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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-K

ý

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2008ORo

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


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

Delaware

94-1234979(State of Incorporation)

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


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

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

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

Not
applicable
(Name of each exchange on which registered)

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

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes ý* No o

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer o

Accelerated filer o

Non-accelerated filer ý

Smaller reporting company o


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

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

As
of January 31, 2009, the number of shares outstanding of the registrant's Common Stock was *.

*
Effective January 1, 2009, the registrant's filing obligations under the Act automatically lapsed pursuant to Section 15(d) of the Act. After such time, the registrant
continued to file all reports which would have otherwise been required to be filed by Section 13 or 15(d) of the Act and, on February 11, 2009, the registrant filed a registration
statement on Form 8-A with the Securities and Exchange Commission to register its common stock under Section 12(g) of the Act.

DOCUMENTS INCORPORATED BY REFERENCE

Incorporated Document

Location in Form 10-KNone


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



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INDEX



PagePART IITEM 1.

BUSINESS

5General

5Banking Lines of Business

5Employees

6Competition

6Monetary Policy and Economic Conditions

7Supervision and Regulation

7ITEM 1A.

RISK FACTORS

14ITEM 1B.

UNRESOLVED STAFF COMMENTS

27ITEM 2.

PROPERTIES

27ITEM 3.

LEGAL PROCEEDINGS

27ITEM 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

29PART IIITEM 5.

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

29ITEM 6.

SELECTED FINANCIAL DATA

30, F-1ITEM 7.

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

30, F-1ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

30, F-39ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

30, F-58ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

30ITEM 9A.

CONTROLS AND PROCEDURES

30ITEM 9B.

OTHER INFORMATION

30PART IIIITEM 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

31ITEM 11.

EXECUTIVE COMPENSATION

38ITEM 12.

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

38ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

38ITEM 14.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

38PART IVITEM 15.

EXHIBITS AND CONSOLIDATED FINANCIAL STATEMENT SCHEDULES

39SIGNATURES

II-1


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NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

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

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



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

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

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PART I

Item 1.   Business

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

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

General

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

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

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

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

Banking Lines of Business

Our operations are divided into two primary segments. These segments and their financial information are described more fully in
"Business Segments" of our Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) and in Note 26 to our Consolidated Financial Statements included in this
Form 10-K Report.

Retail Banking.Retail Banking offers our customers a broad spectrum of financial products under one convenient umbrella. With a diverse
line of
checking and savings, investment, loan and fee-based banking products, individual and business clients can have their specific needs met. These products are offered in 335
full-service branches, primarily in California. In addition, Retail Banking offers international and settlement services, e-banking through our website, check cashing services
at our Cash & Save® locations and loan, deposit and trust investment products tailored to our high net worth individual customers through our offices of

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The
Private Bank. Institutional customers are offered corporate trust, securities lending and custody (global and domestic) services.

Wholesale Banking.Wholesale Banking offers a variety of commercial financial services, including commercial loans and project
financing, real estate
financing, asset-based financing, trade finance and letters of credit, lease financing, customized cash management services and selected capital markets products. The Wholesale Banking customers
include middle-market companies, large corporations, real estate companies and other more specialized industry customers. In addition, specialized depository services are offered to title and escrow
companies, retailers, domestic financial institutions, bankruptcy trustees and other customers with significant deposit volumes. Wholesale Banking also includes a registered broker-dealer and a
registered investment advisor, which provide securities brokerage and investment advisory services and manage a proprietary mutual fund family.

Employees

At January 31, 2009, we had 9,847 full-time equivalent employees.

Competition

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

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

Technology
and other changes increasingly allow parties to complete financial transactions electronically, and in many cases, without banks. For example, consumers can pay bills and
transfer funds over the internet

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and
by telephone without banks. Many non-bank financial service providers have lower overhead costs and are subject to fewer regulatory constraints. If consumers do not use banks to
complete their financial transactions, we could potentially lose fee income, deposits and income generated from those deposits.

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

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

Monetary Policy and Economic Conditions

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

Supervision and Regulation

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

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

The
GLB Act allows "financial holding companies" to offer banking, insurance, securities and other financial products. Among other things, the GLB Act amended section 4 of the
BHCA in order to provide a

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framework
for engaging in new financial activities by bank holding companies. A bank holding company may elect to become a financial holding company if all of its subsidiary depository institutions
are well-capitalized and well-managed and have a "satisfactory" or better Community Reinvestment Act (CRA) rating. Under current Federal Reserve Board interpretations, a
foreign bank holding company that controls a subsidiary U.S. bank holding company, such as MUFG, must make the election. In addition, the foreign bank holding company (if it is a bank itself) must be
well-capitalized and well-managed in accordance with standards
comparable to those required of U.S. banks as determined by the Federal Reserve Board and its U.S. bank subsidiary must have a "satisfactory" or better CRA rating. On October 6, 2008,
UnionBanCal Corporation, BTMU and MUFG obtained approval from the Federal Reserve Board to become financial holding companies under the BHCA.

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

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

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

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

Other Regulatory Oversight.Our subsidiaries are also subject to extensive regulation, supervision, and examination by various other
federal and
state regulatory agencies. In addition, Union Bank and its subsidiaries are subject to certain restrictions under the Federal Reserve Act and related regulations, including restrictions on affiliate
transactions. As a holding company, the principal source of our cash has been dividends and interest received from Union Bank. Dividends payable by Union Bank to us are subject to restrictions under a
formula imposed by the Comptroller of the Currency unless express
approval is given to exceed these limitations. For more information regarding restrictions on loans and dividends by Union Bank to its affiliates and on transactions with affiliates, see
Notes 20 and 25 to our Consolidated Financial Statements included in this Form 10-K Report.

The
Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA) requires federal bank regulatory authorities to take "prompt corrective action" in dealing with inadequately
capitalized banks. FDICIA established five tiers of capital measurement ranging from "well-capitalized" to "critically undercapitalized." It is our policy to maintain capital ratios above
the minimum regulatory requirements for "well-capitalized" institutions for both Union Bank and us. Management believes that, at December 31, 2008, Union Bank and we met the
requirements for "well-capitalized" institutions.

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Deposits
of Union Bank are insured up to statutory limits by the FDIC and, accordingly, are subject to deposit insurance assessments. In February 2006, under the Federal Deposit
Insurance Reform Act of 2005 and the Federal Deposit Insurance Reform Conforming Amendments Act of 2005, the Bank Insurance Fund and the Savings Association Insurance Fund were merged into a new fund,
the Deposit Insurance Fund. These Acts, as implemented by the FDIC, also created a new assessment system designed to more closely tie what banks pay for deposit insurance to the risks they pose and
adopted a new base schedule of rates that the FDIC can adjust up or down, depending on the revenue needs of the insurance fund. As a result of this legislation, since January 2007 and through 2008,
Union Bank has been subject to increased annual assessments on deposits in the amount of approximately 5 basis points. Prior to this change, Union Bank was not paying any insurance assessments on
deposits under the FDIC's risk-related assessment system. An FDIC credit for prior contributions offset the assessment in 2007 and part of 2008.

As
a result of recent and significant bank failures, the FDIC has determined that the reserve ratio for the Deposit Insurance Fund was 0.76 percent as of September 30, 2008 and
0.40 percent as of December 31, 2008 (preliminary), the lowest reserve ratio for the combined bank and thrift insurance fund since 1993. In accordance with the Reform Act, the FDIC must
establish and implement a plan within 90 days to restore the reserve ratio to 1.15 percent within five years (subject to extension due to extraordinary circumstances). For the quarter beginning
January 1, 2009, the FDIC has raised the base annual assessment rate for institutions in Risk Category I to between 12 and 14 basis points and in Risk Categories II, III and IV to
17, 35 and 50 basis points, respectively. An institution's assessment rate could be lowered by as much as two basis points based on the ratio of its long-term unsecured debt to deposits
or, for smaller institutions, by the ratio of its Tier 1 capital in excess of 15 percent to deposits. The assessment rate would be adjusted towards the maximum rate for Risk Category I
institutions that have a high level of brokered deposits or have experienced higher levels of asset growth (other than through acquisitions) and could be increased by as much as 10 basis points for
institutions in Risk Categories II, III and IV whose ratio of brokered deposits to deposits exceeds 10 percent. An institution's base assessment rate would also be increased if an institution's
ratio of secured liabilities (including Federal Home Loan Bank advances) to deposits exceeds 15 percent. The maximum adjustment
for secured liabilities for institutions in Risk Categories I, II, III and IV would be 7, 10, 15 and 22.5 basis points, respectively. On February 27, 2009, the Board of Directors of the
FDIC voted to amend the restoration plan for the Deposit Insurance Fund, adopt an interim rule (subject to comment) imposing an emergency special assessment on insured institutions of 20 basis points
on June 30, 2009 (to be collected on September 30, 2009), implement changes to the risk-based assessment system, and set rates beginning the second quarter of 2009. The FDIC
extended the restoration plan period to seven years, concluding that the problems facing the financial services sector and the economy at large constitute extraordinary circumstances permitting such
extension. The interim rule would also permit the FDIC to impose an emergency special assessment after June 30, 2009, of up to 10 basis points if necessary to maintain public confidence in
federal deposit insurance or if the reserve ratio of the Deposit Insurance Fund falls to a level which shall be zero or close to negative at the end of a calendar quarter. The amended restoration plan
was accompanied by a final rule that sets assessment rates and makes adjustments designed to improve how the assessment system differentiates for risk. Under the final rule, banks in Risk
Category I will pay initial base assessment rates ranging from 12 to 16 basis points on an annual basis, beginning on April 1, 2009, while the base annual assessment rates for
institutions in Risk Categories II, III and IV will be adjusted to 22, 32 and 45 basis points, respectively. The final rule provides incentives in the form of a reduction in assessment rates
for institutions that hold long-term unsecured debt and provides for increases in the base assessment rates for institutions that rely significantly on brokered deposits or secured
liabilities. In addition, to the extent that assessments of participants in the Temporary Liquidity Guarantee Program (described in "Economic and Financial Crisis and Government's Response" below) are
insufficient to cover the expenses or losses arising from the Temporary Liquidity Guarantee Program, the FDIC may impose one or more emergency special assessments on all FDIC-insured
depository institutions. Each such special assessment will be computed with reference to the amount by which an insured depository institution's average total assets exceed the sum of the
institution's average total tangible equity and average total subordinated debt.

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

Union
Bank is also subject to the CRA. The CRA generally requires the federal banking agencies to evaluate the record of a financial institution in meeting the needs of local
communities, including low- and moderate-income neighborhoods. In addition to substantial penalties and corrective measures that may be required for a violation of certain fair lending
laws, the federal banking agencies may take compliance with such laws and the CRA into account when regulating and supervising other activities, and in evaluating whether to approve applications for
permission to engage in new activities or for acquisitions of other banks or companies or de novo branching. An unsatisfactory rating
may be the basis for denying the application. Based on the most current examination report dated October 17, 2005, Union Bank's compliance with CRA was rated "outstanding."

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

The
activities of Union Bank subsidiaries, HighMark Capital Management, Inc. and UnionBanc Investment Services LLC, are subject to the rules and regulations of the SEC, as
well as those of state securities regulators. UnionBanc Investment Services LLC is also subject to the rules and regulations of the Financial Industry Regulatory Authority (FINRA).

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

Broker/Dealer Regulation.Other provisions of the GLB Act amended the Securities Exchange Act of 1934 to eliminate the blanket
exemptions for banks
from the definitions of "broker" and "dealer" under that Act and replaced this exemption with enumerated permissible bank brokerage and dealer activities. After implementation of these GLB Act
provisions, banks are required to register as a broker-dealer to engage in securities brokerage operations beyond the limited bank brokerage activities permitted by the GLB Act. In September 2007, the
SEC and the Federal Reserve Board jointly issued final Regulation R, which implements the securities brokerage limitations of the GLB Act. Regulation R also defines certain terms used in
the GLB Act and contains additional regulatory exemptions for limited bank brokerage activities. Regulation R delayed implementation of the GLB Act brokerage provisions for Union Bank until
January 2009. Union Bank is not registered as a broker. The GLB Act and Regulation R require us to conduct non-exempted securities brokerage activities through our registered
broker-dealer, UnionBanc Investment Services LLC. These laws and regulations also limit compensation we may pay our bank employees for referrals of brokerage business and limit Union Bank's
ability to advertise securities brokerage services.

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

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Sarbanes-Oxley Act.On November 4, 2008, we became a privately held company pursuant to the Agreement and Plan of Merger, dated as
of
August 18, 2008, by and among UnionBanCal, BTMU and Blue Jackets, Inc., a Delaware corporation and a wholly-owned subsidiary of BTMU. All of our issued and outstanding shares of common
stock are now owned by BTMU. As such, we are no longer required to file periodic reports with the SEC pursuant to the Securities Exchange Act of 1934. However, we have elected to continue to file such
periodic reports with the SEC in accordance with the reduced disclosure format permitted for certain wholly-owned subsidiaries, and the Sarbanes-Oxley Act applies to us.

In
response to various high profile corporate scandals, the United States Congress enacted the Sarbanes-Oxley Act of 2002. The Sarbanes-Oxley Act aims to restore the credibility lost as
a result of these scandals by addressing, among other issues, corporate governance, auditing and accounting, executive compensation, and enhanced and timely disclosure of corporate information.

Among
other provisions, Section 302(a) of the Sarbanes-Oxley Act requires that our Chief Executive Officer and Chief Financial Officer certify that our quarterly and
Form 10-K Reports do not contain any untrue statement or omission of a material fact. Specific requirements of the certifications include having these officers confirm that they are
responsible for establishing, maintaining and regularly evaluating the effectiveness of our disclosure controls and procedures; they have made certain disclosures to our independent public accounting
firm and Audit Committee about our internal controls; and they have included information in our quarterly and Form 10-K Reports about their evaluation and whether there have been
significant changes in our internal controls or in other factors that could significantly affect internal controls subsequent to their evaluation.

In
addition, Section 404 of the Sarbanes-Oxley Act and the SEC's rules and regulations thereunder require our management to evaluate, with the participation of our principal
executive and principal financial officers, the effectiveness, as of the end of each fiscal year, of our internal control over financial reporting. Our management must then provide a report on our
internal control over financial reporting that contains, among other things, a statement of their responsibility for establishing and maintaining adequate internal control over financial reporting,
and a statement identifying the framework we used to evaluate the effectiveness of our internal control over financial reporting.

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

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

In
the United States, the federal bank regulatory agencies issued final rules in the fourth quarter of 2007, effective April 1, 2008 (but subject to a one-year
parallel-run period and a three-year transition period), that implement new risk-based capital requirements under Basel II for those U.S. banks and bank holding
companies that meet the minimum threshold for reporting, although others may "opt in." The new rules require banks and bank holding companies with consolidated assets of $250 billion or more or
with consolidated on-balance sheet foreign exposures of $10 billion or more to adopt the new risk-based capital requirements. In addition, on June 26, 2008, the
U.S. federal bank regulatory agencies proposed a rule for public comment that would implement certain of the less complex approaches for calculating risk-based

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capital
requirements, known as the standardized framework, consistent with Basel II for those U.S. banks and bank holding companies not subject to the new accord. This proposed approach will be in
replacement of the previously proposed Basel IA initiative, which has since been dropped by the U.S. agencies. As described in the agencies' final rulemaking release, compliance with this new
standardized risk-based capital framework would be optional.

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

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

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

In
October 2007, the federal bank regulatory agencies adopted final rules implementing the affiliate marketing provisions of the Fair and Accurate Credit Transactions Act of 2003, which
amended the Fair Credit Reporting Act (FCRA). The final rules, which became effective on January 1, 2008, impose a prohibition, subject to certain exceptions, on a financial institution using
certain information received from an affiliate to make a solicitation to a consumer unless the consumer is given notice and a reasonable opportunity to opt out of such solicitations, and the consumer
does not opt out. The final rules apply to information obtained from the consumer's transactions or account relationships with an affiliate, any application the consumer submitted to an affiliate, and
third-party sources, such as credit reports, if the information is to be used to send marketing solicitations. The rules do not supersede or affect a consumer's existing right under other provisions
of the FCRA to opt out of the sharing between a financial institution and its affiliates of consumer information other than information relating solely to transactions or experiences between the
consumer and the financial institution or its affiliates.

Future Legislation

Future changes in the laws, regulations, or policies that impact Union Bank, our other subsidiaries and us cannot be predicted and may
have a material effect on our business and earnings. Legislation relating to

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banking
and other financial services has been introduced from time to time in Congress and is likely to be introduced in the future. If enacted, such legislation could significantly change the
competitive environment in which we and our subsidiaries operate. We cannot predict whether these or any other proposals will be enacted or the ultimate impact of any such legislation on our
competitive situation, financial condition or results of operations.

Economic and Financial Crisis and Government's Response

Beginning in 2007 and continuing into 2009, various adverse financial developments have impacted the U.S. and global economies and
financial markets and present challenges for the banking and financial services industry and for UnionBanCal. Economists generally agree that the U.S. and global economies have been in a recession for
some time and it is expected that recessionary conditions will continue for some time into the future. These developments have prompted a variety of actions by the U.S. Government to respond to the
challenges presented by these economic and financial developments.

On
October 3, 2008, former President Bush signed into law the Emergency Economic Stabilization Act of 2008 (the EESA) in response to the recent financial crises affecting the
banking system and financial markets and going concern threats to investment banks and other financial institutions. Pursuant to the EESA, the maximum deposit insurance amount was temporarily
increased from $100,000 to $250,000 per depositor through December 31, 2009. On October 14, 2008, the FDIC announced the establishment of a Temporary Liquidity Guarantee Program under
which the FDIC will fully guarantee until December 31, 2009, all non-interest-bearing transaction accounts of insured depository institutions that do not opt out of the program by
December 5, 2008. Pursuant to the Temporary Liquidity Guarantee Program, the FDIC will also guarantee newly issued senior unsecured debt of participating financial institutions and their
qualifying holding companies. All eligible institutions participated in the program without cost for the first 30 days of the program. After December 5, 2008, institutions are assessed
at the rate of ten basis points for transaction account balances in excess of $250,000 and at the rate, on an annualized basis, of 50 to 100 basis points of the amount of debt issued (on a sliding
scale, depending on length of maturity of the debt). Union Bank has elected to participate in the Temporary Liquidity Guarantee Program.

On
October 14, 2008, pursuant to the EESA, the U.S. Treasury announced a voluntary Capital Purchase Program under its Troubled Asset Relief Program (TARP) pursuant to which the
Treasury will purchase up to $250 billion in senior preferred stock of qualifying U.S. financial institutions. The nine largest banks in the U.S. initially agreed to participate in this
program, with the U.S. Treasury purchasing an aggregate of $125 billion in senior preferred stock in such banks and allocating an additional $125 billion in senior preferred stock in
other banking institutions. The purpose of the program is to provide substantial new capital to the U.S. banking industry. Many banks and bank holding companies have participated in such program. On
January 15, 2009, the Senate voted to approve the release of an additional $350 billion in TARP funds, making a vote by the House of Representatives unnecessary and resulting in the
availability of such funds to the U.S. Treasury. UnionBanCal, as a wholly-owned subsidiary of a foreign bank, is not eligible to participate in the Capital Purchase Program.



In February 2009, the U.S. Department of the Treasury outlined the "Financial Stability Plan: Deploying our Full Arsenal to Attack the
Credit Crisis on All Fronts." The Financial Stability Plan includes a wide variety of measures intended to address the domestic and global financial crisis and deterioration of credit markets. Many
aspects of the Financial Stability Plan are conceptual in nature and contemplate future specific regulations and further regulatory and legislative enactment. Key aspects of the Financial Stability
Plan are described below.

The
Financial Stability Plan includes a variety of measures aimed at addressing issues in the U.S. banking sector. These measures include requiring banking institutions with assets in
excess of $100 billion to undergo

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a
forward-looking comprehensive "stress test" and providing such institutions with access to a U.S. Treasury-provided "capital buffer" to help absorb losses if the results of the test indicate that
additional capital is needed and it cannot be obtained in the private sector; a public-private investment fund which will be designed to involve both public and private capital and public financing
for the acquisition of troubled and illiquid assets in the banking sector; substantial expenditures to support government-sponsored enterprises in the housing sector and a commitment of funds to help
prevent avoidable foreclosures of owner-occupied residential real estate; a consumer and business lending initiative intended to support the purchase of loans by providing financing to private
investors to help unfreeze and lower interest rates for auto, small business, credit card and other consumer and business credit; increased transparency and disclosure of exposure on bank balance
sheets; requirements relating to accountability and monitoring of funds received by banking institutions under the Financial Stability Plan; restrictions on dividends, stock repurchases and
acquisitions on banks receiving assistance under the Plan; and limitations on executive compensation for senior executives at institutions receiving funds under the Plan, including a cap of $500,000
in total annual compensation (not including restricted stock payable only when the government is receiving payments on its investment), "say on pay" shareholder votes and new disclosure and
accountability requirements applicable to luxury purchases. As we have less than $100 billion in assets and are a foreign-owned institution, we do not believe that the stress test and U.S.
Treasury-provided capital program will be applicable to Union Bank.

Financial Information

See our Consolidated Financial Statements starting on page F-58 for financial information about UnionBanCal
Corporation and its subsidiaries.

Item 1A.   Risk Factors

We are subject to numerous risks and uncertainties, including but not limited to those risks set forth in "Management's Discussion and Analysis of
Financial Condition and Results of OperationsRegulatory Matters" in Item 7 of Part II of this Form 10-K Report and the following information:



Commencing in 2007 and continuing throughout 2008 and into 2009, certain adverse financial developments have impacted the U.S. and
global economies and financial markets and present challenges for the banking and financial services industry and for UnionBanCal. These developments include a general recession both globally and in
the U.S. and have contributed to substantial volatility in the equity securities markets, as well as volatility and a tightening of liquidity in the credit markets. In response, Congress adopted
economic stimulus bills that former President Bush and President Obama signed into law at various times in 2008 and 2009, and the Federal Reserve Board was prompted to decrease its discount rate and
the federal funds rate numerous times during 2008.

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In addition, financial and credit conditions in the domestic residential real estate markets have deteriorated significantly, which has led to significant
deterioration in certain financial markets, particularly the markets for residential mortgage-backed securities and for collateralized debt obligations backed by residential mortgage-backed securities
and collateralized debt obligations secured by nonconforming loans. These conditions have rendered it more difficult for financial institutions and others to obtain transparent valuations for various
portfolio debt securities, especially collateralized debt obligations backed by residential mortgage-backed securities or other collateral, including corporate obligations. Credit spreads have widened
and a general lack of liquidity exists in the marketplace. This has resulted in decreases in the fair value of investment securities of these types. To help mitigate these conditions, on
July 30, 2008, former President Bush signed into law a housing bill which grants the Treasury Department broad authority to safeguard Fannie Mae and Freddie Mac and authorizes the Federal
Housing Administration to insure up to $300 billion in refinanced mortgages.

In
the third quarter of 2008, the volatility and disruption in the capital and credit markets reached unprecedented levels. On October 3, 2008, former President Bush signed into
law the Emergency Economic Stabilization Act of 2008 (the EESA) in response to the recent financial crises affecting the banking system and financial markets. The EESA was the result of a proposal by
Treasury Secretary Henry Paulson to the U.S. Congress on September 20, 2008, in response to the financial crises affecting
the banking system and financial markets and going concern threats to investment banks and other financial institutions. Pursuant to the EESA, the U.S. Treasury has the authority to, among other
things, purchase up to $700 billion of mortgages, mortgage-backed securities and certain other financial instruments from financial institutions for the purpose of stabilizing and providing
liquidity to the U.S. financial markets. Pursuant to the EESA, the maximum deposit insurance amount was temporarily increased from $100,000 to $250,000 per depositor through December 31, 2009.
On October 14, 2008, the FDIC announced the establishment of a Temporary Liquidity Guarantee Program under which the FDIC will fully guarantee until December 31, 2009, all
non-interest-bearing transaction accounts of insured depository institutions that do not opt out of the program by December 5, 2008. Pursuant to the Temporary Liquidity Guarantee
Program, the FDIC will also guarantee newly issued senior unsecured debt of participating financial institutions and their qualifying holding companies. All eligible institutions participated in the
program without cost for the first 30 days of the program. After December 5, 2008, institutions are assessed at the rate of ten basis points for transaction account balances in excess of
$250,000 and at the rate, on an annualized basis, of 50 to 100 basis points of the amount of debt issued (on a sliding scale, depending on length of maturity of the debt). Union Bank has elected to
participate in the Temporary Liquidity Guarantee Program. Further, pursuant to the EESA, on October 14, 2008, the U.S. Treasury announced a voluntary Capital Purchase Program under its Troubled
Asset Relief Program (TARP) pursuant to which the Treasury will purchase up to $250 billion in senior preferred stock of qualifying U.S. financial institutions. The nine largest banks in the
U.S. initially agreed to participate in this program, with the U.S. Treasury purchasing an aggregate of $125 billion in senior preferred stock in such banks and allocating an additional
$125 billion to the purchase of senior preferred stock in other banking institutions. The purpose of the program is to provide substantial new capital to the U.S. banking industry. Many banks
and bank holding companies have participated in this program. On January 19, 2009, the Senate voted to approve the release of an additional $350 billion in TARP funds, making a vote by
the House of Representatives unnecessary and resulting in the availability of such additional funds to the U.S. Treasury. UnionBanCal Corporation, as a wholly-owned subsidiary of a foreign bank, is
not eligible to participate in the Capital Purchase Program.

On
February 17, 2009 President Obama signed into law the American Recovery and Reinvestment Act of 2009 (ARRA) in an attempt to reverse the recent U.S. economic downturn. A large
portion of the ARRA is devoted to new federal spending programs designed to increase economic output, decrease unemployment and invest in national infrastructure. Of the $787 billion in federal
spending appropriated by the ARRA, $286 billion will be devoted to tax cuts, $120 billion will be used to fund infrastructure projects and $381 billion will be allocated for
social programs and other spending. A substantial portion of the

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appropriation
funds will go directly to the states, which was a key element in the recent budget approved by the California Legislature and signed by Governor Schwarzenegger on February 20,
2009.

It
cannot be predicted whether these recent governmental actions will result in significant improvement in financial and economic conditions affecting the banking industry and the U.S.
economy. If, notwithstanding the federal government's recent fiscal and monetary measures, the U.S. economy were to remain in a recessionary condition for an extended period, this would present
additional significant challenges for the U.S. banking and financial services industry and for our company. In addition, as a wholly-owned subsidiary of a foreign bank, we have not been eligible to
participate in federal programs such as TARP and may not qualify for participation in future federal programs. While it is difficult to
predict how long these conditions will exist and which markets and businesses of our company may be affected, these factors could continue to present risks for some time for the industry and our
company.



The capital and credit markets have been experiencing volatility and disruption for more than 12 months. In the third and fourth
quarters of 2008, and continuing into 2009, the volatility and disruption reached unprecedented levels. In some cases, the markets produced downward pressure on stock prices and credit availability
for certain issuers without regard to those issuers' underlying financial strength. If current levels of market disruption and volatility continue or worsen, there can be no assurance that we will not
experience an adverse effect, which may be material, on our ability to access capital and on our business, financial condition and results of operations. As a result of these volatile and disrupted
credit markets, our customers' ability to raise capital and refinance maturing obligations could be adversely affected, and this could result in a further adverse impact on our business, financial
condition and results of operations.



Dramatic declines in the housing market in the U.S. in general, and in California in particular, during 2008, with falling home prices
and increasing foreclosures, unemployment and under-employment, have negatively impacted the credit performance of mortgage loans and resulted in significant write-downs of asset values by financial
institutions, including government-sponsored entities as well as major commercial and investment banks. These write-downs, initially of mortgage-backed securities but spreading to credit default swaps
and other derivative and cash securities, in turn, have caused many financial institutions to seek additional capital, to merge with larger and stronger institutions and, in some cases, to fail.
Reflecting concern about the stability of the financial markets generally and the strength of counterparties, many lenders and institutional investors have reduced or ceased providing funding to
borrowers, including to other financial institutions. This market turmoil and tightening of credit have led to an increased level of commercial and consumer delinquencies, lack of consumer confidence,
increased market volatility and widespread reduction of business activity generally. The resulting economic pressure on consumers and lack of confidence in the financial markets has adversely affected
our business, financial condition and results of operations. We cannot predict whether the difficult conditions in the financial markets are likely to improve in the near future. A worsening of these
conditions would likely exacerbate the adverse effects of these difficult market conditions on us and others in the financial institutions industry. In particular, we may face the following risks in
connection with these events:



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Deposits of Union Bank are insured up to statutory limits by the FDIC, and, accordingly, are subjected to deposit insurance assessments
to maintain the Deposit Insurance Fund. In November 2006, the FDIC issued a final rule, effective January 1, 2007, that created a new assessment system designed to more closely tie what banks
pay for deposit insurance to the risks they pose and adopted a new base schedule of rates that the FDIC can adjust up or down, depending on the revenue needs of the insurance fund. This assessment
system resulted in annual assessments on deposits of Union Bank of approximately 5 basis points through 2008. Prior to this change, Union Bank was not paying any insurance assessments on deposits
under the FDIC's risk-related assessment system. An FDIC credit for prior contributions offset the assessment for 2007 and part of 2008. Since this credit was exceeded in the second
quarter of 2008, the deposit insurance assessments Union Bank pays have increased our costs. As a result of recent and significant bank failures, the FDIC has determined that the reserve ratio for the
Deposit Insurance Fund was 0.76 percent as of September 30, 2008 and 0.40 percent as of December 31, 2008 (preliminary), the lowest reserve ratio for the combined bank and thrift
insurance fund since 1993. In accordance with the Reform Act, the FDIC must establish and implement a plan within 90 days to restore the reserve ratio to 1.15 percent within five years (subject
to extension due to

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extraordinary
circumstances). For the quarter beginning January 1, 2009, the FDIC has raised the base annual assessment rate for institutions in Risk Category I to between 12 to 14 basis
points and in Risk
Categories II, III and IV to 17, 35 and 50 basis points, respectively. An institution's assessment rate could be lowered by as much as two basis points based on the ratio of its
long-term unsecured debt to deposits or, for smaller institutions, by the ratio of its Tier 1 capital in excess of 15 percent to deposits. The assessment rate would be adjusted
towards the maximum rate for Risk Category I institutions that have a high level of brokered deposits or have experienced higher levels of asset growth (other than through acquisitions) and
could be increased by as much as 10 basis points for institutions in Risk Categories II, III and IV whose ratio of brokered deposits to deposits exceeds 10 percent. An institution's base
assessment rate would also be increased if an institution's ratio of secured liabilities (including Federal Home Loan Bank advances) to deposits exceeds 15 percent. The maximum adjustment for secured
liabilities for institutions in Risk Categories I, II, III and IV would be 7, 10, 15 and 22.5 basis points, respectively. On February 27, 2009, the Board of Directors of the FDIC voted
to amend the restoration plan for the Deposit Insurance Fund, adopt an interim rule (subject to comment) imposing an emergency special assessment on insured institutions of 20 basis points on
June 30, 2009 (to be collected on September 30, 2009), implement changes to the risk-based assessment system, and set rates beginning the second quarter of 2009. The FDIC
extended the restoration plan period to seven years, concluding that the problems facing the financial services sector and the economy at large constitute extraordinary circumstances permitting such
extension. The interim rule would also permit the FDIC to impose an emergency special assessment after June 30, 2009, of up to 10 basis points if necessary to maintain public confidence in
federal deposit insurance or if the reserve ratio of the Deposit Insurance Fund falls to a level which shall be zero or close to negative at the end of a calendar quarter. The amended restoration plan
was accompanied by a final rule that sets assessment rates and makes adjustments designed to improve how the assessment system differentiates for risk. Under the final rule, banks in Risk
Category I will pay initial base assessment rates ranging from 12 to 16 basis points on an annual basis, beginning on April 1, 2009, while the base annual assessment rates for
institutions in Risk Categories II, III and IV will be adjusted to 22, 32 and 45 basis points, respectively. The final rule provides incentives in the form of a reduction in assessment rates
for institutions that hold long-term unsecured debt and provides for increases in the base assessment rates for institutions that rely significantly on brokered deposits or secured
liabilities. In addition, to the extent that assessments of participants in the Temporary Liquidity Guarantee Program (described in "Economic and Financial Crisis and Government's Response" above) are
insufficient to cover the expenses or losses arising from the Temporary Liquidity Guarantee Program, the FDIC may impose one or more emergency special assessments on all FDIC-insured
depository institutions. Each such special assessment will be computed with reference to the amount by which an insured depository institution's average total assets exceed the sum of the
institution's average total tangible equity and average total subordinated debt. Any increases in the deposit insurance assessments Union Bank pays would further increase our costs.



Our ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of other
financial institutions. Financial services institutions are interrelated as a result of trading, clearing, counterparty or other relationships. We have exposure to many different industries and
counterparties, and we routinely execute transactions with counterparties in the financial industry, including brokers and dealers, commercial banks, investment banks, mutual and hedge funds, and
other institutional clients. The FDIC has been appointed receiver of over 40 insured depository institutions since the beginning of 2008, and some industry experts have predicted that hundreds of
financial institutions could fail over the next few years. Defaults by, or even rumors or questions about, one or more financial services institutions, or the financial services industry generally,
have led to market-wide liquidity problems and could lead to losses or defaults by us or by other institutions. Many of these transactions expose us to credit risk in the event of default
of our counterparty or client. In addition, our credit risk may be exacerbated when the collateral held by us cannot be realized upon or is liquidated at prices not sufficient to recover the full
amount of the loan or

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derivative
exposure due us. There is no assurance that any such losses would not materially and adversely affect our results of operations.



We are subject to significant federal and state regulation and supervision, which is primarily for the benefit and protection of our
customers and the Deposit Insurance Fund and not for the benefit of investors in our securities. In the past, our business has been materially affected by these regulations. This will likely continue
in the future. Laws, regulations or policies, including accounting standards and interpretations, currently affecting us and our subsidiaries may change at any time. Regulatory authorities may also
change their interpretation of these statutes and regulations. Therefore, our business may be adversely affected by changes in laws, regulations, policies or interpretations or regulatory approaches
to compliance and enforcement, as well as by supervisory action or criminal proceedings taken as a result of noncompliance which could result in the imposition of significant civil money penalties or
fines. International laws, regulations and policies affecting us, our subsidiaries and the business we conduct may change at any time and affect our business opportunities and competitiveness in these
jurisdictions. Due to BTMU's ownership of us, laws, regulations, policies, fines and other supervisory actions adopted or enforced by the Government of Japan and the Federal Reserve Board may
adversely affect our activities and investments and those of our subsidiaries in the future.

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

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

Refer
to "Supervision and Regulation" in Item 1 of this Form 10-K and "MD&ARegulatory Matters" in Item 7 of Part II of this
Form 10-K for discussion of other laws and regulations that may affect our business.



In particular, there have been proposals made by President Obama, members of Congress and others that could reduce the amount
distressed borrowers are otherwise contractually obligated to pay under their mortgage loans and limit an institution's ability to foreclose on mortgage collateral. For example, on February 18,
2009, President Obama announced "The Homeowner Affordability and Stability Plan" as part of a plan designed to help up to 7 to 9 million families restructure or refinance their mortgages to
avoid foreclosure. Were proposals such as these, or other proposals limiting our rights as a creditor, to be implemented, we could experience increased credit losses or increased expense in pursuing
our remedies as a creditor.

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



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



Changes in market interest rates on deposits or other funding sources, including changes in the relationship between
short-term and long-term market interest rates or between different interest rate indices, can impact and has impacted our margin spread, that is, the difference between the
interest rates we charge on interest earning assets, such as loans, and the interest rates we pay on interest bearing liabilities, such as deposits or other borrowings. This impact could result in a
decrease in our interest income relative to interest expense.



The banking industry and we are facing increasing deposit-pricing pressures. Checking and savings account balances and other forms of
deposits can decrease when our deposit customers perceive alternative investments, such as the stock market, other non-depository investments or higher yielding deposits, as providing
superior expected returns. Technology and other changes have made it more convenient for bank customers to transfer funds into alternative investments or other deposit accounts, including products
offered by other financial institutions or non-bank service providers. Future increases in short-term interest rates could increase such transfers of deposits to higher
yielding deposits or other investments either with us or with external providers. In addition, our level of deposits may be affected by lack of consumer confidence in financial institutions, which
have caused fewer depositors to be willing to maintain deposits that are not FDIC-insured accounts. That may cause depositors to withdraw deposits and place them in other institutions or
to invest uninsured funds in investments perceived as being more secure, such as securities issued by the U.S. Treasury. These consumer
preferences may force us to pay higher interest rates to retain deposits and may constrain liquidity as we seek to meet funding needs caused by reduced deposit levels.

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

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



Banking is a highly competitive business. We compete actively for loan, deposit, and other financial services business in California,
Oregon and Washington, as well as nationally and internationally. Our competitors include a large number of state and national banks, thrift institutions, credit unions and major foreign-affiliated or
foreign banks, as well as many financial and nonfinancial firms that offer services similar to those offered by us, including many large securities firms. Some of our competitors are community or
regional banks that have strong local market positions. Other competitors include large financial institutions that have substantial capital, technology and marketing resources that are well in excess
of ours. Competition in our industry is likely to further intensify as a result of the recent and increasing level of consolidation of financial services companies, particularly in our principal
markets (such as JPMorgan Chase's acquisition of Washington Mutual and Wells Fargo Bank's acquisition of Wachovia Bank) resulting from adverse economic and market conditions. Such large financial
institutions may have greater access to capital at a lower cost than us, which may adversely affect our ability to compete effectively. We also experience competition, especially for deposits, from
internet-based banking institutions, which have grown rapidly in recent years.



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



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



We are subject to certain industry-specific economic factors. For example, a significant and increasing portion of our total loan
portfolio is related to residential real estate, especially in California. Increases in residential mortgage loan interest rates could have an adverse effect on our operations by depressing new
mortgage loan originations, and could negatively impact our title and escrow deposit levels. Additionally, a continued or further downturn in the residential real estate and housing industries in
California could have an adverse effect on our operations and the quality of our real estate loan portfolio. Although we do not engage in subprime or negative amortization lending, effects of recent
subprime market challenges, combined with the ongoing deterioration in the U.S. and California real estate markets, could result in further price reductions in single family home prices and a lack of
liquidity in refinancing markets. These factors could adversely impact the quality of our residential construction and residential mortgage portfolios in various ways, including by

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decreasing
the value of the collateral for our mortgage loans. These factors could also negatively affect the economy in general and thereby our overall loan portfolio.

We
provide financing to businesses in a number of other industries that may be particularly vulnerable to industry-specific economic factors, including the home building industry, the
commercial real estate industry, the communications/media industry, the retail industry, the energy industry and the technology industry. The home building industry in California has been especially
adversely impacted by the deterioration in residential real estate markets, which has lead us to take additional provisions against credit losses in this portfolio as to which we expect a higher level
of charge offs during 2009. Continued volatility in fuel prices and energy costs could adversely affect businesses in several of these industries. Industry-specific risks are beyond our control and
could adversely affect our portfolio of loans, potentially resulting in an increase in nonperforming loans or charge offs and a slowing of growth or reduction in our loan portfolio.



The State of California currently faces economic and fiscal challenges, the long-term impact of which on the State's
economy cannot be predicted with any certainty. A substantial majority of our assets, deposits and fee income are generated in California. As a result, poor economic conditions in California may cause
us to incur losses associated with higher default rates and decreased collateral values in our loan portfolio. Economic conditions in California are subject to various uncertainties at this time,
including significant deterioration in the residential real estate sector, especially
the subprime housing markets, and the California state government's budgetary and fiscal difficulties. Under the budget plan approved by the California Legislature and signed by Governor Arnold
Schwarzenegger on February 20, 2009, the State of California will reduce services, increase sales and income taxes and other fees and take other expense reduction measures. In addition,
California will fund a portion of the deficit through additional borrowings, which may include Revenue Anticipation Warrants, a relatively high-cost form of financing. Further, the budget
requires California voter approval of ballot measures during a special election to be held on May 19, 2009. The measures would set a cap on state spending and institute a "rainy day" fund for
periods of fiscal difficulty for the State's budget, authorize the State to sell bonds based on future lottery revenue, shift money from certain social programs, guarantee additional funds for schools
and freeze lawmakers' pay when the State runs a deficit. Rejection of any of the revenue-related ballot measures would likely result in budget deficits which would need to be addressed later in 2009.
The financial and economic consequences of this situation cannot be predicted with any certainty at this time. If the California state government's budgetary and fiscal difficulties continue or
economic conditions in California decline further, we expect that our level of problem assets could increase and our prospects for growth could be impaired.



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

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

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also
adversely impact some borrowers' ability to repay their loans. We might also increase the allowance because of unexpected events. Any increase in the allowance would result in a charge to
earnings.



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

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



We may seek to acquire or invest in financial and non-financial companies that complement our business.

We
may not be successful in completing any acquisition or investment as this will depend on the availability of prospective target opportunities at valuation levels we find attractive
and the competition for such opportunities from other parties. In addition, we continue to evaluate the performance of all of our businesses and business lines and may sell or restructure a business
or business line. Any acquisitions or restructurings may result in the issuance of potentially dilutive equity securities, significant write-offs, including those related 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 of operations and financial condition. Any divestures may also result
in significant write-offs, including those related to goodwill and other intangible assets.

Acquisitions,
divestitures or restructurings could involve numerous additional risks including difficulties in obtaining any required regulatory approvals and in the assimilation or
separation of operations, services, products and personnel, the diversion of management's attention from other business concerns, higher than expected deposit attrition, divestitures required by
regulatory authorities, the disruption of our business, the potential loss of key employees and unexpected contingent liabilities arising from any
business we might acquire. We may not be successful in addressing these or any other significant risks encountered in connection with any acquisition, divesture or restructuring we might make.



We fund our operations independently of BTMU and MUFG and believe our business is not necessarily closely related to the business or
outlook of BTMU or MUFG. However, BTMU and MUFG's credit ratings may affect our credit ratings.

BTMU
and MUFG are also subject to regulatory oversight, review and supervisory action (which can include fines or penalties) by Japanese and U.S. regulatory authorities. Our business
operations and expansion plans could be negatively affected by regulatory concerns or supervisory action in the U.S. and in Japan against BTMU or MUFG. For additional information, see
"MD&ARegulatory Matters" in this Form 10-K Report.

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

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

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



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



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



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



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



We are from time to time subject to claims and proceedings related to our present or previous operations. These claims, which could
include supervisory or enforcement actions by bank regulatory authorities, or criminal proceedings by prosecutorial authorities, could involve demands for large monetary amounts,

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including
civil money penalties or fines imposed by government authorities, and significant defense costs. To mitigate the cost of some of these claims, we maintain insurance coverage in amounts and
with deductibles that we believe are appropriate for our operations. However, our insurance coverage does not cover any civil money penalties or fines imposed by government authorities and may not
cover all other claims that might be brought against us or continue to be available to us at a reasonable cost. As a result, we may be exposed to substantial uninsured liabilities, which could
adversely affect our business, prospects, results of operations and financial condition.



The State of California requires us to file our franchise tax returns as a member of a unitary group that includes MUFG and either all
worldwide affiliates or only U.S. affiliates. Prior to 2008, we have elected to file our California franchise tax returns on a worldwide unitary basis. We intend to file our 2008 California tax return
under a water's-edge election. Changes in MUFG's taxable profits will impact our effective tax rate. MUFG's taxable profits are impacted most significantly by changes in the worldwide
economy and decisions that they may make about the timing of
the recognition of credit losses or other matters. When MUFG's taxable profits rise, our effective tax rate in California will rise, and when MUFG's taxable profits decrease, our effective tax rate
will decrease. We review MUFG's financial information on a quarterly basis in order to determine the rate at which to recognize our California income taxes. However, all of the information relevant to
determining the effective California tax rate may not be available until after the end of the period to which the tax relates, primarily due to the difference between our and MUFG's fiscal
year-ends. If we understate our tax obligations we could be subject to penalties. Recent amendments to California tax law now impose an automatic 20 percent penalty for an understatement
of tax in excess of $1 million for any taxable year beginning on or after January 1, 2003 for which the statute of limitations on assessment has not expired. In addition, the California
effective tax rate can change during the calendar year or between calendar years as additional information becomes available. Our effective tax rates could also be affected by changes in the valuation
of our deferred tax assets and liabilities, changes in tax laws or their interpretation, by the outcomes of examinations of our income tax returns by the Internal Revenue Service and other tax
authorities and with respect to our California state tax liability, by adjustments that may be necessary from time to time to recognize differences in estimated California state tax expense based on
MUFG's estimated income and its actual results.



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

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

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



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



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



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

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

These
inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls
can be circumvented by the individual acts of some persons, by collusion of two or more people or by an unauthorized override of the

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controls.
Accordingly, because of the inherent limitations in our control system, misstatements due to error or fraud may occur and not be detected.

Item 1B.   Unresolved Staff Comments

None.

Item 2.   Properties

At December 31, 2008, we operated 331 full service branches in California, 4 full service branches in Oregon and Washington, and 2
international offices. We own the property occupied by 117 of the domestic offices and lease the remaining properties for periods of five to twenty years.

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

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

Item 3.   Legal Proceedings

UnionBanCal Corporation and Union Bank were named, along with 54 other parties, as defendants in an action filed by DataTreasury Corporation in
the United States District Court for the Eastern District of Texas on February 24, 2006. Plaintiff alleged that defendants were "making, using, selling, offering for sale, and/or importing in
or into the United States, directly, contributory and/or by inducement, without authority, products and services" that were asserted to fall within the scope of the claims of United States Patents
Nos. 5,910,988, 6,032,137, 5,265,007 and 5,717,868, which are collectively addressed to various aspects of check processing, including remote data capture, electronic imaging, central
processing and storage. A confidential settlement was reached on November 24, 2008, the litigation against UnionBanCal and Union Bank was dismissed with prejudice on December 1, 2008,
and UnionBanCal and Union Bank obtained fully paid up, world-wide licenses under the relevant DataTreasury patents for the life of the patents.

