                                                        |       |                                        |       |   |   |   |   |   |   |
| Installment                            |       | 2,400                 |       | 0.31                           |       | 1,900                                                      |       | 0.21                                                        |       |                                        | (500       | ) |   |   | (21 | ) |   |
| Revolving lines of credit              |       | 2,400                 |       | 0.15                           |       | 7,200                                                      |       | 0.45                                                        |       |                                        | 4,800      |   |   |   | 200 |   |   |
| Total consumer                         |       | 4,800                 |       | 0.20                           |       | 9,100                                                      |       | 0.36                                                        |       |                                        | 4,300      |   |   |   | 90 |   |   |
| Lease financing                        |       | 27,634                |       | 4.54                           |       | 17,200                                                     |       | 2.97                                                        |       |                                        | (10,434    | ) |   |   | (38 | ) |   |
| Total domestic allowance               |       | 313,168               |       | 1.09                           |       | 285,900                                                    |       | 0.87                                                        |       |                                        | (27,268    | ) |   |   | (9 | ) |   |
| Foreign Allowance(1)                   |       | 3,300                 |       | 1.69                           |       | 600                                                        |       | 0.27                                                        |       |                                        | (2,700     | ) |   |   | (82 | ) |   |
| Unallocated                            |       | 82,688                |       |                           |       | 65,032                                                     |       |                                                        |       |                                        | (17,656    | ) |   |   | (21 | ) |   |
| Total allowance for loan losses        |       | $                     | 399,156    |                           | 1.37       | %                                                          | $          | 351,532                                                     |       | 1.06                                        | %          |   | $ | (47,624 | ) |   |   | (12 | )% |   |

----

(1)    Reflects the formula allowance attributed to allforeign loans including our discontinued operations and all allocatedallowances for our Calgary branch.

nm = not meaningful

*Comparison of theTotal Allowances and Related Provisions for Credit Losses*

At December 31, 2003, 2004, and 2005, our totalallowances for credit losses were 190 percent, 338 percent, and 744 percent oftotal nonaccrual loans, respectively. In addition, the allowances incorporatethe results of measuring impaired loans as provided in SFAS No. 114 andSFAS No. 118. These accounting standards prescribe the measurementmethods, income recognition and disclosures related to impaired loans. At December 31,2005, total impaired loans were $59 million and the 

F-22

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associated impairmentallowance was $13 million, compared with total impaired loans of $88 millionand an associated impairment allowance of $24 million at December 31,2004, and total impaired loans of $229 million and an associated impairmentallowance of $55 million at December 31, 2003.

Prior to December 31, 2004, the allowance forloan losses included the allowance for losses on off-balance sheet commitments.At December 31, 2004, the allowance for losses on off-balance sheetcommitments of $82 million was transferred to other liabilities. However,funded loans and off-balance sheet commitments are considered together whendetermining the adequacy of the allowances for credit losses as a whole. At December 31,2005, the allowance for losses on off-balance sheet commitments was $86million, resulting in a $4 million increase from the prior year primarily dueto growth.

During 2003, 2004, and2005 there were no material changes in estimation methods or assumptions thataffected our methodology for assessing the appropriateness of the formula andspecific or unallocated allowances for credit losses, except for the followingrefinements:

·       In2003, we adjusted our loss factors for refinements in the recovery rates onpreviously charged off loans and the period used to measure an economic cycle.

·       In2004, we refined our loss factors for commercial real estate and construction lending inorder to more accurately capture probable loss inherent in the portfolio and weadjusted the period used to calculate the cumulative loss rates on criticizedloans from 12 to 24 quarters to better estimate losses over the life of theloans. We revised our method of estimating our expected losses based on a lossconfirmation period. The loss confirmation period is the estimated averageperiod of time between a material adverse event affecting the credit-worthinessof a borrower and the subsequent recognition of a loss. Based upon ourevaluation process, we believe that, for our non-criticized, risk-graded loans,on average, losses are sustained approximately 10 quarters after an adverseevent in the creditor’s financial condition has taken place. Similarly, forpool-managed credits, the loss confirmation period varies by product, butranges between one and two years.

·        During2003, 2004, and 2005, changes in estimates and assumptions regarding the effectsof economic and business conditions on borrowers and other factors alsoaffected the assessment of the unallocated allowance.

As a result of management’s assessment of factors,including improvements in the quality of our loan portfolio, a strong U.S.economy, improving conditions in the communications/media, power, and othersectors in domestic markets in which we operate, and growth and changes in thecomposition of the loan portfolio, offset by the adverse impact of increasingfuel costs across the whole economy, we recorded a reversal of provision forloan losses of $51 million in 2005 compared to $46 million in 2004. Therefinements we made in the manner in which we segment our allowances for creditlosses, as previously described, had no impact on the overall level of theallowances.

Thefollowing table sets forth the components of the allowances for credit losses.

| ** **                          | ** ** | **December 31,**                        | ** ** | **Increase (Decrease)  December 31, 2005 from:  December 31, 2004** | ** ** |
|-------------------------------------|------------|----------------------------------------------|------------|---------------------------------------------------------------------------------------------------|------------|
| **(Dollars in millions)** | ** ** | **   2003   ** | ** ** | **   2004   **                                                      | ** ** | **   2005   ** | ** ** | **   Amount   ** | ** ** | **   Percent   ** | ** ** |
| Allocated allowance:                | ** ** |                                         | ** ** | ** **                                                                                        |       |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Formula                             |       |                                         | $          | 280                                                                                               | ** ** |   |   | $ | 361 | ** ** |   |   | $ | 356 | ** ** |   |   | $ | (5 | ) |   |   | (1 | )% |   |
| Specific                            |       |                                         | 80         | ** **                                                                                        |       |   | 38 | ** ** |   |   | 17 | ** ** |   |   | (21 | ) |   |   | (55 | ) |   |
| Total allocated allowance           |       |                                         | 360        | ** **                                                                                        |       |   | 399 | ** ** |   |   | 373 | ** ** |   |   | (26 | ) |   |   |   |   |   |
| Unallocated allowance               |       |                                         | 173        | ** **                                                                                        |       |   | 83 | ** ** |   |   | 65 | ** ** |   |   | (18 | ) |   |   | (22 | ) |   |
| Total allowances for credit losses  |       |                                         | $          | 533                                                                                               | ** ** |   |   | $ | 482 | ** ** |   |   | $ | 438 | ** ** |   |   | $ | (44 | ) |   |   | (9 | )% |   |

 

F-23

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*Changes in the Formulaand Specific Allowances*

The decrease in the formula allowance as ofDecember 31, 2005, compared to December 31, 2004, was due primarilyto the decrease in criticized credits (as defined below), partly offset by theoverall growth in performing loans.

The specific allowance decreased at December 31,2005, compared to December 31, 2004. The decrease was primarily reflectiveof decreases in nonaccrual loans and the charge-offs on certain aircraftleases. At December 31, 2004, the specific allowance decreased fromDecember 31, 2003 primarily reflecting a decrease in impaired loans andthe renegotiation of terms for certain aircraft leases, which resulted in thereporting of these leases as operating leases.

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

At December 31, 2003,the allocated portion of the allowances for credit losses included $240 millionrelated to special mention and classified credits (criticized credits),compared to $118 million at December 31, 2004, and $82 million at December 31,2005. The yearly declines resulted primarily from improving credit quality.Special mention and classified credits are those that are internally riskgraded as “special mention,” “substandard” or “doubtful.” Special mentioncredits are potentially weak, as the borrower has begun to exhibitdeteriorating trends, which, if not corrected, could jeopardize repayment ofthe loan and result in further downgrade. Substandard credits have well-definedweaknesses, which, if not corrected, could jeopardize the full satisfaction ofthe debt. A credit classified as “doubtful” has critical weaknesses that makefull collection improbable.

*Changes in theUnallocated Allowance*

The following tableidentifies the components of the unallocated allowance and the range ofinherent loss.

| **(Dollars in millions)** | ** ** | **December 31, 2003** | ** ** | **December 31, 2004** | ** ** | **December 31, 2005** | ** ** |
|-------------------------------------|------------|---------------------------------|------------|---------------------------------|------------|---------------------------------|------------|
| **Concentration**                   | ** ** | **Commitments**(1)              | ** ** | **Low**                         | ** ** | **High**                        | ** ** | **Commitments**(1) | ** ** | **Low** | ** ** | **High** | ** ** | **Commitments**(1) | ** ** | **Low** | ** ** | **High** | ** ** |
| Fuel Prices                         |       |                            | $          | —                          |       |                            | $          | — |   | $ | — |   |   | $ | 38,472 |   |   | $ | 10 |   | $ | 34 |   |   | $ | 43,557 |   |   | $ | 8 |   |   | $ | 34 |   |   |
| Real Estate                         |       |                            | 6,432      |                            |       | 16                              |       | 32 |   |   | 7,663 |   |   | 10 |   | 22 |   |   | 8,728 |   |   | 8 |   |   | 18 |   |   |
| Concentrated Sales                  |       |                            | —     |                            |       | —                          |       | — |   |   | — |   |   | — |   | — |   |   | 2,175 |   |   | 4 |   |   | 7 |   |   |
| Leasing                             |       |                            | 596        |                            |       | 5                               |       | 11 |   |   | 615 |   |   | 15 |   | 26 |   |   | 586 |   |   | 3 |   |   | 6 |   |   |
| Contractors                         |       |                            | —     |                            |       | —                          |       | — |   |   | — |   |   | — |   | — |   |   | 987 |   |   | 3 |   |   | 5 |   |   |
| Retail                              |       |                            | 1,557      |                            |       | 6                               |       | 12 |   |   | 1,807 |   |   | 1 |   | 3 |   |   | 2,118 |   |   | 1 |   |   | 3 |   |   |
| Foreign                             |       |                            | 1,134      |                            |       | 11                              |       | 20 |   |   | 181 |   |   | 5 |   | 10 |   |   | — |   |   | — |   |   | — |   |   |
| Power Companies/Utilities           |       |                            | 3,208      |                            |       | 13                              |       | 27 |   |   | 3,611 |   |   | 3 |   | 6 |   |   | — |   |   | — |   |   | — |   |   |
| Other                               |       |                            | 26,394     |                            |       | 35                              |       | 78 |   |   | 1,793 |   |   | 3 |   | 5 |   |   | — |   |   | — |   |   | — |   |   |
| Total Attributed                    |       |                            |       |                            |       | $                               | 86         |   | $ | 180 |   |   |   |   |   | $ | 47 |   | $ | 106 |   |   |   |   |   | $ | 27 |   |   | $ | 73 |   |   |
|                                     |            |                                 |            |                                 |            |                                 |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

----

(1)      Includes loans outstandingand unused commitments.

F-24

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At December 31, 2005, the unallocated allowancedecreased compared to December 31, 2004. The reasons for the decrease, andfor which an unallocated allowance is warranted, are detailed below.

In our assessment as of December 31, 2005,management focused, in particular, on the factors and conditions set out below.There can be no assurance that the adverse impact of any of these conditions onus will not be in excess of the ranges set forth.

Although in certain instances the downgrading of aloan resulting from the effects of the conditions described below has beenreflected in the formula allowance, management believes that the impact ofthese events on the collectibility of the applicable loans may not have beenreflected in the level of nonperforming loans or in the internal risk gradingprocess with respect to such loans. In addition, our formula allowance does nottake into consideration sector-specific changes in the severity of losses thatare expected to arise from current economic conditions compared with ourhistorical losses. Accordingly, our evaluation of the probable losses relatedto the impact of these factors was reflected in the unallocated allowance. Theevaluations of the inherent losses with respect to these factors are subject tohigher degrees of uncertainty because they are not identified with specificproblem credits.

In certain cases, webelieve that credit migration is likely to be somewhat more severe than thelong-run average, but a greater share of the inherent probable loss associatedwith this credit migration is now captured in the allocated allowance as aresult of the previously mentioned refinement in methodology that wasinstituted during 2004. In these cases, we have reduced certain unallocatedallowance attributions. The following describes the specific conditions weconsidered.

·       Withrespect to fuel prices, we considered higher prices of oil and petroleumproducts that were experienced during the year, and the impact across virtuallyall sectors of the economy.

·       Withrespect to residential real estate construction, we considered the impact ofincreasing commodity prices on builders and weakness in the residential realestate market.

·       Withrespect to concentrated sales, we considered the risks associated with customerconcentration among these retailers.

·       Withrespect to leasing, we considered the improving outlook for power plants andthe uncertain situation with airlines.

·       Withrespect to contractors, we considered the negative impact rising commodityprices have on profit margins for contractors under fixed rate contracts andthe slowdown or flattening of certain residential construction markets.

·       Withrespect to retailers, we considered mixed sales results especially during therecent holiday period, with retailers reporting both modest to poor sales, andspecific concerns among certain retail segments.

·       Withrespect to cross-border exposures in certain foreign countries, the attributionassociated with these credits was eliminated as a result of the sale of ourinternational correspondent banking business.

During 2004, we refined our formula allowance toinclude certain losses based upon a loss confirmation period, which haseliminated the need to consider those losses in the attributions of ourunallocated allowance. In evaluating the results of this methodology change, weconsidered the effect of underlying conditions on expected future creditmigration for each of our lending segments. In several cases, we concluded thatthis experience is not likely to be more severe than the long-run averageembedded in the loss factors that drive the formula allowance calculation. Inthese cases, we determined that our attribution, previously established for thetechnology and consumer sectors, was no longer required.

F-25

----

At December 31, 2004, the unallocated allowancedecreased compared to December 31, 2003 primarily from improving economicindicators in general and identifiable improving conditions in several specificsectors and from the impact of recognizing losses based upon the lossconfirmation period. In our assessment as of December 31, 2004,management focused, in particular, on the factors and conditions set out below.

Although in certaininstances the downgrading of a loan resulting from these effects was reflectedin the formula allowance, management believes that in most instances the impactof these events on the collectibility of the applicable loans may not have beenreflected in the level of nonperforming loans or in the internal risk gradingprocess with respect to such loans. Accordingly, our evaluation of the probablelosses related to these factors was reflected in the unallocated allowance. Theevaluations of the inherent losses with respect to these factors were subjectto higher degrees of uncertainty because they were not identified withspecific problem credits.

·       Withrespect to fuel prices, we considered the sustained high prices of oil andpetroleum products, and the impact across virtually all sectors of the economy.

·       Withrespect to leasing, we considered the worsening situation for some electricservice providers, combined with continued weakness in the airline industry.

·       Withrespect to commercial real estate, we considered slightly improving vacancyrates and stagnant rent growth being experienced nationally, with specificweakness in Northern California.

·       Withrespect to cross-border exposures in certain foreign countries, we consideredthe improving economic performances in many countries of our key internationalmarkets, as well as better financial results of our customers, and reduced theattribution range from December 31, 2004. This attribution range alsoprovided for certain weaknesses in the banking sector of some of our marketsand the possible effects the December 26, 2004 tsunami may have on certainSoutheast Asian markets.

·       With respect to powercompanies/utilities, we considered the effects of lower excess capacity andevidence that a slow recovery is beginning in this industry.

Accordingly, our evaluation of the probable lossesrelated to the impact of these factors was reflected in the unallocatedallowance. The evaluations of the inherent losses with respect to these factorswere subject to higher degrees of uncertainty because they were not identifiedwith specific problem credits.

F-26

----

*Change in the TotalAllowances for Credit Losses*

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

| ** **                                                                       | ** ** | ** **                                  | ** ** | ** **                      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **Increase (Decrease)**                               | ** ** |
|----------------------------------------------------------------------------------|------------|---------------------------------------------|------------|---------------------------------|------------|------------|------------|------------|------------|------------|------------|------------------------------------------------------------|------------|
| ** **                                                                       | ** ** | ** **                                  | ** ** | ** **                      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **December 31, 2005 From:**                 | ** ** |
| ** **                                                                       | ** ** | **Years Ended December 31,** | ** ** | **December 31, 2004** | ** ** |
| **(Dollars in thousands)**                                             | ** ** | **2001**                                    | ** ** | **2002**                        | ** ** | **2003**   | ** ** | **2004**   | ** ** | **2005**   | ** ** | **    Amount    ** | ** ** | **    Percent    ** | ** ** |
| Balance, beginning of  period                                                    |       | $                                           | 613,902    |                            | $          | 634,509    |       | $          | 609,190    |       | $          | 532,910                                                    |       | $ | 399,156 |   |   | $ | (133,754 | ) |   |   | (25 | )% |   |
| Loans charged off:                                                               |       |                                        |       |                            |       |       |       |       |       |       |       |                                                       |       |   |   |   |   |   |   |
| Commercial, financial  and industrial                                            |       | 300,521                                     |       | 212,675                         |       | 159,611    |       | 70,107     |       | 19,962     |       |                                                       | (50,145    | ) |   |   | (72 | ) |   |
| Construction                                                                     |       | 567                                         |       | —                          |       | —     |       | 765        |       | 118        |       |                                                       | (647       | ) |   |   | (85 | ) |   |
| Mortgage                                                                         |       | 5,113                                       |       | 1,591                           |       | 7,286      |       | 43         |       | 2,071      |       |                                                       | 2,028      |   |   |   | nm |   |   |
| Consumer                                                                         |       | 12,667                                      |       | 11,220                          |       | 9,657      |       | 6,397      |       | 4,532      |       |                                                       | (1,865     | ) |   |   | (29 | ) |   |
| Lease financing                                                                  |       | 3,601                                       |       | 19,856                          |       | 33,032     |       | 2,361      |       | 19,862     |       |                                                       | 17,501     |   |   |   | 741 |   |   |
| Total loans charged  off                                                         |       | 322,469                                     |       | 245,342                         |       | 209,586    |       | 79,673     |       | 46,545     |       |                                                       | (33,128    | ) |   |   | (42 | ) |   |
| **Recoveries of loans previously charged off:**                                  |       |                                        |       |                            |       |       |       |       |       |       |       |                                                       |       |   |   |   |   |   |   |
| Commercial, financial  and industrial                                            |       | 48,321                                      |       | 34,075                          |       | 45,822     |       | 50,432     |       | 47,526     |       |                                                       | (2,906     | ) |   |   | (6 | ) |   |
| Construction                                                                     |       | —                                      |       | 40                              |       | —     |       | 118        |       | 34         |       |                                                       | (84        | ) |   |   | (71 | ) |   |
| Mortgage                                                                         |       | 32                                          |       | 405                             |       | 150        |       | 1,702      |       | 73         |       |                                                       | (1,629     | ) |   |   | (96 | ) |   |
| Consumer                                                                         |       | 4,289                                       |       | 4,436                           |       | 3,673      |       | 1,971      |       | 1,716      |       |                                                       | (255       | ) |   |   | (13 | ) |   |
| Lease financing                                                                  |       | 754                                         |       | 590                             |       | 446        |       | 1,374      |       | 206        |       |                                                       | (1,168     | ) |   |   | (85 | ) |   |
| Total recoveries of loans  previously charged off                           |       | 53,396                                      |       | 39,546                          |       | 50,091     |       | 55,597     |       | 49,555     |       |                                                       | (6,042     | ) |   |   | (11 | ) |   |
| Net loans charged off  (recovered)                                               |       | 269,073                                     |       | 205,796                         |       | 159,495    |       | 24,076     |       | (3,010     | )          |                                                       | (27,086    | ) |   |   | (113 | ) |   |
| (Reversal of)  provision for loan losses                                         |       | 289,970                                     |       | 175,000                         |       | 72,799     |       | (45,757    | )          | (50,683    | )          |                                                       | (4,925     | ) |   |   | 11 |   |   |
| Foreign translation  adjustment and other net additions (deductions)(1)(2)       |       | (290                                        | )          | 5,477                           |       | 10,416     |       | (63,921    | )          | 49         |       |                                                       | 63,969     |   |   |   | (100 | ) |   |
| Ending balance of  allowance for loan losses(2)                                  |       | $                                           | 634,509    |                            | $          | 609,190    |       | $          | 532,910    |       | $          | 399,156                                                    |       | $ | 351,532 |   |   | $ | (47,624 | ) |   |   | (12 | ) |   |
| Allowance for losses  on off-balance sheet  commitments(2)                       |       | —                                      |       | —                          |       | —     |       | 82,375     |       | 86,375     |       |                                                       | 4,000      |   |   |   | 5 |   |   |
| Allowances for credit  losses                                                    |       | $                                           | 634,509    |                            | $          | 609,190    |       | $          | 532,910    |       | $          | 481,531                                                    |       | $ | 437,907 |   |   | $ | (43,624 | ) |   |   | (9 | ) |   |
| Allowances for credit  losses to total loans                                     |       | 2.65                                        | %          | 2.41                            | %          | 2.19       | %          | 1.65       | %          | 1.32       | %          |                                                       |       |   |   |   |   |   |   |
| (Reversal of)  provision  for credit losses to net loans charged off (recovered) |       | 107.77                                      |       | 85.04                           |       | 45.64      |       | (190.05    | )          | nm         |       |                                                       |       |   |   |   |   |   |   |
| Net loans charged off  (recovered) to average total loans              |       | 1.08                                        |       | 0.84                            |       | 0.64       |       | 0.09       |       | (0.01      | )          |                                                       |       |   |   |   |   |   |   |

----

(1)    Includes $5.7 million related to the Business Bancorpacquisition and $12.6 million related to the Jackson Federal Bank acquisition,both acquired in 2004. Also includes $10.3 million related to the Monterey BayBank acquisition in 2003, $2.8 million for the Valencia Bank & Trust acquisition,and $2.4 million for the First Western Bank acquisition, both acquired in 2002.

(2)    On December 31, 2004, UnionBanCal Corporationtransferred the allowance related to off-balance sheet commitments of $82.4million from allowance for loan losses to other liabilities. Prior periods havenot been restated.

nm = not meaningful

Total loans charged off in 2003, 2004 and 2005,decreased compared to their prior years, primarily attributable to improvementsin loan quality. Lease charge-offs in 2003 and 2005 related primarily to 

F-27

----

several commercial aircraftleases. Charge-offs reflect the realization of losses in the portfolio thatwere recognized previously through provisions for credit losses.

Loan recoveries in 2003, 2004and 2005 were relatively constant. Fluctuations in loan recoveries fromyear-to-year are due to variability in timing of recoveries and tend to trailthe periods in which charge-offs are recorded.

**Nonperforming Assets**

Nonperforming assets may consist of nonaccrual loans,distressed loans held for sale, and foreclosed assets. Nonaccrual loans arethose for which management has discontinued accrual of interest because thereexists significant uncertainty as to the full and timely collection of eitherprincipal or interest or such loans have become contractually past due 90 dayswith respect to principal or interest. For a more detailed discussion of theaccounting for nonaccrual loans, see Note 1 to our Consolidated FinancialStatements included in this Annual Report.

Distressed loans held for sale are loans, which wouldotherwise be included in nonaccrual loans, which have been identified foraccelerated disposition. Disposition of these assets is contemplated within ashort period of time, not to exceed one year.

Foreclosed assets include property where we acquiredtitle through foreclosure or “deed in lieu” of foreclosure.

Thefollowing table sets forth an analysis of nonperforming assets:

| ** **                                                                                       | ** ** | ** **            | ** ** | ** **                      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **Increase (Decrease)  December 31, 2005 From:** | ** ** |
|--------------------------------------------------------------------------------------------------|------------|-----------------------|------------|---------------------------------|------------|------------|------------|------------|------------|------------|------------|----------------------------------------------------------------------|------------|
| ** **                                                                                       | ** ** | **December 31,** | ** ** | **December 31, 2004** | ** ** |
| **(Dollars in thousands)**                                                             | ** ** | **2001**              | ** ** | **2002**                        | ** ** | **2003**   | ** ** | **2004**   | ** ** | **2005**   | ** ** | **    Amount    **           | ** ** | **    Percent    ** | ** ** |
| Commercial, financial  and industrial                                                            |       | $                     | 471,509    |                            | $          | 276,415    |       | $          | 190,404    |       | $          | 58,538                                                               |       | $ | 50,073 |   |   | $ | (8,465 | ) |   |   | (14.5 | )% |   |
| Construction                                                                                     |       | —                |       | —                          |       | —     |       | 2,622      |       | —     |       |                                                                 | (2,622     | ) |   |   | (100.0 | ) |   |
| Mortgage—Commercial                                                                         |       | 17,430                |       | 23,980                          |       | 38,354     |       | 26,519     |       | 8,819      |       |                                                                 | (17,700    | ) |   |   | (66.7 | ) |   |
| Lease financing                                                                                  |       | 2,946                 |       | 36,294                          |       | 51,603     |       | 54,894     |       | —     |       |                                                                 | (54,894    | ) |   |   | (100.0 | ) |   |
| Total nonaccrual loans                                                                           |       | 491,885               |       | 336,689                         |       | 280,361    |       | 142,573    |       | 58,892     |       |                                                                 | (83,681    | ) |   |   | (58.7 | ) |   |
| Foreclosed assets                                                                                |       | 597                   |       | 715                             |       | 5,689      |       | 7,282      |       | 2,753      |       |                                                                 | (4,529     | ) |   |   | (62.2 | ) |   |
| Total nonperforming  assets                                                                      |       | $                     | 492,482    |                            | $          | 337,404    |       | $          | 286,050    |       | $          | 149,855                                                              |       | $ | 61,645 |   |   | $ | (88,210 | ) |   |   | (58.9 | ) |   |
| Allowances for credit  losses(1)                                                                 |       | $                     | 634,509    |                            | $          | 609,190    |       | $          | 532,910    |       | $          | 481,531                                                              |       | $ | 437,907 |   |   | $ | (43,624 | ) |   |   | (9.1 | )% |   |
| Nonaccrual loans to  total  loans                                                                |       | 2.05                  | %          | 1.33                            | %          | 1.15       | %          | 0.49       | %          | 0.18       | %          |                                                                 |       |   |   |   |   |   |   |
| Allowances for credit  losses to nonaccrual loans                                                |       | 129.00                |       | 180.94                          |       | 190.08     |       | 337.74     |       | 743.58     |       |                                                                 |       |   |   |   |   |   |   |
| Nonperforming assets  to total loans, distressed loans held for sale, and foreclosed assets |       | 2.06                  |       | 1.34                            |       | 1.17       |       | 0.51       |       | 0.19       |       |                                                                 |       |   |   |   |   |   |   |
| Nonperforming assets  to total assets                                                            |       | 1.37                  |       | 0.84                            |       | 0.67       |       | 0.31       |       | 0.12       |       |                                                                 |       |   |   |   |   |   |   |

----

(1)    Includes allowance for losses related to off-balancesheet commitments.

As of December 31, 2005, our nonperforming assetsincluded approximately $9.5 million in acquired syndicated loans. The decreasein nonaccrual loans was primarily due to pay-downs, charge-offs, resumption toaccrual status and loan sales. During 2005, we sold approximately $45 millionof nonperforming loans compared to approximately $43 million in 2004, whichreduced our credit exposures. Losses from these sales were reflected in ourcharge-offs.

F-28

----

Thefollowing table sets forth an analysis of loans contractually past due 90 daysor more as to interest or principal and still accruing, but not included innonaccrual loans above.

| ** **                                                   | ** ** | ** **            | ** ** | ** **                      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **Increase (Decrease)**                               | ** ** |
|--------------------------------------------------------------|------------|-----------------------|------------|---------------------------------|------------|------------|------------|------------|------------|------------|------------|------------------------------------------------------------|------------|
| ** **                                                   | ** ** | ** **            | ** ** | ** **                      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **December 31, 2005 From:**                 | ** ** |
| ** **                                                   | ** ** | **December 31,** | ** ** | **December 31, 2004** | ** ** |
| **(Dollars in thousands)**                         | ** ** | **2001**              | ** ** | **2002**                        | ** ** | **2003**   | ** ** | **2004**   | ** ** | **2005**   | ** ** | **    Amount    ** | ** ** | **    Percent    ** | ** ** |
| Commercial,  financial and industrial                        |       | $                     | 26,571     |                            | $          | 1,705      |       | $          | 893        |       | $          | 1,315                                                      |       | $ | 187 |   |   | $ | (1,128 | ) |   |   | (85.8 | )% |   |
| Construction                                                 |       | —                |       | 679                             |       | —     |       | —     |       | 677        |       |                                                       | 677        |   |   |   | na |   |   |
| Mortgage:                                                    |       |                  |       |                            |       |       |       |       |       |       |       |                                                       |       |   |   |   |   |   |   |
| Residential                                                  |       | 4,854                 |       | 3,211                           |       | 1,878      |       | 1,385      |       | 2,784      |       |                                                       | 1,399      |   |   |   | 101.0 |   |   |
| Commercial                                                   |       | 2,356                 |       | 506                             |       | —     |       | —     |       | 499        |       |                                                       | 499        |   |   |   | na |   |   |
| Total mortgage                                               |       | 7,210                 |       | 3,717                           |       | 1,878      |       | 1,385      |       | 3,283      |       |                                                       | 1,898      |   |   |   | 137.0 |   |   |
| Consumer and other                                           |       | 2,579                 |       | 2,072                           |       | 1,123      |       | 1,157      |       | 819        |       |                                                       | (338       | ) |   |   | (29.2 | ) |   |
| Total loans 90 days or more past due and still accruing |       | $                     | 36,360     |                            | $          | 8,173      |       | $          | 3,894      |       | $          | 3,857                                                      |       | $ | 4,966 |   |   | $ | 1,109 |   |   |   | 28.8 | % |   |

----

na = not applicable

At December 31, 2001, wehad a $17.5 million credit to a customer that was reclassified to nonaccrualloans in 2002.

**Interest Foregone**

If interest that was due on the book balances of allnonaccrual and restructured loans (including loans that were, but are no longeron nonaccrual) had been accrued under their original terms, $21.4 million ofinterest would have been recorded in 2005.

After designation as anonaccrual loan, we recognized interest income on a cash basis of $25.8 millionand $16.4 million for loans that were on nonaccrual status at December 31,2004 and 2005, respectively.

**Securities**

Management of the securitiesportfolio involves the maximization of return while maintaining prudent levelsof quality, market risk, and liquidity. At December 31, 2005,approximately 99 percent of our securities were investment grade. The amortizedcost, gross unrealized gains, gross unrealized losses, and fair values ofsecurities are detailed in Note 3 to our Consolidated FinancialStatements included in this Annual Report.

**Analysisof Securities Available for Sale**

The following table shows the remaining contractualmaturities and expected yields of the securities available for sale based uponamortized cost at December 31, 2005. The fair value of our securitiesavailable for sale portfolio at December 31, 2005 was $8.2 billioncompared to $11.1 billion at December 31, 2004. The decline is primarilythe result of the $1.5 billion sale of agency securities and continuingrun-offs in the Asset and Liability Management (ALM) portfolio during 2005.

Included in our securitiesavailable for sale portfolios at December 31, 2004 and 2005 weresecurities used for ALM purposes of $10.1 billion and $6.4 billion,respectively. These securities had an expected weighted average maturity of 2.8years and 3 years, respectively.

F-29

----

**SecuritiesAvailable for Sale**

| ** **                             | ** ** | **Maturity**      | ** ** | ** **          | ** ** | ** **                  | ** ** |
|----------------------------------------|------------|-------------------|------------|---------------------|------------|-----------------------------|------------|
| ** **                             | ** ** | ** **        | ** ** | ** **          | ** ** | **Over One Year** | ** ** | **Over Five Years** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                             | ** ** | **One Year** | ** ** | **Through**         | ** ** | **Through**                 | ** ** | **Over** | ** ** | **Total** | ** ** |
| ** **                             | ** ** | **or Less**  | ** ** | **Five Years** | ** ** | **Ten Years**          | ** ** | **Ten Years** | ** ** | **Amortized Cost** | ** ** |
| **(Dollars in thousands)**   | ** ** | **Amount**        | ** ** | **Yield**(3)        | ** ** | **Amount**                  | ** ** | **Yield**(3) | ** ** | **Amount** | ** ** | **Yield**(3) | ** ** | **Amount** | ** ** | **Yield**(3) | ** ** | **Amount** | ** ** | **Yield**(3) | ** ** |
| U.S. Treasury                          |       | $                 | —     |                |       | —                      | %          |   | $ | 50,246 |   |   | 4.00 | % |   | $ | — |   |   | — | % |   | $ | — |   |   | — | % |   | $ | 50,246 |   |   | 4.00 | % |   |
| Other U.S. government                  |       | 347,188           |       |                | 3.64       |                        |       | 555,614 |   |   | 3.39 |   |   | — |   |   | — |   |   | — |   |   | — |   |   | 902,802 |   |   | 3.49 |   |   |
| Mortgage-backed  securities(1) (2)     |       | 983               |       |                | 5.72       |                        |       | 31,538 |   |   | 4.17 |   |   | 1,335,414 |   |   | 4.19 |   |   | 3,983,742 |   |   | 4.37 |   |   | 5,351,677 |   |   | 4.32 |   |   |
| State and municipal(3)                 |       | 3,470             |       |                | 6.67       |                        |       | 9,015 |   |   | 8.88 |   |   | 19,141 |   |   | 8.59 |   |   | 33,994 |   |   | 5.90 |   |   | 65,620 |   |   | 7.13 |   |   |
| Asset-backed  and debt securities |       | —            |       |                | —     |                        |       | 74,534 |   |   | 2.97 |   |   | 345,660 |   |   | 6.09 |   |   | 1,486,389 |   |   | 4.93 |   |   | 1,906,583 |   |   | 5.06 |   |   |
| Equity securities(4)                   |       | —            |       |                | —     |                        |       | — |   |   | — |   |   | — |   |   | — |   |   | — |   |   | — |   |   | 10,980 |   |   | — |   |   |
| Foreign securities                     |       | 87                |       |                | 3.25       |                        |       | 1,179 |   |   | 4.74 |   |   | — |   |   | — |   |   | — |   |   | — |   |   | 1,266 |   |   | 4.64 |   |   |
| Total securities  available for sale   |       | $                 | 351,728    |                |       | 3.68                        | %          |   | $ | 722,126 |   |   | 3.49 | % |   | $ | 1,700,215 |   |   | 4.63 | % |   | $ | 5,504,125 |   |   | 4.53 | % |   | $ | 8,289,174 |   |   | 4.42 | % |   |

----

(1)            The remaining contractual maturities ofmortgage-backed securities were allocated assuming no prepayments. Thecontractual maturity of these securities is not a reliable indicator of theirexpected life because borrowers have the right to repay their obligations atany time.

(2)            See discussion of expected duration in“Qualitative and Quantative Disclosures About Market Risk.”

(3)            Yields on tax-exempt municipal securitiesare presented on a taxable-equivalent basis using the current federal statutoryrate of 35 percent.

(4)            Equity securities do not have a statedmaturity and are included in the total column only.

**Loan Maturities**

Thefollowing table presents our loans by contractual maturity except for loans heldfor sale, which are presented based on the period when the sale is expected totake place.

| ** **                                    | ** ** | **December 31, 2005** | ** ** |
|-----------------------------------------------|------------|---------------------------------|------------|
| ** **                                    | ** ** | ** **                      | ** ** | **Over** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                    | ** ** | ** **                      | ** ** | **One Year** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                    | ** ** | **One Year**               | ** ** | **Through** | ** ** | **Over** | ** ** | ** ** | ** ** |
| **(Dollars in thousands)**          | ** ** | **or Less**                | ** ** | **Five Years** | ** ** | **Five Years** | ** ** | **Total** | ** ** |
| Domestic:                                     |       |                            |       |   |   |   |   |   |   |
| Commercial, financial and industrial          |       | $                               | 2,904,067  |   | $ | 6,657,389 |   | $ | 1,669,694 |   | $ | 11,231,150 |   |
| Construction                                  |       | 646,873                         |       | 769,033 |   | 31,386 |   | 1,447,292 |   |
| Mortgage:                                     |       |                            |       |   |   |   |   |   |   |
| Residential                                   |       | 780                             |       | 415,489 |   | 10,964,459 |   | 11,380,728 |   |
| Commercial                                    |       | 348,427                         |       | 1,566,623 |   | 3,767,574 |   | 5,682,624 |   |
| Total mortgage                                |       | 349,207                         |       | 1,982,112 |   | 14,732,033 |   | 17,063,352 |   |
| Consumer:                                     |       |                            |       |   |   |   |   |   |   |
| Installment                                   |       | 85,629                          |       | 61,341 |   | 744,092 |   | 891,062 |   |
| Revolving lines of credit                     |       | 1,340,070                       |       | 225,507 |   | 45,103 |   | 1,610,680 |   |
| Total consumer                                |       | 1,425,699                       |       | 286,848 |   | 789,195 |   | 2,501,742 |   |
| Lease financing                               |       | 21,247                          |       | 21,962 |   | 536,384 |   | 579,593 |   |
| Total loans in domestic offices               |       | 5,347,093                       |       | 9,717,344 |   | 17,758,692 |   | 32,823,129 |   |
| Loans originated in  foreign branches         |       | 219,805                         |       | — |   | — |   | 219,805 |   |
| Total loans held to maturity                  |       | $                               | 5,566,898  |   | $ | 9,717,344 |   | $ | 17,758,692 |   | $ | 33,042,934 |   |
| Total loans held for sale                     |       | 52,661                          |       | — |   | — |   | 52,661 |   |
| Total loans                                   |       | $                               | 5,619,559  |   | $ | 9,717,344 |   | $ | 17,758,692 |   | $ | 33,095,595 |   |
| Allowance for loan losses                     |       |                            |       |   |   |   |   | 351,532 |   |
| Loans, net                                    |       |                            |       |   |   |   |   | $ | 32,744,063 |   |
| Total fixed rate  loans due after one year    |       |                            |       |   |   |   |   | $ | 14,630,989 |   |
| Total variable rate  loans due after one year |       |                            |       |   |   |   |   | 12,845,047 |   |
| Total loans due after  one year               |       |                            |       |   |   |   |   | $ | 27,476,036 |   |

 

F-30

----

**Time Deposits of$100,000 and Over**

Thefollowing table presents domestic time deposits of $100,000 and over bymaturity.

| ** **                                         | ** ** | **December 31,** | ** ** |
|----------------------------------------------------|------------|-----------------------|------------|
| **(Dollars in thousands)**               | ** ** | **2005**              | ** ** |
| Three months or less                               |       | $                     | 1,408,544  |   |
| Over three months  through six months              |       | 370,910               |       |
| Over six months  through twelve months             |       | 232,411               |       |
| Over twelve months                                 |       | 182,833               |       |
| Total domestic time  deposits of $100,000 and over |       | $                     | 2,194,698  |   |

 

We offer certificates ofdeposit and other time deposits of $100,000 and over at market rates ofinterest. Many of these deposits are offered to customers, both public andprivate, who have done business with us for an extended period. Based on ourhistorical experience, we expect that as these deposits come due, the majoritywill continue to be renewed at market rates of interest.

**Borrowed Funds**

The following tablepresents information on our borrowed funds.

| ** **                                                                                                                                                                                               | ** ** | **December 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| **(Dollars in thousands)**                                                                                                                                                                     | ** ** | **2003**              | ** ** | **2004** | ** ** | **2005** | ** ** |
| Federal funds  purchased and securities sold under repurchase agreements with weighted average  interest rates of 0.68%, 1.90% and 3.97% at December 31, 2003, 2004  and 2005, respectively(1) |       | $                     | 280,968    |   | $ | 587,249 |   | $ | 651,529 |   |
| Commercial paper,  with weighted average interest rates of 0.83%, 1.69%, and 3.60% at  December 31, 2003, 2004 and 2005, respectively                                                               |       | 542,270               |       | 824,887 |   | 680,027 |   |
| Other borrowed  funds, with weighted average interest rates of 1.49%, 4.25% and 4.05% at  December 31, 2003, 2004 and 2005, respectively                                                            |       | 212,088               |       | 172,549 |   | 134,485 |   |
| Total borrowed funds                                                                                                                                                                                     |       | $                     | 1,035,326  |   | $ | 1,584,685 |   | $ | 1,466,041 |   |
| Federal funds  purchased and securities sold under repurchase agreements:                                                                                                                                |       |                  |       |   |   |   |   |
| Maximum outstanding at any month end                                                                                                                                                                     |       | $                     | 421,373    |   | $ | 739,386 |   | $ | 2,285,569 |   |
| Average balance during the year                                                                                                                                                                          |       | 405,982               |       | 596,997 |   | 898,107 |   |
| Weighted average interest rate during the year(1)                                                                                                                                                        |       | 0.84                  | %          | 1.25 | % | 2.88 | % |
| Commercial paper:                                                                                                                                                                                        |       |                  |       |   |   |   |   |
| Maximum outstanding at any month end                                                                                                                                                                     |       | $                     | 1,078,981  |   | $ | 855,334 |   | $ | 1,390,504 |   |
| Average balance during the year                                                                                                                                                                          |       | 809,930               |       | 620,053 |   | 1,086,088 |   |
| Weighted average interest rate during the year                                                                                                                                                           |       | 1.05                  | %          | 1.11 | % | 2.92 | % |
| Other borrowed  funds:                                                                                                                                                                                   |       |                  |       |   |   |   |   |
| Maximum outstanding at any month end                                                                                                                                                                     |       | $                     | 322,308    |   | $ | 212,371 |   | $ | 286,342 |   |
| Average balance during the year                                                                                                                                                                          |       | 191,939               |       | 162,424 |   | 168,220 |   |
| Weighted average interest rate during the year                                                                                                                                                           |       | 2.74                  | %          | 3.00 | % | 3.75 | % |

 

----

(1)    Weightedaverage interest rates provided relate to external funding and do not reflectearnings on net funding to discontinued operations. For further information,see Note 2 to our Consolidated Financial Statements included in the AnnualReport.

F-31

----

**CapitalAdequacy, Dividends and Share Repurchases**

*Capital Adequacy andCapital Management*

We strive to maintain strong capital levels, to usecapital effectively, and to return excess capital to our stockholders.

We have traditionally maintained capital levels inexcess of those levels required by bank regulators and above industry averages.Strong capital improves our ability to absorb unanticipated losses andpositions us to be an opportunistic acquirer. Our commitment to strong capitalalso contributes to higher ratings by bank regulatory agencies and creditrating agencies.

We strive to use our capital effectively, with ourfirst priority to support our long-term growth and strategic positioning. Capitalis used to fund loan growth and other balance sheet growth, to reinvest in ourcore businesses, and to fund strategic acquisitions. Capital is also employedto pay a competitive dividend to our shareholders. When we possess capital inexcess of core business and dividend requirements, we often employ some of thatexcess capital to repurchase common stock.

Our primary source of capital is net income. Inaddition, we generate capital from common stock issued in connection withacquisitions, from common stock issued in connection with employee stock optionexercises and restricted stock grants, and from the net proceeds of asset salesand business divestitures.

We monitor a variety of regulatory and US GAAP capitalmeasures to maintain capital levels consistent with our goals. We are subjectto minimum capital requirements at both the bank and holding company levels, asdefined by our bank regulators. We have historically maintained capital levelswell above the minimum thresholds and, where applicable, in excess of thethresholds established by the banking regulators to identify “well-capitalized”institutions.

