**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

**FORM 10-Q**

**x           QUARTERLY REPORT PURSUANT TO SECTION 13OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934**

**For thequarterly period ended June 30, 2006**

**OR**

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

**For thetransition period from                 to                  **

**Commission file number 1-15081**

**UnionBanCal Corporation**

(Exact name of registrant asspecified in its charter)

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

 

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

(Address and zip code ofprincipal executive offices)

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

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

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

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

Number of shares of CommonStock outstanding at July 31, 2006: 142,154,099

 

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**UnionBanCal Corporationand Subsidiaries**

**TABLE OFCONTENTS**

|                                                                                                      | **Page  Number** |
|------------------------------------------------------------------------------------------------------|------------------|
| **PART I**                                                                                      | ** **       | ** ** |
| **Financial  Information**                                                                           | ** **       | ** ** |
| Consolidated Financial  Highlights                                                                   |             | 5 |
| ITEM 1. FINANCIAL STATEMENTS:                                                                        |             |   |
| Condensed Consolidated  Statements of Income                                                         |             | 7 |
| Condensed Consolidated  Balance Sheets                                                               |             | 8 |
| Condensed Consolidated  Statements of Changes in Stockholders’ Equity                           |             | 9 |
| Condensed Consolidated  Statements of Cash Flows                                                     |             | 10 |
| Notes to Condensed Consolidated Financial Statements                                                 |             | 11 |
| ITEM 2. MANAGEMENT’S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS: |             |   |
| Introduction                                                                                         |             | 32 |
| Executive Overview                                                                                   |             | 32 |
| Discontinued Operations                                                                              |             | 33 |
| Critical Accounting Policies                                                                         |             | 34 |
| Financial Performance                                                                                |             | 35 |
| Net Interest Income                                                                                  |             | 39 |
| Noninterest Income                                                                                   |             | 42 |
| Noninterest Expense                                                                                  |             | 42 |
| Income Tax Expense                                                                                   |             | 43 |
| Loans                                                                                                |             | 43 |
| Cross-Border Outstandings                                                                            |             | 44 |
| Provision for Loan Losses                                                                            |             | 45 |
| Allowances for Credit Losses                                                                         |             | 45 |
| Nonperforming Assets                                                                                 |             | 48 |
| Loans 90 Days or More Past  Due and Still Accruing                                                   |             | 49 |
| Quantitative and Qualitative  Disclosures About Market Risk                                          |             | 49 |
| Liquidity Risk                                                                                       |             | 51 |
| Regulatory Capital                                                                                   |             | 52 |
| Business Segments                                                                                    |             | 53 |
| Regulatory Matters                                                                                   |             | 61 |
| ITEM 3. QUANTITATIVE AND  QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                  |             | 61 |
| ITEM 4. CONTROLS AND PROCEDURES                                                                      |             | 62 |
| **PART II**                                                                                     | ** **       | ** ** |
| **Other Information**                                                                                | ** **       | ** ** |
| ITEM 1.   LEGAL PROCEEDINGS                                                                |             | 63 |
| ITEM 1A. RISK FACTORS                                                                                |             | 63 |
| ITEM 2.   UNREGISTERED SALES OF EQUITY SECURITIES  AND USE OF PROCEEDS                     |             | 64 |
| ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY  HOLDERS                             |             | 64 |
| ITEM 6.    EXHIBITS                                                                        |             | 64 |
| SIGNATURES                                                                                           |             | 66 |

 

2

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**NOTE REGARDINGFORWARD-LOOKING STATEMENTS**

This report includes forward-looking statements, whichinclude forecasts of our financial results and condition, expectations for ouroperations and business, and our assumptions for those forecasts andexpectations. Do not rely unduly on forward-looking statements. Actual resultsmight differ significantly from our forecasts and expectations. For adiscussion of risk factors relating to the Company’s business, please refer toItem 1A “Risk Factors” of Part I of our Annual Report on Form 10-K forthe year ended December 31, 2005 which is incorporated by reference herein andItem 1A “Risk Factors” of Part II of this Quarterly Report on Form 10-Q.

This document includes forward-looking information,which is subject to the “safe harbor” created by section 27A of the SecuritiesAct of 1933, as amended, and section 21E of the Securities Exchange Act of1934, as amended. We may make forward-looking statements in ourSEC filings, press releases, news articles, conference calls with analysts andstockholders and when we are speaking on behalf of UnionBanCal Corporation. Forward-lookingstatements can be identified by the fact that they do not relate strictly tohistorical or current facts. Often, they include the words “believe,” “expect,”“target,” “anticipate,” “intend,” “plan,” “seek,” “estimate,” “potential,” “project,”or words of similar meaning, or future or conditional verbs such as “will,” “would,”“should,” “could,” “might,” or “may.” These forward-looking statements areintended to provide investors with additional information with which they mayassess our future potential. All of these forward-looking statements are basedon assumptions about an uncertain future and are based on information availableto us at the date of these statements. We do not undertake to updateforward-looking statements to reflect facts, circumstances, assumptions orevents that occur after the date the forward-looking statements are made.