On
August 14, 2008, an alleged stockholder filed a purported class action captionedKahn v. Mitsubishi UFJ Financial
Group, Inc.in the Superior Court of California, County of San Francisco. The Kahn complaint was amended on September 4, 2008. The amended complaint asserted
claims for breach of fiduciary duty against us, our directors, MUFG and its affiliates in connection with the Offer and the Merger described in Item 1 "Business" and challenged the adequacy of
our disclosures regarding the Offer. The amended complaint sought compensatory and punitive damages and declaratory and injunctive relief with respect to the Offer and the Merger.

On
August 15, 2008, another alleged stockholder filed a purported class action captionedJaroslawicz v. UnionBanCal Corp., et al.in the Superior Court of California, County of San Francisco. The Jaroslawicz complaint was amended on August 19, 2008, asserting claims for breach of fiduciary duty against our directors, MUFG
and BTMU, and for aiding and abetting an alleged breach of fiduciary duty against us, MUFG and BTMU. The amended complaint sought declaratory, injunctive and rescissory relief with respect to the
Offer.

On
August 15, 2008, another alleged stockholder filed a purported class and derivative action captionedVirgin Islands Government Employees' Retirement
System v. Alvarez, et al.(VIGERS) in the Court of Chancery of the State of Delaware. The VIGERS complaint was amended on August 27, 2008 and again on
September 5, 2008. The second amended VIGERS complaint asserted class action claims for breach of fiduciary duty against our current directors, MUFG and BTMU, and claims for
self-dealing against MUFG and BTMU, in connection with the Offer. The complaint also asserted derivative claims for breach of fiduciary duty

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against
our current directors, except for Nicholas Binkley, and some of our former directors arising out of alleged non-compliance by specified subsidiaries with the Bank Secrecy Act and
other anti-money laundering laws and regulations. The amended complaint also asserted claims
alleging that our disclosures regarding the Offer were materially false and misleading in several respects. The second amended VIGERS complaint sought declaratory and injunctive relief and damages.

On
August 29, 2008, another alleged stockholder filed a purported class action captionedPires v. UnionBanCal Corp., et al.in the
Superior Court of California, County of San Francisco. The Pires complaint asserted a claim of breach of fiduciary duty against us and our directors and against MUFG for aiding and abetting the
alleged breach of fiduciary duty in connection with the Offer. The Pires complaint sought declaratory and injunctive relief and damages.

On
September 23, 2008, plaintiffs Kahn and Pires made an ex parte application to the San Francisco County Superior Court to issue a temporary restraining order enjoining the
consummation of the Merger. The Court, after oral argument on September 24, 2008, orally denied the application; there is no written order.

While
we believe all of the allegations of wrongdoing in the complaints and amended complaints filed in these actions lacked merit, in order to resolve the litigation and avoid further
cost and delay in the VIGERS and Jaroslawicz actions, we and the other defendants, without admitting any wrongdoing, agreed to make further disclosures in connection with the Offer and the Merger and
signed a Stipulation of Settlement to settle all class claims asserted in such actions but not the derivative claim asserted in the VIGERS action. Pursuant to the Stipulation of Settlement, on
September 26, 2008, the Delaware Chancery Court entered a Scheduling Order setting a schedule for class notice and objections, and setting a Settlement Hearing for December 2, 2008. The
Scheduling Order also stayed and suspended all proceedings in VIGERS (including the derivative claim) other than those necessary to carry out the settlement, and enjoined the purported class members,
including the plaintiff, from asserting claims in connection with the Offer and the Merger, except as set forth in the Stipulation of Settlement. The dismissals of the VIGERS and Jaroslawicz actions
contemplated by the Stipulation of Settlement require court approval, as do the anticipated request of plaintiffs' counsel to be awarded their attorneys' fees and costs. We agreed not to oppose such a
request, provided that the attorneys' fees and costs requested do not exceed $1.25 million, and to pay such attorneys' fees and costs as are awarded by the Delaware Chancery Court, again
provided that those fees and costs do not exceed $1.25 million.

On
October 7, 2008, all counsel in the Kahn, Jaroslawicz and Pires actions submitted a stipulation to the San Francisco County Superior Court asking the court to consolidate and
stay all three actions without prejudice to the right of plaintiffs Kahn and Pires to object to the settlement to be presented to the Delaware Court. On October 15, 2008, the Superior Court
agreed to declare all three cases complex, to coordinate all three cases before one judge and to stay all three cases pending the settlement approval hearing in the Delaware Court. The Superior Court
set a further case management conference for January 9, 2009.

Plaintiffs
Kahn and Pires filed objections in the Delaware Court to the VIGERS and Kahn settlement. On December 2, 2008, the Vice Chancellor heard and then overruled the
objections, approved the settlement and approved the application for fees and costs in the amount of $1.25 million. The Delaware Court entered a written order and final judgment to that effect
later the same day.

On
December 10, 2008, the San Francisco County Superior Court dismissed the Jaroslawicz action with prejudice pursuant to the Stipulation of Settlement.

On
December 15, 2008, the Delaware Court entered a stipulation and order dismissing the VIGERS action as moot. This order had the effect of dismissing the derivative claim that
had not been resolved by the Stipulation of Settlement approved on December 2, 2008.

On
December 23, 2008, we paid the agreed $1.25 million in fees and costs.

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On January 7, 2009, the San Francisco County Superior Court dismissed the Kahn and Pires actions with prejudice pursuant to the stipulation of all parties.

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

Item 4.   Submission of Matters to a Vote of Security Holders

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

PART II

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

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

For
the year 2007 and for the period through November 3, 2008, the average daily trading volume of our common stock was 426,884 shares and 1,550,976 shares, respectively. At
December 31, 2006, December 31, 2007 and November 3, 2008, our common stock closed at $61.25 per share, $48.91 per share and $73.48 per share, respectively. The following table
presents stock quotations for each quarter in 2007, the first three quarters in 2008 and the fourth quarter in 2008 through November 3, 2008.

2007

2008High

Low

High

LowFirst quarter

$
65.03

$
59.01

$
53.59

$
39.32Second quarter


64.00


59.01


56.00


39.00Third quarter


61.09


52.19


74.58


34.81Fourth quarter


60.48


47.18


74.36


73.02


The following table presents quarterly per share cash dividends declared for 2007 and 2008.

2007

2008First quarter

$
0.47

$
0.52Second quarter


0.52


0.52Third quarter


0.52


0.52Fourth quarter


0.52





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The following table presents repurchases by us of our equity securities during the fourth quarter 2008 through November 3, 2008.

Period

Total Number of
Shares Purchased(1)

Average Price Paid
per Share

Total Number
of Shares Purchased
as Part of Publicly
Announced Programs

Approximate Dollar
Value of Shares
that May Yet Be
Purchased under
the ProgramsOctober 2008


238

$
73.33




$
509,442,838November 2008


290

$
73.42




$
509,421,546
(2)Total


528

$
73.38





---

Item 6.   Selected Financial Data

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

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

See pages F-1 through F-56 of this Form 10-K Report.

Item 7A.   Quantitative and Qualitative Disclosures About Market Risk

See pages F-39 through F-43 of this Form 10-K Report.

Item 8.   Financial Statements and Supplementary Data

See pages F-58 through F-137 of this Form 10-K Report.

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

None.

Item 9A.   Controls and Procedures

Disclosure Controls.Our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial
officer) have
concluded that the design and operation of our disclosure controls and procedures are effective as of December 31, 2008. This conclusion is based on an evaluation conducted under the
supervision and with the participation of management. Disclosure controls and procedures are those controls and procedures which ensure that information required to be disclosed in this filing is
accumulated and communicated to management and is recorded, processed, summarized and reported in a timely manner and in accordance with Securities and Exchange Commission rules and regulations.

Internal Controls Over Financial Reporting.Management's Report on Internal Control Over Financial Reporting regarding the
effectiveness of internal
controls over financial reporting is presented on page F-141. The Report of Independent Registered Public Accounting Firm is presented on page F-139. During the
quarter ended December 31, 2008, there were no changes in our internal controls over financial reporting that materially affected, or are reasonably likely to affect, our internal controls over
financial reporting.

Item 9B.   Other Information

None.

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PART III

Item 10.   Directors, Executive Officers and Corporate Governance

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

Directors

Director

Age

Principal Occupation For the Past Five YearsAida M. Alvarez

59

Ms. Alvarez served as Administrator of the U.S. Small Business Administration from February 1997 to January 2001. Ms. Alvarez is a director of Wal-Mart Stores, Inc. Ms. Alvarez has been a Director of
UnionBanCal and Union Bank since October 2004.David R. Andrews

66

Mr. Andrews is the Founder and Co-Chair of MetaJure, Inc., a consulting company that provides non-legal services to
Fortune 500 corporations in the areas of eDiscovery, investigations, due diligence and basic document drafting. Mr. Andrews is retired from PepsiCo, Inc., where he served as Senior Vice President, Governmental Affairs, General Counsel and
Secretary from February 2002 to February 2005. Mr. Andrews was a partner of the law firm of McCutchen, Doyle, Brown & Enersen from 1981 to 1997 and from April 2000 to February 2002. He served as legal adviser to the U.S. Department of
State from August 1997 to April 2000. Mr. Andrews is a director of Pacific Gas and Electric Company and PG&E Corporation and a director of James Hardie Industries Ltd. Mr. Andrews has been a Director of UnionBanCal and Union Bank
since April 2000.Nicholas B. Binkley

63

Mr. Binkley has been a general partner of Forrest Binkley & Brown, a venture capital and private equity firm, since
the firm was formed in 1993. Forrest Binkley & Brown serves as general partner for two funds, SBIC Partners, L.P, a venture capital fund formed in 1994, and Forrest Binkley & Brown Capital Partners, LLC, a private equity fund
formed in 2001. Mr. Binkley was a member of the Office of the President of Forrest Binkley & Brown Venture Co., a Texas corporation which was the general partner of Forrest Binkley & Brown, L.P., a Texas limited
partnership, which in turn was the general partner of SBIC Partners II, L.P., a technology venture capital fund formed in 1998. In March 2005, SBIC Partners II, L.P. entered into a consent judgment whereby the U.S. Small Business
Administration, or SBA, was appointed as receiver for SBIC Partners II, L.P. Following the appointment of the SBA as receiver, Forrest Binkley & Brown was appointed as agent to the receiver for the purpose of marshalling and liquidating
all of its assets with the goal of maximizing recovery of SBA loans made to SBIC Partners II, L.P. Mr. Binkley's prior experience is in the banking industry where he held various positions at Security Pacific Corporation from 1977 to 1992,
including as an executive officer and member of the board of directors, and, following the acquisition of Security Pacific, serving as an executive officer and member of the board of directors of BankAmerica Corporation from 1992 to 1993.
Mr. Binkley has been a Director of UnionBanCal and Union Bank since February 2007.


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Table of Contents

Director

Age

Principal Occupation For the Past Five YearsL. Dale Crandall

67

Mr. Crandall serves as President of Piedmont Corporate Advisors, Inc., a private financial consulting firm that he founded.
Mr. Crandall is retired from Kaiser Foundation Health Plan, Inc., and Kaiser Foundation Hospitals, where he served as President and Chief Operating Officer from March 2000 to June 2002, and as Senior Vice President and Chief Financial
Officer from June 1998 to March 2000. Mr. Crandall is a director of Coventry Health Care, Ansell Ltd., and Metavante Technologies, Inc., and serves as trustee for several funds in the Dodge & Cox Funds family of mutual funds.
Mr. Crandall has been a Director of UnionBanCal and Union Bank since February 2001.Murray H. Dashe

66

Mr. Dashe is retired from Cost Plus, Inc., where he served as Chairman, Chief Executive Officer and President from
February 1998 to March 2005. Mr. Dashe has been a Director of UnionBanCal and Union Bank since July 2006.Richard D. Farman

73

Mr. Farman has been Chairman Emeritus of Sempra Energy since September 2000. Mr. Farman served as Chairman and Chief
Executive Officer of Sempra Energy from July 1998 to June 2000. Mr. Farman has been a Director of UnionBanCal and Union Bank since November 1988.Philip B. Flynn

51

Mr. Flynn has served as Vice Chairman and Chief Operating Officer of UnionBanCal and Union Bank since March 2005. He served
as Vice Chairman and head of the Commercial Financial Services Group from April 2004 to March 2005, as Executive Vice President and Chief Credit Officer from September 2000 to April 2004, and as Executive Vice President and head of Specialized
Lending from May 2000 to September 2000. Mr. Flynn has been a Director of UnionBanCal and Union Bank since April 2004.Christine Garvey

63

Ms. Garvey, retired, is a real estate consultant, who served as Global Head of Corporate Real Estate and Services for
Deutsche Bank AG from May 2001 to May 2004. From December 1999 until April 2001, Ms. Garvey served as Vice President, Worldwide Real Estate and Workplace Resources at Cisco Systems, Inc. Previously, Ms. Garvey held several positions
with Bank of America, including Group Executive Vice President and Head of National Commercial Real Estate Services. Ms. Garvey is a director of ProLogis, Maguire Properties, Inc. and Health Care Properties, Inc. Ms. Garvey has
been a Director of UnionBanCal and Union Bank since October 2007.Michael J. Gillfillan

60

Mr. Gillfillan has been a partner of Meriturn Partners, LLC since December 2002. He was a partner of Neveric, LLC
from March 2000 to January 2002. Mr. Gillfillan has been a Director of UnionBanCal and Union Bank since January 2003.


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Director

Age

Principal Occupation For the Past Five YearsMohan S. Gyani

57

Mr. Gyani has been Vice Chairman of Roamware, Inc., a provider of voice and data roaming solutions, since December 2005, where he
served as Chief Executive Officer & Chairman from May 2005 to December 2005. Prior to this, Mr. Gyani served as President and Chief Executive Officer of AT&T Wireless Mobility Services from March 2000 to January 2003 and Senior
Advisor of AT&T Wireless Group from January 2003 to December 2004. Mr. Gyani is a Director of Safeway, Inc., Keynote Systems Incorporated, Mobile TeleSystems OJSC, and SiRF Technology Holdings, Inc. Mr. Gyani has been a
Director of UnionBanCal and Union Bank since July 2006.Yoshiaki Kawamata

58

Mr. Kawamata has served as Senior Managing Executive Officer and Chief Executive Officer for the Americas of The Bank of
Tokyo-Mitsubishi UFJ, Ltd., and Resident Managing Officer for the United States of Mitsubishi UFJ Financial Group, Inc. since April 2008. From January 2006 until March 2008, Mr. Kawamata served as Managing Executive Officer and Deputy
Chief Executive, Global Business Unit of The Bank of Tokyo-Mitsubishi UFJ, Ltd. Prior to January 2006, Mr. Kawamata held the following positions with UFJ Bank Limited: Executive Officer, Tokyo Corporate Banking Office III, V &
Financial Institutions Office from January 2002 to May 2002; Senior Executive Officer, Tokyo Corporate Banking Office I-V & Financial Institutions Office from May 2002 to June 2002, Senior Executive Officer, Tokyo Corporate Banking Office I,
IV & Financial Institutions Office from June 2002 to May 2004, Senior Executive Officer, Credit Administration from May 2004 to April 2005, Senior Executive Officer in charge of Eastern Japan area from April 2005 to September 2005 and Senior
Executive Officer in charge of Eastern Japan area and Deputy Head of Global Banking & Trading Division from September 2005 to December 2005. Mr. Kawamata has been a Director of UnionBanCal and Union Bank since December 2008.Nobuo Kuroyanagi

67

Mr. Kuroyanagi has served as Chairman of The Bank of Tokyo-Mitsubishi UFJ, Ltd. since April 2008. He has served as
President & CEO of Mitsubishi UFJ Financial Group, Inc. since October 2005. From January 2006 to March 2008, Mr. Kuroyanagi served as President of The Bank of Tokyo-Mitsubishi UFJ, Ltd. From June 2004 to December 2005,
Mr. Kuroyanagi served as President of The Bank of Tokyo-Mitsubishi, Ltd. From June 2004 to September 2005, Mr. Kuroyanagi served as President & CEO of Mitsubishi Tokyo Financial Group, Inc. From June 2002 to June 2004,
Mr. Kuroyanagi served as Deputy President of The Bank of Tokyo-Mitsubishi, Ltd. Mr. Kuroyanagi has been a Director of UnionBanCal since December 2008.Mary S. Metz

71

Dr. Metz is retired from the S. H. Cowell Foundation where she served as President from January 1999 until March 2005.
Dr. Metz is a director of AT&T Corporation, Pacific Gas and Electric Company and PG&E Corporation. Dr. Metz has been a Director of UnionBanCal and Union Bank since November 1988.


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Director

Age

Principal Occupation For the Past Five YearsJ. Fernando Niebla

69

Mr. Niebla has served as President of International Technology Partners, LLC since December 1998 and is the principal owner and
managing partner of Siertina Development LLC. He serves on the boards of Integrated Healthcare Holdings, Inc. and Granite Construction Incorporated. Mr. Niebla has been a Director of UnionBanCal and Union Bank since July
1994.Kyota Omori

60

Mr. Omori has served as Chairman of UnionBanCal and Union Bank since July 2008. Mr. Omori has served as Senior Managing
Officer since April 2008 and Deputy President and Chief Compliance Officer of the Mitsubishi UFJ Financial Group since June 2008. He served as Senior Managing Executive Officer and Chief Executive Officer for the Americas of The Bank of
Tokyo-Mitsubishi UFJ from October 2007 to April 2008 and as Resident Managing Officer for the United States for Mitsubishi UFJ Financial Group from June 2005 to April 2008. From January 2006 to October 2007, Mr. Omori served as Managing
Executive Officer and Chief Executive Officer for the Americas of The Bank of Tokyo-Mitsubishi UFJ. From May 2003 to January 2006, Mr. Omori served as Managing Director of The Bank of Tokyo-Mitsubishi. In May 2004, Mr. Omori was appointed
as Chief Executive Officer for the Americas. From May 2001 to May 2003, Mr. Omori served as General Manager of the Corporate Planning Office of The Bank of Tokyo-Mitsubishi. Mr. Omori has been a Director of UnionBanCal and Union Bank since
May 2007.Barbara L. Rambo

56

Ms. Rambo has served as Vice Chair of Nietech Corporation, a payments technology company since October 2006, and served as
Chief Executive Officer of Nietech Corporation from November 2002 until October 2006. Prior to joining Nietech, Ms. Rambo served as Chair of the Board of OpenClose Technologies, Inc., a financial services company, from June 2001 to December
2001, as President and Chief Executive Officer of that company from January 2000 to June 2001, and as a Director from January 2000 through March 2002. Previously, Ms. Rambo held several executive positions with Bank of America, most recently
Group Executive Vice President and Head of National Commercial Banking. Ms. Rambo is a director of Pacific Gas and Electric Company and PG&E Corporation. Ms. Rambo has been a Director of UnionBanCal and Union Bank since October
2007.


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Table of Contents

Director

Age

Principal Occupation For the Past Five YearsMasaaki Tanaka

55

Mr. Tanaka has served as President and Chief Executive Officer of UnionBanCal and Union Bank since May 2007. During the same period,
Mr. Tanaka has been the head of UNBC group, an organizational term used by The Bank of Tokyo-Mitsubishi UFJ, representing UnionBanCal in the Global Business Unit of The Bank of Tokyo-Mitsubishi UFJ. Mr. Tanaka served as Executive Officer
and General Manager, Corporate Planning Division of The Bank of Tokyo-Mitsubishi UFJ from January 2006 until April 2007, during which time he also served as Executive Officer and Co-General Manager, Corporate Planning Division of Mitsubishi UFJ
Financial Group. From May 2004 to December 2005, Mr. Tanaka served as General Manager of Corporate Business Development for The Bank of Tokyo-Mitsubishi, during which time he also served, prior to July 2004, as General Manager of Corporate
Banking Division No. 2 of Corporate Banking Group No. 1, and, beginning in July 2004, as General Manager of Corporate Banking Division No. 3 of the Corporate Banking Group. Mr. Tanaka was appointed Executive Officer of The Bank of
Tokyo-Mitsubishi UFJ in June 2004 and Managing Executive Officer in May 2007. From April 2001 to May 2004, he served as General Manager, Corporate Planning Division of the Mitsubishi Tokyo Financial Group and from May 2000 to April 2001, he served as
General Manager, Integrated Planning Office of The Bank of Tokyo-Mitsubishi. Mr. Tanaka has been a Director of UnionBanCal and Union Bank since May 2007.Dean A. Yoost

58

Mr. Yoost retired from PricewaterhouseCoopers in July 2005, where he held various partner positions in Tokyo, Beijing, Los
Angeles, New York, Minneapolis, and Irvine since 1974, most recently as the managing partner of the Orange County practice and as the Western Region Leader of the firm's Advisory practice. Mr. Yoost was a full-time Senior Advisor to
PricewaterhouseCoopers in Tokyo from early 2006 until June 2007, where he assumed a lead role in the major restructuring of PricewaterhouseCoopers' Japanese operations. Mr. Yoost is a Director of Emulex Corporation and Pacific Life Insurance
Company. Mr. Yoost has been a Director of UnionBanCal and Union Bank since July 2007.


Ronald L. Havner, Jr. resigned as a Director of UnionBanCal and Union Bank effective January 28, 2009.

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Table of Contents

Executive Officers

See above for information on Masaaki Tanaka, President & Chief Executive Officer, and Philip B. Flynn, Vice Chairman &
Chief Operating Officer.

Executive Officer

Age

Principal Occupation For the Past Five YearsJohn C. Erickson

47

Mr. Erickson has served as Vice Chairman and Chief Risk Officer of UnionBanCal and Union Bank since April 2008. He served as Senior Executive Vice President and Deputy Chief Risk Officer from January 2008 to April
2008. He served as Executive Vice President and Deputy Chief Risk Officer from September 2007 to January 2008. He served as head of Commercial Banking and Wealth Management from May 2006 to September 2007, as head of Commercial Banking from April
2003 to April 2006, as head of the National Banking and Communications, Media and Entertainment Divisions from April 2001 to April 2003 and as Senior Vice President, Corporate Capital Markets, from April 1996 to April 2001.David I. Matson

64

Mr. Matson has served as Vice Chairman and Chief Financial Officer of UnionBanCal and Union Bank since March 2005 and served
as Executive Vice President and Chief Financial Officer from July 1998 to March 2005.Grant K. Ahearn

52

Mr. Ahearn has served as Senior Executive Vice President and head of Specialized Financial Services of UnionBanCal and Union
Bank since January 2008. He served as Executive Vice President and head of Specialized Financial Services from October 2007 to January 2008, and as head of the Energy Capital Services and Equipment Leasing departments from January 2001 to September
2007.JoAnn M. Bourne

53

Ms. Bourne has served as Senior Executive Vice President and head of Commercial Deposits and Treasury Management of
UnionBanCal and Union Bank since January 2008. She served as Executive Vice President and head of Commercial Deposits and Treasury Management from April 2003 to January 2008. She served as head of Commercial Banking from January 2002 to April 2003,
and managed the Commercial Deposit Services Division from June 1997 to January 2002.Bruce H. Cabral

53

Mr. Cabral has served as Senior Executive Vice President and Chief Credit Officer of UnionBanCal and Union Bank since
January 2008. He served as Executive Vice President and Chief Credit Officer from April 2004 to January 2008, and 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.Robert C. Dawson

49

Mr. Dawson has served as Senior Executive Vice President and head of Commercial Banking of UnionBanCal and Union Bank since
October 2008. He served as Executive Vice President and head of Commercial Banking from May 2006 to October 2008. Prior to that assignment, he was Executive Vice President and Manager of Corporate Capital Markets from October 2003 to May 2006. From
September 2000 to September 2003, Mr. Dawson was SVP & Manager of Capital Markets.


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Table of Contents

Executive Officer

Age

Principal Occupation For the Past Five YearsPaul E. Fearer

65

Mr. Fearer has served as Senior Executive Vice President and Human Resources Director of UnionBanCal and Union Bank since January 2008. He
served as Executive Vice President and Human Resources Director from April 1996 to January 2008.Morris W. Hirsch

52

Mr. Hirsch has served as Senior Executive Vice President, General Counsel and Secretary of UnionBanCal and Union Bank since
July 2008. He served as Senior Vice President and Deputy General Counsel from April 1996 to July 2008.J. Michael Stedman

43

Mr. Stedman has served as Senior Executive Vice President and as head of Real Estate Industries of UnionBanCal and Union
Bank since January 2008. He served as Executive Vice President and head of Real Estate Industries from November 2006 to January 2008. He served as Senior Vice President and Senior Credit Officer for Real Estate from February 2003 to November 2006,
and as Senior Vice President and Real Estate Loan Center Manager from April 1999 to February 2003.Timothy H. Wennes

41

Mr. Wennes has served as Senior Executive Vice President and head of Retail Banking for UnionBanCal and Union Bank since
July 2008. From 2003 to 2004, he served as executive vice president of retail banking for Countrywide Bank, FSB. In 2005, he was named chief operating officer and in 2007 was named president and chief operating officer at Countrywide Bank. Prior to
Countrywide, Mr. Wennes spent 14 years at Wells Fargo Bank, where he advanced from loan officer to regional president.Johannes H. Worsoe

41

Mr. Worsoe has served as Senior Executive Vice President and head of Global & Wealth Markets of UnionBanCal and
Union Bank since January 2008. He served as Executive Vice President and head of Global Markets from July 2005 to January 2008. He served as Senior Vice President and Manager of Global Markets from January 2004 to July 2005, and as Senior Vice
President and Manager of Global Markets Trading and Sales from February 2001 to January 2004.James Yee

55

Mr. Yee has served as Senior Executive Vice President and Chief Information Officer of UnionBanCal and Union Bank since
January 2008. He served as Executive Vice President and Chief Information Officer from May 2005 to January 2008. Prior to joining UnionBanCal, 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.


Code of Ethics

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

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Table of Contents

Item 11.   Executive Compensation

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

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

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

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

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

Item 14.   Principal Accountant Fees and Services

Audit Fees

The following is a description of the fees billed to UnionBanCal by Deloitte & Touche LLP for each of the last two fiscal
years. All fees for 2007 and 2008 were approved by our Audit Committee.

2007

2008Audit Fees(1)

$
3,419,053

$
3,816,314Audit-Related Fees(2)


553,911


946,483Tax Fees(3)


153,432


176,417Total

$
4,126,396

$
4,939,214


---

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

Pre-approval of Services by Deloitte & Touche LLP

The Audit Committee has adopted a policy for pre-approval of audit and permitted non-audit services by
Deloitte & Touche LLP. The Audit Committee will consider annually and, if appropriate, approve the provision of

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Table of Contents

audit
services by its independent registered public accounting firm and consider and, if appropriate, pre-approve the provision of certain defined audit and non-audit services;
provided, however, that:



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

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

PART IV

Item 15.   Exhibits and Consolidated Financial Statement Schedules

(a)(1)    Financial Statements

Our Consolidated Financial Statements, Management's Report on Internal Control Over Financial Reporting, and the Report of Independent
Registered Public Accounting Firm are set forth on pages F-58 through F-141. (See index on page F-57).

(a)(2)    Financial Statement Schedules

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

(a)(3)    Exhibits

No.

Description3.1

Restated Certificate of Incorporation of the Registrant(1)3.2

Bylaws of the Registrant(1)4.1

Trust Indenture between UnionBanCal Corporation and J.P. Morgan Trust Company, National Association, as Trustee, dated December 8, 2003(2)4.2

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

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

Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividend Requirements(3)21.1

Subsidiaries of the Registrant has been omitted pursuant to General Instruction I(2) of Form 10-K24.1

Power of Attorney(3)


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Table of Contents

No.

Description24.2

Resolution of Board of Directors(3)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(3)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(3)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(3)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(3)


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Table of Contents

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

Selected Financial Data

(Dollars in thousands)

2004

2005

2006

2007

2008(1)Results of operations:Net interest income(2)

$
1,628,532

$
1,842,340

$
1,844,393

$
1,732,652

$
2,060,660(Reversal of) provision for loan losses(3)


(45,757
)

(50,683
)

(5,000
)

81,000


515,000Noninterest income


802,290


681,342


759,214


799,539


772,656Noninterest expense(3)


1,372,548


1,480,057


1,557,949


1,574,201


1,896,696Income from continuing operations before income taxes(2)


1,104,031


1,094,308


1,050,658


876,990


421,620Taxable-equivalent adjustment


3,745


4,352


6,401


9,272


9,812Income tax expense


395,403


357,529


274,720


294,354


127,868Income from continuing operations


704,883


732,427


769,537


573,364


283,940Income (loss) from discontinued operations, net of taxes


27,651


130,506


(16,541
)

34,730


(15,055
)Net income

$
732,534

$
862,933

$
752,996

$
608,094

$
268,885Balance sheet (end of period):Total assets(4)

$
48,098,021

$
49,416,002

$
52,619,576

$
55,727,748

$
70,121,390Total loans


29,109,415


33,095,595


36,671,723


41,204,188


49,585,550Nonperforming assets


149,855


61,645


42,365


56,525


436,515Total deposits


38,548,005


39,949,257


41,850,682


42,680,191


46,049,769Medium- and long-term debt


816,113


801,095


1,318,847


1,913,622


4,288,488Stockholder's equity


4,292,244


4,559,700


4,571,401


4,737,981


7,484,305Balance sheet (period average)(5):Total assets

$
42,988,384

$
47,449,564

$
49,846,868

$
53,468,142

$
60,908,355Total loans


26,047,578


31,452,606


35,704,129


39,424,327


46,112,105Earning assets


39,014,123


42,786,530


45,077,084


48,968,917


55,556,063Total deposits


35,932,380


39,393,393


40,000,434


42,185,536


43,133,196Stockholder's equity


4,050,202


4,280,085


4,574,185


4,603,022


5,170,795Financial ratios(5):Return on average assets:From continuing operations


1.64
%

1.54
%

1.54
%

1.07
%

0.47
%Net income


1.70


1.82


1.51


1.14


0.44Return on average stockholder's equity:From continuing operations


17.40


17.11


16.82


12.46


5.49Net income


18.09


20.16


16.46


13.21


5.20Efficiency ratio(6)


55.71


57.99


59.80


60.68


64.24Net interest margin(2)


4.17


4.31


4.09


3.54


3.71Tangible common equity ratio


7.94


8.31


7.84


7.73


6.96Tier 1 risk-based capital ratio(4)


9.71


9.17


8.68


8.30


8.78Total risk-based capital ratio(4)


12.17


11.10


11.71


11.21


11.63Leverage ratio(4)


8.09


8.39


8.44


8.27


8.42Allowance for loan losses to:(7)Total loans


1.37


1.06


0.90


0.98


1.49Nonaccrual loans


279.97


596.91


792.32


722.64


177.79Allowances for credit losses to:(8)Total loans


1.65


1.32


1.12


1.20


1.74Nonaccrual loans


337.74


743.58


987.06


884.80


208.01Net loans charged off (recovered) to average total loans


0.09


(0.01
)

0.04


0.03


0.37Nonperforming assets to total loans, distressed loans held for sale, and foreclosed assets


0.51


0.19


0.12


0.14


0.88Nonperforming assets to total assets(4)


0.31


0.12


0.08


0.10


0.62


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Table of Contents

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

You
should read the following discussion and analysis of our consolidated financial position and results of our operations for the years ended December 31, 2006, 2007 and 2008
together with our Consolidated Financial Statements and the Notes to Consolidated Financial Statements included in this Form 10-K Report. Averages, as presented in the following
tables, are substantially all based upon daily average balances.

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

Introduction

We are a California-based, financial holding company and bank holding company whose major subsidiary, Union Bank, N.A. (the Bank), is a
commercial bank. We had consolidated assets of approximately $70 billion at December 31, 2008.

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

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

Executive Overview

We are providing you with an overview of what we believe are the most significant factors and developments that impacted our 2008
results and that could impact our future results. Further detailed information can be found elsewhere in this Form 10-K Report. In addition, we ask that you carefully read this
entire document and any other reports that we refer to in this Form 10-K Report for more detailed information that will assist your understanding of trends, events and uncertainties
that impact us.

UnionBanCal's
privatization transaction significantly affected our financial statements. The privatization transaction was accounted for as a business combination and the fair value
adjustments related to our privatization were pushed down to our consolidated financial statements from BTMU. Accordingly, the purchase price paid by BTMU plus related fair value adjustments have been
reflected on UnionBanCal's consolidated balance sheet as of October 1, 2008. This has resulted in a new basis of accounting, which reflects the estimated fair value of our assets and
liabilities. The fair value adjustment of our assets and liabilities was required to reflect only the proportionate incremental percentage of shares acquired by BTMU in the privatization transaction,
which was 35.58 percent. After all of the fair value adjustments were assigned,

F-2

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Table of Contents

the
remainder of the purchase price was recorded as goodwill. Refer to Note 2 to our Consolidated Financial Statements included in this Form 10-K Report for further
information on UnionBanCal's privatization transaction.

Dramatic
and unprecedented overall financial market conditions afflicted the banking industry in 2008 and continue into 2009. Despite the uncertain market, we continued to generate loan
growth, maintain stable deposits, and grow net interest income.

In
2008, our average total loans grew 17 percent from 2007 to $46.1 billion. This strong growth was spread across all major categories, including commercial, residential
and commercial real estate, due to increased loan demand and reduced competition.

During
2008, we provided $550 million for our allowances for credit losses compared to $90 million in 2007. The increase was primarily attributable to higher criticized
assets, increases in certain loss factors related to our consumer and small business portfolios and strong loan growth. We anticipate a continued recessionary environment during 2009, resulting in
additional deterioration in our loan portfolio. See further discussion below in "Allowances for Credit Losses."

Our
nonperforming assets totaled $57 million and $437 million at December 31, 2007 and 2008, respectively. The increase in nonperforming assets was primarily due to
increases in the commercial and industrial portfolio of $231 million, construction portfolio of $85 million, and commercial real estate portfolio of $43 million. Net charge offs
were $170 million in 2008, compared to $10 million in 2007.

At
December 31, 2007 and 2008, our allowances for credit losses as a percent of total loans were 1.20 percent and 1.74 percent, respectively. At December 31,
2007 and 2008, our allowances for credit losses as a percent of nonaccrual loans were 885 percent and 208 percent, respectively. At December 31, 2007 and 2008, our allowance for
loan losses as a percent of total loans were 0.98 percent and 1.49 percent, respectively. At December 31, 2007 and 2008, our allowance for loan losses as a percent of nonaccrual
loans were 723 percent and 178 percent, respectively.

In
2008, our average noninterest bearing deposits declined 11 percent to $12.7 billion compared to 2007. The decline was primarily due to lower commercial noninterest
bearing deposits as a result of a mix shift toward interest bearing deposit accounts, and lower title and escrow deposits resulting from reduced residential real estate activity. Average noninterest
bearing deposits represented 29 percent of average total deposits in 2008, compared to 34 percent in 2007. In addition, the annualized average all-in-cost of
funds improved to 1.72 percent, compared to 2.67 percent in 2007.

In
2008, our net interest income increased 19 percent from 2007 to $2.1 billion, primarily due to lower rates paid on interest bearing liabilities, including other
borrowings, and strong loan growth, partially offset by lower yields on earning assets.

In
2008, our noninterest income declined 3 percent from 2007 to $773 million primarily due to lower gains on the sales of and distributions from private capital investments
and lower trading account revenues.

In
2008, our noninterest expense grew by 20 percent from 2007 to $1.9 billion. The increase was primarily due to privatization-related expenses, higher intangible asset
amortization related to the privatization transaction, higher salaries and employee benefits resulting from annual merit increases and higher staff levels, higher provision for credit losses on
off-balance sheet commitments, higher regulatory agency fees and higher expenses related to our low income housing investments (LIHC).

As
a result of the fair value adjustments related to UnionBanCal's privatization transaction, we will record higher intangible asset amortization in future years, as compared to 2007 and
2008. The estimated total amortization expense for 2009 is $162 million, compared to amortization expense of $45 million in 2008. As a result of the FDIC's recent increases in
assessments for banking institutions, we expect our level of regulatory fees to increase in 2009, as compared to 2008.

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Our
effective tax rate was 31 percent in 2008, compared to 34 percent in 2007. The lower effective tax rate in 2008 was primarily due to the effect of tax credits on lower
income before taxes.

In
December 2008, we received a $1.0 billion capital contribution from BTMU to address our capital needs as a result of the privatization transaction. However, it is our intention
to fund ourself in the capital markets as an independent entity and to retain the ability to independently raise capital and issue debt.

Discontinued Operations

Our discontinued operations consist of three separate businesses: retirement recordkeeping services (RRB), international correspondent
banking (ICBB), and insurance brokerage services (IBB). The ICBB business was sold to Wachovia Bank, N.A. in 2005 for $245.0 million and we recognized a pre-tax gain of
$228.8 million. In 2006, we received and recorded an additional $4.0 million pre-tax purchase price adjustment. The business consisted of international payment and trade
processing along with related lending activities. Substantially all of the assets and liabilities of ICBB were liquidated in the first quarter of 2007.

Although
ICBB's operations had substantially ended in 2006, the Bank was responsible for past violations of the Bank Secrecy Act and other anti-money laundering laws and
regulations (BSA/AML) associated with ICBB. As a result of the past violations, the Bank entered into a Deferred Prosecution Agreement (DPA) with the United States Department of Justice (DOJ) in the
third quarter of 2007 and paid $21.6 million to the DOJ. On October 1, 2008, the DPA was terminated and the criminal case to which it related was dismissed. For additional information,
see discussion under "Regulatory Matters."

In
the fourth quarter of 2007, we sold our RRB to Prudential Retirement, a subsidiary of Prudential Financial, Inc., for $103.0 million. We recorded a pre-tax
gain of $94.7 million, net of $2.1 million in transaction costs and a $6.2 million elimination of intangible assets, which included goodwill of $4.8 million attributed to
this business. The RRB was previously included in the Retail Banking reportable business segment.

In
June 2008, we sold our IBB subsidiary, UnionBanc Insurance Services, Inc., to a wholly-owned subsidiary of BB&T Corporation. We recorded a total pre-tax gain of
$10.0 million, net of $1.6 million in transaction costs, and an elimination of intangible assets, consisting of goodwill of $74.7 million and other intangibles of
$11.0 million. The IBB was previously included in the Wholesale Banking reportable business segment.

These
transactions have been accounted for as discontinued operations and all prior period financial statements have been restated to reflect this accounting treatment. All of the assets
and liabilities of the discontinued operations have been separately identified on our condensed consolidated balance sheet and the assets are shown at the lower of cost or fair value less costs to
dispose. The average net assets or liabilities of our discontinued operations are reflected in our analysis of net interest margin. For the detailed components of our assets and liabilities of our
discontinued operations, see Note 23 to our Consolidated Financial Statements included in this Form 10-K Report.

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International Correspondent Banking Business Discontinued Operations

The results of the ICBB discontinued operations included in our net income for the years ended December 31, 2006 and 2007
consisted of the following. There was no impact in 2008.

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

2006

2007Net interest income

$
871

$
Noninterest income


13,110


Noninterest expense


31,038


23,244Loss from discontinued operations before income taxes


(17,057
)

(23,244
)Income tax benefit


(6,310
)

(582
)Loss from discontinued operations

$
(10,747
)
$
(22,662
)


Net
interest income for the year ended 2006 included the allocation of interest expense from continuing operations of approximately $1.8 million. Interest expense allocated to
discontinued operations was calculated based on average net assets and the corresponding cost of funds rate equivalent to the average federal funds purchased rate for the period.

Noninterest
income for the year ended December 31, 2006 included gains on the sale of the business of $4.0 million. Noninterest expense for the year ended
December 31, 2006 included $8.7 million of compliance related expenses and $2.4 million of expenses related to the termination of lease contracts. Noninterest expense for the year
ended December 31, 2007 included the $21.6 million paid to the DOJ and related legal and other outside services costs of $1.6 million. The income tax benefit of
$0.6 million for the year ended December 31, 2007 reflects the nondeductibility of the $21.6 million payment to the DOJ.

Retirement Recordkeeping Business Discontinued Operations

The results of the RRB discontinued operations included in our net income for the years ended December 31, 2006, 2007 and 2008,
consisted of the following:

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

2006

2007

2008Net interest income

$
4,813

$
4,703

$
1,573Noninterest income


47,556


142,892


18,883Noninterest expense


48,439


52,429


36,253Income (loss) from discontinued operations before income taxes


3,930


95,166


(15,797
)Income tax expense (benefit)


1,502


34,276


(5,581
)Income (loss) from discontinued operations

$
2,428

$
60,890

$
(10,216
)


Net
interest income for the years ended December 31, 2006, 2007 and 2008 included the allocation of interest income from continuing operations of $5.2 million,
$5.1 million and $1.8 million, respectively. The interest income allocation was calculated based on the RRB's average net liabilities and the corresponding cost of funds rate equivalent
to the federal funds purchased rate for the period.

Noninterest
income for the years ended December 31, 2006, 2007 and 2008 included trust fees of $47.5 million, $48.2 million and $7.1 million, respectively.
For the year ended December 31, 2007, noninterest income also included the pre-tax gain of $94.7 million from the RRB sale. Noninterest income for the year ended
December 31, 2008 also included $12.4 million in servicing revenues from Prudential. The majority of these servicing revenues were earned in the first half of 2008, as the migration of
customers onto Prudential's accounting system was completed in June 2008. Noninterest expense for the years ended

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December 31,
2006, 2007 and 2008 included salaries and benefits expense of $26.9 million, $34.1 million and $17.5 million, respectively. For the year ended
December 31, 2007, salaries and benefits expense also included an $8.7 million charge for severance and retention expenses.

Insurance Brokerage Business Discontinued Operations

The components of income from the IBB discontinued operations for the years ended December 31, 2006, 2007 and 2008 are:

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

2006

2007

2008Net interest income

$
(4,650
)
$
(4,728
)
$
(994
)Noninterest income


71,729


68,764


35,858Noninterest expense


79,900


69,205


46,435Loss from discontinued operations before income taxes


(12,821
)

(5,169
)

(11,571
)Income tax benefit


(4,599
)

(1,671
)

(6,732
)Loss from discontinued operations

$
(8,222
)
$
(3,498
)
$
(4,839
)


The
IBB's net interest expense for the years ended December 31, 2006, 2007 and 2008 was mainly comprised of the allocation of interest expense (which was calculated based on IBB's
average net assets and the corresponding cost of funds rate equivalent to the federal funds purchased rate for the period). Noninterest income for the years ended December 31, 2006, 2007 and
2008 included insurance commissions of $71.8 million, $68.6 million and $25.7 million, respectively. Noninterest income for the year ended December 31, 2008 also included a
$9.8 million pre-tax gain from the sale of IBB and $0.2 million in subsequent adjustments. Noninterest expense for the years ended December 31, 2006, 2007 and 2008
included salaries and benefits expense of $61.1 million, $53.0 million and $21.3 million, respectively. For the year ended December 31, 2008, noninterest expense also
included an $18.7 million goodwill impairment charge. This charge was recorded in the first quarter of 2008, when we determined that the value of the net assets was greater than the fair value
of IBB, which was based on indicative prices for insurance agencies.

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

Critical Accounting Estimates



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

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

Our
most significant estimates are approved by our Chief Executive Officer Forum (CEO Forum), which is comprised of our most senior officers. For each financial reporting period, a
review of these estimates is presented to and discussed with the Audit Committee of our Board of Directors.

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



The allowances for credit losses, which consist of the allowances for loan and off-balance sheet commitment losses, are
estimates of the losses that may be sustained in our loan and lease portfolio as well as for certain off-balance sheet commitments such as unfunded commitments, commercial letters of
credit, and financial guarantees. The allowances are based on two principles of accounting: (1) Statement of Financial Accounting Standards (SFAS) No. 5, "Accounting for Contingencies,"
which requires that losses be accrued when they are probable of occurring and estimable; and (2) SFAS No. 114, "Accounting by Creditors for Impairment of a Loan" and SFAS No. 118,
"Accounting by Creditors for Impairment of a LoanIncome Recognition and Disclosures," which require that losses be accrued based on the differences between the value of collateral,
present value of future cash flows or values that 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 and the allowance for off-balance sheet
commitments, which is included in other liabilities. Each of these components is determined based upon estimates that can and do change when the actual events occur. The formula allowance uses a model
based, in part, on historical losses as an indicator of future losses and, as a result, could differ from the losses incurred in the future. This history is updated quarterly to include data that, in
management's judgment, makes the historical data more relevant. Moreover, management adjusts the historical loss estimates for conditions that more accurately capture probable losses inherent in the
portfolio. The specific allowance uses various techniques to arrive at an estimate of loss. Historical loss information, discounted cash flows, fair market value of collateral and secondary market
information are all used to estimate those losses. The use of these values is inherently subjective and our actual losses could be greater or less than the estimates. The unallocated allowance is
intended to capture losses that are attributable to various economic events, as well as to industry or geographic sectors, whose impact on the portfolio have occurred but have yet to be recognized in
either the formula or specific allowances. Our allowance for off-balance sheet commitments is measured in approximately the same manner as the allowance for our loans but includes an
estimate of likely utilization based upon historical data. At December 31, 2008, our allowance for loan losses was $738 million and our allowance for off-balance sheet
commitments was $125 million, based upon our assessment of the probability of loss. For further information regarding our allowance for loan losses, see "Allowances for Credit Losses" in this
Form 10-K Report.



Our pension obligations and related assets of our defined retirement benefit plan are presented in Note 9 to our Consolidated
Financial Statements included in this Form 10-K Report. Plan assets, which consist primarily of marketable equity and debt instruments, are valued using quoted market prices. Plan
obligations and the annual benefit expense are estimated by management utilizing actuarially based data and key

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assumptions.
Key assumptions in measuring the plan obligations and determining the pension benefit expense are the discount rate, the rate of compensation increases, and the estimated future return on
plan assets. Our discount rate is calculated using a yield curve based on Aa3 or better rated bonds. This yield curve is matched to the anticipated timing of the actuarially determined estimated
pension benefit payments to determine the weighted average discount rate. Compensation increase assumptions are based upon historical experience and anticipated future management actions. Asset
returns are based upon the anticipated average rate of earnings expected on the invested funds of the plan.