In addition, we monitor avariety of US GAAP capital measures and hybrid capital measures. These measuresinclude the tangible equity ratio and various capital metrics favored by themajor credit rating agencies. We analyze these ratios relative to our currentfinancial position, our projected financial position, and peer banks. Ourstrategic target for the tangible equity ratio is 7 percent to 8 percent.

*Dividends*

We strive to pay ourstockholders a competitive dividend, while maintaining a conservative payoutratio. We review our dividend rate quarterly in conjunction with a quarterlyreview of capital. We have elected to increase the dividend rate several timesin recent years, reflecting our strong capital levels and expectations of solidcapital generation going forward.

*Share repurchases*

In recent years, we have elected to return asignificant amount of excess capital to our stockholders in the form of sharerepurchases. Our share repurchase activity has reflected our confidence in ourability to maintain healthy rates of new capital generation, as well as asurplus of capital beyond our core business and dividend requirements. Inrecent years, share repurchases have been executed at prices that haveconsiderably enhanced our earnings per share and return on equity. In addition,the repurchase of shares has resulted in lower dividend expenditures due tofewer shares outstanding.

As compared to dividends, share repurchases are highlyflexible, allowing management to return excess capital in times of surplus, orto eliminate repurchases altogether if superior strategic opportunities todeploy excess capital exist. In addition, many of our largest stockholdersfavor higher repurchase levels over higher dividend rates when we cannotreinvest excess capital in our core businesses at attractive rates of return.

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

| ** **                           | ** ** | ** **            | ** ** | ** **     | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **Minimum**     | ** ** |
|--------------------------------------|------------|-----------------------|------------|----------------|------------|------------|------------|------------|------------|------------|------------|-----------------|------------|
| ** **                           | ** ** | **December 31,** | ** ** | **Regulatory** | ** ** |
| **(Dollars in thousands)** | ** ** | **2001**              | ** ** | **2002**       | ** ** | **2003**   | ** ** | **2004**   | ** ** | **2005**   | ** ** | **Requirement** | ** ** |
| **Capital  Components**              |       |                  |       |           |       |       |       |       |       |       |       |            |       |   |   |
| Tier 1 capital                       |       | $                     | 3,661,231  |           | $          | 3,667,237  |       | $          | 3,747,884  |       | $          | 3,817,698       |       | $ | 4,178,160 |   |   |   |   |   |
| Tier 2 capital                       |       | 598,812               |       | 573,858        |       | 936,189    |       | 968,294    |       | 876,713    |       |            |       |   |   |
| Total risk-based capital             |       | $                     | 4,260,043  |           | $          | 4,241,095  |       | $          | 4,684,073  |       | $          | 4,785,992       |       | $ | 5,054,873 |   |   |   |   |   |
| Risk-weighted assets                 |       | $                     | 31,906,438 |           | $          | 32,811,441 |       | $          | 33,133,407 |       | $          | 39,324,859      |       | $ | 45,540,448 |   |   |   |   |   |
| Quarterly average assets             |       | $                     | 34,760,203 |           | $          | 37,595,002 |       | $          | 41,506,828 |       | $          | 47,168,683      |       | $ | 49,789,877 |   |   |   |   |   |
| **Capital  Ratios**                  |       |                  |       |           |       |       |       |       |       |       |       |            |       |   |   |
| Total risk-based capital             |       | 13.35                 | %          | 12.93          | %          | 14.14      | %          | 12.17      | %          | 11.10      | %          |            | 8.0        | % |   |
| Tier 1 risk-based capital            |       | 11.47                 |       | 11.18          |       | 11.31      |       | 9.71       |       | 9.17       |       |            | 4.0        |   |   |
| Leverage ratio(1)                    |       | 10.53                 |       | 9.75           |       | 9.03       |       | 8.09       |       | 8.39       |       |            | 4.0        |   |   |

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

We and Union Bank of California, N.A. (the Bank) aresubject to various regulations of the federal banking agencies, includingminimum capital requirements. We both are required to maintain minimum ratiosof Total and Tier 1 capital to risk-weighted assets and of Tier 1 capitalto quarterly average assets (the leverage ratio).

The decrease in our capital ratios from December 31,2004, was attributable to higher risk-weighted assets and stock repurchases.Our Leverage ratio increase was primarily due to a 9 percent increase in Tier 1capital offset by a 6 percent increase in quarterly average assets, which wassubstantially the result of increases in both our residential mortgage andcommercial loan portfolios.

As of December 31, 2005,the most recent notification from the Office of the Comptroller of the Currency(OCC) categorized the Bank as “well-capitalized.”  This means that the Bank met all regulatoryrequirements of “well-capitalized” institutions, which are 10 percent forthe Total risk-based capital ratio, 6 percent for the Tier 1 risk-basedcapital ratio and 5 percent for the Leverage ratio.

**Quantitativeand Qualitative Disclosures About Market Risk**

Our exposure to market risk exists primarily ininterest rate risk in our non-trading balance sheet and to a much lesser degreein price risk in our trading portfolio for our customer-focused trading andsales activities. The objective of market risk management is to mitigate anundue adverse impact on earnings and capital arising from changes in interestrates and other market variables. This risk management objective supports ourbroad objective of enhancing shareholder value, which encompasses stableearnings growth over time.

The Board of Directors, through its Finance and CapitalCommittee, approves our ALM Policy, which governs the management of market riskand liquidity. In the administration of market risk management, the ChiefExecutive Officer Forum (CEO Forum) provides broad and strategic guidance and,as appropriate, specific direction to the Asset & Liability ManagementCommittee (ALCO) whose voting members are comprised of senior executives. ALCOis responsible for ongoing management of interest rate and price risks as wellas liquidity risk, including formulation of risk management strategies, inaccordance with the CEO Forum’s directives. The Treasurer is primarilyresponsible for the implementation of risk management strategies approved bythe CEO Forum or ALCO and for operating management of market risk through thefunding, investment, and derivatives hedging activities of Corporate Treasury. TheManager of the Global Markets Division is responsible for operating managementof price risk through the trading activities conducted in that division.

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The Market Risk Monitoring unit is responsible for themonitoring of market risk. Market Risk Monitoring functions independently ofall operating and management units.

We have separate and distinctmethods for managing the market risk associated with our asset and liabilitymanagement activities and our trading activities, as described below.

*Interest Rate RiskManagement (Other Than Trading)*

ALCO monitors interest rate risk monthly through avariety of modeling techniques that are used to quantify the sensitivity of NetInterest Income (NII) and of Economic Value of Equity (EVE) to changes ininterest rates. As directed by ALCO, and in consideration of the importance ofour demand deposit accounts as a funding source, NII is adjusted in the policyrisk measure to incorporate the effect of certain noninterest income and expenseitems related to these deposits that are nevertheless sensitive to changes ininterest rates. NII, so adjusted, is termed Economic NII. In managing interestrate risk, ALCO monitors NII sensitivity on both an adjusted (“Economic”) andan unadjusted basis over various time horizons and in response to a variety ofinterest 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-monthhorizon, given our projected balance sheet profile. We measure and monitor ourinterest rate risk profile using two calculations of EaR: unadjustedNII-at-Risk, and Economic NII-at-Risk, the latter adjusted for the noninterestitems described above. Under the policy limits, the negative change insimulated Economic NII in either the up or down 200 basis point shock scenariosmay not, except on a temporary basis, exceed 4 percent of Economic NII asmeasured in the base case or no change scenario.

Our EaR simulations use a 12-month projectedbalance sheet in order to model the impact of interest rate changes.Assumptions are made to model the future behavior of deposit rates and loanspreads based on statistical analysis, management’s outlook, and historicalexperience. The prepayment risks related to residential loans andmortgage-backed securities are measured using industry estimates of prepaymentspeeds.

At December 31, 2005,Economic NII showed modest asset-sensitivity to parallel rate shifts. A +200 basispoint parallel shift would raise 12-month Economic NII by 0.93 percent,while a similar downward shift would reduce it by 1.97 percent. We caution thatcontinued enhancements to our interest rate risk modeling may make prior-yearcomparisons of Economic NII less meaningful. Economic NII adjusts our reportedNII for the effect of certain non-interest, DDA-related, fee and expense items.Those adjustment items are innately liability-sensitive, meaning that reportedNII is more asset-sensitive than is Economic NII.

**Economic NII**

| **(Dollars in millions)** | ** ** | **December 31,  2004** | ** ** | **December 31,  2005** | ** ** |
|-------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| +200 basis points                   |       |                        | $          | 10.9                        |       |   |   | $ | 18.9 |   |   |
| as a percentage of  base case NII   |       |                        | 0.60       | %                           |       |   | 0.93 | % |   |
| -200  basis points                  |       |                        | $          | (25.0                       | )          |   |   | $ | (40.2 | ) |   |
| as a percentage of base  case NII   |       |                        | 1.39       | %                           |       |   | 1.97 | % |   |

 

The 2004 figures in the above table are reported on aconsolidated basis while the 2005 figures in the above table are reported on acontinuing operations basis, with all assets and liabilities associated withthe disposal of the international correspondent banking business eliminated. Webelieve that this presentation provides the best representation of our riskprofiles for 2004 and 2005. Our 2005 risk profile would not differ materiallyon a consolidated basis. See discussion under “Discontinued Operations” relatedto the disposal.

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In the case of non-parallel yield curve changes, ourEconomic NII is relatively neutral to short rates changes (with long rates heldconstant) and modestly asset-sensitive to changes in long-term rates (withshort-term rates held constant).

In addition to EaR, we measure the sensitivity of EVEto interest rate shocks. EVE-at-Risk is reviewed and monitored for itscompliance with ALCO limits. Consistent with the projected asset-sensitivity ofearnings over time, our EVE-at-Risk shows asset-sensitivity as well.

We believe that, together,our NII and EVE simulations provide management with a reasonably comprehensiveview of the sensitivity of our operating results and value profile to changesin interest rates, at least over the measurement horizon. However, as with anyfinancial model, the underlying assumptions are inherently uncertain andsubject to refinement as modeling techniques and theory improve and historicaldata becomes more readily accessible. Consequently, our simulation modelscannot predict with certainty how rising or falling interest rates might impactnet interest income. Actual and simulated results will differ to the extentthere are differences between actual and assumed interest rate changes, balancesheet volumes, and management strategies, among other factors.

*ALM Activities*

In general, our unhedged,core balance sheet is relatively asset sensitive, meaning that our loansgenerally re-price more quickly than our core deposits. In managing theinterest sensitivity of our balance sheet, we use the ALM investment securitiesportfolio and derivatives positions as the primary tools to adjust our riskprofile. During 2005, we used a combination of sales and maturities in our ALMinvestment securities and derivatives portfolios to allow our core assetsensitivity to emerge in a rising rate environment. As we re-evaluated our riskprofile and changing market conditions, we took actions later in the year tobegin to mitigate our asset sensitivity, as described below.

*ALM Investments*

At December 31, 2004 and December 31, 2005,our securities available for sale portfolio included $10.1 billion and $6.4billion, respectively, of securities for ALM purposes. During 2005, we sold$1.5 billion in agency securities while approximately $2.5 billion of ALMsecurities matured or were called, reflecting management’s decision to reduceour fixed rate ALM portfolio to help support loan growth and allow our coreasset sensitivity to emerge. The estimated ALM portfolio effective duration was2.2 at December 31, 2005, compared to 2.3 at December 31, 2004.

Effective duration is a measure of price sensitivityof a bond portfolio to immediate parallel shifts in interest rates. Aneffective duration of 2.2 suggests an expected price change of approximatelyminus 2.2 percent for an immediate one percent increase in interest rates.

During the fourth quarter of2005, as part of our portfolio rebalancing strategy to diversify our agencyconcentration risk, we sold approximately $1 billion of Agency securities withthe intent of reinvesting the proceeds in AAA-rated non-agency mortgage-backedsecurities. As of December 31, 2005, we had purchased approximately $350million of non-Agency mortgage-backed securities.

*ALM Derivatives*

During 2005, the ALM derivatives portfolio declined bya net $2.3 billion notional, as $3.3 billion notional of contracts matured,offset by $1.0 billion notional of new receive fixed interest rate swaps whichwere added during the last half of 2005. The fair value of the ALM derivativecontracts have declined throughout the year as several “in-the-money” contractshave matured and as the value of our remaining receive fixed swap and floorpositions have declined with rising interest rates. For additional discussionof derivative instruments and our hedging strategies, see Note 19 to ourConsolidated Financial Statements included in this Annual Report.

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The following table providesthe notional value and the fair value of our ALM derivatives portfolio as of December 31,2003, 2004 and 2005 with the change in fair value between December 2004and 2005.

| ** **                                                                      | ** ** | **December 31,** | ** ** | **Increase / (Decrease)  From December 31, 2005** | ** ** |
|---------------------------------------------------------------------------------|------------|-----------------------|------------|----------------------------------------------------------------------------|------------|
| **(Dollars in thousands)**                                            | ** ** | **2003**              | ** ** | **2004**                                                                   | ** ** | **2005** | ** ** | **to December 31, 2004** | ** ** |
| Total gross notional  amount of positions held for purposes other than trading: |       | $                     | 9,330,000  |                                                                       | $          | 9,880,000 |   | $ | 7,550,000 |   |   | $ | (2,330,000 | ) |   |
| Of which, interest rate swaps pay fixed rates of interest:                 |       | 200,000               |       | —                                                                     |       | — |   |   | — |   |   |
| Fair value of  positions held for purposes other than trading:                  |       |                  |       |                                                                       |       |   |   |   |   |   |   |
| Gross positive fair value                                                       |       | 102,605               |       | 45,435                                                                     |       | 5,721 |   |   | (39,713 | ) |   |
| Gross negative fair value                                                       |       | 195                   |       | 15,462                                                                     |       | 55,943 |   |   | 40,475 |   |   |
| Fair value of  position                                                         |       | $                     | 102,410    |                                                                       | $          | 29,973 |   | $ | (50,222 | ) |   | $ | (80,188 | ) |   |

 

*Trading Activities*

We enter into trading account activities primarily asa financial intermediary for customers and, to a minor extent, for our ownaccount. By acting as a financial intermediary, we are able to provide ourcustomers with access to a range of products from the securities, foreignexchange, and derivatives markets. In acting for our own account, we may takepositions in certain securities and foreign exchange instruments, subject tovarious limits in amount, tenor and other respects, with the objective ofgenerating trading profits.

We believe that the risks associated with thesepositions are conservatively managed. We utilize a combination of positionlimits and stop-loss limits, applied at an aggregated level and to varioussub-components within. Market Risk Monitoring prepares daily reports for broaddistribution on positions, profit and loss, and mark-to-market valuations. Summaryversions of these reports go to senior management on a daily or weekly basisand to ALCO monthly. Positions are controlled and reported both in notional andValue-at-Risk (VaR) terms. Our calculation of VaR estimates how high the lossin fair value might be, at a 99 percent confidence level, due to an adverseshift in market prices over a period of ten business days. VaR at the tradingactivity level is managed within limits well below the maximum limitestablished by Board policy for total trading positions at 0.5 percent ofstockholders’ equity. The VaR model incorporates assumptions on key parameters,including holding period and historical volatility.

Thefollowing table sets forth the average, high and low VaR for our tradingactivities for the years ended December 31, 2004 and December 31,2005. Part of the increase in VaR figures in 2005 can be attributed to amodification in VaR parameters in early 2005: a change from a 97.5 to 99percent confidence level, and a change from a five to a ten day holding period.

| ** **                  | ** ** | **December 31, 2004** | ** ** | **December 31, 2005** | ** ** |
|-----------------------------|------------|---------------------------------|------------|---------------------------------|------------|
| **(Dollars in  thousands)** | ** ** | **Average  VaR**                | ** ** | **High  VaR**                   | ** ** | **Low  VaR** | ** ** | **Average  VaR** | ** ** | **High  VaR** | ** ** | **Low  VaR** | ** ** |
| Foreign exchange            |       |                            | $          | 131                             |       |   | $ | 377 |   | $ | 49 |   |   | $ | 177 |   |   | $ | 533 |   | $ | 53 |   |
| Securities                  |       |                            | 289        |                            |       | 585 |   | 86 |   |   | 384 |   |   | 720 |   | 215 |   |
|                             |            |                                 |            |                                 |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

Consistent with our business strategy of focusing onthe sale of capital markets products to customers, we manage our trading riskexposures at conservative levels. Our foreign exchange business continues toderive the bulk of its revenue from customer-related transactions. We takeinter-bank trading positions only on a limited basis and we do not take anylarge or long-term strategic positions in the market for our own portfolio.Similarly, we continue to generate most of our securities trading income fromcustomer-related 

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transactions. Effective January 1,2005, the Securities Trading and Institutional Sales department, which servesthe fixed-income needs of our institutional clients, was combined with theretail brokerage operations of our broker/dealer subsidiary, UnionBancInvestment Services LLC.

Our interest rate derivative contracts included, as ofDecember 31, 2005, approximately $5.0 billion notional amount ofderivative contracts entered into as an accommodation for customers. We act asan intermediary and match these contracts, at a credit spread, to contractswith major dealers, thus neutralizing the related market risk on all customertransactions.

We also engage in energyderivatives contracts, in order to meet the hedging needs of our existingenergy industry customers, primarily those that are oil and gas producers. Atotal of $1.1 billion in notional amount of derivatives contracts wasoutstanding as of December 31, 2005. As is the case for our customerinterest rate derivatives business, all transactions are fully matched toremove market risk, with income produced for us from the credit spread earned.

**Liquidity Risk**

Liquidity risk represents the potential for loss as aresult of limitations on our ability to meet the needs of depositors andborrowers and to fund operations on a timely and cost-effective basis.Liquidity risk management is governed by the ALM Policy, which is approved bythe Finance and Capital Committee of the Board. ALCO conducts monthly ongoingreviews of our liquidity situation as well as regular updates to our CEO Forumwho approve our Liquidity Contingency Plan. Liquidity is managed through thisALCO coordination process on an entity-wide basis, encompassing all majorbusiness units. Our liquidity management is implemented through the funding andinvestment functions of Corporate Treasury, drawing upon the strengths of ourextensive retail and commercial core deposit franchise, coupled with theability to obtain funds for various terms in a variety of domestic andinternational money markets. Our securities portfolio represents a significantsource of additional liquidity when needed.

Core deposits provide us with a sizable source ofrelatively stable and low-cost funds. Our average core deposits, whichinclude demand deposits, money market demand accounts, and savings and consumertime deposits, combined with average common stockholders’ equity, funded over86 percent of average total assets of approximately $48 billion in 2005. Mostof the remaining funding was provided by short-term borrowings in theform of certificates of deposit, large time deposits, foreign deposits, federalfunds purchased, securities sold under repurchase agreements, commercial paper,and other borrowings.

Our securities portfolio providesadditional enhancement to our liquidity position, which may be createdthrough either securities sales or repurchase agreements. At December 31,2005, we could have sold or transferred under repurchase agreementsapproximately $4 billion of our available for sale securities. Liquiditymay also be provided by the sale or maturity of other assets such asinterest-bearing deposits in banks, federal funds sold, and trading accountsecurities. For the year ended December 31, 2005, the aggregate balance ofthese assets averaged $1 billion. Additional liquidity may be provided throughloan maturities and sales.

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Inaddition to the funding provided by our bank subsidiary, we raise funds at thebank holding company level. The costs and ability to raise funds are directlyimpacted by our credit ratings. The following table provides our credit ratingsas of January 25, 2006:

| ** **                       | ** ** | ** ** | ** ** | **Union Bank of  California, N.A.** | ** ** | **UnionBanCal  Corporation** | ** ** |
|----------------------------------|------------|------------|------------|----------------------------------------------------|------------|------------------------------|------------|
| Standard &  Poor’s |       | Long-term  |       |                                               | A+         |                         |       |   | A |   |   |
|                             |       | Short-term |       |                                               | A-1        |                         |       |   | A-1 |   |   |
| Moody’s                     |       | Long-term  |       |                                               | A1         |                         |       |   | A2 |   |   |
|                             |       | Short-term |       |                                               | P-1        |                         |       |   | — |   |   |
| Fitch                            |       | Long-term  |       |                                               | A          |                         |       |   | A |   |   |
|                             |       | Short-term |       |                                               | F1         |                         |       |   | F1 |   |   |

 

**Off-BalanceSheet Arrangements and Aggregate Contractual Obligations and Commitments**

Off-balance sheet arrangements are any contractualarrangement to which an unconsolidated entity is a party, under which we have: (1) anyobligation under a guarantee contract; (2) a retained or contingentinterest in assets transferred to an unconsolidated entity or similararrangement that serves as credit, liquidity or market risk support to thatentity for such assets; (3) any obligation under certain derivativeinstruments; or (4) any obligation under a material variable interest heldby us in an unconsolidated entity that provides financing, liquidity, marketrisk or credit risk support to us, or engages in leasing, hedging or researchand development services with us.

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

It is our belief that none of these arrangementsexpose us to any greater risk of loss than is already reflected on our balancesheet. We do not have any off-balance sheet arrangements in which we have anyretained or contingent interest (as we do not transfer or sell our assets toentities in which we have a continuing involvement), any exposure to derivativeinstruments that are indexed to our stock, nor any variable interests in anyunconsolidated entity to which we may be a party, except for those leasingarrangements described previously.

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Thefollowing table presents, as of December 31, 2005, our significant anddeterminable contractual obligations by payment date, except for obligationsunder our pension and postretirement plans, which are included in Note 9 to ourConsolidated Financial Statements included in this Annual Report, and accruedinterest payable, which is not significant. The payment amounts represent thoseamounts contractually due to the recipient and do not include any unamortizedpremiums or discounts, hedge basis adjustment or other similar carrying valueadjustments. For further information on contractual obligations andcommitments, see Note 24 to our Consolidated Financial Statements included inthis Annual Report.

| ** **                                                              | ** ** | **December 31, 2005** | ** ** |
|-------------------------------------------------------------------------|------------|---------------------------------|------------|
| **(Dollars in thousands)**                                    | ** ** | **Less than  One Year**    | ** ** | **One through  Three Years** | ** ** | **Four to  Five Years** | ** ** | **After Five  Years** | ** ** | **Total** | ** ** |
| Time deposits                                                           |       | $                               | 4,190,886  |   | $ | 490,394 |   | $ | 138,581 |   | $ | 8,318 |   | $ | 4,828,179 |   |
| Medium and long-term  debt                                              |       | 200,000                         |       | 200,000 |   | — |   | 400,000 |   | 800,000 |   |
| Junior subordinated  debt payable to subsidiary grantor trust |       | —                          |       | — |   | — |   | 13,000 |   | 13,000 |   |
| Other long-term  liabilities                                            |       |                            |       |   |   |   |   |   |   |   |   |
| Operating leases (premises)                                             |       | 54,189                          |       | 91,695 |   | 72,656 |   | 76,740 |   | 295,280 |   |
| Purchase obligations                                                    |       | 18,713                          |       | 17,084 |   | 1,000 |   | — |   | 36,797 |   |
| Total debt and  operating leases                                        |       | $                               | 4,463,788  |   | $ | 799,173 |   | $ | 212,237 |   | $ | 498,058 |   | $ | 5,973,256 |   |

 

Purchase obligations include any legally bindingcontractual obligations that require us to spend more than $1,000,000 annuallyunder the contract. Payments are shown through the date of contract termination.Purchase obligations in the table above include purchases of hardware, softwarelicenses and printing. For information regarding our sources of liquidity tomeet these obligations, see “Liquidity Risk” in the preceding section.

**Thefollowing table presents our significant commitments to fund as of December 31,2005:**

| ** **                                 | ** ** | **December 31,** | ** ** |
|--------------------------------------------|------------|-----------------------|------------|
| **(Dollars in thousands)**       | ** ** | **2004**              | ** ** | **2005** | ** ** |
| Commitments to  extend credit              |       | $                     | 16,499,957 |   | $ | 20,287,320 |   |
| Standby letters of  credit                 |       | 2,917,070             |       | 3,549,389 |   |
| Commercial letters  of credit              |       | 100,944               |       | 98,375 |   |
| Commitments to fund  principal investments |       | 93,822                |       | 110,150 |   |
|                                            |            |                       |            |  |  |  |  |

 

**Business Segments**

In April 2005, we announced severalorganizational changes that affected our business segments. The Global MarketsGroup was eliminated and the activities of this group were transferred. CorporateTreasury, which is responsible for ALM wholesale funding and the ALM securitiesand derivative hedging portfolios, is now included in “Other.” The trading ofsecurities and foreign exchange contracts, as well as the responsibilities forcustomer-accommodated derivative contracts, are now included in the “GlobalMarkets Division” of the Community Banking and Investment Services Group. Inaddition, the discontinued operations resulting from the disposal of most ofour International Banking Group are also reflected in “Other.” We are noworganized around the target markets we serve and operate in two principalareas, as shown in the table that follows. The results show the financialperformance of our two major business units for the periods indicated.

The risk-adjusted return on capital (RAROC)methodology used seeks to attribute economic capital to business unitsconsistent with the level of risk they assume. These risks are primarilycredit, market and operational. Credit risk is the potential loss in economicvalue due to the likelihood that the obligor will not perform as agreed. Marketrisk is the potential loss in fair value due to changes in interest rates,currency rates and equity prices. Operational risk is the potential loss due toall other factors, such as failures in 

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internal control, systemfailures, or external events. RAROC is one of several measures that is used tomeasure business unit compensation.

The following table reflects the condensed incomestatements, selected average balance sheet items, and selected financialratios, including changes from the prior year, for each of our primary businessunits. The information presented does not necessarily represent the businessunits’ financial condition and results of operations as if they wereindependent entities. Also, the table has been expanded to include performancecenter earnings. A performance center is a special unit whose income generatingactivities, unlike typical profit centers, are based on other business segmentunits’ customer base. The revenues generated and expenses incurred for thosetransactions entered into to accommodate our customers are allocated to otherbusiness segments where the customer relationships reside. A performance center’spurpose is to foster cross-selling with a total profitability view of theproducts and services it manages. For example, the Securities Trading and Salesunit within the Global Markets Division, is a performance center that managesthe fixed income securities activities for retail and corporate customers.

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

The RAROC measurement methodology recognizes creditexpense for expected losses arising from credit risk and attributes economiccapital related to unexpected losses arising from credit, market andoperational risks. As a result of the methodology used by the RAROC model tocalculate expected losses, differences between the reversal of or provision forloan losses and credit expense in any one period could be significant. However,over an economic cycle, the cumulative provision for loan losses and creditexpense for expected losses should be substantially the same. Business unitresults are based on an internal management reporting system used by managementto measure the performance of the units and UnionBanCal Corporation as a whole.Our management reporting system identifies balance sheet and income statementitems for each business unit based on internal management accounting policies.Net interest income is determined using our internal funds transfer pricingsystem, which assigns a cost of funds to assets or a credit for funds toliabilities and capital, based on their type, maturity or repricingcharacteristics. Noninterest income and expense directly or indirectlyattributable to a business unit are assigned to that business. The business unitsare assigned the costs of products and services directly attributable to theirbusiness activity through standard unit cost accounting based on volume ofusage. All other corporate expenses (overhead) are allocated to the businessunits based on a predetermined percentage of usage.

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The business units’ results for the prior periods havebeen restated to reflect changes in the transfer pricing methodology, theorganizational changes that have occurred and our discontinued operations.Information about our segments is also presented in Note 26 to our ConsolidatedFinancial Statements included in this Annual Report.

| ** **                                                                           | ** ** | **Community Banking  and Investment Services Group**          | ** ** | ** **                                       | ** ** | **Commercial Financial  Services Group**                                | ** ** | ** **                                       | ** ** |
|--------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|-----------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                           | ** ** | **As of and for the Year  Ended December 31,** | ** ** | **2005 vs. 2004  Increase/(decrease)** | ** ** | **As of and for the Year  Ended December 31,** | ** ** | **2005 vs. 2004  Increase/(decrease)** | ** ** |
| ** **                                                                           | ** ** | **2003**                                                                          | ** ** | **2004**                                         | ** ** | **2005**                                                                          | ** ** | **Amount**                                       | ** ** | **Percent** | ** ** | **2003** | ** ** | **2004** | ** ** | **2005** | ** ** | **Amount** | ** ** | **Percent** | ** ** |
| **Results  of operations after performance center earnings (dollars in thousands):** |       |                                                                              |       |                                             |       |                                                                              |       |                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net interest income                                                                  |       | $                                                                                 | 661,091    |                                             | $          | 761,106                                                                           |       | $                                                | 940,273    |   | $ | 179,167 |   |   | 24 | % |   | $ | 660,753 |   | $ | 731,567 |   | $ | 897,805 |   | $ | 166,238 |   |   | 23 | % |   |
| Noninterest income  (expense)                                                        |       | 446,847                                                                           |       | 513,413                                          |       | 553,029                                                                           |       | 39,616                                           |       |   | 8 |   |   | 246,522 |   | 285,428 |   | 277,541 |   | (7,887 | ) |   | (3 | ) |   |
| Total revenue                                                                        |       | 1,107,938                                                                         |       | 1,274,519                                        |       | 1,493,302                                                                         |       | 218,783                                          |       |   | 17 |   |   | 907,275 |   | 1,016,995 |   | 1,175,346 |   | 158,351 |   |   | 16 |   |   |
| Noninterest expense                                                                  |       | 830,521                                                                           |       | 971,200                                          |       | 1,022,423                                                                         |       | 51,223                                           |       |   | 5 |   |   | 407,436 |   | 420,669 |   | 476,519 |   | 55,850 |   |   | 13 |   |   |
| Credit expense                                                                       |       | 32,003                                                                            |       | 33,216                                           |       | 34,779                                                                            |       | 1,563                                            |       |   | 5 |   |   | 159,029 |   | 106,278 |   | 94,780 |   | (11,498 | ) |   | (11 | ) |   |
| Income from  continuing operations before income taxes                          |       | 245,414                                                                           |       | 270,103                                          |       | 436,100                                                                           |       | 165,997                                          |       |   | 61 |   |   | 340,810 |   | 490,048 |   | 604,047 |   | 113,999 |   |   | 23 |   |   |
| Income tax expense                                                                   |       | 93,871                                                                            |       | 103,314                                          |       | 166,808                                                                           |       | 63,494                                           |       |   | 61 |   |   | 104,739 |   | 160,162 |   | 202,221 |   | 42,059 |   |   | 26 |   |   |
| Income from  continuing operations                                                   |       | 151,543                                                                           |       | 166,789                                          |       | 269,292                                                                           |       | 102,503                                          |       |   | 61 |   |   | 236,071 |   | 329,886 |   | 401,826 |   | 71,940 |   |   | 22 |   |   |
| Income (loss) from  discontinued operations, net of income taxes                     |       | —                                                                            |       | —                                           |       | —                                                                            |       | —                                           |       |   | na |   |   | — |   | — |   | — |   | — |   |   | na |   |   |
| Net income                                                                           |       | $                                                                                 | 151,543    |                                             | $          | 166,789                                                                           |       | $                                                | 269,292    |   | $ | 102,503 |   |   | 61 |   |   | $ | 236,071 |   | $ | 329,886 |   | $ | 401,826 |   | $ | 71,940 |   |   | 22 |   |   |
| **Performance center earnings  (dollars in thousands):**                             |       |                                                                              |       |                                             |       |                                                                              |       |                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net interest income                                                                  |       | $                                                                                 | 728        |                                             | $          | 410                                                                               |       | $                                                | (27        | ) | $ | (437 | ) |   | (107 | ) |   | $ | (605 | ) | $ | (346 | ) | $ | (133 | ) | $ | 213 |   |   | 62 |   |   |
| Noninterest income                                                                   |       | (75,988                                                                           | )          | (66,137                                          | )          | (60,316                                                                           | )          | 5,821                                            |       |   | 9 |   |   | 61,835 |   | 52,316 |   | 47,061 |   | (5,255 | ) |   | (10 | ) |   |
| Noninterest expense                                                                  |       | (41,518                                                                           | )          | (29,738                                          | )          | (22,928                                                                           | )          | 6,810                                            |       |   | 23 |   |   | 35,788 |   | 25,941 |   | 19,513 |   | (6,428 | ) |   | (25 | ) |   |
| Income (loss) from  continuing   operations                                          |       | (20,909                                                                           | )          | (22,296                                          | )          | (23,142                                                                           | )          | (846                                             | )          |   | (4 | ) |   | 15,867 |   | 16,318 |   | 17,307 |   | 989 |   |   | 6 |   |   |
| Total loans (dollars  in millions)                                                   |       | 25                                                                                |       | 25                                               |       | 20                                                                                |       | (5                                               | )          |   | (20 | ) |   | (43 | ) | (46 | ) | (44 | ) | 2 |   |   | 4 |   |   |
| **Average balances (dollars in  millions):**                                         |       |                                                                              |       |                                             |       |                                                                              |       |                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total loans(1)                                                                       |       | $                                                                                 | 11,462     |                                             | $          | 12,814                                                                            |       | $                                                | 15,264     |   | $ | 2,450 |   |   | 19 |   |   | $ | 12,853 |   | $ | 12,738 |   | $ | 15,905 |   | $ | 3,167 |   |   | 25 |   |   |
| Total assets                                                                         |       | 12,650                                                                            |       | 14,213                                           |       | 16,747                                                                            |       | 2,534                                            |       |   | 18 |   |   | 14,848 |   | 15,220 |   | 19,393 |   | 4,173 |   |   | 27 |   |   |
| Total deposits(1)                                                                    |       | 16,932                                                                            |       | 19,462                                           |       | 20,317                                                                            |       | 855                                              |       |   | 4 |   |   | 12,715 |   | 14,300 |   | 16,111 |   | 1,811 |   |   | 13 |   |   |
| **Financial ratios:**                                                                |       |                                                                              |       |                                             |       |                                                                              |       |                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Risk adjusted return  on capital                                                     |       | 21                                                                                | %          | 23                                               | %          | 31                                                                                | %          |                                             |       |   |   |   |   | 14 | % | 22 | % | 24 | % |   |   |   |   |   |   |
| Return on average  assets                                                            |       | 1.20                                                                              |       | 1.17                                             |       | 1.61                                                                              |       |                                             |       |   |   |   |   | 1.59 |   | 2.17 |   | 2.07 |   |   |   |   |   |   |   |
| Efficiency ratio(2)                                                                  |       | 74.96                                                                             |       | 76.20                                            |       | 68.47                                                                             |       |                                             |       |   |   |   |   | 44.91 |   | 41.26 |   | 41.02 |   |   |   |   |   |   |   |

 

| ** **                                                                                | ** ** | **Other**                                                                         | ** ** | ** **                                       | ** ** | **UnionBanCal  Corporation**                                                      | ** ** | ** **                                       | ** ** |
|-------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|-----------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                                | ** ** | **As of and for the Year  Ended December 31,** | ** ** | **2005 vs. 2004  Increase/(decrease)** | ** ** | **As of and for the  Year Ended December 31,** | ** ** | **2005 vs. 2004  Increase/(decrease)** | ** ** |
| ** **                                                                                | ** ** | **2003**                                                                          | ** ** | **2004**                                         | ** ** | **2005**                                                                          | ** ** | **Amount**                                       | ** ** | **Percent** | ** ** | **2003** | ** ** | **2004** | ** ** | **2005** | ** ** | **Amount** | ** ** | **Percent** | ** ** |
| **Results of operations after  performance center earnings (dollars in thousands):** |       |                                                                              |       |                                             |       |                                                                              |       |                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net interest income                                                                       |       | $                                                                                 | 225,660    |                                             | $          | 131,343                                                                           |       | $                                                | 1,036      |   | $ | (130,307 | ) |   | (99 | )% |   | $ | 1,547,504 |   | $ | 1,624,016 |   | $ | 1,839,114 |   | $ | 215,098 |   |   | 13 | % |   |
| Noninterest income  (expense)                                                             |       | 19,587                                                                            |       | 113,982                                          |       | (25,783                                                                           | )          | (139,765                                         | )          |   | (123 | ) |   | 712,956 |   | 912,823 |   | 804,787 |   | (108,036 | ) |   | (12 | ) |   |
| Total revenue                                                                             |       | 245,247                                                                           |       | 245,325                                          |       | (24,747                                                                           |       | (270,072                                         | )          |   | (110 | ) |   | 2,260,460 |   | 2,536,839 |   | 2,643,901 |   | 107,062 |   |   | 4 |   |   |
| Noninterest expense                                                                       |       | 125,977                                                                           |       | 81,720                                           |       | 108,304                                                                           |       | 26,584                                           |       |   | 33 |   |   | 1,363,934 |   | 1,473,589 |   | 1,607,246 |   | 133,657 |   |   | 9 |   |   |
| Credit expense                                                                            |       | (118,233                                                                          | )          | (185,251                                         | )          | (180,242                                                                          | )          | 5,009                                            |       |   | 3 |   |   | 72,799 |   | (45,757 | ) | (50,683 | ) | (4,926 | ) |   | (11 | ) |   |
| Income from  continuing operations before income taxes                                    |       | 237,503                                                                           |       | 348,856                                          |       | 47,191                                                                            |       | (301,665                                         | )          |   | (86 | ) |   | 823,727 |   | 1,109,007 |   | 1,087,338 |   | (21,669 | ) |   | (2 | ) |   |
| Income tax expense                                                                        |       | 72,583                                                                            |       | 135,457                                          |       | (12,331                                                                           | )          | (147,788                                         | )          |   | (109 | ) |   | 271,193 |   | 398,933 |   | 356,698 |   | (42,235 | ) |   | (11 | ) |   |
| Income from  continuing operations                                                        |       | 164,920                                                                           |       | 213,399                                          |       | 59,522                                                                            |       | (153,877                                         | )          |   | (72 | ) |   | 552,534 |   | 710,074 |   | 730,640 |   | 20,566 |   |   | 3 |   |   |
| Income (loss) from  discontinued operations, net of income taxes                          |       | 34,605                                                                            |       | 22,460                                           |       | 132,293                                                                           |       | 109,833                                          |       |   | 489 |   |   | 34,605 |   | 22,460 |   | 132,293 |   | 109,833 |   |   | 489 |   |   |
| Net income                                                                                |       | $                                                                                 | 199,525    |                                             | $          | 235,859                                                                           |       | $                                                | 191,815    |   | $ | (44,044 | ) |   | (19 | ) |   | $ | 587,139 |   | $ | 732,534 |   | $ | 862,933 |   | $ | 130,399 |   |   | 18 |   |   |
| **Performance center earnings  (dollars in thousands):**                             |       |                                                                              |       |                                             |       |                                                                              |       |                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net interest income                                                                       |       | $                                                                                 | (123       | )                                                | $          | (64                                                                               | )          | $                                                | 160        |   | $ | 224 |   |   | 350 |   |   | $ | —   |   | $ | —   |   | $ | — |   | $ | —   |   |   | na |   |   |
| Noninterest income                                                                        |       | 14,153                                                                            |       | 13,821                                           |       | 13,255                                                                            |       | (566                                             | )          |   | (4 | ) |   | —   |   | —   |   | —   |   | — |   |   | na |   |   |
| Noninterest expense                                                                       |       | 5,730                                                                             |       | 3,797                                            |       | 3,415                                                                             |       | (382                                             | )          |   | (10 | ) |   | — |   | — |   | — |   | — |   |   | na |   |   |
| Income (loss) from  continuing operations                                                 |       | 5,042                                                                             |       | 5,978                                            |       | 5,835                                                                             |       | (143                                             | )          |   | (2 | ) |   | — |   | — |   | — |   | — |   |   | na |   |   |
| Total loans (dollars  in millions)                                                        |       | 18                                                                                |       | 21                                               |       | 24                                                                                |       | 3                                                |       |   | 14 |   |   | —   |   | —   |   | — |   | —   |   |   | na |   |   |
| **Average balances (dollars in  millions):**                                              |       |                                                                              |       |                                             |       |                                                                              |       |                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total loans(1)                                                                            |       | $                                                                                 | 613        |                                             | $          | 496                                                                               |       | $                                                | 284        |   | $ | (212 | ) |   | (43 | ) |   | $ | 24,928 |   | $ | 26,048 |   | $ | 31,453 |   | $ | 5,405 |   |   | 21 |   |   |
| Total assets                                                                              |       | 11,075                                                                            |       | 13,726                                           |       | 11,471                                                                            |       | (2,255                                           | )          |   | (16 | ) |   | 38,573 |   | 43,159 |   | 47,611 |   | 4,452 |   |   | 10 |   |   |
| Total deposits(1)                                                                         |       | 2,369                                                                             |       | 2,245                                            |       | 3,116                                                                             |       | 871                                              |       |   | 39 |   |   | 32,016 |   | 36,007 |   | 39,544 |   | 3,537 |   |   | 10 |   |   |
| **Financial ratios:**                                                                     |       |                                                                              |       |                                             |       |                                                                              |       |                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Risk adjusted return  on capital                                                          |       | na                                                                                |       | na                                               |       | na                                                                                |       |                                             |       |   |   |   |   | na |   | na |   | na |   |   |   |   |   |   |   |
| Return on average  assets                                                                 |       | na                                                                                |       | na                                               |       | na                                                                                |       |                                             |       |   |   |   |   | 1.43 | % | 1.65 | % | 1.53 | % |   |   |   |   |   |   |
| Efficiency ratio(2)                                                                       |       | na                                                                                |       | na                                               |       | na                                                                                |       |                                             |       |   |   |   |   | 60.27 |   | 57.95 |   | 60.75 |   |   |   |   |   |   |   |

----

(1)       Representsloans and deposits for each business segment after allocation between thesegments of loans and deposits originated in one segment but managed by anothersegment.

(2)       Theefficiency ratio is noninterest expense, excluding foreclosed asset expense(income) and the provision for losses on off-balance sheet commitments, as apercentage of net interest income and noninterest income.

na = not applicable

F-41

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*Community Banking andInvestment Services Group*

The Community Banking and Investment Services Groupprovides financial products including credit, deposit, trust, investmentmanagement, risk management, and insurance products delivered through ourbranches, relationship managers, private bankers, trust administrators, andinsurance agents to individuals, small businesses and institutional clients.

During 2005, net income of the group increased by 61percent over 2004, reflecting the group’s continued focus on growing theconsumer asset portfolio and attracting retail and small business deposits. Netinterest income increased by 24 percent primarily due to higher demand depositsand a higher margin on deposits, which contributed 21 percent to the growth.

The group’s strategy is to grow assets through anexpanded small business sales force, increased emphasis on real estate securedand Small Business Administration (SBA) guaranteed loans to small business, anda stronger network of residential real estate brokers. Increasing demand forhome equity loans and more effective cross-selling efforts have led to anoverall growth in consumer loans, despite run-off of discontinued auto dealerand auto lease lines of business. In addition, the group expects a largerbranch network, created from new branches and acquired branches, to improvegrowth prospects when combined with more robust efforts in the telephone andinternet channels.

Total core deposit growth demonstrates the group’scontinued success in attracting mass retail, affluent consumers and smallbusiness deposits through marketing activities, relationship management,increased and improved sales resources, new locations, and new products. These activities, in the aggregate, haveresulted in a year-over-year increase of approximately 6 percent in coredeposits. Among the more successful marketing activities has been the “PowerBank” network, in Fresno, California. These branches offer an expanded set ofservice options, extended hours and have been remodeled to improve the customerexperience with facility enhancements. The focus on enterprise-wide cross-sellinginitiatives has been particularly effective in our affluent markets where a keystrategy of The Private Bank is to expand its business by leveraging existingBank client relationships.