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

·       Our business strategies and initiatives, the growth of our business andour competitive position

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

·       Pending legal and regulatory actions, and future legislative andregulatory developments, including potential effects of proposed changes to theFederal Deposit Insurance Corporation’s deposit insurance assessment

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

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

·       Our ability to meet regulatory requirements

·       Credit quality and provision for credit losses, including the expectedneed to provide for credit losses due to anticipated loan growth, andindications that improvement in credit quality could be at its peak

·       The unallocated portion of our allowances for credit losses

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

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

·       Loan growth rates, including residential mortgage loans

3

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·       Deposit pricing pressures, including trends in customers transferringfunds from noninterest bearing deposits to interest bearing deposits or otherinvestment alternatives

·       Our belief that our average noninterest bearing deposits continue toprovide us with a funding advantage compared to most of our peers

·       Deposit renewals

·       Our ability and intent to hold various assets

·       The formation of financial subsidiaries

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

·       The composition and market sensitivity of our securities portfolios,our hedging strategies and our management of the sensitivity of our balancesheet

·       Potential dividend restrictions

·       Taxes, including the possible effect of the level of earnings at TheBank of Tokyo-Mitsubishi UFJ, Ltd. on our California State tax obligations

·       Off-balance sheet arrangements

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

·       Our insurance coverage

·       Estimated pension and health costs and contributions and the investmentobjectives and asset allocation strategy of our pension plan and health plan

·       Decisions to downsize, sell or close units or otherwise reorganize orchange our business mix

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

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

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

There are numerousrisks and uncertainties that could and will cause actual results to differmaterially from those discussed in our forward-looking statements. Many ofthese factors are beyond our ability to control or predict and could have amaterial adverse effect on our stock price, financial condition, and results ofoperations or prospects. Such risks and uncertainties include, but are notlimited to those listed in Item 1A “Risk Factors” of Part II of thisQuarterly Report on Form 10-Q and in Item 1A “Risk Factors” of Part Iof our Annual Report on Form 10-K for the year ended December 31,2005.

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

4

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**PART I.FINANCIAL INFORMATION**UnionBanCal Corporation and SubsidiariesCondensed Consolidated Financial Highlights(1)(Unaudited)