At
December 31, 2006, we adopted SFAS No. 158, "Employers' Accounting for Defined Pension and Other Postretirement Plans, an amendment of SFAS No. 87, 88, 106 and
132(R)." This Statement required us to recognize the full overfunded or underfunded status of our defined benefit plan as an asset or liability in our statement of financial position and to recognize
previously unrecognized prior service costs and net actuarial gains or losses, net of taxes, in Other Comprehensive Income. At adoption, we recognized a prepaid pension asset for the overfunded status
of our pension plan of $398 million. We also recognized $203 million ($126 million, net of tax) for the previously unrecognized prior service costs and net actuarial losses of our
pension plan in other comprehensive income.

Our
net actuarial losses (pretax) increased $551 million between December 31, 2007 and 2008. Of the total $752 million of net actuarial loss at December 31,
2008, $484 million, which is the excess of the fair value of plan assets over the market-related value of plan assets, is recognized separately through the asset smoothing method over four
years. Approximately $116 million will be subject to amortization over 9.5 years. The remaining $152 million is not currently subject to amortization. The cumulative net actuarial
loss resulted primarily from differences between expected and actual rate of return on plan assets and the discount rate. Included in our 2009 net periodic pension cost will be $12.2 million of
amortization related to net actuarial losses. We estimate that our total 2009 net periodic pension cost will be approximately $9.1 million, assuming $100 million in contributions in
2009. The primary reason for the increase in net periodic pension cost for 2009 compared to $3.6 million in 2008 is an increase in net actuarial loss amortization. The 2009 estimate for net
periodic pension cost was actuarially determined using a discount rate of 5.75 percent, an expected return on plan assets of 8.0 percent and an expected compensation increase assumption
of 4.7 percent.

A
50 basis point increase in the discount rate, expected return on plan assets, or the rate of increase in future compensation levels would increase (decrease) 2009 periodic pension cost
by ($14.8) million, ($8.5) million, and $4.4 million, respectively. A 50 basis point decrease in the discount rate, expected return on plan assets, or the rate of increase in future
compensation levels would increase (decrease) 2009 periodic benefit cost by $16.3 million, $8.4 million, and ($4.2) million, respectively.



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

We
provide reserves for unrecognized tax benefits as required under Statement of Financial Accounting Standards Interpretation (FIN) No. 48, "Accounting for Uncertainty in Income
TaxesAn Interpretation of FASB Statement No. 109." In applying the standards of the Interpretation, we consider the relative risks and merits of positions taken in tax returns
filed and to be filed, considering statutory, judicial, and regulatory

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guidance
applicable to those positions. The interpretation requires us to make assumptions and judgments about potential outcomes that lie outside management's control. To the extent the tax
authorities disagree with our conclusions, and depending on the final resolution of those disagreements, our effective tax rate may be materially affected in the period of final settlement with the
tax authorities.

The
State of California requires us to file our franchise tax returns as a member of a unitary group that includes MUFG and either all worldwide affiliates or only U.S. affiliates. Prior
to 2008, we filed our California franchise tax returns on a worldwide unitary basis. We intend to make a water's-edge election for our 2008 California tax return, and we have reflected
that election in our 2008 income tax expense. We filed our 2006 and 2007 California franchise tax returns on the worldwide unitary basis, incorporating the financial results of MUFG and its worldwide
affiliates. Changes in MUFG's taxable profits will impact our effective tax rate. MUFG's taxable profits are impacted most significantly by changes in the worldwide economy, and decisions that they
may make about the timing of the recognition of credit losses or other matters. When MUFG's taxable profits rise, our effective tax rate in California will rise, and when they decrease, our rate will
decrease. We review MUFG's financial information on a quarterly basis in order to determine the rate at which to recognize our
California income taxes. However, all of the information relevant to determining the effective California tax rate may not be available until after the end of the period to which the tax relates,
primarily due to the difference between our and MUFG's fiscal year-ends. The California effective tax rate can change during the calendar year or between calendar years as additional
information becomes available.



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

We
test goodwill from our acquisitions for impairment at least annually or more frequently if events or circumstances indicate that there may be cause for conducting an interim test. In
testing for a potential impairment of goodwill, we estimated the fair value of each of our reportable business segments and compared this value to the carrying value of each reporting unit. The
estimated fair value of the reporting unit was established using a discounted cash flow model. We determined that the estimated fair value of each reporting unit was greater than its carrying value.
Therefore, we did not have any impairment in 2008, except as related to the IBB discontinued operations.

Quarterly,
we test our private capital investments for impairment by reviewing the investee's business model, current and projected financial performance, liquidity and overall economic
and market conditions. During 2008, we recognized an other-than-temporary impairment of $4.4 million for our private capital investment portfolio.

In
addition, we test a selection of our lower rated debt securities, which consists primarily of our collateralized loan obligation (CLO) portfolio, for impairment and, during 2008, we
did not recognize an other-than-temporary impairment. Impairment testing of the CLO securities requires the use of a number of assumptions related to cash flows, including
recovery rates, default rates and reinvestment of cash flows during the reinvestment period. The underlying collateral held by the CLOs is highly diversified, which we believe should mitigate the risk
that downturns in any one industry segment will impair the entire portfolio. Our higher grade debt securities are not tested for other-than-temporary impairment since we have
the ability and intent to hold them until our cost has been recovered.



Effective January 1, 2008, we adopted Statement of Financial Accounting Standards (SFAS) No. 157, "Fair Value
Measurements" for all financial assets and liabilities measured and reported on a fair value basis. At adoption, there was no impact on our financial position or results of operations. For detailed
information on

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our
use of fair valuation of financial instruments and our related valuation methodologies, see Note 18 to our Consolidated Financial Statements included in this Form 10-K
Report.

As
defined in SFAS No. 157, fair value is the price that would be received to sell an asset or paid to transfer a liability (i.e., exit price) in an orderly transaction
between market participants at the measurement date. In determining fair value, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs.
Observable inputs reflect market-derived or market-based information obtained from independent sources, while unobservable inputs reflect our estimates of assumptions that would be considered by
market participants. Based on the observability of the inputs used in the valuation techniques, we classify our financial assets and liabilities measured and disclosed at fair value in accordance with
the three-level hierarchy (i.e., Level 1, Level 2 and Level 3) established under SFAS No. 157. This hierarchy ranks the quality and reliability of the information
used to determine fair values. The degree of management judgment increases with the higher the level of inputs.

Included
in the Level 3 category are CLOs, which are highly illiquid with limited market activity. All of our CLO securities are known as "Cash Flow CLOs." A Cash Flow CLO is a
structured finance product that securitizes a diversified pool of loan assets into multiple classes of notes from the cash flows generated by such loans. Cash Flow CLOs pay the note holders through
the receipt of interest and principal repayments from the underlying loans unlike other types of CLOs that pay note holders through the trading and sale of underlying collateral. Previously, CLOs were
valued solely using broker quotes that were derived from pricing models whose assumptions were based on observable inputs adjusted for unobservable liquidity spreads. Beginning in the fourth quarter
of 2008, we estimated the fair value of our CLOs using an external pricing model, as well as broker quotes. The model is based on internally-developed assumptions, utilizing market data derived from
market participants and credit rating agencies. These assumptions include, but are not limited to, estimated default rates, recovery rates, prepayment rates and reinvestment rates. The fair value of
our CLOs declined by $0.6 billion from December 31, 2007 to $1.2 billion at December 31, 2008. Since no observable credit quality issues were present in our CLO portfolio
at December 31, 2008, and we have the ability and intent to hold the CLO securities until maturity, we consider the unrealized loss to be temporary.

We
have an established and documented process for determining fair value. When available, quoted market prices are used to determine fair value. If quoted market prices are not
available, fair value is based upon valuation techniques that use, where possible, current market-based or independently
sourced parameters, such as interest rates, yield curves, foreign exchange rates, volatilities and credit curves. Valuation adjustments may be made to ensure the financial instruments are recorded at
fair value. These adjustments include amounts that reflect counterparty credit quality and, with the adoption of SFAS No. 157, that consider our creditworthiness in determining the fair value
of our trading liabilities.

F-10

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Table of Contents

The
following table reflects financial instruments measured at fair value on a recurring basis as of December 31, 2008.

(Dollars in thousands)

Fair Value

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

$
961,535


10
%Level 2


7,624,037


79
%Level 3


1,203,092


13
%Netting Adjustment(1)


(153,377
)

(2
)%Total

$
9,635,287


100
%As a percentage of total assets





14
%Liabilities:Level 1

$
56,470


6
%Level 2


1,131,570


109
%Level 3






%Netting Adjustment(1)


(153,377
)

(15
)%Total

$
1,034,663


100
%As a percentage of total liabilities





2
%


---



As a result of UnionBanCal's privatization transaction, we estimated the fair value of our assets and liabilities and recorded
35.58 percent of the differential between the fair value and our book value at October 1, 2008. (See Note 2 to our Consolidated Financial Statements included in this
Form 10-K Report for further information.) Because quoted market prices were not readily available, certain of those fair value adjustments required significant estimation and
judgment, which primarily involved loans, customer deposit intangibles (CDI), and other intangible assets related to customer relationships and trade name.

The
valuation of the loan portfolio was estimated using a risk-adjusted discounted cash flow analysis, which took into account factors including future expected cash flows,
current market conditions and risk factors, prepayments and maturities. The valuation was further assessed based on the type of loan (e.g., fixed, hybrid or variable rate).

The
valuation of CDI was estimated based on UnionBanCal's access to long-term, stable costs of funds in comparison to alternative financing using the core deposit base. The
estimated fair value under this approach represents the maximum premium a typical investor would be willing to pay to obtain this source of funding. Certain considerations in this valuation include,
but are not limited to, the size and composition of the deposit base, attributes of retail and commercial depositors, current interest rates paid to depositors and estimated attrition rates
(i.e., match funding strategy).

The
valuation of customer relationships was estimated based on a discounted cash flow methodology based on the residual income approach. Under this approach, the intangible asset was
valued by estimating expected free cash flows attributable to the customer base that considers the costs associated with capital charges. Certain considerations in this valuation include, but are not
limited to, the types of accounts held by the customer, estimated attrition rates, and estimated future revenues and expenses.

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Table of Contents

The valuation of UnionBanCal's trade name was estimated based on a discounted cash flow methodology. Certain considerations in this valuation include, but are not
limited to, recognition and perception of trade name, length of time trade name has been in use, economic support for the value of the trade name, and estimated continued investment in the trade name.

Financial Performance

Summary of Financial Performance

Increase (Decrease)Years Ended December 31,

2007 versus 2006

2008 versus 2007(Dollars in thousands)

2006

2007

2008

Amount

Percent

Amount

PercentResults of OperationsNet interest income(1)

$
1,837,992

$
1,723,380

$
2,050,848

$
(114,612
)

(6.2
)%
$
327,468


19.0
%Noninterest incomeService charges on deposit accounts


319,647


304,362


302,965


(15,285
)

(4.8
)

(1,397
)

(0.5
)Trust and investment management fees


147,539


157,734


165,255


10,195


6.9


7,521


4.8Trading account activities


56,916


65,608


54,530


8,692


15.3


(11,078
)

(16.9
)Gains on private capital investments, net


23,112


43,881


11,699


20,769


89.9


(32,182
)

(73.3
)Other noninterest income


212,000


227,954


238,207


15,954


7.5


10,253


4.5Total noninterest income


759,214


799,539


772,656


40,325


5.3


(26,883
)

(3.4
)Total revenue


2,597,206


2,522,919


2,823,504


(74,287
)

(2.9
)

300,585


11.9(Reversal of) provision for loan losses


(5,000
)

81,000


515,000


86,000


nm


434,000


nmNoninterest expenseSalaries and employee benefits


908,533


911,022


978,081


2,489


0.3


67,059


7.4Net occupancy


136,087


141,573


154,566


5,486


4.0


12,993


9.2Outside services


108,984


75,939


78,933


(33,045
)

(30.3
)

2,994


3.9Intangible asset amortization


7,866


4,501


44,935


(3,365
)

(42.8
)

40,434


nmForeclosed asset expense (income)


(15,322
)

110


1,019


15,432


nm


909


nm(Reversal of) provision for losses on off-balance sheet commitments


(5,000
)

9,000


35,000


14,000


nm


26,000


nmPrivatization-related expense








90,505








90,505


nmOther noninterest expense


416,801


432,056


513,657


15,255


3.7


81,601


18.9Total noninterest expense


1,557,949


1,574,201


1,896,696


16,252


1.0


322,495


20.5Income from continuing operations before income taxes


1,044,257


867,718


411,808


(176,539
)

(16.9
)

(455,910
)

(52.5
)Income tax expense


274,720


294,354


127,868


19,634


7.1


(166,486
)

(56.6
)Income from continuing operations


769,537


573,364


283,940


(196,173
)

(25.5
)

(289,424
)

(50.5
)Income (loss) from discontinued operations before income taxes


(25,948
)

66,753


(27,368
)

92,701


nm


(94,121
)

nmIncome tax expense (benefit)


(9,407
)

32,023


(12,313
)

41,430


nm


(44,336
)

nmIncome (Loss) from Discontinued Operations


(16,541
)

34,730


(15,055
)

51,271


nm


(49,785
)

nmNet income

$
752,996

$
608,094

$
268,885

$
(144,902
)

(19.2
)%
$
(339,209
)

(55.8
)%


---

nm =
not meaningful

F-12

---



Table of Contents

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



F-13

---



Table of Contents



The primary contributors to our continuing operations financial performance for 2007 compared to 2006 are presented
below.



F-14

---







Table of Contents

Net Interest Income

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

Years Ended December 31,2006

2007

2008(Dollars in thousands)

Average
Balance

Interest
Income/
Expense(1)

Average
Yield/
Rate(1)

Average
Balance

Interest
Income/
Expense(1)

Average
Yield/
Rate(1)

Average
Balance

Interest
Income/
Expense(1)

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

$
13,220,633

$
869,884


6.58
%
$
14,595,016

$
972,270


6.66
%
$
17,045,080

$
936,956


5.50
%Construction


1,857,404


142,031


7.65


2,335,157


177,258


7.59


2,585,221


130,022


5.03Residential mortgage


11,846,908


607,977


5.13


12,964,171


697,069


5.38


14,872,261


830,559


5.58Commercial mortgage


5,702,858


404,749


7.10


6,364,705


448,403


7.05


7,793,422


447,662


5.74Consumer


2,505,770


192,156


7.67


2,572,146


199,361


7.75


3,170,513


193,360


6.10Lease financing


570,556


15,232


2.67


593,132


23,789


4.01


645,608


18,546


2.87Total Loans


35,704,129


2,232,029


6.25


39,424,327


2,518,150


6.39


46,112,105


2,557,105


5.55Securitiestaxable


8,414,393


415,693


4.94


8,541,217


440,797


5.16


8,230,740


413,180


5.02Securitiestax-exempt


61,729


4,982


8.07


55,771


4,566


8.19


52,510


4,284


8.16Interest bearing deposits in banks


51,332


2,617


5.10


53,978


3,276


6.07


29,352


574


1.96Federal funds sold and securities purchased under resale agreements


497,318


25,518


5.13


505,732


26,247


5.19


256,281


6,472


2.53Trading account assets(3)


348,183


6,838


1.96


387,892


8,648


2.23


875,075


5,814


0.66Total earning assets


45,077,084


2,687,677


5.96


48,968,917


3,001,684


6.13


55,556,063


2,987,429


5.38Allowance for loan losses


(334,720
)







(336,871
)







(478,661
)Cash and due from banks


2,063,114








1,902,952








1,951,761Premises and equipment, net


502,742








481,650








527,943Other assets


2,538,648








2,451,494








3,351,249Total assets

$
49,846,868







$
53,468,142







$
60,908,355LiabilitiesDomestic deposits:Transaction accounts

$
12,938,620


292,899


2.26

$
14,129,408


409,508


2.90

$
16,066,060


275,795


1.72Savings and consumer time


4,363,032


93,171


2.14


4,351,961


116,544


2.68


4,027,824


66,275


1.65Large time


5,656,370


263,226


4.65


9,469,386


465,088


4.91


10,358,779


296,977


2.87Total interest bearing deposits


22,958,022


649,296


2.83


27,950,755


991,140


3.55


30,452,663


639,047


2.10Federal funds purchased and securities sold under repurchase agreements


701,614


33,711


4.80


1,142,487


56,299


4.93


2,137,718


47,065


2.20Net funding allocated from (to) discontinued operations(4)


(25,178
)

(1,211
)

4.81


7,299


377


5.17


36,378


810


2.23Commercial paper


1,582,226


75,015


4.74


1,549,681


76,284


4.92


1,319,360


31,767


2.41Other borrowed funds(5)


288,457


15,081


5.23


813,054


42,883


5.27


4,425,435


107,698


2.43Medium and long-term debt


1,230,846


70,439


5.72


1,776,069


101,096


5.69


2,915,838


99,429


3.41Trust notes


15,109


953


6.31


14,656


953


6.50


14,204


953


6.71Total borrowed funds


3,793,074


193,988


5.11


5,303,246


277,892


5.24


10,848,933


287,722


2.65Total interest bearing liabilities


26,751,096


843,284


3.15


33,254,001


1,269,032


3.82


41,301,596


926,769


2.24Noninterest bearing deposits


17,042,412








14,234,781








12,680,533Other liabilities(4)


1,479,175








1,376,338








1,755,431Total liabilities


45,272,683








48,865,120








55,737,560Stockholder's EquityCommon equity


4,574,185








4,603,022








5,170,795Total stockholder's equity


4,574,185








4,603,022








5,170,795Total liabilities and stockholder's equity

$
49,846,868







$
53,468,142







$
60,908,355Reported Net Interest Income/MarginNet interest income/margin (taxable-equivalent basis)





1,844,393


4.09
%




1,732,652


3.54
%




2,060,660


3.71
%Less: taxable-equivalent adjustment





6,401








9,272








9,812Net interest income




$
1,837,992







$
1,723,380







$
2,050,848




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

December 31, 2006

December 31, 2007

December 31, 2008Assets

$
334,989

$
130,117

$
56,130Liabilities

$
309,811

$
137,416

$
92,508Net Assets (Liabilities)

$
25,178

$
(7,299
)
$
(36,378
)


---

F-15

---





Table of Contents

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



We
use derivatives to hedge expected changes in the yields on our variable rate loans and term certificates of deposit and other time deposits (CDs), and to convert certain
fixed-rate borrowings to floating rate. For loans, we had hedge expense of $35.9 million and hedge income of $61.6 million for 2007 and 2008, respectively. For
long-term fixed rate borrowings, we had hedge income of $0.1 million and $27.9 million for 2007 and 2008, respectively.

Net
interest income in 2007, on a taxable-equivalent basis, decreased 6 percent from 2006 and our net interest margin decreased by 55 basis points. These results were primarily
due to the following:



In
2007, our annualized average all-in-cost of funds was 2.67 percent, reflecting an average deposit-to-loan ratio of
107 percent and what we believe is a relatively high proportion of average noninterest

F-16

---



Table of Contents

bearing
deposits to average total deposits compared to our peers. In 2006, the annualized all-in-cost of funds was 1.93 percent and our average core
deposit-to-loan ratio was 96 percent.

We
use derivatives to hedge expected changes in the benchmark interest rates on our variable rate loans and CDs, and to convert our long-term, fixed-rate
borrowings to floating rate. For loans, we had hedge expense of $47.9 million and $35.9 million for 2006 and 2007, respectively. For deposits and long-term fixed rate
borrowings, we had hedge income of $0.7 million and $0.1 million for 2006 and 2007, respectively.

Analysis of Changes in Net Interest Income

The following table shows the changes in the components of net interest income on a taxable-equivalent basis for 2006, 2007 and 2008.
The changes in net interest income between periods have been reflected as attributable either to volume or to rate changes. For purposes of this table, changes that are not solely due to volume or
rate changes are allocated to rate. Loan fees of
$71 million, $65 million and $82 million for the years ended 2006, 2007 and 2008, respectively, are included in this table. Adjustments have not been made for interest received
from a prior period.

Years Ended December 31,2007 versus 2006

2008 versus 2007Increase (decrease) due to change in

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

Average
Volume

Average
Rate

Net
Change

Average
Volume

Average
Rate

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

$
90,434

$
11,952

$
102,386

$
163,174

$
(198,488
)
$
(35,314
)Construction


36,548


(1,321
)

35,227


18,980


(66,216
)

(47,236
)Residential mortgage


57,316


31,776


89,092


102,655


30,835


133,490Commercial mortgage


46,991


(3,337
)

43,654


100,725


(101,466
)

(741
)Consumer


5,091


2,114


7,205


46,373


(52,374
)

(6,001
)Lease financing


603


7,954


8,557


2,104


(7,347
)

(5,243
)Total Loans


236,983


49,138


286,121


434,011


(395,056
)

38,955Securitiestaxable


6,265


18,839


25,104


(16,021
)

(11,596
)

(27,617
)Securitiestax-exempt


(481
)

65


(416
)

(267
)

(15
)

(282
)Interest bearing deposits in banks


135


524


659


(1,495
)

(1,207
)

(2,702
)Federal funds sold and securities
purchased under resale agreements


432


297


729


(12,947
)

(6,828
)

(19,775
)Trading account assets


778


1,032


1,810


10,864


(13,698
)

(2,834
)Total earning assets


244,112


69,895


314,007


414,145


(428,400
)

(14,255
)Changes in Interest ExpenseDeposits:Transaction accounts


26,912


89,697


116,609


56,163


(189,876
)

(133,713
)Savings and consumer time


(236
)

23,609


23,373


(8,687
)

(41,582
)

(50,269
)Large time


177,305


24,557


201,862


43,669


(211,780
)

(168,111
)Total interest bearing deposits


203,981


137,863


341,844


91,145


(443,238
)

(352,093
)Federal funds purchased and securities
sold under repurchase agreements


21,162


1,426


22,588


49,065


(58,299
)

(9,234
)Net funding allocated from (to) discontinued operations


1,562


26


1,588


1,503


(1,070
)

433Commercial paper


(1,543
)

2,812


1,269


(11,332
)

(33,185
)

(44,517
)Other borrowed funds


27,436


366


27,802


190,372


(125,557
)

64,815Medium- and long-term debt


31,187


(530
)

30,657


64,853


(66,520
)

(1,667
)Trust notes


(29
)

29





(29
)

29


Total borrowed funds


79,775


4,129


83,904


294,432


(284,602
)

9,830Total interest bearing liabilities


283,756


141,992


425,748


385,577


(727,840
)

(342,263
)Changes in net interest income

$
(39,644
)
$
(72,097
)
$
(111,741
)
$
28,568

$
299,440

$
328,008


---

F-17

---



Table of Contents

Noninterest Income and Noninterest Expense

The following tables detail noninterest income and noninterest expense that exceeded 1 percent of our total revenues for the
years ended December 31, 2006, 2007 and 2008.

Noninterest Income

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

2007 versus 2006

2008 versus 2007(Dollars in thousands)

2006

2007

2008

Amount

Percent

Amount

PercentService charges on deposit accounts

$
319,647

$
304,362

$
302,965

$
(15,285
)

(5
)%
$
(1,397
)


%Trust and investment management fees


147,539


157,734


165,255


10,195


7


7,521


5Trading account activities


56,916


65,608


54,530


8,692


15


(11,078
)

(17
)Merchant banking fees


42,185


44,123


49,546


1,938


5


5,423


12Brokerage commissions and fees


35,811


39,839


38,891


4,028


11


(948
)

(2
)Card processing fees, net


28,400


30,307


31,553


1,907


7


1,246


4Securities gains, net


2,242


1,621


44


(621
)

(28
)

(1,577
)

(97
)Gains on private capital investments, net


23,112


43,881


11,699


20,769


90


(32,182
)

(73
)Gain on the VISA IPO redemption








14,211








14,211


nmOther


103,362


112,064


103,962


8,702


8


(8,102
)

(7
)Total noninterest income

$
759,214

$
799,539

$
772,656

$
40,325


5
%
$
(26,883
)

(3
)%


---

nm =
not meaningful

Noninterest Expense

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

2007 versus 2006

2008 versus 2007(Dollars in thousands)

2006

2007

2008

Amount

Percent

Amount

PercentSalaries and other compensation

$
729,199

$
756,974

$
810,277

$
27,775


4
%
$
53,303


7
%Employee benefits


179,334


154,048


167,804


(25,286
)

(14
)

13,756


9Salaries and employee benefits


908,533


911,022


978,081


2,489





67,059


7Net occupancy


136,087


141,573


154,566


5,486


4


12,993


9Outside services


108,984


75,939


78,933


(33,045
)

(30
)

2,994


4Professional services


60,686


67,021


70,886


6,335


10


3,865


6Equipment


67,284


63,607


61,571


(3,677
)

(5
)

(2,036
)

(3
)Software


59,617


57,114


60,448


(2,503
)

(4
)

3,334


6Advertising and public relations


42,793


40,690


51,144


(2,103
)

(5
)

10,454


26Intangible asset amortization


7,866


4,501


44,935


(3,365
)

(43
)

40,434


nmLow income housing creditinvestment amortization


21,330


28,496


40,577


7,166


34


12,081


42Communications


37,531


36,499


37,067


(1,032
)

(3
)

568


2Data processing


31,040


33,052


32,090


2,012


6


(962
)

(3
)Foreclosed asset expense (income)


(15,322
)

110


1,019


15,432


nm


909


nm(Reversal of) provision for losses onoff-balance sheet commitments


(5,000
)

9,000


35,000


14,000


nm


26,000


nmPrivatization-related expense








90,505








90,505


nmOther


96,520


105,577


159,874


9,057


9


54,297


51Total noninterest expense

$
1,557,949

$
1,574,201

$
1,896,696

$
16,252


1
%
$
322,495


20
%


---

nm =
not meaningful

F-18

---



Table of Contents

Income Tax Expense

Years Ended December 31,(Dollars in thousands)

2006

2007

2008Income from continuing operations before income taxes

$
1,044,257

$
867,718

$
411,808Income tax expense


274,720


294,354


127,868Effective tax rate


26
%

34
%

31
%


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

The
lower effective tax rate in 2006 compared to 2007 was primarily due to a credit to state income tax expense of $72.8 million for a refund received in a settlement between us
and the State of California in an action we brought to recover taxes paid for the calendar years 1989 through 1995.

We
intend to make a water's-edge election for our 2008 California tax return, and we have reflected that election in our 2008 income tax expense. We filed our 2006 and 2007
California franchise tax returns on the worldwide unitary basis, incorporating the financial results of MUFG and its worldwide affiliates.

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

FIN
No. 48, "Accounting for Uncertainty in Income TaxesAn Interpretation of FASB Statement No. 109," establishes a
"more-likely-than-not" recognition threshold that must be met before a tax benefit can be recognized in the financial statements. For tax positions that meet the
more-likely-than-not threshold, an enterprise should recognize the largest amount of tax benefit that is greater than 50 percent likely of being realized
upon final settlement with the taxing authority. We recognized a $49.3 million reduction to the beginning balance of retained earnings upon adoption of the FIN No. 48 on
January 1, 2007.

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

For
additional information regarding income tax expense, including a reconciliation between the effective tax rate and the statutory tax rate and changes in unrecognized tax benefits
under FIN No. 48, see Note 11 to our Consolidated Financial Statements included in this Form 10-K Report.

F-19

---





Table of Contents

Credit Risk Management

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

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

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

We
have a Credit Review and Management Committee chaired by the Chief Credit Officer and composed of the Chief Executive Officer, Chief Risk Officer, Chief Financial Officer, Chief
Operating Officer and other executive officers that establishes our overall risk appetite, portfolio concentration limits, and credit risk rating methodology. This committee is supported by the Credit
Policy Forum, composed of Group Senior Credit Officers that have responsibility for establishing credit policy, credit underwriting criteria, and other risk management controls. Credit Administration,
under the direction of the Chief Credit Officer and his designated Group Senior Credit Officers, is responsible for administering the credit approval process and related policies. Policies require an
evaluation of credit requests and ongoing reviews of existing credits in order to ensure that the purpose of the credit is acceptable, and that the borrower is able and willing to repay as agreed.
Furthermore, policies require prompt identification and quantification of asset quality deterioration or potential loss.

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

F-20

---



Table of Contents

Loans

The following table shows loans outstanding by loan type and as a percentage of total loans for 2004 through 2008.

Increase (Decrease)
December 31, 2008 From:December 31,

December 31, 2007(Dollars in millions)

2004

2005

2006

2007

2008

Amount

PercentCommercial, financial and industrial

$
9,955


35
%
$
11,451


35
%
$
12,945


35
%
$
14,564


35
%
$
18,469


37
%
$
3,905


26.8
%Construction


1,130


4


1,447


4


2,176


6


2,407


6


2,744


6


337


14.0Mortgage:Residential


9,538


33


11,380


34


12,344


34


13,827


34


15,881


32


2,054


14.9Commercial


5,409


19


5,683


17


6,028


16


7,021


17


8,186


17


1,165


16.6Total mortgage


14,947


52


17,063


51


18,372


50


20,848


51


24,067


49


3,219


15.4Consumer:Installment


768


2


891


3


1,137


3


1,327


3


2,202


4


875


65.9Revolving lines of credit


1,582


5


1,611


5


1,401


4


1,334


3


1,436


3


102


7.6Total consumer


2,350


7


2,502


8


2,538


7


2,661


6


3,638


7


977


36.7Lease financing


609


2


580


2


581


2


655


2


646


1


(9
)

(1.4
)Total loans held for investment


28,991


100


33,043


100


36,612


100


41,135


100


49,564


100


8,429


20.5Total loans held for sale


118





53





60





69





22





(47
)

(68.1
)Total loans

$
29,109


100
%
$
33,096


100
%
$
36,672


100
%
$
41,204


100
%
$
49,586


100
%
$
8,382


20.3
%


Commercial, Financial and Industrial Loans

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

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

The
commercial, financial and industrial loan portfolio increased from December 31, 2007 to December 31, 2008 mainly due to increased loan demand and reduced competition
primarily in the power and utilities, oil and gas and national corporate customers, as well as in the California middle market.

Construction and Commercial Mortgage Loans

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

Construction
loans are extended primarily to commercial property developers and to residential builders. As of December 31, 2008, the construction loan portfolio consisted of
approximately 80 percent in the commercial income producing real estate industry and 20 percent with residential homebuilders. The construction loan portfolio increased from
December 31, 2007 to December 31, 2008 primarily due to loan advances for income property, projects with apartment financing representing the largest component. During the same period,
the homebuilder portfolio fell by approximately 38 percent, or $336 million. Operating

F-21

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Table of Contents

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

Geographically,
the outstanding construction loan portfolio is concentrated 55 percent in California and 45 percent out of state. The California outstandings are
distributed as follows: approximately 40 percent in the Los Angeles/Orange County region, including the Inland Empire, approximately 24 percent in the San Francisco Bay Area,
approximately 17 percent from Sacramento and Central Valley, approximately 14 percent in San Diego, and approximately 5 percent in the Central Coast region.

The
commercial mortgage loan portfolio consists of loans secured by commercial income properties primarily in California. The commercial mortgage portfolio increased from
December 31, 2007 to December 31, 2008 due to demand and reduced competition in the California Middle Market sector for real estate related financing and a reduced rate of early loan
repayments associated with the tightening of the credit markets.

Residential Mortgage Loans

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

At
December 31, 2008, 69 percent of our residential mortgage loans were interest only, none of which are negative amortizing. At origination, these interest only loans had
relatively high credit scores and had weighted average loan-to-value (LTV) ratios of approximately 66 percent. The remainder of the portfolio consists of balloon or
regular amortizing loans.

We
do not have a program for originating or purchasing subprime loan products. However, we do have loan products that allow a customer to move more quickly through the loan origination
process by reducing the need to verify the income or assets of the customer. We refer to these loans as "no doc" (which we discontinued offering in August 2008), "low doc" (which we discontinued
offering in December 2008) and portfolio express loans. Portfolio express loans are only available to existing clients for no-cash-out/rate and term refinance of existing
residential mortgages with the Bank and eliminate the verification of both income and assets. "Low doc" loans were offered through all channels and required the verification of assets. In both cases,
these loans require lower LTV ratios and higher FICO® credit scores than for fully documented residential loans. Although these loans comprise nearly half of our residential loan
portfolio, the delinquency rates relative to the outstanding balances at December 31, 2008 were lower than fully documented loans. At December 31, 2008, the total amount of "no doc" and
"low doc" loans past due 30 days or more was $75.3 million, compared to $15.9 million at December 31, 2007. The total amount of residential mortgages delinquent
30 days or more was $172.3 million at December 31, 2008, compared to $49.9 million at December 31, 2007. Although delinquencies have risen since December 31,
2007 as a result of the declining real estate market and downturn in the economy, the delinquency ratio remains low compared to the industry average for California prime loans. Our underwriting
standards remain conservative and as described above, programs with higher risk have been suspended.

We
hold most of the loans we originate. However, we do sell our 30-year, fixed rate loans, except for CRA qualifying loans.

On
February 13, 2008, former President Bush signed into law the Economic Stimulus Act of 2008, which, among other provisions, authorizes the three federal mortgage loan conduits,
the Federal National Mortgage Association (known as Fannie Mae), the Federal Home Loan Mortgage Corporation (known as Freddie Mac) and the Federal Housing Administration, to purchase new and existing
"jumbo" residential mortgage loans originated after June 30, 2007. The legislation has taken effect and sets higher loan limits for each Standard Metropolitan Statistical Area, based on average
housing prices, and increases the current limit on conforming loans which can be purchased by Fannie Mae and Freddie Mac to up to $729,750 from its prior

F-22

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Table of Contents

maximum
of $417,000. The intent of the higher limits is to provide increased liquidity to the secondary market for "jumbo" residential loans, particularly on residential properties in a number of
counties in the State of California where housing prices remain relatively high. To date, the impact in the marketplace has been minimal due to pricing and underwriting factors, but that could change
over time, especially if the increase becomes permanent. Improved pricing and more flexible underwriting could result in an increased rate of loan originations and refinancing of loans on such
properties, including properties secured by loans made by us. The degree to which this will occur and its overall effect on our residential mortgage loan portfolio is still not clear at this time. On
September 7, 2008, Fannie Mae and Freddie Mac were placed into conservatorship by federal regulators. The long-term effect of this development on their role as major mortgage market
conduits cannot be predicted at this time.

On
July 30, 2008, former President Bush signed into law a housing bill which grants the Treasury Department broad authority to safeguard Fannie Mae and Freddie Mac and authorizes
the Federal
Housing Administration to insure up to $300 billion in refinanced mortgages. The Treasury injected $200 billion of capital into both agencies as part of the TARP relief effort. This was
done in two steps$100 billion in 2008 and another $100 billion in February 2009. In addition, on February 18, 2009, President Obama announced "The Homeowner
Affordability and Stability Plan" as part of a plan designed to help up to 7 to 9 million families restructure or refinance their mortgages to avoid foreclosure. As announced, the key
components of the Plan include refinancing for up to 4 to 5 million homeowners; a $75 billion homeowner stability initiative to reach up to 3 to 4 million at-risk
homeowners; and strengthening confidence in Fannie Mae and Freddie Mac. It cannot be predicted whether recent legislative action will result in significant improvement in financial and economic
conditions affecting the banking and mortgage industries.

On
February 23, 2009, the American Recovery and Reinvestment Act (ARRA) was signed into law, which increased the maximum conforming loan limit for mortgages originated in 2009.
The increase affects 250 counties across the United States. For the identified areas, Fannie Mae and Freddie Mac loan limits will return to their late-2008 levels, which were up to
$729,750 for one-unit properties in the continental United States. Loan limits in other areas are not changed by the legislation.

Consumer Loans

We originate consumer loans, such as auto loans and home equity loans and lines, through our branch network and Private Banking
Offices. The increase in consumer loans from December 31, 2007 was primarily in our FlexEquity line/loan product. The FlexEquity line/loan allows our customers the flexibility to manage a line
of credit with as many as four fixed rate loans under a single product. When customers convert all or a portion of their FlexEquity lines to fixed rate loans, these new loans are classified as
installment loans. As a result of the continuing decline in the overall property values in California, we have reduced our maximum loan to value limits on all second trust deed programs we offer. Our
total home equity loans and lines delinquent 30 days or more were $28.3 million at December 31, 2008, compared to $8.4 million at December 31, 2007.

Lease Financing

We offer two types of leases to our customers: direct financing leases, where the assets leased are acquired without additional
financing from other sources; and leveraged leases, where a substantial portion of the financing is provided by debt with no recourse to us. At December 31, 2008, we had leveraged leases of
$553.0 million, which were net of non-recourse debt of approximately $1.2 billion. We utilize a number of special purpose entities for our leveraged leases. These entities
serve legal and tax purposes and do not function as vehicles to shift liabilities to other parties or to deconsolidate affiliates for financial reporting purposes. As allowed by US GAAP and by
law, the gross lease receivable is offset by the qualifying
non-recourse debt. In leveraged lease transactions, the third-party lender may only look to the collateral value of the leased assets for repayment.

F-23

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Table of Contents

Cross-Border Outstandings

Our cross-border outstandings reflect certain additional economic and political risks that are not reflected in domestic outstandings.
These risks include those arising from exchange rate fluctuations and restrictions on the transfer of funds. The following table sets forth our cross-border outstandings as of December 31, 2007
and December 31, 2008 for Canada, the only country where such outstandings exceeded 1 percent of total assets. For the year ended December 31, 2006, there were no countries where
such cross-border outstandings exceeded 1 percent of total assets. The cross-border outstandings were compiled based upon category and domicile of ultimate risk and are comprised of balances
with banks, trading account assets, securities available for sale, securities purchased under resale agreements, loans, accrued interest receivable, acceptances outstanding and investments in foreign
entities. For the country shown in the table below, any significant local currency outstandings are either hedged or funded by local currency borrowings.

(Dollars in millions)

Financial
Institutions

Public
Sector
Entities

Corporations
and Other
Borrowers

Total
OutstandingsDecember 31, 2007Canada

$
6

$


$
817

$
823December 31, 2008Canada

$
111

$


$
796

$
907


Provision for Loan Losses

We recorded a provision for loan losses of $81 million and $515 million in 2007 and 2008, respectively. We recorded a
$9 million and $35 million provision for losses on off-balance sheet commitments in 2007 and 2008, respectively. The provisions for loan losses and for losses on
off-balance sheet commitments are charged to income to bring our total allowances for credit losses to a level deemed appropriate by management based on the factors discussed under
"Allowances for Credit Losses" below.

Allowances for Credit Losses



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

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



F-24

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Table of Contents

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

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

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

A
specific allowance is established in cases where management has identified significant conditions or circumstances related to a credit or a portfolio segment that management believes
indicate the probability that a loss has been incurred. This amount may be determined either by a method prescribed by SFAS No. 114 or methods that include a range of probable outcomes based
upon certain qualitative factors.

The
unallocated allowance is based on management's evaluation of conditions that are not directly reflected in the determination of the formula and specific allowances. The evaluation of
the inherent loss with respect to the conditions listed below is subject to a higher degree of uncertainty because they may not be identified with specific problem credits or portfolio segments. The
conditions evaluated in connection with the unallocated allowance may include the following, which could exist at the balance sheet date:



We
review these conditions quarterly with our senior credit officers. To the extent that any of these conditions is evidenced by a specifically identifiable problem credit or portfolio
segment as of the evaluation date, management's estimate of the effect of such conditions may be reflected as a specific allowance,

F-25

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Table of Contents

applicable
to such credit or portfolio segment. Where any of these conditions is not evidenced by a specifically identifiable problem credit or portfolio segment as of the evaluation date,
management's evaluation of the probable loss related to such condition is reflected in the unallocated allowance.

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

The
following table reflects the related allowance for loan losses allocated to a loan category at the period end and percentage of the allocation to the period end loan balance of that
loan category, as set forth in the "Loans" table on page F-21.

December 31,(Dollars in thousands)

2004

2005

2006Commercial, financial, and industrial

$
182,877


1.84
%
$
169,700


1.48
%
$
150,600


1.16
%Construction


14,843


1.31


19,800


1.37


34,600


1.59Mortgage:Residential


2,900


0.03


3,400


0.03


3,700


0.03Commercial


83,414


1.54


72,500


1.28


73,600


1.22Total mortgage


86,314


0.58


75,900


0.44


77,300


0.42Consumer:Installment


2,400


0.31


1,900


0.21


1,200


0.11Revolving lines of credit


2,400


0.15


2,000


0.12


1,800


0.13Total consumer


4,800


0.20


3,900


0.16


3,000


0.12Lease financing


27,634


4.54


17,200


2.97


6,500


1.12Total allocated allowance


316,468


1.09


286,500


0.87


272,000


0.74Unallocated


82,688





65,032





59,077Total allowance for
loan losses

$
399,156


1.37
%
$
351,532


1.06
%
$
331,077


0.90
%


F-26

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Table of Contents

Increase (Decrease)
December 31, 2008 FromDecember 31,

December 31, 2007(Dollars in thousands)

2007

2008

Amount

PercentCommercial, financial, and industrial

$
172,800


1.19
%
$
339,777


1.84
%
$
166,977


97
%Construction


57,300


2.38


139,088


5.07


81,788


143Mortgage:Residential


4,100


0.03


40,200


0.25


36,100


880Commercial


70,900


1.01


119,159


1.46


48,259


68Total mortgage


75,000


0.36


159,359


0.66


84,359


112Consumer:Installment


2,900


0.22


3,100


0.14


200


7Revolving lines of credit


3,700


0.28


23,600


1.64


19,900


538Total consumer


6,600


0.25


26,700


0.73


20,100


305Lease financing


6,100


0.93


3,800


0.59


(2,300
)

(38
)Total allocated allowance


317,800


0.77


668,724


1.35


350,924


110Unallocated


84,926





69,043





(15,883
)

(19
)Total allowance for loan losses

$
402,726


0.98
%
$
737,767


1.49
%
$
335,041


83
%




At December 31, 2006, 2007 and 2008, our total allowances for credit losses were 987 percent, 885 percent and
208 percent of total nonaccrual loans, respectively. At December 31, 2006, 2007 and 2008, our total allowances for loan losses were 792 percent, 723 percent and
178 percent of total nonaccrual loans, respectively.

In
addition, the allowances incorporate the results of measuring impaired loans as provided in SFAS No. 114 and SFAS No. 118. These accounting standards prescribe the
measurement methods, income recognition and disclosures related to impaired loans. At December 31, 2006, 2007 and 2008, total impaired loans were $27 million, $56 million and
$416 million, respectively, and the associated impairment allowances were $3 million, $11 million and $107 million, respectively.

At
December 31, 2006, 2007 and 2008, the allowance for losses on off-balance sheet commitments was $81 million, $90 million and $125 million,
respectively. Funded loans and off-balance sheet commitments are considered together when determining the adequacy of the allowances for credit losses as a whole.

As
a result of management's assessment of the relevant factors, including the credit quality of our loan portfolio, the negative impact from the economic slowdown on our lending
portfolios (especially our commercial real estate portfolio) and the significant growth and changes in the composition of the loan portfolio, we recorded a provision for loan losses of
$515 million in 2008, compared to $81 million in 2007. Overall, our loan portfolio experienced higher criticized assets and increases in certain loss factors related to our consumer and
small business portfolios, reflecting the continued deterioration in the economic environment. In addition, we experienced strong loan growth, which resulted in additional provision during 2008.

During
2006, 2007 and 2008, there were no material changes in estimation methods or assumptions that affected our methodology for assessing the appropriateness of the formula and
specific or unallocated allowances for credit losses, except for the refinement in estimates and assumptions regarding the effects of

F-27

---



Table of Contents

economic
and business conditions on borrowers and other factors, which affected the assessment of the unallocated allowance.

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

December 31,

Increase (Decrease)
December 31, 2008 From
December 31, 2007(Dollars in millions)

2006

2007

2008

Amount

PercentAllocated allowance:Formula

$
347

$
395

$
682

$
287


73
%Specific


6


12


112


100


833Total allocated allowance


353


407


794


387


95Unallocated allowance


59


86


69


(17
)

(20
)Total allowances for credit losses

$
412

$
493

$
863

$
370


75
%




The increase in the formula allowance from December 31, 2007 was primarily due to the impact of an increase in criticized
credits (as defined below), including those increases related to the deterioration in business conditions for the homebuilder industry and other industries impacted by the economic slowdown, and
higher loss factors in the portfolio.

The
specific allowance increase from December 31, 2007 to December 31, 2008 was primarily reflective of an increase in nonaccrual loans and the amount of loss inherent in
these loans, partly offset by an $8 million adjustment for impaired loans related to our privatization. At December 31, 2007, the specific allowance increased from December 31,
2006, primarily reflective of an increase in nonaccrual loans and the amount of loss inherent in the exposure.

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

At
December 31, 2008, the allocated portion of the allowances for credit losses included $408 million related to special mention and classified credits (criticized
credits), compared to $124 million at December 31, 2007 and $58 million at December 31, 2006. Special mention and classified credits are those that are internally risk
graded as "special mention," "substandard" or "doubtful." Special mention credits are potentially weak, as the borrower has begun to exhibit deteriorating trends, which, if not corrected, could
jeopardize repayment of the loan and result in further downgrade. Substandard credits have well-defined weaknesses, which, if not corrected, could jeopardize the full satisfaction of the
debt. A credit classified as "doubtful" has critical weaknesses that make full collection improbable.

F-28

---



Table of Contents



The following table identifies the components of the unallocated allowance and the range of inherent loss.

December 31,(Dollars in millions)

2006

2007

2008Concentration

Commitments(1)

Low

High

Commitments(1)

Low

High

Commitments(1)

Low

HighCommercial Real Estate

$
10,183

$
8

$
20

$
11,848

$
30

$
54

$
12,838

$
25

$
38Fuel Prices


48,264


3


14


54,250


3


12








Petroleum, Exploration and Development




















4,403


2


5Concentrated Sales


2,301


7


12


2,086


7


12


1,776


5


8Contractors


844


5


7


1,021


5


7


1,034


1


3Building/Material/Supplies











499


3


6


469


7


12Advertising Dependent


1,059


2


4


879


2


4


767


4


7Retail


2,416


1


2


2,571


1


2


2,596


2


4Leasing


591


3


6

















Total Attributed




$
29

$
65




$
51

$
97




$
46

$
77


---

At December 31, 2008, the unallocated allowance decreased from December 31, 2007. The reasons for this decrease, and for which an
unallocated allowance was warranted, follow.

In
our assessment as of December 31, 2008, 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 on us will not be in excess of the ranges set forth.