Of the 8 percent increase in the group’s noninterestincome, trust fees contributed 4 percent of the growth, primarily due to therecent acquisitions of portfolios from CNA Trust (renamed TruSource) and theBTM Trust Company, New York. In addition, deposit fees contributed 2 percent tothe increase. Overall, total revenues for 2005 increased by over 17 percentcompared to 2004.

The Community Banking and Investment Services Group iscomprised of five major divisions:   Community Banking, Wealth Management,Institutional Services and Asset Management, Consumer Asset Management andGlobal Markets.

*Community Banking*   serves its customers through 315 full-servicebranches in California, 4 full-service branches in Oregon and Washington, and anetwork of 597 proprietary ATMs. Customers may also access our services 24hours a day by telephone or through our website at www.uboc.com. In addition,the division offers automated teller and point-of-sale merchant services.

This division is organized by service delivery method,by markets and by geography. We serve our customers in the following ways:

·       throughcommunity banking branches, which serve consumers and businesses with checkingand deposit services, as well as various types of consumer financing;

·       throughaccess to our internet banking services, which augment our physical deliverychannels by providing an array of customer transaction, bill payment and loanpayment services;

·       throughbranches and business banking centers, which serve small businesses with annualsales up to $5 million; and

F-42

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·       throughin-store branches, which also serve consumers and small businesses.

*Wealth Management*   providescomprehensive private banking services to our affluent clientele.

·       ThePrivate Bank focuses primarily on delivering financial services to high networth individuals with sophisticated financial needs as well as to professionalservice firms. Specific products and services include trust and estateservices, investment account management services, and deposit and creditproducts. A key strategy of The Private Bank is to expand its business byleveraging existing Bank client relationships. Through 14 existing locations,The Private Bank relationship managers offer all of our available products andservices.

*Institutional Servicesand Asset Management*   provides investment management and administrationservices for a broad range of individuals and institutions.

·       HighMarkCapital Management, Inc., a registered investment advisor, providesinvestment management and advisory services to institutional clients as well asinvestment advisory, administration and support services to our proprietarymutual funds, the affiliated HighMark Funds. It also provides investmentmanagement services to Union Bank of California, N.A. with respect to most ofits trust and agency clients, including corporations, pension funds andindividuals. HighMark Capital Management, Inc.’s strategy is to broadenits client base and in turn to increase the assets of the HighMark Funds.

·       InstitutionalServices provides custody, corporate trust, and retirement plan services. CustodyServices provides both domestic and international safekeeping/settlementservices in addition to securities lending. Corporate Trust acts as trustee forcorporate and municipal debt issues, provides escrow services and trusteeservices for project finance. Retirement Services provides a full range ofdefined benefit and defined contribution administrative services, includingtrustee services, administration, investment management, and 401(k) valuationservices. The client base of Institutional Services includes financialinstitutions, corporations, government agencies, unions, insurance companies,mutual funds, investment managers, and non-profit organizations. InstitutionalServices’ strategy is to continue to leverage and expand its position in ourtarget markets. The acquisition of CNA Trust Company (renamed TruSource)expanded our retirement processing capability by providing outsourcing servicesfor direct distributors of retirement products, and strengthened capacity tosupport smaller plans. The acquisition of the corporate trust portfolio of theBTMU Trust Company, New York enhanced our capability in the areas of municipaland project finance trustee and agent services.

*Consumer AssetManagement*   provides the centralized origination, underwriting,processing, servicing, collection and administration for consumer assetsincluding residential mortgages.

*Global Markets  *serves our customers with their insurance, foreignexchange and interest rate risk management and investment needs. Since thefourth quarter 2004, Global Markets Division has been offering energyderivative contracts, on a limited basis, to serve our energy sector clientbase. The division takes market risk when buying and selling securities and foreignexchange contracts for its own account, but takes no market risk when providinginsurance or derivative contracts, since the market risk for these products isoffset with third parties.

*Insurance Services*   products are sold through UBOC Insurance, Inc.(through its insurance agency subsidiaries) and securities are sold throughUnionBanc Investment Services LLC, both of which are subsidiaries of Union Bankof California, N.A. Effective January 1, 2006, our insurance agencysubsidiaries were combined into UnionBanc Insurance Services, Inc.

Through alliances with other financial institutions,the Community Banking and Investment Services Group offers additional productsand services, such as credit cards, merchant bank cards, leasing, andasset-based and leveraged financing.

F-43

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The group competes with larger banks by attempting toprovide service quality superior to that of its major competitors. The group’sprimary means of competing with community banks include its branch network andits technology to deliver banking services. The group also offers convenientbanking hours to consumers through our drive-through banking locations andselected branches that are open seven days a week.

The group competes with anumber of commercial banks, internet banks, savings associations and creditunions, as well as more specialized financial service providers such asinvestment brokerage companies, consumer finance companies, and residentialreal estate lenders.

*Commercial FinancialServices Group*

The Commercial Financial Services Group offersfinancing, depository and cash management services to middle market and largecorporate businesses primarily headquartered in the western United States. Thegroup has continued to focus on specific geographic markets and industrysegments such as energy, entertainment, and real estate. Relationship managersprovide credit services, including commercial loans, accounts receivable andinventory financing, project financing, lease financing, trade financing, andreal estate financing. In addition to credit services, the group offers cashmanagement services delivered through deposit managers with significantindustry expertise and experience in cash management solutions for businesses,U.S. correspondent banks and government entities.

In 2005, the 22 percent increase in net income was dueto significant growth in both loans and deposits. Net interest income increasedby 23 percent primarily due to higher demand deposits and a higher margin ondeposits, which contributed 18 percent to the growth. Deposit growth cameprimarily from sales successes in middle market, corporate and real estateindustries. In addition to new sales, pricing strategies to retain volumehelped to offset the disintermediation associated with a rising interest rateenvironment.

In 2005, average loans increased by 25 percent overthe prior year. This was primarily due to continued improvement in our approachto the commercial real estate market, increased loan demand in the Californiamiddle-market and specialty segments and the acquisition of Jackson FederalBank.

The decrease in noninterest income was mainly due tolower deposit fees resulting from an increase in the earnings credit availableto our wholesale customers. The increase in noninterest expense during 2005 wasmainly due to outside services expense from higher costs of services related totitle and escrow balances, stemming from a higher earnings credit rate andhigher balances.

The group’s initiatives will continue to includeexpanding wholesale deposit activities and increasing domestic trade financing.Loan strategies include originating, underwriting and syndicating loans in corecompetency markets, such as the California middle-market, corporate banking,commercial real estate, energy, entertainment, equipment leasing and commercialfinance. The group is particularly strong in processing services, includingservices such as Automated Clearing House (ACH), check processing, and cashvault services.

The Commercial FinancialServices Group is comprised of the following business units:

·       theCommercial Banking Division, which serves California middle-market and largecorporate companies with commercial lending, trade financing, and asset-basedloans;

·       theCommercial Deposit and Treasury Management Division, which provides deposit andcash management expertise to middle-market and large corporate clients,government agencies and specialized industries. This division also managesUnion Bank of California’s web strategies for retail, small business, wealthmanagement and commercial clients, as well as product development andmanagement for our entire banking franchise;

F-44

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·       theReal Estate Industries Division, which provides real estate lending productssuch as construction loans, commercial mortgages and bridge financing;

·       theEnergy Capital Services Division, which provides corporate financing andproject financing to oil and gas companies, as well as power and utilitycompanies, nationwide; and

·       theCorporate Capital Markets Division, which provides financing to middle-marketand large corporate clients in their defined industries and geographic markets,together with limited merchant and investment banking related products andservices.

The group’s main strategy is to target industries andcompanies for which the group can reasonably expect to be one of a customer’sprimary banks. Consistent with its strategy, the group attempts to serve alarge part of its targeted customers’ credit and depository needs. The groupcompetes with other banks primarily on the basis of the quality of itsrelationship managers, the level of industry expertise, the delivery of qualitycustomer service, and its reputation as a “business bank.” The group alsocompetes with a variety of other financial services companies as well asnonbank companies. Competitors include other major California banks, as well asregional, national and international banks. In addition, the group competeswith investment banks, commercial finance companies, leasing companies, andinsurance companies.

*Other*

“Other” includes thefollowing items:

·       corporateactivities that are not directly attributable to one of the two major businessunits. Included in this category are certainother items such as the results of operations of certain parent companynon-bank subsidiaries and the elimination of the fully taxable-equivalent basisamount;

·       thefunds transfer pricing results for the entire company, which allocates to theother business segments their cost of funds on all asset categories and creditfor funds on all liability categories;

·       theadjustment between the credit expense under RAROC and the provision for creditlosses under US GAAP and earnings associated with unallocated equity capital;

·       theadjustment between the tax expense calculated under RAROC using a tax rate of38.25 percent and our effective tax rates;

·       thePacific Rim Corporate Group, with assets of $282 million at December 31,2005, which offers a range of credit, deposit, and investment management productsand services to companies in the U.S., which are affiliated with companiesheadquartered in Japan;

·       CorporateTreasury, which is responsible for our ALM, wholesale funding, and itssecurities and derivatives portfolios. These treasury management activities arecarried out to counter-balance the residual risk positions of our core balancesheet and to manage those risks within conservative guidelines. (For additionaldiscussion regarding these risk management activities, see “Quantitative andQualitative Disclosures About Market Risk.”);

·       thediscontinued operations resulting from the sale of our internationalcorrespondent banking business; and

·       theresidual costs of support groups.

The 2005 financial results were impacted by thefollowing factors:

·       netinterest income declined $130.3 million compared to 2004 primarily as a resultof a decrease in income from ALM derivatives hedges and from the net impact ofchanges in transfer pricing rates over prior period as market rates increased.Net interest income included the result of differences between the credit forequity for the reportable segments under RAROC and the net interest income 

F-45

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earned by UnionBanCalCorporation, a credit for deposits in the Pacific Rim Corporate Group andtransfer pricing results;

·       noninterestincome declined $139.8 million compared to 2004 due to the $93 million gainfrom the sale of our merchant card portfolio in 2004 and a $50 million loss onthe sale of government agency securities resulting from the restructuring ofour securities portfolio in 2005;

·       noninterestexpense of $108.3 million, which included increased corporate benefits andperformance related incentives;

·       creditexpense (income) of ($180.2) million was due to the difference between the$50.7 million reversal of provision for loan losses calculated under our USGAAP methodology and the $129.5 million in expected losses for the reportablebusiness segments, which utilizes the RAROC methodology;

·       incomefrom discontinued operations, net of income taxes, of $132.3 million, whichincluded a net gain of $147.4 million on the sale of our internationalcorrespondent banking business.

The 2004 financialresults were impacted by the following factors:

·       netinterest income is the result of differences between the credit for equity forthe reportable segments under RAROC and the net interest income earned byUnionBanCal Corporation, a credit for deposits in the Pacific Rim Corporate Groupand net transfer pricing results;

·       noninterestincome of $114.0 million, which included the recognition of a $93 million gainfrom the sale of our merchant card portfolio;

·       noninterestexpense of $81.7 million; 

·       creditexpense (income) of ($185.3) million was due to the difference between the$45.8 million reversal in provision for loan losses calculated under our USGAAP methodology and the $139.5 million in expected losses for thereportable business segments, which utilizes the RAROC methodology; and

·       income from discontinuedoperations, net of income taxes, of $22.5 million.

**Regulatory Matters**

In October 2004,Union Bank of California International entered into a written agreement withthe Federal Reserve Bank of New York relating to Union Bank of CaliforniaInternational’s Bank Secrecy Act and anti-money laundering controls andprocesses. Union Bank of California International, a wholly owned subsidiary ofUnion Bank of California, N.A., is headquartered in New York City and, as anEdge Act subsidiary, is limited to engaging in international bankingactivities, most of which were sold in October 2005. We expect to dissolvethis subsidiary in the second quarter of 2006. Although the principal businessactivities of this subsidiary have been sold, we remain legally responsible forresolving the issues raised by the Federal Reserve Bank of New York. During 2006,we expect to spend approximately $10 million for compliance relatedexpenses.

In March 2005, Union Bank of California, N.A.entered into a memorandum of understanding with the Office of the Comptrollerof the Currency, which requires Union Bank of California, N.A. to strengthenits Bank Secrecy Act and anti-money laundering controls and processes. During 2005, we began the process ofstrengthening those controls and processes, which will continue in 2006. Weexpect to spend approximately $16 million during 2006 primarily for consultingand staff related expenses in our continuing operations.

Management is committed to resolving the issues raisedby the regulators and continues to take actions it believes to be appropriateto achieve this objective.

F-46

----

Until resolved, these pending regulatory matters, orany future regulatory actions concerning anti-money laundering controls andprocesses, may adversely affect UnionBanCal Corporation’s and Union Bank ofCalifornia, N.A.’s ability to obtain regulatory approvals for futureinitiatives requiring regulatory approval, including acquisitions. Also, anyfuture regulatory actions relating to this subject could result in theimposition of fines or penalties as has occurred with a number of other banksin recent years. However, neither Union Bank of California, N.A.’s memorandumof understanding with the Office of the Comptroller of the Currency, Union Bankof California International’s agreement with the Federal Reserve Bank of NewYork, nor the financial impact of enhanced Bank Secrecy Act and anti-moneylaundering controls and processes, are expected to have a material adverseimpact on the financial condition or results of operations of Union Bank ofCalifornia, N.A. or UnionBanCal Corporation.

F-47

----

**UnionBanCalCorporation and Subsidiaries**

**INDEX TOCONSOLIDATED FINANCIAL STATEMENTS**
|                                                                                                                                    | ** ** | **Page** |
|------------------------------------------------------------------------------------------------------------------------------------|------------|----------|
| Consolidated Statements of  Income for the Years Ended December 31, 2003, 2004, and 2005                                      |       | F-49     |
| Consolidated Balance Sheets  as of December 31, 2004 and 2005                                                                 |       | F-50     |
| Consolidated Statements of  Changes in Stockholders’ Equity for the Years Ended December 31, 2003,  2004, and 2005  |       | F-51     |
| Consolidated Statements of  Cash Flows for the Years Ended December 31, 2003, 2004, and 2005                             |       | F-52     |
| Notes to Consolidated  Financial Statements                                                                                        |       | F-53     |
| Report  of Independent Registered Public Accounting Firm                                                                           |       | F-110    |

 

F-48

----

**UnionBanCalCorporation and SubsidiariesConsolidated Statements ofIncome**(1)

| ** **                                                                      | ** ** | **Years Ended December 31,** | ** ** |
|---------------------------------------------------------------------------------|------------|---------------------------------------------|------------|
| **(Dollars in thousands, except per share data)** | ** ** | **2003**                                    | ** ** | **2004** | ** ** | **2005** | ** ** |
| **Interest Income**                                                             |       |                                        |       |   |   |   |   |
| Loans                                                                           |       | $                                           | 1,373,867  |   | $ | 1,366,970 |   | $ | 1,800,725 |   |
| Securities                                                                      |       | 348,622                                     |       | 425,607 |   | 395,819 |   |
| Interest bearing deposits in  banks                                             |       | 296                                         |       | 3,417 |   | 2,676 |   |
| Federal funds sold and  securities purchased under resale agreements            |       | 10,203                                      |       | 9,189 |   | 20,535 |   |
| Trading account assets                                                          |       | 3,459                                       |       | 3,492 |   | 4,226 |   |
| Total interest income                                                           |       | 1,736,447                                   |       | 1,808,675 |   | 2,223,981 |   |
| **Interest Expense**                                                            |       |                                        |       |   |   |   |   |
| Domestic deposits                                                               |       | 150,386                                     |       | 144,879 |   | 289,285 |   |
| Foreign deposits                                                                |       | 2,024                                       |       | 1,808 |   | 14,066 |   |
| Federal funds purchased and  securities sold under repurchase agreements        |       | 405                                         |       | 6,654 |   | 10,372 |   |
| Commercial paper                                                                |       | 8,508                                       |       | 6,899 |   | 31,672 |   |
| Medium and long-term debt                                                       |       | 7,845                                       |       | 16,773 |   | 32,206 |   |
| Trust notes                                                                     |       | 14,510                                      |       | 2,780 |   | 953 |   |
| Other borrowed funds                                                            |       | 5,265                                       |       | 4,866 |   | 6,313 |   |
| Total interest expense                                                          |       | 188,943                                     |       | 184,659 |   | 384,867 |   |
| **Net Interest Income**                                                         |       | 1,547,504                                   |       | 1,624,016 |   | 1,839,114 |   |
| (Reversal of) provision for  loan losses(2)                                     |       | 72,799                                      |       | (45,757 | ) | (50,683 | ) |
| Net interest income after  provision for loan losses                            |       | 1,474,705                                   |       | 1,669,773 |   | 1,889,797 |   |
| **Noninterest Income**                                                          |       |                                        |       |   |   |   |   |
| Service charges on deposit  accounts                                            |       | 304,717                                     |       | 335,207 |   | 323,865 |   |
| Trust and investment  management fees                                           |       | 136,347                                     |       | 153,083 |   | 173,518 |   |
| Insurance commissions                                                           |       | 62,652                                      |       | 77,874 |   | 78,915 |   |
| Merchant banking fees                                                           |       | 30,990                                      |       | 39,646 |   | 43,898 |   |
| Foreign exchange gains, net                                                     |       | 28,542                                      |       | 32,004 |   | 33,902 |   |
| Brokerage commissions and fees                                                  |       | 31,755                                      |       | 33,063 |   | 30,038 |   |
| Card processing fees, net                                                       |       | 37,520                                      |       | 34,147 |   | 25,105 |   |
| Securities losses, net                                                          |       | (1,851                                      | )          | (12,085 | ) | (50,039 | ) |
| Other                                                                           |       | 82,284                                      |       | 219,884 |   | 145,585 |   |
| Total noninterest income                                                        |       | 712,956                                     |       | 912,823 |   | 804,787 |   |
| **Noninterest Expense**                                                         |       |                                        |       |   |   |   |   |
| Salaries and employee  benefits                                                 |       | 780,740                                     |       | 848,717 |   | 934,354 |   |
| Net occupancy                                                                   |       | 120,434                                     |       | 127,720 |   | 141,299 |   |
| Outside services                                                                |       | 65,088                                      |       | 74,978 |   | 117,190 |   |
| Equipment                                                                       |       | 63,988                                      |       | 67,839 |   | 68,206 |   |
| Software                                                                        |       | 45,536                                      |       | 51,877 |   | 58,511 |   |
| Professional services                                                           |       | 48,274                                      |       | 48,371 |   | 45,500 |   |
| Communications                                                                  |       | 41,607                                      |       | 42,011 |   | 41,909 |   |
| Foreclosed asset expense  (income)                                              |       | (84                                         | )          | 1,211 |   | (5,635 | ) |
| Provision for losses on  off-balance sheet commitments(2)                       |       | —                                      |       | — |   | 4,000 |   |
| Other                                                                           |       | 198,351                                     |       | 210,865 |   | 201,912 |   |
| Total noninterest expense                                                       |       | 1,363,934                                   |       | 1,473,589 |   | 1,607,246 |   |
| Income from continuing  operations before income taxes                          |       | 823,727                                     |       | 1,109,007 |   | 1,087,338 |   |
| Income tax expense                                                              |       | 271,193                                     |       | 398,933 |   | 356,698 |   |
| **Income from Continuing  Operations**                                          |       | 552,534                                     |       | 710,074 |   | 730,640 |   |
| Income from discontinued  operations before income taxes                        |       | 56,239                                      |       | 36,339 |   | 205,582 |   |
| Income tax expense                                                              |       | 21,634                                      |       | 13,879 |   | 73,289 |   |
| **Income from Discontinued  Operations**                                        |       | 34,605                                      |       | 22,460 |   | 132,293 |   |
| **Net Income**                                                                  |       | $                                           | 587,139    |   | $ | 732,534 |   | $ | 862,933 |   |
| **Income from continuing  operations per common share—basic**              |       | $                                           | 3.71       |   | $ | 4.81 |   | $ | 5.04 |   |
| **Net Income per common share—basic**                                      |       | $                                           | 3.94       |   | $ | 4.96 |   | $ | 5.95 |   |
| **Income from continuing  operations per common share—diluted**            |       | $                                           | 3.67       |   | $ | 4.72 |   | $ | 4.94 |   |
| **Net income per common share—diluted**                                    |       | $                                           | 3.90       |   | $ | 4.87 |   | $ | 5.84 |   |
| **Weighted average common shares  outstanding—basic**                      |       | 148,917                                     |       | 147,767 |   | 145,109 |   |
| **Weighted average common shares outstanding—diluted**                     |       | 150,645                                     |       | 150,303 |   | 147,792 |   |

----

(1)            In September 2005, UnionBank of California, N.A. committed to a plan for disposal of its internationalcorrespondent banking business. All periods presented have been restated toreflect the discontinued operations.

(2)      Beginning in 2005, the net change in the allowancefor losses on off-balance sheet commitments was recognized separately from thechange in the allowance for loan losses. Prior periods have not been restated.

See accompanying notes toconsolidated financial statements.

F-49

----

**UnionBanCalCorporation and SubsidiariesConsolidated Balance Sheets**

| ** **                                                                                            | ** ** | **December 31,** | ** ** |
|-------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| **(Dollars in thousands)**                                                                  | ** ** | **2004**              | ** ** | **2005** | ** ** |
| **Assets**                                                                                            |       |                  |       |   |   |
| Cash and due from banks                                                                               |       | $                     | 1,977,422  |   | $ | 2,402,212 |   |
| Interest bearing deposits in banks                                                                    |       | 277,482               |       | 771,164 |   |
| Federal funds sold and securities purchased under  resale agreements                                  |       | 944,950               |       | 796,500 |   |
| Total cash and cash equivalents                                                                       |       | 3,199,854             |       | 3,969,876 |   |
| Trading account assets                                                                                |       | 235,840               |       | 312,655 |   |
| Securities available for  sale:                                                                       |       |                  |       |   |   |
| Securities pledged as collateral                                                                      |       | 144,240               |       | 96,994 |   |
| Held in portfolio                                                                                     |       | 10,994,981            |       | 8,072,286 |   |
| Loans (net of allowance for loan losses: 2004,  $399,156; 2005, $351,532)                             |       | 28,710,259            |       | 32,744,063 |   |
| Due from customers on acceptances                                                                     |       | 23,841                |       | 19,252 |   |
| Premises and equipment, net                                                                           |       | 526,543               |       | 536,074 |   |
| Intangible assets                                                                                     |       | 61,737                |       | 42,616 |   |
| Goodwill                                                                                              |       | 450,961               |       | 454,015 |   |
| Other assets                                                                                          |       | 1,731,355             |       | 2,113,577 |   |
| Assets of discontinued operations to be disposed or  sold(1)                                          |       | 2,018,410             |       | 1,054,594 |   |
| Total assets                                                                                          |       | $                     | 48,098,021 |   | $ | 49,416,002 |   |
| **Liabilities**                                                                                       |       |                  |       |   |   |
| Domestic deposits:                                                                                    |       |                  |       |   |   |
| Noninterest bearing                                                                                   |       | $                     | 19,100,128 |   | $ | 19,489,377 |   |
| Interest bearing                                                                                      |       | 19,402,379            |       | 19,789,496 |   |
| Foreign deposits:                                                                                     |       |                  |       |   |   |
| Interest bearing                                                                                      |       | 216,999               |       | 803,366 |   |
| Total deposits                                                                                        |       | 38,719,506            |       | 40,082,239 |   |
| Federal funds purchased and securities sold under  repurchase agreements                              |       | 587,249               |       | 651,529 |   |
| Commercial paper                                                                                      |       | 824,887               |       | 680,027 |   |
| Other borrowed funds                                                                                  |       | 172,549               |       | 134,485 |   |
| Acceptances outstanding                                                                               |       | 23,841                |       | 19,252 |   |
| Other liabilities                                                                                     |       | 1,112,743             |       | 1,466,478 |   |
| Medium and long-term debt                                                                             |       | 816,113               |       | 801,095 |   |
| Junior subordinated debt payable to subsidiary  grantor trust                                         |       | 15,790                |       | 15,338 |   |
| Liabilities of discontinued operations to be  extinguished or assumed(1)                              |       | 1,533,099             |       | 1,005,859 |   |
| Total liabilities                                                                                     |       | 43,805,777            |       | 44,856,302 |   |
| Commitments and contingencies                                                                         |       |                  |       |   |   |
| **Stockholders’ Equity**                                                                         |       |                  |       |   |   |
| Preferred stock:                                                                                      |       |                  |       |   |   |
| Authorized 5,000,000 shares, no shares issued or  outstanding at December 31, 2004 or 2005       |       | —                |       | — |   |
| Common  stock, par value $1 per share in 2004 and in 2005:                                            |       |                  |       |   |   |
| Authorized 300,000,000 shares, issued 152,191,818  shares in 2004 and 154,469,215 shares in 2005 |       | 152,192               |       | 154,469 |   |
| Additional paid-in capital                                                                            |       | 881,928               |       | 994,956 |   |
| Treasury stock—3,831,900 shares in 2004 and  10,262,143 shares in 2005                           |       | (223,361              | )          | (612,732 | ) |
| Retained earnings                                                                                     |       | 3,526,312             |       | 4,141,400 |   |
| Accumulated other comprehensive loss                                                                  |       | (44,827               | )          | (118,393 | ) |
| Total stockholders’ equity                                                                       |       | 4,292,244             |       | 4,559,700 |   |
| Total liabilities and  stockholders’ equity                                                      |       | $                     | 48,098,021 |   | $ | 49,416,002 |   |

----

(1)    In September 2005, Union Bank of California, N.A.committed to a plan for disposal of its international correspondent bankingbusiness. All prior periods presented have been restated to reflect thediscontinued operations.

See accompanying notes toconsolidated financial statements.

F-50

----

**UnionBanCal Corporation and SubsidiariesConsolidated Statementsof Changes in Stockholders’ Equity**

| ** **                                                             | ** ** | ** **         | ** ** | ** ** | ** ** | ** **     | ** ** | ** **   | ** ** | ** **   | ** ** | **Accumulated**        | ** ** | **Total**         | ** ** |
|------------------------------------------------------------------------|------------|--------------------|------------|------------|------------|----------------|------------|--------------|------------|--------------|------------|------------------------|------------|-------------------|------------|
| ** **                                                             | ** ** | ** **         | ** ** | ** ** | ** ** | **Additional** | ** ** | ** **   | ** ** | ** **   | ** ** | **other**              | ** ** | **stock-**        | ** ** |
| ** **                                                             | ** ** | **Number**         | ** ** | **Common** | ** ** | **paid-in**    | ** ** | **Treasury** | ** ** | **Retained** | ** ** | **comprehensive**      | ** ** | **holders’** | ** ** |
| **(In thousands, except shares)**                       | ** ** | **of shares** | ** ** | **stock**  | ** ** | **capital**    | ** ** | **stock**    | ** ** | **earnings** | ** ** | **income (loss)** | ** ** | **equity**        | ** ** |
| **BALANCE DECEMBER 31, 2002**                                          |       | 150,702,363        |       | $          | 926,460    |           | $          | —       |       | $            | —     |                   | $          | 2,591,635         |       |   | $ | 240,094 |   |   | $ | 3,758,189 |   |
| Comprehensive income                                                   |       |               |       |       |       |           |       |         |       |         |       |                   |       |              |       |   |   |
| Net income—2003                                                   |       |               |       |       |       |           |       |         |       | 587,139      |       |                   |       |              |       | 587,139 |   |
| Other  comprehensive income, net of tax:                               |       |               |       |       |       |           |       |         |       |         |       |                   |       |              |       |   |   |
| Net change in unrealized gains on cash flow hedges                     |       |               |       |       |       |           |       |         |       |         |       |                   | (60,582    | )                 |       | (60,582 | ) |
| Net change in unrealized gains on securities  available for sale  |       |               |       |       |       |           |       |         |       |         |       |                   | (124,915   | )                 |       | (124,915 | ) |
| Foreign currency translation adjustment                                |       |               |       |       |       |           |       |         |       |         |       |                   | 356        |              |       | 356 |   |
| Minimum pension liability adjustment                                   |       |               |       |       |       |           |       |         |       |         |       |                   | (2,711     | )                 |       | (2,711 | ) |
| Total comprehensive income                                             |       |               |       |       |       |           |       |         |       |         |       |                   |       |              |       | 399,287 |   |
| Reincorporation(3)                                                     |       |               |       | (520,876   | )          | 520,876        |       |         |       |         |       |                   |       |              |       | — |   |
| Dividend reinvestment plan                                             |       | 5,731              |       | 34         |       | 22             |       |         |       |         |       |                   |       |              |       | 56 |   |
| Deferred compensation—restricted stock awards                     |       | 6,000              |       | 282        |       |           |       |         |       | (46          | )          |                   |       |              |       | 236 |   |
| Stock options exercised                                                |       | 1,912,323          |       | 36,686     |       | 34,258         |       |         |       |         |       |                   |       |              |       | 70,944 |   |
| Stock issued in acquisitions                                           |       | 1,149,106          |       | 48,254     |       |           |       |         |       |         |       |                   |       |              |       | 48,254 |   |
| Common stock repurchased(1)                                            |       | (7,775,367         | )          | (344,840   | )          |           |       | (12,846      | )          |         |       |                   |       |              |       | (357,686 | ) |
| Dividends declared on common stock, $1.21 per share(2)                 |       |               |       |       |       |           |       |         |       | (178,844     | )          |                   |       |              |       | (178,844 | ) |
| Net change                                                             |       |               |       | (780,460   | )          | 555,156        |       | (12,846      | )          | 408,249      |       |                   | (187,852   | )                 |       | (17,753 | ) |
| **BALANCE DECEMBER 31, 2003**                                          |       | 146,000,156        |       | $          | 146,000    |           | $          | 555,156      |       | $            | (12,846    | )                      | $          | 2,999,884         |       |   | $ | 52,242 |   |   | $ | 3,740,436 |   |
| Comprehensive income                                                   |       |               |       |       |       |           |       |         |       |         |       |                   |       |              |       |   |   |
| Net income—2004                                                   |       |               |       |       |       |           |       |         |       | 732,534      |       |                   |       |              |       | 732,534 |   |
| Other  comprehensive income, net of tax:                               |       |               |       |       |       |           |       |         |       |         |       |                   |       |              |       |   |   |
| Net change in unrealized losses on cash flow hedges                    |       |               |       |       |       |           |       |         |       |         |       |                   | (42,357    | )                 |       | (42,357 | ) |
| Net change in unrealized losses on securities  available for sale |       |               |       |       |       |           |       |         |       |         |       |                   | (54,231    | )                 |       | (54,231 | ) |
| Foreign currency translation adjustment                                |       |               |       |       |       |           |       |         |       |         |       |                   | 2,423      |              |       | 2,423 |   |
| Minimum pension liability adjustment                                   |       |               |       |       |       |           |       |         |       |         |       |                   | (2,904     | )                 |       | (2,904 | ) |
| Total comprehensive income                                             |       |               |       |       |       |           |       |         |       |         |       |                   |       |              |       | 635,465 |   |
| Dividend reinvestment plan                                             |       | 308                |       | 1          |       | 16             |       |         |       |         |       |                   |       |              |       | 17 |   |
| Deferred compensation—restricted stock awards                     |       | 16,000             |       | 16         |       | 968            |       |         |       | (583         | )          |                   |       |              |       | 401 |   |
| Stock options exercised                                                |       | 1,918,011          |       | 1,918      |       | 78,391         |       |         |       |         |       |                   |       |              |       | 80,309 |   |
| Stock issued in acquisitions                                           |       | 4,257,343          |       | 4,257      |       | 247,571        |       |         |       |         |       |                   |       |              |       | 251,828 |   |
| Common stock repurchased(1)                                            |       |               |       |       |       | (174           | )          | (210,515     | )          |         |       |                   |       |              |       | (210,689 | ) |
| Dividends declared on common stock, $1.39 per share(2)                 |       |               |       |       |       |           |       |         |       | (205,523     | )          |                   |       |              |       | (205,523 | ) |
| Net change                                                             |       |               |       | 6,192      |       | 326,772        |       | (210,515     | )          | 526,428      |       |                   | (97,069    | )                 |       | 551,808 |   |
| **BALANCE DECEMBER 31, 2004**                                          |       | 152,191,818        |       | $          | 152,192    |           | $          | 881,928      |       | $            | (223,361   | )                      | $          | 3,526,312         |       |   | $ | (44,827 | ) |   | $ | 4,292,244 |   |
| Comprehensive income                                                   |       |               |       |       |       |           |       |         |       |         |       |                   |       |              |       |   |   |
| Net income—2005                                                   |       |               |       |       |       |           |       |         |       | 862,933      |       |                   |       |              |       | 862,933 |   |
| Other  comprehensive income, net of tax:                               |       |               |       |       |       |           |       |         |       |         |       |                   |       |              |       |   |   |
| Net change in unrealized losses on cash flow hedges                    |       |               |       |       |       |           |       |         |       |         |       |                   | (35,737    | )                 |       | (35,737 | ) |
| Net change in unrealized losses on securities  available for sale |       |               |       |       |       |           |       |         |       |         |       |                   | (42,403    | )                 |       | (42,403 | ) |
| Foreign currency translation adjustment                                |       |               |       |       |       |           |       |         |       |         |       |                   | 8,134      |              |       | 8,134 |   |
| Minimum pension liability adjustment                                   |       |               |       |       |       |           |       |         |       |         |       |                   | (3,560     | )                 |       | (3,560 | ) |
| Total comprehensive income                                             |       |               |       |       |       |           |       |         |       |         |       |                   |       |              |       | 789,367 |   |
| Deferred compensation—restricted stock awards                     |       | 399,489            |       | 399        |       | 25,242         |       |         |       | (18,072      | )          |                   |       |              |       | 7,569 |   |
| Stock options exercised                                                |       | 1,877,908          |       | 1,878      |       | 87,786         |       |         |       |         |       |                   |       |              |       | 89,664 |   |
| Common stock repurchased(1)                                            |       |               |       |       |       |           |       | (389,371     | )          |         |       |                   |       |              |       | (389,371 | ) |
| Dividends declared on common stock, $1.59 per share(2)                 |       |               |       |       |       |           |       |         |       | (229,773     | )          |                   |       |              |       | (229,773 | ) |
| Net change                                                             |       |               |       | 2,277      |       | 113,028        |       | (389,371     | )          | 615,088      |       |                   | (73,566    | )                 |       | 267,456 |   |
| **BALANCE  DECEMBER 31, 2005**                                         |       | 154,469,215        |       | $          | 154,469    |           | $          | 994,956      |       | $            | (612,732   | )                      | $          | 4,141,400         |       |   | $ | (118,393 | ) |   | $ | 4,559,700 |   |

----

(1)       Common stock repurchased includes commission costs. Allrepurchases subsequent to September 29, 2003, are reflected in TreasuryStock.

(2)       Dividends are based on UnionBanCal Corporation’s sharesoutstanding as of the declaration date.

(3)       On September 30, 2003, UnionBanCal Corporationchanged its state of incorporation from California to Delaware, establishing apar value of $1 per share of common stock.

See accompanying notes to consolidated financialstatements.

F-51

----

**UnionBanCalCorporation and SubsidiariesConsolidated Statements of Cash Flows**

| ** **                                                                                           | ** ** | **For the Twelve Months** | ** ** |
|------------------------------------------------------------------------------------------------------|------------|------------------------------------------|------------|
| ** **                                                                                           | ** ** | **Ended December 31,**         | ** ** |
| **(Dollars in thousands)**                                                                 | ** ** | **2003**                                 | ** ** | **2004** | ** ** | **2005** | ** ** |
| **Cash Flows from Operating  Activities:**                                                           |       |                                     |       |   |   |   |   |
| Net income                                                                                           |       | $                                        | 587,139    |   | $ | 732,534 |   | $ | 862,933 |   |
| Income from discontinued operations, net of taxes                                                    |       | 34,605                                   |       | 22,460 |   | 132,293 |   |
| Income from continuing operations, net of taxes                                                      |       | 552,534                                  |       | 710,074 |   | 730,640 |   |
| Adjustments to reconcile net  income to net cash provided by operating activities:                   |       |                                     |       |   |   |   |   |
| (Reversal of) provision for loan losses                                                              |       | 72,799                                   |       | (45,757 | ) | (50,683 | ) |
| Provision for losses on off-balance sheet commitments                                                |       | —                                   |       | — |   | 4,000 |   |
| Depreciation, amortization and accretion                                                             |       | 137,183                                  |       | 155,890 |   | 157,616 |   |
| Provision for deferred income taxes                                                                  |       | 49,269                                   |       | 76,708 |   | 65,230 |   |
| Losses on sales of securities available for sale, net                                                |       | 1,851                                    |       | 12,085 |   | 50,039 |   |
| Net increase in prepaid expenses                                                                     |       | (85,250                                  | )          | (89,434 | ) | (150,286 | ) |
| Net (increase) decrease in fees and other charges receivable                                         |       | 29,845                                   |       | (15,721 | ) | 100,730 |   |
| Net increase (decrease) in accrued expenses                                                          |       | (90,108                                  | )          | (12,859 | ) | 12,530 |   |
| Net increase (decrease) in unearned and deferred  income                                             |       | (6,919                                   | )          | 20,397 |   | 104,468 |   |
| Net (increase) decrease in trading account assets                                                    |       | 22,822                                   |       | 16,181 |   | (76,816 | ) |
| Net increase (decrease) in other liabilities                                                         |       | (80,117                                  | )          | 20,472 |   | 152,531 |   |
| Net increase in other assets, net of acquisitions                                                    |       | (195,630                                 | )          | (136,120 | ) | (377,292 | ) |
| Loans originated for resale                                                                          |       | (306,510                                 | )          | (1,046,833 | ) | (145,671 | ) |
| Net proceeds from loans originated for resale                                                        |       | 336,794                                  |       | 931,324 |   | 218,068 |   |
| Restricted stock granted                                                                             |       | 236                                      |       | 401 |   | 7,569 |   |
| Other, net                                                                                           |       | 41,142                                   |       | 139,285 |   | 14,512 |   |
| Discontinued operations, net                                                                         |       | 77,835                                   |       | (320 | ) | 243,509 |   |
| Total adjustments                                                                                    |       | 5,242                                    |       | 25,699 |   | 330,054 |   |
| Net cash provided by operating activities                                                            |       | 557,776                                  |       | 735,773 |   | 1,060,694 |   |
| **Cash Flows from Investing  Activities:**                                                           |       |                                     |       |   |   |   |   |
| Proceeds from sales of securities available for sale                                                 |       | 274,856                                  |       | 1,046,055 |   | 1,580,353 |   |
| Proceeds from matured and called securities available  for sale                                      |       | 3,368,798                                |       | 3,741,945 |   | 2,965,067 |   |
| Purchases of securities available for sale, net of  acquisitions                                     |       | (7,363,168                               | )          | (4,879,266 | ) | (1,715,882 | ) |
| Net purchases of premises and equipment                                                              |       | (95,027                                  | )          | (109,418 | ) | (98,353 | ) |
| Net (increase) decrease in loans, net of acquisitions                                                |       | 1,257,648                                |       | (2,984,288 | ) | (4,076,331 | ) |
| Net cash used in acquisitions                                                                        |       | (60,920                                  | )          | (101,359 | ) | — |   |
| Other, net                                                                                           |       | 1,626                                    |       | 900 |   | 25 |   |
| Discontinued operations, net                                                                         |       | (89,330                                  | )          | (40,245 | ) | 873,020 |   |
| Net cash used in investing activities                                                                |       | (2,705,517                               | )          | (3,325,676 | ) | (472,101 | ) |
| **Cash Flows from Financing  Activities:**                                                           |       |                                     |       |   |   |   |   |
| Net increase in deposits, net of acquisitions                                                        |       | 2,370,095                                |       | 2,937,950 |   | 1,362,734 |   |
| Net increase  (decrease) in federal funds purchased and securities sold under repurchase  agreements |       | (53,411                                  | )          | 220,681 |   | 64,280 |   |
| Net increase  (decrease) in commercial paper and other borrowed funds                                |       | (551,671                                 | )          | 243,078 |   | (182,924 | ) |
| Proceeds from issuance of debt                                                                       |       | 398,548                                  |       | — |   | — |   |
| Redemption of junior subordinated debt                                                               |       | —                                   |       | (360,825 | ) | — |   |
| Common stock repurchased                                                                             |       | (357,686                                 | )          | (210,689 | ) | (389,371 | ) |
| Payments of cash dividends                                                                           |       | (175,795                                 | )          | (197,198 | ) | (224,218 | ) |
| Stock options exercised                                                                              |       | 70,944                                   |       | 80,309 |   | 89,664 |   |
| Other, net                                                                                           |       | 412                                      |       | 2,440 |   | 8,134 |   |
| Discontinued operations, net                                                                         |       | (145,353                                 | )          | (128,147 | ) | (547,660 | ) |
| Net cash provided by financing activities                                                            |       | 1,556,083                                |       | 2,587,599 |   | 180,639 |   |
| Net increase (decrease) in cash and cash equivalents                                                 |       | (591,658                                 | )          | (2,304 | ) | 769,232 |   |
| Cash and cash equivalents at beginning of year                                                       |       | 3,793,393                                |       | 3,201,875 |   | 3,199,854 |   |
| Effect of exchange rate changes on cash and cash  equivalents                                        |       | 140                                      |       | 283 |   | 790 |   |
| Cash and cash equivalents at end of year                                                             |       | $                                        | 3,201,875  |   | $ | 3,199,854 |   | $ | 3,969,876 |   |
| **Cash Paid During the Year For:**                                                                   |       |                                     |       |   |   |   |   |
| Interest                                                                                             |       | $                                        | 192,330    |   | $ | 175,146 |   | $ | 364,715 |   |
| Income taxes                                                                                         |       | 238,515                                  |       | 310,789 |   | 319,885 |   |
| **Supplemental Schedule of  Noncash Investing and Financing Activities:**                            |       |                                     |       |   |   |   |   |
| Acquisitions:                                                                                        |       |                                     |       |   |   |   |   |
| Fair value of assets acquired                                                                        |       | $                                        | 721,749    |   | $ | 2,577,765 |   | $ | — |   |
| Purchase price:                                                                                      |       |                                     |       |   |   |   |   |
| Cash                                                                                                 |       | (83,597                                  | )          | (201,522 | ) | — |   |
| Stock issued                                                                                         |       | (48,254                                  | )          | (251,828 | ) | — |   |
| Fair value of liabilities assumed                                                                    |       | $                                        | 589,898    |   | $ | 2,124,415 |   | $ | — |   |
| Loans transferred to  foreclosed assets (OREO) and/or distressed loans held for sale                 |       | $                                        | 6,381      |   | $ | 5,506 |   | $ | 1,310 |   |

 

See accompanying notes to consolidated financial statements.

F-52

----

**UnionBanCal Corporation and Subsidiaries**

**Notes to Consolidated Financial Statements December 31, 2003, 2004, and 2005**

**Note 1—Summary of SignificantAccounting Policies and Nature of Operations**

***Introduction***

UnionBanCal Corporation is a commercial bank holdingcompany and has, as its major subsidiary, a banking subsidiary, Union Bank ofCalifornia, N.A. (the Bank). UnionBanCal Corporation and its subsidiaries (theCompany) provide a wide range of financial services to consumers, smallbusinesses, middle-market companies and major corporations, primarily inCalifornia, Oregon, and Washington, and also nationally.

The Bank of Tokyo-MitsubishiUFJ, Ltd. (BTMU), which is a wholly-owned subsidiary of Mitsubishi UFJFinancial Group, Inc. (MUFG), owned approximately 63 percent ofthe Company’s outstanding common stock at December 31, 2005.

*Basis of FinancialStatement Presentation*

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

The Consolidated FinancialStatements include the accounts of the Company, and all material intercompanytransactions and balances have been eliminated. The preparation of financialstatements in conformity with US GAAP requires management to make estimates andassumptions that affect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities at the date of the financialstatements and the reported amounts of revenues and expenses during thereporting period. Actual results could differ from those estimates. Certainamounts for prior periods may have been reclassified to conform with currentfinancial statement presentation.

*Cash and Cash Equivalents*

For purposes of reportingcash flows, cash and cash equivalents include cash and due from banks, interestbearing deposits in banks, and federal funds sold and securities purchasedunder resale agreements, which have original maturities less than 90 days.

*Resale and RepurchaseAgreements*

Transactions involvingpurchases of securities under agreements to resell (reverse repurchaseagreements or reverse repos) or sales of securities under agreements torepurchase (repurchase agreements or repos) are accounted for as collateralizedfinancings except where the Company does not have an agreement to sell (orpurchase) the same or substantially the same securities before maturity at afixed or determinable price. The Company’s policy is to obtain possession ofcollateral with a market value equal to or in excess of the principal amountloaned under resale agreements. Collateral is valued daily, and the Company mayrequire counterparties to deposit additional collateral or return collateralpledged, when appropriate.

F-53

----

**UnionBanCal Corporation and Subsidiaries**

**Notes to Consolidated Financial Statements December 31, 2003, 2004, and 2005 (Continued)**

**Note 1—Summaryof Significant Accounting Policies and Nature of Operations (Continued)**

*Trading Account Assets*

Trading account assets consist of securities and loansthat management acquires with the intent to hold for short periods of time inorder to take advantage of anticipated changes in market values. Substantiallyall of the securities have a high degree of liquidity and readily determinablemarket value. Interest earned, paid, or accrued on trading account assets isincluded in interest income using a method that produces a level yield.Realized gains and losses from the sale or close-out of trading accountpositions and unrealized market value adjustments are recognized in noninterestincome.

Included in trading account assets are the unrealizedgains related to a variety of interest rate derivative contracts, primarilyswaps and options, energy derivative contracts and foreign exchange contracts,entered into either for trading purposes, based on management’s intent atinception, or as an accommodation to customers.

Derivatives held or issuedfor trading or customer accommodation are carried at fair value, with realizedand unrealized changes in fair values on contracts included in noninterest incomein the period in which the changes occur. Unrealized gains and losses arereported gross and included in trading account assets and other liabilities,respectively. Cash flows are reported net as operating activities. The reservefor credit exposures and administrative costs related to derivative and foreignexchange contracts is presented as an offset to trading account assets. Changesin the reserves for those contracts offset trading gains and losses innoninterest income.

*Securities Availablefor Sale*

The Company’s securities portfolio consists of debtand equity securities that are classified as securities available for sale.

Debt securities and equity securities with readilydeterminable market values that are not classified as trading account assetsare classified as securities available for sale and carried at fair value, withthe unrealized gains or losses reported net of taxes as a component ofaccumulated other comprehensive income (loss) in stockholders’ equity untilrealized.

Interest income on debt securities includes theamortization of premiums and the accretion of discounts using a method thatproduces a level yield and is included in interest income on securities.

The Company recognizes other-than-temporary impairmenton its securities available for sale portfolio cost when it is likely that itwill not recover its principal. A security is subject to quarterly impairmenttesting when its fair value is lower than its carrying value. The Companyexcludes from quarterly impairment testing debt securities that are backed bythe full faith and credit of the U.S. government or where the likelihood ofdefault is remote and purchased at a premium below 10 percent of par. Typicalsecurities in the portfolio that are subject to testing for other-than-temporaryimpairment are collateralized loan obligations (CLOs), commercial mortgageconduits and equity securities. In calculating the level ofother-than-temporary impairment, the Company considers expected cash flowsutilizing a number of assumptions such as recovery rates, default rates andreinvestment rates, business models, current and projected financialperformance, and overall economic market conditions.

F-54

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**UnionBanCal Corporation and Subsidiaries**

**Notes to Consolidated Financial Statements December 31, 2003, 2004, and 2005 (Continued)**

**Note 1—Summaryof Significant Accounting Policies and Nature of Operations (Continued)**

Realized gains and losses on the sale of andother-than-temporary impairment charges on available for sale securities areincluded in noninterest income as securities gains (losses), net. The specificidentification method is used to calculate realized gains or losses.

Securities available for salethat are pledged under an agreement to repurchase and which may be sold orrepledged under that agreement have been separately identified as pledged ascollateral.

*Loans Held forInvestment and Loans Held for Sale*

Loans are reported at the principal amountsoutstanding, net of unamortized nonrefundable loan fees and related direct loanorigination costs. Deferred net fees and costs related to loans held forinvestment are recognized in interest income generally over the contracted loanterm using a method that generally produces a level yield on the unpaid loanbalance. Nonrefundable fees and direct loan origination costs related to loansheld for sale are deferred and recognized as a component of the gain or loss onsale. Interest income is accrued principally on a simple interest basis. Loansheld for sale are carried at the lower of cost or market on an individual basisfor commercial loans and an aggregate basis for residential mortgage loans. Changesin value are recognized in other noninterest income.

Nonaccrual loans are those for which management hasdiscontinued accrual of interest because there exists significant uncertaintyas to the full and timely collection of either principal or interest or suchloans have become contractually past due 90 days with respect to principal orinterest.

Interest accruals are continued for certain smallbusiness loans that are processed centrally, consumer loans, and one-to-fourfamily residential mortgage loans. These loans are charged off or written downto their net realizable value based on delinquency time frames that range from120 to 270 days, depending on the type of credit that has been extended.Interest accruals are also continued for loans that are both well-secured andin the process of collection. For this purpose, loans are consideredwell-secured if they are collateralized by property having a net realizablevalue in excess of the amount of principal and accrued interest outstanding orare guaranteed by a financially responsible and willing party. Loans areconsidered “in the process of collection” if collection is proceeding in duecourse either through legal action or other actions that are reasonablyexpected to result in the prompt repayment of the debt or in its restoration tocurrent status.

When a loan is placed on nonaccrual, all previouslyaccrued but uncollected interest is reversed against current period operatingresults. All subsequent payments received are first applied to unpaid principaland then to uncollected interest. Interest income is accrued at such time asthe loan is brought fully current as to both principal and interest, and, inmanagement’s judgment, such a loan is considered to be fully collectible.However, Company policy also allows management to continue the recognition ofinterest income on certain loans designated as nonaccrual. This portion of thenonaccrual portfolio is referred to as “Cash Basis Nonaccrual” loans. Thispolicy only applies to loans that are well-secured and in management’s judgmentare considered to be fully collectible. Although the accrual of interest issuspended, any payments received may be applied to the loan according to itscontractual terms and interest income recognized when cash is received.

Loans are considered impaired when, based on current information, it isprobable that the Company will be unable to collect all amounts due accordingto the contractual terms of the loan agreement, 

F-55

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**UnionBanCal Corporation and Subsidiaries**

**Notes to Consolidated Financial Statements December 31, 2003, 2004, and 2005 (Continued)**

**Note 1—Summaryof Significant Accounting Policies and Nature of Operations (Continued)**

including interest payments. Impairedloans are carried at the lower of the recorded investment in the loan, theestimated present value of total expected future cash flows, discounted at theloan’s effective rate, or the fair value of the collateral, if the loan iscollateral dependent. Additionally, some impaired loans with commitments ofless than $2.5 million are aggregated for the purpose of measuring impairmentusing historical loss factors as a means of measurement. Excluded from theimpairment analysis are large groups of smaller balance homogeneous loans suchas consumer and residential mortgage loans.

The Company offers primarilytwo types of leases to customers: 1) direct financing leases where the assetsleased are acquired without additional financing from other sources, and 2)leveraged leases where a substantial portion of the financing is provided bydebt with no recourse to the Company. Direct financing leases are carried netof unearned income, unamortized nonrefundable fees and related direct costsassociated with the origination or purchase of leases. Leveraged leases arecarried net of nonrecourse debt.

*Allowance for LoanLosses*

The Company maintains an allowance for loan losses toabsorb losses inherent in the loan portfolio. The allowance is based onongoing, quarterly assessments of the probable estimated losses inherent in theloan portfolio. The allowance is increased by the provision for loan losses,which is charged against current period operating results and decreased by theamount of charge-offs, net of recoveries. The Company’s methodology forassessing the appropriateness of the allowance consists of several keyelements, which include the formula allowance, the specific allowance and theunallocated allowance.

The formula allowance is calculated by applying lossfactors to outstanding loans. Loss factors are based on the Company’shistorical loss experience and may be adjusted for significant factors that, inmanagement’s judgement, affect the collectibility of the portfolio as of theevaluation date. The Company derives the loss factors for most commercial loansfrom a loss migration model and, for pooled loans, by using expected netcharge-offs. Pooled loans are homogeneous in nature and include consumer andresidential mortgage loans, and certain small commercial loans. Estimatedlosses are based on a loss confirmation period, which is the estimated averageperiod of time between a material adverse event affecting the credit worthinessof a borrower for non-criticized, risk-graded credits or through the remaininglife of the loan for criticized, risk-graded credits, and the subsequentrecognition of a loss.

Specific allowances are established in cases wheremanagement has identified significant conditions or circumstances related to acredit that management believes indicate the probability that a loss has beenincurred in excess of the amount determined by the application of the formulaallowance.

The unallocated allowance is composed of attributionfactors, which are based upon management’s evaluation of various conditionsthat are not directly measured in the determination of the formula and specificallowances. The conditions evaluated in connection with the unallocatedallowance may include existing general economic and business conditionsaffecting the key lending areas of the Company, credit quality trends,collateral values, loan volumes and concentrations, specific industryconditions within portfolio segments, recent loss experience in particularsegments of the portfolio, duration of the current business cycle, bankregulatory examination results and findings of the Company’s internal creditexaminers.

F-56

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**UnionBanCal Corporation and Subsidiaries**

**Notes to Consolidated Financial Statements December 31, 2003, 2004, and 2005 (Continued)**

**Note 1—Summaryof Significant Accounting Policies and Nature of Operations (Continued)**

The allowance alsoincorporates the results of measuring impaired loans as provided in Statementof Financial Accounting Standards (SFAS) No. 114, “Accounting by Creditorsfor Impairment of a Loan” and SFAS No. 118, “Accounting by Creditors forImpairment of a Loan—Income Recognition and Disclosures.”  These accounting standards prescribe themeasurement methods, income recognition and disclosures related to impairedloans. A loan is considered impaired when management determines that it isprobable that the Company will be unable to collect all amounts due accordingto the original contractual terms of the loan agreement. Impairment is measuredby the difference between the recorded investment in the loan (includingaccrued interest, net deferred loan fees or costs and unamortized premium ordiscount) and the estimated present value of total 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 withcommitments of less than $2.5 million are aggregated for the purpose ofmeasuring impairment using historical loss factors as a means of measurement. Inaddition, the impairment allowance may include amounts related to certainqualitative factors that have yet to manifest themselves in the othermeasurements. Impairment is recognized as a component of the existing allowancefor loan losses.

*Premises and Equipment*

Premises and equipment are carried at cost, lessaccumulated depreciation and amortization. Depreciation and amortization arecalculated using the straight-line method over the estimated useful life ofeach asset. Lives of premises range from ten to forty years; lives offurniture, fixtures and equipment range from three to eight years. Leaseholdimprovements are amortized over the term of the respective lease or ten years,whichever is shorter.

Long-livedassets that are held or that are to be disposed of are evaluated periodicallyfor impairment when events or changes in circumstances indicate that thecarrying amount may not be recoverable. The impairment is calculated as thedifference between the expected undiscounted future cash flows of a long-livedasset, if lower, and its carrying value. In the event of an impairment, theCompany recognizes a loss for the difference between the carrying amount andthe estimated value of the asset as measured using a quoted market price or, inthe absence of a quoted market price, a discounted cash flow analysis. Theimpairment loss is reflected in noninterest expense.

*Intangible Assets*

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

Intangible assets that havefinite lives, which include core deposit intangibles and rights-to-expiration,are amortized either using the straight-line method or a method that patternsthe manner in which the economic benefit is consumed. Intangible assets aretypically amortized over their estimated period of benefit ranging from six tofifteen years, although some intangible assets may have useful lives whichextend to thirty years. The Company periodically evaluates the recoverabilityof intangible assets and takes into account events or circumstances thatwarrant revised estimates of useful lives or that indicate that impairmentexists.

F-57

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**UnionBanCal Corporation and Subsidiaries**

**Notes to Consolidated Financial Statements December 31, 2003, 2004, and 2005 (Continued)**

**Note 1—Summaryof Significant Accounting Policies and Nature of Operations (Continued)**

*Other Real EstateOwned*

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

*Distressed Loans Heldfor Sale*

Distressed loans held forsale are included in other assets in the consolidated financial statements andrepresent loans that the Company has identified as available for accelerateddisposition. These are loans that would otherwise be included in nonaccrual loans.Distressed loans are recorded at the lower of the unpaid principal balance orfair value. Any write-down at the date of transfer is charged to the allowancefor loan losses. Distressed loans, recorded in other assets, are reviewed on aquarterly basis and any decline in value is recognized in other noninterestincome during the period in which the decline occurs. At December 31, 2003,2004 and 2005, there were  no distressedloans held for sale.

*Private CapitalInvestments*

Private capital investments includedirect investments in private companies and indirect investments in privateequity funds. These investments are initially valued at cost and tested forother-than-temporary impairment on a quarterly basis if the carrying valueexceeds fair value. Fair value is estimated based on a company’s businessmodel, current and projected financial performance, liquidity and overalleconomic and market conditions. Any other-than-temporary impairment isrecognized in other noninterest income.

*Derivative InstrumentsHeld for Purposes Other Than Trading*

The Company enters into a variety of derivativecontracts as a means of reducing the Company’s interest rate and foreignexchange exposures. At inception, these contracts, i.e., hedging instruments,are evaluated in order to determine if the hedging instrument will be highlyeffective in achieving offsetting changes in the hedge instrument and hedgeditem attributable to the risk being hedged. Any ineffectiveness, which arisesduring the hedging relationship, is recognized in noninterest expense in theperiod in which it arises. All qualifying hedge instruments are valued at fairvalue and included in other assets or other liabilities. For fair value hedgesof interest bearing assets or liabilities, the change in the fair value of thehedged item and the hedging instrument, to the extent effective, is recognizedin net interest income. For all other fair value hedges, the changes in thefair value of the hedged item and changes in fair value of the derivative arerecognized in noninterest income. For cash flow hedges, the unrealized changesin fair value to the extent effective are recognized in other comprehensiveincome. Amounts realized on cash flow hedges related to variable rate loans anddeposit liabilities are recognized in net interest income in the period inwhich the cash flow from the hedged item is realized. When a qualifying cashflow hedge contract is terminated but the hedging relationship continues, theunrealized gain or loss on the terminated contract is recognized ratably overthe period in which the cash flow from the hedged item is realized. If thehedging relationship is discontinued, any unrealized gain or loss inaccumulated other comprehensive 

F-58

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**UnionBanCal Corporation and Subsidiaries**

**Notes to Consolidated Financial Statements December 31, 2003, 2004, and 2005 (Continued)**

**Note 1—Summaryof Significant Accounting Policies and Nature of Operations (Continued)**

income willbe recognized in noninterest expense. The fair value of cash flow hedgesrelated to forecasted transactions is recognized in noninterest expense in theperiod when the forecasted transaction occurs.

*Operating Leases*

The Company enters into avariety of lease contracts generally for premises and equipment. Leasecontracts that do not transfer substantially all of the benefits and risks ofownership and meet the criteria under SFAS No. 13 “Accounting for Leases”are treated as operating leases. The Company accounts for the payments of renton these contracts on a straight-line basis over the lease term. At inceptionof the lease term, any periods for which no rents are paid and/or escalationclauses are stipulated in the lease contract are included in the determinationof the rent expense and recognized ratably over the lease term.

*Foreign CurrencyTranslation*

Assets, liabilities and resultsof operations for foreign branches are recorded based on the functionalcurrency of each branch. Since the functional currency of the branches is thelocal currency, the net assets are remeasured into U.S. dollars using acombination of current and historical exchange rates. The resulting gains orlosses are included in stockholders’ equity, as a component of accumulatedother comprehensive income (loss), on a net of tax basis. Effective December 31,2005, the foreign exchange translation related to the internationalcorrespondent banking business was recognized as part of the gain from the saleand is included in discontinued operations.

*Income Taxes*

The Company filesconsolidated federal and combined state income tax returns. Amounts providedfor income tax expense are based on income reported for financial statementpurposes and do not necessarily represent amounts currently payable under taxlaws. Deferred taxes, which arise principally from temporary differencesbetween the period in which certain income and expenses are recognized forfinancial accounting purposes and the period in which they affect taxableincome, are included in the amounts provided for income taxes. Under thismethod, the computation of the net deferred tax liability or asset givescurrent recognition to changes in the tax laws.

*Net Income Per CommonShare*

Basic earnings per share(EPS) is computed by dividing net income by the weighted average number ofcommon shares outstanding during the period. Diluted EPS incorporates the dilutiveeffect of common stock equivalents outstanding on an average basis during theperiod. Stock options are a common stock equivalent. See discussion under “Stock-BasedCompensation,” which follows below and Note 16 of these consolidated financialstatements.

*Allowance for Losseson  Off-Balance Sheet Commitments*

The Company maintains an allowance for off-balancesheet commitments to absorb losses inherent in those commitments upon funding. Thecommitments include unfunded loans, standby letters of credit and commerciallines of credit that are not for sale. The Company’s methodology for assessingthe appropriateness of this allowance is the same as that used for theallowance for loan losses and incorporates an assumption based upon historicalinformation of likely utilization. See accounting policy 

F-59

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**UnionBanCal Corporation and Subsidiaries**

**Notes to Consolidated Financial Statements December 31, 2003, 2004, and 2005 (Continued)**

**Note 1—Summaryof Significant Accounting Policies and Nature of Operations (Continued)**

“*Allowance for Loan Losses*.”  The allowance for losses on off-balance sheetcommitments is classified as other liabilities and the change in this allowanceis recognized in noninterest expense.

*Stock-BasedCompensation*

As allowed under the provisions of SFAS No. 123, “Accountingfor Stock-Based Compensation,” as amended, the Company has chosen to continueto recognize compensation expense using the intrinsic value-based method ofvaluing stock options prescribed in Accounting Principles Board Opinion (APB) No. 25,“Accounting for Stock Issued to Employees” and related Interpretations. Underthe intrinsic value-based method, compensation cost is measured as the amountby which the quoted market price of the Company’s stock at the date of grantexceeds the stock option exercise price.

At December 31, 2005, the Company had two stock-basedemployee compensation plans, which are described more fully in Note 16 of theseconsolidated financial statements. The value of the restricted stock awardsissued under the plans has been reflected in compensation expense. Optionsgranted under the plans had an exercise price equal to the market value of theunderlying common stock on the date of grant and, therefore, were not includedin compensation expense as allowed by current US GAAP.

Thefollowing table illustrates the effect on net income, which includesdiscontinued operations, and corresponding earnings per share if the Companyhad applied the fair value recognition provisions of SFAS No. 123 tostock-based employee compensation. For the purpose of this disclosure, theCompany has recognized compensation expense for graded vesting on astraight-line basis and without regard for forfeitures.

| ** **                                                                                                 | ** **  | **For the Year Ended** | ** ** |
|------------------------------------------------------------------------------------------------------------|-------------|---------------------------------------|------------|
| **(Dollars in thousands)**                                                                       | ** **  | **2003**                              | ** ** | **2004** | ** ** | **2005** | ** ** |
| As reported net income                                                                                     |        | $                                     | 587,139    |   | $ | 732,534 |   | $ | 862,933 |   |
| Add: stock-based employee  compensation expense included in reported net income, net of income  taxes |        | 146                                   |       | 248 |   | 4,674 |   |
| Deduct: total stock-based  employee compensation expense, net of income taxes                         |        | 24,198                                |       | 25,377 |   | 24,491 |   |
| Pro forma net income, after  stock-based employee compensation expense                                |        | $                                     | 563,087    |   | $ | 707,405 |   | $ | 843,116 |   |
| Net income per common share—basic                                                                     |        |                                  |       |   |   |   |   |
|                                                                                                       | As reported |                                  | $          | 3.94 |   | $ | 4.96 |   | $ | 5.95 |   |
|                                                                                                       | Pro forma   |                                  | $          | 3.78 |   | $ | 4.79 |   | $ | 5.81 |   |
| Net income per common share—diluted                                                                   |        |                                  |       |   |   |   |   |
|                                                                                                       | As reported |                                  | $          | 3.90 |   | $ | 4.87 |   | $ | 5.84 |   |
|                                                                                                       | Pro forma   |                                  | $          | 3.74 |   | $ | 4.71 |   | $ | 5.73 |   |

 

Compensation cost associated with the Company’sunvested restricted stock issued under the management stock plan is measuredbased on the market price of the stock at the grant date and is expensed overthe vesting period. Compensation cost for unvested stock option awards is basedupon the fair value method.

Compensation cost associatedwith the Company’s Performance Share Plan, described more fully in Note 16 ofthese consolidated financial statements, is accounted for in accordance withAPB No. 25.

F-60

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**UnionBanCal Corporation and Subsidiaries**

**Notes to Consolidated Financial Statements December 31, 2003, 2004, and 2005 (Continued)**

**Note 1—Summary of SignificantAccounting Policies and Nature of Operations (Continued)**

*Employee Benefit andIncentive Plans and Other Postretirement Benefits*

The Company provides avariety of benefit and incentive compensation plans for eligible employees andretirees. Provisions for the costs of these employee benefit and incentiveplans and postretirement benefit plans are accrued and charged to expense whenthe benefit is earned.

*Segment Reporting*

Business unit results are based on an internalmanagement reporting system used by management to measure the performance ofthe units and the Company as a whole. The management reporting systemidentifies balance sheet and income statement items to each business unit basedon internal management accounting policies. Net interest income is determinedusing the Company’s internal funds transfer pricing system, which assigns acost of funds to assets or a credit for funds to liabilities and capital basedon their type, maturity or repricing characteristics. Noninterest income andexpense directly or indirectly attributable to a business unit are assigned tothat business. Economic capital is attributed to each business unit using aRisk Adjusted Return on Capital (RAROC) methodology, which seeks to allocatecapital to each business unit consistent with the level of risk it assumes.These risks are primarily credit risk, market risk and operational risk. Creditrisk is the potential loss in economic value due to the likelihood that theobligor will not perform as agreed. Market risk is the potential loss in fairvalue due to changes in interest rates, currency rates and volatilities.Operational risk is the potential loss due to all other factors, such asfailures in internal controls, system failures, or external events.

The Company’s operatingbusiness segments have been aggregated into two major components: consumer andcommercial. This aggregation groups the components by major classes ofcustomers and the products and services that are provided.

*Junior Subordinated DebtPayable to Subsidiary Grantor Trust (Trust Notes)*

Trust notes are accounted for as liabilities on thebalance sheet. Interest on trust notes is treated as interest expense on anaccrual basis.

Additional information on thetrust notes can be found in Note 14 of these consolidated financial statements.

*Treasury Stock*

In 2003, the Companyreincorporated in the State of Delaware and adopted the treasury stock methodof accounting for repurchases of common stock. The cost of common stockrepurchased is shown separately in the statement of changes in stockholders’equity and shares repurchased are deducted from shares outstanding untilretired. Gains and losses resulting from shares reissued are based on theaverage cost of shares repurchased. Gains and losses, up to the amount of gainspreviously recognized, are included in additional paid in capital. Losses inexcess of the gains previously recognized reduce retained earnings.

F-61

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**UnionBanCal Corporation and Subsidiaries**

**Notes to Consolidated Financial Statements December 31, 2003, 2004, and 2005 (Continued)**

**Note 1—Summaryof Significant Accounting Policies and Nature of Operations (Continued)**

*Recently IssuedAccounting Pronouncements*

*Accounting forShare-Based Payments*

InDecember 2004, the Financial Accounting Standards Board (FASB),issued SFAS No. 123 (revised 2004), “Share—Based Payment”. This Statementrequires that compensation costs related to share-based payment transactions berecognized in the financial statements. Measurement of the cost of employeeservice will be based on the grant-date fair value of the equity or liabilityinstruments issued. That cost will be recognized over the period during whichan employee is required to provide service in exchange for the award. Additionally,liability awards will be remeasured each reporting period. Statement 123Rreplaces SFAS No. 123, “Accounting for Stock-Based Compensation” andsupercedes APB Opinion No. 25, “Accounting for Stock Issued to Employees”.This Statement is effective for annual periods beginning after June 15,2005 and requires adoption using a modified prospective application or amodified retrospective application. However, on April 14, 2005, the SECissued rule 2005-57, which allows companies to delay implementationof the Statement to the beginning of the next fiscal year. The Company willadopt Statement 123R on January 1, 2006 under the modified prospectivemethod, which is expected, based upon current projections, to result in anincrease in noninterest expense of approximately $26 million for the year endedDecember 31, 2006. Disclosure required under SFAS No. 123 is shown inNote 1 of these consolidated financial statements.

*Exchanges ofNonmonetary Assets*

In December 2004, theFASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets, an amendmentof APB Opinion No. 29.” This Statement amends the principle that exchangesof nonmonetary assets should be measured based on the fair value of the assetsexchanged and more broadly provides for exceptions regarding exchanges ofnonmonetary assets that do not have commercial substance. This Statementspecifies that a nonmonetary exchange has commercial substance if the futurecash flows of the entity are expected to change significantly as a result ofthe exchange. The provisions of the Statement are effective for nonmonetaryasset exchanges occurring in fiscal periods beginning after June 15, 2005.At adoption, there was no impact on the Company’s financial position or resultsof operations.

*Accounting Changes andError Corrections*

In May 2005, the FASBissued SFAS No. 154, “Accounting Changes and Error Corrections, a replacementof APB Opinion No. 20 and FASB Statement No. 3.” The Statementrequires that a voluntary change in accounting principle be appliedretrospectively to all prior periods financial statements presented, unlessimpracticable to do so. It also provides that a change in method ofdepreciation or amortization for long-lived nonfinancial asset be accounted foras a change in accounting estimate effected by a change in accountingprinciple, with the change applied prospectively and that correction of errorsin previously issued financial statements should be termed a “restatement.” TheStatement is effective for fiscal years beginning after December 15, 2005.Management believes that adopting this Statement will not have a materialimpact on the Company’s financial position or results of operations.

*Accounting forConditional Asset Retirement Obligations*

In March 2005, the FASB issued Interpretation No. 47(FIN 47), “Accounting for Conditional Asset Retirement Obligations, aninterpretation of FASB Statement No. 143, “Accounting for Asset Retirement

F-62

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**UnionBanCal Corporation and Subsidiaries**

**Notes to Consolidated Financial Statements December 31, 2003, 2004, and 2005 (Continued)**

**Note 1—Summaryof Significant Accounting Policies and Nature of Operations (Continued)**

Obligations.”FIN 47 generally applies to long-lived assets and requires a liability to berecognized for a conditional asset retirement obligation if the fair value ofthat liability can be reasonably estimated. A conditional asset retirementobligation is defined as a legal obligation to perform an activity associatedwith an asset retirement in which the timing and/or method of settlement areconditional on a future event that may or may not occur or be within thecontrol of the company. A liability should be recognized when incurred (basedon its fair value at that date), which generally would be upon the acquisitionor construction of the related asset. Upon recognition, the offset to theliability would be capitalized as part of the cost of the asset and depreciatedover the estimated useful life of that asset. The Interpretation is effectiveno later than December 31, 2005. The Company adopted FIN 47 in the fourthquarter 2005 without material effect on its financial position or results ofoperations.

*Accounting for CertainLoans Acquired in a Transfer*

In December 2003, underclearance of the FASB, the Accounting Standards Executive Committee (AcSEC) ofthe AICPA issued Statement of Position (SOP) 03-3, “Accounting forCertain Loans or Debt Securities Acquired in a Transfer.” This SOP establishesaccounting standards for discounts on purchased loans when the discount isattributable to credit quality. The SOP requires that the loan discount, ratherthan contractual amounts, establish the investor’s estimate of undiscountedexpected future principal and interest cash flows as a benchmark for yield andimpairment measurements. The SOP prohibits the carryover or creation of avaluation allowance in the initial accounting for these loans. This SOP iseffective for loans acquired in years beginning after December 15, 2004. Atadoption, there was no impact on the Company’s financial position or results ofoperations.

*Determining Whether aGeneral Partner Controls a Limited Partnership*

In June 2005, the FASBratified Emerging Issues Task Force (EITF) Issue No. 04-5, “DeterminingWhether a General Partner, or the General Partners as a Group, Controls aLimited Partnership or Similar Entity When the Limited Partners Have CertainRights.” The EITF reached a consensus that the general partners in a limitedpartnership are presumed to control that limited partnership regardless of theextent of the general partners’ ownership interest in the limited partnership. Thepresumption of control by the general partner can be overcome if the limitedpartners have either (a) the substantive ability to dissolve the limitedpartnership or remove the general partners without cause or (b) substantiveparticipating rights. The guidance is effective for all limited partnershipscreated or modified after June 29, 2005 and for all existing limitedpartnerships beginning January 1, 2006. At adoption, there was no impacton the Company’s financial position or results of operations.

**Note 2—Discontinued Operations**

During the third quarter 2005, the Bank signed adefinitive agreement to sell its international correspondent banking operations(previously reported as the International Banking Group for segment reporting)to Wachovia Bank, N.A. effective October 6, 2005.

The principal legal closing of the transaction took place on October 6,2005, with the Bank receiving $245 million in cash from Wachovia Bank, N.A. TheBank may also earn a contingent payment not to exceed $45 million, based on theresults of conversion of the international correspondent banking customer 

F-63

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**UnionBanCal Corporation and Subsidiaries**

**Notes to Consolidated Financial Statements December 31, 2003, 2004, and 2005 (Continued)**

**Note 2—DiscontinuedOperations (Continued)**

base to Wachovia Bank, N.A. Anysuch contingent payment would be earned and received in the second quarter of2006.

At the principal closing, no loans or other assetswere acquired by Wachovia Bank, N.A., and no liabilities were assumed. The Bankcontinues to operate this international business, and will continue to do soover a transition period of several months, during which it is expected that amajority of the Bank’s international correspondent bank customers will transferto Wachovia Bank, N.A. In conjunction with the customer conversion processduring the fourth quarter of 2005 and the first half of 2006, it is expectedthat certain loans and other assets of the business will be acquired byWachovia Bank, N.A. and certain related liabilities may be assumed. At thattime, Wachovia Bank, N.A. will pay in cash to the Bank an amount equal to thenet book value of assets acquired less any liabilities assumed.

The Bank expects to complete its exit from theinternational correspondent banking business during the second quarter 2006. Ascustomers are transferred to Wachovia Bank, N.A. during the coming months, theBank’s international correspondent banking revenue will decline. Internationalcorrespondent banking expenses will also decline, but not necessarily at thesame rate as revenue.

The Company has accounted for this transaction as adiscontinued operation and restated its prior period financial statements. Theassets of the discontinued operations were reclassified as “held for sale” andaccounted for at the lower of cost or fair value less the costs to sell. Indetermining the timing for recognizing the transaction as a discontinuedoperation, the Bank concluded that the operations and cash flows of thedisposal group will be eliminated at the end of the transition period in thesecond quarter of 2006 and the Bank will not have any significant continuinginvolvement in the international correspondent banking business.

Interest expense was attributed to discontinuedoperations based on average net assets. The amount of interest expenseallocated to discontinued operations during the years ended December 31,2003, 2004 and 2005 was $3.0 million, $0.8 million and $15.5 million,respectively.

The gain from the sale was recognized in the fourthquarter of 2005 at the principal closing when cash proceeds of $245.0 millionwere received. The proceeds were offset by direct costs associated with thetransaction of $4.3 million and a foreign currency translation adjustment of$11.8 million, which was reclassified from accumulated other comprehensiveincome and included in noninterest income below. The net gain before incometaxes was $228.8 million. The decision to record the entire gain in the fourthquarter was based on the fact that the Bank had satisfied all of thecontractual business retention requirements and has no intention of re-enteringthat market.

During the fourth quarter, the initial severancereserve balance of $25.0 million decreased by $3.3 million. This reductionwas due to a $3.0 million decrease resulting from refinements to the originalseverance estimates and $0.3 million in payments to employees. The severancereserve balance at December 31, 2005 was $21.7 million.

F-64

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**UnionBanCal Corporation and Subsidiaries**

**Notes to Consolidated Financial Statements December 31, 2003, 2004, and 2005 (Continued)**

**Note 2—DiscontinuedOperations (Continued)**

At December 31, 2004 and2005, all assets related to the discontinued operations are recorded at thelower of cost or fair value, less costs of disposal. The assets and liabilitiesidentified as discontinued operations were comprised of the following:

| **(Dollars in thousands)**                                  | ** ** | **December 31,  2004** | ** ** | **December 31,  2005** | ** ** |
|-----------------------------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| **Assets**                                                            |       |                        |       |                        |       |
| Cash and due from  banks                                              |       | $                           | 133,763    |                        | $          | 119,158 |   |
| Interest bearing  deposits in banks                                   |       | 214,423                     |       | 138,762                     |       |
| Loans                                                                 |       | 1,599,541                   |       | 724,084                     |       |
| Due from customers  on acceptances                                    |       | 32,074                      |       | 42,612                      |       |
| Premises and  equipment                                               |       | 3,888                       |       | 1,409                       |       |
| Other assets                                                          |       | 34,721                      |       | 28,569                      |       |
| Assets of discontinued operations to be disposed or sold              |       | $                           | 2,018,410  |                        | $          | 1,054,594 |   |
| **Liabilities**                                                       |       |                        |       |                        |       |
| Noninterest bearing  deposits                                         |       | $                           | 541,467    |                        | $          | 446,953 |   |
| Interest bearing  deposits                                            |       | 914,863                     |       | 461,717                     |       |
| Other liabilities                                                     |       | 76,769                      |       | 97,189                      |       |
| Liabilities of  discontinued operations to be extinguished or assumed |       | $                           | 1,533,099  |                        | $          | 1,005,859 |   |

 

The components of income fromdiscontinued operations for the years ended December 31, 2003, 2004 and2005 are:

| ** **                                                | ** ** | **For the years ended December 31,** | ** ** |
|-----------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| **(Dollars in thousands)**                      | ** ** | **2003**                                                      | ** ** | **2004** | ** ** | **2005** | ** ** |
| Net interest income                                       |       | $                                                             | 21,562     |   | $ | 21,207 |   | $ | 20,252 |   |
| Provision for loan  losses                                |       | 2,201                                                         |       | 10,757 |   | 6,683 |   |
| Noninterest income                                        |       | 81,297                                                        |       | 76,482 |   | 298,725 |   |
| Noninterest expense                                       |       | 44,419                                                        |       | 50,593 |   | 106,712 |   |
| Income from  discontinued operations before income  taxes |       | 56,239                                                        |       | 36,339 |   | 205,582 |   |
| Income tax expense                                        |       | 21,634                                                        |       | 13,879 |   | 73,289 |   |
| Income from discontinued  operations                      |       | $                                                             | 34,605     |   | $ | 22,460 |   | $ | 132,293 |   |

 

Included in noninterestexpense for the year ended December 31, 2005 was approximately $22.0 millionof severance expense and an impairment of approximately $3.0 million related tothe write-off of software in development. In addition, compliance relatedexpenses were $2.1 million and $32.8 million for the years ended December 31,2004 and 2005, respectively.

The Consolidated Statementsof Cash Flows have been restated to reflect the impact of discontinuedoperations in operating, investing and financing activities.

F-65

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**UnionBanCal Corporation and Subsidiaries**

**Notes to Consolidated Financial Statements December 31, 2003, 2004, and 2005 (Continued)**

**Note 3—Securities**

Theamortized cost, gross unrealized gains, gross unrealized losses, and fairvalues of securities are presented below.

**SecuritiesAvailable For Sale**

| ** **                                | ** ** | **December 31,** | ** ** |
|-------------------------------------------|------------|-----------------------|------------|
| ** **                                | ** ** | **2003**              | ** ** | **2004** | ** ** | **2005** | ** ** |
| **(Dollars in thousands)**      | ** ** | **Fair  Value**       | ** ** | **Amortized  Cost** | ** ** | **Gross  Unrealized  Gains** | ** ** | **Gross  Unrealized  Losses** | ** ** | **Fair  Value** | ** ** | **Amortized  Cost** | ** ** | **Gross  Unrealized  Gains** | ** ** | **Gross  Unrealized  Losses** | ** ** | **Fair  Value** | ** ** |
| U.S. Treasury                             |       | $                     | 276,355    |   | $ | 52,417 |   |   | $ | 970 |   |   |   | $ | 12 |   |   | $ | 53,375 |   | $ | 50,246 |   |   | $ | — |   |   |   | $ | 287 |   |   | $ | 49,959 |   |
| Other U.S. government                     |       | 4,940,084             |       | 3,909,082 |   |   | 9,700 |   |   |   | 43,103 |   |   | 3,875,679 |   | 902,802 |   |   | 161 |   |   |   | 14,571 |   |   | 888,392 |   |
| Mortgage-backed  securities               |       | 5,155,539             |       | 6,025,470 |   |   | 28,532 |   |   |   | 50,576 |   |   | 6,003,426 |   | 5,351,677 |   |   | 7,798 |   |   |   | 123,941 |   |   | 5,235,534 |   |
| State and municipal                       |       | 46,177                |       | 69,562 |   |   | 4,825 |   |   |   | 260 |   |   | 74,127 |   | 65,620 |   |   | 4,152 |   |   |   | 378 |   |   | 69,394 |   |
| Asset-backed and debt  securities         |       | 337,286               |       | 1,123,504 |   |   | 6,778 |   |   |   | 8,398 |   |   | 1,121,884 |   | 1,906,583 |   |   | 14,214 |   |   |   | 7,172 |   |   | 1,913,625 |   |
| Equity securities                         |       | 3,359                 |       | 9,153 |   |   | 719 |   |   |   | 349 |   |   | 9,523 |   | 10,980 |   |   | 929 |   |   |   | 799 |   |   | 11,110 |   |
| Foreign securities                        |       | 1,146                 |       | 1,207 |   |   | — |   |   |   | — |   |   | 1,207 |   | 1,266 |   |   | — |   |   |   | — |   |   | 1,266 |   |
| Total securities available for  sale |       | $                     | 10,759,946 |   | $ | 11,190,395 |   |   | $ | 51,524 |   |   |   | $ | 102,698 |   |   | $ | 11,139,221 |   | $ | 8,289,174 |   |   | $ | 27,254 |   |   |   | $ | 147,148 |   |   | $ | 8,169,280 |   |

 

For the years ended December 31, 2003, 2004 and 2005, interestincome included $2.7 million, $3.6 million and $3.4 million, respectively, fromnon-taxable securities and dividend income of $1.2 million, $3.9 millionand $4.4 million, respectively, from equity securities.

The amortized cost and fairvalue of securities, by contractual maturity, are shown below. Expectedmaturities may differ from contractual maturities because borrowers may havethe right to call or prepay obligations, with or without call or prepaymentpenalties.

**Maturity Schedule of Securities**

| ** **                              | ** ** | **Securities  Available for Sale**(1) | ** ** |
|-----------------------------------------|------------|-------------------------------------------------|------------|
| ** **                              | ** ** | **December 31, 2005**                 | ** ** |
| **(Dollars in thousands)**    | ** ** | **Amortized  Cost**                             | ** ** | **Fair  Value** | ** ** |
| Due in one year or  less                |       | $                                               | 351,728    |   | $ | 348,542 |   |
| Due after one year  through five years  |       | 722,126                                         |       | 709,551 |   |
| Due after five years  through ten years |       | 1,700,215                                       |       | 1,672,566 |   |
| Due after ten years                     |       | 5,504,125                                       |       | 5,427,511 |   |
| Equity securities(2)                    |       | 10,980                                          |       | 11,110 |   |
| Total securities                        |       | $                                               | 8,289,174  |   | $ | 8,169,280 |   |

----

(1)            The remaining contractual maturities ofmortgage-backed securities are classified without regard to prepayments. The contractualmaturity of these securities is not a reliable indicator of their expected lifesince borrowers have the right to repay their obligations at any time.

(2)            Equity securities do not have a statedmaturity.

F-66

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**UnionBanCal Corporation and Subsidiaries**

**Notes to Consolidated Financial Statements December 31, 2003, 2004, and 2005 (Continued)**

**Note 3—Securities (Continued)**

In 2003, proceeds from salesof securities available for sale were $274.9 million with gross realized gainsof $5.2 million and gross realized losses of $7.1 million. In 2004, proceedsfrom sales of securities available for sale were $1.0 billion with grossrealized gains of $2.0 million and gross realized losses of $14.1 million.In 2005, proceeds from sales of securities available for sale were $1.6 billionwith gross realized gains of $0.7 million and gross realized losses of $50.7million.