Although
in certain instances the downgrading of a loan resulting from the effects of the conditions described below has been reflected in the formula allowance, management believes that
the impact of these events on the collectibility of the applicable loans may not have been fully reflected in the level of nonperforming loans or in the internal risk grading process with respect to
such loans. In addition, our formula allowance does not take into consideration sector-specific changes in the severity of losses that are expected to arise from current economic conditions compared
with our historical losses. Accordingly, our evaluation of the probable losses related to the impact of these factors was reflected in the unallocated allowance. The evaluations of the inherent losses
with respect to these factors are subject to higher degrees of uncertainty because they are not identified with specific problem credits.

In
certain cases, we believe that credit migration is likely to be somewhat more severe than the long-run average, but a greater share of the inherent probable loss
associated with this credit migration is captured in the allocated allowance. The following describes the specific conditions we considered.



F-29

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Table of Contents



At
December 31, 2007, the unallocated allowance increased from December 31, 2006. The reasons for this increase, and for which an unallocated allowance was warranted,
follow.



F-30

---







Table of Contents



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

Increase (Decrease)
December 31, 2008 From:Years Ended December 31,

December 31, 2007(Dollars in thousands)

2004

2005

2006

2007

2008

Amount

PercentBalance, beginning of period

$
463,010

$
399,156

$
351,532

$
331,077

$
402,726

$
71,649


22
%Loans charged off:Commercial, financial and industrial


70,107


19,962


36,520


12,177


118,780


106,603


nmConstruction


765


118








31,903


31,903


nmMortgage


43


2,071


336


92


7,911


7,819


nmConsumer


6,397


4,532


3,777


6,335


18,688


12,353


nmLease financing


2,361


19,862


22











Total loans charged off


79,673


46,545


40,655


18,604


177,282


158,678


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


50,432


47,526


19,135


6,953


5,358


(1,595
)

(23
)Construction


118


34








631


631


nmMortgage


1,702


73


73


336


20


(316
)

(94
)Consumer


1,971


1,716


1,513


1,082


1,099


17


2Lease financing


1,374


206


4,486


118


213


95


81Total recoveries of loans previously charged off


55,597


49,555


25,207


8,489


7,321


(1,168
)

(14
)Net loans charged off (recovered)


24,076


(3,010
)

15,448


10,115


169,961


159,846


nm(Reversal of) provision for loan losses


(58,232
)

(50,683
)

(5,000
)

81,000


515,000


434,000


536Privatizationadjustment for impaired loans














(8,417
)

(8,417
)

nmForeign translation adjustment and other net additions (deductions)(1)


18,454


49


(7
)

764


(1,581
)

(2,345
)

nmEnding balance of allowance for loan losses

$
399,156

$
351,532

$
331,077

$
402,726

$
737,767

$
335,041


83Allowance for losses on off-balance sheet commitments


82,375


86,375


81,374


90,374


125,374


35,000


39Allowances for credit losses

$
481,531

$
437,907

$
412,451

$
493,100

$
863,141

$
370,041


75Allowances for loan losses to total loans(2)


1.37
%

1.06
%

0.90
%

0.98
%

1.49
%Allowances for credit losses to total loans(3)


1.65


1.32


1.12


1.20


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


(241.87
)

nm


(32.37
)

800.79


303.01Net loans charged off (recovered) to average total loans


0.09


(0.01
)

0.04


0.03


0.37


---

nm - not meaningful

F-31

---



Table of Contents

Total loans charged off in 2008 increased from the prior year primarily as a result of housing and recession impacts on homebuilder, petroleum and
advertising dependent loans. Charge offs reflect the realization of losses in the portfolio that were recognized previously through provisions for credit losses.

Loan
recoveries in 2008 decreased slightly from 2007. Fluctuations in loan recoveries from year-to-year are due to variability in timing of recoveries and tend to
trail the periods in which charge offs are recorded.

Nonperforming Assets

Nonperforming assets consist of nonaccrual loans, restructured loans and foreclosed assets. Nonaccrual loans are those for which
management has discontinued accrual of interest because there exists significant uncertainty as to the full and timely collection of either principal or interest or such loans have become
contractually past due 90 days with respect to principal or interest. Effective on January 1, 2009, consumer loans and one-to-four family residential loans will
be placed on nonaccrual when these loans are delinquent 90 days or more. For a more detailed discussion of the accounting for nonaccrual loans, see Note 1 to our Consolidated Financial
Statements included in this Form 10-K Report.

Restructured
loans are loans in which the Bank has formally restructured all or a significant portion of the loan and provided a concession in the form of debt forgiveness, a
modification of interest rate and/or payment terms. The impairment (the shortfall between the present value of the loan under modified terms and the carrying value) is normally recorded in noninterest
expense at the date of restructuring. Restructured loans are disclosed as nonperforming assets for the calendar year of restructuring, and, if in current status during this period, may be disclosed as
performing assets thereafter.

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

F-32

---



Table of Contents

The
following table sets forth an analysis of nonperforming assets.

December 31,

Increase (Decrease)
December 31, 2008 From
December 31, 2007(Dollars in thousands)

2004

2005

2006

2007

2008

Amount

PercentCommercial, financial and industrial

$
58,538

$
50,073

$
7,552

$
29,293

$
260,272

$
230,979


nm
%Construction


2,622








13,662


98,934


85,272


nmMortgageCommercial


26,519


8,819


19,187


12,775


55,750


42,975


nmLease financing


54,894





15,047











Total nonaccrual loans


142,573


58,892


41,786


55,730


414,956


359,226


nmRestructured LoansMortgageResidential














1,345


1,345


nmForeclosed assets


7,282


2,753


579


795


20,214


19,419


nmTotal nonperforming assets

$
149,855

$
61,645

$
42,365

$
56,525

$
436,515

$
379,990


nm
%Allowances for loan losses

$
399,156

$
351,532

$
331,077

$
402,726

$
737,767

$
335,041


83.2
%Allowances for credit losses

$
481,531

$
437,907

$
412,451

$
493,100

$
863,141

$
370,041


75.0
%Nonaccrual loans to total loans


0.49
%

0.18
%

0.11
%

0.14
%

0.84
%Allowance for loan losses to nonaccrual loans(1)


279.97


596.91


792.32


722.64


177.79Allowances for credit losses to nonaccrual loans(2)


337.74


743.58


987.06


884.80


208.01Nonperforming assets to total loans, distressed loans held for sale, and foreclosed assets


0.51


0.19


0.12


0.14


0.88Nonperforming assets to total assets


0.31


0.12


0.08


0.10


0.62


---

nm - not meaningful

The increase in nonaccrual loans from December 31, 2007 to December 31, 2008 was primarily due to an increase in commercial and
construction loans (primarily related to our homebuilder loan portfolio), partially offset by loan pay downs and charge offs. At December 31, 2008, we had three restructured residential loans
totaling $1.3 million for which we recorded a $0.1 million impairment charge. During 2008, we sold approximately $4 million of nonperforming loans compared to approximately
$3 million in 2007, which reduced our credit exposures. Losses from these sales were reflected in charge offs.

F-33

---



Table of Contents

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

December 31,

Increase (Decrease) December 31, 2008 From
December 31, 2007(Dollars in thousands)

2004

2005

2006

2007

2008

Amount

PercentCommercial, financial and industrial

$
1,315

$
187

$
3,085

$
3,797

$
2,529

$
(1,268
)

(33.4
)%Construction





677














Mortgage:Residential


1,385


2,784


2,359


13,359


59,940


46,581


nmCommercial





499


2,155





181


181


nmTotal mortgage


1,385


3,283


4,514


13,359


60,121


46,762


nmConsumer and other


1,157


819


1,706


2,982


8,097


5,115


nmTotal loans 90 days or more past due and still accruing

$
3,857

$
4,966

$
9,305

$
20,138

$
70,747

$
50,609


nm
%


---

nm - not meaningful

Residential mortgage loans contractually past due 90 days or more at December 31, 2008 included $43.9 million of loans in
foreclosure with an average current loan-to-value ratio of 89 percent.

Interest Foregone

If interest that was due on the book balances of all nonaccrual and restructured loans (including loans that were, but are no longer,
on nonaccrual) had been accrued under their original terms, we would have recognized an additional $21.5 million of interest income in 2008.

After
designation as a nonaccrual loan, we recognized interest income on a cash basis of $3.9 million and $4.3 million for loans that were on nonaccrual status at
December 31, 2007 and 2008, respectively.

Securities

Management of the securities portfolio involves the maximization of return while maintaining prudent levels of quality, market risk and
liquidity. At December 31, 2008, approximately 98 percent of our securities, based upon carrying value, were investment grade. The amortized cost, gross unrealized gains, gross
unrealized losses and fair values of securities are detailed in Note 3 to our Consolidated Financial Statements included in this Form 10-K Report.

Our
securities available for sale are recorded at fair value with the change in fair value recognized in accumulated other comprehensive income. The two largest components of our
securities available for sale are $6.8 billion for Asset and Liability Management (ALM) purposes and $1.2 billion of CLOs. ALM securities are valued at fair value by a pricing service
whose prices can be corroborated by recent security trading activities.

All
of our CLO securities are known as "Cash Flow CLOs." A Cash Flow CLO is a structured finance product that securitizes a diversified pool of loan assets into multiple classes of notes
from the cash flows generated by such loans. Cash Flow CLOs repay the note holders through the receipt of interest and principal repayments from the underlying loans unlike other types of CLOs that
repay note holders through the trading and sale of underlying collateral. At December 31, 2008, the fair value of our CLO securities had declined by approximately $563.3 million from
December 31, 2007, primarily due to widening credit spreads and a general lack of liquidity in the marketplace, precipitated by the subprime lending crisis. Previously, CLOs were valued solely
using broker quotes that were derived from pricing models whose assumptions were based on observable inputs adjusted for unobservable liquidity spreads. Beginning in the fourth quarter of 2008, we
estimate the fair value of our CLOs using an external pricing model, as well as broker quotes. The model is

F-34

---



Table of Contents

based
on internally-developed assumptions, utilizing market data derived from market participants and credit rating agencies. These assumptions include, but are not limited to, estimated default
rates, recovery rates, prepayment rates and reinvestment rates. At December 31, 2008, 98.0 percent of our CLO securities were rated single-A or better by two of the three
major rating agencies. Since no observable credit quality issues were present in our CLO portfolio at December 31, 2008, and we have the ability and intent to hold the CLO securities until
recovery of the carrying value, which could be maturity, we consider the unrealized loss to be temporary.

Analysis of Securities Available for Sale

The following table shows the remaining contractual maturities and expected yields of the securities available for sale based upon
amortized cost at December 31, 2008. The fair value of our securities available for sale portfolio at December 31, 2007 was $8.5 billion, compared to $8.2 billion at
December 31, 2008.

Included
in our securities available for sale portfolios at December 31, 2007 and 2008 were securities used for ALM purposes of $6.6 billion and $6.8 billion,
respectively. These securities had an expected weighted average maturity of 3.0 years and 2.9 years, respectively.

Securities Available For Sale

December 31, 2008
MaturityOne Year
or Less

Over One Year
Through
Five Years

Over Five Years
Through
Ten Years

Over
Ten Years

Total
Amortized Cost(Dollars in thousands)

Amount

Yield

Amount

Yield

Amount

Yield

Amount

Yield

Amount

YieldU.S. Treasury

$




%
$




%
$




%
$




%
$




%Other U.S. government


288,081


4.83


472,919


4.09














761,000


4.37Mortgage-backed securities(1)(2)


645


4.79


232,890


3.91


1,516,642


3.97


4,260,683


4.88


6,010,860


4.61State and municipal


1,050


7.42


13,373


6.87


15,111


3.29


23,215


5.10


52,749


5.08Asset-backed and debt securities








31,167


7.24


1,115,364


4.02


690,756


4.44


1,837,287


4.23Equity securities(3)


























109,919


Foreign securities


82


1.58




















82


1.58Total securitiesavailable for sale

$
289,858


4.84
%
$
750,349


4.21
%
$
2,647,117


3.99
%
$
4,974,654


4.82
%
$
8,771,897


4.46
%


---

F-35

---



Table of Contents

Loan Maturities

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

December 31, 2008(Dollars in thousands)

One Year
or Less

Over One Year
Through
Five Years

Over
Five Years

TotalCommercial, financial and industrial

$
4,575,242

$
11,703,346

$
2,190,435

$
18,469,023Construction


1,473,683


1,248,378


22,001


2,744,062Mortgage:Residential


130


14,428


15,866,277


15,880,835Commercial


610,348


2,135,794


5,440,246


8,186,388Total mortgage


610,478


2,150,222


21,306,523


24,067,223Consumer:Installment


4,988


64,003


2,132,611


2,201,602Revolving lines of credit


1,285,535


144,544


5,415


1,435,494Total consumer


1,290,523


208,547


2,138,026


3,637,096Lease financing


5,479


63,691


576,595


645,765Total loans held to maturity


7,955,405


15,374,184


26,233,580


49,563,169Total loans held for sale


18,865





3,516


22,381Total loans

$
7,974,270

$
15,374,184

$
26,237,096

$
49,585,550Allowance for loan losses











737,767Loans, net










$
48,847,783Total fixed rate loans due after one year










$
9,388,047Total variable rate loans due after one year











32,223,233Total loans due after one year










$
41,611,280


Time Deposits of $100,000 and Over

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

(Dollars in thousands)

December 31, 2008Three months or less

$
4,696,100Over three months through six months


958,788Over six months through twelve months


639,818Over twelve months


59,469Total domestic time deposits of $100,000 and over

$
6,354,175


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

F-36

---





Table of Contents

Borrowed Funds

The following table presents information on our borrowed funds.

December 31,(Dollars in thousands)

2006

2007

2008Federal funds purchased and securities sold under repurchase agreements with weighted average interest rates of 5.18%, 4.29% and 0.53% at December 31,
2006, 2007 and 2008, respectively(1)

$
1,083,927

$
1,631,602

$
172,758Commercial paper, with weighted average interest rates of 4.99%, 4.25%, and 1.48% at December 31, 2006, 2007 and 2008, respectively


1,661,163


1,266,656


1,164,327Other borrowed funds:Federal Home Loan Bank borrowings, with weighted average interest rates of 6.77%, 4.52% and 2.22% at December 31, 2006, 2007 and 2008,
respectively


1,000


949,000


1,850,000Term federal funds purchased, with weighted average interest rates of 5.37%, 4.79% and 2.60% at December 31, 2006, 2007 and 2008,
respectively


351,700


805,970


1,230,060Federal Reserve Bank Term borrowings, with weighted average interest rate of 0.79% at December 31, 2008








5,000,000All other borrowed funds, with weighted average interest rates of 4.16%, 5.24% and 5.42% at December 31, 2006, 2007 and 2008, respectively


75,861


120,649


116,537Total borrowed funds

$
3,173,651

$
4,773,877

$
9,533,682Federal funds purchased and securities sold under repurchase agreements:Maximum outstanding at any month end

$
1,083,927

$
1,823,872

$
4,946,587Average balance during the year


701,614


1,142,487


2,137,718Weighted average interest rate during the year(1)


4.80
%

4.93
%

2.20
%Commercial paper:Maximum outstanding at any month end

$
1,859,747

$
1,875,647

$
1,699,440Average balance during the year


1,582,226


1,549,681


1,319,360Weighted average interest rate during the year


4.74
%

4.92
%

2.41
%Other borrowed funds:Federal Home Loan Bank borrowings:Maximum outstanding at any month end

$
5,800

$
949,000

$
2,600,000Average balance during the year


2,657


35,312


1,492,456Weighted average interest rate during the year


8.05
%

4.59
%

2.76
%Term federal funds purchased:Maximum outstanding at any month end

$
703,310

$
2,005,340

$
1,723,839Average balance during the year


217,646


716,115


882,652Weighted average interest rate during the year


5.28
%

5.25
%

2.84
%Federal Reserve Bank Term Borrowings:Maximum outstanding at any month end

$


$


$
5,000,000Average balance during the year








1,925,833Weighted average interest rate during the year



%


%

1.79
%All other borrowed funds:Maximum outstanding at any month end

$
114,794

$
120,649

$
321,012Average balance during the year


68,154


61,627


124,494Weighted average interest rate during the year


4.96
%

5.96
%

5.59
%


---

F-37

---



Table of Contents

Capital Adequacy, Dividends and Share Repurchases



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

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

Our
primary source of capital is income generated by our operations. In December 2008, we received a $1.0 billion capital contribution from BTMU, in part to offset the impact of
the privatization transaction on our capital. As a foreign-owned entity, we are not eligible to receive TARP capital from the U.S. Treasury. Nonetheless, we have maintained a strong capital position,
including a tangible common equity ratio substantially higher than peer averages.

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

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



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

December 31,Minimum
Regulatory
Requirement(Dollars in thousands)

2004

2005

2006

2007

2008Capital ComponentsTier 1 capital

$
3,817,698

$
4,178,160

$
4,333,865

$
4,533,763

$
5,466,713Tier 2 capital


968,294


876,713


1,509,338


1,590,160


1,773,391Total risk-based capital

$
4,785,992

$
5,054,873

$
5,843,203

$
6,123,923

$
7,240,104Risk-weighted assets

$
39,324,859

$
45,540,448

$
49,904,203

$
54,606,527

$
62,251,071Quarterly average assets

$
47,168,683

$
49,789,877

$
51,353,681

$
54,843,792

$
64,917,854Capital RatiosTotal risk-based capital


12.17
%

11.10
%

11.71
%

11.21
%

11.63
%

8.0
%Tier 1 risk-based capital


9.71


9.17


8.68


8.30


8.78


4.0Leverage ratio(1)


8.09


8.39


8.44


8.27


8.42


4.0


---

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

F-38

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Table of Contents

The
increase in our capital ratios from December 31, 2007 was primarily due to an increase in total risk-based capital, which resulted from the BTMU capital
contribution and our net income,
less dividends (prior to our privatization), partially offset by an increase in our risk-weighted assets stemming from growth in our loan portfolio.

As
of December 31, 2008, the most recent notification from the OCC categorized the Bank as "well-capitalized." This means that the Bank met all regulatory requirements
of "well-capitalized" institutions, which are 10 percent for the Total risk-based capital ratio, 6 percent for the Tier 1 risk-based capital
ratio and 5 percent for the Leverage ratio.

Quantitative and Qualitative Disclosures About Market Risk

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

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

In
an effort to ensure that the Bank has an effective process to identify, measure, monitor and manage market risk, the ALM Policy requires the Bank to establish an Asset Liability
Management Committee (ALCO), which is comprised of the members of the CEO Forum and the Treasurer. ALCO provides the broad and strategic guidance of market risk management by formulating
high-level strategies for market risk management and defining the risk/return direction for the Bank, and by approving the investment, derivatives and trading policies that govern the
Bank's activities. ALCO is also responsible for the ongoing management of market risk and approves specific risk management programs, including those related to interest rate hedging, investment
securities, wholesale funding and trading activities.

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

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



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

F-39

---



Table of Contents

an
adjusted ("Economic") and an unadjusted ("Accounting") basis over various time horizons and in response to a variety of interest rate changes.

Our
NII policy measure involves a simulation of "Earnings-at-Risk" (EaR) in which we estimate the impact that gradual, ramped-on parallel shifts in
the yield curve would have on earnings over a 12-month horizon, given our projected balance sheet profile. We measure and monitor our interest rate risk profile using two calculations of
EaR: Accounting NII-at-Risk and Economic NII-at-Risk, the latter adjusted for the noninterest items described above. Under the policy limits, the
negative change in simulated Economic NII in either the up or down 200 basis point shock scenarios may not, except on a temporary basis, exceed 4 percent of Economic NII as measured in the no
interest rate change base case scenario.

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

The
interest rate risk profile was liability sensitive during 2008 and it became neutral for rising rates and asset sensitive for falling rates towards the end of 2008 primarily as a
result of the termination or maturities of ALM derivative floors and swaps, and unprecedented low level of interest rates causing deposit offered rates to reach their floors. During 2008, we added
$500 million of interest rate floor hedges to maintain the Bank's liability sensitive interest rate risk profile (see discussion of "ALM Derivatives" below).

At
December 31, 2008, Economic NII sensitivity was neutral to asset sensitive to parallel rate shifts. A +200 basis point parallel shift would increase 12-month
Economic NII by 0.01 percent, while a similar downward shift would reduce it by 1.75 percent. At December 31, 2007, a +200 basis point parallel shift would reduce
12-month Economic NII by 0.93 percent, while a similar downward shift would increase it by 1.87 percent. We caution that ongoing enhancements to our interest rate risk
modeling and the unprecedented changes in the level of interest rates may make prior-year comparisons of Economic NII less meaningful. Economic NII adjusts our reported NII for the effect
of certain noninterest bearing deposit related fee and expense items. Those adjustment items are innately liability sensitive, meaning that reported NII is less liability sensitive than Economic NII.

Economic NII

(Dollars in millions)

December 31,
2007

December 31,
2008+200 basis points

$
(17.4
)
$
0.2as a percentage of base case NII


(0.93
)%

0.01
%-200 basis points

$
35.2

$
(40.8
)as a percentage of base case NII


1.87
%

(1.75
)%


The above table is presented on a continuing operations basis, with all assets and liabilities associated with the insurance brokerage business
eliminated for December 31, 2008 and all assets and liabilities of the retirement recordkeeping business eliminated for December 31, 2007 and 2008. We believe that this approach provides
the best representation of our risk profiles.

In
the case of non-parallel yield curve changes, our Economic NII is liability sensitive to changes in short-term rates (with long-term rates held
constant) and asset sensitive to changes in long-term rates (with short-term rates held constant). In other words, our Economic NII will benefit from curve steepening with
short-term rates dropping and will contract if the curve is inverted with long-term rates dropping.

In
addition to EaR, we measure the sensitivity of EVE to interest rate shocks. EVE-at-Risk is reviewed and monitored for its compliance with ALCO guidelines. Our
EVE-at-Risk at December 31, 2008, reflects a

F-40

---



Table of Contents

moderate
but higher risk exposure to rising rates than December 31, 2007. Additionally, our EVE-at-Risk shows minimal risk exposure to falling rates.

We
believe that, together, our NII and EVE simulations provide management with a reasonably comprehensive view of the sensitivity of our operating results and value profile to changes in
interest rates, at least over the measurement horizon. However, as with any financial model, the underlying assumptions are inherently uncertain and subject to refinement as modeling techniques and
theory improve and historical data becomes more readily accessible. Consequently, our simulation models cannot predict with certainty how rising or falling interest rates might impact net interest
income. Actual and simulated results will differ to the extent there are variances between actual and assumed interest rate changes, balance sheet volumes and management strategies, among other
factors. Key underlying assumptions include prepayment speeds on mortgage-related assets, changes in market conditions, loan volume and pricing, deposit volume and price sensitivity, customer
preferences and cash flows and maturities of derivative financial instruments.



During 2008, the Bank maintained a liability sensitive interest rate risk profile to stay protected from falling rates. The termination
or maturity of ALM derivatives floors and swaps along with the unprecedented low level of interest rates towards the end of 2008 resulted in the interest rate risk profile shift from liability
sensitive to asset sensitive at year end. The remaining ALM derivatives portfolio should continue to protect the Bank should interest rates stay low in the near term. In managing the interest rate
sensitivity of our balance sheet, we use the ALM investment securities portfolio and derivatives positions as the primary tools to adjust our interest rate risk profile, if necessary. During 2008, we
reinvested proceeds from maturing ALM securities into securities with similar terms and asset allocation. New derivative hedges were also added during the year as described below.



At December 31, 2007 and 2008, our available for sale securities portfolio included $6.6 billion and $6.8 billion,
respectively, of securities for ALM purposes. At December 31, 2008, approximately $5.9 billion of the portfolio was pledged to secure trust and public deposits and for other purposes as
required or permitted by law. During 2008, we purchased $1.8 billion par value of securities, while approximately $1.6 billion par value of ALM securities matured or were called.

The
composition of the portfolio is expected to remain relatively stable in 2009. Based on current prepayment projections, the estimated ALM portfolio's effective duration was 2.4 at
December 31, 2008, compared to 1.9 at December 31, 2007. Effective duration is a measure of price sensitivity of a bond portfolio to immediate parallel shifts in interest rates. An
effective duration of 2.4 suggests an expected price decrease of approximately 2.4 percent for an immediate 1.0 percent parallel increase in interest rates.



During 2008, the ALM derivatives portfolio decreased by $3.9 billion notional amount due to maturities of $1.8 billion
and terminations of $2.6 billion notional amount of receive fixed interest rate swaps and floors, partially offset by $0.5 billion notional amount of LIBOR floor contracts that were
purchased to maintain the downside liability sensitivity of our overall risk position.

The
fair value of the ALM derivative contracts increased primarily due to the Federal Reserve Board's interest rate reductions, the expectation of lower future interest rates and higher
volatility in interest rates slightly offset by maturities and terminations of interest rate swaps and floor option contracts. For additional discussion of derivative instruments and our hedging
strategies, see Note 19 to our Consolidated Financial Statements included in this Form 10-K Report.

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Table of Contents

The following table provides the notional value and the fair value of our ALM derivatives portfolio as of December 31, 2006, 2007 and 2008.

December 31,Increase / (Decrease)
From December 31, 2007
to December 31, 2008(Dollars in thousands)

2006

2007

2008Total gross notional amount of positions held for purposes other than trading:

$
8,250,000

$
9,250,000

$
5,400,000

$
(3,850,000
)Of which, interest rate swaps pay fixed rates of interest:











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


44,720


148,036


317,569


169,533Gross negative fair value


37,682


2,015





(2,015
)Positive Fair value of positions, net

$
7,038

$
146,021

$
317,569

$
171,548




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

We
believe that the risks associated with these positions are conservatively managed. We utilize a combination of position limits Value-at-Risk (VaR), and
stop-loss limits, applied at an aggregated level and to various sub-components within those limits. MRM compiles daily reports for broad distribution on positions and realized
and unrealized gains or losses. Summary versions of these reports go to senior management on a daily or weekly basis and to the Market Risk Committee on a monthly basis. Positions are controlled and
reported both in notional and VaR terms. Our calculation of VaR estimates how high the loss in fair value might be, at a 99 percent confidence level, due to an adverse shift in market prices
over a period of ten business days. VaR at the trading activity level is managed within limits well below the maximum limit established by Board policy for total trading positions at
0.5 percent of stockholder's equity. The VaR model incorporates assumptions on key parameters, including holding period and historical volatility.

The
following table sets forth the average, high and low 10-day, 99 percent VaR for our trading activities for the years ended December 31, 2007 and 2008.

December 31,2007

2008(Dollars in thousands)

Average
VaR

High
VaR

Low
VaR

Average
VaR

High
VaR

Low
VaRForeign exchange

$
248

$
706

$
79

$
307

$
720

$
105Securities


578


1,161


112


285


788


1Interest Rate Derivates











517


2,147


44


Consistent with our business strategy of focusing on the sale of capital markets products to customers, we manage our trading risk exposures at
relatively low levels. Our foreign exchange business continues to derive the majority of its revenue from customer-related transactions. We take interbank trading positions only on a

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limited
basis and we do not take any large or long-term strategic positions in the market for our own portfolio. Similarly, we continue to generate most of our securities trading income
from customer-related transactions.

As
of December 31, 2008, we had $20.4 billion notional amount of interest rate derivative contracts. We enter into these agreements for customer accommodations and for our
own account, accepting risks up to management approved VaR levels. Prior to 2008, we only entered into interest rate derivative contracts as an accommodation to customers and neutralized substantially
all of the related market risk by entering into offsetting contracts with major dealers.

As
of December 31, 2008, we had $7.1 billion notional amount of foreign exchange derivative contracts. We enter into these agreements for customer accommodations to support
their hedging and operating needs and for our own account, accepting risks up to management approved VaR levels.

We
market energy derivative contracts to existing energy industry customers, primarily oil and gas producers, in order to meet their hedging needs. All transactions are fully matched to
remove our exposure to market risk, with income earned on the credit spread. As of December 31, 2008, we had $3.8 billion notional amount of energy derivative contracts with
approximately half of these energy derivative contracts entered into as an accommodation for customers and the remaining half entered into as matching contracts to remove our exposure to market risk
on our customer accommodation transactions.

The
following table provides the notional value and the fair value of our trading derivatives portfolio as of December 31, 2006, 2007 and 2008 and the change in fair value between
December 31, 2007 and 2008.

December 31,Increase / (Decrease)
From December 31, 2007
to December 31, 2008(Dollars in thousands)

2006

2007

2008Total gross notional amount of positions held for trading purposes:Interest rate

$
10,135,471

$
12,585,978

$
20,398,695

$
7,812,717Foreign exchange


1,914,846


4,665,760


7,112,873


2,447,113Equity








10,914


10,914Energy


3,291,224


2,900,690


3,757,674


856,984Total

$
15,341,541

$
20,152,428

$
31,280,156

$
11,127,728Fair value of positions held for trading purposes:Gross positive fair value

$
283,577

$
405,710

$
1,166,547

$
760,837Gross negative fair value


266,148


380,313


1,137,724


757,411Positive fair value of positions, net

$
17,429

$
25,397

$
28,823

$
3,426


Liquidity Risk

Liquidity risk is the undue risk to the Bank's earnings and capital, which would result from the Bank's inability to meet its
obligations as they come due without incurring unacceptable costs. The management of liquidity risk is governed by the ALM Policy under the oversight of ALCO. The Treasurer is responsible for
operational management of liquidity through the funding and investment functions of Corporate Treasury. ALCO also maintains a Liquidity Contingency Plan that identifies actions to be taken to ensure
adequate liquidity if an event should occur that disrupts or adversely affects the Bank's normal funding activities.

Liquidity
is managed using a total balance sheet perspective that analyzes both funding capacity available through increased liabilities and liquidation of assets relative to projected
demands for liquidity. The primary sources of liquidity are core deposits, asset liquidation, including securities sold under repurchase agreements,

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and
wholesale funding, which includes funds raised from interbank and other sources, both domestic and international. We maintain borrowing capacity in excess of our wholesale funding requirements to
meet our contingency funding needs.

Core
deposits provide us with a sizable source of relatively stable and low-cost funds. Our $32.8 billion in average core deposits, which includes demand deposits,
money market demand accounts, savings and consumer time deposits, combined with average common stockholder's equity, funded 62.3 percent of average total assets of $60.9 billion in 2008.
Most of the remaining funding was provided by wholesale borrowings from secured and unsecured sources of varying maturities.

The
Bank has pledged collateral under secured borrowing facilities with the Federal Home Loan Bank of San Francisco (FHLB) and the Federal Reserve Bank of San Francisco (FRB). The Bank
increased its reliance on secured funding during 2008 due to rate advantages compared to other financing sources. As of December 31, 2008, the Bank had $4.1 billion of borrowing
outstanding with the FHLB, of which $1.9 billion is short-term and included in Other Borrowed Funds. As of December 31,
2008, the Bank had $5.0 billion in short-term borrowing outstanding with the FRB under the Term Auction Facility program, which provides access to short-term funds at
generally favorable rates. As of December 31, 2008, the Bank had remaining unused borrowing capacity totaling a combined $18.2 billion from the FHLB and the FRB. The Bank has the
capability to pledge additional portions of its unencumbered loan and securities portfolios to the FHLB and the FRB, which would increase the Bank's borrowing capacity.

Our
securities portfolio provides additional enhancement to our liquidity position, which may be created through either securities sales or repurchase agreements. At December 31,
2008, we could have sold or transferred under repurchase agreements approximately $1.5 billion of our available for sale securities. Liquidity may also be provided by the sale or maturity of
other assets such as interest-bearing deposits in banks, federal funds sold and trading account assets. The aggregate balance of these assets averaged $1.2 billion in 2008. Additional liquidity
may be provided through loan maturities and sales.

The
Bank has a $4 billion unsecured Bank Note Program. As of December 31, 2008, the remaining available funding under the Bank Note Program was $2.6 billion. We do
not have firm commitments in place to sell securities under the Bank Note Program.

On
October 14, 2008, the FDIC announced the establishment of a debt guarantee program under which the FDIC will guarantee newly issued senior unsecured debt of participating
financial institutions and their qualifying holding companies. UnionBanCal and Union Bank are eligible to participate in this program and have elected to do so.

We
believe that these sources, in addition to our core deposit and equity capital, provide a stable funding base. Management does not rely on any one source of liquidity and manages
availability in response to changing balance sheet needs. The costs and ability to raise funds are influenced by our credit ratings. The following table provides our credit ratings as of
December 31, 2008.

Union Bank, N.A.

UnionBanCal
CorporationStandard & Poor's

Long-term

A+

AShort-term

A-1

A-1Moody's

Long-term

Aa3

Short-term

P-1

Fitch

Long-term

A+

A+Short-term

F1

F1DBRS

Long-term

A (high)

AShort-term

R-1 (middle)

R-1 (low)


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Off-Balance Sheet Arrangements and Aggregate Contractual Obligations and Commitments

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

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

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

The
following table presents, as of December 31, 2008, our significant and determinable contractual obligations by payment date, except for obligations under our pension and
postretirement plans, which are included in Note 9 to our Consolidated Financial Statements included in this Form 10-K Report, and accrued interest payable, which is not
significant. The payment amounts represent those amounts contractually due to the recipient and do not include any unamortized premiums or discounts, hedge basis adjustment or other similar carrying
value adjustments. Contractual obligations presented in the following table do not include $191.0 million of unrecognized income tax benefits in accordance with FIN 48. Of this amount,
$90.9 million has been paid in prior years and $96.9 million is expected to be paid in 2009. At this time it is highly uncertain whether and when we would be required to pay the
remaining $3.2 million of unrecognized tax benefits.

December 31, 2008(Dollars in thousands)

One Year
or less

Over
One Year
through
Three Years

Over
Three Years
through
Five Years

Over Five
Years

TotalTime deposits

$
10,171,602

$
186,574

$
125,336

$
2,161

$
10,485,673Medium- and long-term debt(1)


1,250,000


1,776,000


400,000


700,000


4,126,000Junior subordinated debt payable to subsidiary grantor trust(1)











13,000


13,000Operating leases (premises)


60,687


115,048


97,953


240,628


514,316Purchase obligations


26,554


15,327


1,604





43,485Total debt and operating leases

$
11,508,843

$
2,092,949

$
624,893

$
955,789

$
15,182,474


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Table of Contents

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

The
following table presents our significant commitments to fund as of December 31, 2007 and 2008.

December 31,(Dollars in thousands)

2007

2008Commitments to extend credit

$
23,385,514

$
21,746,133Standby letters of credit


3,673,553


4,588,552Commercial letters of credit


71,745


50,590Risk participations in bankers' acceptances


33,550


23,925Commitments to fund principal investments


102,689


111,237Commitments to fund low-income housing credit (LIHC) investments


140,650


139,449


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

Standby
and commercial letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. Standby letters of credit generally are
contingent upon the failure of the customer to perform according to the terms of the underlying contract with the third party, while commercial letters of credit are issued specifically to facilitate
foreign or domestic trade transactions. Additionally, we enter into risk participations in bankers' acceptances, receiving a fee to guarantee a portion of the credit risk on an acceptance of another
bank. The majority of these types of commitments have terms of one year or less. At December 31, 2008, the carrying value of our risk participations in bankers' acceptances and our standby and
commercial letters of credit totaled $6.5 million. Exposure to loss related to these commitments is covered by the allowance for losses on off-balance sheet commitments. The
carrying value of the standby and commercial letters of credit and the allowance for losses on off-balance sheet commitments are included in other liabilities on the consolidated balance
sheet.

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

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

We
invest in either guaranteed or unguaranteed LIHC investments. The guaranteed LIHC investments carry a minimum rate of return guarantee. The unguaranteed LIHC investments carry partial
guarantees that include the timely completion of projects, availability of tax credits and operating deficit thresholds from the issuer. For these LIHC investments, we have committed to provide
additional funding as stipulated by our investment participation. At December 31, 2007 and 2008, the total unfunded commitment was $140.6 million and $139.4 million, respectively.

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We
are fund manager for limited liability companies issuing LIHC investments. LIHC investments provide tax benefits to investors in the form of tax deductions from operating losses and
tax credits. To facilitate the sale of these LIHC investments, we guarantee a minimum rate of return throughout the investment term of over a twelve-year weighted average period.
Additionally, we receive guarantees which include the timely completion of projects, availability of tax credits and operating deficit thresholds from the limited liability partnerships/corporations
issuing the LIHC investments that reduce our ultimate exposure to loss. Our maximum exposure to loss under these guarantees is limited to a return of investor capital and minimum investment yield,
which was $207.4 million as of December 31, 2008. The risk that we would be required to pay investors for a yield deficiency is low, based on the continued performance of the underlying
properties. We have a reserve of $7.3 million recorded related to these guarantees, which represents the remaining unamortized fair value of the guarantee that was recognized at inception.

We
have guarantees that obligate us to perform if our affiliates are unable to discharge their obligations. These obligations include guarantees of commercial paper obligations and
leveraged lease transactions. The guarantee issued by Union Bank for an affiliate's commercial paper program is done in order to facilitate the sale of the commercial paper. As of December 31,
2008, we had a maximum exposure to loss under the commercial paper program guarantee of $1.2 billion. The risk that the Bank would be required to pay investors due to its affiliate's default is
low, because the affiliated entity is a wholly-owned subsidiary and the Bank would take the actions necessary to avoid such default. Our guarantee has an average term of less than nine months and is
fully collateralized by a pledged deposit. We guarantee our subsidiaries' leveraged lease transactions with terms ranging from fifteen to thirty years. Following the original funding of these
leveraged lease transactions, we have no material obligation to be satisfied. As of December 31, 2008, we had no exposure to loss for these agreements.

We
conduct securities lending transactions for institutional customers as a fully disclosed agent. At times, securities lending indemnifications are issued to guarantee that a security
lending customer will be made whole in the event the borrower does not return the security subject to the lending agreement and collateral held is insufficient to cover the market value of the
security. All lending transactions are
collateralized, primarily by cash. The amount of securities lent with indemnifications was $2.9 billion and $1.4 billion at December 31, 2007 and 2008, respectively. The market
value of the associated collateral was $3.0 billion and $1.4 billion at December 31, 2007 and 2008, respectively. At December 31, 2008, we had no exposure that would
require us to pay under this securities lending indemnification, since the collateral market value exceeds the securities lent.

We
occasionally enter into financial guarantee contracts where a premium is received from another financial institution counterparty to guarantee a portion of the credit risk on interest
rate swap contracts entered into between the financial institution and its customer. We become liable to pay the financial institution only if the financial institution is unable to collect amounts
owed to them by their customer. As of December 31, 2008, the maximum exposure to loss under these contracts totaled $90.1 million. The risk that we would be required to perform under
these guarantees varies based on the creditworthiness of the other financial institution's customer. Credit risk grades are assigned by us based on the estimated probability of default. The risk of
default is considered low for those with superior to good credit ratings, moderate for those with satisfactory to adequate credit ratings, and high for those considered special mention, substandard,
doubtful and loss. Based on these criteria, at December 31, 2008 we had a low, moderate, and high risk of payment exposure under these contracts of $24.3 million, $59.1 million,
and $6.7 million, respectively. At December 31, 2008, we maintained a reserve of $1.9 million for losses related to these guarantees.

We
are a member of the Visa USA network (Visa). Visa's bylaws obligate its members to indemnify Visa for losses in connection with the settlement of certain antitrust lawsuits. Our
indemnification obligation is limited to our proportionate share. Under FIN No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of OthersAn Interpretation of FASB Statements No. 5, 57, and 107 and Rescission of FASB Interpretation No. 34," we had a liability of $9.5 million and
$4.3 million at December 31, 2007 and 2008, respectively, representing the estimated fair value of our

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obligations
under the indemnity provisions. The reduction in this liability from December 31, 2007 to December 31, 2008 was primarily due to the funding activity by Visa of an escrow
account created by them to act as the primary source of funds to pay settlements of its antitrust lawsuits. Our $4.3 million liability represents our estimate of the fair value of our
proportionate share of the sum of Visa's remaining amounts owed to American Express and Discover Card under previously executed settlement agreements plus our estimate of Visa's future settlements
under pending lawsuits, after subtracting the balance in Visa's escrow account. Our maximum exposure to loss for the remaining pending Visa antitrust lawsuits is not determinable, as it is dependent
on the outcome of the litigation, but any loss will be proportionate to our ownership interest in Visa. At December 31, 2008, the risk that we would be required to pay more than the liability
accrued related to this litigation is considered to be low, based on Visa's continued cash funding of the escrow account to pay its antitrust lawsuit settlements.

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

On
September 14, 2007, the Bank entered into a Stipulation and Consent to the Issuance of a Consent Order, and a Consent Order to a Civil Money Penalty and to Cease and Desist
(the Order) with the Office of the Comptroller of the Currency (OCC). The Order imposed a civil money penalty of $10 million and required the Bank to take actions to improve compliance with the
Bank Secrecy Act and other anti-money laundering laws and regulations (BSA/AML). On the same day, the U.S. Treasury Department's Financial Crimes Enforcement Network (FinCEN) executed an
Assessment of Civil Money Penalty (the Assessment) in the amount of $10 million. The Assessment provided that the $10 million penalty was deemed to be satisfied by the Bank's payment of
the civil money penalty of $10 million to the OCC. On September 17, 2007, the Bank entered into a Deferred Prosecution Agreement (DPA) with the Department of Justice (DOJ). Under the
DPA, the DOJ agreed to defer prosecution for past violations of BSA/AML that occurred in the Bank's now discontinued international banking business, and to dismiss prosecution completely if the Bank
met the conditions of the Order for one year. Pursuant to the DPA, the Bank also paid $21.6 million in the third quarter of 2007 to the DOJ. The OCC terminated the Order on September 25,
2008. On October 1, 2008, the DPA was also terminated and the criminal case to which it related was dismissed.

Business Segments

In 2006, we formally reorganized our operating segments by disaggregating the businesses that were formerly managed and reported under
the Community Banking and Investment Services Group or the Commercial Financial Services Group. We believe that this new organizational structure will enhance our focus on target markets and
enterprise wide sales and service.

The
various operating segments reporting under our Chief Operating Officer and the Group Head of Pacific Rim Corporate Group have been aggregated into two reportable business segments
entitled "Retail Banking" and "Wholesale Banking" based upon the aggregation criteria prescribed in SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information."

As
part of our privatization transaction in 2008, goodwill of $946 million and $1,068 million has been recorded in the reportable business segments Retail Banking and
Wholesale Banking, respectively. See Note 2 to our Consolidated Financial Statements included in this Form 10-K Report for further detail on our privatization transaction.

The
risk-adjusted return on capital (RAROC) methodology used seeks to attribute economic capital to business units consistent with the level of risk they assume. These risks
are primarily credit, market and operational. Credit risk is the potential loss in economic value due to the likelihood that the obligor will not perform as agreed. Market risk 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 to all other factors, such as failures in internal

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Table of Contents

control,
system failures or external events. RAROC is one of several measures that is used to measure business unit compensation.

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

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

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

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

The
reportable business segment results for the prior periods have been adjusted to reflect changes in the transfer pricing methodology, the organizational changes that have occurred,
our discontinued operations and the market view contribution. Our discontinued operations consist of three separate businesses: international correspondent banking, retirement recordkeeping services
and insurance brokerage business. For further detail on discontinued operations, see Note 23 of our Consolidated Financial Statements included in this Form 10-K Report.