**Analysisof Unrealized Losses on Securities Available for Sale**

At December 31,2005, the Company’s securities available for sale shown below were in acontinuous unrealized loss position for the periods less than 12 months and 12months or more.

| ** **                           | ** ** | **Less 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** | ** ** | **Count** | ** ** |
| U.S. Treasury                        |       | $                                      | 49,959     |                                 |       | $         | 287        |   |   |   | 1 |   |   | $ | — |   |   | $ | — |   |   |   | — |   |   | $ | 49,959 |   |   | $ | 287 |   |   |   | 1 |   |   |
| Other U.S. government                |       | 370,904                                |       |                                 | 6,062      |      |       |   | 13 |   |   | 372,888 |   |   | 8,509 |   |   |   | 12 |   |   | 743,792 |   |   | 14,571 |   |   |   | 25 |   |   |
| Mortgage-backed securities           |       | 1,862,527                              |       |                                 | 23,476     |      |       |   | 111 |   |   | 2,721,712 |   |   | 100,465 |   |   |   | 174 |   |   | 4,584,239 |   |   | 123,941 |   |   |   | 285 |   |   |
| State and municipal                  |       | 7,981                                  |       |                                 | 35         |      |       |   | 26 |   |   | 20,963 |   |   | 343 |   |   |   | 69 |   |   | 28,944 |   |   | 378 |   |   |   | 95 |   |   |
| Asset-backed and debt securities     |       | 509,347                                |       |                                 | 2,157      |      |       |   | 58 |   |   | 162,140 |   |   | 5,015 |   |   |   | 27 |   |   | 671,487 |   |   | 7,172 |   |   |   | 85 |   |   |
| Equity securities                    |       | 249                                    |       |                                 | 269        |      |       |   | 1 |   |   | 847 |   |   | 530 |   |   |   | 2 |   |   | 1,096 |   |   | 799 |   |   |   | 3 |   |   |
| Total securities available for sale  |       | $                                      | 2,800,967  |                                 |       | $         | 32,286     |   |   |   | 210 |   |   | $ | 3,278,550 |   |   | $ | 114,862 |   |   |   | 284 |   |   | $ | 6,079,517 |   |   | $ | 147,148 |   |   |   | 494 |   |   |

 

TheCompany’s securities are primarily investments in debt securities, which theCompany has the ability and intent to hold until recovery of the carrying value.The following describes the nature of the investments, the causes ofimpairment, the severity and duration of the impairment, if applicable, and adiscussion regarding how the Company has determined that the unrealized loss isnot other-than-temporary.

*U.S. TreasurySecurities*

U.S. Treasury securities aresecurities backed by the full faith and credit of the United States governmentand therefore have no risk of default. These securities are issued at a statedinterest rate and mature within two years. All of the unrealized losses on U.S.Treasury securities resulted from rising interest rates subsequent to purchase.Unrealized losses will decline as interest rates fall to the purchased yieldand as the securities approach maturity. Since the Company has the ability andintent to hold the U.S. Treasury securities until recovery of the carryingvalue, which could be maturity, the unrealized loss is considered temporary.

*Other U.S. GovernmentSecurities*

Other U.S. Government securities are securities issuedby one of the several Government-Sponsored Enterprises (GSEs) such as FannieMae, Freddie Mac, Federal Home Loan Banks or Federal Farm Credit Banks. Thesesecurities were issued with a stated interest rate and mature in less thanthree years. All of the unrealized losses on other U.S. Government securitiesresulted from rising interest rates subsequent to purchase. Unrealized losseswill decline as interest rates fall to the purchased yield and as the securities

F-67

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**UnionBanCal Corporation and Subsidiaries**

**Notes to Consolidated Financial Statements December 31, 2003, 2004, and 2005 (Continued)**

**Note 3—Securities(Continued)**

approachmaturity. Since the Company has the ability and intent to hold the other U.S.Government securities until recovery of the carrying value, which could bematurity, the unrealized loss is considered temporary.

*Mortgage-BackedSecurities*

Mortgage-backed securitiesare primarily securities guaranteed by a GSE such as Fannie Mae or Freddie Mac.These securities are collateralized by residential mortgage loans and may beprepaid at par prior to maturity. All of the unrealized losses on themortgage-backed securities resulted from rising interest rates subsequent topurchase. Because the likelihood of credit loss is remote, the securities areexcluded from the periodic evaluation of other-than-temporary impairment. Thesecurities are subject to the provisions of SFAS No. 91, “Accounting forNon-refundable Fees and Costs Associated with Originating or Acquiring Loansand Initial Direct Costs of Leases” and any purchased premiums in excess of thepar amount are evaluated for recoverability on a quarterly basis and the resultof that evaluation is recorded in interest income. Unrealized losses, beyondthe purchased premium, will decline as interest rates fall to the purchasedyield and as the securities approach contractual or expected maturity. Sincethe Company has the ability and intent to hold the mortgage-backed securitiesuntil recovery of the par amount, which could be maturity, the unrealized lossis considered temporary.

*State and MunicipalSecurities*

State and municipalsecurities are primarily securities issued by state and local governments tofinance operating expenses and various projects. These securities are issued ata stated interest rate and have varying expected maturities ranging up to 17years. The majority of the unrealized losses on the state and municipalsecurities resulted from rising interest rates subsequent to purchase, whichoccurred with the acquisition of Business Bank of California on January 16,2004. Unrealized losses will decline as interest rates fall to the purchasedyield and as the securities approach maturity. Since the Company has theability and intent to hold the state and municipal securities until recovery ofthe carrying value, which could be maturity, the unrealized loss is consideredtemporary.

*Asset-Backed and DebtSecurities*

Asset-backed and debtsecurities are primarily collateralized loan obligations that are highlyilliquid and for which fair values are difficult to obtain. Unrealized lossesarise from rising interest rates, widening credit spreads, credit quality ofthe underlying collateral, and the market’s opinion of the performance of thefund managers. Cash flow analysis of the underlying collateral provides anestimate of other-than-temporary impairment, which is performed quarterly onthose securities below Aa investment grade. Any security with a change incredit rating is also subject to cash flow analysis to determine whether or notan other-than-temporary impairment exists. During 2005, the Company recognized$0.6 million of other-than-temporary impairment. Since the Company is able andintends to hold these securities until recovery of the carrying value, theunrealized loss is considered temporary as of December 31, 2005.

*Equity Securities*

Equity securities consist of securities traded on anational exchange as part of the venture capital investment portfolio. Thesecurities in our portfolio in an unrealized loss position have suffereddeclines in 

F-68

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**UnionBanCal Corporation and Subsidiaries**

**Notes to Consolidated Financial Statements December 31, 2003, 2004, and 2005 (Continued)**

**Note 3—Securities(Continued)**

share pricedue to lower earnings results. At December 31, 2005, the Company had theintent and ability to hold these equity securities until recovery of thecarrying value.

**Collateral**

The Company reports securities pledged as collateralin secured borrowings and other arrangements when the secured party can sell orrepledge the securities. These securities have been separately identified. Ifthe secured party cannot resell or repledge the securities of the Company,those securities are not separately identified. As of December 31, 2004and 2005, the Company had collateral pledged for borrowings and to securepublic and trust department deposits of $2.7 billion and $2.9 billion, respectively.These secured parties are not permitted to resell or repledge those securities.

As of December 31, 2004and 2005, the Company had not accepted any collateral that it is permitted bycontract to sell or repledge.

**Note 4—Loans and Allowance forLoan Losses**

A summaryof loans, net of unearned interest and fees of $32 million and $13 million, at December 31,2004 and 2005, respectively, is as follows:

| ** **                              | ** ** | **December 31,** | ** ** |
|-----------------------------------------|------------|-----------------------|------------|
| **(Dollars in thousands)**    | ** ** | **2004**              | ** ** | **2005** | ** ** |
| Domestic:                               |       |                  |       |   |   |
| Commercial, financial and industrial(1) |       | $                     | 9,760,755  |   | $ | 11,231,150 |   |
| Construction                            |       | 1,130,071             |       | 1,447,292 |   |
| Mortgage:                               |       |                  |       |   |   |
| Residential                             |       | 9,538,150             |       | 11,380,728 |   |
| Commercial                              |       | 5,409,029             |       | 5,682,624 |   |
| Total mortgage                          |       | 14,947,179            |       | 17,063,352 |   |
| Consumer:                               |       |                  |       |   |   |
| Installment                             |       | 767,768               |       | 891,062 |   |
| Revolving lines of credit               |       | 1,581,864             |       | 1,610,680 |   |
| Total consumer                          |       | 2,349,632             |       | 2,501,742 |   |
| Lease financing                         |       | 609,090               |       | 579,593 |   |
| Total loans in domestic offices         |       | 28,796,727            |       | 32,823,129 |   |
| Loans originated in  foreign branches   |       | 194,788               |       | 219,805 |   |
| Total loans held for investment         |       | 28,991,515            |       | 33,042,934 |   |
| Total loans held for sale               |       | 117,900               |       | 52,661 |   |
| Total loans                             |       | 29,109,415            |       | 33,095,595 |   |
| Allowance for loan losses               |       | 399,156               |       | 351,532 |   |
| Loans, net                              |       | $                     | 28,710,259 |   | $ | 32,744,063 |   |

----

(1)            Included in commercial, financial andindustrial loans at December 31, 2004 and 2005 were overdrafts fromvarious deposit accounts of $77.8 million and $52.0 million, respectively.

F-69

----

**UnionBanCal Corporation and Subsidiaries**

**Notes to Consolidated Financial Statements December 31, 2003, 2004, and 2005 (Continued)**

**Note 4—Loansand Allowance for Loan Losses (Continued)**

Changes in the allowance forloan losses were as follows:

| ** **                                                              | ** ** | **Years Ended December 31,** | ** ** |
|-------------------------------------------------------------------------|------------|---------------------------------------------|------------|
| **(Dollars in thousands)**                                    | ** ** | **2003**                                    | ** ** | **2004** | ** ** | **2005** | ** ** |
| Balance, beginning  of year                                             |       | $                                           | 609,190    |   | $ | 532,910 |   | $ | 399,156 |   |
| Loans charged off                                                       |       | (209,586                                    | )          | (79,673 | ) | (46,545 | ) |
| Recoveries of loans  previously charged off                             |       | 50,091                                      |       | 55,597 |   | 49,555 |   |
| Total net loans charged off                                             |       | (159,495                                    | )          | (24,076 | ) | 3,010 |   |
| (Reversal of)  provision for loan losses                                |       | 72,799                                      |       | (45,757 | ) | (50,683 | ) |
| Foreign translation  adjustment and other net additions (deductions)(1) |       | 10,416                                      |       | (63,921 | ) | 49 |   |
| Ending balance of allowance for loan losses                             |       | $                                           | 532,910    |   | $ | 399,156 |   | $ | 351,532 |   |
| Allowance for  off-balance sheet commitment losses(1)(2)                |       | —                                      |       | 82,375 |   | 86,375 |   |
| Allowances for credit  losses balance, end of year                      |       | $                                           | 532,910    |   | $ | 481,531 |   | $ | 437,907 |   |

----

(1)            Includes $5.7 million related to theBusiness Bank of California acquisition and $12.6 million related to theJackson Federal Bank acquisition, both acquired in 2004. Also includes $10.3million related to the Monterey Bay Bank acquisition in 2003.

(2)            On December 31, 2004, UnionBanCalCorporation transferred the allowance for losses on off-balance sheetcommitments of $82.4 million from allowance for loan losses to otherliabilities. Prior periods have not been restated.

Nonaccrual loans totaled $142million and $59 million at December 31, 2004 and 2005, respectively. Therewere no renegotiated loans at December 31, 2004 and 2005.

*Loan Impairment*

Impaired loans of the Company include commercial,financial and industrial, construction and commercial mortgage loans designatedas nonaccrual. When the value of an impaired loan is less than the recordedinvestment in the loan, a portion of the Company’s allowance for loan losses isallocated as an impairment allowance.

The Company’s policy for recognition of interestincome, charge-offs of loans, and application of payments on impaired loans isthe same as the policy applied to nonaccrual loans.

F-70

----

**UnionBanCal Corporation and Subsidiaries**

**Notes to Consolidated Financial Statements December 31, 2003, 2004, and 2005 (Continued)**

**Note 4—Loansand Allowance for Loan Losses (Continued)**

The following table setsforth information about the Company’s impaired loans.

| ** **                                                                             | ** ** | **December 31,** | ** ** |
|----------------------------------------------------------------------------------------|------------|-----------------------|------------|
| **(Dollars in thousands)**                                                   | ** ** | **2003**              | ** ** | **2004** | ** ** | **2005** | ** ** |
| Impaired loans with an  allowance                                                      |       | $                     | 217,616    |   | $ | 81,015 |   | $ | 58,892 |   |
| Impaired loans without an  allowance(1)                                                |       | 11,141                |       | 6,664 |   | — |   |
| Total impaired loans(2)                                                                |       | $                     | 228,757    |   | $ | 87,679 |   | $ | 58,892 |   |
| Allowance for impaired  loans                                                          |       | $                     | 54,961     |   | $ | 24,282 |   | $ | 13,293 |   |
| Average balance of impaired  loans during the year                                     |       | $                     | 295,054    |   | $ | 139,221 |   | $ | 45,769 |   |
| Interest income recognized  during the year on nonaccrual loans at December 31(3) |       | $                     | 6,544      |   | $ | 25,750 |   | $ | 16,426 |   |

----

(1)            These loans do not require an allowancefor credit losses under SFAS No. 114 since the fair values of the impairedloans equal or exceed the recorded investments in the loans.

(2)            This amount was evaluated for impairmentusing three measurement methods as follows: $178 million, $41 million, and $45 millionwas evaluated using the present value of the expected future cash flows atDecember 31, 2003, 2004 and 2005, respectively; $38 million, $9 million,and $3 million was evaluated using the fair value of the collateral atDecember 31, 2003, 2004 and 2005, respectively; and $12 million, $38million, and $11 million was evaluated using historical loss factors atDecember 31, 2003, 2004 and 2005, respectively.

(3)            Reflects both interest income recognized on anaccrual-basis and on a cash-basis.

*Related Party Loans*

In some cases, the Company makesloans to related parties including its directors, executive officers, and theiraffiliated companies. At December 31, 2004, related party loansoutstanding to individuals who served as directors or executive officers andtheir affiliated companies at anytime during the year totaled $42 million, ascompared to $27 million at December 31, 2005. In the opinion ofmanagement, these related party loans were made on substantially the sameterms, including interest rates and collateral requirements, as those termsprevailing in the market at the date these loans were made. During 2004 and2005, there were no loans to related parties that were charged off. Additionally,at December 31, 2004 and 2005, there were no loans to related parties thatwere nonperforming.

During2004 and 2005, the Company made no loans to its majority stockholder, BTMU, norto any of its affiliates.

**Note 5—Goodwill and OtherIntangible Assets**

Upon adoption of SFAS No. 142 on January 1,2002, the amortization of existing goodwill ceased and the carrying amount ofgoodwill was allocated to the applicable reporting units. The allocation wasbased on the sources of previously recognized goodwill and the reporting unitsto which the related acquired net assets were assigned. Management’sexpectations of which reporting units had benefited from the synergies ofacquired businesses were considered in the allocation process. Annualimpairment testing for 2003, 2004 and 2005 resulted in no impairment ofgoodwill.

F-71

----

**UnionBanCal Corporation and Subsidiaries**

**Notes to Consolidated Financial Statements December 31, 2003, 2004, and 2005 (Continued)**

**Note 5—Goodwill and OtherIntangible Assets (Continued)**

The table below reflects theCompany’s identifiable intangible assets and accumulated amortization atDecember 31, 2004 and 2005.

| ** **                         | ** ** | **December 31, 2004** | ** ** | **December 31, 2005** | ** ** |
|------------------------------------|------------|---------------------------------|------------|---------------------------------|------------|
| ** **                         | ** ** | **Gross**                       | ** ** | ** **                      | ** ** | **Net** | ** ** | **Gross** | ** ** | ** ** | ** ** | **Net** | ** ** |
| ** **                         | ** ** | **Carrying**                    | ** ** | **Accumulated**                 | ** ** | **Carrying** | ** ** | **Carrying** | ** ** | **Accumulated** | ** ** | **Carrying** | ** ** |
| **Dollars in thousands** | ** ** | **Amount**                      | ** ** | **Amortization**                | ** ** | **Amount** | ** ** | **Amount** | ** ** | **Amortization** | ** ** | **Amount** | ** ** |
| Core Deposit  Intangibles          |       | $                               | 67,237     |                            |       | $ | (29,876 | ) |   | $ | 37,361 |   | $ | 67,237 |   |   | $ | (44,973 | ) |   | $ | 22,264 |   |
| Rights-to-Expiration               |       | 35,808                          |       |                            | (13,275    | ) |   | 22,533 |   | 36,608 |   |   | (17,595 | ) |   | 19,013 |   |
| Other                              |       | 2,100                           |       |                            | (257       | ) |   | 1,843 |   | 2,100 |   |   | (761 | ) |   | 1,339 |   |
| Total                              |       | $                               | 105,145    |                            |       | $ | (43,408 | ) |   | $ | 61,737 |   | $ | 105,945 |   |   | $ | (63,329 | ) |   | $ | 42,616 |   |

 

Totalamortization expense for 2003, 2004 and 2005 was $11.4 million, $19.5 millionand $19.9 million, respectively. 

| ** **                                               | ** ** | **Core Deposit  Intangibles** | ** ** | **Rights-to-  Expiration** | ** ** | **Other** | ** ** | **Total Identifiable  Intangible** | ** ** |
|----------------------------------------------------------|------------|------------------------------------|------------|----------------------------|------------|-----------|------------|-----------------------------------------|------------|
| Estimated amortization expense  for the years ending:    |       |                               |       |                       |       |      |       |                                    |       |   |   |   |   |
| 2006                                                     |       |                               | $          | 9,571                      |       |      | $          | 3,725                                   |       | $ | 389 |   |   | $ | 13,685 |   |   |
| 2007                                                     |       |                               | 5,471      |                       |       | 3,166     |       | 299                                     |       |   | 8,936 |   |   |
| 2008                                                     |       |                               | 3,245      |                       |       | 2,674     |       | 231                                     |       |   | 6,150 |   |   |
| 2009                                                     |       |                               | 1,763      |                       |       | 2,242     |       | 178                                     |       |   | 4,183 |   |   |
| 2010                                                     |       |                               | 807        |                       |       | 1,859     |       | 137                                     |       |   | 2,803 |   |   |
| thereafter                                               |       |                               | 1,407      |                       |       | 5,347     |       | 105                                     |       |   | 6,859 |   |   |
| Total amortization  expense after December 31, 2005 |       |                               | $          | 22,264                     |       |      | $          | 19,013                                  |       | $ | 1,339 |   |   | $ | 42,616 |   |   |

 

Thechanges in the carrying amount of goodwill during 2003, 2004 and 2005 are shownbelow. Corrections of errors in the recognition of deferred taxes related tocertain bank acquisitions are included in the table. These errors had no impacton net income.

| **(Dollars in thousands)**                       | ** ** | **2003** | ** ** | **2004** | ** ** | **2005** | ** ** |
|------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Balance,  January 1,                                  |       | $        | 150,542    |     | $          | 226,556  |       | $ | 450,961 |   |
| Acquired during the  twelve months ended December 31, |       | 74,403   |       | 246,671  |       | —   |       |
| Contingent period  adjustments                             |       | (1,603   | )          | —   |       | (1,466   | )          |
| Adjustment for  contingent consideration                   |       | 3,392    |       | 1,710    |       | 1,993    |       |
| Correction of an error                                     |       | (178     | )          | (23,976  | )          | 2,527    |       |
| Balance, December 31,                                 |       | $        | 226,556    |     | $          | 450,961  |       | $ | 454,015 |   |

 

On January 16, 2004, the Company completed itsacquisition of Business Bank of California, and initially recordedapproximately $86 million of goodwill and $16 million of core depositintangible. The core deposit intangible is being amortized on an acceleratedbasis over an estimated life of 6 years.

F-72

----

**UnionBanCal Corporation and Subsidiaries**

**Notes to Consolidated Financial Statements December 31, 2003, 2004, and 2005 (Continued)**

**Note 5—Goodwilland Other Intangible Assets (Continued)**

On August 1, 2004, the Company completed itsacquisition of the business portfolio of CNA Trust Company (CNAT), andinitially recorded approximately $3 million of goodwill, $7 million of coredeposit intangible and $2 million in other intangible assets. The identifiableintangibles are being amortized on an accelerated basis over their estimatedlife of 7 years.

On October 28, 2004, theCompany completed its acquisition of Jackson Federal Bank, and initiallyrecorded approximately $139 million of goodwill and $6 million of core depositintangible. The core deposit intangible is being amortized on an acceleratedbasis over an estimated life of 7 years.

**Note 6—Premises and Equipment**

Premisesand equipment are carried at cost, less accumulated depreciation andamortization. As of December 31, 2004 and 2005, the amounts were asfollows:

| ** **                           | ** ** | **December 31,** | ** ** |
|--------------------------------------|------------|-----------------------|------------|
| ** **                           | ** ** | **2004**              | ** ** | **2005** | ** ** |
| **(Dollars in thousands)** | ** ** | **Cost**              | ** ** | **Accumulated  Depreciation and  Amortization** | ** ** | **Net Book  Value** | ** ** | **Cost** | ** ** | **Accumulated  Depreciation and  Amortization** | ** ** | **Net Book  Value** | ** ** |
| Land                                 |       | $                     | 66,082     |   |   | $ | — |   |   | $ | 66,082 |   | $ | 65,250 |   |   | $ | — |   |   | $ | 65,250 |   |
| Premises                             |       | 432,147               |       |   | 195,345 |   |   | 236,802 |   | 468,213 |   |   | 216,160 |   |   | 252,053 |   |
| Leasehold  improvements              |       | 171,360               |       |   | 109,185 |   |   | 62,175 |   | 187,255 |   |   | 124,908 |   |   | 62,347 |   |
| Furniture, fixtures  and equipment   |       | 606,013               |       |   | 444,529 |   |   | 161,484 |   | 599,437 |   |   | 443,013 |   |   | 156,424 |   |
| Total                                |       | $                     | 1,275,602  |   |   | $ | 749,059 |   |   | $ | 526,543 |   | $ | 1,320,155 |   |   | $ | 784,081 |   |   | $ | 536,074 |   |

 

Rentaland depreciation and amortization expenses were as follows:

| ** **                                                  | ** ** | **Years Ended December 31,** | ** ** |
|-------------------------------------------------------------|------------|---------------------------------------------|------------|
| **(Dollars in thousands)**                        | ** ** | **2003**                                    | ** ** | **2004** | ** ** | **2005** | ** ** |
| Rental expense of  premises                                 |       | $                                           | 50,969     |   | $ | 55,989 |   | $ | 63,618 |   |
| Less: rental income                                         |       | 18,505                                      |       | 15,205 |   | 12,961 |   |
| Net rental expense                                          |       | $                                           | 32,464     |   | $ | 40,784 |   | $ | 50,657 |   |
| Other net rental (income)  expense, primarily for equipment |       | $                                           | (1,480     | ) | $ | (237 | ) | $ | 711 |   |
| Depreciation and  amortization of premises and equipment    |       | $                                           | 89,544     |   | $ | 87,756 |   | $ | 88,822 |   |

 

F-73

----

**UnionBanCal Corporation and Subsidiaries**

**Notes to Consolidated Financial Statements December 31, 2003, 2004, and 2005 (Continued)**

**Note 6—Premisesand Equipment (Continued)**

Future minimum lease paymentsare as follows:

| **(Dollars in thousands)**                                    | ** ** | **December 31, 2005** | ** ** |
|-------------------------------------------------------------------------|------------|---------------------------------|------------|
| Years ending  December 31,                                         |       |                            |       |   |   |
| 2006                                                                    |       |                            | $          | 54,189 |   |   |
| 2007                                                                    |       |                            | 47,999     |   |   |
| 2008                                                                    |       |                            | 43,696     |   |   |
| 2009                                                                    |       |                            | 39,139     |   |   |
| 2010                                                                    |       |                            | 33,517     |   |   |
| Later years                                                             |       |                            | 76,740     |   |   |
| Total minimum  operating lease payments                                 |       |                            | $          | 295,280 |   |   |
| Minimum rental income due  in the future under noncancellable subleases |       |                            | $          | 38,382 |   |   |

 

A majority of the leasesprovide for the payment of taxes, maintenance, insurance, and certain otherexpenses applicable to the leased premises. Many of the leases containextension provisions and escalation clauses.

**Note 7—Other Assets—Investments Carried at Cost**

The Company invests inprivate capital funds either directly in the privately held companies orindirectly through private equity funds. These investments are carried at cost.The investments’ fair value is estimated quarterly based on a company’sbusiness model, current and projected financial performance, liquidity andoverall economic and market conditions. If fair value is estimated to be belowcost, an evaluation for other-than-temporary impairment is performed. If any ofthe factors used to determine fair value indicate that a forecasted recovery isbeyond a reasonable period of time, an other-than-temporary impairment isrecorded. At December 31, 2004, private capital investments were carriedat cost of $97.0 million. At December 31, 2005, private capitalinvestments were carried at cost of $110.4 million and there were noinvestments in private capital equity securities or funds with costs in excessof fair value.

**Note 8—Deposits**

AtDecember 31, 2005, the Company had $637 million in domestic interestbearing time deposits with a remaining term of greater than one year, of which$183 million exceeded $100,000. Maturity information for all domestic interestbearing time deposits with a remaining term of greater than one year issummarized below.

| **(Dollars in thousands)**        | ** ** | **December 31, 2005** | ** ** |
|---------------------------------------------|------------|---------------------------------|------------|
| Due after one year  through two years       |       |                            | $          | 372,425 |   |   |
| Due after two years  through three years    |       |                            | 117,970    |   |   |
| Due after three  years through four years . |       |                            | 75,740     |   |   |
| Due after four years  through five years    |       |                            | 62,841     |   |   |
| Due after five years                        |       |                            | 8,318      |   |   |
| Total                                       |       |                            | $          | 637,294 |   |   |

 

F-74

----

**UnionBanCal Corporation and Subsidiaries**

**Notes to Consolidated Financial Statements December 31, 2003, 2004, and 2005 (Continued)**

**Note 9—Employee Benefit and IncentivePlans and Other Postretirement Benefits**

The following informationincludes both continuing and discontinued operations.

*Retirement Plan*

The Company maintains theUnion Bank of California, N.A. Retirement Plan (the Pension Plan), which is adomestic noncontributory defined benefit pension plan covering substantiallyall of the employees of the Company. The Pension Plan provides retirementbenefits based on years of credited service and the final average compensationamount, as defined in the Pension Plan. Employees become eligible for this planafter one year of service and become fully vested after five years of service.The Company’s funding policy is to make contributions between the minimumrequired and the maximum deductible amount as allowed by the Internal RevenueCode. Contributions are intended to provide not only for benefits attributed toservices to date, but also for those expected to be earned in the future. TheCompany also separately maintains foreign pension plans with an accruedliability of approximately $4 million. These plans are accounted for separatelyand are not included in the pension benefits table below.

*Other PostretirementBenefits*

*General*

The Company maintains theUnion Bank of California Employee Health Benefit Plan (the Health Plan), whichin part provides certain healthcare benefits for its retired employees and lifeinsurance benefits for those employees who retired prior to January 1,2001. The healthcare cost is shared between the Company and the retiree.The life insurance plan is noncontributory. The accounting for the HealthPlan anticipates future cost-sharing changes that are consistentwith the Company’s intent to maintain a level of cost-sharing atapproximately 25 to 50 percent, depending on age and service with the Company.Assets set aside to cover such obligations are primarily invested in mutualfunds and insurance contracts.

*Prescription DrugBenefits*

In 2004, the Company recorded a $6.1 million reductionin employee benefit expense associated with the remeasurement of ourpostretirement benefits as a result of the Medicare Prescription Drug,Improvement and Modernization Act of 2003 (“The Act”). The reduction isattributable to a federal subsidy provided by The Act to employers that sponsorretiree health care plans with drug benefits that are equivalent to thoseoffered under Medicare Part D. The effect of the subsidy on themeasurement of net periodic postretirement benefit cost for the year ended December 31,2004 included a  $3.1 million actuarialexperience gain, a $1.1 million reduction in service cost, and a $1.9 millionreduction in interest cost on the accumulated postretirement benefit obligation(APBO). The effect of the subsidy related to benefits attributed to pastservice in measuring the Company’s January 1, 2004 APBO was a reduction of$30.8 million related to benefits attributed to past service. This is reflectedin the 2004 actuarial gain of $35.9 million in the benefit obligations forother benefits noted below.

F-75

----

**UnionBanCal Corporation and Subsidiaries**

**Notes to Consolidated Financial Statements December 31, 2003, 2004, and 2005 (Continued)**

**Note 9—EmployeeBenefit and Incentive Plans and Other Postretirement Benefits(Continued)**

The following table setsforth the fair value of the assets in the Company’s defined benefit pensionplan and its other postretirement benefit plan as of December 31, 2003,2004 and 2005.

| ** **                                    | ** ** | **Pension Benefits**                   | ** ** | **Other Benefits**                     | ** ** |
|-----------------------------------------------|------------|---------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                    | ** ** | **Years Ended December 31,** | ** ** | **Years Ended December 31,** | ** ** |
| **(Dollars in thousands)**          | ** ** | **2003**                                    | ** ** | **2004**                                    | ** ** | **2005** | ** ** | **2003** | ** ** | **2004** | ** ** | **2005** | ** ** |
| **Change  in plan assets**                    |       |                                        |       |                                        |       |   |   |   |   |   |   |   |   |
| Fair value of plan  assets, beginning of year |       | $                                           | 660,140    |                                        | $          | 904,878 |   | $ | 1,082,823 |   | $ | 81,536 |   | $ | 106,245 |   | $ | 122,600 |   |
| Actual return on plan  assets                 |       | 168,416                                     |       | 104,649                                     |       | 93,729 |   | 17,842 |   | 10,872 |   | 6,859 |   |
| Employer contribution                         |       | 100,000                                     |       | 100,000                                     |       | 182,000 |   | 16,627 |   | 15,286 |   | 16,952 |   |
| Plan participants’  contributions        |       | —                                      |       | —                                      |       | — |   | 1,968 |   | 2,444 |   | 2,612 |   |
| Benefits paid                                 |       | (23,678                                     | )          | (26,704                                     | )          | (26,291 | ) | (11,728 | ) | (12,247 | ) | (11,867 | ) |
| Fair value of plan assets,  end of year       |       | $                                           | 904,878    |                                        | $          | 1,082,823 |   | $ | 1,332,261 |   | $ | 106,245 |   | $ | 122,600 |   | $ | 137,156 |   |

 

TheCompany’s actual period-end asset allocation for the Pension Plan and HealthPlan, by asset category, was as follows:

| ** **                       | ** ** | **Pension Plan** | ** ** | **Health Plan**  | ** ** |
|----------------------------------|------------|------------------|------------|------------------|------------|
| ** **                       | ** ** | **December 31,** | ** ** | **December 31,** | ** ** |
| **Asset Category**          | ** ** | **2003**         | ** ** | **2004**         | ** ** | **2005** | ** ** | **2003** | ** ** | **2004** | ** ** | **2005** | ** ** |
| Domestic equity  securities      |       |             | 48         | %                |       |   | 50 | % |   |   | 49 | % |   |   | 30 | % |   |   | 31 | % |   |   | 32 | % |   |
| International equity  securities |       |             | 21         | %                |       |   | 22 | % |   |   | 22 | % |   |   | 13 | % |   |   | 14 | % |   |   | 15 | % |   |
| Fixed income debt  securities    |       |             | 29         | %                |       |   | 28 | % |   |   | 29 | % |   |   | 25 | % |   |   | 28 | % |   |   | 28 | % |   |
| Insurance contracts              |       |             | 0          | %                |       |   | 0 | % |   |   | 0 | % |   |   | 30 | % |   |   | 26 | % |   |   | 24 | % |   |
| Cash and cash  equivalents       |       |             | 2          | %                |       |   | 0 | % |   |   | 0 | % |   |   | 2 | % |   |   | 1 | % |   |   | 1 | % |   |
| Total                            |       |             | 100        | %                |       |   | 100 | % |   |   | 100 | % |   |   | 100 | % |   |   | 100 | % |   |   | 100 | % |   |

 

The investment objective for the Company’s PensionPlan and Health Plan is to maximize total return within reasonable and prudentlevels of risk. The Plans’ asset allocation strategy is the principaldeterminant in achieving expected investment returns on the Plans’ assets. Theasset allocation strategy favors equities, with a target allocation of 70percent equity securities and 30 percent debt securities. Additionally, theHealth Plan holds investments in an insurance contract with Hartford Life thatis separate from the target allocation. Actual asset allocations may fluctuatewithin acceptable ranges due to market value variability.  If market fluctuations cause an asset class tofall outside of its strategic asset allocation range, the portfolio will berebalanced as appropriate. A core equity position of domestic large cap andsmall cap stocks will be maintained, in conjunction with a diversifiedportfolio of international equities and fixed income securities. Plan assetperformance is compared against established indices and peer groups to evaluatewhether the risk associated with the portfolio is appropriate for the level ofreturn.

The Company, aided by an independent advisor, periodically reconsidersthe appropriate strategic asset allocation and the expected long-term rate ofreturn for plan assets. The independent advisor evaluates the investment returnvolatility of different asset classes and compares the liability structure ofthe Company’s plan to those of other companies, while considering the Company’sfunding policy to maintain a funded status sufficient to meet participants’ benefitobligations, and reducing long-term funding requirements and pension costs. Basedon this information, the Company updates its asset allocation 

F-76

----

**UnionBanCal Corporation and Subsidiaries**

**Notes to Consolidated Financial Statements December 31, 2003, 2004, and 2005 (Continued)**

**Note 9—EmployeeBenefit and Incentive Plans and Other Postretirement Benefits (Continued)**

strategy and targetinvestment allocation percentages for the assets of the plan, as well asadopting an expected long-term rate of return.

The following table sets forth the benefit obligationactivity and funded status for each of the Company’s plans as follows:

| ** **                             | ** ** | **Pension Benefits**                   | ** ** | **Other Benefits**                     | ** ** |
|----------------------------------------|------------|---------------------------------------------|------------|---------------------------------------------|------------|
| ** **                             | ** ** | **Years Ended December 31,** | ** ** | **Years Ended December 31,** | ** ** |
| **(Dollars in thousands)**   | ** ** | **2003**                                    | ** ** | **2004**                                    | ** ** | **2005** | ** ** | **2003** | ** ** | **2004** | ** ** | **2005** | ** ** |
| **Change  in benefit obligation**      | ** ** | ** **                                  | ** ** | ** **                                  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Benefit obligation,  beginning of year |       | $                                           | 726,099    |                                        | $          | 819,552 |   | $ | 1,011,300 |   | $ | 157,957 |   | $ | 182,408 |   | $ | 147,625 |   |
| Service cost                           |       | 32,867                                      |       | 37,659                                      |       | 45,530 |   | 5,180 |   | 5,643 |   | 6,204 |   |
| Interest cost                          |       | 47,500                                      |       | 52,240                                      |       | 58,351 |   | 10,562 |   | 9,438 |   | 8,461 |   |
| Plan participants’  contributions |       | —                                      |       | —                                      |       | — |   | 1,968 |   | 2,444 |   | 2,612 |   |
| Amendments(1)                          |       | —                                      |       | —                                      |       | — |   | — |   | (4,109 | ) | — |   |
| Actuarial loss (gain)                  |       | 36,765                                      |       | 128,553                                     |       | 87,848 |   | 18,469 |   | (35,952 | ) | 14,548 |   |
| Benefits paid                          |       | (23,679                                     | )          | (26,704                                     | )          | (26,291 | ) | (11,728 | ) | (12,247 | ) | (11,867 | ) |
| Benefit obligation,  end of year  |       | 819,552                                     |       | 1,011,300                                   |       | 1,176,738 |   | 182,408 |   | 147,625 |   | 167,583 |   |
| Funded status                          |       | 85,325                                      |       | 71,523                                      |       | 155,523 |   | (76,163 | ) | (25,025 | ) | (30,426 | ) |
| Unrecognized  transition amount   |       | —                                      |       | —                                      |       | — |   | 22,937 |   | 16,279 |   | 14,244 |   |
| Unrecognized net  actuarial loss       |       | 227,741                                     |       | 320,340                                     |       | 383,701 |   | 78,099 |   | 36,290 |   | 51,586 |   |
| Unrecognized prior  service cost       |       | 3,457                                       |       | 2,390                                       |       | 1,323 |   | (1,249 | ) | (1,153 | ) | (1,057 | ) |
| Prepaid benefit cost                   |       | $                                           | 316,523    |                                        | $          | 394,253 |   | $ | 540,547 |   | $ | 23,624 |   | $ | 26,391 |   | $ | 34,347 |   |

----

(1)    In 2004, the Company made changes to the plan design foremployer contribution subsidies resulting in a reduction of future obligations.

The Company expects to makecash contributions of $100 million to the Pension Plan and $19 million to theHealth Plan for pension and postretirement benefits, respectively, in 2006.

*Estimated FutureBenefit Payments and Subsidies*

Thefollowing pension and postretirement benefit payments, which reflect expectedfuture service, as appropriate, are expected to be paid over the next 10 yearsand Medicare Part D Subsidies are expected to be received over the next 10years.

| **(Dollars in thousands)** | ** ** | **Pension  Benefits** | ** ** | **Postretirement  Benefits** | ** ** | **Medical Part D  Subsidies** | ** ** |
|--------------------------------------|------------|-----------------------|------------|------------------------------|------------|-----------------------------------------|------------|
| 2006                                 |       | $                     | 33,014     |                         |       | $                                       | 10,587     |   |   |   | $ | 1,025 |   |   |   |
| 2007                                 |       | 36,001                |       |                         | 11,365     |                                    |       |   | 1,122 |   |   |   |
| 2008                                 |       | 39,127                |       |                         | 12,093     |                                    |       |   | 1,213 |   |   |   |
| 2009                                 |       | 42,890                |       |                         | 12,760     |                                    |       |   | 1,301 |   |   |   |
| 2010                                 |       | 46,620                |       |                         | 13,443     |                                    |       |   | 1,375 |   |   |   |
| Years 2011-2015                      |       | 296,900               |       |                         | 75,782     |                                    |       |   | 7,994 |   |   |   |
|                                      |            |                       |            |                              |            |                                         |            |  |  |  |  |  |  |  |  |

 

F-77

----

**UnionBanCal Corporation and Subsidiaries**

**Notes to Consolidated Financial Statements December 31, 2003, 2004, and 2005 (Continued)**

**Note 9—EmployeeBenefit and Incentive Plans and Other Postretirement Benefits (Continued)**

The following tablessummarize the assumptions used in computing the present value of the projectedbenefit obligations and the net periodic cost.

| ** **                                                                                      | ** ** | **Pension Benefits**                    | ** ** | **Other Benefits**                      | ** ** |
|-------------------------------------------------------------------------------------------------|------------|----------------------------------------------|------------|----------------------------------------------|------------|
| ** **                                                                                      | ** ** | **Years Ended December 31,**  | ** ** | **Years Ended December 31,**  | ** ** |
| ** **                                                                                      | ** ** | **   2003   ** | ** ** | **   2004   ** | ** ** | **   2005   ** | ** ** | **   2003   ** | ** ** | **   2004   ** | ** ** | **   2005   ** | ** ** |
| Discount rate in  determining expense                                                           |       |                                         | 6.75       | %                                            |       |   | 6.25 | % |   |   | 5.75 | % |   |   | 6.75 | % |   |   | 6.25 | % |   |   | 5.75 | % |   |
| Discount rate in  determining benefit obligations at year end                                   |       |                                         | 6.25       |                                         |       |   | 5.75 |   |   |   | 5.50 |   |   |   | 6.25 |   |   |   | 5.75 |   |   |   | 5.50 |   |   |
| Rate of increase in  future compensation levels for determining expense                         |       |                                         | 5.00       |                                         |       |   | 4.50 |   |   |   | 4.50 |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Rate of increase in  future compensation levels for determining benefit obligations at year end |       |                                         | 4.50       |                                         |       |   | 4.50 |   |   |   | 4.70 |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Expected return on plan  assets                                                                 |       |                                         | 8.25       |                                         |       |   | 8.25 |   |   |   | 8.25 |   |   |   | 8.00 |   |   |   | 8.25 |   |   |   | 8.25 |   |   |

 

| ** **                                   | ** ** | **Pension Benefits**         | ** ** | **Other Benefits**           | ** ** |
|----------------------------------------------|------------|------------------------------|------------|------------------------------|------------|
| ** **                                   | ** ** | **Years Ended December 31,** | ** ** | **Years Ended December 31,** | ** ** |
| **(Dollars in thousands)**         | ** ** | **2003**                     | ** ** | **2004**                     | ** ** | **2005** | ** ** | **2003** | ** ** | **2004** | ** ** | **2005** | ** ** |
| **Components of net periodic  benefit cost** |       |                         |       |                         |       |   |   |   |   |   |   |   |   |
| Service cost                                 |       | $                            | 32,867     |                         | $          | 37,659 |   | $ | 45,530 |   | $ | 5,180 |   | $ | 5,643 |   | $ | 6,203 |   |
| Interest cost                                |       | 47,500                       |       | 52,240                       |       | 58,351 |   | 10,562 |   | 9,438 |   | 8,461 |   |
| Expected return on  plan assets              |       | (72,811                      | )          | (83,130                      | )          | (95,865 | ) | (6,746 | ) | (9,012 | ) | (10,401 | ) |
| Amortization of  prior service cost          |       | 1,067                        |       | 1,067                        |       | 1,067 |   | (96 | ) | (96 | ) | (96 | ) |
| Amortization of  transition amount           |       | —                       |       | —                       |       | — |   | 2,549 |   | 2,549 |   | 2,035 |   |
| Recognized net  actuarial loss               |       | 4,169                        |       | 14,434                       |       | 26,624 |   | 6,394 |   | 3,996 |   | 2,794 |   |
| Total net periodic  benefit cost             |       | $                            | 12,792     |                         | $          | 22,270 |   | $ | 35,707 |   | $ | 17,843 |   | $ | 12,518 |   | $ | 8,996 |   |

 

The Company’s assumedweighted-average healthcare cost trend rates are as follows:

| ** **                                                                     | ** ** | **Year ended December 31,** | ** ** |
|--------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                     | ** ** | **2003**                                   | ** ** | **2004** | ** ** | **2005** | ** ** |
| Health care cost  trend rate assumed for next year                             |       | 8.07                                       | %          | 7.25 | % | 8.93 | % |
| 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                                 |       | 2008                                       |       | 2008 |   | 2011 |   |

 

Thehealthcare cost trend rate assumptions have a significant effect on the amountsreported for the Health Plan. A one-percentage-point change in assumedhealthcare cost trend rates would have the following effects.

| ** **                                               | ** ** | **1-Percentage-**       | ** ** | **1-Percentage-**       | ** ** |
|----------------------------------------------------------|------------|-------------------------|------------|-------------------------|------------|
| **(Dollars in thousands)**                     | ** ** | **Point Increase** | ** ** | **Point Decrease** | ** ** |
| Effect on total of  service and interest cost components |       |                    | $          | 2,167                   |       |   |   | $ | (1,785 | ) |   |
| Effect on postretirement  benefit obligation             |       |                    | 16,546     |                    |       |   | (14,034 | ) |   |

 

F-78

----

**UnionBanCal Corporation and Subsidiaries**

**Notes to Consolidated Financial Statements December 31, 2003, 2004, and 2005 (Continued)**

**Note 9—EmployeeBenefit and Incentive Plans and Other Postretirement Benefits (Continued)**

*ExecutiveSupplemental Benefit Plans*

The Company has severalExecutive Supplemental Benefit Plans (ESBPs), which provide eligible employeeswith supplemental retirement benefits. The plans are unfunded. The accruedliability for ESBPs included in other liabilities in the Consolidated BalanceSheets was $43 million at December 31, 2004 and $54 million at December 31,2005. The Company’s expense relating to the ESBPs for the periods ending December 31,2003, 2004, and 2005, was $0.3 million, $4.1 million, and $5.3 million,respectively. These plans had intangible assets of $2.1 million, $1.6 millionand $1.2 million as of December 31, 2003, 2004, and 2005, respectively. Dueto an additional minimum liability, these plans also had accumulated other comprehensiveloss before taxes of $6.1 million, $10.8 million, and $17.0 million as of December 31,2003, 2004, and 2005, respectively.