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Table of Contents

Retail Banking





Wholesale BankingAs of and for the Year
Ended December 31,

2008 vs. 2007
Increase/(decrease)

As of and for the Year
Ended December 31,

2008 vs. 2007
Increase/(decrease)2006

2007

2008

Amount

Percent

2006

2007

2008

Amount

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

$
940,101

$
890,372

$
998,898

$
108,526


12
%
$
1,039,103

$
969,989

$
1,225,631

$
255,642


26
%Noninterest income (expense)


472,083


479,664


481,512


1,848


0


332,467


366,278


351,166


(15,112
)

(4
)Total revenue


1,412,184


1,370,036


1,480,410


110,374


8


1,371,570


1,336,267


1,576,797


240,530


18Noninterest expense (income)


913,981


902,949


1,010,051


107,102


12


581,532


563,597


632,925


69,328


12Credit expense (income)


25,416


25,233


27,825


2,592


10


95,322


111,019


195,210


84,191


76Income from continuing operations before income taxes


472,787


441,854


442,534


680


0


694,716


661,651


748,662


87,011


13Income tax expense (benefit)


180,841


169,009


169,269


260


0


228,784


201,235


215,197


13,962


7Income from continuing operations


291,946


272,845


273,265


420


0


465,932


460,416


533,465


73,049


16Income (loss) from discontinued operations, net of income taxes














na














naNet income (loss)

$
291,946

$
272,845

$
273,265

$
420


0

$
465,932

$
460,416

$
533,465

$
73,049


16Average balances (dollars in millions):Total loans(1)

$
15,683

$
16,829

$
19,450

$
2,621


16

$
20,013

$
22,598

$
26,761

$
4,163


18Total assets


16,524


17,640


20,404


2,764


16


24,580


27,297


31,788


4,491


16Total deposits(1)


18,862


18,734


19,095


361


2


18,450


18,591


18,562


(29
)

0Financial ratios:Risk adjusted return on capital


49
%

45
%

41
%







23
%

21
%

20
%Return on average assets


1.77


1.55


1.34








1.90


1.69


1.68Efficiency ratio(2)


64.72


65.90


68.16








42.19


40.04


37.57


Other





Reconciling ItemsAs of and for the Year
Ended December 31,

2008 vs. 2007
Increase/(decrease)

As of and for the Year
Ended December 31,2006

2007

2008

Amount

Percent

2006

2007

2008Results of operations after performance center earnings (dollars in thousands):Net interest income (expense)

$
(131,636
)
$
(128,164
)
$
(162,415
)
$
(34,251
)

(27
)%
$
(9,576
)
$
(8,817
)
$
(11,266
)Noninterest income (expense)


14,416


19,585


15,650


(3,935
)

(20
)

(59,752
)

(65,988
)

(75,672
)Total revenue


(117,220
)

(108,579
)

(146,765
)

(38,186
)

(35
)

(69,328
)

(74,805
)

(86,938
)Noninterest expense (income)


98,909


148,267


299,944


151,677


102


(36,473
)

(40,612
)

(46,224
)Credit expense (income)


(125,652
)

(55,164
)

292,110


347,274


nm


(86
)

(88
)

(145
)Income from continuing operations before income taxes


(90,477
)

(201,682
)

(738,819
)

(537,137
)

nm


(32,769
)

(34,105
)

(40,569
)Income tax expense (benefit)


(122,371
)

(62,845
)

(241,080
)

(178,235
)

nm


(12,534
)

(13,045
)

(15,518
)Income from continuing operations


31,894


(138,837
)

(497,739
)

(358,902
)

nm


(20,235
)

(21,060
)

(25,051
)Income (loss) from discontinued operations, net of income taxes


(16,541
)

34,730


(15,055
)

(49,785
)

(143
)







Net income (loss)

$
15,353

$
(104,107
)
$
(512,794
)
$
(408,687
)

nm

$
(20,235
)
$
(21,060
)
$
(25,051
)Average balances (dollars in millions):Total loans(1)

$
25

$
17

$
(50
)
$
(67
)

nm


(17
)

(20
)

(49
)Total assets


8,762


8,552


8,767


215


3


(19
)

(21
)

(51
)Total deposits(1)


3,265


5,552


6,090


538


10


(577
)

(691
)

(614
)Financial ratios:Risk adjusted return on capital


na


na


naReturn on average assets


na


na


naEfficiency ratio(2)


na


na


na


UnionBanCal
CorporationAs of and for the Year
Ended December 31,

2008 vs. 2007
Increase/(decrease)2006

2007

2008

Amount

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

$
1,837,992

$
1,723,380

$
2,050,848

$
327,468


19
%Noninterest income (expense)


759,214


799,539


772,656


(26,883
)

(3
)Total revenue


2,597,206


2,522,919


2,823,504


300,585


12Noninterest expense (income)


1,557,949


1,574,201


1,896,696


322,495


20Credit expense (income)


(5,000
)

81,000


515,000


434,000


nmIncome from continuing operations before income taxes


1,044,257


867,718


411,808


(455,910
)

(53
)Income tax expense (benefit)


274,720


294,354


127,868


(166,486
)

(57
)Income from continuing operations


769,537


573,364


283,940


(289,424
)

(50
)Income (loss) from discontinued operations, net of income taxes


(16,541
)

34,730


(15,055
)

(49,785
)

nmNet income (loss)

$
752,996

$
608,094

$
268,885

$
(339,209
)

(56
)Average balances (dollars in millions):Total loans(1)

$
35,704

$
39,424

$
46,112

$
6,688


17Total assets


49,847


53,468


60,908


7,440


14Total deposits(1)


40,000


42,186


43,133


947


2Financial ratios:Risk adjusted return on capital


na


na


naReturn on average assets


1.54
%%

1.07
%%

0.47
%Efficiency ratio(2)


59.80
%

60.68
%

64.24
%


---

na =
not applicable

nm =
not meaningful

F-50

---



Table of Contents



Retail Banking provides financial products including credit, deposit, trust, investment management and risk management delivered
through our branches, relationship managers, private bankers and trust administrators, to individuals, small businesses and institutional clients. Retail banking is focused on executing a segment
based strategy that will identify targeted opportunities within the consumer and small business markets, and develop product, marketing and sales strategies to attract new customers in these
identified target markets. While the primary focus of Retail Banking's segment based strategy is deposit growth, an additional focus continues to be consumer and small business loan generation.

During
2008, net income of Retail Banking was flat compared to 2007, reflecting a 12 percent increase in net interest income offset by a 12 percent increase in noninterest
expense.

Asset
growth for 2008 was primarily driven by a 15 percent growth in average residential mortgage loans. Additionally, the focus on home equity loans and more effective
cross-selling efforts have resulted in an overall growth in consumer loans.

Average
deposits increased 2 percent in 2008 compared to 2007. Retail Banking's strategy continues to focus on attracting consumer and small business deposits through marketing
activities, increasing customer cross-sell, relationship management, increasing and improving sales resources, establishing new locations and new products. We expect that a larger branch
network, along with this Retail Banking strategy, will improve growth prospects when combined with more robust efforts in the telephone and internet channels.

Noninterest
income was essentially flat in 2008 compared to 2007. Noninterest expense increased by 12 percent in 2008, compared to 2007. This increase related to staff costs,
privatization intangible asset amortization and costs associated with an increasing deposit base, including advertising and FDIC insurance.

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



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



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

Our
Retail Banking Branches and Consumer Asset Management divisions compete with larger banks by attempting to provide service quality superior to that of our major competitors. The
primary means of

F-51

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Table of Contents

competing
with community banks include our branch network and our technology to deliver banking services. We also offer convenient banking hours to consumers through our drive-through banking
locations and selected branches that are open seven days a week.

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



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

During
2008, net income of Wholesale Banking increased 16 percent, compared to 2007, due to higher net interest income, offset by lower noninterest income and higher noninterest
expense. Net interest income increased by 26 percent during 2008, compared to the same period in 2007, due to higher loan volume in our Commercial and Industrial portfolio, a stable deposit
base, and prudent deposit pricing.

During
2008, average loans increased 18 percent compared to 2007. This increase was primarily in the Energy Capital Services and National Banking divisions, as well as the
California Middle Market.

F-52

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Table of Contents

Noninterest
income decreased 4 percent in 2008, compared to 2007, primarily due to lower gains on private capital investments, partially offset by higher deposit and merchant
banking fees. Noninterest expense increased in 2008 compared to 2007 due to increases in staff costs, privatization intangible amortization, and amortization related to our low income housing
investments.

Wholesale
Banking initiatives continue to include expanding deposit activities and loan strategies that include originating, underwriting and syndicating loans in core competency
markets, such as the California Middle Market, corporate banking, commercial real estate, energy, equipment leasing and commercial finance. Commercial Deposit and Treasury Management Division provides
processing services, including services such as Automated Clearing House (ACH), check processing and cash vault services.

Wholesale Bankingis comprised of the following main divisions:



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

F-53

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Table of Contents

regional,
national and international banks. In addition, we compete with investment banks, commercial finance companies, leasing companies and insurance companies.



The net loss grew from ($104.1) million in 2007 to ($512.8) million in 2008, primarily due to a higher loan loss provision and higher
noninterest expenses.

"Other"
includes the following items:



The
2008 financial results were impacted by the following factors:



F-54

---



Table of Contents



The
2007 financial results were impacted by the following factors:



Regulatory Matters

On September 14, 2007, Union Bank entered into a Stipulation and Consent to the Issuance of a Consent Order, and a Consent Order
to a Civil Money Penalty and to Cease and Desist (the Order) with the Office of the Comptroller of the Currency (OCC). The Order imposed a civil money penalty of $10 million and required Union
Bank to take actions to improve compliance with the Bank Secrecy Act and other anti-money laundering laws and regulations (BSA/AML). On the same day, the U.S. Treasury Department's
Financial Crimes Enforcement Network (FinCEN) executed an Assessment of Civil Money Penalty (the Assessment) in the amount of $10 million. The Assessment provided that the $10 million
penalty was deemed to be satisfied by Union Bank's payment of the civil money penalty of $10 million to the OCC. On September 17, 2007, Union Bank entered into a Deferred Prosecution
Agreement (DPA) with the Department of Justice (DOJ). Under the DPA, the DOJ agreed to defer prosecution for past violations of BSA/AML that occurred in Union Bank's now discontinued international
banking business, and to dismiss prosecution completely if Union Bank met the conditions of the Order for one year. Pursuant to the DPA, Union Bank also paid $21.6 million in the third quarter
of 2007 to the DOJ. The OCC terminated the Order on September 28, 2008. On October 1, 2008, the DPA was also terminated and the criminal case to which it related was dismissed.

In
December 2006, MUFG, BTMU and its wholly-owned subsidiary, Bank of Tokyo-Mitsubishi UFJ Trust Company, entered into a series of agreements with the FDIC, the Federal Reserve Bank of
San Francisco, the Federal Reserve Bank of New York and the New York State Banking Department, which required a strengthening of their BSA/AML controls and processes. On September 29, 2008,
these agreements were terminated.

Any
future regulatory or other government actions concerning BSA/AML controls and processes may adversely affect UnionBanCal's and Union Bank's ability to obtain regulatory approvals for
future initiatives, including acquisitions. Also, any future actions relating to noncompliance or repeat violations of BSA/AML laws, regulations or orders could result in the assessment of additional
civil money penalties or the imposition of additional fines, which could be substantial.

The
SEC is conducting an inquiry regarding certain practices related to our mutual fund activities. The inquiry concerns the use of a portion of the fees received under an agreement from
the HighMark Funds by an

F-55

---



Table of Contents

unaffiliated
administrator to pay expenses related to the marketing and distribution of fund shares. The HighMark Funds is a family of mutual funds managed by HighMark Capital Management, Inc.,
the investment management subsidiary of Union Bank. We are cooperating with this inquiry.

On
October 6, 2008, UnionBanCal, BTMU and MUFG obtained approval from the Federal Reserve Board to become financial holding companies under the Bank Holding Company Act of 1956,
as amended (the BHCA). We sought this new status from the Federal Reserve Bank of San Francisco to provide us maximum flexibility to pursue new business opportunities as the banking and financial
services industry undergoes rapid and profound changes. UnionBanCal remains subject to the consolidated supervision and regulation of the Federal Reserve Board, and the Bank remains subject to the
supervision and regulation of the OCC. The FDIC will continue to insure deposits at the Bank. We do not expect significant adverse tax or accounting effects from this new status.

F-56

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Table of Contents

UnionBanCal Corporation and Subsidiaries

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



PageConsolidated Statements of Income for the Years Ended December 31, 2006, 2007 and 2008

F-58Consolidated Balance Sheets as of December 31, 2007 and 2008

F-59Consolidated Statements of Changes in Stockholder's Equity for the Years Ended December 31, 2006, 2007
and 2008

F-60Consolidated Statements of Cash Flows for the Years Ended December 31, 2006, 2007 and
2008

F-61Notes to Consolidated Financial Statements

F-62Note 1Summary of Significant Accounting Policies and Nature of Operations

F-62Note 2Privatization

F-74Note 3Securities

F-77Note 4Loans and Allowance for Loan Losses

F-82Note 5Goodwill and Other Intangible Assets

F-84Note 6Premises and Equipment

F-86Note 7Other Assets

F-87Note 8Deposits

F-88Note 9Employee Pension and Other Postretirement Benefits

F-89Note 10Other Noninterest Income and Noninterest Expense

F-95Note 11Income Taxes

F-96Note 12Borrowed Funds

F-100Note 13Medium- and Long-Term Debt

F-101Note 14UnionBanCal CorporationJunior Subordinated Debt Payable to Subsidiary Grantor
Trust

F-103Note 15Dividend Reinvestment and Stock Purchase Plan

F-104Note 16Management Stock Plans

F-104Note 17Concentrations of Credit Risk

F-110Note 18Fair Value Measurement and Fair Value of Financial Instruments

F-110Note 19Derivative Instruments

F-115Note 20Restrictions of Cash and Due from Banks, Securities, Loans and Dividends

F-120Note 21Regulatory Capital Requirements

F-120Note 22Other Comprehensive Income (Loss)

F-122Note 23Discontinued Operations

F-123Note 24Commitments, Contingencies and Guarantees

F-127Note 25Transactions with Affiliates

F-129Note 26Business Segments

F-130Note 27Condensed UnionBanCal Corporation Unconsolidated Financial Statements (Parent
Company)

F-134Note 28Summary of Quarterly Financial Information (Unaudited)

F-137Report of Independent Registered Public Accounting Firm

F-138Management's Report on Internal Control Over Financial Reporting

F-141


F-57

---





Table of Contents

UnionBanCal Corporation and Subsidiaries  Consolidated Statements of Income

Years Ended December 31,(Amounts in thousands)

2006

2007

2008Interest IncomeLoans

$
2,228,023

$
2,511,552

$
2,549,512Securities


418,841


443,685


415,870Interest bearing deposits in banks


2,617


3,276


574Federal funds sold and securities purchased under resale agreements


25,518


26,247


6,472Trading account assets


6,277


7,652


5,189Total interest income


2,681,276


2,992,412


2,977,617Interest ExpenseDeposits


649,296


991,140


639,047Federal funds purchased and securities sold under repurchase agreements


32,500


56,676


47,875Commercial paper


75,015


76,284


31,767Medium- and long-term debt


70,439


101,096


99,429Trust notes


953


953


953Other borrowed funds


15,081


42,883


107,698Total interest expense


843,284


1,269,032


926,769Net Interest Income


1,837,992


1,723,380


2,050,848(Reversal of) Provision for loan losses


(5,000
)

81,000


515,000Net interest income after (reversal of) provision for loan losses


1,842,992


1,642,380


1,535,848Noninterest IncomeService charges on deposit accounts


319,647


304,362


302,965Trust and investment management fees


147,539


157,734


165,255Trading account activities


56,916


65,608


54,530Merchant banking fees


42,185


44,123


49,546Brokerage commissions and fees


35,811


39,839


38,891Card processing fees, net


28,400


30,307


31,553Securities gains, net


2,242


1,621


44Other


126,474


155,945


129,872Total noninterest income


759,214


799,539


772,656Noninterest ExpenseSalaries and employee benefits


908,533


911,022


978,081Net occupancy


136,087


141,573


154,566Outside services


108,984


75,939


78,933Professional services


60,686


67,021


70,886Equipment


67,284


63,607


61,571Software


59,617


57,114


60,448Communications


37,531


36,499


37,067Foreclosed asset expense (income)


(15,322
)

110


1,019(Reversal of) provision for losses on off-balance sheet commitments


(5,000
)

9,000


35,000Privatization-related expense








90,505Other


199,549


212,316


328,620Total noninterest expense


1,557,949


1,574,201


1,896,696Income from continuing operations before income taxes


1,044,257


867,718


411,808Income tax expense


274,720


294,354


127,868Income from Continuing Operations


769,537


573,364


283,940Income (loss) from discontinued operations before income taxes


(25,948
)

66,753


(27,368
)Income tax expense (benefit)


(9,407
)

32,023


(12,313
)Income (Loss) from Discontinued Operations


(16,541
)

34,730


(15,055
)Net Income

$
752,996

$
608,094

$
268,885


See accompanying notes to consolidated financial statements.

F-58

---





Table of Contents

UnionBanCal Corporation and Subsidiaries  Consolidated Balance Sheets

December 31,(Dollars in thousands)

2007

2008AssetsCash and due from banks

$
2,106,927

$
1,568,578Interest bearing deposits in banks


104,528


2,872,698Federal funds sold and securities purchased under resale agreements


310,178


63,069Total cash and cash equivalents


2,521,633


4,504,345Trading account assets:Pledged as collateral





6,283Held in portfolio


603,333


1,210,496Securities available for sale:Pledged as collateral


685,123


54,525Held in portfolio


7,770,037


8,140,013Loans (net of allowance for loan losses: 2007, $402,726; 2008, $737,767)


40,801,462


48,847,783Due from customers on acceptances


16,482


23,131Premises and equipment, net


486,034


680,004Intangible assets


6,458


713,485Goodwill


355,287


2,369,326Other assets


2,358,915


3,571,995Assets of discontinued operations to be disposed or sold


122,984


4Total assets

$
55,727,748

$
70,121,390LiabilitiesNoninterest bearing

$
13,802,640

$
13,566,873Interest bearing


28,877,551


32,482,896Total deposits


42,680,191


46,049,769Federal funds purchased and securities sold under repurchase agreements


1,631,602


172,758Commercial paper


1,266,656


1,164,327Other borrowed funds


1,875,619


8,196,597Trading account liabilities


351,057


1,034,663Acceptances outstanding


16,482


23,131Other liabilities


1,108,585


1,685,412Medium- and long-term debt


1,913,622


4,288,488Junior subordinated debt payable to subsidiary grantor trust


14,432


13,980Liabilities of discontinued operations to be extinguished or assumed


131,521


7,960Total liabilities


50,989,767


62,637,085Commitments, contingencies and guaranteesSee Note 24Stockholder's EquityPreferred stock:Authorized 5,000,000 shares, no shares issued or outstanding at December 31, 2007 or 2008





Common stock, par value $1 per share:Authorized 300,000,000 shares, issued 157,559,521 shares in 2007 and 136,330,829 shares in 2008


157,559


136,331Additional paid-in capital


1,153,737


3,195,023Treasury stock19,723,453 shares in 2007 and no shares in 2008


(1,202,584
)

Retained earnings


4,912,392


4,964,802Accumulated other comprehensive loss


(283,123
)

(811,851
)Total stockholder's equity


4,737,981


7,484,305Total liabilities and stockholder's equity

$
55,727,748

$
70,121,390


See accompanying notes to consolidated financial statements.

F-59

---





Table of Contents

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

(In thousands, except shares)

Number
of shares

Common
stock

Additional
paid-in
capital

Treasury
stock

Retained
earnings

Accumulated
other
comprehensive
income (loss)

Total
stock-
holder's
equityBALANCE DECEMBER 31, 2005


154,469,215

$
154,469

$
994,956

$
(612,732
)
$
4,141,400

$
(118,393
)
$
4,559,700Comprehensive incomeNet income-2006














752,996





752,996Other comprehensive loss, net of tax:Net change in unrealized losses on cash flow hedges

















6,903


6,903Net change in unrealized losses on securities available for sale

















16,221


16,221Foreign currency translation adjustment

















(41
)

(41
)Pension and other benefits adjustment

















(2,877
)

(2,877
)Total comprehensive income




















773,202SFAS No. 158 adjustment(3)

















(161,187
)

(161,187
)Reclassification due to adoption of SFAS No. 123(R) implementation(4)








(19,035
)




19,035





Stock options exercised


1,409,727


1,410


55,322











56,732Restricted stock granted, net of forfeitures


578,865


579


(579
)










Perfomance share units vested


2,250


2


(2
)










Excess tax benefitstock based compensation








13,054











13,054Compensation expensestock options








22,355











22,355Compensation expenserestricted stock








14,420











14,420Compensation expenserestricted stock units, performance share units and other share-based compensation








3,158











3,158Common stock repurchased(1)











(451,874
)







(451,874
)Dividends declared on common stock, $1.82 per share(2)














(258,159
)




(258,159
)Net change





1,991


88,693


(451,874
)

513,872


(140,981
)

11,701BALANCE DECEMBER 31, 2006


156,460,057

$
156,460

$
1,083,649

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

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














608,094





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

















50,968


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

















(71,285
)

(71,285
)Foreign currency translation adjustment

















517


517Pension and other benefits adjustment

















(3,949
)

(3,949
)Total comprehensive income




















584,345FIN No. 48 adjustment(5)














(49,300
)




(49,300
)FSP FAS 13-2 adjustment(6)














(20,803
)




(20,803
)Stock options exercised


800,850


801


32,498











33,299Restricted stock granted, net of forfeitures


288,305


288


(288
)










Restricted stock and performance share units vested


10,309


10


(10
)










Excess tax benefitstock based compensation








4,616











4,616Compensation expensestock options








12,999











12,999Compensation expenserestricted stock








14,413











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








5,860











5,860Common stock repurchased(1)











(137,978
)







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














(280,871
)




(280,871
)Net change





1,099


70,088


(137,978
)

257,120


(23,749
)

166,580BALANCE DECEMBER 31, 2007


157,559,521

$
157,559

$
1,153,737

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

$
(283,123
)
$
4,737,981Comprehensive incomeNet income-2008














268,885





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

















59,633


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

















(388,079
)

(388,079
)Foreign currency translation adjustment

















(1,853
)

(1,853
)Pension and other benefits adjustment

















(412,608
)

(412,608
)Total comprehensive income




















(474,022
)EITF 06-4 adjustment














(236
)




(236
)EITF 06-11 adjustment








451











451Capital contribution from BTMU








1,000,000











1,000,000Stock options exercised


2,307,005


2,307


107,471











109,778Stock option payouts as a result of privatization(7)(8)








(173,396
)










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


20,198


20


(20
)










Performance share and restricted stock units, and other share based compensation payouts as a result of privatization(7)(8)








(30,193
)










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








61,109











61,109Compensation expensestock options








23,831











23,831Compensation expenserestricted stock








41,557











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








18,054











18,054Common stock repurchased(1)











(2,214
)







(2,214
)Common and treasury stock cancellation(7)


(23,555,895
)

(23,555
)

(1,181,243
)

1,204,798








Adjustments related to privatization(7)








2,173,665








214,179


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














(216,239
)




(216,239
)Net change





(21,228
)

2,041,286


1,202,584


52,410


(528,728
)

2,746,324BALANCE DECEMBER 31, 2008


136,330,829

$
136,331

$
3,195,023

$


$
4,964,802

$
(811,851
)
$
7,484,305


---

See accompanying notes to consolidated financial statements.

F-60

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Table of Contents

UnionBanCal Corporation and Subsidiaries  Consolidated Statements of Cash Flows

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

2006

2007

2008Cash Flows from Operating Activities:Net income

$
752,996

$
608,094

$
268,885Income (loss) from discontinued operations, net of taxes


(16,541
)

34,730


(15,055
)Income from continuing operations, net of taxes


769,537


573,364


283,940Adjustments to reconcile net income to net cash provided by (used in) operating activities:(Reversal of) provision for allowance for loan losses


(5,000
)

81,000


515,000(Reversal of) provision for losses on off-balance sheet commitments


(5,000
)

9,000


35,000Depreciation, amortization and accretion


129,912


117,980


143,859Stock-based compensationstock options and other share-based compensation


39,933


33,272


83,442Provision for deferred income taxes


43,316


(24,764
)

(181,046
)Gains on sales of securities available for sale, net


(2,242
)

(1,621
)

(44
)Net decrease (increase)in prepaid expenses


177,395


(37,898
)

431,566Net (increase) decrease in fees and other receivable


(58,974
)

11,468


86,627Net (decrease) increase in accrued expenses


(72,128
)

82,368


493,858Net increase in trading account assets


(63,666
)

(227,012
)

(613,446
)Net increase in trading account liabilities


45,876


92,921


683,606Net increase (decrease) in other liabilities


76,006


(78,173
)

274,777Net increase in other assets


(141,047
)

(235,202
)

(510,702
)Loans originated for resale


(558,833
)

(680,541
)

(428,301
)Net proceeds from sale of loans originated for resale


486,739


669,333


389,833Excess tax benefitstock-based compensation


(13,054
)

(4,616
)

(61,109
)Other, net


(176,361
)

34,820


(399,652
)Discontinued operations, net


202,792


60,563


77,222Total adjustments


105,664


(97,102
)

1,020,490Net cash provided by operating activities


875,201


476,262


1,304,430Cash Flows from Investing Activities:Proceeds from sales of securities available for sale


144,026


352,568


14,647Proceeds from matured and called securities available for sale


1,740,411


1,806,844


1,554,813Purchases of securities available for sale, net of acquisitions


(2,424,176
)

(1,970,887
)

(1,936,558
)Purchases of premises and equipment


(69,281
)

(104,680
)

(95,405
)Net increase in loans


(3,509,531
)

(4,604,981
)

(8,841,250
)Other, net


(34,187
)




(5,031
)Discontinued operations, net


735,045


3,241


3,732Net cash used in investing activities


(3,417,693
)

(4,517,895
)

(9,305,052
)Cash Flows from Financing Activities:Net increase in deposits


1,901,426


829,509


3,369,578Net increase (decrease) in federal funds purchased and securities sold under repurchase agreements


432,398


547,675


(1,458,844
)Net increase in commercial paper and other borrowed funds


1,286,614


1,048,715


5,218,649Capital contribution from BTMU








1,000,000Common stock repurchased


(451,874
)

(137,978
)

(2,214
)Proceeds from issuance of long-term debt


693,742


749,250


2,276,000Repayment of medium-term debt


(200,000
)

(200,000
)

Payments of cash dividends


(251,403
)

(274,974
)

(287,995
)Stock options exercised


69,786


37,915


170,887Share-based compensation payouts as a result of privatization








(203,589
)Other, net


3,459


1,267


(1,853
)Discontinued operations, net


(930,529
)

(20,170
)

(96,591
)Net cash provided by financing activities


2,553,619


2,581,209


9,984,028Net increase (decrease) in cash and cash equivalents


11,127


(1,460,424
)

1,983,406Cash and cash equivalents at beginning of year


3,969,873


3,981,435


2,521,633Effect of exchange rate changes on cash and cash equivalents


435


622


(694
)Cash and cash equivalents at end of year

$
3,981,435

$
2,521,633

$
4,504,345Cash Paid During the Year For:Interest

$
769,265

$
1,337,976

$
938,895Income taxes


225,977


305,803


236,931Supplemental Schedule of Noncash Investing and Financing Activities:Term borrowingissued in current year, but settled after year end

$


$


$
1,000,000Loans transferred to foreclosed assets (OREO)


1,903


1,571


32,506


See accompanying notes to consolidated financial statements.

F-61

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Table of Contents

UnionBanCal Corporation and Subsidiaries        Notes to Consolidated Financial Statements  December 31, 2006, 2007 and 2008

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



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

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

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

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



The consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany transactions and
balances have been eliminated. The Company accounts for investments in an entity using the equity method of accounting when it owns at least 20 percent and less than 50 percent, as well
as for any limited partnership investments. Investments of less than 20 percent, in general, are accounted for at cost. Investments, both under the equity method of accounting and at cost, are
included in other assets.

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

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

F-62

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2006, 2007 and 2008 (Continued)

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



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



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



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

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

Derivatives
held or issued for trading or customer accommodation are carried at fair value, with realized and unrealized changes in fair values on contracts included in noninterest
income in the period in which the changes occur. Unrealized gains and losses are reported gross and included in trading account assets and trading account liabilities, respectively. Cash flows are
reported net as operating activities. The reserve for credit exposures and administrative costs related to derivative and foreign exchange contracts is presented as an offset to trading account
assets. Changes in the reserves for those contracts offset trading gains and losses in noninterest income.

Total
unrealized losses on trading account securities totaled $0.2 million at December 31, 2008.



The Company's securities portfolio consists of debt and equity securities that are classified as securities available for sale.

Debt
securities and equity securities with readily determinable market values that are not classified as trading account assets are classified as securities available for sale and
carried at fair value, with the unrealized

F-63

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2006, 2007 and 2008 (Continued)

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

gains
or losses reported net of taxes as a component of accumulated other comprehensive income (loss) in stockholder's equity until realized.

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

The
Company recognizes other-than-temporary impairment on its securities available for sale portfolio when it is probable that it will not recover its cost. A
debt security is subject to quarterly impairment testing when its fair value is lower than its carrying value. The Company excludes from quarterly impairment testing debt securities that are backed by
the full faith and credit of the U.S.
government or where the likelihood of default is remote and purchased at a premium below 10 percent of par. Typical debt securities in the portfolio that are subject to testing for
other-than-temporary impairment are collateralized loan obligations (CLOs), commercial mortgage conduits and equity securities. In calculating the level of
other-than-temporary impairment, the Company considers expected cash flows utilizing a number of assumptions such as recovery rates, default rates and reinvestment rates,
business models, current and projected financial performance, and overall economic market conditions. Marketable equity securities are subject to testing for
other-than-temporary impairment when there is a sustained decline in market price below the amount recorded for that investment. The Company considers the issuer's financial
condition, capital strength, and near-term prospects in calculating an other-than-temporary impairment.

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

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



Loans are reported at the principal amounts outstanding, net of unamortized nonrefundable loan fees, related direct loan origination
costs and fair value adjustments related to the Company's privatization. Except for loans originated between 2002 and 2004, deferred net fees and costs related to loans held for investment are
recognized in interest income on an effective yield basis over the contractual loan term. The deferred net fees and costs for loans originated between 2002 and 2004 are recognized in interest income
over the expected life of the loan, which is updated quarterly.

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

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

F-64

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2006, 2007 and 2008 (Continued)

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

Loans
purchased without evidence of credit deterioration since origination are recorded at the present value of amounts to be received discounted at current interest rates at which
similar loans would be made to borrowers with similar credit ratings and for similar maturities with the allowance for loan losses carried over. The difference between the recorded value and the par
value of the loans is reflected in interest income over the life of the loan. Nonaccrual loans are those for which management has discontinued accrual of interest because there exists significant
uncertainty as to the full and timely collection of either principal or interest or such loans have become contractually past due 90 days with respect to principal or interest.

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

When
a loan is placed on nonaccrual, all previously accrued but uncollected interest is reversed against current period operating results. All subsequent payments received are first
applied to unpaid principal and then to uncollected interest. Interest income is accrued at such time as the loan is brought fully current as to both principal and interest, and, in management's
judgment, such a loan is considered to be fully collectible. However, the Company's policy also allows management to continue the recognition of interest income on certain loans designated as
nonaccrual. This portion of the nonaccrual portfolio is referred to as "Cash Basis Nonaccrual" loans. This policy only applies to loans that are well-secured and in management's judgment
are considered to be fully collectible. Although the accrual of interest is suspended, any payments received may be applied to the loan according to its contractual terms and interest income
recognized when cash is received.

Loans
are considered impaired when, based on current information, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan
agreement, including interest payments. Impaired loans are carried at the lower of the recorded investment in the loan, the 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 with commitments of less than $2.5 million are aggregated
for the purpose of measuring impairment using historical loss factors as a means of measurement. Excluded from the impairment analysis are large groups of smaller balance homogeneous loans such as
consumer and residential mortgage loans.

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

F-65

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2006, 2007 and 2008 (Continued)

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



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

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

Specific
allowances are established in cases where management has identified significant conditions or circumstances related to a credit that management believes indicate the probability
that a loss has been incurred in excess of the amount determined by the application of the formula allowance. The specific allowance also includes impaired leases, which are not covered by Statement
of Financial Accounting Standards (SFAS) No. 114, "Accounting by Creditors for Impairment of a Loan."

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

The
allowance also incorporates the results of measuring impaired loans as provided in SFAS No. 114 and SFAS No. 118, "Accounting by Creditors for Impairment of a
LoanIncome Recognition and Disclosures." These accounting standards prescribe the measurement methods, income recognition and disclosures related to impaired loans. A loan is considered
impaired when management determines that it is probable that the Company will be unable to collect all amounts due according to the original contractual terms of the loan agreement. Impairment is
measured by the difference between the recorded investment in the loan (including accrued interest, net deferred loan fees or costs and unamortized premium or discount) 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 with
commitments of less than $2.5 million are aggregated for the purpose of measuring impairment using historical loss factors as a means of measurement. Specific allowances are established in
cases where management has identified significant conditions or circumstances related to a credit or a portfolio segment that management believes indicate the probability that a loss has been
incurred. This amount may be determined either by a method prescribed by

F-66

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2006, 2007 and 2008 (Continued)

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

SFAS
No. 114, or methods that include a range of probable outcomes based upon certain qualitative factors. Impairment is recognized as a component of the existing allowance for loan losses.



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

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



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

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

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



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

F-67

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2006, 2007 and 2008 (Continued)

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



Private capital investments include direct investments in private companies and indirect investments in private equity funds. These
investments are initially valued at cost, with dividends received recognized in other noninterest income. Dividends received in excess of the investees earnings are considered a return of investment
and are recorded as a reduction of investment cost. These investments are tested for other-than-temporary impairment on a quarterly basis if the carrying value exceeds fair
value. Fair value is estimated based on a company's business model, current and projected financial performance, liquidity and overall economic and market conditions. Private capital investments are
included in other assets and any other-than-temporary impairment is recognized in other noninterest income.



The Company enters into a variety of derivative contracts as a means of reducing the Company's interest rate and foreign exchange
exposures. At inception, these contracts are evaluated in order to determine if the instrument will be highly effective in achieving offsetting changes in the hedged item attributable to the risk
being hedged. Any ineffectiveness, which arises during the hedging relationship, is recognized in noninterest expense in the period in which it arises. All derivative instruments are valued at fair
value and included in other assets or other liabilities. For qualifying fair value hedges of interest bearing assets or liabilities, the change in the fair value of the hedged item and the hedging
instrument, to the extent effective, is recognized in net interest income. For qualifying cash flow hedges, the unrealized changes in fair value to the extent effective are recognized in other
comprehensive income. Amounts realized on cash flow hedges related to variable rate loans and deposit liabilities are recognized in net interest income in the period in which the cash flow from the
hedged item is recognized in earnings. The fair value of cash flow hedges related to forecasted transactions is recognized as an adjustment to the carrying value of the asset or liability in the
period when the forecasted transaction occurs or in noninterest expense if the forecasted transaction no longer is expected to occur.



The Company enters into a variety of lease contracts generally for premises and equipment. Lease contracts that do not transfer
substantially all of the benefits and risks of ownership and meet the criteria under SFAS No. 13, "Accounting for Leases" are treated as operating leases. The Company accounts for the payments
of rent on these contracts on a straight-line basis over the lease term. At inception of the lease term, any periods for
which no rents are paid and/or escalation clauses are stipulated in the lease contract are included in the determination of the rent expense and recognized ratably over the lease term.

The
Company records liabilities for legal obligations associated with the future retirement of buildings and leasehold improvements at fair value when incurred. As required under
Financial Accounting Standards Board (FASB) Interpretation No. 47 (FIN No. 47), "Accounting for Asset Retirement Obligations," the assets are increased by the related liability and
depreciated over the estimated useful life of that asset.



Assets, liabilities and results of operations for foreign branches are recorded based on the functional currency (i.e., the
local currency) of each branch. Assets and liabilities denominated in foreign currencies are translated into U.S. dollars using the period end spot foreign exchange rates. Revenues and expenses are

F-68

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2006, 2007 and 2008 (Continued)

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

translated
daily using end of day spot foreign exchange rates, with resulting gains or losses included in stockholder's equity, as a component of accumulated other comprehensive income (loss), on a
net of tax basis.



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



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



On January 1, 2006, the Company adopted SFAS No. 123(R), "Share-Based Payment," a revision of SFAS No. 123,
"Accounting for Stock-Based Compensation," and elected to use the modified prospective application method to transition to the new accounting standard. SFAS No. 123(R) requires that
compensation costs related to share-based payment transactions be recognized in the financial statements. Measurement of the cost of employee service is based on the grant-date fair value
of the equity or liability instrument issued. SFAS 123(R) also prescribes that estimated forfeitures of shares are to be included in the calculation of compensation expense.

Under
the modified prospective transition method, compensation cost is recognized for the portion of outstanding awards for which the requisite service has not yet been rendered. The
cost is being recognized over the period during which the employees are required to provide service. The pre-tax impact of this change on income from continuing operations (which includes
the impact of estimated forfeitures for restricted stock and the recognition of compensation costs related to nonvested stock options) was a reduction of $21.5 million, or $13.4 million
after-tax for the year ended December 31, 2006.

At
December 31, 2007, the Company had two stock-based employee compensation plans, which were terminated subsequent to the Company's privatization transaction. For further
discussion concerning the Company's stock-based employee compensation plans, see Note 16 to these consolidated financial

F-69

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2006, 2007 and 2008 (Continued)

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

statements.
Options granted under the plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The value of the restricted stock awards issued under
the
plans and the value of that portion of outstanding option awards for which the requisite service was not rendered is being recognized ratably over the remaining service period as compensation expense.



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



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

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



Common stock repurchased is shown separately in the statement of changes in stockholder's equity at cost and shares repurchased are
deducted from shares outstanding until retired. Gains and losses resulting from shares reissued are based on the average cost of shares repurchased. Gains and losses, up to the amount of gains
previously recognized, are included in additional paid in capital. Losses in excess of the gains previously recognized reduce retained earnings. As a result of becoming a privately held company on
November 4, 2008, the Company cancelled all of its treasury stock.



In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS)
No. 157, "Fair Value Measurements." The Statement defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands
disclosures about fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. A three-level hierarchy ranks the quality and reliability of information used to determine fair values with the highest priority given to quoted prices in active
markets and the lowest priority given to model values that include inputs based on unobservable data. The Statement applies whenever other accounting standards require or permit assets or liabilities
to be measured at fair value. The Statement was effective January 1, 2008. However, on February 12, 2008, the FASB issued Staff Position (FSP) FAS 157-2, "Effective
Date of FASB Statement 157," which allows companies to delay for one year the effective date of SFAS No. 157 for all nonfinancial assets and liabilities that are measured at fair value on a
nonrecurring basis. The Company has elected to delay the effective date of the Statement for its nonfinancial assets and liabilities, including goodwill and intangible assets. Effective
January 1, 2008, the Company adopted SFAS No. 157 for its financial assets and liabilities measured and reported at fair value. At adoption, there was no impact on the

F-70

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2006, 2007 and 2008 (Continued)

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

Company's
financial position or results of operations. For detailed information on the Company's fair value measurements, see Note 18 to these condensed consolidated financial statements.



In September 2006, the FASB issued SFAS No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement
Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R)." The Statement requires a company that sponsors a defined benefit pension plan or other postretirement benefit plan to
recognize the funded status of the benefit plan as an asset or liability, measured as the difference between the fair value of plan assets and the benefit obligation. It requires immediate recognition
of previously unrecognized prior service costs and
credits, unrecognized net actuarial gains or losses, and any unrecognized transition obligation or asset as components of other comprehensive income. The Statement was effective for the year ended
December 31, 2006. At adoption, the Company's stockholder's equity was reduced by $161 million, net of tax. Disclosures required under this statement are contained in Note 9 to
these consolidated financial statements.



In September 2006, the Emerging Issues Task Force (EITF) reached a consensus on EITF Issue No. 06-4, "Accounting for
Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements." The guidance requires that an agreement by the employer to share a portion of the
proceeds of a life insurance policy with the employee during the postretirement period is a postretirement benefit arrangement for which a liability must be recorded. The Company adopted
EITF 06-4 on January 1, 2008. At adoption, the Company's retained earnings were reduced by $0.2 million and there was no impact on the Company's results of operations.



In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities, Including
an amendment of FASB Statement No. 115." The Statement permits entities to choose to measure many financial instruments and certain other assets and liabilities at fair value on an
instrument-by-instrument basis, with changes in fair value recognized in earnings each reporting period. An entity may elect the fair value option for existing assets and
liabilities at the date of initial adoption and when first recognizing eligible instruments. The Statement was effective January 1, 2008. Management did not make the fair value option election,
and, therefore, there was no impact on the Company's financial position or results of operations.



In June 2007, the EITF reached a consensus on EITF Issue No. 06-11, "Accounting for Income Tax Benefits of Dividends
on Share-Based Payment Awards." The EITF requires that the tax benefit related to dividend equivalents paid on restricted stock and restricted stock units, which are expected to vest, be recorded as
an increase to additional paid-in-capital. Prior to the issuance of this EITF, the Company recorded this tax benefit as a reduction to income tax expense. The EITF was
effective for all tax benefits on dividends declared by the Company after January 1, 2008, with early application permitted as of the beginning of the fiscal year. At adoption, there was no
impact on the Company's financial position or results of operations. As a

F-71

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2006, 2007 and 2008 (Continued)

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

result
of the Company becoming a privately held company on November 4, 2008 and the elimination of share-based payment awards, there is no future impact on the Company's financial position or
results of operations.



In December 2007, the FASB issued SFAS No. 141(R), "Business Combinations," which replaces SFAS No. 141. The Statement
requires that all business combinations be accounted for under the "acquisition method." The Statement requires that the assets, liabilities and noncontrolling interests of a business combination be
measured at fair value at the acquisition date. The acquisition date is defined as the date an acquirer obtains control of the entity, which is typically the closing date. The Statement requires that
all acquisition and restructuring related costs be expensed as incurred and that any contingent consideration be measured at fair value and recorded as either equity or a liability with the liability
remeasured at fair value in subsequent periods. The Statement is effective January 1, 2009. Management believes that adopting this statement will not have an impact on the Company's financial
position or results of operations. However, management is currently evaluating the impact this Statement may have on the Company's financial position and results of operations related to future
acquisitions.



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



In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activitiesan
amendment of FASB Statement No. 133." The Statement requires expanded qualitative, quantitative and credit-risk disclosures of derivative instruments and hedging activities. These
disclosures include more detailed information about gains and losses, location of derivative instruments in financial statements, and credit-risk-related contingent features in
derivative instruments. The Statement also clarifies that derivative instruments are subject to concentration of credit risk disclosures under SFAS No. 107, "Disclosure About Fair Value of
Financial Instruments." The Statement, which applies only to disclosures, is effective January 1, 2009.



In May 2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted Accounting Principles." The Statement identifies
the sources of accounting principles and establishes a hierarchy for selecting those principles to prepare financial statements in accordance with US GAAP. The Statement was effective
November 15, 2008. At adoption, there was no impact on the Company's financial position or results of operations.

F-72

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2006, 2007 and 2008 (Continued)

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



In September 2008, the FASB issued FSP FAS 133-1 and FASB Interpretation (FIN) 45-4, "Disclosures about
Credit Derivatives and Certain Guarantees: An Amendment of FASB Statement No. 133 and FASB Interpretation No. 45; and Clarification of the Effective Date of FASB Statement
No. 161." The FSP requires sellers of credit derivatives to provide expanded disclosures about the nature of their credit derivatives, the maximum potential amount of future payments and the
fair value of credit derivatives at the financial statement date. The FIN requires guarantors to disclose the current status of the payment/performance risk of all guarantees. The Statement, which
applies only to disclosures, was effective December 31, 2008. Guarantor disclosures required under this statement are contained in Note 24 to these consolidated financial statements.



In October 2008, the FASB issued FSP FAS 157-3, "Determining the Fair Value of a Financial Asset When the Market for
That Asset is Not Active." The FSP provides guidance clarifying how SFAS No. 157 should be applied when valuing securities in markets that are not active. The guidance states that significant
judgment is required in valuing financial assets and clarifies how management's internal assumptions should be considered when relevant observable data does not exist, how observable market
information in a market that is not active should be considered when measuring fair value, and how the use of market quotes should be considered when assessing the relevance of observable and
unobservable data available to measure fair value. The FSP was effective upon issuance and includes financial statements for the period ended and as of September 30, 2008. The clarifying
guidance provided by FSP FAS 157-3 did not result in a change to the Company's application of SFAS No. 157 and did not impact the Company's financial position or results of
operations.



In December 2008, the FASB issued FSP FAS 140-4 and FIN 46(R)-8, "Disclosures by Public Entities
(Enterprises) about Transfers of Financial Assets and Interests in Variable Interest Entities." The FSP requires companies to provide expanded disclosures about the transfers of financial assets and
involvement with variable interest entities (VIEs). The disclosures include information about a company's continuing involvement with transferred financial assets and VIEs, details regarding financial
or other support provided and the methodology used to determine VIE consolidation. The Statement, which applies only to disclosures, is effective December 31,
2008. Because the Company has no significant variable interests in VIEs and does not sponsor VIEs, there was no impact on the Company's financial statement disclosures.



In December 2008, the FASB issued FSP FAS 132(R)-1, "Employers' Disclosures about
Postretirement Benefit Plan Assets" which expands the disclosure requirements related to an employer's defined benefit pension or other postretirement plan set forth in FAS
No. 132 (R), "Employers' Disclosures about Pensions and Other Postretirement Benefits." The FSP requires additional disclosure information including how a company makes investment allocation
decisions, the fair value of each major category of plan assets and the nature and amount of concentration risk within or across those plan asset categories. Additionally, the FSP requires

F-73

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2006, 2007 and 2008 (Continued)

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

disclosures
about the valuation of plan assets similar to those required in SFAS No. 157, "Fair Value Measurements", including the level within the fair value hierarchy in which fair value
measurements of plan assets fall and information about the inputs and valuation techniques used to measure the fair value of plan assets. The Statement, which applies only to disclosures, is effective
December 31, 2009.



In January 2009, the FASB issued FSP EITF 99-20-1, "Amendments to the Impairment
Guidance of EITF Issue No. 99-20."The FSP amends the other-than-temporary impairment guidance related to beneficial interests in
securitized financial assets to align the guidance with the impairment guidance within SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" in determining whether an other-than-temporary impairment has occurred. The FSP eliminates the requirement to consider an estimate of cash
flows that a market participant would use in determining the fair value of the beneficial interest and allows management judgment in assessing the probability of an adverse change in estimated cash
flows in determining an other-than-temporary impairment. This FSP was effective December 31, 2008. At adoption, there was no impact on the Company's financial position
or results of operations.

Note 2Privatization

The privatization transaction was accounted for as a business combination as prescribed by Statement of Financial Accounting Standards (SFAS) No. 141, "Business Combinations" and
the purchase price was pushed down to the Company's consolidated financial statements in accordance with Securities and Exchange Commission (SEC) Staff Accounting Bulletin No. 54, "Application
of Push Down Basis of Accounting in Financial Statements of Subsidiaries Acquired by Purchase." Accordingly, the purchase price paid by BTMU plus related purchase accounting adjustments have been
reflected on the Company's consolidated balance sheet as of October 1, 2008. This has resulted in a new basis of accounting which reflects an adjustment for the estimated fair value of the
Company's assets and liabilities. On October 1, 2008, BTMU owned approximately 97 percent of the Company's common stock and acquired the remaining 3 percent on November 4, 2008. The
difference in the fair value between these dates was deemed to be immaterial. Accordingly, the Company recorded all fair value adjustments on October 1, 2008.

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

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

F-74

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2006, 2007 and 2008 (Continued)

Note 2Privatization (Continued)

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

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

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


49,904,762Offer price

$
73.50Purchase price


3,668Capitalized acquisition costs


15Total

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

$
4,693Minority interest ratio


35.58
%Minority interest as of September 30, 2008


1,670Other adjustment


8Minority interest acquired by BTMU


1,678Goodwill


2,005Fair value adjustments


(326
)Goodwill pushed-down from BTMU


335Total goodwill recorded

$
2,014


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

(Dollars in millions)Retail Banking

$
946Wholesale Banking


1,068Total

$
2,014


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

F-75

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2006, 2007 and 2008 (Continued)

Note 2Privatization (Continued)

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

(Dollars in millions)AssetsTotal cash and cash equivalents

$
2,464Trading account assets


729Securities available for sale


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


47,437Due from customers on acceptances


22Premises and equipment, net


657Intangible assets


756Goodwill


2,369Other assets


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


5Total assets

$
65,262LiabilitiesTotal deposits

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


1,760Commercial paper


1,660Other borrowed funds


6,719Trading account liabilities


507Acceptances outstanding


22Other liabilities


1,319Medium- and long-term debt


3,803Junior subordinated debt payable to subsidiary grantor trust


14Liabilities of discontinued operations to be extinguished or assumed


22Total liabilities


58,182Total stockholder's equity


7,080Total liabilities and stockholder's equity

$
65,262


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

(Dollars in millions)

Fair Value at
October 1, 2008

Life (years)Core deposit intangibles

$
484


10Customer relationships


57


22Trade name


109


40Other


10


7Total

$
660


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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2006, 2007 and 2008 (Continued)

Note 2Privatization (Continued)

The amortization (accretion) of the fair value adjustments by category for 2008 were $42 million for intangibles, ($2) million for premises
and equipment, ($14) million for loans, $4 million for cash flow hedges and $1 million for debt.