*Section 401(k) SavingsPlans*

The Company has a definedcontribution plan authorized under Section 401(k) of the InternalRevenue Code. All benefits-eligible employees are eligible to participatein the plan. Employees may contribute up to 25 percent of their pre-taxcovered compensation or up to 10 percent of their after-tax coveredcompensation through salary deductions to a combined maximum of 25 percent. TheCompany contributes 50 percent of every pre-tax dollar an employeecontributes up to the first 6 percent of the employee’s pre-tax coveredcompensation. Employees are fully vested in the employer’s contributions immediately.In addition, the Company may make a discretionary annual profit-sharingcontribution up to 2.5 percent of an employee’s pay. This profit-sharingcontribution is for all eligible employees, regardless of whether an employeeis participating in the 401(k) plan, and is dependent upon on the Company’sannual financial performance. All employer contributions are tax deductible bythe Company. The Company’s combined matching contribution expense was $19million, $22 million, and $23 million for the years ended December 31,2003, 2004 and 2005, respectively.

**Note 10—Other Noninterest Incomeand Noninterest Expense**

Thedetails of other noninterest income and noninterest expense are as follows:

**Other NoninterestIncome**

| ** **                                   | ** ** | **Years Ended December 31,** | ** ** |
|----------------------------------------------|------------|------------------------------|------------|
| **(Dollars in thousands)**         | ** ** | **2003**                     | ** ** | **2004** | ** ** | **2005** | ** ** |
| Gain on sale of  merchant card portfolio     |       | $                            | —     |   | $ | 93,000 |   | $ | — |   |
| Private capital and  other investment income |       | 3,693                        |       | 30,802 |   | 35,307 |   |
| International  commission and fees           |       | 10,264                       |       | 10,642 |   | 11,316 |   |
| Gains on sale of nonmortgage  loans, net     |       | 3,556                        |       | 2,188 |   | 122 |   |
| Other                                        |       | 64,771                       |       | 83,252 |   | 98,840 |   |
| Total other  noninterest income              |       | $                            | 82,284     |   | $ | 219,884 |   | $ | 145,585 |   |

 

F-79

----

**UnionBanCal Corporation and Subsidiaries**

**Notes to Consolidated Financial Statements December 31, 2003, 2004, and 2005 (Continued)**

**Note 10—OtherNoninterest Income and Noninterest Expense (Continued)**

**Other Noninterest Expense**

| ** **                           | ** ** | **Years Ended December 31,** | ** ** |
|--------------------------------------|------------|------------------------------|------------|
| **(Dollars in thousands)** | ** ** | **2003**                     | ** ** | **2004** | ** ** | **2005** | ** ** |
| Advertising and  public relations    |       | $                            | 39,034     |   | $ | 37,965 |   | $ | 36,803 |   |
| Data processing                      |       | 31,726                       |       | 32,528 |   | 32,687 |   |
| Intangible asset  amortization       |       | 11,366                       |       | 19,471 |   | 19,921 |   |
| Other                                |       | 116,225                      |       | 120,901 |   | 112,501 |   |
| Total other  noninterest expense     |       | $                            | 198,351    |   | $ | 210,865 |   | $ | 201,912 |   |

 

**Note 11—Income Taxes**

Thefollowing table is an analysis of the effective tax rate on continuingoperations:

| ** **                                             | ** ** | **Years Ended December 31,** | ** ** |
|--------------------------------------------------------|------------|------------------------------|------------|
| ** **                                             | ** ** | **2003**                     | ** ** | **2004** | ** ** | **2005** | ** ** |
| Federal income tax  rate                               |       |                         | 35         | % |   |   | 35 | % |   |   | 35 | % |   |
| Net tax effects of:                                    |       |                         |       |   |   |   |   |   |   |   |   |   |   |
| State income taxes, net of federal income tax  benefit |       |                         | 2          |   |   |   | 4 |   |   |   | 2 |   |   |
| Tax credits                                            |       |                         | (3         | ) |   |   | (3 | ) |   |   | (3 | ) |   |
| Other                                                  |       |                         | (1         | ) |   |   | — |   |   |   | (1 | ) |   |
| Effective tax rate                                     |       |                         | 33         | % |   |   | 36 | % |   |   | 33 | % |   |

 

The components of income tax expense were as follows:

| ** **                                        | ** ** | **Years Ended December 31,** | ** ** |
|---------------------------------------------------|------------|------------------------------|------------|
| **(Dollars in thousands)**              | ** ** | **2003**                     | ** ** | **2004** | ** ** | **2005** | ** ** |
| Taxes currently payable:                          |       |                         |       |   |   |   |   |
| Federal                                           |       | $                            | 210,986    |   | $ | 281,061 |   | $ | 263,737 |   |
| State                                             |       | 10,646                       |       | 40,214 |   | 26,226 |   |
| Foreign                                           |       | 292                          |       | 950 |   | 1,505 |   |
| Total currently payable                           |       | 221,924                      |       | 322,225 |   | 291,468 |   |
| Taxes deferred:                                   |       |                         |       |   |   |   |   |
| Federal                                           |       | 35,405                       |       | 54,193 |   | 63,094 |   |
| State                                             |       | 13,864                       |       | 22,515 |   | 3,317 |   |
| Foreign                                           |       | —                       |       | — |   | (1,181 | ) |
| Total deferred                                    |       | 49,269                       |       | 76,708 |   | 65,230 |   |
| Total income tax expense on continuing operations |       | 271,193                      |       | 398,933 |   | 356,698 |   |
| Income tax expense on discontinued operations     |       | 21,634                       |       | 13,879 |   | 73,289 |   |
| Total income taxes                                |       | $                            | 292,827    |   | $ | 412,812 |   | $ | 429,987 |   |

 

F-80

----

**UnionBanCal Corporation and Subsidiaries**

**Notes to Consolidated Financial Statements December 31, 2003, 2004, and 2005 (Continued)**

**Note 11—IncomeTaxes (Continued)**

 

The components of the netdeferred tax balances of the Company were as follows:

| ** **                                                 | ** ** | **December 31,** | ** ** |
|------------------------------------------------------------|------------|-----------------------|------------|
| **(Dollars in thousands)**                       | ** ** | **2004**              | ** ** | **2005** | ** ** |
| Deferred tax assets:                                       |       |                  |       |   |   |
| Allowance for loan and off-balance sheet commitment losses |       | $                     | 196,503    |   | $ | 187,126 |   |
| Accrued income and expense                                 |       | 77,414                |       | 94,594 |   |
| Unrealized net losses on securities available for sale     |       | 19,634                |       | 45,899 |   |
| Unrealized net losses on cash flow hedges                  |       | —                |       | 21,251 |   |
| Other                                                      |       | 38,124                |       | 16,617 |   |
| Total deferred tax assets                                  |       | 331,675               |       | 365,487 |   |
| Deferred tax liabilities:                                  |       |                  |       |   |   |
| Leasing                                                    |       | 467,027               |       | 484,493 |   |
| Depreciation                                               |       | 26,373                |       | 28,604 |   |
| Intangibles                                                |       | 7,129                 |       | 10,789 |   |
| Pension liabilities                                        |       | 151,757               |       | 205,623 |   |
| Unrealized net gains on cash flow hedges                   |       | 885                   |       | — |   |
| Total deferred tax liabilities                             |       | 653,171               |       | 729,509 |   |
| Net deferred tax  liability                                |       | $                     | 321,496    |   | $ | 364,022 |   |

 

It is management’s opinion that no valuation allowanceis necessary because the tax benefits from the Company’s deferred tax assetsare expected to be realized through carrybacks to prior taxable years, futurereversals of existing temporary differences or in future tax returns.

In 2005 the Company reduced federal income tax expenseby $10.0 million to reflect a reduction to its reserve for estimated amountsowed to the Internal Revenue Service with respect to certain leverage leasingtransactions. The change in estimate reflected management’s view of theliability based on settlement discussions with the IRS Appeals Division.

The Company has filed its 2003 and 2004, and intends tofile its 2005, California franchise tax returns on the worldwide unitary basis,incorporating the financial results of BTMU and its worldwide affiliates. In2005, the Company recognized a $4.1 million state income tax benefit primarilyto reflect the difference between the estimate of California state tax expensefor 2004 and the actual tax reported in the 2004 California franchise taxreturn. The Company also recognized $3.1 million of California Enterprise Zonetax credits for which it qualified during the year.

In 2004, the Company recognized a $7.8 million stateincome tax expense primarily to reflect the difference between the estimate ofCalifornia state tax expense for 2003 and the actual tax reported in the 2003California franchise tax return.

In 2003, the Companyrecognized a $2.7 million reduction of income taxes paid in 1998, 1999, and2000, resulting from the settlement of several tax issues with the InternalRevenue Service.

F-81

----

**UnionBanCal Corporation and Subsidiaries**

**Notes to Consolidated Financial Statements December 31, 2003, 2004, and 2005 (Continued)**

**Note 12—Borrowed Funds**

Thefollowing is a summary of the major categories of borrowed funds:

| ** **                                                                                                                                                                            | ** ** | **December 31,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| **(Dollars in thousands)**                                                                                                                                                  | ** ** | **2004**              | ** ** | **2005** | ** ** |
| Federal funds purchased and  securities sold under repurchase agreements with weighted average interest  rates of 1.90% and 3.97% at December 31, 2004 and 2005, respectively(1) |       | $                     | 587,249    |   | $ | 651,529 |   |
| Commercial paper, with  weighted average interest rates of 1.69%  and 3.60% at December 31, 2004 and 2005, respectively                                                          |       | 824,887               |       | 680,027 |   |
| Other borrowed funds, with  weighted average interest rates of 4.25% and 4.05% at December 31, 2004  and 2005, respectively                                                      |       | 172,549               |       | 134,485 |   |
| Total borrowed funds                                                                                                                                                                  |       | $                     | 1,584,685  |   | $ | 1,466,041 |   |
| Federal funds purchased and securities sold under  repurchase agreements:                                                                                                             |       |                  |       |   |   |
| Maximum outstanding at any  month end                                                                                                                                                 |       | $                     | 739,386    |   | $ | 2,285,569 |   |
| Average balance during the  year                                                                                                                                                      |       | 596,997               |       | 898,107 |   |
| Weighted average interest  rate during the year(1)                                                                                                                                    |       | 1.25                  | %          | 2.88 | % |
| Commercial paper:                                                                                                                                                                     |       |                  |       |   |   |
| Maximum outstanding at any  month end                                                                                                                                                 |       | $                     | 855,334    |   | $ | 1,390,504 |   |
| Average balance during the  year                                                                                                                                                      |       | 620,053               |       | 1,086,088 |   |
| Weighted average interest  rate during the year                                                                                                                                       |       | 1.11                  | %          | 2.92 | % |
| Other borrowed funds:                                                                                                                                                                 |       |                  |       |   |   |
| Maximum outstanding at any  month end                                                                                                                                                 |       | $                     | 212,371    |   | $ | 286,342 |   |
| Average balance during the  year                                                                                                                                                      |       | 162,424               |       | 168,220 |   |
| Weighted average interest rate during the year                                                                                                                                        |       | 3.00                  | %          | 3.75 | % |

----

(1)          Weighted average interest rates providedrelate to external funding and do not reflect the expenses allocated on netfunding to discontinued operations. For further information, see Note 2 to ourConsolidated Financial Statements.

At December 31, 2005, federal funds purchased andsecurities sold under repurchase agreements had a weighted average remainingmaturity of less than 4 days. The commercial paper outstanding had a weightedaverage remaining maturity of 12 days.

Included in other borrowedfunds in 2004 and 2005 are assumed mortgage notes related to the Company’sadministrative facility at Monterey Park, California. At December 31,2005, the notes consisted of 12 zero coupon notes with varying maturity datesthrough 2011. Maturities of these notes for the next five years are as follows:$5.0 million in 2006, $4.9 million in 2007, $5.6 million in 2008, $6.2 millionin 2009, $6.2 million in 2010, and $6.4 million thereafter.

F-82

----

**UnionBanCal Corporation and Subsidiaries**

**Notes to Consolidated Financial Statements December 31, 2003, 2004, and 2005 (Continued)**

**Note 13—Medium and Long-TermDebt**

The following is a summary ofthe Company’s medium-term senior debt and long-term subordinated debt. 

| ** **                                                                                                                                                      | ** ** | **December 31,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| **(Dollars in thousands)**                                                                                                                            | ** ** | **2004**              | ** ** | **2005** | ** ** |
| Medium-Term debt,  fixed rate 5.75% senior notes due December 2006                                                                                         |       | $                     | 207,160    |   | $ | 200,968 |   |
| Long-Term subordinated  debt:                                                                                                                                   |       |                  |       |   |   |
| Floating rate notes due June 2007. These notes bear interest at  0.325% above 3-month London Interbank Offered Rate (LIBOR) and are payable  to BTMU. |       | 199,876               |       | 199,926 |   |
| Fixed rate 5.25% notes due December 2013                                                                                                                   |       | 409,077               |       | 400,201 |   |
| Total medium and  long-term debt                                                                                                                                |       | $                     | 816,113    |   | $ | 801,095 |   |

 

*Medium-Term Debt*

At December 31, 2005, the par value of themedium-term notes was $200 million with a weighted average interest rate,including the impact of the deferred issuance costs, of 5.90 percent. The notesdo not qualify as Tier 2 risk-based capital under the Federal Reserveguidelines for assessing regulatory capital and are not redeemable prior to thestated maturity. The notes are senior obligations and are ranked equally withall existing or future unsecured senior debt.

The Company has converted its5.75 percent fixed rate on these notes to a floating rate of interest utilizinga $200 million notional interest rate swap, which qualified as a fair value hedgeat December 31, 2005. At inception of the hedge relationship, thistransaction met all of the requirements for utilizing the shortcut method formeasuring effectiveness under SFAS No. 133. At December 31, 2005, themarket value adjustment to the medium-term debt was an unrealized loss of $1.0million, and the fair value of the hedge was an unrealized gain of $1.0 million.For the year ended December 31, 2005, the weighted average interest rate,including the impact of the hedge and deferred issuance costs was 3.97 percent.

*Long-Term debt*

In June 1997, the Company issued $200 million offloating-rate subordinated debt due in June 2007. These notes bearinterest at 0.325 percent above 3-month LIBOR and are payable to theholder of the note, BTMU. As of December 31, 2005, the weighted averageinterest rate of the floating rate notes was 3.67 percent.

On December 8, 2003, the Company issued $400million of long-term subordinated debt. For the year ended December 31,2005, the weighted average interest rate of the long-term subordinated debt,including the impact of the deferred issuance costs, was 5.40 percent. Thenotes are junior obligations to the Company’s existing and future outstandingsenior indebtedness and ranked equally with the existing long-term subordinateddebt with a par value of $200 million.

The Company has converted its 5.25 percent fixed rate on these notes toa floating rate of interest utilizing a $400 million notional interest rateswap, which qualified as a fair value hedge at December 31, 2005. Thistransaction meets all of the requirements for utilizing the shortcut method formeasuring effectiveness under SFAS No. 133. The market value adjustment tothe long-term debt was an unrealized loss of $1.4 million, and the fair valueof the hedge was an unrealized gain of $1.4 million. The weighted 

F-83

----

**UnionBanCal Corporation and Subsidiaries**

**Notes to Consolidated Financial Statements December 31, 2003, 2004, and 2005 (Continued)**

**Note 13—Mediumand Long-Term Debt (Continued)**

average interest rate,including the impact of the hedge and deferred issuance costs, was 4.25 percentfor the year ended December 31, 2005.

The floating rate and fixed rate subordinated debtqualify as Tier 2 risk-based capital under the Federal Reserve Board guidelinesfor assessing regulatory capital. For the total risk-based capital ratio, theamount of notes that qualify as capital is reduced as the notes approachmaturity. For the years ended December 31, 2004 and 2005, $480 million and$440 million of the notes, respectively, qualified as risk-based capital.

Provisions of the senior andsubordinated notes restrict the Company’s ability to engage in mergers,consolidations, and transfers of substantially all assets.

**Note 14—UnionBanCalCorporation—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 commonsecurities to the Company. The proceeds of such issuances were invested byBusiness Capital Trust I in $10.3 million aggregate principal amount of theCompany’s 10.875 percent debt securities due March 8, 2030 (the TrustNotes). The Trust Notes represent the sole asset of Business Capital Trust I. TheTrust Notes mature on March 8, 2030, bear interest at the rate of 10.875percent, payable semi-annually, and are redeemable by the Company at a premium(with premium declining each year) beginning on or after March 8, 2010through March 7, 2020 plus any accrued and unpaid interest to theredemption date. On or after March 8, 2020, the Trust Notes are redeemableby the Company at 100 percent of the principal amount.

Holders of the preferred and common securities areentitled to cumulative cash distributions at an annual rate of 10.875 percentof the liquidation amount of $1,000 per capital security. The preferredsecurities are subject to mandatory redemption upon repayment of the TrustNotes and are callable at a premium (with premium declining each year) at105.438 percent of the liquidation amount beginning on or after March 8,2010 through March 7, 2020 plus any accrued and unpaid interest to theredemption date. On or after March 8, 2020, the preferred securities areredeemable at 100 percent of the principal. Business Capital Trust I exists forthe sole purpose of issuing the preferred securities and investing the proceedsin the Trust Notes issued by the Company.

On September 7, 2000, MCB Statutory Trust I completed an offeringof 10.6 percent preferred securities of $3.0 million to the public and $0.1million common securities to the Company. The proceeds of such issuance wereinvested by MCB Statutory Trust I in $3.1 million aggregate principal amount ofthe Company’s 10.6 percent debt securities due September 7, 2030 (theTrust Notes). The Trust Notes represent the sole assets of MCB Statutory TrustI. The Trust Notes mature on September 7, 2030, bear interest at the rateof 10.6 percent, payable semi-annually and are redeemable by the Company at apremium (with premium declining each year) beginning on or after September 7,2010 through September 6, 2020 plus any accrued and unpaid interest to theredemption date. On or after September 7, 2020, the Trust Notes areredeemable by the Company at 100 percent of the principal amount.

Holders of the preferred securities and common securities are entitledto cumulative cash distributions at an annual rate of 10.6 percent of theliquidation amount of $1,000 per capital security. The preferred securities aresubject to mandatory redemption upon repayment of the Trust Notes and arecallable at a premium (with premium declining each year) at 105.3 percent ofthe liquidation amount beginning on or 

F-84

----

**UnionBanCal Corporation and Subsidiaries**

**Notes to Consolidated Financial Statements December 31, 2003, 2004, and 2005 (Continued)**

**Note 14—UnionBanCalCorporation—Junior Subordinated Debt Payable to Subsidiary Grantor Trust(Continued)**

after September 7, 2010through September 6, 2020 plus any accrued and unpaid interest to theredemption date. On or after September 7, 2020, the preferred securitiesare redeemable at 100 percent of the principal amount. MCB Statutory Trust Iexists for the sole purpose of issuing the preferred securities and investingthe proceeds in the Trust Notes issued by the Company.

On January 16, 2004, the Company completed theacquisition of Business Bancorp, which included Business Capital Trust I andMCB Statutory Trust I. In accordance with SFAS No. 141 the Trust Noteswere recorded at their fair value at the date of acquisition.

The weighted average interestrate for all Trust Notes were 4.45 percent and 6.12 percent for the years endedDecember 31, 2004 and 2005, respectively.

**Note 15—DividendReinvestment and Stock Purchase Plan**

The Company has a dividendreinvestment and stock purchase plan for stockholders. Participatingstockholders have the option of purchasing additional shares at the full marketprice with cash payments of $25 to $3,000 per quarter. The Company obtainsshares required for reinvestment primarily through open market purchases.During 2003, 2004 and 2005, 190,847 shares, 100,596 shares and 88,560 shares,respectively, were required for dividend reinvestment purposes, of which 5,731shares, 308 shares and zero shares were considered new issuances during 2003,2004 and 2005, respectively. BTMU did not participate in the plan in 2003, 2004or 2005.

**Note 16—ManagementStock Plans**

The Company has twomanagement stock plans. The Year 2000 UnionBanCal Corporation Management StockPlan as amended (the 2000 Stock Plan), and the UnionBanCal CorporationManagement Stock Plan, restated effective June 1, 1997 (the 1997 StockPlan), have 20.0 million and 6.6 million shares, respectively, of the Company’scommon stock authorized to be awarded to key employees and outside directors ofthe Company at the discretion of the Executive Compensation and BenefitsCommittee of the Board of Directors (the Committee). Employees on rotationalassignment from BTMU are not eligible for stock awards.

The Committee determines theterm of each stock option grant, up to a maximum of ten years from the date ofgrant. The exercise price of the options issued under the Stock Plans shall notbe less than the fair market value on the date the option is granted. Unvestedrestricted stock issued under the Stock Plans is shown as a reduction toretained earnings. The value of the restricted shares at the date of grant isamortized to compensation expense over its vesting period. All cancelled orforfeited options and restricted stock become available for future grants.

Underthe 2000 Stock Plan, the Company granted options to various key employees,including policy-making officers in 2003, 2004 and 2005 and to non-employeedirectors in 2003 and 2004. Under both Stock Plans, options granted toemployees vest pro-rata on each anniversary of the grant date and become fullyexercisable three years from the grant date, provided that the employee hascompleted the specified continuous service requirement. The options vestearlier if the employee dies, is permanently disabled, or retires under certaingrant, age, and service conditions or terminates employment under certainconditions. Options granted to non-employee directors are fully vested on thegrant date and exercisable 33 1/3 percent on each anniversary under the 1997Stock Plan, and fully vested and exercisable on the grant date under the 2000Stock Plan.

F-85

----

**UnionBanCal Corporation and Subsidiaries**

**Notes to Consolidated Financial Statements December 31, 2003, 2004, and 2005 (Continued)**

**Note 16—ManagementStock Plans (Continued)**

The following is a summary of stock optiontransactions under the Stock Plans.

| ** **                             | ** ** | **Years Ended  December 31,** | ** ** |
|----------------------------------------|------------|------------------------------------|------------|
| ** **                             | ** ** | **2003**                           | ** ** | **2004** | ** ** | **2005** | ** ** |
| ** **                             | ** ** | **Number of**                 | ** ** | **Weighted-Average** | ** ** | **Number of** | ** ** | **Weighted-Average** | ** ** | **Number of** | ** ** | **Weighted-Average** | ** ** |
| ** **                             | ** ** | **Shares**                         | ** ** | **Exercise Price** | ** ** | **Shares** | ** ** | **Exercise Price** | ** ** | **Shares** | ** ** | **Exercise Price** | ** ** |
| Options outstanding, beginning of year |       | 8,515,469                          |       |   | $ | 34.71 |   |   | 9,008,011 |   |   | $ | 37.12 |   |   | 9,482,336 |   |   | $ | 41.87 |   |   |
| Granted                                |       | 2,517,023                          |       |   | 40.32 |   |   | 2,478,931 |   |   | 52.84 |   |   | 1,222,230 |   |   | 61.36 |   |   |
| Exercised                              |       | (1,912,323                         | )          |   | 30.52 |   |   | (1,917,818 | ) |   | 33.68 |   |   | (1,877,908 | ) |   | 38.24 |   |   |
| Forfeited                              |       | (112,158                           | )          |   | 38.96 |   |   | (86,788 | ) |   | 42.87 |   |   | (130,069 | ) |   | 50.62 |   |   |
| Options outstanding,  end of year      |       | 9,008,011                          |       |   | $ | 37.12 |   |   | 9,482,336 |   |   | $ | 41.87 |   |   | 8,696,589 |   |   | $ | 45.26 |   |   |
| Options exercisable,  end of year      |       | 3,845,520                          |       |   | $ | 33.99 |   |   | 4,733,003 |   |   | $ | 36.49 |   |   | 5,349,873 |   |   | $ | 40.29 |   |   |

 

The weighted-average fair value of optionsgranted was $12.92 during 2003, $16.55 during 2004 and $13.38 during 2005.

The fair value of each option grant is estimated onthe date of grant using the Black-Scholes option pricing model with thefollowing weighted-average assumptions used for grants made in 2003, 2004and 2005; risk-free interest rates of 2.9 percent in 2003, 2.8 percent in2004, and, as a result of refinements to the model, a range from 3.4 percent to4.3 percent for 1 to 7 year tenors in 2005; expected volatility of 43 percentin 2003, 40 percent in 2004, and 27 percent in 2005; expected lives of 5 yearsfor 2003 and 2004 and 4.4 years for 2005; and expected dividend yields of 2.8percent in 2003, 2.4 percent in 2004, and 2.7 percent in 2005.

The following tablesummarizes information about stock options outstanding.

| ** **               | ** ** | **Options Outstanding at December 31, 2005** | ** ** | **Options Exercisable at  December 31, 2005** | ** ** |
|--------------------------|------------|-----------------------------------------------------------------------|------------|-------------------------------------------------------------------|------------|
| ** **               | ** ** | ** **                                                            | ** ** | **Weighted-Average**                                              | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **               | ** ** | ** **                                                            | ** ** | **Remaining**                                                     | ** ** | **Weighted-** | ** ** | ** ** | ** ** | **Weighted-** | ** ** |
| **Range of**        | ** ** | **Number**                                                            | ** ** | **Contractual Life**                                         | ** ** | **Average** | ** ** | **Number** | ** ** | **Average** | ** ** |
| **Exercise Prices** | ** ** | **Outstanding**                                                       | ** ** | **in Years**                                                 | ** ** | **Exercise Price** | ** ** | **Exercisable** | ** ** | **Exercise Price** | ** ** |
| $18.53 - 25.00           |       | 43,619                                                                |       |                                                              | 3.6        |   |   |   | $ | 22.99 |   |   | 43,619 |   |   | $ | 22.99 |   |   |
| 28.44 - 42.40            |       | 3,367,718                                                             |       |                                                              | 5.7        |   |   |   | 35.50 |   |   | 2,700,942 |   |   | 34.42 |   |   |
| 42.69 - 62.42            |       | 5,196,022                                                             |       |                                                              | 6.9        |   |   |   | 51.37 |   |   | 2,598,147 |   |   | 46.61 |   |   |
| 67.39 - 71.23            |       | 89,230                                                                |       |                                                              | 6.3        |   |   |   | 69.29 |   |   | 7,165 |   |   | 67.39 |   |   |
|                     |       | 8,696,589                                                             |       |                                                              |       |   |   |   |   |   |   | 5,349,873 |   |   |   |   |   |

 

In 2003, 2004, and2005, the Company also granted 6,000 shares, 16,000 shares, and 405,574 sharesof restricted stock with weighted average grant date fair values of $46.95,$61.50 and $64.13, respectively. There were no restricted stock forfeitures in2003 and 2004 and 6,085 shares were forfeited in 2005. These shares weregranted under the 2000 Stock Plan to key officers, including policy-makingofficers in years 2003, 2004 and 2005 and to non-employee directors in 2005.The awards of restricted stock vest pro-rata on each anniversary of the grantdate and become fully vested four years from the grant date for awards in 2003and 2005 and three years from the grant date for awards in 2004, provided thatthe employee has completed the specified continuous service requirement. Theyvest earlier if the employee dies, is permanently and totally disabled, orretires under certain grant, age, and service conditions or terminatesemployment under certain conditions. The awards of restricted stock granted to 

F-86

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**UnionBanCal Corporation and Subsidiaries**

**Notes to Consolidated Financial Statements December 31, 2003, 2004, and 2005 (Continued)**

**Note 16—Management Stock Plans (Continued)**

existing non-employeedirectors in 2005 will vest in full in July 2006. The award granted to anewly elected director in 2005 will vest as to two-thirds of the shares in November 2006and the remaining portion will vest in two equal installments in November 2007and 2008, respectively. Restricted stockholders have the right to vote theirrestricted shares and receive dividends.

At December 31, 2003, 2004 and 2005, 5,347,715shares, 2,937,629 shares and 5,445,979 shares, respectively, were available forfuture grants as either stock options or restricted stock under the 2000 StockPlan. The remaining shares under the 1997 Stock Plan are not available forfuture grants.

Effective January 1, 1997, the Company established a PerformanceShare Plan. At the discretion of the Executive Compensation and BenefitsCommittee, eligible participants may earn performance share awards to beredeemed in cash and/or shares three years after the date of grant. Performanceshares are linked to stockholder value in two ways: (1) the market priceof the Company’s common stock; and (2) return on equity, a performancemeasure closely linked to value creation. Eligible participants generallyreceive grants of performance shares annually. The plan was amended in 2004increasing the total number of shares that can be granted under the plan to 2.6million shares. There were 340,683 performance shares, 2,252,183 performanceshares and 2,193,383 performance shares remaining for future awards as of December 31,2003, 2004 and 2005, respectively. The Company granted 43,500 shares in 2003,88,500 shares in 2004, and 78,000 shares in 2005. No performance shares wereforfeited in 2003 and 2004, and 19,200 shares were forfeited in 2005. The valueof a performance share is equal to the average month-end closing price of theCompany’s common stock for the final 6 months of the performance period. Allcancelled or forfeited performance shares become available for future grants.Expenses related to these shares were $6.6 million in 2003, $4.8 million in2004, and $9.4 million in 2005.

**Note 17—Concentrations of Credit Risk**

Concentrations of credit risk exist when changes ineconomic, industry or geographic factors similarly affect groups of counterpartieswhose aggregate credit exposure is material in relation to the Company’s totalcredit exposure. Although the Company’s portfolio of financial instruments isbroadly diversified along industry, product and geographic lines, materialtransactions are completed with other financial institutions, particularly inthe securities portfolio and in deposit accounts.

In connection with theCompany’s efforts to maintain a diversified portfolio, the Company limits itsexposure to any one country or individual credit and monitors this exposure ona continuous basis. At December 31, 2005, the Company’s most significantconcentration of credit risk was with the U. S. Government and its agencies.The Company’s exposure, which primarily results from investment securitiespositions in instruments issued by the U.S. Government and its agencies, was$9.9 billion and $6.2 billion at December 31, 2004 and 2005, respectively.

F-87

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**UnionBanCal Corporation and Subsidiaries**

**Notes to Consolidated Financial Statements December 31, 2003, 2004, and 2005 (Continued)**

**Note 18—Fair Value ofFinancial Instruments**

The fair value of a financial instrument is the amountat which the instrument could be exchanged in a current transaction betweenwilling parties, other than in a forced or liquidation sale. All of the fairvalues presented below are as of their respective period-ends and have beenmade under this definition of fair value unless otherwise disclosed.

It is management’s belief that the fair valuespresented below are reasonable based on the valuation techniques and dataavailable to the Company as of December 31, 2004 and 2005, as more fullydescribed below. It should be noted that the operations of the Company aremanaged on a going concern basis and not on a liquidation basis. As a result,the ultimate value realized for the financial instruments presented could besubstantially different when actually recognized over time through the normalcourse of operations. Additionally, a substantial portion of an institution’sinherent value is its capitalization and franchise value. Neither of thesecomponents has been given consideration in the presentation of fair values thatfollow.

The table below presents thecarrying value and fair value of the specified assets, liabilities, andoff-balance sheet instruments held by the Company. Accrued interest receivableand payable, whose face values are deemed to approximate their carrying values,have not been included as the amounts are not material.

| ** **                                                    | ** ** | **December 31,** | ** ** |
|---------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                    | ** ** | **2004**              | ** ** | **2005** | ** ** |
| **(Dollars in thousands)**                          | ** ** | **Carrying  Value**   | ** ** | **Fair  Value** | ** ** | **Carrying  Value** | ** ** | **Fair  Value** | ** ** |
| **Assets**                                                    |       |                  |       |   |   |   |   |   |   |
| Cash and cash equivalents                                     |       | $                     | 3,199,854  |   | $ | 3,199,854 |   | $ | 3,969,876 |   | $ | 3,969,876 |   |
| Trading account assets                                        |       | 235,840               |       | 235,840 |   | 312,655 |   | 312,655 |   |
| Securities available for sale:                                |       |                  |       |   |   |   |   |   |   |
| Securities pledged as collateral                              |       | 144,240               |       | 144,240 |   | 96,994 |   | 96,994 |   |
| Held in portfolio                                             |       | 10,994,981            |       | 10,994,981 |   | 8,072,286 |   | 8,072,286 |   |
| Loans, net of allowance for  loan losses(1)                   |       | 28,128,803            |       | 27,899,488 |   | 32,181,670 |   | 31,526,845 |   |
| Private capital investments                                   |       | 97,040                |       | 97,040 |   | 110,448 |   | 110,448 |   |
| **Liabilities**                                               |       |                  |       |   |   |   |   |   |   |
| Deposits:                                                     |       |                  |       |   |   |   |   |   |   |
| Noninterest bearing                                           |       | 19,100,128            |       | 19,100,128 |   | 19,489,377 |   | 19,489,377 |   |
| Interest bearing                                              |       | 19,619,378            |       | 19,633,178 |   | 20,592,862 |   | 20,603,062 |   |
| Total deposits                                                |       | 38,719,506            |       | 38,733,306 |   | 40,082,239 |   | 40,092,439 |   |
| Borrowed funds                                                |       | 1,584,685             |       | 1,587,700 |   | 1,466,041 |   | 1,470,300 |   |
| Medium and long-term debt                                     |       | 816,113               |       | 814,370 |   | 801,095 |   | 797,518 |   |
| Junior subordinated debt  payable to subsidiary grantor trust |       | 15,790                |       | 15,350 |   | 15,338 |   | 14,630 |   |
| **Off-Balance Sheet Instruments**                             |       |                  |       |   |   |   |   |   |   |
| Commitments to extend  credit                                 |       | 60,117                |       | 60,117 |   | 59,081 |   | 59,081 |   |
| Standby and commercial letters of credit                      |       | 6,897                 |       | 6,897 |   | 8,014 |   | 8,014 |   |
|                                                               |            |                       |            |  |  |  |  |  |  |  |  |  |  |

----

(1)         Excludes lease financing, net of allowance.

F-88

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**UnionBanCal Corporation and Subsidiaries**

**Notes to Consolidated Financial Statements December 31, 2003, 2004, and 2005 (Continued)**

**Note 18—FairValue of Financial Instruments (Continued)**

The following methods andassumptions were used to estimate fair value of each class of financialinstruments for which it is practicable to estimate that value.

**Cash and cash equivalents:**   Thecarrying value of cash and cash equivalents is considered a reasonable estimateof fair value.

**Trading account assets:**   Tradingaccount assets are short term in nature and valued at market based on quotedmarket prices or dealer quotes. If a quoted market price is not available, therecorded amounts are estimated using quoted market prices for similarsecurities. Thus, carrying value is considered a reasonable estimate of fairvalue for these financial instruments.

**Securities:**   Thefair value of securities is based on quoted market prices or dealer quotes. Ifa quoted market price is not available, fair value is estimated using quotedmarket prices for similar securities. Securities available for sale are carriedat their aggregate fair value.

**Loans:**   Thefair value for performing fixed and non-reference rate loans wasestimated by discounting the future cash flows using the current rates at whichsimilar loans would be made to borrowers with similar credit ratings and forsimilar remaining maturities and, where available, discount rates were based oncurrent market rates.

Loans that are on nonaccrual status were not includedin the loan valuation methods discussed previously. The fair value of theseassets was estimated assuming these loans were sold at their carrying valueless their impairment allowance.

The fair value of performing mortgage loans was basedon quoted market prices for loans with similar credit and interest rate riskcharacteristics.

The fair value of credit lines is assumed toapproximate their carrying value.

**Privatecapital investments:**   The value of privatecapital investments is determined by analyzing the value of the equitysecurities underlying the investments using available market information andappropriate valuation methodologies. The fair value approximates the carryingvalue of these instruments.

**Noninterestbearing deposits:**   The fair value of noninterestbearing deposits is the amount payable on demand at the reporting date. Thefair value of the core deposit intangible has not been estimated.

**Interestbearing deposits:**   The fair value of savingsaccounts and certain money market accounts is the amount payable on demand atthe reporting date. The fair value of fixed maturity certificates of depositwas estimated using rates currently being offered on certificates with similarmaturities.

**Borrowedfunds:**   The carrying values of federal fundspurchased and securities sold under repurchase agreements and other short-termborrowed funds are assumed to approximate their fair value due to their limitedduration characteristics. The fair value for commercial paper and term federalfunds purchased was estimated using market quotes.

**Mediumand long-term debt:**   The fair value of thefixed-rate senior and subordinated notes were estimated using market quotes.The carrying value for variable-rate subordinated capital notes isassumed to approximate fair market value.

**Trust notes:**   Thefair value of fixed-rate trust notes were based upon either market quotes forthose traded securities or market quotes of similar securities, if not traded.This amount differs from the fair value 

F-89

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**UnionBanCal Corporation and Subsidiaries**

**Notes to Consolidated Financial Statements December 31, 2003, 2004, and 2005 (Continued)**

**Note 18—FairValue of Financial Instruments (Continued)**

of those securities underhedge accounting since a hypothetical value based on the present value of cashflows has been used for that purpose.

**Off-balance sheetinstruments:**   The carrying value of off-balancesheet instruments represents the unamortized fee income assessed based on thecredit quality and other covenants imposed on the borrower. Since the amountassessed represents the market rate that would be charged for similaragreements, management believes that the fair value approximates the carryingvalue of these instruments.

**Note 19—Derivative Instruments**

The Company is a party to certain derivative and otherfinancial instruments that are used for trading activities of the Company, tomeet the needs of customers, and to change the impact on the Company’soperating results due to market fluctuations in currency or interest rates.

Credit risk is defined as thepossibility that a loss may occur from the failure of another party to performin accordance with the terms of the contract, which exceeds the value of theexisting collateral, if any. The Company utilizes master netting agreements inorder to reduce its exposure to credit risk. Master netting agreements mitigatecredit risk by permitting the offset of amounts due from and to individual counterpartiesin the event of default. Market risk is the possibility that future changes inmarket conditions may make the financial instrument less valuable.

*Trading Activities in DerivativeInstruments*

Derivative instruments used for trading purposes arecarried at fair value. The following table reflects the Company’s positionsrelating to trading activities in derivative instruments. Trading activitiesinclude both activities for the Company’s own account and as an accommodationfor customers. At December 31, 2004 and 2005, the majority of the Company’sderivative transactions for customers were essentially offset by contracts withother counterparties.

F-90

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**UnionBanCal Corporation and Subsidiaries**

**Notes to Consolidated Financial Statements December 31, 2003, 2004, and 2005 (Continued)**

**Note 19—Derivative Instruments(Continued)**

The following is a summary ofderivative instruments held or written for trading purposes and customeraccommodations.

| ** **                                                          | ** ** | **December 31,** | ** ** |
|---------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                          | ** ** | **2004**              | ** ** | **2005** | ** ** |
| **(Dollars in thousands)**                                | ** ** | **Unrealized  Gains** | ** ** | **Unrealized  Losses** | ** ** | **Estimated  Fair Value** | ** ** | **Unrealized  Gains** | ** ** | **Unrealized  Losses** | ** ** | **Estimated  Fair Value** | ** ** |
| *Held or Written for Trading  Purposes and Customer Accommodations* |       |                  |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Foreign exchange forward  contracts:                                |       |                  |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Commitments to purchase                                             |       | $                     | 44,340     |   | $ | (360 | ) | $ | 43,980 |   | $ | 2,537 |   | $ | (12,416 | ) |   | $ | (9,879 | ) |   |
| Commitments to sell                                                 |       | 725                   |       | (49,181 | ) | (48,456 | ) | 13,054 |   | (2,204 | ) |   | 10,850 |   |   |
| Foreign exchange OTC  options:                                      |       |                  |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Options purchased                                                   |       | 742                   |       | — |   | 742 |   | 1,817 |   | — |   |   | 1,817 |   |   |
| Options written                                                     |       | —                |       | (742 | ) | (742 | ) | — |   | (1,817 | ) |   | (1,817 | ) |   |
| Cross currency swaps:                                               |       |                  |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Commitments to pay                                                  |       | —                |       | (2,933 | ) | (2,933 | ) | — |   | (4,994 | ) |   | (4,994 | ) |   |
| Commitments to receive                                              |       | 2,933                 |       | — |   | 2,933 |   | 4,994 |   | — |   |   | 4,994 |   |   |
| Energy contracts:                                                   |       |                  |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Option contracts                                                    |       | —                |       | — |   | — |   | 47,091 |   | (46,471 | ) |   | 620 |   |   |
| Swap contracts                                                      |       | 212                   |       | (116 | ) | 96 |   | 74,262 |   | (74,576 | ) |   | (314 | ) |   |
| Interest rate contracts:                                            |       |                  |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Caps purchased                                                      |       | 3,990                 |       | — |   | 3,990 |   | 3,074 |   | — |   |   | 3,074 |   |   |
| Floors purchased                                                    |       | 146                   |       | — |   | 146 |   | 8 |   | — |   |   | 8 |   |   |
| Caps written                                                        |       | —                |       | (3,990 | ) | (3,990 | ) | — |   | (3,074 | ) |   | (3,074 | ) |   |
| Floors written                                                      |       | —                |       | (146 | ) | (146 | ) | — |   | (8 | ) |   | (8 | ) |   |
| Swap contracts:                                                     |       |                  |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Pay variable/receive fixed                                          |       | 60,363                |       | (12,602 | ) | 47,761 |   | 34,492 |   | (39,949 | ) |   | (5,457 | ) |   |
| Pay fixed/receive variable                                          |       | 16,006                |       | (51,747 | ) | (35,741 | ) | 48,770 |   | (28,481 | ) |   | 20,289 |   |   |
|                                                                |       | 129,457               |       |   |   |   |   | 230,099 |   |   |   |   |   |   |   |
| Effect of master  netting agreements                                |       | (1,888                | )          |   |   |   |   | (3,960 | ) |   |   |   |   |   |   |
| Total credit exposure                                               |       | $                     | 127,569    |   |   |   |   |   | $ | 226,139 |   |   |   |   |   |   |   |
|                                                                     |            |                       |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

*Derivative Instruments and Other Financial InstrumentsUsed for Hedging*

Derivative positions areintegral components of the Company’s designated asset and liability managementactivities. The Company uses interest rate derivatives to manage thesensitivity of the Company’s net interest income to changes in interest rates.These instruments are used to manage interest rate risk relating to specifiedgroups of assets and liabilities, primarily LIBOR-based commercial loans,certificates of deposit, medium-term notes and subordinated debt. The followingdescribes the significant hedging strategies of the Company.

*Cash Flow Hedges*

*Hedging Strategies for Variable Rate Loans andCertificates of Deposit*

The Company engages in several types of cash flowhedging strategies for which the hedged transactions are forecasted future loaninterest payments, and the hedged risk is the variability in those payments dueto changes in the designated benchmark rate, e.g., U.S. dollar LIBOR. In thesestrategies, 

F-91

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**UnionBanCal Corporation and Subsidiaries**

**Notes to Consolidated Financial Statements December 31, 2003, 2004, and 2005 (Continued)**

**Note 19—DerivativeInstruments (Continued)**

the hedginginstruments are matched with groups of variable rate loans such that the tenorof the variable rate loans and that of the hedging instrument are identical.Cash flow hedging strategies include the utilization of purchased floor, cap,corridor options and interest rate swaps. At December 31, 2005, theweighted average remaining life of the currently active (excluding any forwardpositions) cash flow hedges was approximately 1.4 years.

The Company uses purchasedinterest rate floors to hedge the variable cash flows associated with 1-monthLIBOR or 3-month LIBOR indexed loans. Payments received under the floorcontract offset the decline in loan interest income caused by the relevantLIBOR index falling below the floor’s strike rate.

The Company uses interestrate floor corridors to hedge the variable cash flows associated with 1-monthLIBOR or 3-month LIBOR indexed loans. Net payments to be received underthe floor corridor contracts offset the decline in loan interest income causedby the relevant LIBOR index falling below the corridor’s upper strike rate, butonly to the extent the index falls to the lower strike rate. The corridor willnot provide protection from declines in the relevant LIBOR index to the extentit falls below the corridor’s lower strike rate.

The Company uses interestrate collars to hedge the variable cash flows associated with 1-monthLIBOR or 3-month LIBOR indexed loans. Net payments to be received underthe collar contract offset the decline in loan interest income caused by therelevant LIBOR index falling below the collar’s floor strike rate while netpayments to be paid will reduce the increase in loan interest income caused bythe LIBOR index rising above the collar’s cap strike rate.

The Company uses interestrate swaps to hedge the variable cash flows associated with 1-month LIBORor 3-month LIBOR indexed loans. Payments to be received (or paid) underthe swap contract will offset the fluctuations in loan interest income causedby changes in the relevant LIBOR index. As such, these instruments hedge allfluctuations in the loans’ interest income caused by changes in the relevantLIBOR index.

The Company uses purchasedinterest rate caps to hedge the variable interest cash flows associated withthe forecasted issuance and rollover of short-term, fixed rate, time deposits(TDs). In these hedging relationships, the Company hedges the LIBOR componentof the TD rates, which is either 3-month LIBOR or 6-month LIBOR,based on the TDs’ original term to maturity, which reflects their repricingfrequency. Net payments to be received under the cap contract offset theincrease in interest expense caused by the relevant LIBOR index rising abovethe cap’s strike rate.

The Company uses interestrate cap corridors to hedge the variable cash flows associated with theforecasted issuance and rollover of short-term, fixed rate, TDs. In thesehedging relationships, the Company hedges the LIBOR component of the TD rates,either 1-month LIBOR, 3-month LIBOR, or 6-month LIBOR, basedon the original term to maturity of the TDs, which reflects their repricingfrequency. Net payments to be received under the cap corridor contract offsetthe increase in deposit interest expense caused by the relevant LIBOR indexrising above the corridor’s lower strike rate, but only to the extent the indexrises to the upper strike rate. The corridor will not provide protection fromincreases in the relevant LIBOR index to the extent it rises above the corridor’supper strike rate.

Hedging transactions are structured at inception sothat the notional amounts of the hedge are matched with an equal principalamount of loans or TDs, the index and repricing frequencies of the hedgematches those of the loans or TDs, and the period in which the designated hedgedcash flows occurs is 

F-92

----

**UnionBanCal Corporation and Subsidiaries**

**Notes to Consolidated Financial Statements December 31, 2003, 2004, and 2005 (Continued)**

**Note 19—DerivativeInstruments (Continued)**

equal tothe term of the hedge. As such, most of the ineffectiveness in the hedgingrelationship results from the mismatch between the timing of reset dates on thehedge versus those of the loans or TDs. For the years ended December 31,2003, 2004 and 2005, the Company recognized a net gain of $0.9 million, anet loss of $1.8 million, and a net loss of $0.1 million, respectively due toineffectiveness. All ineffectivness is recognized in other noninterest expense.

For cash flow hedges,based upon amounts included in accumulated other comprehensive income at December 31,2005, the Company expects to realize approximately $35.6 million in net interestexpense during 2006. This amount could differ from amounts actually realizeddue to changes in interest rates and the addition of other hedgessubsequent to December 31, 2005.

*Fair Value Hedges*

*Hedging Strategy for “MarketPath” Certificates ofDeposit*

The Company engages in ahedging strategy in which interest bearing CDs issued to customers, which aretied to the changes in the Standard and Poor’s 500 index, are exchanged for afixed rate of interest.  The Companyaccounts for the embedded derivative in the CDs at fair value. A total returnswap that encompasses the value of a series of options that had individuallyhedged each CD is valued at fair value and any ineffectiveness resulting fromthe hedge and the hedged item are recognized in other noninterest expense.

*Hedging Strategy for Medium-Term Notes*

The Company engages in aninterest rate hedging strategy in which an interest rate swap is associatedwith a specified interest bearing liability, UnionBanCal Corporation’sfive-year, medium-term debt issuance, in order to convert the liability from afixed rate to a floating rate instrument. This strategy mitigates the changesin fair value of the hedged liability caused by changes in the designatedbenchmark interest rate, U.S. dollar LIBOR.

The fair value hedgingtransaction for the medium-term notes was structured at inception to mirror allof the provisions of the medium-term notes, which allows the Company to assumethat no ineffectiveness exists.

*Hedging Strategy for Subordinated Debt*

The Company engages in an interest rate hedgingstrategy in which an interest rate swap is associated with a specified interestbearing liability, UnionBanCal Corporation’s ten-year, subordinated debtissuance, in order to convert the liability from a fixed rate to a floatingrate instrument. This strategy mitigates the changes in fair value of thehedged liability caused by changes in the designated benchmark interest rate,U.S. dollar LIBOR.

The fair value hedgingtransaction for the subordinated debt was structured at inception to mirror allof the provisions of the subordinated debt, which allows the Company to assumethat no ineffectiveness exists.

F-93

----

**UnionBanCal Corporation and Subsidiaries**

**Notes to Consolidated Financial Statements December 31, 2003, 2004, and 2005 (Continued)**

**Note 19—Derivative Instruments (Continued)**

*Other*

The Company uses To-Be-Announced(TBA) contracts to fix the price and yield of anticipated purchases or sales ofmortgage-backed securities that will be delivered at an agreed upon date. Thisstrategy hedges the risk of variability in the cash flows to be paid orreceived upon settlement of the TBA contract.

The following table reflects summary information onthe Company’s derivative contracts used to hedge or modify the Company’s riskas of December 31, 2004 and 2005.

| ** **                                          | ** ** | **December 31, 2004** | ** ** | **December 31, 2005** | ** ** |
|-----------------------------------------------------|------------|---------------------------------|------------|---------------------------------|------------|
| **(Dollars in thousands)**                | ** ** | **Unamortized  Premiums**       | ** ** | **Unrealized  Gains**           | ** ** | **Unrealized  Losses** | ** ** | **Estimated  Fair Value** | ** ** | **Unamortized  Premiums** | ** ** | **Unrealized  Gains** | ** ** | **Unrealized  Losses** | ** ** | **Estimated  Fair Value** | ** ** |
| *Held for  Asset and Liability Management Purposes* |       |                            |       |                            |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Fair Value Hedges and Hedged  Items:                |       |                            |       |                            |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Swap Contract Indexed to                            |       |                            |       |                            |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| S&P 500:                                        |       |                            |       |                            |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

| Pay fixed/receive  variable           |   |   | $      | — |   |   |    | $      | — |   |    |   | $      | (446   | )       |   |   | $      | 1,650  |   |   |   | $      | — |   |   |    | $      | — |   |    |   | $      | (454   | )      |   |   | $ | 1,691 |   |   |
|---------------------------------------|--------|--------|--------|--------|--------|--------|---------|--------|--------|--------|---------|--------|--------|--------|---------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|---------|--------|--------|--------|---------|--------|--------|--------|--------|--------|--------|---|-------|--------|--------|
| MarketPath  certificates of deposit   |   |   | — |   |   |   | 446     |   |   |   | —  |   |   |   | 446     |   |   |   | — |   |   |   | 454    |   |   |   | —  |   |   |   | 454     |   |   |
| Interest rate swap  contracts:        |   |   |   |   |   |   |    |   |   |   |    |   |   |   |    |   |   |   |   |   |   |   |   |   |   |   |    |   |   |   |    |   |   |
| Medium-term debt  interest rate swap  |   |   | — |   |   |   | 7,186   |   |   |   | —  |   |   |   | 7,186   |   |   |   | — |   |   |   | 980    |   |   |   | —  |   |   |   | 980     |   |   |
| Medium-term note                      |   |   | — |   |   |   | —  |   |   |   | (7,186  | )      |   |   | (7,186  | )      |   |   | — |   |   |   | — |   |   |   | (980    | )      |   |   | (980    | )      |   |
| Subordinated debt  interest rate swap |   |   | — |   |   |   | 10,374  |   |   |   | —  |   |   |   | 10,374  |   |   |   | — |   |   |   | 1,354  |   |   |   | —  |   |   |   | 1,354   |   |   |
| Subordinated debt                     |   |   | — |   |   |   | —  |   |   |   | (10,374 | )      |   |   | (10,374 | )      |   |   | — |   |   |   | — |   |   |   | (1,354  | )      |   |   | (1,354  | )      |   |
| Cash Flow Hedges:                     |   |   |   |   |   |   |    |   |   |   |    |   |   |   |    |   |   |   |   |   |   |   |   |   |   |   |    |   |   |   |    |   |   |
| Interest rate option contracts:  |   |   |   |   |   |   |    |   |   |   |    |   |   |   |    |   |   |   |   |   |   |   |   |   |   |   |    |   |   |   |    |   |   |
| Caps purchased                        |   |   | 6,717  |   |   |   | 4,380   |   |   |   | —  |   |   |   | 11,097  |   |   |   | 1,166  |   |   |   | 2,124  |   |   |   | —  |   |   |   | 3,290   |   |   |
| Caps written                          |   |   | — |   |   |   | —  |   |   |   | (2,182  | )      |   |   | (2,182  | )      |   |   | — |   |   |   | — |   |   |   | (1,531  | )      |   |   | (1,531  | )      |   |
| Floors purchased                      |   |   | 3,321  |   |   |   | —  |   |   |   | (1,755  | )      |   |   | 1,566   |   |   |   | 1,920  |   |   |   | — |   |   |   | (1,823  | )      |   |   | 97      |   |   |
| Interest rate swap  contracts:        |   |   |   |   |   |   |    |   |   |   |    |   |   |   |    |   |   |   |   |   |   |   |   |   |   |   |    |   |   |   |    |   |   |
| Pay variable/receive  fixed           |   |   | — |   |   |   | 15,212  |   |   |   | (13,280 | )      |   |   | 1,932   |   |   |   | — |   |   |   | — |   |   |   | (54,412 | )      |   |   | (54,412 | )      |   |
|                                  |   |   |   |   |   |   | 37,598  |   |   |   |    |   |   |   |    |   |   |   |   |   |   |   | 4,912  |   |   |   |    |   |   |   |    |   |   |
| Effect of master  netting agreements  |   |   |   |   |   |   | (14,437 | )      |   |   |    |   |   |   |    |   |   |   |   |   |   |   | (980   | )      |   |   |    |   |   |   |    |   |   |
| Total credit exposure                 |   |   |   |   |   |   | $       | 23,161 |   |   |    |   |   |   |    |   |   |   |   |   |   |   |   | $      | 3,932  |   |    |   |   |   |    |   |   |   |   |

 

**Note 20—Restrictionson Cash and Due from Banks, Securities, Loans and Dividends**

Federal Reserve Board regulations require the Bank tomaintain reserve balances based on the types and amounts of deposits received.Average reserve balances were approximately $148 million and $150 million forthe years ended December 31, 2004 and 2005, respectively.

As of December 31, 2004 and 2005, securitiescarried at $2.8 billion and $3.0 billion and loans of $10.7 billion and $12.1billion, respectively, were pledged as collateral for borrowings, to securepublic and trust department deposits, and for repurchase agreements as requiredby contract or law.

F-94

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**UnionBanCal Corporation and Subsidiaries**

**Notes to Consolidated Financial Statements December 31, 2003, 2004, and 2005 (Continued)**

**Note 20—Restrictionson Cash and Due from Banks, Securities, Loans and Dividends (Continued)**

The Federal Reserve Act restricts the amount and theterms of both credit and non-credit transactions between a bank and itsnon-bank affiliates. Such transactions may not exceed 10 percent of the bank’scapital and surplus (which for this purpose represents Tier 1 and Tier 2capital, as calculated under the risk-based capital guidelines, plus thebalance of the allowance for loan losses excluded from Tier 2 capital) with anysingle non-bank affiliate and 20 percent of the bank’s capital and surplus withall its non-bank affiliates. Transactions that are extensions of credit mayrequire collateral to be held to provide added security to the bank. See Note21 of these consolidated financial statements for further discussion ofrisk-based capital. At December 31, 2005, $110.4 million remainedoutstanding on fifteen Bankers Commercial Corporation notes payable to theBank. The respective notes were fully collateralized with equipment leasespledged by Bankers Commercial Corporation.

The declaration of a dividendby the Bank to the Company is subject to the approval of the Office of theComptroller of the Currency (OCC) if the total of all dividends declared in thecurrent calendar year plus the preceding two years exceeds the Bank’s total netincome in the current calendar year plus the preceding two years. The paymentof dividends is also limited by minimum capital requirements imposed onnational banks by the OCC.

**Note 21—Regulatory Capital Requirements**

The Company and the Bank are subject to variousregulatory 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, ifundertaken, could have a material effect on the Company’s ConsolidatedFinancial Statements. Under capital adequacy guidelines and the regulatoryframework for prompt corrective action, the Company and the Bank must meetspecific capital guidelines that involve quantitative measures of the Company’sand Bank’s assets, liabilities, and certain off-balance sheet items ascalculated under regulatory accounting practices. The capital amounts and theBank’s prompt corrective action classification are also subject to qualitativejudgments by the regulators about components, risk weightings and other factors.Prompt corrective action provisions are not applicable to bank holdingcompanies such as the Company.

Quantitative measures established by regulation toensure capital adequacy require the Company and the Bank to maintain minimumamounts 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) andof Tier 1 capital (as defined) to quarterly average assets (as defined).Management believes, as of December 31, 2004 and 2005, that the Companyand the Bank met all capital adequacy requirements to which they are subject.

As of December 31, 2004 and 2005, the most recentnotification from the OCC categorized the Bank as “well-capitalized” under theregulatory framework for prompt corrective action. To be categorized as “well-capitalized,”the Bank must maintain a minimum total risk-based capital ratio of 10percent, a Tier 1 risk-based capital ratio of 6 percent, and a Tier 1leverage ratio of 5 percent. There are no conditions or events since thatnotification that management believes have changed the Bank’s category.

F-95

----

**UnionBanCal Corporation and Subsidiaries**

**Notes to Consolidated Financial Statements December 31, 2003, 2004, and 2005 (Continued)**

**Note 21—RegulatoryCapital Requirements (Continued)**

The Company’s and the Bank’scapital amounts and ratios are presented in the following tables:
|                                                       | ** ** | **Actual** | ** ** | **For Capital  Adequacy Purposes** | ** ** |
|-------------------------------------------------------|------------|------------|------------|----------------------------------------------|------------|
| **(Dollars in thousands)**                  | ** ** | **Amount** | ** ** | **Ratio**                                    | ** ** | **Amount** | ** ** | **Ratio** | ** ** |
| **Capital Ratios for the Company:**                   |       |       |       |                                         |       |   |   |   |   |   |   |
| As of December 31, 2004:                         |       |       |       |                                         |       |   |   |   |   |   |   |
| Total capital (to  risk-weighted assets)              |       | $          | 4,785,992  |                                         | 12.17      | % | 3 | $ | 3,145,989 |   | 3 | 8.0 | % |
| Tier 1 capital  (to risk-weighted assets)        |       | 3,817,698  |       | 9.71                                         |       | 3 | 1,572,994 |   | 3 | 4.0 |   |
| Tier 1 capital  (to quarterly average assets)(1) |       | 3,817,698  |       | 8.09                                         |       | 3 | 1,886,747 |   | 3 | 4.0 |   |
| As of December 31, 2005:                         |       |       |       |                                         |       |   |   |   |   |   |   |
| Total capital (to  risk-weighted assets)              |       | $          | 5,054,873  |                                         | 11.10      | % | 3 | $ | 3,643,236 |   | 3 | 8.0 | % |
| Tier 1 capital (to  risk-weighted assets)             |       | 4,178,160  |       | 9.17                                         |       | 3 | 1,821,618 |   | 3 | 4.0 |   |
| Tier 1 capital (to  quarterly average assets)(1)      |       | 4,178,160  |       | 8.39                                         |       | 3 | 1,991,595 |   | 3 | 4.0 |   |

 

----

(1)      Excludescertain intangible assets.

 
|                                                 | ** ** | **Actual** | ** ** | **For Capital  Adequacy Purposes** | ** ** | **To Be Well-Capitalized  Under Prompt Corrective  Action Provisions** | ** ** |
|-------------------------------------------------|------------|------------|------------|----------------------------------------------|------------|-------------------------------------------------------------------------------------------------|------------|
| **(Dollars in thousands)**            | ** ** | **Amount** | ** ** | **Ratio**                                    | ** ** | ** **                                                                                      | **Amount** | ** ** | **Ratio** | ** ** | ** ** | **Amount** | ** ** | **Ratio** | ** ** |
| **Capital Ratios for the Bank:**                |       |       |       |                                         |       |                                                                                            |       |   |   |   |   |   |   |   |   |   |   |
| As of December 31,  2004:                  |       |       |       |                                         |       |                                                                                            |       |   |   |   |   |   |   |   |   |   |   |
| Total capital (to risk-weighted assets)         |       | $          | 4,091,494  |                                         | 10.57      | %                                                                                               | 3     | $ | 3,096,935 |   | 3 | 8.0 | % | 3 | $ | 3,871,168 |   | 3 | 10.0 | % |
| Tier 1 capital (to risk-weighted assets)        |       | 3,597,738  |       | 9.29                                         |       | 3                                                                                          | 1,548,467  |   | 3 | 4.0 |   | 3 | 2,322,701 |   | 3 | 6.0 |   |
| Tier 1 capital (to quarterly average assets)(1) |       | 3,597,738  |       | 7.72                                         |       | 3                                                                                          | 1,863,550  |   | 3 | 4.0 |   | 3 | 2,329,438 |   | 3 | 5.0 |   |
| As of December 31,  2005:                  |       |       |       |                                         |       |                                                                                            |       |   |   |   |   |   |   |   |   |   |   |
| Total capital (to risk-weighted assets)         |       | $          | 4,748,824  |                                         | 10.59      | %                                                                                               | 3     | $ | 3,588,092 |   | 3 | 8.0 | % | 3 | $ | 4,485,115 |   | 3 | 10.0 | % |
| Tier 1 capital (to risk-weighted assets)        |       | 4,315,471  |       | 9.62                                         |       | 3                                                                                          | 1,794,046  |   | 3 | 4.0 |   | 3 | 2,691,069 |   | 3 | 6.0 |   |
| Tier 1 capital (to quarterly average assets)(1) |       | 4,315,471  |       | 8.78                                         |       | 3                                                                                          | 1,965,090  |   | 3 | 4.0 |   | 3 | 2,456,362 |   | 3 | 5.0 |   |

 

----

(1)      Excludescertain intangible assets.

 

F-96

----

**UnionBanCal Corporation and Subsidiaries**

**Notes to Consolidated Financial Statements December 31, 2003, 2004, and 2005 (Continued)**

**Note 22—Earnings Per Share**

Basic EPS is computed bydividing net income by the weighted average number of common shares outstandingduring the period. For all periods presented, there were no dividends onpreferred stock. Diluted EPS is computed based on the weighted average numberof common shares outstanding adjusted for common stock equivalents, whichinclude stock options. The following table presents a reconciliation of basicand diluted EPS for the years ended December 31, 2003, 2004 and 2005:

| ** **                                                                      | ** ** | **For the Years Ended** | ** ** |
|---------------------------------------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                                                      | ** ** | **2003**                               | ** ** | **2004** | ** ** | **2005** | ** ** |
| **(Amounts in thousands, except per share data)** | ** ** | **Basic**                              | ** ** | **Diluted** | ** ** | **Basic** | ** ** | **Diluted** | ** ** | **Basic** | ** ** | **Diluted** | ** ** |
| Income from continuing operations                                               |       | $                                      | 552,534    |   | $ | 552,534 |   | $ | 710,074 |   | $ | 710,074 |   | $ | 730,640 |   | $ | 730,640 |   |
| Income from discontinued operations                                             |       | 34,605                                 |       | 34,605 |   | 22,460 |   | 22,460 |   | 132,293 |   | 132,293 |   |
| Net income                                                                      |       | $                                      | 587,139    |   | $ | 587,139 |   | $ | 732,534 |   | $ | 732,534 |   | $ | 862,933 |   | $ | 862,933 |   |
| Weighted average common shares outstanding                                      |       | 148,917                                |       | 148,917 |   | 147,767 |   | 147,767 |   | 145,109 |   | 145,109 |   |
| Additional shares due to:                                                       |       |                                   |       |   |   |   |   |   |   |   |   |   |   |
| Assumed conversion of dilutive stock options                                    |       | —                                 |       | 1,728 |   | — |   | 2,536 |   | — |   | 2,683 |   |
| Adjusted weighted average common shares   outstanding                           |       | 148,917                                |       | 150,645 |   | 147,767 |   | 150,303 |   | 145,109 |   | 147,792 |   |
| Income from continuing operations per share                                     |       | $                                      | 3.71       |   | $ | 3.67 |   | $ | 4.81 |   | $ | 4.72 |   | $ | 5.04 |   | $ | 4.94 |   |
| Income from discontinued operations per share                                   |       | 0.23                                   |       | 0.23 |   | 0.15 |   | 0.15 |   | 0.91 |   | 0.90 |   |
| Net income per share                                                            |       | $                                      | 3.94       |   | $ | 3.90 |   | $ | 4.96 |   | $ | 4.87 |   | $ | 5.95 |   | $ | 5.84 |   |

 

The following table provides the number of options andthe corresponding exercise prices of those options which were not included inthe computation of diluted EPS in each of the years 2003, 2004, and 2005because they were anti-dilutive:

| ** **                | ** ** | **For the Years Ended** | ** **     |
|---------------------------|------------|----------------------------------------|----------------|
| ** **                | ** ** | **2003**                               | ** **     | **2004** | ** ** | **2005** | ** ** |
| Options outstanding       |       | 170,721                                |           | 42,000 |   | 89,230 |   |
| Exercise price of options |       | $                                      | 47.14 - $57.15 |   | $ | 57.50 - $59.74 |   | $ | 67.39 - $71.23 |   |
|                           |            |                                        |                |  |  |  |  |  |  |  |

 

 

F-97

----

**UnionBanCal Corporation and Subsidiaries**

**Notes to Consolidated Financial Statements December 31, 2003, 2004, and 2005 (Continued)**

**Note 23—Other Comprehensive Income**

Thefollowing table presents the components of other comprehensive income and therelated tax effect allocated to each component:

| ** **                                                                                                 | ** ** | **Before** | ** ** | ** ** | ** ** | ** **      | ** ** |
|------------------------------------------------------------------------------------------------------------|------------|------------|------------|------------|------------|-----------------|------------|
| ** **                                                                                                 | ** ** | **Tax**    | ** ** | **Tax**    | ** ** | **Net of** | ** ** |
| **(Dollars in thousands)**                                                                       | ** ** | **Amount** | ** ** | **Effect** | ** ** | **Tax**         | ** ** |
| **2003:**                                                                                                  |       |       |       |       |       |            |       |
| Cash  flow hedge activities:                                                                               |       |       |       |       |       |            |       |
| Unrealized net gains on  hedges arising during the year                                                    |       | $          | 41,982     |       | $          | (16,058         | )          | $ | 25,924 |   |
| Less: reclassification  adjustment for net gains on hedges included in net income                          |       | (140,091   | )          | 53,585     |       | (86,506         | )          |
| Net change in unrealized  losses on hedges                                                                 |       | (98,109    | )          | 37,527     |       | (60,582         | )          |
| Securities  available for sale:                                                                            |       |       |       |       |       |            |       |
| Unrealized holding losses  arising during the year on securities available for sale                        |       | (204,143   | )          | 78,085     |       | (126,058        | )          |
| Less: reclassification  adjustment for net losses on securities available for sale included in net  income |       | 1,851      |       | (708       | )          | 1,143           |       |
| Net change in unrealized  losses on securities available for sale                                          |       | (202,292   | )          | 77,377     |       | (124,915        | )          |
| Foreign currency  translation adjustments                                                                  |       | 577        |       | (221       | )          | 356             |       |
| Minimum pension liability  adjustment                                                                      |       | (4,390     | )          | 1,679      |       | (2,711          | )          |
| Net change in accumulated  other comprehensive income (loss)                                               |       | $          | (304,214   | )          | $          | 116,362         |       | $ | (187,852 | ) |
| **2004:**                                                                                                  |       |       |       |       |       |            |       |
| Cash  flow hedge activities:                                                                               |       |       |       |       |       |            |       |
| Unrealized net gains on  hedges arising during the year                                                    |       | $          | 3,103      |       | $          | (1,187          | )          | $ | 1,916 |   |
| Less: reclassification  adjustment for net gains on hedges included in net  income                         |       | (71,697    | )          | 27,424     |       | (44,273         | )          |
| Net change in unrealized  losses on hedges                                                                 |       | (68,594    | )          | 26,237     |       | (42,357         | )          |
| Securities  available for sale:                                                                            |       |       |       |       |       |            |       |
| Unrealized holding losses  arising during the year on securities available for  sale                       |       | (99,908    | )          | 38,215     |       | (61,693         | )          |
| Less: reclassification  adjustment for net losses on securities available for sale included in net  income |       | 12,085     |       | (4,623     | )          | 7,462           |       |
| Net change in unrealized  losses on securities available for sale                                          |       | (87,823    | )          | 33,592     |       | (54,231         | )          |
| Foreign currency  translation adjustments                                                                  |       | 3,924      |       | (1,501     | )          | 2,423           |       |
| Minimum pension liability  adjustment                                                                      |       | (4,703     | )          | 1,799      |       | (2,904          | )          |
| Net change in accumulated  other comprehensive income (loss)                                               |       | $          | (157,196   | )          | $          | 60,127          |       | $ | (97,069 | ) |
| **2005:**                                                                                                  |       |       |       |       |       |            |       |
| Cash  flow hedge activities:                                                                               |       |       |       |       |       |            |       |
| Unrealized net gains on  hedges arising during the year                                                    |       | $          | (41,796    | )          | $          | 15,987          |       | $ | (25,809 | ) |
| Less: reclassification  adjustment for net gains on hedges included in net income                          |       | (16,077    | )          | 6,149      |       | (9,928          | )          |
| Net change in unrealized  losses on hedges                                                                 |       | (57,873    | )          | 22,136     |       | (35,737         | )          |
| Securities  available for sale:                                                                            |       |       |       |       |       |            |       |
| Unrealized holding losses  arising during the year on securities available for sale                        |       | (118,708   | )          | 45,406     |       | (73,302         | )          |
| Less: reclassification  adjustment for net losses on securities available for sale included in net  income |       | 50,039     |       | (19,140    | )          | 30,899          |       |
| Net change in unrealized  losses on securities available for sale                                          |       | (68,669    | )          | 26,266     |       | (42,403         | )          |
| Foreign  currency translation adjustments:                                                                 |       |       |       |       |       |            |       |
| Net gains arising during  the year                                                                         |       | $          | 582        |       | $          | (222            | )          | $ | 360 |   |
| Less: reclassification of  foreign currency translation loss included in net income                        |       | 11,845     |       | (4,071     | )          | 7,774           |       |
| Net change in foreign  currency translation                                                                |       | 12,427     |       | (4,293     | )          | 8,134           |       |
| Minimum pension liability  adjustment                                                                      |       | (5,792     | )          | 2,232      |       | (3,560          | )          |
| Net change in accumulated other comprehensive income (loss)                                                |       | $          | (119,907   | )          | $          | 46,341          |       | $ | (73,566 | ) |

 

F-98

----

**UnionBanCal Corporation and Subsidiaries**

**Notes to Consolidated Financial Statements December 31, 2003, 2004, and 2005 (Continued)**

**Note 23—Other ComprehensiveIncome (Continued)**

Thefollowing table presents accumulated other comprehensive income (loss)balances:

| ** **                           | ** ** | **Net**                 | ** ** | **Net**                 | ** ** | ** **      | ** ** | ** **     | ** **  | ** **             | ** ** |
|--------------------------------------|------------|-------------------------|------------|-------------------------|------------|-----------------|------------|----------------|-------------|------------------------|------------|
| ** **                           | ** ** | **Unrealized**          | ** ** | **Unrealized**          | ** ** | ** **      | ** ** | ** **     | ** **  | ** **             | ** ** |
| ** **                           | ** ** | **Gains (Losses)** | ** ** | **Gains (Losses)** | ** ** | **Foreign**     | ** ** | **Minimum**    | ** **  | **Accumulated**        | ** ** |
| ** **                           | ** ** | **on Cash**        | ** ** | **on Securites**   | ** ** | **Currency**    | ** ** | **Pension**    | ** **  | **Other**              | ** ** |
| ** **                           | ** ** | **Flow**                | ** ** | **Available**           | ** ** | **Translation** | ** ** | **Liability**  | ** **  | **Comprehensive**      | ** ** |
| **(Dollars in thousands)** | ** ** | **Hedges**              | ** ** | **For Sale**       | ** ** | **Adjustment**  | ** ** | **Adjustment** | ** **  | **Income (Loss)** | ** ** |
| **Balance,  December 31, 2002** |       |                    | $          | 104,368                 |       |            |       | $              | 147,450     |                   |       | $ | (10,649 | ) | $ | (1,075 | ) |   | $ | 240,094 |   |   |
| Change during the  year              |       |                    | (60,582    | )                       |       |            | (124,915   | )              |        | 356                    |       | (2,711 | ) |   | (187,852 | ) |   |
| **Balance,  December 31, 2003** |       |                    | $          | 43,786                  |       |            |       | $              | 22,535      |                   |       | $ | (10,293 | ) | $ | (3,786 | ) |   | $ | 52,242 |   |   |
| Change during the  year              |       |                    | (42,357    | )                       |       |            | (54,231    | )              |        | 2,423                  |       | (2,904 | ) |   | (97,069 | ) |   |
| **Balance,  December 31, 2004** |       |                    | $          | 1,429                   |       |            |       | $              | (31,696     | )                      |       | $ | (7,870 | ) | $ | (6,690 | ) |   | $ | (44,827 | ) |   |
| Change during the  year              |       |                    | (35,737    | )                       |       |            | (42,403    | )              |        | 8,134                  |       | (3,560 | ) |   | (73,566 | ) |   |
| **Balance, December 31, 2005**  | ** ** | ** **              | **$**      | **(34,308**             | **)**      | ** **      | ** ** | **$**          | **(74,099** | **)**                  | ** ** | **$** | **264** | ** ** | **$** | **(10,250** | **)** | ** ** | **$** | **(118,393** | **)** | ** ** |

 

**Note 24—Commitments,Contingencies and Guarantees**

Thefollowing table summarizes the Company’s significant commitments:

| ** **                                 | ** ** | **December 31,** | ** ** |
|--------------------------------------------|------------|-----------------------|------------|
| **(Dollars in thousands)**       | ** ** | **2004**              | ** ** | **2005** | ** ** |
| Commitments to  extend credit              |       | $                     | 16,499,957 |   | $ | 20,287,320 |   |
| Standby letters of  credit                 |       | 2,917,070             |       | 3,549,389 |   |
| Commercial letters  of credit              |       | 100,944               |       | 98,375 |   |
| Commitments to fund  principal investments |       | 93,822                |       | 110,150 |   |
|                                            |            |                       |            |  |  |  |  |

 

Commitments to extend credit are legally bindingagreements to lend to a customer provided there are no violations of anycondition established in the contract. Commitments have fixed expiration datesor other termination clauses and may require maintenance of compensatorybalances. Since many of the commitments to extend credit may expire without beingdrawn upon, the total commitment amounts do not necessarily represent futurecash-flow requirements.

Standby and commercial letters of credit areconditional commitments issued to guarantee the performance of a customer to athird party. Standby letters of credit generally are contingent upon thefailure of the customer to perform according to the terms of the underlyingcontract with the third party, while commercial letters of credit are issuedspecifically to facilitate foreign or domestic trade transactions. The majorityof these types of commitments have terms of one year or less. At December 31,2005, the carrying value of the Company’s standby and commercial letters ofcredit totaled $8.0 million. Exposure to loss related to these commitments iscovered by the allowance for off-balance sheet commitments. Both of theseamounts are included in other liabilities on the consolidated balance sheet. Inaddition, the Company’s maximum exposure to loss for standby and commercialletters of credit related to discontinued operations was $41.6 million and$34.8 million, respectively. The corresponding carrying value of these standbyand commercial letters of credit totaled $0.1 million.

The credit risk involved in issuing loan commitments and standby andcommercial letters of credit is essentially the same as that involved inextending loans to customers and is represented by the contractual 

F-99

----

**UnionBanCal Corporation and Subsidiaries**

**Notes to Consolidated Financial Statements December 31, 2003, 2004, and 2005 (Continued)**

**Note 24—Commitments,Contingencies and Guarantees (Continued)**

amount of these instruments.  Collateral may be obtained based on management’scredit assessment of the customer.

Principal investments include direct investments inprivate and public companies and indirect investments in private equity funds. TheCompany issues commitments to provide equity and mezzanine capital financing toprivate and public companies through either direct investments in specificcompanies or through investment funds and partnerships. The timing of futurecash requirements to fund such commitments is generally dependent on theinvestment cycle. This cycle, the period over which privately-held companiesare funded by private equity investors and ultimately sold, merged, or takenpublic through an initial offering, can vary based on overall market conditionsas well as the nature and type of industry in which the companies operate.

The Company has contingent consideration agreementsthat guarantee additional payments to acquired insurance agencies’ stockholdersbased on the agencies’ future performance in excess of established revenueand/or earnings before interest, taxes, depreciation and amortization (EBITDA)thresholds. If the insurance agencies’ future performance exceeds thesethresholds during a three-year period, the Company will be liable to makepayments to former stockholders. As of December 31, 2005, the Company hasa maximum exposure of $4.8 million for these agreements, the last of whichexpire December 2006.

The Company is fund manager for limited liabilitycorporations issuing low-income housing credit (LIHC) investments. LIHCinvestments provide tax benefits to investors in the form of tax deductionsfrom operating losses and tax credits. To facilitate the sale of these LIHCinvestments, the Company guarantees the timely completion of projects anddelivery of tax benefits throughout the investment term. Guarantees may includea minimum rate of return, the availability of tax credits, and operatingdeficit thresholds over a ten-year average period. Additionally, the Companyreceives project completion and tax credit guarantees from the limitedliability corporations issuing the LIHC investments that reduce the Company’sultimate exposure to loss. As of December 31, 2005, the Company’s maximumexposure to loss under these guarantees is limited to a return of investor’scapital and minimum investment yield, or $158.5 million. The Company maintainsa reserve of $6.5 million for these guarantees.

The Company has rental commitments under long-termoperating lease agreements. For detail of these commitments see Note 6 to theConsolidated Financial Statements.

The Company has guarantees that obligate it to performif its affiliates are unable to discharge their obligations. These obligationsinclude guarantees of commercial paper obligations and leveraged leasetransactions. The guarantee issued by the Bank for an affiliate’s commercialpaper program is done in order to facilitate their sale. As ofDecember 31, 2005, the Bank had a maximum exposure to loss under thecommercial paper program guarantee of $700.6 million. The Bank’s guaranteehas an average term of less than one year and is fully collateralized by apledged deposit. The Company guarantees its subsidiaries’ leveraged leasetransactions with terms ranging from fifteen to thirty years. Following theoriginal funding of these leveraged lease transactions, the Company has nomaterial obligation to be satisfied. As of December 31, 2005, the Companyhad no exposure to loss for these agreements.

The Company conducts securities lending transactions for institutionalcustomers as a fully disclosed agent. At times, securities lendingindemnifications are issued to guarantee that a security lending customer willbe made whole in the event the borrower does not return the security subject tothe lending 

F-100

----

**UnionBanCal Corporation and Subsidiaries**

**Notes to Consolidated Financial Statements December 31, 2003, 2004, and 2005 (Continued)**

**Note 24—Commitments,Contingencies and Guarantees (Continued)**

agreement and collateral heldis insufficient to cover the market value of the security. All lendingtransactions are collateralized, primarily by cash. The amount of securitieslent with indemnification was $2.0 billion and $2.0 billion at December 31,2004 and 2005, respectively. The market value of the associated collateral was$2.0 billion and $2.0 billion at December 31, 2004 and 2005, respectively.

The Company occasionally enters into financialguarantee contracts where a premium is received from another financialinstitution counterparty to guarantee a portion of the credit risk on interestrate swap contracts entered into between the financial institution and itscustomer. The Company becomes liable to pay the financial institution only ifthe financial institution is unable to collect amounts owed to them by theircustomer. As of December 31, 2005, the maximum exposure to loss underthese contracts totaled $2.1 million. The Company maintains a reserve of $0.1million for losses related to these guarantees. See additional informationabout guarantees in Note 25 to these Consolidated Financial Statements.

The Company is subject tovarious pending and threatened legal actions that arise in the normal course ofbusiness. The Company maintains reserves for losses from legal actions that areboth probable and estimable. In the opinion of management, the disposition ofclaims currently pending will not have a material adverse effect on the Company’sfinancial position or results of operations.

**Note 25—TransactionsWith Affiliates**

The Company had, and expects to have in the future,banking transactions and other transactions in the ordinary course of businesswith BTMU and with its affiliates. During 2003, 2004 and 2005, suchtransactions included, but were not limited to, participation, servicing andremarketing of loans and leases, purchase and sale of acceptances, interestrate derivatives and foreign exchange transactions, funds transfers,custodianships, electronic data processing, investment advice and management,customer referrals, facility leases, and trust services. The Company alsomaintains traditional correspondent bank accounts and has a $200 millionfloating-rate subordinated debt with BTMU. For further information regardingthis subordinated debt, see Note 13 to these Consolidated Financial Statements.In the opinion of management, such transactions were made at rates, terms, andconditions prevailing in the market and do not involve more than the normalrisk of collectibility or present other unfavorable features. In addition, somecompensation for services rendered to the Company is paid to the expatriateofficers from BTMU, and reimbursed by the Company to BTMU under a serviceagreement.

During 2003 and 2005, the Company purchased stock fromits majority stockholder of $300 million at $45.05 per share and $200 millionat $57.54 per share, respectively.

At December 31, 2005, the Company had derivativecontracts totaling $2.1 billion in notional balance with $22.4 million in netunrealized losses with BTMU and its affiliates. At December 31, 2005, theCompany had recorded interest expense of $8.3 million for the year ended 2005relating to the subordinated debt and other correspondent bank accounts.  Additionally, for the year ended 2005, theCompany recorded income of $2.0 million and expenses of $1.1 million for feesand revenue sharing arrangements and income of $1.8 million and expenses of$3.2 million relating to facility and staff training arrangements.

On December 10, 2004, the Company purchasedcorporate trust accounts from BTMU Trust Company for $1.8 million.

F-101

----

**UnionBanCal Corporation and Subsidiaries**

**Notes to Consolidated Financial Statements December 31, 2003, 2004, and 2005 (Continued)**

**Note 25—TransactionsWith Affiliates (Continued)**

The Company has guaranteesthat obligate it to perform if its affiliates are unable to discharge theirobligations. These obligations include guarantees of commercial paperobligations and leveraged lease transactions. The guarantee issued by the Bankfor an affiliate’s commercial paper program is done in order to facilitatetheir sale. As of December 31, 2005, the Bank had a maximum exposure toloss under the commercial paper program guarantee of $700.6 million. The Bank’sguarantee has an average term of less than one year and is fully collateralizedby a pledged deposit. The Company guarantees its subsidiaries’ leveraged leasetransactions with terms ranging from fifteen to thirty years. Following theoriginal funding of these leveraged lease transactions, the Company has nomaterial obligation to be satisfied. As of December 31, 2005, the Companyhad no exposure to loss for these agreements.

**Note 26—Business Segments**

In April 2005, theCompany announced several organizational changes that affected its businesssegments. The Global Markets Group was eliminated and the activities of thisgroup were transferred. Corporate Treasury, which is responsible forAsset-Liability Management (ALM) wholesale funding and the ALM securities andderivatives hedging portfolios of the Company, is now included in “Other.”  The trading of securities and foreignexchange contracts, as well as the responsibilities for customer accommodatedderivative contracts, are now included in the “Global Markets Division” of theCommunity Banking and Investment Services Group. In addition, the discontinuedoperations resulting from the disposal of most of the Company’s InternationalBanking Group are also reflected in “Other.” The Company is now organizedaround the target markets it serves and operates in two principal areas:

·       TheCommunity Banking and Investment Services Group offers a range of bankingservices, primarily to individuals and small businesses, delivered generallythrough a tri-state (California, Washington and Oregon) network of branches andATMs. These services include mortgages, home equity lines of credit,consumer and commercial loans, deposit services and cash management as well asfiduciary, private banking, investment and asset management services forindividuals and institutions, and risk management and insurance products forbusinesses and individuals. At December 31, 2004 and 2005, this Group had$314.0 million and $316.2 million, respectively, of goodwill assigned to itsbusinesses.

·       TheCommercial Financial Services Group provides credit, depository and cashmanagement services to large corporate and middle-market companies and numerousspecialty niches. Services include commercial and project loans, real estatefinancing, asset-based financing, trade finance and letters of credit, leasefinancing, customized cash management services and selected capital marketsproducts. At December 31, 2004 and 2005, this Group had $137.0 million and$137.8 million, respectively, of goodwill assigned to its businesses.

The information, set forth inthe table on the following page, reflects selected income statement and balancesheet items by business segment. The information presented does not necessarilyrepresent the business units’ financial condition and results of operationswere they independent entities. Unlike financial accounting, there is noauthoritative body of guidance for management accounting equivalent to US GAAP.Consequently, reported results are not necessarily comparable with those presentedby other companies. Included in the table within total assets are the amountsof goodwill for each business segment as of December 30, 2004 and 2005.