In
2008, the Company recorded expenses for the privatization transaction as follows:

(Dollars in thousands)

For the year ended
December 31, 2008Salaries and employee benefits(1)

$
65,047Professional services


22,029Other


3,429Total

$
90,505


---

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

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

Note 3Securities

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

F-77

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2006, 2007 and 2008 (Continued)

Note 3Securities (Continued)

Securities Available For Sale

2006

2007

2008(Dollars in thousands)

Fair
Value

Amortized
Cost

Gross Unrealized Gains

Gross Unrealized Losses

Fair Value

Amortized Cost(1)

Gross Unrealized Gains

Gross Unrealized Losses

Fair ValueU.S. Treasury

$
59,874

$
1,008

$


$


$
1,008

$


$


$


$
Other U.S. government


744,197


704,391


8,362


645


712,108


761,000


17,988





778,988Mortgage-backed securities


5,645,011


5,733,837


34,746


46,604


5,721,979


6,010,860


87,803


136,630


5,962,033State and municipal


61,966


53,694


3,118


56


56,756


52,749


2,185


87


54,847Asset-backed and debt securities


2,219,681


2,157,455


3,942


212,542


1,948,855


1,837,287


48,921


597,310


1,288,898Equity securities


24,172


12,557


504





13,061


109,919


126


355


109,690Foreign securities


1,321


1,393








1,393


82








82Total securities available for sale

$
8,756,222

$
8,664,335

$
50,672

$
259,847

$
8,455,160

$
8,771,897

$
157,023

$
734,382

$
8,194,538


---

For the years ended December 31, 2006, 2007 and 2008, interest income included $3.1 million, $2.9 million and
$5.9 million, respectively, from non-taxable securities.

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

Maturity Schedule of Securities

Securities
Available for Sale(1)December 31, 2008(Dollars in thousands)

Amortized
Cost

Fair
ValueDue in one year or less

$
289,858

$
293,283Due after one year through five years


750,349


762,390Due after five years through ten years


2,647,117


2,356,554Due after ten years


4,974,654


4,672,621Equity securities(2)


109,919


109,690Total securities

$
8,771,897

$
8,194,538


---

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2006, 2007 and 2008 (Continued)

Note 3Securities (Continued)

In
2006, proceeds from sales of securities available for sale were $144 million with gross realized gains of $2.9 million and gross realized losses of $0.7 million.
The loss of $0.7 million in 2006 resulted from the recognition of an other-than-temporary impairment. In 2007, proceeds from sales of securities available for sale were
$353 million with gross realized gains of $1.6 million and
no gross unrealized losses. In 2008, proceeds from sales of securities available for sale were $15 million with gross realized gains of $74 thousand and $30 thousand of gross
realized losses.

Analysis of Unrealized Losses on Securities Available for Sale

At December 31, 2007 and 2008, the Company's securities available for sale, shown below, were in a continuous unrealized loss
position for the periods less than 12 months and 12 months or more.

December 31, 2007Less 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

CountU.S. Treasury

$
1,008

$



1

$


$





$
1,008

$



1Other U.S. government











103,355


645


4


103,355


645


4Mortgage-backed securities


84,878


615


7


2,919,654


45,989


246


3,004,532


46,604


253State and municipal











9,832


56


36


9,832


56


36Asset-backed and debt securities


1,624,623


194,963


218


283,706


17,579


29


1,908,329


212,542


247Total securities available for sale

$
1,710,509

$
195,578


226

$
3,316,547

$
64,269


315

$
5,027,056

$
259,847


541




December 31, 2008Less than 12 months

12 months or more

Total(Dollars in thousands)

Fair
Value

Unrealized
Losses

Count

Fair
Value

Unrealized
Losses

Count

Fair
Value

Unrealized
Losses

CountU.S. Treasury

$


$





$


$





$


$



Other U.S. government


























Mortgage-backed securities


519,865


54,567


35


791,135


82,063


93


1,311,000


136,630


128State and municipal


3,242


74


5


1,669


13


7


4,911


87


12Asset-backed and debt securities


38,221


9,261


3


1,088,480


588,049


218


1,126,701


597,310


221Equity securities


5,085


355


3











5,085


355


3Total securities available for sale

$
566,413

$
64,257


46

$
1,881,284

$
670,125


318

$
2,447,697

$
734,382


364


The Company's securities are primarily investments in debt securities, which the Company has the ability and intent to hold until recovery of the
carrying value. The following describes the nature of the investments, the causes of impairment, the severity and duration of the impairment, if applicable, and a discussion regarding how the Company
has determined that the unrealized loss is not other-than-temporary.



U.S. Treasury securities are securities backed by the full faith and credit of the United States government and therefore have no risk
of default. These securities are issued at a stated interest rate and mature within one year. 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 yield and as the securities

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2006, 2007 and 2008 (Continued)

Note 3Securities (Continued)

approach
maturity. Since the Company has the ability and intent to hold the U.S. Treasury securities until recovery of the carrying value, which could be maturity, the unrealized loss is considered
temporary.



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



Our mortgage-backed securities consist primarily of agency mortgage securities guaranteed by a GSE such as Fannie Mae or Freddie Mac
and relatively small amounts of AAA-rated private label mortgage securities. These securities are collateralized by residential mortgage loans and may be prepaid at par prior to maturity.
All of the unrealized losses on the Agency mortgage-backed securities resulted from rising interest rates subsequent to purchase and in the case of private label mortgage securities, additional credit
spread widening since purchase. The credit quality of these securities are monitored and an evaluation is performed, if warranted, to determine whether an other-than-temporary
impairment exists. The securities are subject to the provisions of SFAS No. 91, "Accounting for Non-refundable Fees and Costs Associated with Originating or Acquiring Loans and
Initial Direct Costs of Leases," and any purchased premiums in excess of the par amount are evaluated for recoverability on a quarterly basis. Any adjustments resulting from that evaluation are
recorded in interest income. Unrealized losses, beyond the
purchased premium, will decline as interest rates fall to the purchased yield and as the securities approach contractual or expected maturity. Since the securities do not have observable credit
quality issues and the Company has the ability and intent to hold the mortgage-backed securities until recovery of the par amount, which could be maturity, the unrealized loss is considered temporary.



State and municipal securities are primarily securities issued by state and local governments to finance operating expenses and various
projects. These securities are issued at a stated interest rate and have varying expected maturities ranging up to 30 years. The majority of the unrealized losses on the state and municipal
securities resulted from rising interest rates subsequent to purchase. Unrealized losses will decline as interest rates fall to the purchased yield and as the securities approach maturity. Since the
Company has the ability and intent to hold the state and municipal securities until recovery of the carrying value, which could be maturity, the unrealized loss is considered temporary.



Asset-backed and debt securities consist of credit card receivable securities and collateralized loan obligations (CLOs). Certain of
these CLOs are highly illiquid for which fair values are difficult to obtain. Unrealized losses arise from rising interest rates, widening credit spreads, credit quality of the underlying collateral,
uncertainty regarding the valuation of such securities and the market's opinion of the performance of the fund managers. Cash flow analysis of the underlying collateral provides an estimate of

F-80

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2006, 2007 and 2008 (Continued)

Note 3Securities (Continued)

other-than-temporary
impairment, which is performed quarterly on lower rated securities. Any security with a change in credit rating is also subject to cash flow analysis to
determine whether or not an other-than-temporary impairment exists. The fair value of the CLO portfolio was adversely impacted in 2007 by the liquidity crisis caused by the
subprime loan industry and in 2008 by the overall financial market crisis. Although none of the CLOs in the Company's portfolio contain subprime loan assets, widening credit spreads caused their value
to decline. Since the securities do not have observable credit quality issues and the Company has the ability and intent to hold the asset-backed and debt securities until recovery of the carrying
value, which could be maturity, the unrealized loss is considered temporary.



The Company reports securities pledged as collateral in secured borrowings and other arrangements when the secured party can sell or
repledge the securities. These securities have been separately identified. If the secured party cannot resell or repledge the securities of the Company, those securities are not separately identified.
As of December 31, 2007 and 2008, the Company had collateral pledged for borrowings and to secure public and trust department deposits and for other purposes as required or permitted by law of
$4.3 billion and $5.9 billion, respectively. These secured parties are not permitted to resell or repledge those securities.

At
December 31, 2007 and 2008, the Company had not accepted any securities as collateral that it is permitted by contract to sell or repledge.

F-81

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2006, 2007 and 2008 (Continued)

Note 4Loans and Allowance for Loan Losses

A summary of loans, net of unearned interest and fees (costs) of ($15) million and $14 million, at December 31, 2007 and 2008, respectively, is as follows:

December 31,(Dollars in thousands)

2007

2008(1)Commercial, financial and industrial(2)

$
14,563,477

$
18,469,023Construction


2,406,729


2,744,062Mortgage:Residential


13,827,241


15,880,835Commercial


7,021,299


8,186,388Total mortgage


20,848,540


24,067,223Consumer:Installment


1,327,348


2,201,602Revolving lines of credit


1,334,132


1,435,494Total consumer


2,661,480


3,637,096Lease financing


654,467


645,765Total loans held for investment


41,134,693


49,563,169Total loans held for sale


69,495


22,381Total loans


41,204,188


49,585,550Allowance for loan losses


402,726


737,767Loans, net

$
40,801,462

$
48,847,783


---

Changes in the allowance for loan losses were as follows:

Years Ended December 31,(Dollars in thousands)

2006

2007

2008Balance, beginning of year

$
351,532

$
331,077

$
402,726Loans charged off


40,655


18,604


177,282Recoveries of loans previously charged off


25,207


8,489


7,321Total net loans charged off


15,448


10,115


169,961(Reversal of) provision for allowance for loan losses


(5,000
)

81,000


515,000Privatizationadjustment for impaired loans








(8,417
)Foreign translation adjustment


(7
)

764


(1,581
)Ending balance of allowance for loan losses


331,077


402,726


737,767Allowance for off-balance sheet commitment losses


81,374


90,374


125,374Allowances for credit losses balance, end of year

$
412,451

$
493,100

$
863,141


F-82

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2006, 2007 and 2008 (Continued)

Note 4Loans and Allowance for Loan Losses (Continued)

Nonaccrual loans totaled $56 million and $415 million at December 31, 2007 and 2008, respectively. There were no troubled
debt restructured loans (TDRs) at December 31, 2007 and $1 million at December 31, 2008. Loans 90 days past due and still accruing totaled $20.1 million and
$70.7 million at December 31, 2007 and 2008, respectively.



Impaired loans of the Company include commercial, financial and industrial, construction and commercial mortgage loans designated as
nonaccrual. When the value of an impaired loan is less than the recorded investment in the loan, a portion of the Company's allowance for loan losses is allocated as an impairment allowance.

The
Company's policy for recognition of interest income, charge offs of loans, and application of payments on impaired loans is the same as the policy applied to nonaccrual loans.

The
following table sets forth information about the Company's impaired loans.

December 31,(Dollars in thousands)

2006

2007

2008Impaired loans with an allowance

$
26,739

$
55,522

$
410,494Impaired loans without an allowance(1)





208


5,807Total impaired loans(2)

$
26,739

$
55,730

$
416,301Allowance for impaired loans

$
2,975

$
11,250

$
106,835Average balance of impaired loans during the year

$
26,833

$
40,460

$
262,722Interest income recognized during the year on nonaccrual loans at December 31(3)

$
3,636

$
3,912

$
4,315


---

F-83

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2006, 2007 and 2008 (Continued)

Note 4Loans and Allowance for Loan Losses (Continued)



In some cases, the Company makes loans to related parties including its directors, executive officers, and their affiliated companies.
Such loans are recorded in loans on the consolidated balance sheet. At December 31, 2008, related party loans outstanding to individuals who served as directors or executive officers and their
affiliated companies at anytime during the year totaled $17 million. The comparable figure at December 31, 2007 totaled $13 million. In the opinion of management, these related
party loans were made on substantially the same terms, including interest rates and collateral requirements, as those terms prevailing in the market at the date these loans were made. During 2007 and
2008, there were no loans to related parties that were charged off. Additionally, at December 31, 2007 and 2008, there were no loans to related parties that were nonperforming.

During
2007 and 2008, the Company extended credit to BTMU, in the form of overdrafts in BTMU's accounts with the Company in the ordinary course of business. There were no overdraft
balances outstanding as of December 31, 2007 and 2008.

Note 5Goodwill and Other Intangible Assets



The changes in the carrying amount of goodwill, which is reported on a continuing operations basis, during 2006, 2007 and 2008, are
shown in the table below.

As
part of the Company's privatization transaction, $2.0 billion of goodwill was recorded on October 1, 2008. For further information, see Note 2 to these
consolidated financial statements.

(Dollars in thousands)

2006

2007

2008Goodwill, beginning of year

$
360,584

$
360,058

$
355,287Adjustment for contingent consideration


(526
)




Adjustment of goodwill related to RRB sale





(4,771
)

Goodwill related to privatization transaction








2,014,039Goodwill, end of year

$
360,058

$
355,287

$
2,369,326


The
Company's annual impairment testing for 2006 and 2007 resulted in no impairment of goodwill. However, in 2008, as a result of softening in the insurance market and declining fair
value, the Company performed a goodwill impairment test as of March 31, 2008 on its Insurance Brokerage Business (IBB), which was sold in June 2008. As required by SFAS No. 142,
"Goodwill and Other Intangible Assets," the Company determined that the carrying value of the net assets, including related goodwill, was greater than the fair value of the insurance brokerage
business, which was based on indicative prices for insurance agencies. Consequently, the Company recorded an $18.7 million goodwill impairment charge. As part of the sale of the IBB in June
2008, the Company eliminated $74.7 million in goodwill. The goodwill impairment charge and elimination of goodwill of the IBB was reported within the discontinued operations results. In 2007,
the Company eliminated $4.8 million in goodwill related to its retirement recordkeeping business (RRB) discontinued operations. For additional information on the Company's sale of its IBB and
RRB, see Note 23 to these consolidated financial statements.

F-84

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2006, 2007 and 2008 (Continued)

Note 5Goodwill and Other Intangible Assets (Continued)



The table below reflects the Company's identifiable intangible assets and accumulated amortization on a continuing operations basis at
December 31, 2007 and 2008. The identifiable intangible assets related to the RRB and the IBB discontinued operations have been excluded from this table.

As
part of the privatization transaction, the Company recorded $752 million of intangible assets (CDI of $576 million, trade name of $109 million, customer
relationships of $57 million and other of $10 million) on October 1, 2008. For further information, see Note 2 to these consolidated financial statements.

December 31, 2007

December 31, 2008Dollars in thousands

Gross Carrying
Amount

Accumulated
Amortization

Net
Carrying
Amount

Gross Carrying
Amount

Accumulated
Amortization

Net
Carrying
AmountCore deposit intangibles

$
51,698

$
(45,240
)
$
6,458

$
619,398
(1)
$
(79,585
)(1)
$
539,813Trade name











108,733


(683
)

108,050Customer relationships











53,761


(1,323
)

52,438Other











9,555





9,555Subtotalintangibles with a definite useful life

$
51,698

$
(45,240
)
$
6,458

$
791,447

$
(81,591
)
$
709,856Other intangibles with an indefinite useful life











3,629





3,629Total intangibles

$
51,698

$
(45,240
)
$
6,458

$
795,076

$
(81,591
)
$
713,485


---

Total amortization expense on a continuing operations basis for 2006, 2007 and 2008 was $7.9 million, $4.5 million and
$44.9 million, respectively.

F-85

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2006, 2007 and 2008 (Continued)

Note 5Goodwill and Other Intangible Assets (Continued)

Estimated
future amortization expense on a continuing operations basis at December 31, 2008 is as follows.

(Dollars in thousands)

Core Deposit
Intangibles (CDI)

Trade Name

Customer
Relationships

Other

Total identifiable
intangible assetsYears ending December 31,:2009

$
153,457

$
2,747

$
4,208

$
1,743

$
162,1552010


114,029


2,747


4,246


1,418


122,4402011


88,016


2,747


3,968


1,418


96,1492012


69,259


2,747


3,679


1,418


77,1032013


44,743


2,747


3,436


1,418


52,344Thereafter


70,309


94,315


32,901


2,140


199,665Total estimated amortization expense

$
539,813

$
108,050

$
52,438

$
9,555

$
709,856


Note 6Premises and Equipment

Premises and equipment are carried at cost, less accumulated depreciation and amortization. Software in development is included in other assets. As of December 31, 2007 and 2008,
the amounts were as follows:

December 31,2007

2008(Dollars in thousands)

Cost

Accumulated Depreciation and Amortization

Net Book Value

Cost (1)

Accumulated Depreciation and Amortization

Net Book Value (1)Land

$
64,192

$


$
64,192

$
133,965

$


$
133,965Premises


506,880


264,681


242,199


601,088


276,476


324,612Leasehold improvements


227,653


156,709


70,944


267,739


173,277


94,462Furniture, fixtures and equipment


615,514


506,815


108,699


656,813


529,848


126,965Total

$
1,414,239

$
928,205

$
486,034

$
1,659,605

$
979,601

$
680,004


---

F-86

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2006, 2007 and 2008 (Continued)

Note 6Premises and Equipment (Continued)

Rental, depreciation and amortization expenses were as follows:

Years ended December 31,(Dollars in thousands)

2006

2007

2008Rental expense of premises

$
51,150

$
54,534

$
59,055Less: rental income


11,642


10,367


11,415Net rental expense

$
39,508

$
44,167

$
47,640Other net rental expense, primarily for equipment

$
253

$
406

$
414Depreciation and amortization of premises and equipment

$
88,214

$
83,921

$
88,221


Future minimum lease payments at December 31, 2008 are as follows:

(Dollars in thousands)Years ending December 31,2009

$
60,6872010


60,9522011


54,0962012


50,6852013


47,268Thereafter


240,628Total minimum operating lease payments

$
514,316Minimum rental income due in the future under subleases

$
2,035


A
majority of the leases provide for the payment of taxes, maintenance, insurance, and certain other expenses applicable to the leased premises. Many of the leases contain extension
provisions and escalation clauses.

At
December 31, 2007 and 2008, the Company had recorded a liability of $4.1 million and $4.3 million, respectively, for asset retirement obligations related to both
continuing and discontinued operations. These obligations include environmental remediation on buildings and the removal of leasehold improvements from leased premises to be vacated. Additional
obligations for hazardous material disposal and premise restoration related to continuing operations are not estimable due to the uncertainty of disposal or lease termination dates.

Note 7Other Assets



The Company invests in private capital funds either directly in privately held companies or indirectly through private equity funds.
These investments are carried at cost. The investments' fair value is estimated quarterly based on a company's business model, current and projected financial performance, liquidity and overall
economic and market conditions. If fair value is estimated to be below cost, an evaluation for other-than-temporary impairment is performed. If any of the factors used to
determine fair value indicate that a forecasted recovery is beyond a reasonable period of time, an other-than-temporary impairment is recorded. At

F-87

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2006, 2007 and 2008 (Continued)

Note 7Other Assets (Continued)

December 31,
2007 and 2008, private capital investments had a carrying value of $137.4 million and $153.1 million, respectively.

The
Company records foreclosed assets at the lower of cost or fair value, less selling expenses. At December 31, 2007 and 2008, the value of foreclosed assets was
$0.8 million and $20.2 million, respectively.



The Company also invests in limited liability partnerships and other entities operating qualified affordable housing projects to
receive tax benefits in the form of tax deductions from operating losses and tax credits. These low-income housing credit (LIHC) investments provide tax benefits to investors in the form
of tax deductions from operating losses and tax credits. The unguaranteed LIHC investments are initially recorded at cost, and the carrying value is amortized over the period of available tax credits
and tax benefits. At December 31, 2007 and 2008, unguaranteed LIHC investments were carried at the amortized cost of $257.2 million and $329.0 million, respectively.

The
Company also invests in guaranteed LIHC investments where the availability of tax credits are guaranteed by a creditworthy entity. These investments are accounted for under the
effective yield method. The investments are initially recorded at cost and amortized over the period the tax credits are allocated to provide a constant effective yield. At December 31, 2007
and 2008, the guaranteed LIHC investments were carried at the amortized cost of $225.3 million and $219.9 million, respectively.

The
Company invests in limited liability partnerships that operate renewable energy projects. Tax credits, taxable income and distributions associated with these renewable energy
projects are allocated to investors according to the terms of the partnership agreements. These investments are accounted for under the equity method, with the initial investment recorded at cost and
the carrying value adjusted for the Company's share of partnership net income and distributions received. These investments are tested annually for impairment, based on projected operating results and
expected realizability of tax credits. At December 31, 2007 and 2008, the carrying value of renewable energy investments was $134.1 million and $165.7 million, respectively.

Note 8Deposits

At December 31, 2008, the Company had $314.1 million in domestic interest bearing time deposits with a remaining term of greater than one year, of which
$59.5 million exceeded $100,000. Maturity information for all domestic interest bearing time deposits with a remaining term of greater than one year is summarized below.

(Dollars in thousands)

December 31, 2008Due after one year through two years

$
141,748Due after two years through three years


44,826Due after three years through four years


34,928Due after four years through five years


90,408Due after five years


2,161Total

$
314,071


F-88

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2006, 2007 and 2008 (Continued)

Note 9Employee Pension and Other Postretirement Benefits

The following information includes both continuing and discontinued operations.



The Company maintains the Union Bank Retirement Plan (the Pension Plan), which is a noncontributory qualified defined benefit pension
plan covering substantially all of the domestic employees of the Company. The Pension Plan provides retirement benefits based on years of credited service and the final average compensation amount, as
defined in the Pension Plan. Employees become eligible for this Plan after one year of service and become fully vested after five years of service. The Company's funding policy is to make
contributions between the minimum required and the maximum deductible amount as allowed by the Internal Revenue Code. Contributions are intended to provide not only for benefits attributed to services
to date, but also for those expected to be earned in the future.



The Company maintains the Union Bank Employee Health Benefit Plan, which is a qualified plan and in part provides certain healthcare
benefits for its retired employees and life insurance benefits for those employees who retired prior to January 1, 2001, which together are presented as "other benefits." The healthcare cost is
shared between the Company and the retiree. The life insurance plan is noncontributory. The accounting for the Other Benefits Plan anticipates future cost-sharing changes that are
consistent with the Company's intent to maintain a level of cost-sharing at approximately 25 to 50 percent, depending on age and length of service with the Company. Assets set aside
to cover such obligations are primarily invested in mutual funds and insurance contracts.

The
following table sets forth the fair value of the assets in the Company's defined benefit pension plan and other postretirement benefit plan as of December 31, 2007 and 2008.

Pension Plan

Other Benefits PlanYears Ended December 31,

Years Ended December 31,(Dollars in thousands)

2007

2008

2007

2008Change in plan assetsFair value of plan assets, beginning of year

$
1,595,096

$
1,744,500

$
164,810

$
173,603Actual return on plan assets


138,894


(356,352
)

10,512


(32,538
)Fair value adjustment amount related to the Company's privatization





(133,803
)




(13,480
)Employer contributions


50,000





9,540


8,831Plan participants' contributions








2,934


4,239Benefits paid


(39,490
)

(45,054
)

(14,193
)

(15,603
)Fair value of plan assets, end of year

$
1,744,500

$
1,209,291

$
173,603

$
125,052


F-89

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2006, 2007 and 2008 (Continued)

Note 9Employee Pension and Other Postretirement Benefits (Continued)

The following table provides the Company's actual period-end asset allocation by asset category for the Pension Plan and Other
Benefits Plan. The Plans do not hold any equity or debt securities issued by the Company or any related parties.

Pension Plan

Other Benefits PlanDecember 31,

December 31,Asset Category

2006

2007

2008

2006

2007

2008Domestic equity securities


47
%

46
%

44
%

38
%

38
%

39
%International equity securities


21


20


20


17


16


15Fixed income debt securities


27


29


27


22


24


23Insurance contracts











23


22


23Real estate


5


5


9








Total


100
%

100
%

100
%

100
%

100
%

100
%


The investment objective for the Company's Pension Plan and Other Benefits Plan is to maximize total return within reasonable and prudent levels
of risk. The Plans' asset allocation strategy is the principal determinant in achieving expected investment returns on the Plans' assets. The asset allocation strategy favors equities, with a target
allocation of 65 percent in equity securities, 25 percent in debt securities and 10 percent in real estate investments. Additionally, the Health Plan holds investments in an
insurance contract with Hartford Life that is separate from the target allocation. Actual asset allocations may fluctuate within acceptable ranges due to market value variability. If market
fluctuations cause an asset class to fall outside of its strategic asset allocation range, the portfolio will be rebalanced as appropriate. A core equity position of domestic large cap and small cap
stocks will be maintained, in conjunction with a diversified portfolio of international equities and fixed income securities. Plan asset performance is compared against established indices and peer
groups to evaluate whether the risk associated with the portfolio is appropriate for the level of return.

The
Company periodically reconsiders the appropriate strategic asset allocation and the expected long-term rate of return for plan assets. Management evaluates the investment
return volatility of different asset classes and compares the liability structure of the Company's plan to those of other companies, while considering the Company's funding policy to maintain a funded
status sufficient to meet participants' benefit obligations, and reducing long-term funding requirements and pension costs. Based on this information, the Company updates its asset
allocation strategy and target investment allocation percentages for the assets of the plan, as well as adopts an expected long-term rate of return.

The
following table sets forth the benefit obligation activity and the funded status for each of the Company's plans at December 31, 2007 and 2008. In addition, the table sets
forth the over/(under) funded

F-90

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2006, 2007 and 2008 (Continued)

Note 9Employee Pension and Other Postretirement Benefits (Continued)

status
recognized under SFAS No. 158 at December 31, 2007 and 2008. This pension benefits table does not include the obligations for the Executive Supplemental Benefit Plans (ESBPs).

Pension Benefits
Years Ended December 31,

Other Benefits
Years Ended December 31,(Dollars in thousands)

2007

2008

2007

2008Accumulated benefit obligation

$
1,156,309

$
1,291,710Change in projected benefit obligationProjected benefit obligation, beginning of year

$
1,197,110

$
1,305,848

$
181,895

$
200,060Service cost


50,234


50,166


8,128


7,941Interest cost


71,191


78,085


11,004


11,391Plan participants' contributions








2,934


4,239Fair value adjustment amount related to the Company's privatization





(73,374
)




(7,823
)Actuarial loss (gain)


26,803


138,672


9,672


17,798Medicare part D employer subsidy payments








620


687Benefits paid


(39,490
)

(45,054
)

(14,193
)

(15,603
)Projected benefit obligation, end of year

$
1,305,848

$
1,454,343

$
200,060

$
218,690Fair value of plan assets, end of year


1,744,500


1,209,291


173,603


125,052Over/(under) funded status

$
438,652

$
(245,052
)
$
(26,457
)
$
(93,638
)


Upon adoption of SFAS No. 158 at December 31, 2006, the Company recognized an adjustment to other comprehensive income of
$161.2 million, net of tax of $99.8 million. This adjustment for previously unrecognized transition liabilities, prior service costs and actuarial losses was $125.6 million, net
of tax for pension benefits and $35.6 million, net of tax for other benefits. The Company also recorded a pension asset of $398.0 million, other benefits liabilities of
$17.1 million and a reduction of deferred taxes liabilities of $99.8 million. The incremental effect of applying the recognition provisions of SFAS No. 158 on the Company's
statement of financial position as of December 31, 2006 is as follows.

(Dollars in thousands)

Before application of
SFAS No. 158

Effect of Adjustment
Increase/(Decrease)

After application of
SFAS No. 158Other assets

$
2,392,612

$
(243,658
)
$
2,148,954Total assets

$
52,863,234

$
(243,658
)
$
52,619,576Other liabilities

$
1,627,636

$
(82,471
)
$
1,545,165Total liabilities

$
48,130,646

$
(82,471
)
$
48,048,175Accumulated other comprehensive loss

$
(98,187
)
$
(161,187
)
$
(259,374
)Total stockholder's equity

$
4,732,588

$
(161,187
)
$
4,571,401


The following table illustrates the changes that would have been disclosed in accumulated other comprehensive loss, before any income tax effect,
if the recognition requirements of SFAS No. 158 had been applied throughout the year ended December 31, 2006, as well as the changes that were reflected in

F-91

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2006, 2007 and 2008 (Continued)

Note 9Employee Pension and Other Postretirement Benefits (Continued)

accumulated
other comprehensive income during 2007 and 2008. Pension benefits do not include the ESBPs.

(Dollars in thousands)

Pension Benefits

Other BenefitsAmounts Recognized in
Other Comprehensive Loss

Net Actuarial
(Gain)/Loss

Prior Service
Costs

Transition
Assets

Net Actuarial
(Gain)/Loss

Prior Service
CostsBalance, December 31, 2005

$
383,701

$
1,323

$
14,244

$
51,586

$
(1,057
)Arising during the year


(148,178
)







(979
)

Recognized in net income during the year


(32,361
)

(1,067
)

(2,034
)

(4,242
)

96Balance, December 31, 2006


203,162


256


12,210


46,365


(961
)Arising during the year


14,254








12,782


Recognized in net income during the year


(16,009
)

(256
)

(2,035
)

(3,774
)

96Balance, December 31, 2007


201,407





10,175


55,373


(865
)Arising during the year


628,761








63,660


Fair value adjustment amount related to the Company's privatization


(69,012
)




(3,077
)

(16,533
)

282Recognized in net income during the year


(9,049
)




(1,854
)

(2,971
)

88Balance, December 31, 2008

$
752,107

$


$
5,244

$
99,529

$
(495
)


At December 31, 2007 and 2008, the following amounts were recognized in accumulated other comprehensive loss for pension, including ESBPs,
and other benefits.

December 31, 2007(Dollars in thousands)

Pension Benefits

Other BenefitsGross

Tax

Net of Tax

Gross

Tax

Net of TaxTransition liability

$


$


$


$
10,175

$
3,892

$
6,283Net actuarial loss


201,407


77,038


124,369


55,373


21,180


34,193Prior service costs (credits)











(865
)

(331
)

(534
)Pension and other benefits adjustment


201,407


77,038


124,369


64,683


24,741


39,942Executive Supplemental Benefits PlansNet actuarial loss


22,393


8,565


13,828








Prior service costs (credits)


202


77


125








Executive supplemental benefits plans adjustment


22,595


8,643


13,952








Pension and other benefits adjustment

$
224,002

$
85,681

$
138,321

$
64,683

$
24,741

$
39,942


F-92

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2006, 2007 and 2008 (Continued)

Note 9Employee Pension and Other Postretirement Benefits (Continued)



December 31, 2008(Dollars in thousands)

Pension Benefits

Other BenefitsGross

Tax

Net of Tax

Gross

Tax

Net of TaxTransition liability

$


$


$


$
5,244

$
1,986

$
3,258Net actuarial loss


752,107


296,219


455,888


99,529


38,702


60,827Prior service costs (credits)











(495
)

(188
)

(307
)Pension and other benefits adjustment


752,107


296,219


455,888


104,278


40,500


63,778Executive Supplemental Benefits PlansNet actuarial loss


18,975


7,305


11,670








Prior service costs (credits)

















Executive supplemental benefits plans adjustment


18,975


7,305


11,670








Pension and other benefits adjustment

$
771,082

$
303,524

$
467,558

$
104,278

$
40,500

$
63,778


The Company expects to make cash contributions of $13 million to the Other Benefits Plan for postretirement benefits and
$100 million to the Pension Plan in 2009.



The following pension and postretirement benefit payments, which reflect expected future service, as appropriate, are expected to be
paid over the next 10 years and Medicare Part D Subsidies are expected to be received over the next 10 years. This table does not include the ESBPs.

(Dollars in thousands)

Pension
Benefits

Postretirement
Benefits

Medical Part D
SubsidiesYears ending December 31,2009

$
47,417

$
13,068

$
8592010


51,328


13,932


9252011


56,137


14,779


9912012


61,973


15,347


1,0612013


68,275


16,012


1,125Years 2014-2018


446,154


88,655


6,541


F-93

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2006, 2007 and 2008 (Continued)

Note 9Employee Pension and Other Postretirement Benefits (Continued)

The
following tables summarize the assumptions used in computing the present value of the benefit obligations and the net periodic benefit cost.

Pension Benefits

Other BenefitsYears Ended December 31,

Years Ended December 31,2007

2008

2007

2008Discount rate in determining net periodic benefit cost(1)


6.00
%

6.00
%

6.00
%

6.00
%Discount rate in determining benefit obligationsat year end


6.00


5.75


6.00


5.75Rate of increase in future compensation levels fordetermining net periodic benefit cost


4.70


4.70





Rate of increase in future compensation levels fordetermining benefit obligations at year end


4.70


4.70





Expected return on plan assets


8.25


8.00


8.25


8.00


---

Pension Benefits

Other BenefitsYears Ended December 31,

Years Ended December 31,(Dollars in thousands)

2006

2007

2008

2006

2007

2008Components of net periodic benefit costService cost

$
54,007

$
50,234

$
50,173

$
7,227

$
8,127

$
7,941Interest cost


65,147


71,191


78,085


9,198


11,004


11,391Expected return on plan assets


(113,439
)

(126,344
)

(133,737
)

(11,625
)

(13,912
)

(13,271
)Amortization of prior service cost (credits)


1,067


256





(96
)

(96
)

(88
)Amortization of transition amount











2,034


2,035


1,854Recognized net actuarial loss


32,361


16,009


9,049


4,242


3,774


2,925Total net periodic benefit cost

$
39,143

$
11,346

$
3,570

$
10,980

$
10,932

$
10,752


At December 31, 2007 and 2008, the following amounts were forecasted to be recognized in 2008 and 2009 net periodic benefit costs. This
table does not include the ESBPs.

Years ended December 31,2008

2009(Dollars in thousands)

Pension Benefits

Other Benefits

Pension Benefits

Other BenefitsTransition liability

$


$
2,035

$


$
1,311Net actuarial loss


10,549


3,912


12,218


8,612Prior service costs (credits)





(96
)




(62
)Amounts to be reclassified from accumulated other comprehensive loss

$
10,549

$
5,851

$
12,218

$
9,861


F-94

---



Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2006, 2007 and 2008 (Continued)

Note 9Employee Pension and Other Postretirement Benefits (Continued)

The Company's assumed weighted-average healthcare cost trend rates are as follows.

Years ended December 31,2006

2007

2008Healthcare cost trend rate assumed for next year


8.06
%

9.36
%

9.36
%Rate to which cost trend rate is assumed todecline (the ultimate trend rate)


5.00
%

5.00
%

5.00
%Year the rate reaches the ultimate trend rate


2011


2013


2014


The healthcare cost trend rate assumptions have a significant effect on the amounts reported for the Health Plan. A
one-percentage-point change in assumed healthcare cost trend rates would have the following effects.

(Dollars in thousands)

1-Percentage-
Point Increase

1-Percentage-
Point DecreaseEffect on total of service and interest cost components

$
2,790

$
(2,309
)Effect on postretirement benefit obligation


23,586


(20,047
)




The Company has several ESBPs, which provide eligible employees with supplemental retirement benefits. The plans are nonqualified
defined benefit and unfunded. The accrued liability for ESBPs included in other liabilities on the Company's consolidated balance sheets was $62 million and $67 million at
December 31, 2007 and 2008, respectively. The Company's expense relating to the ESBPs for the periods ended December 31, 2006, 2007 and 2008, was $6.4 million, $6.6 million
and $6.1 million, respectively. These plans did not have any intangible assets as of December 31, 2006, 2007 and 2008.



The Company has a defined contribution plan authorized under Section 401(k) of the Internal Revenue Code. All benefits-eligible
employees are eligible to participate in the plan. Employees may contribute up to 25 percent of their pre-tax covered compensation or up to 10 percent of their
after-tax covered compensation through salary deductions to a combined maximum of 25 percent. The Company contributes 50 percent of every pre-tax dollar an
employee contributes up to the first 6 percent of the employee's pre-tax covered compensation. Employees are fully vested in the employer's contributions immediately. In addition,
the Company may make a discretionary annual profit-sharing contribution up to 2.5 percent of an employee's pay. This profit-sharing contribution is for all eligible employees, regardless of
whether an employee is participating in the 401(k) plan, and is dependent upon on the Company's annual financial performance. All employer contributions are tax deductible by the Company. The
Company's combined matching contribution expense was $20 million, $20 million and $20 million for the years ended December 31, 2006, 2007 and 2008, respectively.

Note 10Other Noninterest Income and Noninterest Expense

The details of other noninterest income and noninterest expense are as follows.

F-95

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2006, 2007 and 2008 (Continued)

Note 10Other Noninterest Income and Noninterest Expense (Continued)

Other Noninterest Income

Years Ended December 31,(Dollars in thousands)

2006

2007

2008Private capital and other investment income

$
29,432

$
58,583

$
41,208Standby letters of credit fees


24,295


21,914


25,407Trade related commission and fees


9,236


7,968


8,027Gains on sale of nonmortgage loans, net


313


531


460Other


63,198


66,949


54,770Total other noninterest income

$
126,474

$
155,945

$
129,872


Other Noninterest Expense

Years Ended December 31,(Dollars in thousands)

2006

2007

2008Advertising and public relations

$
42,793

$
40,690

$
51,144Intangible asset amortization


7,866


4,501


44,935Low income housing credit investment amortization


21,330


28,496


40,577Data processing


31,040


33,052


32,090Travel


17,275


19,385


23,982Regulatory agencies


10,477


10,691


23,971Printing and office supplies


17,197


15,983


19,033Other


51,571


59,518


92,888Total other noninterest expense

$
199,549

$
212,316

$
328,620


Note 11Income Taxes

The following table is an analysis of the effective tax rate on continuing operations.

Years Ended December 31,2006

2007

2008Federal income tax rate


35
%

35
%

35
%Net tax effects of:State income taxes, net of federal income tax benefit


2


4


7California state tax refund, net of federal and state tax expense


(7
)




Tax credits


(3
)

(5
)

(14
)FIN No. 48 unrecognized tax benefits








4Other


(1
)




(1
)Effective tax rate


26
%

34
%

31
%


The effective tax rates on discontinued operations for the years ended December 31, 2006, 2007 and 2008 were 36 percent, 48 percent and 45
percent, respectively. The effective tax rates on discontinued operations for 2007 and 2008 were higher than the statutory rate. The higher rate in 2007 was due to the

F-96

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2006, 2007 and 2008 (Continued)

Note 11Income Taxes (Continued)

nondeductibility
of penalties. The higher rate in 2008 was due to the impact of the difference between the tax basis and the book basis of IBB, resulting in a higher tax benefit on the sale of the
subsidiary.

The
components of income tax expense were as follows.

Years Ended December 31,(Dollars in thousands)

2006

2007

2008Taxes currently payable:Federal

$
318,894

$
249,271

$
216,856State


(89,439
)

62,728


86,797Foreign


1,949


7,119


5,261Total currently payable


231,404


319,118


308,914Taxes deferred:Federal


34,726


(23,839
)

(163,716
)State


8,594


(357
)

(17,029
)Foreign


(4
)

(568
)

(301
)Total deferred


43,316


(24,764
)

(181,046
)Total income tax expense on continuing operations


274,720


294,354


127,868Income tax expense (benefit) on discontinued operations


(9,407
)

32,023


(12,313
)Total income tax expense

$
265,313

$
326,377

$
115,555


F-97

---



Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2006, 2007 and 2008 (Continued)

Note 11Income Taxes (Continued)

The components of the Company's net deferred tax balances as of December 31, 2007 and 2008, which reflect the impact of the fair value
adjustments related to the Company's privatization in 2008, were as follows.

December 31,(Dollars in thousands)

2007

2008Deferred tax assets:Allowance for loan and off-balance sheet commitment losses

$
199,284

$
355,001Accrued income and expense


78,034


78,603Unrealized losses on pension benefits


85,713


354,408Unrealized net losses on securities available for sale


80,008


331,162Fair value adjustments for loans related to the Company's privatization





110,958State taxes


46,923


66,059Other


45,483


66,606Total deferred tax assets


535,445


1,362,797Deferred tax liabilities:Leasing


507,675


447,944Basis differences for premises and equipment





52,851Intangibles


6,043


276,837Pension liabilities


245,532


250,082Unrealized net gains on cash flow hedges


14,596


52,299Other


748


455Total deferred tax liabilities


774,594


1,080,468Net deferred tax liability (asset)

$
239,149

$
(282,329
)


It is management's opinion that no valuation allowance is necessary because the tax benefits from the Company's deferred tax assets are expected
to be realized through carrybacks to prior taxable years, future reversals of existing temporary differences or in future tax returns.

The
Company has filed its 2006 and 2007 California franchise tax returns on the worldwide unitary basis, incorporating the financial results of MUFG and its worldwide affiliates. The
Company intends to make a water's-edge election for its 2008 California tax return, and has reflected that election in its state income tax expense for 2008.

In
2007, the Company recognized an $11.6 million state income tax expense to reflect the difference between the estimate of California state tax expense for 2006 and the actual
tax reported in the 2006 California franchise tax return.

In
2006, the State of California Franchise Tax Board approved a settlement between the Company and the State of California to recover taxes paid for the calendar years 1989 through 1995.
The Company received a refund of tax and interest of $113.7 million ($72.8 million net of federal and state taxes applicable to the refund). The refund was recognized as a credit to
state income tax expense in 2006.

F-98

---



Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2006, 2007 and 2008 (Continued)

Note 11Income Taxes (Continued)

The
changes in unrecognized tax benefits were as follows.

Years Ended December 31,(Dollars in thousands)

2007

2008Balance, beginning of year

$
137,386

$
137,682Gross increases as a result of tax positions taken during prior periods


6,821


49,518Gross decreases as a result of tax positions taken during prior periods


(11,347
)

(49
)Gross increases as a result of tax positions taken during current period


15,781


3,952Reductions as a result of a lapse of the applicable statute of limitations


(10,959
)

(132
)Balance, end of year

$
137,682

$
190,971


Included in total unrecognized tax benefits as of December 31, 2007 and 2008 were $84.6 million and $126.9 million,
respectively, that, if recognized, would result in adjustments to other income tax accounts, primarily deferred taxes. The amount of unrecognized tax benefits that would affect the effective tax rate,
if recognized, was $53.1 million and $64.0 million at December 31, 2007 and 2008, respectively.

Interest
and penalties pertaining to unrecognized tax benefits are recognized in income tax expense. The Company recognized $1.5 million and $5.3 million of interest
expense during the years ended December 31, 2007 and 2008, respectively. As of December 31, 2007 and 2008, the Company had accrued $10.5 million and $15.8 million of
interest expense, respectively, and no penalties related to unrecognized tax benefits. The Company does not accrue interest income on income tax refunds until they are realized.

In
2008, California enacted a new statute mandating a 20 percent penalty on corporate tax underpayments outstanding after May 31, 2009. The Company intends to file amended
returns and pay the amount of state taxes that have been included in unrecognized tax benefits. As a result, the total amount of unrecognized tax benefits would decrease by up to $97 million.
This event would have no impact on income tax expense.

The
Company does not expect any other material increases or decreases to unrecognized tax benefits during the next 12 months. However, the Company is subject to federal and state
tax examinations, as well as ongoing litigation concerning our lease-in/lease-out (LILO) transactions. Therefore, the Company's estimate of unrecognized tax benefits is subject
to change based on new developments and information. The Company's years open to examination by major jurisdictions are 2004 and forward.

F-99

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2006, 2007 and 2008 (Continued)

Note 12Borrowed Funds

The following is a summary of the major categories of borrowed funds:

December 31,(Dollars in thousands)

2007

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

$
1,631,602

$
172,758Commercial paper, with weighted average interest rates of 4.25% and 1.48% at December 31, 2007 and 2008, respectively


1,266,656


1,164,327Other borrowed funds:Federal Home Loan Bank borrowings, with weighted average interest rates of 4.52% and 2.22% at December 31, 2007 and 2008, respectively


949,000


1,850,000Term federal funds purchased, with weighted average interest rates of 4.79% and 2.60% at December 31, 2007 and 2008, respectively


805,970


1,230,060Federal Reserve Bank Term borrowings, with weighted average interest rate of 0.79% at December 31, 2008





5,000,000All other borrowed funds, with weighted average interest rates of 5.24% and 5.42% at December 31, 2007 and 2008, respectively


120,649


116,537Total borrowed funds

$
4,773,877

$
9,533,682Federal funds purchased and securities sold under repurchase agreements:Maximum outstanding at any month end

$
1,823,872

$
4,946,587Average balance during the year


1,142,487


2,137,718Weighted average interest rate during the year(1)


4.93
%

2.20
%Commercial paper:Maximum outstanding at any month end

$
1,875,647

$
1,699,440Average balance during the year


1,549,681


1,319,360Weighted average interest rate during the year


4.92
%

2.41
%Other borrowed funds:Federal Home Loan Bank borrowings:Maximum outstanding at any month end

$
949,000

$
2,600,000Average balance during the year


35,312


1,492,456Weighted average interest rate during the year


4.59
%

2.76
%Term federal funds purchased:Maximum outstanding at any month end

$
2,005,340

$
1,723,839Average balance during the year


716,115


882,652Weighted average interest rate during the year


5.25
%

2.84
%Federal Reserve Bank Term Borrowings:Maximum outstanding at any month end

$


$
5,000,000Average balance during the year





1,925,833Weighted average interest rate during the year



%

1.79
%All other borrowed funds:Maximum outstanding at any month end

$
120,649

$
321,012Average balance during the year


61,627


124,494Weighted average interest rate during the year


5.96
%

5.59
%


---

F-100

---



Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2006, 2007 and 2008 (Continued)

Note 12Borrowed Funds (Continued)

In September 2008, the Company established a $500 million, three-year unsecured revolving credit facility with The Bank of
Tokyo-Mitsubishi UFJ, Ltd. As of December 31, 2008, the Company had no amount outstanding under this facility.