F-102

----

**UnionBanCal Corporation and Subsidiaries**

**Notes to Consolidated Financial Statements December 31, 2003, 2004, and 2005 (Continued)**

**Note 26—Business Segments(Continued)**

The information in the table is derived from theinternal management reporting system used by management to measure theperformance of the business segments and the Company overall. The managementreporting system assigns balance sheet and income statement items to each businesssegment based on internal management accounting policies. Net interest incomeis determined by the Company’s internal funds transfer pricing system, whichassigns a cost of funds or a credit for funds to assets or liabilities based ontheir type, maturity or repricing characteristics. Noninterest income andexpense directly attributable to a business segment are assigned to thatbusiness segment. Certain indirect costs, such as operations and technologyexpense, are allocated to the segments based on studies of billable unit costsfor product or data processing. Other indirect costs, such as corporateoverhead, are allocated to the business segments based on a predeterminedpercentage of usage. Under the Company’s risk-adjusted return on capital (RAROC)methodology, credit expense is charged to business segments based upon expectedlosses arising from credit risk. In addition, the attribution of economiccapital is related to unexpected losses arising from credit, market andoperational risks.

“Other” is comprised of our discontinued operations,certain parent company non-bank subsidiaries, the elimination of the fullytaxable-equivalent basis amount, the transfer pricing center, the amount of theprovision for loan losses over/(under) the RAROC expected loss for the period,the earnings associated with the unallocated equity capital and allowances forcredit losses, and the residual costs of support groups. In addition, “Other”includes the Pacific Rim Corporate Group, which offers financial products to Japanese-ownedsubsidiaries located in the U.S., Corporate Treasury, which manages the Company’swholesale funding needs, securities portfolio, interest rate and liquidityrisk, and the results of our discontinued operations. Except as discussedabove, none of the items in “Other” are significant to the Company’s business.

The business units’ resultsfor the prior periods have been restated to reflect changes in transfer pricingmethodology, organizational changes and our discontinued operations.

| ** **                                                       | ** ** | **Community Banking**                                                            | ** ** | **Commercial Financial**                                                         | ** ** |
|------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------|------------|
| ** **                                                       | ** ** | **and Investment Services Group**                                      | ** ** | **Services Group**                                                               | ** ** |
| ** **                                                       | ** ** | **As of and for the Year Ended December 31,** | ** ** | **As of and for the Year Ended December 31,** | ** ** |
| ** **                                                       | ** ** | **2003**                                                                              | ** ** | **2004**                                                                              | ** ** | **2005** | ** ** | **2003** | ** ** | **2004** | ** ** | **2005** | ** ** |
| **Results  of operations  (dollars in thousands):**              |       |                                                                                  |       |                                                                                  |       |   |   |   |   |   |   |   |   |
| Net interest income                                              |       | $                                                                                     | 661,091    |                                                                                  | $          | 761,106 |   | $ | 940,273 |   | $ | 660,753 |   | $ | 731,567 |   | $ | 897,805 |   |
| Noninterest income (expense)                                     |       | 446,847                                                                               |       | 513,413                                                                               |       | 553,029 |   | 246,522 |   | 285,428 |   | 277,541 |   |
| Total revenue                                                    |       | 1,107,938                                                                             |       | 1,274,519                                                                             |       | 1,493,302 |   | 907,275 |   | 1,016,995 |   | 1,175,346 |   |
| Noninterest expense                                              |       | 830,521                                                                               |       | 971,200                                                                               |       | 1,022,423 |   | 407,436 |   | 420,669 |   | 476,519 |   |
| Credit expense (income)                                          |       | 32,003                                                                                |       | 33,216                                                                                |       | 34,779 |   | 159,029 |   | 106,278 |   | 94,780 |   |
| Income from continuing operations before income taxes            |       | 245,414                                                                               |       | 270,103                                                                               |       | 436,100 |   | 340,810 |   | 490,048 |   | 604,047 |   |
| Income tax expense                                               |       | 93,871                                                                                |       | 103,314                                                                               |       | 166,808 |   | 104,739 |   | 160,162 |   | 202,221 |   |
| Income from continuing operations                                |       | 151,543                                                                               |       | 166,789                                                                               |       | 269,292 |   | 236,071 |   | 329,886 |   | 401,826 |   |
| Income (loss) from discontinued operations, net of  income taxes |       | —                                                                                |       | —                                                                                |       | — |   | — |   | — |   | — |   |
| Net income                                                       |       | $                                                                                     | 151,543    |                                                                                  | $          | 166,789 |   | $ | 269,292 |   | $ | 236,071 |   | $ | 329,886 |   | $ | 401,826 |   |
| Total assets, end of period (dollars in millions):               |       | $                                                                                     | 13,073     |                                                                                  | $          | 15,681 |   | $ | 17,831 |   | $ | 14,366 |   | $ | 17,669 |   | $ | 20,311 |   |

 

F-103

----

**UnionBanCal Corporation and Subsidiaries**

**Notes to Consolidated Financial Statements December 31, 2003, 2004, and 2005 (Continued)**

**Note 26—BusinessSegments (Continued)**

| ** **                                                       | ** ** | ** **                                                                            | ** ** | **UnionBanCal**                                                                       | ** ** |
|------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------|------------|
| ** **                                                       | ** ** | **Other**                                                                             | ** ** | **Corporation**                                                                       | ** ** |
| ** **                                                       | ** ** | **As of and for the Year Ended December 31,** | ** ** | **As of and for the Year Ended December 31,** | ** ** |
| ** **                                                       | ** ** | **2003**                                                                              | ** ** | **2004**                                                                              | ** ** | **2005** | ** ** | **2003** | ** ** | **2004** | ** ** | **2005** | ** ** |
| **Results of operations  (dollars in thousands):**               |       |                                                                                  |       |                                                                                  |       |   |   |   |   |   |   |   |   |
| Net interest income                                              |       | $                                                                                     | 225,660    |                                                                                  | $          | 131,343 |   | $ | 1,036 |   | $ | 1,547,504 |   | $ | 1,624,016 |   | $ | 1,839,114 |   |
| Noninterest income  (expense)                                    |       | 19,587                                                                                |       | 113,982                                                                               |       | (25,783 | ) | 712,956 |   | 912,823 |   | 804,787 |   |
| Total revenue                                                    |       | 245,247                                                                               |       | 245,325                                                                               |       | (24,747 | ) | 2,260,460 |   | 2,536,839 |   | 2,643,901 |   |
| Noninterest expense                                              |       | 125,977                                                                               |       | 81,720                                                                                |       | 108,304 |   | 1,363,934 |   | 1,473,589 |   | 1,607,246 |   |
| Credit expense  (income)                                         |       | (118,233                                                                              | )          | (185,251                                                                              | )          | (180,242 | ) | 72,799 |   | (45,757 | ) | (50,683 | ) |
| Income from  continuing operations before income taxes           |       | 237,503                                                                               |       | 348,856                                                                               |       | 47,191 |   | 823,727 |   | 1,109,007 |   | 1,087,338 |   |
| Income tax expense                                               |       | 72,583                                                                                |       | 135,457                                                                               |       | (12,331 | ) | 271,193 |   | 398,933 |   | 356,698 |   |
| Income from  continuing operations                               |       | 164,920                                                                               |       | 213,399                                                                               |       | 59,522 |   | 552,534 |   | 710,074 |   | 730,640 |   |
| Income (loss) from  discontinued operations, net of income taxes |       | 34,605                                                                                |       | 22,460                                                                                |       | 132,293 |   | 34,605 |   | 22,460 |   | 132,293 |   |
| Net income                                                       |       | $                                                                                     | 199,525    |                                                                                  | $          | 235,859 |   | $ | 191,815 |   | $ | 587,139 |   | $ | 732,534 |   | $ | 862,933 |   |
| Total assets, end of  period (dollars in millions):              |       | $                                                                                     | 15,059     |                                                                                  | $          | 14,748 |   | $ | 11,274 |   | $ | 42,498 |   | $ | 48,098 |   | $ | 49,416 |   |

 

F-104

----

**UnionBanCal Corporation and Subsidiaries**

**Notes to Consolidated Financial Statements December 31, 2003, 2004, and 2005 (Continued)**

**Note 27—Condensed UnionBanCal CorporationUnconsolidated Financial Statements**

**Condensed BalanceSheets**

| ** **                                                   | ** ** | **December 31,** | ** ** |
|--------------------------------------------------------------|------------|-----------------------|------------|
| **(Dollars in thousands)**                         | ** ** | **2004**              | ** ** | **2005** | ** ** |
| **Assets**                                                   |       |                  |       |   |   |
| Cash and cash equivalents                                    |       | $                     | 271,267    |   | $ | 145,034 |   |
| Investment in and advances to subsidiaries                   |       | 4,896,497             |       | 5,283,968 |   |
| Loans                                                        |       | —                |       | — |   |
| Other assets                                                 |       | 22,733                |       | 9,922 |   |
| Total assets                                                 |       | $                     | 5,190,497  |   | $ | 5,438,924 |   |
| **Liabilities  and Stockholders’ Equity**               |       |                  |       |   |   |
| Other liabilities                                            |       | $                     | 66,350     |   | $ | 62,791 |   |
| Medium and long-term debt                                    |       | 816,113               |       | 801,095 |   |
| Junior subordinated debt payable to subsidiary grantor trust |       | 15,790                |       | 15,338 |   |
| Total liabilities                                            |       | 898,253               |       | 879,224 |   |
| Stockholders’ equity                                    |       | 4,292,244             |       | 4,559,700 |   |
| Total liabilities  and stockholders’ equity             |       | $                     | 5,190,497  |   | $ | 5,438,924 |   |

 

F-105

----

**UnionBanCal Corporation and Subsidiaries**

**Notes to Consolidated Financial Statements December 31, 2003, 2004, and 2005 (Continued)**

**Note 27—Condensed UnionBanCal CorporationUnconsolidated Financial Statements (Continued)**

**CondensedStatements of Income**

| ** **                                                                         | ** ** | **Years Ended December 31,** | ** ** |
|------------------------------------------------------------------------------------|------------|---------------------------------------------|------------|
| **(Dollars in thousands)**                                               | ** ** | **2003**                                    | ** ** | **2004** | ** ** | **2005** | ** ** |
| **Income:**                                                                        |       |                                        |       |   |   |   |   |
| Dividends from bank subsidiary                                                     |       | $                                           | 497,600    |   | $ | 216,500 |   | $ | 546,600 |   |
| Dividends from nonbank subsidiaries                                                |       | 25,017                                      |       | — |   | — |   |
| Interest income on  advances to subsidiaries                                       |       |                                        |       |   |   |   |   |
| and deposits in bank                                                               |       | 8,108                                       |       | 9,037 |   | 14,764 |   |
| Other income                                                                       |       | 223                                         |       | 1,145 |   | 1,680 |   |
| Total income                                                                       |       | 530,948                                     |       | 226,682 |   | 563,044 |   |
| **Expense:**                                                                       |       |                                        |       |   |   |   |   |
| Interest expense                                                                   |       | 23,392                                      |       | 20,148 |   | 33,655 |   |
| Other expense, net                                                                 |       | 5,188                                       |       | (84 | ) | 1,834 |   |
| Total expense                                                                      |       | 28,580                                      |       | 20,064 |   | 35,489 |   |
| Income before income taxes and equity in undistributed  net income of subsidiaries |       | 502,368                                     |       | 206,618 |   | 527,555 |   |
| (Provision for) recovery of prior loan losses                                      |       | 14                                          |       | 7 |   | — |   |
| Income tax benefit                                                                 |       | (7,740                                      | )          | (2,883 | ) | (7,256 | ) |
| Income before equity  in undistributed net income                                  |       |                                        |       |   |   |   |   |
| of subsidiaries                                                                    |       | 510,122                                     |       | 209,508 |   | 534,811 |   |
| Equity in  undistributed net income (loss) of subsidiaries:                        |       |                                        |       |   |   |   |   |
| Bank subsidiary                                                                    |       | 104,552                                     |       | 485,247 |   | 295,617 |   |
| Nonbank subsidiaries                                                               |       | (27,535                                     | )          | 37,779 |   | 32,505 |   |
| **Net Income**                                                                     |       | $                                           | 587,139    |   | $ | 732,534 |   | $ | 862,933 |   |

 

F-106

----

**UnionBanCal Corporation and Subsidiaries**

**Notes to Consolidated Financial Statements December 31, 2003, 2004, and 2005 (Continued)**

**Note 27—Condensed UnionBanCal Corporation Unconsolidated FinancialStatements (Continued)**

**Condensed Statements of Cash Flows**

| ** **                                                                         | ** ** | **Years Ended December 31,** | ** ** |
|------------------------------------------------------------------------------------|------------|---------------------------------------------|------------|
| **(Dollars in thousands)**                                               | ** ** | **2003**                                    | ** ** | **2004** | ** ** | **2005** | ** ** |
| **Cash Flows from Operating  Activities:**                                         |       |                                        |       |   |   |   |   |
| Net income                                                                         |       | $                                           | 587,139    |   | $ | 732,534 |   | $ | 862,933 |   |
| Adjustments to  reconcile net income to net cash provided by operating activities: |       |                                        |       |   |   |   |   |
| Equity in undistributed net income of subsidiaries                                 |       | (77,017                                     | )          | (523,026 | ) | (328,122 | ) |
| Reversal of provision for loan losses                                              |       | (14                                         | )          | (7 | ) | — |   |
| Other, net                                                                         |       | (4,969                                      | )          | 27,847 |   | (11,825 | ) |
| Net cash provided by operating activities                                          |       | 505,139                                     |       | 237,348 |   | 522,986 |   |
| **Cash  Flows from Investing Activities:**                                         |       |                                        |       |   |   |   |   |
| Advances to subsidiaries                                                           |       | (64,950                                     | )          | (71,910 | ) | (171,588 | ) |
| Repayment of advances to subsidiaries                                              |       | 12,155                                      |       | 29,698 |   | 46,294 |   |
| Net cash used in investing activities                                              |       | (52,795                                     | )          | (42,212 | ) | (125,294 | ) |
| **Cash  Flows from Financing Activities:**                                         |       |                                        |       |   |   |   |   |
| Net decrease in short term  borrowings                                             |       | (98,507                                     | )          | — |   | — |   |
| Proceeds from issuance of medium-term debt                                         |       | 398,548                                     |       | — |   | — |   |
| Repayment of junior subordinated debt                                              |       | —                                      |       | (360,825 | ) | — |   |
| Payments of cash dividends                                                         |       | (175,795                                    | )          | (197,198 | ) | (224,218 | ) |
| Repurchase of common stock                                                         |       | (357,686                                    | )          | (210,689 | ) | (389,371 | ) |
| Stock options exercised                                                            |       | 70,944                                      |       | 80,309 |   | 89,664 |   |
| Other, net                                                                         |       | (3,139                                      | )          | — |   | — |   |
| Net cash used in financing activities                                              |       | (165,635                                    | )          | (688,403 | ) | (523,925 | ) |
| Net increase  (decrease) in cash and due from banks                                |       | 286,709                                     |       | (493,267 | ) | (126,233 | ) |
| Cash and cash  equivalents at beginning of year                                    |       | 477,825                                     |       | 764,534 |   | 271,267 |   |
| Cash and cash  equivalents at end of year                                          |       | $                                           | 764,534    |   | $ | 271,267 |   | $ | 145,034 |   |
| **Cash  Paid During the Year for:**                                                |       |                                        |       |   |   |   |   |
| Interest                                                                           |       | $                                           | 22,132     |   | $ | 23,244 |   | $ | 33,063 |   |
| Income taxes                                                                       |       | 32,047                                      |       | 131 |   | 64,414 |   |

 

F-107

----

**UnionBanCal Corporation and Subsidiaries**

**Notes to Consolidated Financial Statements December 31, 2003, 2004, and 2005 (Continued)**

**Note 28—Summaryof Quarterly Financial Information (Unaudited)**

Unauditedquarterly results are summarized as follows:

| ** **                                                                      | ** ** | **2004 Quarters Ended** | ** ** |
|---------------------------------------------------------------------------------|------------|-----------------------------------|------------|
| **(Dollars in thousands, except per share data)** | ** ** | **March 31**                 | ** ** | **June 30** | ** ** | **September 30** | ** ** | **December 31** | ** ** |
| Interest income                                                                 |       | $                                 | 437,254    |   | $ | 432,795 |   |   | $ | 452,116 |   |   |   | $ | 486,510 |   |   |
| Interest expense                                                                |       | 41,792                            |       | 38,590 |   |   | 45,538 |   |   |   | 58,739 |   |   |
| Net interest income                                                             |       | 395,462                           |       | 394,205 |   |   | 406,578 |   |   |   | 427,771 |   |   |
| Reversal of provision for  loan losses                                          |       | (5,498                            | )          | (12,601 | ) |   | (10,939 | ) |   |   | (16,719 | ) |   |
| Noninterest income                                                              |       | 193,728                           |       | 309,586 |   |   | 197,120 |   |   |   | 212,389 |   |   |
| Noninterest expense                                                             |       | 361,129                           |       | 364,046 |   |   | 359,576 |   |   |   | 388,838 |   |   |
| Income before income taxes                                                      |       | 233,559                           |       | 352,346 |   |   | 255,061 |   |   |   | 268,041 |   |   |
| Income tax expense                                                              |       | 82,182                            |       | 128,686 |   |   | 98,121 |   |   |   | 89,944 |   |   |
| Income from continuing  operations                                              |       | 151,377                           |       | 223,660 |   |   | 156,940 |   |   |   | 178,097 |   |   |
| Income from discontinued  operations before income  tax                         |       | 9,961                             |       | 12,120 |   |   | 10,592 |   |   |   | 3,666 |   |   |
| Income tax expense                                                              |       | 3,851                             |       | 4,683 |   |   | 4,094 |   |   |   | 1,251 |   |   |
| Income from discontinued  operations                                            |       | 6,110                             |       | 7,437 |   |   | 6,498 |   |   |   | 2,415 |   |   |
| Net income                                                                      |       | $                                 | 157,487    |   | $ | 231,097 |   |   | $ | 163,438 |   |   |   | $ | 180,512 |   |   |
| Income from continuing  operations per common  share—basic                 |       | $                                 | 1.03       |   | $ | 1.51 |   |   | $ | 1.06 |   |   |   | $ | 1.20 |   |   |
| Net income per common share—basic                                          |       | $                                 | 1.07       |   | $ | 1.56 |   |   | $ | 1.11 |   |   |   | $ | 1.22 |   |   |
| Income from continuing  operations per common  share—diluted               |       | $                                 | 1.01       |   | $ | 1.49 |   |   | $ | 1.04 |   |   |   | $ | 1.18 |   |   |
| Net income per common share—diluted                                        |       | $                                 | 1.05       |   | $ | 1.54 |   |   | $ | 1.09 |   |   |   | $ | 1.19 |   |   |
| Dividends per share(1)                                                          |       | $                                 | 0.31       |   | $ | 0.36 |   |   | $ | 0.36 |   |   |   | $ | 0.36 |   |   |

 

| ** **                                                                      | ** ** | **2005 Quarters Ended** | ** ** |
|---------------------------------------------------------------------------------|------------|-----------------------------------|------------|
| **(Dollars in thousands, except per share data)** | ** ** | **March 31**                 | ** ** | **June 30** | ** ** | **September 30** | ** ** | **December 31** | ** ** |
| Interest income                                                                 |       | $                                 | 509,347    |   | $ | 547,493 |   |   | $ | 567,092 |   |   |   | $ | 600,049 |   |   |
| Interest expense                                                                |       | 73,685                            |       | 88,783 |   |   | 102,950 |   |   |   | 119,449 |   |   |
| Net interest income                                                             |       | 435,662                           |       | 458,710 |   |   | 464,142 |   |   |   | 480,600 |   |   |
| Reversal of provision for  loan losses                                          |       | (12,119                           | )          | (13,564 | ) |   | (15,000 | ) |   |   | (10,000 | ) |   |
| Noninterest income                                                              |       | 205,625                           |       | 203,554 |   |   | 212,188 |   |   |   | 183,420 |   |   |
| Noninterest expense                                                             |       | 392,952                           |       | 388,400 |   |   | 396,696 |   |   |   | 429,198 |   |   |
| Income before income taxes                                                      |       | 260,454                           |       | 287,428 |   |   | 294,634 |   |   |   | 244,822 |   |   |
| Income tax expense                                                              |       | 80,703                            |       | 99,950 |   |   | 93,388 |   |   |   | 82,657 |   |   |
| Income from continuing  operations                                              |       | 179,751                           |       | 187,478 |   |   | 201,246 |   |   |   | 162,165 |   |   |
| Income (loss) from  discontinued operations before income tax                   |       | 3,639                             |       | (412 | ) |   | (25,612 | ) |   |   | 227,967 |   |   |
| Income tax expense (benefit)                                                    |       | 1,413                             |       | (116 | ) |   | (9,651 | ) |   |   | 81,643 |   |   |
| Income (loss) from  discontinued operations                                     |       | 2,226                             |       | (296 | ) |   | (15,961 | ) |   |   | 146,324 |   |   |
| Net income                                                                      |       | $                                 | 181,977    |   | $ | 187,182 |   |   | $ | 185,285 |   |   |   | $ | 308,489 |   |   |
| Income from continuing  operations per common share—basic                  |       | $                                 | 1.22       |   | $ | 1.30 |   |   | $ | 1.39 |   |   |   | $ | 1.12 |   |   |
| Net income per common share—basic                                          |       | $                                 | 1.24       |   | $ | 1.29 |   |   | $ | 1.28 |   |   |   | $ | 2.14 |   |   |
| Income from continuing  operations per common share—diluted                |       | $                                 | 1.20       |   | $ | 1.27 |   |   | $ | 1.36 |   |   |   | $ | 1.10 |   |   |
| Net income per common share—diluted                                        |       | $                                 | 1.21       |   | $ | 1.27 |   |   | $ | 1.26 |   |   |   | $ | 2.09 |   |   |
| Dividends per share(1)                                                          |       | $                                 | 0.36       |   | $ | 0.41 |   |   | $ | 0.41 |   |   |   | $ | 0.41 |   |   |

----

(1)      Dividends per share reflect dividends declared on theCompany’s common stock outstanding as of the declaration date.

F-108

----

**UnionBanCal Corporation and Subsidiaries**

**Notes to Consolidated Financial Statements December 31, 2003, 2004, and 2005 (Continued)**

**Note 29—Subsequent Events**

On January 24, 2006, the Company’s Board ofDirectors declared a quarterly cash dividend of $0.41 per share of common stockfor the first quarter of 2006. The dividend will be paid on April 7, 2006to stockholders of record as of March 3, 2006.

F-109

----

**Report ofIndependent Registered Public Accounting Firm**

To the Board of Directors and Stockholders ofUnionBanCal Corporation:

We have audited the accompanying consolidated balancesheets of UnionBanCal Corporation and subsidiaries (the “Company”) as of December 31,2004 and 2005, and the related consolidated statements of income, stockholders’equity, and cash flows for each of the three years in the period ended December 31,2005. These financial statements are the responsibility of the Company’smanagement. Our responsibility is to express an opinion on these financialstatements based on our audits.

We conducted our audits in accordance with thestandards of the Public Company Accounting Oversight Board (United States). Thosestandards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement. An audit includes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements. An audit also includesassessing the accounting principles used and significant estimates made bymanagement, 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 statementspresent fairly, in all material respects, the financial position of UnionBanCalCorporation and subsidiaries as of December 31, 2004 and 2005, and theresults of their operations and their cash flows for each of the three years inthe period ended December 31, 2005, in conformity with accountingprinciples generally accepted in the United States of America.

We have also audited, inaccordance with the standards of the Public Company Accounting Oversight Board(United States), the effectiveness of the Company’s internal control overfinancial reporting as of December 31, 2005, based on the criteriaestablished in *Internal Control—IntegratedFramework* issued by the Committee of Sponsoring Organizations of theTreadway Commission and our report dated March 1, 2006 expressed anunqualified opinion on management’s assessment of the effectiveness of theCompany’s internal control over financial reporting and an unqualified opinionon the effectiveness of the Company’s internal control over financialreporting.

/s/ DELOITTE & TOUCHELLP

Deloitte & Touche LLP

San Francisco, California

March 1, 2006

F-110

----

**UnionBanCal Corporation and SubsidiariesManagement’s Report on Internal Control Over Financial Reporting**

The management of UnionBanCal Corporation isresponsible for establishing and maintaining adequate internal controls,designed to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes inaccordance with generally accepted accounting principles. Management is alsoresponsible for ensuring compliance with the federal laws and regulationsconcerning loans to insiders and the federal and state laws and regulationsconcerning dividend restrictions, both of which are designated by the FederalDeposit Insurance Corporation (FDIC) as safety and soundness laws and regulations.

We maintain a system of internal accounting controlsto provide reasonable assurance that assets are safeguarded and transactionsare executed in accordance with management’s authorization and recordedproperly to permit the preparation of consolidated financial statements inaccordance with generally accepted accounting principles. Management recognizesthat even a highly effective internal control system has inherent risks,including the possibility of human error and the circumvention or overriding ofcontrols, and that the effectiveness of an internal control system can changewith circumstances. Management has assessed the effectiveness of the Company’sinternal control over financial reporting as of December 31, 2005. Inmaking this assessment, management used the criteria set out by the Committeeof Sponsoring Organizations of the Treadway Commission (COSO) in *Internal Control—Integrated Framework.*Basedon our assessment, we concluded that, as of December 31, 2005, the Company’sinternal control system over financial reporting is effective based on thecriteria established in *Internal Control—IntegratedFramework.*

Management assessed its compliance with the designatedsafety and soundness laws and regulations and has maintained records of itsdeterminations and assessments as required by the FDIC. Based on thisassessment, Management believes that Union Bank of California, N.A. hascomplied, in all material respects, with the designated safety and soundnesslaws and regulations for the year ended December 31, 2005.

TheCompany’s assessment of the effectiveness of internal control over financialreporting and the Company’s consolidated financial statements have been auditedby Deloitte & Touche LLP, Independent Registered Public AccountingFirm.

|        |   | /s/ TAKASHI  MORIMURA                                      |
|--------|--------|------------------------------------------------------------|
|   |   | Takashi Morimura*President and Chief Executive Officer*    |
|   |   | /s/ MASASHI OKA                                            |
|   |   | Masashi Oka*Vice Chairman of the Board*                    |
|   |   | /s/ DAVID I. MATSON                                        |
|   |   | David I. Matson*Vice Chairman and Chief Financial Officer* |
|   |   | /s/ DAVID A. ANDERSON                                      |
|   |   | David A. Anderson*Executive Vice President and Controller* |

 

F-111

----

**Report ofIndependent Registered Public Accounting Firm**

To the Board of Directors and Stockholders ofUnionBanCal Corporation:

We have audited management’s assessment, included inthe accompanying Management’s Report on Internal Control over Financial Reporting,that UnionBanCal Corporation and subsidiaries (the “Company”) maintainedeffective internal control over financial reporting as of December 31,2005, based on criteria established in *InternalControl—Integrated Framework*issued by the Committee of SponsoringOrganizations of the Treadway Commission. Because management’s assessment andour audit were conducted to meet the reporting requirements of Section 112of the Federal Deposit Insurance Corporation Improvement Act (FDICIA),management’s assessment and our audit of the Company’s internal control overfinancial reporting included controls over the preparation of the schedulesequivalent to the basic financial statements in accordance with theinstructions for the Consolidated Financial Statements for Bank HoldingCompanies (Form FR Y-9C). The Company’s management is responsiblefor maintaining effective internal control over financial reporting and for itsassessment of the effectiveness of internal control over financial reporting. Ourresponsibility is to express an opinion on management’s assessment and anopinion on the effectiveness of the Company’s internal control over financialreporting based on our audit.

We conducted our audit in accordance with thestandards of the Public Company Accounting Oversight Board (United States). Thosestandards require that we plan and perform the audit to obtain reasonableassurance about whether effective internal control over financial reporting wasmaintained in all material respects. Our audit included obtaining anunderstanding of internal control over financial reporting, evaluatingmanagement’s assessment, testing and evaluating the design and operatingeffectiveness of internal control, and performing such other procedures as weconsidered necessary in the circumstances. We believe that our audit provides areasonable basis for our opinions.

A company’s internal control over financial reportingis a process designed by, or under the supervision of, the company’s principalexecutive and principal financial officers, or persons performing similarfunctions, and effected by the company’s board of directors, management, andother personnel to provide reasonable assurance regarding the reliability offinancial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles. A company’sinternal control over financial reporting includes those policies andprocedures that (1) pertain to the maintenance of records that, inreasonable detail, accurately and fairly reflect the transactions anddispositions of the assets of the company; (2) provide reasonableassurance that transactions are recorded as necessary to permit preparation offinancial statements in accordance with generally accepted accountingprinciples, and that receipts and expenditures of the company are being madeonly in accordance with authorizations of management and directors of thecompany; and (3) provide reasonable assurance regarding prevention ortimely detection of unauthorized acquisition, use, or disposition of thecompany’s assets that could have a material effect on the financial statements.

Because of the inherent limitations of internalcontrol over financial reporting, including the possibility of collusion orimproper management override of controls, material misstatements due to erroror fraud may not be prevented or detected on a timely basis. Also, projectionsof any evaluation of the effectiveness of the internal control over financialreporting to future periods are subject to the risk that the controls maybecome inadequate because of changes in conditions, or that the degree ofcompliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that theCompany maintained effective internal control over financial reporting as of December 31,2005, is fairly stated, in all material respects, based on the criteriaestablished in *Internal Control—IntegratedFramework*issued by the Committee of Sponsoring Organizations of theTreadway Commission. Also, in our opinion, the Company maintained, in allmaterial respects, effective internal control over financial reporting as of December 31,2005, based on the criteria 

F-112

----

established in *Internal Control—Integrated Framework*issuedby the Committee of Sponsoring Organizations of the Treadway Commission.

We have not examined and, accordingly, we do notexpress an opinion or any other form of assurance on management’s statementreferring to compliance with laws and regulations.

We havealso audited, in accordance with the standards of the Public Company AccountingOversight Board (United States), the consolidated financial statements as ofand for the year ended December 31, 2005 of the Company and our reportdated March 1, 2006 expressed an unqualified opinion on those financialstatements.

/s/ Deloitte &Touche LLP

Deloitte & ToucheLLP

San Francisco, CaliforniaMarch 1, 2006

F-113

----

**Signatures**

Pursuantto the requirements of Section 13 or 15(d) of the Securities ExchangeAct of 1934, UnionBanCal Corporation has duly caused this report to be signedon its behalf by the undersigned, thereunto duly authorized.

|     | UNIONBANCAL CORPORATION (Registrant) |
|----------|--------------------------------------|
|     | By:                                  | /s/ TAKASHI MORIMURA |
|     |                                 | Takashi Morimura |
|     |                                 | *President  and Chief Executive Officer* |
|     |                                 | *(Principal  Executive Officer)* |
|     | By:                                  | /s/ DAVID I. MATSON |
|     |                                 | David I. Matson |
| * * |                                 | *Vice  Chairman and Chief Financial Officer* |
|     |                                 | *(Principal  Financial Officer)* |
|     | By:                                  | /s/ DAVID A. ANDERSON |
|     |                                 | David A. Anderson |
| * * |                                 | *Executive  Vice President and Controller* |
|     |                                 | *(Principal  Accounting Officer)* |
|     | Date: March 1, 2006             |

 

Pursuantto the requirements of the Securities Exchange Act of 1934, this report hasbeen signed below by the following persons on behalf of UnionBanCal Corporationand in the capacities and on the date indicated below.

|                        | **Signature** | ** ** | ** ** | Title | ** ** | ** ** |
|------------------------|---------------|------------|------------|-------|------------|------------|
| *                      |          | Director   |
| Aida M. Alvarez        |          |       |
| *                      |          | Director   |
| David R. Andrews       |          |       |
| *                      |          | Director   |
| L. Dale Crandall       |          |       |
| *                      |          | Director   |
| Richard D. Farman      |          |       |
| *                      |          | Director   |
| Stanley F. Farrar      |          |       |
| *                      |          | Director   |
| Philip B. Flynn        |          |       |
| *                      |          | Director   |
| Michael J.  Gillfillan |          |       |

 

II-1

----

 

|                             | **Signature** | ** ** | ** ** | Title | ** ** | ** ** |
|-----------------------------|---------------|------------|------------|-------|------------|------------|
| *                           |          | Director   |
| Ronald L.  Havner, Jr. |          |       |
| *                           |          | Director   |
| Norimichi Kanari            |          |       |
| *                           |          | Director   |
| Mary S. Metz                |          |       |
|                        |          | Director   |
| Shigemitsu Miki             |          |       |
| *                           |          | Director   |
| Takashi Morimura            |          |       |
| *                           |          | Director   |
| J. Fernando Niebla          |          |       |
| *                           |          | Director   |
| Masashi Oka                 |          |       |
| *                           |          | Director   |
| Tetsuo Shimura              |          |       |
| *                           |          | Director   |
| Dean A. Yoost               |          |       |

 
| *By:                      | /s/ JOHN H. MCGUCKIN, JR.                |   |   |   |   |
|---------------------------|-----------------------------------------------|--------|--------|--------|--------|
|                      | John H.  McGuckin, Jr.*Attorney-in-Fact* |   |   |   |   |
| Dated: March 1, 2006 |                                          |   |   |   |

 

 

II-2

----

**EXHIBIT INDEX**

| **Exhibit**

**No.** | ** ** | **Description**                                                                                                                                                                                                                |
|----------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1                  |       | Restated Certificate of Incorporation of the  Registrant(1)                                                                                                                                                                    |
| 3.2                  |       | Bylaws of the Registrant(1)                                                                                                                                                                                                    |
| 4.1                  |       | Trust Indenture between UnionBanCal Corporation and  the First National Bank of Chicago, as Trustee, dated February 19, 1999(2)                                                                                           |
| 4.2                  |       | Trust Indenture between UnionBanCal Corporation and  J.P. Morgan Trust Company, National Association, as Trustee, dated  December 8, 2003(3)                                                                              |
| 4.3                  |       | 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                 |       | UnionBanCal Corporation Management Stock Plan*(4)                                                                                                                                                                              |
| 10.2                 |       | Union Bank of California Deferred Compensation Plan*(5)                                                                                                                                                                        |
| 10.3                 |       | Union Bank of California Senior Management Bonus  Plan*(6)                                                                                                                                                                     |
| 10.4                 |       | Union Bank of California, N.A. Supplemental  Executive Retirement Plan * (7)                                                                                                                                                   |
| 10.5                 |       | Union Bank Financial Services Reimbursement Program*(8)                                                                                                                                                                        |
| 10.6                 |       | 1997 UnionBanCal Corporation Performance Share Plan*(9)                                                                                                                                                                        |
| 10.7                 |       | Form of Performance Share Agreement under the  1997 UnionBanCal Corporation Performance Share Plan*(10)                                                                                                                   |
| 10.8                 |       | Service Agreement Between Union Bank of California,  N.A. and The Bank of Tokyo-Mitsubishi, Ltd. dated October 1, 1997*(11)                                                                                               |
| 10.9                 |       | Year 2000 UnionBanCal Corporation Management Stock  Plan*(12)                                                                                                                                                                  |
| 10.10                |       | Form of 2005 Nonqualified Stock Option  Agreement under the Year 2000 UnionBanCal Corporation Management Stock Plan*(13)                                                                                                  |
| 10.11                |       | Form of 2004 Nonqualified Stock Option  Agreement under the Year 2000 UnionBanCal Corporation Management Stock Plan*(14)                                                                                                  |
| 10.12                |       | Form of 2004 Nonqualified Stock Option  Agreement for Non-employee Directors under the Year 2000 UnionBanCal  Corporation Management Stock Plan*(15)                                                                      |
| 10.13                |       | Terms and Conditions Applicable to Non-employee  Director Stock Unit Awards under the Year 2000 UnionBanCal Corporation  Management Stock Plan*(16)                                                                            |
| 10.14                |       | Forms of Restricted Stock Agreement for Non-employee  Directors under the Year 2000 UnionBanCal Corporation Management Stock Plan*(27)                                                                                         |
| 10.15                |       | Union Bank of California, N.A. Supplemental Retirement  Plan for Policy Making Officers*(17)                                                                                                                                   |
| 10.16                |       | Form of Change-of-Control Agreement, dated as  of May 1, 2003, between UnionBanCal Corporation and each of the  policy-making officers of UnionBanCal Corporation*(18)                                               |
| 10.17                |       | Union Bank of California, N.A. Separation Pay Plan*(19)                                                                                                                                                                        |
| 10.18                |       | Philip B. Flynn Employment Agreement (effective  April 1, 2004)*(20)                                                                                                                                                      |
| 10.19                |       | Philip B. Flynn Amendment of Employment Agreement  (effective May 1, 2005)*(21)                                                                                                                                           |
| 10.20                |       | David I. Matson Employment Agreement (effective  January 1, 1998)*(22)                                                                                                                                                    |
| 10.21                |       | David I. Matson Amendment of Employment Agreement  (effective May 1, 2005)*(23)                                                                                                                                           |
| 10.22                |       | Written Descriptions of Compensation Arrangements  for UnionBanCal Non-Employee Directors*(24)                                                                                                                                 |
| 10.23                |       | Written Description of Compensation Arrangements for  Union Bank of California, N.A. Non-Employee Directors*(25)                                                                                                               |
| 10.24                |       | Purchase and Assumption Agreement by and among Union  Bank of California N.A., Union Bank of California International, and Union  Bank of California Servicos LTDA. and Wachovia Bank, N.A. dated  September 21, 2005(26) |
| 10.25                |       | Repurchase Agreement between UnionBanCal Corporation  and The Bank of Tokyo Mitsubishi, Ltd., dated as of February 23, 2005(27)                                                                                           |
| 12.1                 |       | Computation of Ratio of Earnings to Combined Fixed  Charges and Preferred Stock Dividend Requirements(27)                                                                                                                      |
| 21.1                 |       | Subsidiaries of the Registrant(27)                                                                                                                                                                                             |
| 23.1                 |       | Consent of Deloitte & Touche LLP(27)                                                                                                                                                                                  |
| 24.1                 |       | Power of Attorney(27)                                                                                                                                                                                                          |

 

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| **Exhibit**

**No.** | ** ** | **Description**                                                                                                                                                                                   |
|----------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 24.2                 |       | Resolution of Board of Directors(27)                                                                                                                                                              |
| 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(27)  |
| 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(27) |
| 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(27)                             |
| 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(27)                             |

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(1)                Incorporated byreference to the exhibit of the same number to the UnionBanCal CorporationQuarterly Report on Form 10-Q for the quarter endedSeptember 30, 2003 (SEC File No. 001-15081).

(2)                Incorporated byreference to the exhibit of the same number to the UnionBanCal CorporationCurrent Report on Form 8-K dated February 19, 1999 (SEC FileNo. 000-28118).

(3)                Incorporated by referenceto Exhibit 99.1 to the UnionBanCal Corporation Current Report onForm 8-K dated December 8, 2003 (SEC File No. 001-15081).

(4)                Incorporated byreference to the exhibit of the same number to the UnionBanCal CorporationAnnual Report on Form 10-K for the year ended December 31, 1997(SEC File No. 000-28118).

(5)                Incorporated byreference to the exhibit of the same number to the UnionBanCal CorporationAnnual Report on Form 10-K for the year ended December 31, 1996(SEC File No. 000-28118).

(6)                Incorporated byreference to Exhibit C to the UnionBanCal Corporation Definitive ProxyStatement on Schedule 14A filed on March 27, 2001 (SEC File No. 001-15081).

(7)                Incorporated byreference to Exhibit 10.6 to the UnionBanCal Corporation Annual Report onForm 10-K for the year ended December 31, 1996 (SEC FileNo. 000-28118).

(8)                Incorporated byreference to Exhibit 10.14 to the UnionBanCal Corporation Current Reporton Form 8-K dated April 1, 1996 (SEC File No. 000-28118).

(9)                Incorporated byreference to Appendix B to the UnionBanCal Corporation Definitive ProxyStatement on Schedule 14A filed on March 26, 2004 (SEC File No. 001-15081).

(10)           Incorporated byreference to Exhibit 10.2 to the UnionBanCal Corporation Current Report onForm 8-K dated March 22, 2005 (SEC File No. 001-15081).

(11)           Incorporated byreference to Exhibit 10.10 to the UnionBanCal Corporation Annual Report onForm 10-K for the year ended December 31, 1997 (SEC FileNo. 000-28118).

(12)           Incorporated byreference to Appendix A to the UnionBanCal Corporation Definitive ProxyStatement on Schedule 14A filed on March 25, 2005 (SEC File No. 001-15081).

(13)           Incorporated byreference to Exhibit 10.4 to the UnionBanCal Corporation Current Report onForm 8-K dated March 22, 2005 (SEC File No. 001-15081).

(14)           Incorporated byreference to Exhibit 10.3 to the UnionBanCal Corporation Current Report onForm 8-K dated March 22, 2005 (SEC File No. 001-15081).

(15)           Incorporated byreference to Exhibit 10.5 to the UnionBanCal Corporation Current Report onForm 8-K dated March 22, 2005 (SEC File No. 001-15081).

(16)           Incorporated byreference to Exhibit 10.6 to the UnionBanCal Corporation Current Report onForm 8-K dated March 22, 2005 (SEC File No. 001-15081).

(17)           Incorporated byreference to Exhibit 10.10 to the UnionBanCal Corporation Quarterly Reporton Form 10-Q for the quarter ended June 30, 2000 (SEC FileNo. 001-15081).

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(18)           Incorporated byreference to Exhibit 10.1 to the UnionBanCal Corporation Quarterly Reporton Form 10-Q for the quarter ended June 30, 2003 (SEC FileNo. 001-15081).

(19)      Incorporated by reference to Exhibit 10.1 tothe UnionBanCal Corporation Current Report on Form 8-K datedMarch 22, 2005 (SEC File No. 001-15081).

(20)           Incorporated byreference to Exhibit 10.1 to the UnionBanCal Corporation Quarterly Reporton Form 10-Q for the quarter ended March 31, 2004 (SEC FileNo. 001-15081).

(21)           Incorporated byreference to Exhibit 10.1 to the UnionBanCal Corporation Quarterly Reporton Form 10-Q for the quarter ended June 30, 2005 (SEC File No. 001-15081).

(22)           Incorporated byreference to Exhibit 10.13 to the UnionBanCal Corporation Annual Report onForm 10-K for the year ended December 31, 2002 (SEC FileNo. 001-15081)

(23)           Incorporated byreference to Exhibit 10.2 to the UnionBanCal Corporation Quarterly Reporton Form 10-Q for the quarter ended June 30, 2005 (SEC FileNo. 001-15081).

(24)           Incorporated byreference to (i) Exhibit 10.1 to the UnionBanCal Corporation CurrentReport on Form 8-K dated July 27, 2005 (SEC File No. 001-15081)and (ii) Item 1 of the UnionBanCal Corporation Current Report onForm 8-K dated October 26, 2005 (SEC File No. 001-15081).

(25)           Incorporated byreference to Exhibit 10.1 to the UnionBanCal Corporation Current Report onForm 8-K dated December 7, 2005 (SEC File No. 001-15081).

(26)           Incorporated byreference to Exhibit 10.1 to the UnionBanCal Corporation Quarterly Reporton Form 10-Q for the quarter ended September 30, 2005 (SEC FileNo. 001-15081).

(27)           Provided herewith.

*                      Managementcontract or compensatory plan, contract or arrangement.

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