At
December 31, 2008, federal funds purchased and securities sold under repurchase agreements had a weighted average remaining maturity of 2 days. The commercial paper
outstanding had a weighted average remaining tenure of 29 days.

Other
borrowed funds consist primarily of Federal Home Loan Bank borrowings, Federal Reserve Bank Term borrowings and term federal funds purchased, which had weighted average remaining
maturities of 70 days, 35 days and 49 days, respectively, at December 31, 2008.

Note 13Medium- and Long-Term Debt

The following is a summary of the Company's medium-term senior debt and long-term subordinated debt:

December 31,(Dollars in thousands)

2007

2008Medium-Term senior debt:Floating rate notes due March 2009. These notes bear interest at 0.020% above 3-month London Interbank Offered Rate (LIBOR).

$
750,000

$
750,000Federal Home Loan Bank Advances: Floating, which is at a spread above 3 month LIBOR, or fixed rate, at a weighted average rate of 3.21%





2,276,000Long-Term subordinated debt:Fixed rate 5.25% notes due December 2013


413,092


451,930Fixed rate 5.95% notes due May 2016


750,530


810,558Total medium- and long-term debt

$
1,913,622

$
4,288,488




On March 23, 2007, the Bank issued $750 million of Floating Rate Senior Bank Notes due on March 23, 2009. The
Senior Notes were issued at 100 percent of their face value, and bear a floating interest rate of 3-month LIBOR plus 2 basis points. Interest is payable and resets quarterly in
March, June, September and December of each year, with the first interest payment and interest reset date on June 23, 2007. The Senior Notes are not redeemable at the option of the Bank prior
to maturity or subject to repayment at the option of the holders prior to maturity. For the year ended December 31, 2008, the weighted average interest rate of the medium term debt, including
the impact of the deferred issuance costs was 3.43 percent.

In
the second quarter of 2008, the Bank began borrowing from the Federal Home Loan Bank (FHLB) on a medium-term basis. The FHLB advances are secured by certain of the Bank's
assets and bear either a fixed or floating interest rate. The floating rate advances are tied to the 3-month LIBOR plus a spread, with reset dates every 90 days. At
December 31, 2008, the Bank's outstanding borrowings from the FHLB was $2.3 billion with a weighted average interest rate of 3.77 percent and a weighted average remaining maturity
of 18 months.

F-101

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2006, 2007 and 2008 (Continued)

Note 13Medium- and Long-Term Debt (Continued)



On December 8, 2003, the Company issued $400 million of ten-year long-term subordinated debt due
on December 16, 2013. For the year ended December 31, 2008, the weighted average interest rate of the long-term subordinated debt, including the impact of the deferred
issuance costs was 5.38 percent. The notes are junior obligations to the Company's existing and future outstanding senior indebtedness.

The
Company converted its 5.25 percent fixed rate on these notes to a floating rate of interest utilizing a $400 million notional interest rate swap, which qualified as a
fair value hedge at December 31, 2008. This transaction meets all of the requirements for utilizing the shortcut method for measuring effectiveness under SFAS No. 133. At
December 31, 2008, the market value adjustment to the long-term debt was an unrealized loss of $52.6 million and to the fair value of the hedge was an unrealized gain of
$52.6 million. The weighted average interest rate, including the impact of the hedge and the deferred issuance costs, was 2.87 percent for the year ended December 31, 2008.

On
May 11, 2006, the Bank issued $700 million of ten-year subordinated notes due on May 11, 2016. The subordinated notes, which were issued at a discount
price of 99.61 percent of their face value, bear a fixed interest rate of 5.95 percent, payable semi-annually on May 11 and November 11. For the year ended
December 31, 2008, the weighted average interest rate of the long-term subordinated debt, including the impact of the deferred issuance costs and the fair value adjustment related
to the Company's privatization, was 6.28 percent. The subordinated notes are junior obligations to the Bank's existing and future outstanding senior indebtedness and the claims of depositors
and general creditors of the Bank. The subordinated notes are not redeemable at the option of the Bank prior to maturity or subject to repayment at the option of the holders prior to maturity.

The
Bank has converted $550 million of its 5.95 percent fixed rate notes to a floating rate by utilizing interest rate swaps, which qualified as a fair value hedge. This
transaction meets all of the requirements for utilizing the shortcut method for measuring hedge effectiveness. At December 31, 2008, the market value adjustment to the long-term
debt was an unrealized loss of $135.8 million and the fair value of the hedge was an unrealized gain of $120.0 million. The difference between the fair value of the hedge and the fair
value mark on the debt was due to a $150.0 million hedge termination in 2008. The unrealized gain on the terminated hedge is being amortized over the life of the swap. After including the
impact of the related hedge, the amortization of the discount, the deferred issuance costs and the fair value adjustment related to the Company's privatization, the weighted average interest rate of
the subordinated notes was 3.67 percent for the year ended December 31, 2008.

Both
fixed rate subordinated debt qualify as Tier 2 risk-based capital under the Federal Reserve Board guidelines for assessing regulatory capital. For the Company's
and the Bank's total risk-based capital ratios, the amount of notes that qualify as capital is reduced as the notes approach maturity. As of December 31, 2007 and 2008,
$1.1 billion and $1.0 billion, respectively,
of the notes qualified as risk-based capital for the Company. As of December 31, 2007 and 2008, $0.7 billion of the notes qualified as risk-based capital for the
Bank.

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

F-102

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2006, 2007 and 2008 (Continued)

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

On March 23, 2000, Business Capital Trust I issued $10 million preferred securities to the public and $0.3 million common securities to the Company. The proceeds of
such issuances were invested by Business Capital Trust I in $10.3 million aggregate principal amount of the Company's 10.875 percent debt securities due March 8, 2030 (the Trust
Notes). The Trust Notes represent the sole asset of Business Capital Trust I. The Trust Notes mature on March 8, 2030, bear interest at the rate of 10.875 percent, payable
semi-annually, and are redeemable by the Company at a premium (with premium declining each year) beginning on or after March 8, 2010 through March 7, 2020 plus any accrued
and unpaid interest to the redemption date. On or after March 8, 2020, the Trust Notes are redeemable by the Company at 100 percent of the principal amount.

Holders
of the preferred and common securities are entitled to cumulative cash distributions at an annual rate of 10.875 percent of the liquidation amount of $1,000 per capital
security. The preferred securities are subject to mandatory redemption upon repayment of the Trust Notes and are callable at a premium (with premium declining each year) at 105.438 percent of
the liquidation amount beginning on or after March 8, 2010 through March 7, 2020 plus any accrued and unpaid interest to the redemption date. On
or after March 8, 2020, the preferred securities are redeemable at 100 percent of the principal. Business Capital Trust I exists for the sole purpose of issuing the preferred securities
and investing the proceeds in the Trust Notes issued by the Company.

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

Holders
of the preferred securities and common securities are entitled to cumulative cash distributions at an annual rate of 10.6 percent of the liquidation amount of $1,000 per
capital security. The preferred securities are subject to mandatory redemption upon repayment of the Trust Notes and are callable at a premium (with premium declining each year) at
105.3 percent of the liquidation amount beginning on or after September 7, 2010 through September 6, 2020 plus any accrued and unpaid interest to the redemption date. On or after
September 7, 2020, the preferred securities are redeemable at 100 percent of the principal amount. MCB Statutory Trust I exists for the sole purpose of issuing the preferred securities
and investing the proceeds in the Trust Notes issued by the Company.

The
weighted average interest rate for all Trust Notes were 6.50 percent and 6.71 percent for the years ended December 31, 2007 and 2008, respectively.

F-103

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2006, 2007 and 2008 (Continued)

Note 15Dividend Reinvestment and Stock Purchase Plan

The Company had a dividend reinvestment and stock purchase plan for stockholders. Participating stockholders had the option of purchasing additional shares at the full market price with
cash payments of $25 to $3,000 per quarter. The Company obtained shares required for reinvestment primarily through open market purchases. During 2006, 2007 and 2008, 102,449 shares, 128,989 shares
and 121,302 shares, respectively, were required for dividend reinvestment purposes and none of which were considered new issuances. BTMU did not participate in the plan in 2006, 2007 or 2008.

The
dividend reinvestment and stock purchase plan for stockholders was terminated effective September 10, 2008, prior to the Company's privatization transaction.

Note 16Management Stock Plans

See Note 2 to these consolidated financial statements for information on the Company's privatization. On November 4, 2008, all outstanding awards under the management stock
plans discussed below were canceled in exchange for the right to receive the cash value of those awards. These plans were terminated in December 2008, and no additional awards will be granted under
these plans.

Prior
to their termination, the Company had two management stock plans. The Year 2000 UnionBanCal Corporation Management Stock Plan, as amended (the 2000 Stock Plan), and the UnionBanCal
Corporation Management Stock Plan, restated effective June 1, 1997 (the 1997 Stock Plan), had 20.0 million and 6.6 million shares, respectively, of the Company's common stock
authorized for awards to key employees, outside directors and consultants of the Company at the discretion of the Executive Compensation and Benefits Committee of the Board of Directors (the
Committee). Employees on rotational assignment from BTMU were not eligible for stock awards.

The
Committee determined the term of each stock option grant, up to a maximum of ten years from the date of grant. The exercise price of the options issued under the stock plans could
not be less than the fair market value on the date the option was granted. Beginning in 2006, the value of options was recognized as compensation expense over the vesting period during which the
employees were required to provide service. Prior to January 1, 2006, the Company's unrecognized compensation expense for nonvested restricted stock reduced retained earnings. Upon the adoption
of SFAS No. 123(R), $19 million was reclassified from retained earnings to additional paid-in capital. The value of the restricted stock at the date of grant was recognized
as compensation expense over its vesting period with a corresponding credit adjustment to additional paid-in capital. All cancelled or forfeited options and restricted stock became
available for future grants.

Under
the 2000 Stock Plan, the Company granted stock options and restricted stock. Additionally under the Plan, the Company issued shares of common stock upon the vesting and settlement
of restricted stock units, stock units and performance shares settled in common stock. Under the 1997 Stock Plan, the Company issued shares of common stock upon exercise of outstanding stock options.
The Company issued new shares of common stock for all awards under the stock plans. After taking into account the outstanding stock options and restricted stock, as well as the maximum number of
shares that might be issued upon vesting and settlement of outstanding restricted stock units, stock units and performance shares settled in common stock, a total of 3,692,736 shares, 1,095,526 shares
and zero shares were available for future grants under the 2000 Stock Plan at December 31, 2006, 2007 and 2008, respectively. The remaining shares under the 1997 Stock Plan were not available
for future grants.

F-104

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2006, 2007 and 2008 (Continued)

Note 16Management Stock Plans (Continued)

The
Committee determined that performance share awards granted in 2006 and later were to be redeemed in shares.



Under the 2000 Stock Plan, the Company granted options to various key employees, including policy-making officers, and to
non-employee directors for selected years. Under both the 1997 and 2000 Stock Plans, options granted to employees vested pro-rata on each anniversary of the grant date and
became fully exercisable three years from the grant date, provided that the employee had completed the specified continuous service requirement. Generally, the options could vest earlier if the
employee died, was permanently disabled, or retired under certain grant, age, and service conditions or terminated employment under certain conditions. Options granted to non-employee
directors were fully vested on the grant date and exercisable 331/3 percent on each anniversary under the 1997 Stock Plan, and were fully vested and exercisable on the grant date
under the 2000 Stock Plan.

The
following is a summary of stock option transactions under the stock plans.

For the Year Ended December 31, 2008Number of
Shares

Weighted-
Average
Exercise
Price

Weighted-
Average
Remaining
Contractual Term
(in years)

Aggregate
Intrinsic Value
(in thousands)Options outstanding, beginning of the period(1)


9,673,146

$
51.14Granted


823,610


51.06Exercised


(2,307,005
)

47.58Forfeited


(101,195
)

58.11Cancellation of options


(8,088,556
)

52.06Options outstanding,end of the period(1)




$





$
Options exercisable,end of the period




$





$



---

The fair value of each option grant was estimated on the date of grant utilizing the Black-Scholes option pricing model and using the assumptions
noted in the following table. The Black-Scholes option pricing model was applied to option tranches based on expected terms that result in ranges of input assumptions, such ranges are disclosed below.
Expected volatilities were based on historical data and implied volatilities from traded options on the Company's stock, and other factors. The Company used historical data to estimate option exercise
and employee terminations within the valuation model. The expected term of an option granted was derived from the output of the option valuation model, which was based on historical data and
represented the period of time that the option granted was expected to be outstanding. The risk-free rate for periods within

F-105

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2006, 2007 and 2008 (Continued)

Note 16Management Stock Plans (Continued)

the
contractual life of the option was based on the U.S. Treasury yield curve in effect at the time of grant based on the expected term.

For the Year Ended December 31,2006

2007

2008Weighted-average fair valueper share

$
12.31

$
7.04

$
7.21Risk-free interest rates (a range for 1 to 7 year tenors)


4.3 - 5.05
%

3.71
%

2.2 - 3.3
%Expected volatility


16.6 - 22.9
%

16.9 - 21.0
%

22.2 - 27.4
%Weighted-average expected volatility


19.4
%

19.8
%

24.3
%Expected term (in years)


3.4 - 5.4


3.8 - 4.4


3.9 - 4.4Weighted-average expected dividend yield


2.7
%

4.3
%

4.4
%


The total intrinsic value of options exercised during 2006, 2007 and 2008 was $37.9 million, $16.0 million and $44.5 million,
with a corresponding tax benefit of $13.5 million, $5.7 million and $15.9 million, respectively. The total intrinsic value of options that were canceled and settled in cash during
2008 as a result of the Company's privatization was $173.4 million with a corresponding tax benefit of $61.6 million. The total fair value of options vested during the years ended
December 31, 2006, 2007 and 2008 was $28.9 million, $20.5 million and $13.0 million, respectively.

The
Company recognized $22.4 million, $13.0 million and $23.8 million of compensation cost for share-based payment arrangements related to stock option awards with
$8.4 million, $5.0 million and $9.2 million of corresponding tax benefit during the years ended December 31, 2006, 2007 and 2008, respectively. In 2008, compensation cost
of $12.8 million with a corresponding tax benefit of $4.9 million was recorded for the acceleration of expense due to the Company's privatization. As of December 31, 2008, there
was no unrecognized compensation cost related to nonvested stock option awards as a result of the Company's privatization.



In general, restricted stock awards were granted under the 2000 Stock Plan to key employees, and in 2005, to non-employee
directors. The awards of restricted stock granted to employees vest pro-rata on each anniversary of the grant date and became fully vested four years from the grant date, provided that the
employee had completed the specified continuous service requirement. Generally, they vested earlier if the employee died, was permanently and totally disabled, retired under certain grant, age, and
service conditions or terminated employment under certain conditions. The awards of restricted stock granted to existing non-employee directors in 2005 vested in full in July 2006.
Restricted stockholders had the right to vote their restricted shares and receive dividends. The grant date fair value of awards was equal to the closing price on date of grant.

F-106

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2006, 2007 and 2008 (Continued)

Note 16Management Stock Plans (Continued)

The
following is a summary of the Company's nonvested restricted stock awards as of December 31, 2008 and changes during the period ended December 31, 2008.

For the Year Ended December 31, 2008Number of Shares

Weighted-Average Grant
Date Fair ValueNonvested restricted awards,at December 31, 2007


881,117

$
59.00Granted


50,787


46.64Vested


(900,004
)

58.35Forfeited


(31,900
)

58.13Nonvested restricted awards, at December 31, 2008




$



The total fair value of the restricted stock awards vested was $8.8 million during 2006, $15.6 million during 2007 and
$52.5 million during 2008, with a corresponding tax benefit of $3.1 million, $5.0 million and $22.6 million, respectively. In 2008, the fair value of the restricted stock
awards vested included $44.4 million, with a corresponding tax benefit of $20.1 million, related to the Company's privatization.

The
Company recognized $14.4 million, $14.4 million and $41.6 million of compensation cost for share-based payment arrangements related to restricted stock awards
with $5.4 million, $5.5 million and $16.0 million of corresponding tax benefit during the years ended December 31, 2006, 2007 and 2008, respectively. In 2008, compensation
cost of $29.1 million with a corresponding tax benefit of $11.2 million was recorded for the acceleration of expense due to the Company's privatization. At December 31, 2008,
there was no unrecognized compensation cost related to nonvested restricted awards.



Starting in 2006, the Company granted restricted stock units to non-employee directors. These restricted stock units
consisted of an annual grant, and in the case of new non-employee directors, an annual grant and an initial grant. In general, the annual grant vested in full on the first anniversary of
the grant date, and the initial grant vested in three equal installments on each of the first three anniversaries of the grant date. The grant date fair value of awards was equal to the closing price
on date of grant. During 2008, the Company granted 25,410 restricted stock units with a weighted-average grant date fair value of $41.41 per unit. There were no restricted stock units forfeited during
2008. The total fair value of the restricted stock units that vested or cancelled during the year ended December 31, 2008 was $2.8 million. The Company recognized $0.3 million,
$1.0 million and $2.4 million of compensation cost with a corresponding $0.1 million, $0.4 million and $0.9 million in tax benefits related to these grants in 2006,
2007 and 2008, respectively. In 2008, compensation cost of $1.1 million with a corresponding tax benefit of $0.4 million
was recorded for the acceleration of expense due to the Company's privatization. As of December 31, 2008, there was no unrecognized compensation cost related to restricted stock units.

The
restricted stock unit participants did not have voting or other stockholder rights. However, the participants' stock unit accounts received dividend equivalents, reflecting the
aggregate dividends earned based on the total number of restricted stock units outstanding, in the form of additional restricted stock units.

F-107

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2006, 2007 and 2008 (Continued)

Note 16Management Stock Plans (Continued)

Participants
could elect to defer the delivery of vested shares of common stock at predetermined dates as defined in the plan agreements. The Company issued new shares under the 2000 Stock Plan upon
vesting and settlement of these grants, which were redeemable only in shares.

Non-employee
directors could irrevocably elect to defer all or a portion of the cash retainer and/or fees payable to them for services on the Board of Directors and its
committees in the form of stock units. At the time of deferral, a bookkeeping account was established on behalf of the director and credited with a number of fully vested stock units. The director
received a number of stock units equal to the number of shares of common stock when the deferred compensation was payable. Dividend equivalents were credited to the stock unit accounts. Stock units
had no voting rights. The Company issued new shares under the 2000 Stock Plan upon settlement of the stock units.

As
a result of the Company's privatization, all restricted stock units and stock units were cancelled and either paid out in cash in 2008 or deferred based on the participant's prior
elections or applicable tax requirements and recorded as a liability.



Effective January 1, 1997, the Company established a Performance Share Plan. At the discretion of the Committee, eligible
participants would earn performance share awards to be redeemed in cash and/or shares three years after the date of grant. Performance shares were linked to stockholder value in two ways:
(1) the market price of the Company's common stock; and (2) return on equity, a performance measure closely linked to value creation. Eligible participants generally received grants of
performance shares annually. The plan was amended in 2004 increasing the total number of shares that could be granted under the plan to 2.6 million shares. The following is a summary of shares
granted and available for future grants under the Performance Share Plan.

For the Years Ended December 31,2006

2007

2008Performance shares:Granted


62,100


70,614


91,750Available for future grant, year end


2,132,333


2,063,219







All performance shares granted prior to 2006 were redeemable in cash and therefore were accounted for as liabilities. The value of a
performance share under the liability method was equal to the average month-end closing price of the Company's common stock for the final six months of the performance period. All
cancelled

F-108

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2006, 2007 and 2008 (Continued)

Note 16Management Stock Plans (Continued)

or
forfeited performance shares would become available for future grants. The following is a summary of performance shares that are redeemable in cash under the Performance Share Plan.

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

2006

2007

2008Performance shares granted








Performance shares forfeited








Fair value of performance shares that vested

$
9.4

$
6.7

$
Cash payments made for performance sharesthat vested

$
5.8

$
7.8

$
5.7Fair value of performance shares thatvested and deferred

$
0.3

$


$
Performance shares compensation expense

$
1.8

$
1.7

$
Tax benefit related to compensation expense

$
0.7

$
0.6

$
Liability for cash settlement ofperformance shares, year end

$
11.7

$
5.7

$



The compensation cost related to these grants that are redeemable in cash was fully recognized as of December 31, 2007.



Prior to the Company's privatization, performance shares granted in 2006 and thereafter were redeemable in shares. The Company issued
new shares under the 2000 Stock Plan upon vesting and settlement of these grants that were redeemable in shares.

As
a result of the Company's privatization, performance shares that were redeemable in shares under the Performance Share Plan were canceled and will be settled in cash. A liability has
been established for the amount to be settled in 2009.

The
following is a summary of performance shares that are redeemable in shares under the Performance Share Plan.

For the Years Ended December 31,(Dollars in millions, except per share amount)

2006

2007

2008Performance shares granted


62,100


70,614


91,750Weighted average grant date fair valueper share

$
69.96

$
63.10

$
51.42Performance shares forfeited


1,050


1,500


Fair value of performance shares that vested or cancelled during the year

$
0.2

$
0.6

$
21.0Performance shares compensation expense

$
2.8

$
4.8

$
14.0Tax benefit related to compensation expense

$
1.1

$
1.8

$
5.4Liability for cash settlement of performance shares, year end

$


$


$
25.3


As of December 31, 2008, there was no unrecognized compensation cost related to grants that were redeemable in shares as a result of the
Company's privatization.

F-109

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2006, 2007 and 2008 (Continued)

Note 17Concentrations of Credit Risk

Concentrations of credit risk exist when changes in economic, industry or geographic factors similarly affect groups of counterparties whose aggregate credit exposure is material in
relation to the Company's total credit exposure. Although the Company's portfolio of financial instruments is broadly diversified along industry, product and geographic lines, material transactions
are completed with other financial institutions, particularly in the securities portfolio and in deposit accounts.

In
connection with the Company's efforts to maintain a diversified portfolio, the Company limits its exposure to any one country or individual credit and monitors this exposure on a
continuous basis. At December 31, 2008, the Company's most significant concentration of credit risk was with U.S. Government agencies and Government Sponsored Enterprises. At
December 31, 2008, the Company's credit exposure included a concentration of available for sale securities issued by U.S. Government agencies and securities guaranteed by Government Sponsored
Enterprises, which totaled $6.2 billion. At December 31, 2008, the Company also held $515.1 million of private label mortgage-backed securities available for sale.

Note 18Fair Value Measurement and Fair Value of Financial Instruments

Effective January 1, 2008, the Company adopted SFAS No. 157, "Fair Value Measurements" for all financial assets and liabilities measured and reported on a fair value basis.
At adoption, there was no effect on the Company's financial position or results of operations.

SFAS
No. 157 defines fair value, establishes a consistent framework for measuring fair value and expands disclosures requirement for fair value measurements. Additionally, SFAS
No. 157 amends SFAS No. 107, "Disclosures about Fair Value of Financial Instruments" to apply the fair value framework established by SFAS No. 157 in determining fair value
disclosure amounts required under SFAS No. 107. The disclosures required under SFAS No. 157 and SFAS No. 107 have been included in this note.



As defined in SFAS No.157, fair value is the price that would be received to sell an asset or paid to transfer a liability
(i.e., exit price) in an orderly transaction between market participants at the measurement date. In determining fair value, the Company utilizes valuation techniques that maximize the use of
observable inputs and minimize the use of unobservable inputs. Observable inputs reflect market-derived or market-based information obtained from independent sources, while unobservable inputs reflect
the Company's estimate about market data. Based on the observability of the inputs used in the valuation techniques, the Company classifies its financial assets and liabilities measured and disclosed
at fair value in accordance with the three-level hierarchy established under SFAS No. 157. This hierarchy ranks the quality and reliability of the information used to determine fair values.

Level 1:
Valuations are based on quoted prices in active markets for identical assets or liabilities. Since valuations are based on quoted prices that are readily and regularly
available in an active market, valuation of these products does not entail a significant degree of judgment.

Level 2:
Valuations are based on quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and
model-based valuations for which all significant assumptions are observable or can be corroborated by observable market data.

F-110

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2006, 2007 and 2008 (Continued)

Note 18Fair Value Measurement and Fair Value of Financial Instruments (Continued)

Level 3:
Valuations are based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
Values are determined using pricing models and discounted cash flow models and include management judgment and estimation which may be significant.

In
determining the appropriate levels, the Company performs a detailed analysis of the assets and liabilities that are subject to SFAS No. 157. In certain cases, the inputs used
to measure fair value of an asset or liability may fall into different levels of the fair value hierarchy. The level within which the fair value measurement is categorized is based on the lowest level
input that is significant to the fair value measurement in its entirety. Therefore, an item may be classified in Level 3 even though there may be some significant inputs that are readily
observable.



The Company has an established and documented process for determining fair value for financial assets and financial liabilities within
the scope of SFAS No. 157. When available, quoted market prices are used to determine fair value. If quoted market prices are not available, fair value is based upon valuation techniques that
use, where possible, current market-based or independently sourced parameters, such as interest rates, yield curves, foreign exchange rates, volatilities and credit curves. Valuation adjustments may
be made to ensure the financial instruments are recorded at fair value. These adjustments include amounts that reflect counterparty credit quality and, with the adoption of SFAS No. 157, that
consider the Company's creditworthiness in determining the fair value of its trading liabilities. A description of the valuation methodologies used for certain financial assets and financial
liabilities measured at fair value is as follows.

Trading Account Assets:Trading account assets are recorded at fair value and primarily consist of securities and derivatives held for
trading
purposes. See discussion below on securities available for sale, which utilize the same valuation methodology as trading account securities. See also discussion below on derivatives valuation.

Securities Available for Sale:Securities available for sale are recorded at fair value based on quoted market prices, if available. If
quoted market
prices are not available, management utilizes third-party pricing services, broker quotations from dealers in the specific instruments and/or external pricing models whose assumptions are primarily
internally generated. Level 1 securities include those traded on an active exchange, as well as U.S. government and its agencies securities. Level 2 securities include mortgage-backed
securities and certain asset-backed securities. Level 3 securities include collateralized loan obligations (CLOs).

Loans Held for Sale:Residential mortgage and commercial loans held for sale are recorded at the lower of cost or fair value. The fair
value of
fixed-rate residential loans is based on whole loan forward prices obtained from government sponsored enterprises. These loans are classified as Level 2. The fair value of
commercial loans held for sale is based on secondary market offerings for loans with similar characteristics. These loans are classified as Level 3.

Loans Impaired under SFAS No. 114:Impaired loans are evaluated and valued at the time the loan is identified as impaired based on
the present
value of the remaining expected cash flows. As a practical expedient, the loan may be measured based on a loan's observable market price or the underlying collateral securing the loan (provided that
the loan is collateral dependent). Collateral may be real estate or business assets including equipment. The value of collateral is determined based on independent appraisals. Appraised

F-111

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2006, 2007 and 2008 (Continued)

Note 18Fair Value Measurement and Fair Value of Financial Instruments (Continued)

values
may be adjusted based on management's historical knowledge, changes in market conditions from the time of valuation, and management's knowledge of the client and the client's business. Impaired
loans are reviewed and evaluated at least quarterly for additional impairment and adjusted accordingly. Loans impaired under SFAS No. 114 that are valued based on underlying collateral are
classified as Level 3.

Derivatives:The Company's derivatives are primarily traded in over-the-counter markets where quoted market prices are not
readily available. The Company values its derivatives using pricing models that are widely accepted in the financial services industry with inputs that are observable in the market or can be derived
from or corroborated by observable market data. These models reflect the contractual terms of the derivatives including the period to maturity and market observable inputs such as yield curves and
option volatility. Valuation adjustments are made to the credit reserve to reflect counterparty credit quality and to consider the creditworthiness of the Company. Derivatives, which are included in
trading account assets, trading account liabilities and other assets, are generally classified as Level 2.

Private Equity Investments:Private equity investments are recorded at cost and evaluated for impairment. The valuation of these
investments requires
significant management judgment due to the absence of quoted market prices, lack of liquidity and the long-term nature of these assets. The fair value of the investments is estimated
quarterly based on a company's business model, current and projected financial performance, liquidity and overall economic and market conditions. Private equity investments are classified as
Level 3.



The following table presents financial assets and financial liabilities measured at fair value on a recurring basis as of
December 31, 2008, by caption on the consolidated balance sheet and by SFAS No. 157 valuation hierarchy.

December 31, 2008(Dollars in thousands)

Level 1

Level 2

Level 3

Netting
Adjustment(1)

Fair ValueAssetsTrading account assets

$
72,860

$
1,203,697

$


$
(59,778
)
$
1,216,779Securities available for sale


888,675


6,102,771


1,203,092





8,194,538Other assets(2)





317,569





(93,599
)

223,970Total assets

$
961,535

$
7,624,037

$
1,203,092

$
(153,377
)
$
9,635,287LiabilitiesTrading account liabilities

$
56,470

$
1,131,570

$


$
(153,377
)
$
1,034,663Total liabilities

$
56,470

$
1,131,570

$


$
(153,377
)
$
1,034,663


---

F-112

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2006, 2007 and 2008 (Continued)

Note 18Fair Value Measurement and Fair Value of Financial Instruments (Continued)

The following table presents a reconciliation of the assets measured at fair value on a recurring basis using significant unobservable inputs
(Level 3) during 2008. Level 3 available for sale securities include CLOs. The CLOs were valued using an external pricing model, as well as broker quotes. The model is based on
internally developed assumptions, utilizing market data derived from market participants and credit rating agencies.

(Dollars in thousands)

For the Year Ended
December 31, 2008Balance, beginning of period

$
1,765,498Total gains/(losses) (realized/unrealized):Included in income before taxes


6,770Included in other comprehensive income


(320,764
)Fair value adjustment(1)


(248,816
)Purchases, issuances and settlements


404Transfers in/out Level 3


Balance, end of period

$
1,203,092Changes in unrealized gains (losses) included in income before taxes for assets and liabilities still held at December 31, 2008

$
6,644


---

Fair Value Measurement on a Nonrecurring Basis

Certain financial assets may be measured at fair value on a nonrecurring basis. These assets are subject to fair value adjustments that
result from the application of the lower of cost or fair value accounting or write-downs of individual assets. The following table presents the carrying value of financial instruments by level within
the fair value hierarchy as of December 31, 2008, for which a nonrecurring change in fair value has been recorded during 2008.

December 31, 2008(Dollars in thousands)

Carrying Value

Level 1

Level 2

Level 3

Losses for the Year
Ended December 31, 2008Loans

$
41,074

$


$


$
41,074

$
(6,216
)Other assets


16,239








16,239


(3,731
)Total

$
57,313

$


$


$
57,313

$
(9,947
)


Loans
include loans held for sale and loans impaired under SFAS No. 114 that are valued based on the fair value of the underlying collateral. The fair value of the loans held for
sale was determined using quoted prices for similar assets, adjusted for differences in characteristics. The fair value of SFAS No. 114 loans was determined based on appraised values of the
underlying collateral. Other assets include private equity and CRA related investments that were written down to fair value during the period as a result of impairments. The fair value of private
equity and CRA related investments was estimated based on the Company's current and projected financial performance.

F-113

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2006, 2007 and 2008 (Continued)

Note 18Fair Value Measurement and Fair Value of Financial Instruments (Continued)



In addition to financial instruments recorded at fair value in the Company's financial statements, SFAS No. 107 requires
disclosure of the estimated fair value of financial instruments that are not carried at fair value. Excluded from this disclosure requirement are lease financing arrangements, investments accounted
for under the equity method, employee pension and other postretirement obligations and all nonfinancial assets and liabilities, including goodwill and other intangible assets such as
long-term customer relationships. The fair values presented are estimates for certain individual financial instruments and do not represent an estimate of the fair value of the Company as
a whole.

Certain
financial instruments that are not recognized at fair value on the consolidated balance sheet are carried at amounts that approximate fair value due to their
short-term nature. These financial instruments include cash and due from banks, interest bearing deposits in banks, federal funds sold and purchased, securities purchased under resale
agreements, securities sold under repurchase agreements and commercial paper. In addition, SFAS No. 107 requires the fair value of deposits with no stated maturity, such as noninterest-bearing
demand deposits, interest-bearing checking, and market rate and other savings, to equal their carrying values.

Although
off-balance sheet commitments, which include commitments to extend credit and standby and commercial letters of credit, are not required to be recorded at fair value
on the consolidated balance sheet, they are carried at amounts that approximate fair value. The carrying value of these off-balance sheet instruments represents the unamortized fee income
assessed based on the credit quality and other covenants imposed on the borrower. Since the amount assessed represents the market rate that would be charged for similar agreements, management believes
that the carrying value approximates the fair value of these instruments. Financial instruments for which their carrying values do not approximate fair value include loans, interest bearing deposits
with stated maturities, other borrowed funds, medium- and long-term debt, and trust notes.

Loans:The fair values of mortgage loans were estimated based on quoted market prices for loans with similar credit and interest rate
risk
characteristics. The fair values of other types of loans were estimated based upon the type of loan and maturity. The fair value of these loans was determined by discounting the future expected cash
flows using the current origination rates for similar loans made to borrowers with similar credit ratings.

Interest bearing deposits:The fair values of savings accounts and certain money market accounts were based on the amounts payable on
demand at the
reporting date. The fair value of fixed maturity
certificates of deposit was estimated using a discounted cash flow calculation that applies current interest rates being offered on certificates with similar maturities.

Other borrowed funds:The fair values of Federal Reserve Bank term borrowings, Federal Home Loan Bank borrowing and term federal funds
purchased were
estimated using a discounted cash flow calculation that applies current market rates for applicable maturities. The carrying values of other short-term borrowed funds were assumed to
approximate their fair value due to their limited duration.

Medium- and long-term debt:The fair value of medium-term fixed and floating rate notes was estimated using a discounted cash
flow analysis based on current market interest rates for debt with similar

F-114

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2006, 2007 and 2008 (Continued)

Note 18Fair Value Measurement and Fair Value of Financial Instruments (Continued)

maturities
and credit quality. The fair value of the fixed rate subordinated notes were estimated using market quotes.

Trust notes:The fair value of trust notes was estimated using market quotes of similar securities.

The
table below presents the carrying value and estimated fair value of certain financial instruments held by the Company as of December 31, 2007 and 2008.

December 31,2007

2008(Dollars in thousands)

Carrying Value

Fair Value

Carrying Value

Fair ValueAssetsLoans, net of allowance for loan losses

$
40,153,095

$
39,536,003

$
48,205,818

$
47,507,685LiabilitiesInterest bearing deposits


28,877,551


28,912,051


32,482,896


32,528,349Other borrowed funds


1,875,619


1,879,351


8,196,597


8,203,032Medium- and long-term debt


1,913,622


1,804,732


4,288,488


4,067,878Junior subordinated debt payable to subsidiary grantor trust


14,432


13,340


13,980


11,700Off-Balance Sheet InstrumentsCommitments to extend credit


53,476


53,476


92,644


92,644Standby and commercial letters of credit


6,340


6,340


6,465


6,465


Note 19Derivative Instruments

The Company is a party to certain derivative and other financial instruments that are entered into for the purpose of trading, meeting the needs of customers, and changing the impact on
the Company's operating results due to market fluctuations in currency and/or interest rates.

Credit
and market risks are inherent in derivative instruments. Credit risk is defined as the possibility that a loss may occur from the failure of another party to perform in accordance
with the terms of the contract, which exceeds the value of the existing collateral, if any. The Company utilizes master netting agreements in order to reduce its exposure to credit risk. Master
netting agreements mitigate credit risk by permitting the offset of amounts due from and to individual counterparties in the event of default. Additionally, the Company establishes a credit reserve
for potential losses in the event of counterparty default. This reserve is not reflected in the following tables. Market risk is the possibility that future changes in market conditions may make the
financial instrument less valuable.

On
a limited basis, the Company also enters into financial guarantee contracts where a premium is received from another financial institution counterparty to guarantee a portion of the
credit risk on interest rate swap contracts entered into between the financial institution and its customer. The Company becomes liable to pay the financial institution only if the financial
institution is unable to collect amounts owed to them by their customer. For further information on this guarantee, see Note 24 to these consolidated financial statements.

F-115

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2006, 2007 and 2008 (Continued)

Note 19Derivative Instruments (Continued)



Derivative instruments used for trading purposes are carried at fair value. The following table reflects the Company's positions
relating to trading activities in derivative instruments. Trading activities include both activities for the Company's own account and as an accommodation for customers. At December 31, 2007
and 2008, the majority of the Company's derivative transactions for customers were essentially offset by contracts with other counterparties that reduce or eliminate market risk exposures.

The
following is a summary of derivative instruments held or written for trading purposes and customer accommodations.

December 31,2007

2008(Dollars in thousands)

Unrealized
Gains

Unrealized
Losses

Estimated
Fair Value

Unrealized
Gains

Unrealized
Losses

Estimated
Fair ValueHeld or Written for Trading Purposes and Customer AccommodationsForeign exchange forward contracts:Commitments to purchase

$
41,742

$
(10,332
)
$
31,410

$
27,857

$
(39,886
)
$
(12,029
)Commitments to sell


6,168


(34,064
)

(27,896
)

50,829


(49,457
)

1,372Foreign exchange OTC options:Options purchased


2,494





2,494


13,814





13,814Options written





(2,494
)

(2,494
)




(13,814
)

(13,814
)Cross currency swaps:Commitments to pay


7,902





7,902


3,799





3,799Commitments to receive





(7,662
)

(7,662
)




(3,664
)

(3,664
)Energy contracts:Option contracts


40,469


(40,469
)




165,312


(165,312
)

Swap contracts


135,235


(134,201
)

1,034


196,336


(194,693
)

1,643Equity Options:Caps purchased











680





680Caps written














(680
)

(680
)Interest rate contracts:Futures Purchased











20





20Caps purchased


97


(508
)

(411
)

56


(2,558
)

(2,502
)Floors purchased


6





6








Futures Written














(11,574
)

(11,574
)Caps written


486


(76
)

410


2,558


(56
)

2,502Floors written





(6
)

(6
)







Swap contracts:Pay variable/receive fixed


168,718


(1,574
)

167,144


682,928


(8,490
)

674,438Pay fixed/receive variable


2,393


(148,939
)

(146,546
)

22,220


(645,403
)

(623,183
)Pay variable/receive variable











138


(2,137
)

(1,999
)405,710








1,166,547Effect of master netting agreements


(20,972
)







(59,778
)Total net credit exposure

$
384,738







$
1,106,769


F-116

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2006, 2007 and 2008 (Continued)

Note 19Derivative Instruments (Continued)

Derivative positions are integral components of the Company's designated asset and liability management activities. The Company uses interest rate
derivatives to manage the sensitivity of the Company's net interest income to changes in interest rates. These instruments are used to manage interest rate risk relating to specified groups of assets
and liabilities, primarily LIBOR-based commercial loans, certificates of deposit and subordinated debt. The following describes the significant hedging strategies of the Company.



The Company engages in several types of cash flow hedging strategies for which the hedged transactions are forecasted future loan
interest payments, and the hedged risk is the variability in those payments due to changes in the designated benchmark rate, i.e., U.S. dollar LIBOR. In these strategies, the hedging
instruments are matched with groups of variable rate loans such that the reset tenor of the variable rate loans and that of the hedging instrument are identical. Cash flow hedging strategies include
the utilization of purchased floor, cap, collars and corridor options and interest rate swaps. At December 31, 2008, the weighted average remaining life of the currently active (excluding any
forward positions) cash flow hedges was approximately 1.1 years.

The
Company uses purchased interest rate floors to hedge the variable cash flows associated with 1-month or 3-month LIBOR indexed loans. Payments received under
the floor contract offset the decline in loan interest income caused by the relevant LIBOR index falling below the floor's strike rate.

The
Company uses interest rate floor corridors to hedge the variable cash flows associated with 1-month or 3-month LIBOR indexed loans. Net payments to be
received under the floor corridor contracts offset the decline in loan interest income caused by the relevant LIBOR index falling below the corridor's upper strike rate, but only to the extent the
index falls to the lower strike rate. The corridor will not provide protection from declines in the relevant LIBOR index to the extent it falls below the corridor's lower strike rate.

The
Company uses interest rate collars to hedge the variable cash flows associated with 1-month or 3-month LIBOR indexed loans. Net payments to be received under
the collar contract offset the decline in loan interest income caused by the relevant LIBOR index falling below the collar's floor strike rate, while net payments to be paid will reduce the increase
in loan interest income caused by the LIBOR index rising above the collar's cap strike rate.

The
Company uses interest rate swaps to hedge the variable cash flows associated with 1-month or 3-month LIBOR indexed loans. Payments to be received (or paid)
under the swap contract will offset the fluctuations in loan interest income caused by changes in the relevant LIBOR index. As such, these instruments hedge all fluctuations in the loans' interest
income caused by changes in the relevant LIBOR index.

The
Company uses purchased interest rate caps to hedge the variable interest cash flows associated with the forecasted issuance and rollover of short-term, fixed rate CDs. In
these hedging relationships, the Company hedges the LIBOR component of the CD rates, which is 3-month LIBOR, based on the CDs' original term to maturity, which reflects their repricing
frequency. Net payments to be received under the cap contract offset the increase in interest expense caused by the relevant LIBOR index rising above the cap's strike rate.

F-117

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2006, 2007 and 2008 (Continued)

Note 19Derivative instruments (Continued)

The
Company uses interest rate cap corridors to hedge the variable cash flows associated with the forecasted issuance and rollover of short-term, fixed rate CDs. In these
hedging relationships, the Company hedges the LIBOR component of the CD rates, either 1-month, 3-month, or 6-month LIBOR, based on the original term to maturity of
the
CDs, which reflects their repricing frequency. Net payments to be received under the cap corridor contract offset the increase in deposit interest expense caused by the relevant LIBOR index rising
above the corridor's lower strike rate, but only to the extent the index rises to the upper strike rate. The corridor will not provide protection from increases in the relevant LIBOR index to the
extent it rises above the corridor's upper strike rate.

Hedging
transactions are structured at inception so that the notional amounts of the hedge are matched with an equal principal amount of loans or CDs, the index and repricing frequencies
of the hedge match those of the loans or CDs, and the period in which the designated hedged cash flows occurs is equal to the term of the hedge. As such, most of the ineffectiveness in the hedging
relationship results from the mismatch between the timing of reset dates on the hedge versus those of the loans or CDs. In 2008, the Company recognized a net gain of $532 thousand due to
ineffectiveness, which is recognized in other noninterest expense, compared to a net loss of $14 thousand in 2007.

For
cash flow hedges, based upon amounts included in accumulated other comprehensive income at December 31, 2008, the Company expects to realize approximately
$110.2 million in net interest income during 2009. This amount could differ from amounts actually realized due to changes in interest rates and the addition of other hedges subsequent to
December 31, 2008.



The Company engages in an interest rate hedging strategy in which one or more interest rate swaps are associated with a specified
interest bearing liability, in order to convert the liability from a fixed rate to a floating rate instrument. This strategy mitigates the changes in fair value of the hedged liability caused by
changes in the designated benchmark interest rate, U.S. dollar LIBOR.

The
fair value hedging transactions for the issuances of subordinated debt were structured at inception to mirror all of the provisions of the subordinated debt, which allows the Company
to assume that no ineffectiveness exists.



The Company uses To-Be-Announced (TBA) contracts to fix the price and yield of anticipated purchases or sales
of mortgage-backed securities that will be delivered at an agreed upon date. This strategy hedges the risk of variability in the cash flows to be paid or received upon settlement of the TBA contract.



The Company engages in an economic hedging strategy in which interest bearing CDs issued to customers, which are tied to the changes in
the Standard and Poor's 500 Index (S&P 500), are exchanged for a fixed rate of interest. The Company accounts for the embedded derivative in the CD at fair value. A total return swap that
encompasses the value of a series of options that had individually hedged each CD is valued

F-118

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2006, 2007 and 2008 (Continued)

Note 19Derivative instruments (Continued)

at
fair value. The changes in the fair value of the embedded derivative and the hedge instrument are recognized as interest expense.

Beginning
in late 2008, the Company began offering market-linked certificates of deposit. The terms of the CD allow the client to earn the higher of either a minimum fixed rate of
interest or a return tied to the S&P 500. The Company hedges its exposure to the embedded derivative contained in market-linked CDs with a perfectly matched
over-the-counter call option. Both the embedded derivative and call option are carried at fair value with realized and unrealized changes in fair value recorded in noninterest
income within trading account activities.

The
following table reflects summary information on the Company's derivative contracts used to hedge or modify the Company's risk as of December 31, 2007 and 2008.

December 31, 2007

December 31, 2008(Dollars in thousands)

Unamortized
Premiums

Unrealized
Gains

Unrealized
Losses

Estimated
Fair Value

Unamortized
Premiums(1)

Unrealized
Gains

Unrealized
Losses

Estimated
Fair ValueHeld for Asset and Liability Management PurposesFair Value Hedges and Hedged Items:Subordinated debt interest rate swaps

$


$
66,791

$


$
66,791

$


$
172,820

$


$
172,820Subordinated debt








(66,791
)

(66,791
)







(188,428
)

(188,428
)Cash Flow Hedges:Interest rate option contracts:Floors purchased


41,103


38,373





79,476


30,137


112,306





142,443Interest rate swap contracts:Pay variable/receive fixed





1,769


(2,015
)

(246
)




2,306





2,306Economic Hedges:Swap contract indexed to S&P 500:Pay fixed/receive variable





504





1,740








(936
)

301MarketPath certificates of deposit








(504
)

(504
)




936





936107,437











288,368Effect of master netting agreements





(18,081
)










(93,599
)Total net credit exposure




$
89,356










$
194,769


---

F-119

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2006, 2007 and 2008 (Continued)

Note 20Restrictions on Cash and Due from Banks, Securities, Loans and Dividends

Federal Reserve Board regulations require the Bank to maintain reserve balances based on the types and amounts of deposits received. The required reserve balances were
$192.5 million and $178.7 million at December 31, 2007 and 2008, respectively.

As
of December 31, 2007 and 2008, securities carried at $4.3 billion and $5.9 billion and loans of $20.2 billion and $40.2 billion, respectively, were
pledged as collateral for borrowings, including those to
the Federal Reserve Bank and Federal Home Loan Bank, to secure public and trust department deposits, and for repurchase agreements as required by contract or law.

The
Federal Reserve Act restricts the amount and the terms of both credit and non-credit transactions between a bank and its non-bank affiliates. Such
transactions may not exceed 10 percent of the bank's capital and surplus (which for this purpose represents Tier 1 and Tier 2 capital, as calculated under the
risk-based capital guidelines, plus the balance of the allowance for loan losses excluded from Tier 2 capital) with any single non-bank affiliate and 20 percent
of the bank's capital and surplus with all its non-bank affiliates. Transactions that are extensions of credit may require collateral to be held to provide added security to the bank. See
Note 21 to these consolidated financial statements for further discussion of risk-based capital. At December 31, 2008, $266.0 million remained outstanding on
twenty-one Bankers Commercial Corporation notes payable to the Bank. The respective notes were fully collateralized with equipment lease assets pledged by Bankers Commercial Corporation.
At December 31, 2008, $10.3 million remained outstanding on a UnionBanCal Leasing Corporation loan payable to the Bank. The loan was fully collateralized with equipment lease assets
pledged by UnionBanCal Leasing Corporation. At December 31, 2008, $33.6 million remained outstanding on the UnionBanCal Equities, Inc. loan payable to the Bank. The loan was fully
secured by loans pledged by UnionBanCal Equities, Inc.

The
declaration of a dividend by the Bank to the Company is subject to the approval of the Office of the Comptroller of the Currency (OCC) if the total of all dividends declared in the
current calendar year plus the preceding two years exceeds the Bank's total net income in the current calendar year plus the preceding two years. The payment of dividends is also limited by minimum
capital requirements imposed on national banks by the OCC.

Note 21Regulatory Capital Requirements

The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate
certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a material effect on the Company's consolidated financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital
guidelines that involve quantitative measures of the Company's and Bank's assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The
capital amounts and the Bank's prompt corrective action classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Prompt
corrective action provisions are not applicable to bank holding companies such as the Company. The Bank is subject to laws and regulations that limit the amount of dividends it can pay to the Company.

Quantitative
measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the table below) of Total
and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier 1 capital (as defined) to quarterly

F-120

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2006, 2007 and 2008 (Continued)

Note 21Regulatory Capital Requirements (Continued)

average
assets (as defined). Management believes, as of December 31, 2007 and 2008, that the Company and the Bank met all capital adequacy requirements to which they are subject.

The
most recent notification from the OCC categorized the Bank as "well-capitalized" under the regulatory framework for prompt corrective action. To be categorized as
"well-capitalized," the Bank must maintain a minimum total risk-based capital ratio of 10 percent, a Tier 1 risk-based capital ratio of
6 percent, and a Tier 1 leverage ratio of 5 percent. There are no conditions or events since that notification that management believes have changed the Bank's category.

The
Company's and the Bank's capital amounts and ratios are presented in the following tables.

Actual

For Capital
Adequacy Purposes(Dollars in thousands)

Amount

Ratio

Amount

RatioCapital Ratios for the Company:As of December 31, 2007:Total capital (to risk-weighted assets)

$
6,123,923


11.21
%
3
$4,368,522

3
8.0
%Tier 1 capital (to risk-weighted assets)


4,533,763


8.30

3
2,184,261

3
4.0Tier 1 capital (to quarterly average assets)(1)


4,533,763


8.27

3
2,193,752

3
4.0As of December 31, 2008:Total capital (to risk-weighted assets)

$
7,240,104


11.63
%
3
$4,980,086

3
8.0
%Tier 1 capital (to risk-weighted assets)


5,466,713


8.78

3
2,490,043

3
4.0Tier 1 capital (to quarterly average assets)(1)


5,466,713


8.42

3
2,596,714

3
4.0


---

Actual

For Capital
Adequacy Purposes

To Be Well-Capitalized
Under Prompt Corrective
Action Provisions(Dollars in thousands)

Amount

Ratio

Amount

Ratio

Amount

RatioCapital Ratios for the Bank:As of December 31, 2007:Total capital (to risk-weighted assets)

$
5,631,164


10.38
%
3
$4,338,760

3
8.0
%
3
$5,423,450

3
10.0
%Tier 1 capital (to risk-weighted assets)


4,449,368


8.20

3
2,169,380

3
4.0

3
3,254,070

3
6.0Tier 1 capital (to quarterly average assets)(1)


4,449,368


8.20

3
2,171,112

3
4.0

3
2,713,891

3
5.0As of December 31, 2008:Total capital (to risk-weighted assets)

$
6,831,099


11.01
%
3
$4,962,078

3
8.0
%
3
$6,202,597

3
10.0
%Tier 1 capital (to risk-weighted assets)


5,380,075


8.67

3
$2,481,039

3
4.0

3
$3,721,558

3
6.0Tier 1 capital (to quarterly average assets)(1)


5,380,075


8.31

3
$2,589,511

3
4.0

3
$3,236,888

3
5.0


---

F-121

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2006, 2007 and 2008 (Continued)

Note 22Other Comprehensive Income (Loss)

The following table presents the change in each of the components of other comprehensive income (loss) and the related tax effect of the change allocated to each component.

(Dollars in thousands)

Before
Tax
Amount

Tax
Effect

Net of
TaxFor the year ended December 31, 2006:Cash flow hedge activities:Unrealized net losses on hedges arising during the year

$
(32,708
)
$
12,511

$
(20,197
)Less: reclassification adjustment for net losses on hedges included in net income


43,886


(16,786
)

27,100Net change in unrealized losses on hedges


11,178


(4,275
)

6,903Securities available for sale:Unrealized holding gains arising during the year on securities available for sale


28,510


(10,905
)

17,605Less: reclassification adjustment for net gains on securities available for sale included in net income


(2,242
)

858


(1,384
)Net change in unrealized losses on securities available for sale


26,268


(10,047
)

16,221Foreign currency translation adjustment


(67
)

26


(41
)Pension and other benefits adjustment:SFAS No. 158 adjustment


(261,032
)

99,845


(161,187
)Minimum pension liability adjustment


(4,659
)

1,782


(2,877
)Net pension and other benefits adjustment


(265,691
)

101,627


(164,064
)Net change in accumulated other comprehensive income (loss)

$
(228,312
)
$
87,331

$
(140,981
)For the year ended December 31, 2007:Cash flow hedge activities:Unrealized net gains on hedges arising during the year

$
53,119

$
(20,318
)
$
32,801Less: reclassification adjustment for net losses on hedges included in net income


29,420


(11,253
)

18,167Net change in unrealized losses on hedges


82,539


(31,571
)

50,968Securities available for sale:Unrealized holding losses arising during the year on securities available for sale


(113,820
)

43,536


(70,284
)Less: reclassification adjustment for net gains on securities available for sale included in net income


(1,621
)

620


(1,001
)Net change in unrealized losses on securities available for sale


(115,441
)

44,156


(71,285
)Foreign currency translation adjustment


837


(320
)

517Reclassification adjustment for pension and other benefits included in net income:Amortization of prior service costs


638


(244
)

394Amortization of transition amount


2,035


(778
)

1,257Recognized net actuarial loss


21,341


(8,163
)

13,178Pension and other benefits arising during the year


(30,409
)

11,631


(18,778
)Net pension and other benefits adjustment(1)


(6,395
)

2,446


(3,949
)Net change in accumulated other comprehensive income (loss)

$
(38,460
)
$
14,711

$
(23,749
)For the year ended December 31, 2008:Cash flow hedge activities:Unrealized net gains on hedges arising during the year

$
181,223

$
(70,993
)
$
110,230Reclassification for fair value adjustment(2)


(20,156
)

7,710


(12,446
)Less: accretion of fair value adjustment


4,141


(1,583
)

2,558Less: reclassification adjustment for net gains on hedges included in net income


(83,271
)

32,674


(50,597
)Net change in unrealized gains on hedges


81,937


(32,192
)

49,745Securities available for sale:Unrealized holding losses arising during the year on securities available for sale


(639,190
)

251,138


(388,052
)Reclassification for fair value adjustment(2)


274,271


(107,761
)

166,510Less: accretion of fair value adjustment


(3,258
)

1,280


(1,978
)Less: reclassification adjustment for net gains on securities available for sale included in net income


(44
)

17


(27
)Net change in unrealized losses on securities available for sale


(368,221
)

144,674


(223,547
)Foreign currency translation adjustment


(3,053
)

1,200


(1,853
)Reclassification adjustment for pension and other benefits included in net income:Amortization of prior service costs


88


(32
)

56Amortization of transition amount


1,854


(728
)

1,126Recognized net actuarial loss


13,563


(5,328
)

8,235Pension and other benefits arising during the year


(698,600
)

276,575


(422,025
)Reclassification for fair value adjustment(2)


96,415


(36,880
)

59,535Less: accretion of fair value adjustment








Net pension and other benefits adjustment(1)


(586,680
)

233,607


(353,073
)Net change in accumulated other comprehensive income (loss)

$
(876,017
)
$
347,289

$
(528,728
)


---

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2006, 2007 and 2008 (Continued)

Note 22Other Comprehensive Income (Loss) (Continued)

The following table presents accumulated other comprehensive income (loss) balances.

(Dollars in thousands)

Net
Unrealized
Gains (Losses)
on Cash
Flow
Hedges

Net
Unrealized
Losses
on Securities
Available
For Sale

Foreign
Currency
Translation
Adjustment

Pension and
Other
Benefits
Adjustment(1)

Accumulated
Other
Comprehensive
LossBalance, December 31, 2005

$
(34,308
)
$
(74,099
)
$
264

$
(10,250
)
$
(118,393
)Change during the year


6,903


16,221


(41
)

(164,064
)

(140,981
)Balance, December 31, 2006

$
(27,405
)
$
(57,878
)
$
223

$
(174,314
)
$
(259,374
)Change during the year


50,968


(71,285
)

517


(3,949
)

(23,749
)Balance, December 31, 2007

$
23,563

$
(129,163
)
$
740

$
(178,263
)
$
(283,123
)Change during the year


49,745


(223,547
)

(1,853
)

(353,073
)

(528,728
)Balance, December 31, 2008

$
73,308

$
(352,710
)
$
(1,113
)
$
(531,336
)
$
(811,851
)


---

Note 23Discontinued Operations

The Company's discontinued operations consist of three separate businesses: international correspondent banking, retirement recordkeeping services and insurance brokerage services. In
2005, the Bank sold its international correspondent banking business (ICBB) to Wachovia Bank, N.A. for $245.0 million, and in 2006 the Bank received and recorded a subsequent
$4.0 million pre-tax purchase price adjustment. This business consisted of international payment and trade processing along with related
lending activities. As of March 31, 2007, substantially all of the assets and liabilities related to this discontinued operation were liquidated.

Although
ICBB's operations had substantially ended in 2006, the Bank was responsible for past violations of the Bank Secrecy Act and other anti-money laundering laws and
regulations (BSA/AML) associated with ICBB. As a result of the past violations, the Bank entered into a Deferred Prosecution Agreement (DPA) with the United States Department of Justice (DOJ) in the
third quarter of 2007. The DPA was subsequently terminated in the fourth quarter of 2008. For additional information, refer to Note 24 to these consolidated financial statements.

In
the fourth quarter of 2007, the Company sold its retirement recordkeeping business (RRB) to Prudential Retirement, a subsidiary of Prudential Financial, Inc., for
$103.0 million. The Company recorded a pre-tax gain of $94.7 million, net of $2.1 million in transaction costs and a $6.2 million elimination of intangible
assets, consisting of goodwill of $4.8 million and other intangibles of $1.4 million attributed to this business. The RRB was previously included in the Retail Banking reportable
business segment.

In
June 2008, the Company sold its insurance brokerage business (IBB) subsidiary, UnionBanc Insurance Services, Inc., to a wholly-owned subsidiary of BB&T Corporation. The Company
recorded a total pre-tax gain of $10.0 million, net of $1.6 million in transaction costs, and an elimination of intangible assets consisting of goodwill of
$74.7 million and other intangibles of $11.0 million. The IBB was previously included in the Wholesale Banking reportable business segment.

These
transactions have been accounted for as discontinued operations. All prior period financial statements have been restated to reflect this accounting treatment. The assets and
liabilities of the

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2006, 2007 and 2008 (Continued)

Note 23Discontinued Operations (Continued)

discontinued
operations have been separately identified on the consolidated balance sheet and the assets are shown as "held for sale" at the lower of cost or fair value less costs to dispose. The
average net assets or liabilities of our discontinued operations are reflected in our analysis of net interest margin. Interest expense (income) was attributed to discontinued operations based on
average net assets (liabilities).

International Correspondent Banking Business Discontinued Operations

The components of income from the international correspondent banking business for the years ended December 31, 2006 and 2007
are presented in the following table. There was no impact in 2008.

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

2006

2007Net interest income

$
871

$
Noninterest income


13,110


Noninterest expense


31,038


23,244Loss from discontinued operations before income taxes


(17,057
)

(23,244
)Income tax benefit


(6,310
)

(582
)Loss from discontinued operations

$
(10,747
)
$
(22,662
)


Interest expense attributed to this discontinued operations was based on average net assets. The amount of interest expense allocated to
discontinued operations during the year ended December 31, 2006 was $1.8 million and zero for the years ended December 31, 2007 and 2008.

Noninterest
income for this discontinued operations for the year ended December 31, 2006 included gains on sale of the business of $4.0 million. Noninterest expense for the
year ended December 31, 2006 included compliance related expenses of $8.7 million. Noninterest expense for the year ended December 31, 2007 included the $21.6 million paid
to the DOJ and related legal and other outside services costs of $1.6 million. The income tax benefit of $0.6 million for the year ended December 31, 2007 reflects the
nondeductibility of the $21.6 million payment to the DOJ.

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2006, 2007 and 2008 (Continued)

Note 23Discontinued Operations (Continued)

Retirement Recordkeeping Business (RRB) Discontinued Operations

At December 31, 2007 and 2008, the assets and liabilities identified as the RRB discontinued operations consisted of the
following:

December 31,(Dollars in thousands)

2007

2008AssetsPremises and equipment, net

$
1,086

$
Other assets


6,518


Assets of discontinued operations to be disposed or sold

$
7,604

$
LiabilitiesInterest bearing deposits

$
98,516

$
1,929Other liabilities


9,483


5,217Liabilities of discontinued operations to be extinguished or assumed

$
107,999

$
7,146


The components of income from the RRB discontinued operations for the years ended December 31, 2006, 2007 and 2008 are:

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

2006

2007

2008Net interest income

$
4,813

$
4,703

$
1,573Noninterest income


47,556


142,892


18,883Noninterest expense


48,439


52,429


36,253Income (loss) from discontinued operations before income taxes


3,930


95,166


(15,797
)Income tax expense (benefit)


1,502


34,276


(5,581
)Income (loss) from discontinued operations

$
2,428

$
60,890

$
(10,216
)


The RRB's net interest income for the years ended December 31, 2006, 2007 and 2008 included the allocation of interest income (based on its
average net liabilities) of $5.2 million, $5.1 million and $1.8 million, respectively. Noninterest income for the years ended December 31, 2006, 2007 and 2008 included
trust fees of $47.5 million, $48.2 million and $7.1 million, respectively. For the year ended December 31, 2007, noninterest income also included the pre-tax
gain of $94.7 million on the sale of RRB. Noninterest income for the year ended December 31, 2008 also included $12.4 million in servicing revenues from Prudential. The majority
of these servicing revenues were earned in the first half of 2008, as the migration of customers onto Prudential's accounting systems was completed in June 2008. For the years ended
December 31, 2006, 2007, and 2008, noninterest expense included salaries and benefits expense of $26.9 million, $34.1 million and $17.5 million, respectively. For the year
ended 2007, salaries and benefits expense of $34.1 million included an $8.7 million charge for severance and retention expenses.

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2006, 2007 and 2008 (Continued)

Note 23Discontinued Operations (Continued)

Insurance Brokerage Business Discontinued Operations

At December 31, 2007 and 2008, the assets and liabilities identified as the IBB discontinued operations consisted of the
following:

December 31,(Dollars in thousands)

2007

2008AssetsCash and due from banks

$
3

$
Securities available for sale


11


Premises and equipment


4,163


Intangible assets


12,110


Goodwill


93,431


Other Assets


5,662


4Assets of discontinued operations to be disposed or sold

$
115,380

$
4LiabilitiesOther borrowed funds

$
4

$
Other liabilities


23,518


814Liabilities of discontinued operations to be extinguished or assumed

$
23,522

$
814


The components of income from the IBB discontinued operations for the years ended December 31, 2006, 2007 and 2008 are:

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

2006

2007

2008Net interest income

$
(4,650
)
$
(4,728
)
$
(994
)Noninterest income


71,729


68,764


35,858Noninterest expense


79,900


69,205


46,435Loss from discontinued operations before income taxes


(12,821
)

(5,169
)

(11,571
)Income tax benefit


(4,599
)

(1,671
)

(6,732
)Loss from discontinued operations

$
(8,222
)
$
(3,498
)
$
(4,839
)


The IBB's net interest expense for the years ended December 31, 2006, 2007 and 2008 was mainly comprised of the allocation of interest
expense (based on its average net assets). Noninterest income for the years ended December 31, 2006, 2007 and 2008 included insurance commissions of $71.8 million, $68.6 million
and $25.7 million, respectively. Noninterest income for the year ended December 31, 2008 also included a $9.8 million pre-tax gain from the sale of IBB and
$0.2 million in subsequent gain adjustments. Noninterest expense for the years ended December 31, 2006, 2007 and 2008 included salaries and benefits expense of $61.1 million,
$53.0 million, and $21.3 million, respectively. For the year ended December 31, 2008, noninterest expense also included an $18.7 million goodwill impairment charge. This
charge was recorded in the first quarter of 2008, when the Company determined that the value of the net assets was greater than the fair value of IBB, which was based on indicative prices for
insurance agencies.

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2006, 2007 and 2008 (Continued)

Note 24Commitments, Contingencies and Guarantees

The following table summarizes the Company's significant commitments.

December 31,(Dollars in thousands)

2007

2008Commitments to extend credit

$
23,385,514

$
21,746,133Standby letters of credit


3,673,553


4,588,552Commercial letters of credit


71,745


50,590Risk participations in bankers' acceptances


33,550


23,925Commitments to fund principal investments


102,689


111,237Commitments to fund low-income housing credit (LIHC) investments


140,650


139,449


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

Standby
and commercial letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. Standby letters of credit generally are
contingent upon the failure of the customer to perform according to the terms of the underlying contract with the third party, while commercial letters of credit are issued specifically to facilitate
foreign or domestic trade transactions. Additionally, the Company enters into risk participations in bankers' acceptances wherein a fee is received to guarantee a portion of the credit risk on an
acceptance of another bank. The majority of these types of commitments have terms of one year or less. At December 31, 2008, the carrying value of the Company's risk participations in bankers'
acceptances, standby and commercial letters of credit totaled $6.5 million. Exposure to loss related to these commitments is covered by the allowance for losses on off-balance sheet
commitments. The carrying value of the standby and commercial letters of credit and the allowance for losses on off-balance sheet commitments are included in other liabilities on the
consolidated balance sheet.

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

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

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2006, 2007 and 2008 (Continued)

Note 24Commitments, Contingencies and Guarantees (Continued)

The
Company invests in either guaranteed or unguaranteed LIHC investments. The guaranteed LIHC investments carry a minimum rate of return guarantee by a creditworthy entity. The
unguaranteed LIHC investments carry partial guarantees covering the timely completion of projects, availability of tax credits
and operating deficit thresholds from the issuer. For these LIHC investments, the Company has committed to provide additional funding as stipulated by its investment participation.

The
Company is fund manager for limited liability companies issuing LIHC investments. LIHC investments provide tax benefits to investors in the form of tax deductions from operating
losses and tax credits. To facilitate the sale of these LIHC investments, the Company guarantees a minimum rate of return throughout the investment term of over a twelve-year weighted
average period. Additionally, the Company receives guarantees from the project sponsors, which include the timely completion of projects, availability of tax credits and operating deficit thresholds
from the limited liability partnerships/corporations issuing the LIHC investments that reduce the Company's ultimate exposure to loss. As of December 31, 2008, the Company's maximum exposure to
loss under these guarantees is limited to a return of investor capital and minimum investment yield, or $207.4 million. The risk that the Company would be required to pay investors for a yield
deficiency is low, based on the continued satisfactory performance of the underlying properties. The Company has a reserve of $7.3 million recorded related to these guarantees, which represents
the remaining unamortized fair value of the guarantee fees that were recognized at inception.

The
Company has rental commitments under long-term operating lease agreements. For detail of these commitments see Note 6 to these consolidated financial statements.

The
Company conducts securities lending transactions for institutional customers as a fully disclosed agent. At times, securities lending indemnifications are issued to guarantee that a
security lending customer will be made whole in the event the borrower does not return the security subject to the lending agreement and collateral held is insufficient to cover the market value of
the security. All lending transactions are collateralized, primarily by cash. The amount of securities lent with indemnifications was $2.9 billion and $1.4 billion at December 31,
2007 and 2008, respectively. The market value of the associated collateral was $3.0 billion and $1.4 billion at December 31, 2007 and 2008, respectively. At December 31,
2008, the Company had no exposure that would require it to pay under this securities lending indemnification, since the collateral market value exceeds the securities lent.

The
Company occasionally enters into financial guarantee contracts where a premium is received from another financial institution counterparty to guarantee a portion of the credit risk
on interest rate swap contracts entered into between the financial institution and its customer. The Company becomes liable to pay the financial institution only if the financial institution is unable
to collect amounts owed to them by their customer. As of December 31, 2008, the maximum exposure to loss under these contracts totaled $90.1 million. The risk that the Company would be
required to perform under these guarantees varies based on the creditworthiness of the other financial institution's customer. Credit risk grades are assigned by the Company based on the estimated
probability of default. The risk of default is considered low for those with superior to good credit ratings, moderate for those with satisfactory to adequate credit ratings, and high for those
considered special mention, substandard, doubtful and loss. Based on these criteria, at December 31, 2008 the Company had a low, moderate, and high risk of payment exposure under these
contracts of $24.3 million, $59.1 million, and $6.7 million, respectively. At December 31, 2008, the Company maintained a reserve of $1.9 million for losses related
to these guarantees.

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2006, 2007 and 2008 (Continued)

Note 24Commitments, Contingencies and Guarantees (Continued)

The
Company is a member of the Visa USA network (Visa). Visa's bylaws obligate its members to indemnify Visa for losses in connection with the settlement of certain antitrust lawsuits.
The Company's indemnification obligation is limited to its proportionate share. Under FIN No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of OthersAn Interpretation of FASB Statements No. 5, 57, and 107 and Rescission of FASB Interpretation No. 34," the Company had a liability of
$9.5 million and $4.3 million at December 31, 2007 and 2008, respectively, representing the estimated fair value of the Company's obligations under the indemnity provisions. The
reduction in this liability from December 31, 2007 to December 31, 2008 was primarily due to the funding activity by Visa of an escrow account created by them to act as the primary
source of funds to pay settlements of its antitrust lawsuits. The $4.3 million liability represents the Company's estimate of the fair value of its proportionate share of the sum of Visa's
remaining amounts owed to American Express and Discover Card under previously executed settlement agreements plus the Company's estimate of Visa's future settlements under pending lawsuits, after
subtracting the balance in Visa's escrow account. The Company's maximum exposure to loss for the remaining pending Visa antitrust lawsuits is not determinable, as it is dependent on the outcome of the
litigation, but any loss will be proportionate to the Company's ownership interest in Visa. At December 31, 2008, the risk that the Company would be required to pay as a result of this
guarantee is considered to be low, based on Visa's continued cash funding of the escrow account to pay its antitrust lawsuit settlements.

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

On
September 14, 2007, the Bank entered into a Stipulation and Consent to the Issuance of a Consent Order, and a Consent Order to a Civil Money Penalty and to Cease and Desist
(the Order) with the Office of the Comptroller of the Currency (OCC). The Order imposed a civil money penalty of $10 million and required the Bank to take actions to improve compliance with the
Bank Secrecy Act and other anti-money laundering laws and regulations (BSA/AML). On the same day, the U.S. Treasury Department's Financial Crimes Enforcement Network (FinCEN) executed an
Assessment of Civil Money Penalty (the Assessment) in the amount of $10 million. The Assessment provided that the $10 million penalty was deemed to be satisfied by the Bank's payment of
the civil money penalty of $10 million to the OCC. On September 17, 2007, the Bank entered into a Deferred Prosecution Agreement (DPA) with the Department of Justice (DOJ). Under the
DPA, the DOJ agreed to defer prosecution for past violations of BSA/AML that occurred in the Bank's now discontinued international banking business, and to dismiss prosecution completely if the Bank
met the conditions of the Order for one year. Pursuant to the DPA, the Bank also paid $21.6 million in the third quarter of 2007 to the DOJ. The OCC terminated the Order on September 25,
2008. On October 1, 2008, the DPA was also terminated and the criminal case to which it related was dismissed.

Note 25Transactions with Affiliates

For further information on the Company's privatization, see Note 2 to these consolidated financial statements.

The
Company had, and expects to have in the future, banking transactions and other transactions in the ordinary course of business with BTMU and with its affiliates. During 2006, 2007
and 2008, such

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2006, 2007 and 2008 (Continued)

Note 25Transactions with Affiliates (Continued)

transactions
included, but were not limited to, participation, servicing and remarketing of loans and leases, purchase and sale of acceptances, interest rate derivatives and foreign exchange
transactions, funds transfers, custodianships, electronic data processing, investment advice and management, customer referrals, facility leases, and trust services. The Company also maintains
traditional correspondent bank accounts and had a $200 million floating-rate subordinated debt with BTMU, which was retired in June 2007. In September 2008, the Company established
a $500 million, three-year unsecured revolving credit facility with BTMU. As of December 31, 2008, the Company had no outstanding balance under this facility. In the opinion
of management, these transactions were made at rates, terms and conditions prevailing in the market and do not involve more than the normal risk of collectability or present other unfavorable
features. In addition, some compensation for services rendered to the Company is paid to the expatriate officers from BTMU, and reimbursed by the Company to BTMU under a service agreement.

In
2007, the Bank purchased a membership interest in a U.S. payment services company for $1.4 million from BTMU.

In
December 2008, the Company received a $1.0 billion capital contribution from BTMU, in part to offset the impact of the privatization transaction on the Company's capital.

At
December 31, 2008, the Company had derivative contracts totaling $1.3 billion in notional balances with $8.1 million in net unrealized losses with BTMU and its
affiliates. At December 31, 2008, the Company had recorded interest expense of $3.5 million for 2008 relating to the borrowings under the unsecured revolving credit facility and other
correspondent bank accounts. Additionally, for 2008, the Company recorded income of $2.0 million and expenses of $1.0 million for fees and revenue sharing arrangements, and income of
$22.0 million and expenses of $4.3 million relating to facility and staff training arrangements.

The
Company has guarantees that obligate it to perform if its affiliates are unable to discharge their obligations. These obligations include guarantees of commercial paper obligations
and leveraged lease transactions. The guarantee issued by the Bank for an affiliate's commercial paper program is done in order to facilitate their sale. As of December 31, 2008, the Bank had a
maximum exposure to loss under the commercial paper program guarantee of $1.2 billion. The risk that the Bank would be required to pay investors due to its affiliate's default is low, because
the affiliated entity is a wholly-owned subsidiary and the Bank would take the actions necessary to avoid such default. The Bank's guarantee has an average term of less than nine months and is fully
collateralized by a pledged deposit. The Company guarantees its subsidiaries' leveraged lease transactions with terms ranging from fifteen to thirty years. Following the original funding of these
leveraged lease transactions, the Company does not have any material obligation to be satisfied. As of December 31, 2008, the Company did not have any exposure to loss for these agreements.

Note 26Business Segments

In 2006, the Company formally reorganized its operating segments by disaggregating the businesses that were formerly managed and reported under the Community Banking and Investment
Services Group or the Commercial Financial Services Group. Management believes that this new organizational structure will enhance the Company's focus on target markets and enterprise wide sales and
service.

The
various operating segments reporting under the Chief Operating Officer and the Group Head of Pacific Rim Corporate Group have been aggregated into two reportable business segments
entitled "Retail Banking"

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2006, 2007 and 2008 (Continued)

Note 26Business Segments (Continued)

and
"Wholesale Banking" based upon the aggregation criteria prescribed in SFAS No. 131,Disclosures about Segments of an Enterprise and Related
Information.

As
part of the Company's privatization transaction in 2008, goodwill of $946 million and $1,068 million has been recorded in the reportable business segments Retail Banking
and Wholesale Banking, respectively. See Note 2 to these consolidated financial statements for further detail on the Company's privatization transaction.



The
information, set forth in the table that follows, reflects selected income statement and balance sheet items by reportable business segment. The information presented does not
necessarily represent the business units' financial condition and results of operations were they independent entities. Unlike financial accounting, there is no authoritative body of guidance for
management accounting equivalent to US GAAP. Consequently, reported results are not necessarily comparable with those presented by other companies. Included in the tables, within total assets,
are the amounts of goodwill for both reportable business segments as of December 31, 2006, 2007 and 2008.

The
information in the table is derived from the internal management reporting system used by management to measure the performance of the individual segments and the Company overall.
The management reporting system assigns balance sheet and income statement items to each operating segment based on internal management accounting policies. Net interest income is determined by the
Company's internal funds transfer pricing system, which assigns a cost of funds or a credit for funds to assets or liabilities based on their type, maturity or repricing characteristics. Noninterest
income and expense directly attributable

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2006, 2007 and 2008 (Continued)

Note 26Business Segments (Continued)

to
an operating segment are assigned to that operating segment. Certain indirect costs, such as operations and technology expense, are allocated to the segments based on studies of billable unit costs
for product or data processing. Other indirect costs, such as corporate overhead, are allocated to an operating segment based on a predetermined percentage of usage. Under the Company's
risk-adjusted return on capital (RAROC) methodology, credit expense is charged to an operating segment based upon expected losses arising from credit risk. In addition, the attribution of
economic capital is related to unexpected losses arising from credit, market and operational risks.

"Other"
is comprised of certain non-bank subsidiaries of UnionBanCal Corporation, the elimination of the fully taxable-equivalent basis amount, the transfer pricing center,
the amount of the provision for credit losses over/(under) the RAROC expected loss for the period, the earnings associated with the unallocated equity capital and allowances for credit losses, and the
residual costs of support groups. In addition, "Other" includes Corporate Treasury, which is responsible for Asset-Liability Management (ALM), wholesale funding, and the ALM investment securities and
derivatives hedging portfolios, and the results of discontinued operations. The discontinued operations consist of three separate businesses: international correspondent banking, retirement
recordkeeping services and the insurance brokerage business. For further detail on discontinued operations, see Note 23 to these consolidated financial statements. Except as discussed above,
none of the items in "Other" is significant to the Company's business.

The
Company reflects a "market view" perspective in measuring the business segments. The market view is a measurement of customer markets aggregated to show all revenues generated and
expenses incurred from all products and services sold to those customers regardless of where product areas organizationally report. Therefore, revenues and expenses are included in both the business
segment that provides the service and the business segment that manages the customer relationship. The duplicative results from this internal management accounting view are reflected in "Reconciling
Items."

The
reportable business segment results for prior periods have been restated to reflect changes in the transfer pricing methodology, the organizational changes that have occurred,
discontinued operations and the market view contribution.

F-132

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2006, 2007 and 2008 (Continued)

Note 26Business Segments (Continued)

Retail Banking

Wholesale BankingAs of and for the Year Ended December 31,

As of and for the Year Ended December 31,2006

2007

2008

2006

2007

2008Results of operations (dollars in thousands):Net interest income (expense)

$
940,101

$
890,372

$
998,898

$
1,039,103

$
969,989

$
1,225,631Noninterest income (expense)


472,083


479,664


481,512


332,467


366,278


351,166Total revenue


1,412,184


1,370,036


1,480,410


1,371,570


1,336,267


1,576,797Noninterest expense (income)


913,981


902,949


1,010,051


581,532


563,597


632,925Credit expense (income)


25,416


25,233


27,825


95,322


111,019


195,210Income from continuing operations before income taxes


472,787


441,854


442,534


694,716


661,651


748,662Income tax expense (benefit)


180,841


169,009


169,269


228,784


201,235


215,197Income from continuing operations


291,946


272,845


273,265


465,932


460,416


533,465Income (loss) from discontinued operations, net of income taxes

















Net income (loss)

$
291,946

$
272,845

$
273,265

$
465,932

$
460,416

$
533,465Total assets, end of period (dollars in millions):

$
17,179

$
18,672

$
23,234

$
25,142

$
28,139

$
36,632




Other

Reconciling ItemsAs of and for the Year Ended December 31,

As of and for the Year Ended December 31,2006

2007

2008

2006

2007

2008Results of operations (dollars in thousands):Net interest income (expense)

$
(131,636
)
$
(128,164
)
$
(162,415
)
$
(9,576
)
$
(8,817
)
$
(11,266
)Noninterest income (expense)


14,416


19,585


15,650


(59,752
)

(65,988
)

(75,672
)Total revenue


(117,220
)

(108,579
)

(146,765
)

(69,328
)

(74,805
)

(86,938
)Noninterest expense (income)


98,909


148,267


299,944


(36,473
)

(40,612
)

(46,224
)Credit expense (income)


(125,652
)

(55,164
)

292,110


(86
)

(88
)

(145
)Income from continuing operations before income taxes


(90,477
)

(201,682
)

(738,819
)

(32,769
)

(34,105
)

(40,569
)Income tax expense (benefit)


(122,371
)

(62,845
)

(241,080
)

(12,534
)

(13,045
)

(15,518
)Income from continuing operations


31,894


(138,837
)

(497,739
)

(20,235
)

(21,060
)

(25,051
)Income (loss) from discontinued operations, net of income taxes


(16,541
)

34,730


(15,055
)







Net income (loss)

$
15,353

$
(104,107
)
$
(512,794
)
$
(20,235
)
$
(21,060
)
$
(25,051
)Total assets, end of period (dollars in millions):

$
10,322

$
8,935

$
10,311

$
(23
)
$
(18
)
$
(56
)




UnionBanCal CorporationAs of and for the the Year End December 31,2006

2007

2008Results of operations (dollars in thousands):Net interest income (expense)

$
1,837,992

$
1,723,380

$
2,050,848Noninterest income (expense)


759,214


799,539


772,656Total revenue


2,597,206


2,522,919


2,823,504Noninterest expense (income)


1,557,949


1,574,201


1,896,696Credit expense (income)


(5,000
)

81,000


515,000Income from continuing operations before income taxes


1,044,257


867,718


411,808Income tax expense (benefit)


274,720


294,354


127,868Income from continuing operations


769,537


573,364


283,940Income (loss) from discontinued operations, net of income taxes


(16,541
)

34,730


(15,055
)Net income (loss)

$
752,996

$
608,094

$
268,885Total assets, end of period (dollars in millions):

$
52,620

$
55,728

$
70,121


F-133

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2006, 2007 and 2008 (Continued)

Note 27Condensed UnionBanCal Corporation Unconsolidated Financial Statements (Parent Company)

Condensed Balance Sheets

December 31,(Dollars in thousands)

2007

2008AssetsCash and cash equivalents

$
158,858

$
113,609Investment in and advances to subsidiaries


5,057,188


7,771,307Other assets


22,546


66,923Total assets

$
5,238,592

$
7,951,839Liabilities and Stockholder's EquityOther liabilities

$
73,087

$
1,624Medium- and long-term debt


413,092


451,930Junior subordinated debt payable to subsidiary grantor trust


14,432


13,980Total liabilities


500,611


467,534Stockholder's equity


4,737,981


7,484,305Total liabilities and stockholder's equity

$
5,238,592

$
7,951,839


F-134

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2006, 2007 and 2008 (Continued)

Note 27Condensed UnionBanCal Corporation Unconsolidated Financial Statements (Parent Company) (Continued)

Condensed Statements of Income

Years Ended December 31,(Dollars in thousands)

2006

2007

2008Income:Cash dividends from bank subsidiary

$
922,600

$
295,500

$
226,000Cash dividends from nonbank subsidiaries


10,500


21,340


30,000Interest income on advances to subsidiaries and deposits in bank


19,732


13,484


3,614Other income


471


1


Total income


953,303


330,325


259,614Expense:Interest expense


45,834


29,569


14,956Other expense, net


3,270


3,516


30,906Total expense


49,104


33,085


45,862Income before income taxes and equity in undistributed net income of subsidiaries


904,199


297,240


213,752Income tax benefit


(12,747
)

(10,017
)

(9,711
)Income before equity in undistributed net income of subsidiaries


916,946


307,257


223,463Equity in undistributed net income (loss) of subsidiaries:Bank subsidiary


(195,563
)

271,481


59,159Nonbank subsidiaries


31,613


29,356


(13,737
)Net Income

$
752,996

$
608,094

$
268,885


F-135

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2006, 2007 and 2008 (Continued)

Note 27Condensed UnionBanCal Corporation Unconsolidated Financial Statements (Parent Company) (Continued)

Condensed Statements of Cash Flows

Years Ended December 31,(Dollars in thousands)

2006

2007

2008Cash Flows from Operating Activities:Net income

$
752,996

$
608,094

$
268,885Adjustments to reconcile net income to net cash provided by operating activities:Equity in undistributed net income of subsidiaries


163,950


(223,538
)

(45,422
)Other, net


18,616


(21,192
)

(10,315
)Net cash provided by operating activities


935,562


363,364


213,148Cash Flows from Investing Activities:Investments in and advances to subsidiaries


(41,195
)

(85,444
)

(1,123,222
)Repayment of advances to subsidiaries


59,254


195,949


34,955Net cash provided by (used in) investing activities


18,059


110,505


(1,088,267
)Cash Flows from Financing Activities:Repayment of medium-term debt


(200,000
)

(200,000
)

Payments of cash dividends


(251,403
)

(274,974
)

(287,995
)Repurchase of common stock


(451,874
)

(137,978
)

(2,214
)Capital contribution from BTMU








1,000,000Stock options exercised


65,659


36,904


120,079Net cash provided by (used in) financing activities


(837,618
)

(576,048
)

829,870Net increase (decrease) in cash and cash equivalents


116,003


(102,179
)

(45,249
)Cash and cash equivalents at beginning of year


145,034


261,037


158,858Cash and cash equivalents at end of year

$
261,037

$
158,858

$
113,609


F-136

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 2006, 2007 and 2008 (Continued)

Note 28Summary of Quarterly Financial Information (Unaudited)

Unaudited quarterly results are summarized as follows:

2007 Quarters Ended(Dollars in thousands)

March 31

June 30

September 30

December 31Interest income

$
723,770

$
736,496

$
758,495

$
773,651Interest expense


295,341


307,708


331,932


334,051Net interest income


428,429


428,788


426,563


439,600Provision for loan losses


4,000


5,000


16,000


56,000Noninterest income


190,742


201,661


208,187


198,949Noninterest expense


392,619


383,051


380,847


417,684Income before income taxes


222,552


242,398


237,903


164,865Income tax expense


74,405


76,658


87,664


55,627Income from continuing operations


148,147


165,740


150,239


109,238Income (loss) from discontinued operations before income tax


2,427


(545
)

(23,443
)

88,314Income tax expense (benefit)


963


(159
)

(663
)

31,882Income (loss) from discontinued operations


1,464


(386
)

(22,780
)

56,432Net income

$
149,611

$
165,354

$
127,459

$
165,670




2008 Quarters Ended(Dollars in thousands)

March 31

June 30

September 30

December 31Interest income

$
742,506

$
715,957

$
740,269

$
778,885Interest expense


281,928


205,399


220,523


218,919Net interest income


460,578


510,558


519,746


559,966Provision for loan losses


72,000


95,000


117,000


231,000Noninterest income


195,396


199,626


198,721


178,913Noninterest expense


403,206


419,312


443,812


630,366Income (loss) before income taxes


180,768


195,872


157,655


(122,487
)Income tax expense (benefit)


58,370


61,574


47,549


(39,625
)Income (loss) from continuing operations


122,398


134,298


110,106


(82,862
)Income (loss) from discontinued operations before income tax


(17,585
)

3,068


(8,175
)

(4,676
)Income tax benefit


(3,777
)

(3,979
)

(2,899
)

(1,658
)Income (loss) from discontinued operations


(13,808
)

7,047


(5,276
)

(3,018
)Net income (loss)

$
108,590

$
141,345

$
104,830

$
(85,880
)


F-137

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Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To
the Board of Directors and Stockholder of
UnionBanCal Corporation:

We
have audited the accompanying consolidated balance sheets of UnionBanCal Corporation and subsidiaries (the "Company") as of December 31, 2007 and 2008, and the related
consolidated
statements of income, stockholder's equity, and cash flows for each of the three years in the period ended December 31, 2008. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial statements based on our audits.

We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of UnionBanCal Corporation and subsidiaries as of
December 31, 2007 and 2008, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2008, in conformity with accounting
principles generally accepted in the United States of America.

As
discussed in Note 2, the Company became a privately held company and a wholly owned subsidiary of The Bank of Tokyo-Mitsubishi, UFJ. Ltd.

We
have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of
December 31, 2008, based on the criteria established inInternal ControlIntegrated Frameworkissued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated March 6, 2009 expressed an unqualified opinion on the Company's internal control over financial reporting.

/s/
Deloitte & Touche LLP

San
Francisco, California
March 6, 2009

F-138

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Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To
the Board of Directors and Stockholder of
UnionBanCal Corporation:

We
have audited the internal control over financial reporting of UnionBanCal Corporation and subsidiaries (the "Company") as of December 31, 2008, based on criteria established in Internal ControlIntegrated
Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission. Because management's
assessment and our audit was conducted to meet the reporting requirements of Section 112 of the Federal Deposit Insurance Corporation Improvement Act (FDICIA), management's assessment and our
audit of the Company's internal control over financial reporting included controls over the preparation of the schedules equivalent to the basic financial statements in accordance with the
instructions for the Consolidated Financial Statements for Bank Holding Companies (Form FR Y-9C). The Company's management is responsible for maintaining effective internal control
over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control Over Financial
Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.

We
conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A
company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or
persons performing similar
functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because
of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material
misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to
future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In
our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008, based on the criteria established in Internal ControlIntegrated
Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission.

We
have not examined and, accordingly, we do not express an opinion or any other form of assurance on management's statement referring to compliance with laws and regulations.

F-139

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Table of Contents

We
have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year
ended December 31, 2008 of the Company and our report dated March 6, 2009 expressed an unqualified opinion on those financial statements. Our report includes an emphasis of a matter
paragraph related to the Company's privatization transaction during the year ended December 31, 2008, as discussed in Note 2 to the consolidated financial statements.

/s/
Deloitte & Touche LLP

San
Francisco, California
March 6, 2009

F-140

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Table of Contents

UnionBanCal Corporation and Subsidiaries  Management's Report on Internal Control Over Financial Reporting

The management of UnionBanCal Corporation is responsible for establishing and maintaining adequate internal control over financial
reporting, designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. Management is also responsible for ensuring compliance with the federal laws and regulations concerning loans to insiders and the federal and state laws and regulations
concerning dividend restrictions, both of which are designated by the Federal Deposit Insurance Corporation (FDIC) as safety and soundness laws and regulations.

We
maintain a system of internal accounting controls to provide reasonable assurance that assets are safeguarded and transactions are executed in accordance with management's
authorization and recorded
properly to permit the preparation of consolidated financial statements in accordance with generally accepted accounting principles. Management recognizes that even a highly effective internal control
system has inherent risks, including the possibility of human error and the circumvention or overriding of controls, and that the effectiveness of an internal control system can change with
circumstances. Management has assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2008. In making this assessment, management used the
criteria set out by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) inInternal ControlIntegrated Framework.Based on our assessment, we concluded that, as of December 31, 2008, the Company's internal control system over financial reporting is effective based on the criteria established in Internal Control-Integrated
Framework.

Management
assessed its compliance with the designated safety and soundness laws and regulations and has maintained records of its determinations and assessments as required by the FDIC.
Based on this assessment, Management believes that Union Bank, N.A. has complied, in all material respects, with the designated safety and soundness laws and regulations for the year ended
December 31, 2008.

The
Company's internal control over financial reporting and the Company's consolidated financial statements have been audited by Deloitte & Touche LLP, Independent
Registered Public Accounting Firm.

/S/ MASAAKI TANAKA Masaaki Tanaka President and Chief Executive Officer/S/ 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-141

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Table of Contents

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, UnionBanCal Corporation has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

UNIONBANCAL CORPORATION (Registrant)By:

/s/ MASAAKI TANAKA Masaaki Tanaka President and Chief Executive 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 6, 2009


II-1

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Table of Contents

Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of UnionBanCal Corporation and in the capacities
and on the date indicated below.

Signature

Title* Aida M. Alvarez

Director* David R. Andrews

Director* Nicholas B. Binkley

Director* L. Dale Crandall

Director* Murray H. Dashe

Director* Richard D. Farman

Director* Philip B. Flynn

Director* Christine Garvey

Director* Michael J. Gillfillan

Director* Mohan S. Gyani

Director* Yoshiaki Kawamata

Director* Nobuo Kuroyanagi

Director* Mary S. Metz

Director* J. Fernando Niebla

Director


II-2

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Table of Contents

Signature

Title* Kyota Omori

Director* Barbara L. Rambo

Director* Masaaki Tanaka

Director* Dean A. Yoost

Director


*By:

/s/ MORRIS W. HIRSCH Morris W. Hirsch Attorney-in-Fact


Dated:
March 6, 2009

II-3

---





EXHIBIT INDEX

Exhibit
No.

Description3.1

Restated Certificate of Incorporation of the Registrant(1)3.2

Bylaws of the Registrant(1)4.1

Trust Indenture between UnionBanCal Corporation and J.P. Morgan Trust Company, National Association, as Trustee, dated December 8, 2003(2)4.2

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

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

Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividend Requirements(3)21.1

Subsidiaries of the Registrant has been omitted pursuant to General Instruction I(2) of Form 10-K24.1

Power of Attorney(3)24.2

Resolution of Board of Directors(3)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(3)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(3)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(3)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(3)


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