| ** **                                                                      | ** ** | **As of and for the** | ** ** | ** **        | ** ** |
|---------------------------------------------------------------------------------|------------|-------------------------------------------|------------|-------------------|------------|
| ** **                                                                      | ** ** | **Three Months Ended**          | ** ** | ** **        | ** ** |
| ** **                                                                      | ** ** | **June 30,**                         | ** ** | **June 30,** | ** ** | **Percent** | ** ** |
| **(Dollars in thousands, except per share data)** | ** ** | **2005**                                  | ** ** | **2006**          | ** ** | **Change** | ** ** |
| **Results of operations:**                                                      | ** ** | ** **                                | ** ** | ** **        | ** ** |   | ** ** | ** ** |   |
| Net interest income(2)                                                          |       | $                                         | 459,728    |              | $          | 469,000 |   |   | 2.02 | % |   |
| Reversal of allowance  for loan losses                                          |       | (13,564                                   | )          | (1,000            | )          |   | (92.63 | ) |   |
| Noninterest income                                                              |       | 203,554                                   |       | 219,228           |       |   | 7.70 |   |   |
| Noninterest expense                                                             |       | 388,400                                   |       | 413,030           |       |   | 6.34 |   |   |
| Income before income  taxes(2)                                                  |       | 288,446                                   |       | 276,198           |       |   | (4.25 | ) |   |
| Taxable-equivalent  adjustment                                                  |       | 1,018                                     |       | 1,358             |       |   | 33.40 |   |   |
| Income tax expense                                                              |       | 99,950                                    |       | 92,203            |       |   | (7.75 | ) |   |
| Income from continuing  operations                                              |       | 187,478                                   |       | 182,637           |       |   | (2.58 | ) |   |
| Income (loss) from  discontinued operations, net of taxes                       |       | (296                                      | )          | 274               |       |   | nm |   |   |
| Net income                                                                      |       | $                                         | 187,182    |              | $          | 182,911 |   |   | (2.28 | ) |   |
| **Per common share:**                                                           | ** ** | ** **                                | ** ** | ** **        | ** ** |   | ** ** | ** ** |   |
| Basic earnings:                                                                 |       |                                      |       |              |       |   |   |   |   |
| From continuing  operations                                                     |       | $                                         | 1.30       |              | $          | 1.28 |   |   | (1.54 | )% |   |
| Net income                                                                      |       | 1.29                                      |       | 1.28              |       |   | (0.78 | ) |   |
| Diluted earnings:                                                               |       |                                      |       |              |       |   |   |   |   |
| From continuing  operations                                                     |       | 1.27                                      |       | 1.26              |       |   | (0.79 | ) |   |
| Net income                                                                      |       | 1.27                                      |       | 1.26              |       |   | (0.79 | ) |   |
| Dividends(3)                                                                    |       | 0.41                                      |       | 0.47              |       |   | 14.63 |   |   |
| Book value (end of  period)                                                     |       | 29.51                                     |       | 32.34             |       |   | 9.59 |   |   |
| Common shares  outstanding (end of period)(4)                                   |       | 144,205,458                               |       | 142,533,794       |       |   | (1.16 | ) |   |
| Weighted average  common shares outstanding—basic(4)                       |       | 144,547,697                               |       | 142,723,271       |       |   | (1.26 | ) |   |
| Weighted average  common shares outstanding—diluted(4)                     |       | 147,222,390                               |       | 144,878,447       |       |   | (1.59 | ) |   |
| **Balance sheet (end of period):**                                              | ** ** | ** **                                | ** ** | ** **        | ** ** |   | ** ** | ** ** |   |
| Total assets(5)                                                                 |       | $                                         | 51,178,058 |              | $          | 50,800,136 |   |   | (0.74 | )% |   |
| Total loans                                                                     |       | 30,861,235                                |       | 34,747,833        |       |   | 12.59 |   |   |
| Nonperforming assets                                                            |       | 68,945                                    |       | 36,351            |       |   | (47.28 | ) |   |
| Total deposits                                                                  |       | 41,255,737                                |       | 40,544,251        |       |   | (1.72 | ) |   |
| Stockholders’ equity                                                       |       | 4,254,991                                 |       | 4,608,908         |       |   | 8.32 |   |   |
| **Balance sheet (period average):**                                             | ** ** | ** **                                | ** ** | ** **        | ** ** |   | ** ** | ** ** |   |
| Total assets                                                                    |       | $                                         | 47,482,810 |              | $          | 49,329,374 |   |   | 3.89 | % |   |
| Total loans                                                                     |       | 30,610,512                                |       | 35,146,976        |       |   | 14.82 |   |   |
| Earning assets                                                                  |       | 42,668,069                                |       | 44,358,594        |       |   | 3.96 |   |   |
| Total deposits                                                                  |       | 39,398,023                                |       | 39,692,052        |       |   | 0.75 |   |   |
| Stockholders’ equity                                                       |       | 4,145,150                                 |       | 4,539,476         |       |   | 9.51 |   |   |
| **Financial ratios**(6)**:**                                                    | ** ** | ** **                                | ** ** | ** **        | ** ** |   | ** ** | ** ** |   |
| Return on average assets(7):                                                    |       |                                      |       |              |       |   |   |   |   |
| From continuing  operations                                                     |       | 1.58                                      | %          | 1.49              | %          |   |   |   |   |
| Net income                                                                      |       | 1.58                                      |       | 1.49              |       |   |   |   |   |
| Return on average  stockholders’ equity(7):                                |       |                                      |       |              |       |   |   |   |   |
| From continuing  operations                                                     |       | 18.14                                     |       | 16.14             |       |   |   |   |   |
| Net income                                                                      |       | 18.11                                     |       | 16.16             |       |   |   |   |   |
| Efficiency ratio(8)                                                             |       | 59.55                                     |       | 61.73             |       |   |   |   |   |
| Net interest margin(2)                                                          |       | 4.32                                      |       | 4.23              |       |   |   |   |   |
| Dividend payout ratio                                                           |       | 31.54                                     |       | 36.72             |       |   |   |   |   |
| Tangible equity ratio                                                           |       | 7.41                                      |       | 8.19              |       |   |   |   |   |
| Tier 1 risk-based  capital ratio(5)                                             |       | 8.88                                      |       | 8.92              |       |   |   |   |   |
| Total risk-based  capital ratio(5)                                              |       | 11.01                                     |       | 12.05             |       |   |   |   |   |
| Leverage ratio(5)                                                               |       | 7.77                                      |       | 8.74              |       |   |   |   |   |
| Allowances for credit  losses to total loans(9)                                 |       | 1.54                                      |       | 1.17              |       |   |   |   |   |
| Allowances for credit  losses to nonaccrual loans(9)                            |       | 721.05                                    |       | 1,130.05          |       |   |   |   |   |
| Net loans charged off  (recovered) to average total loans(7)                    |       | (0.10                                     | )          | 0.12              |       |   |   |   |   |
| Nonperforming assets  to total loans and foreclosed assets                      |       | 0.22                                      |       | 0.10              |       |   |   |   |   |
| Nonperforming assets  to total assets(5)                                        |       | 0.13                                      |       | 0.07              |       |   |   |   |   |

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

(2)                   Taxable-equivalent basis.

(3)                   Dividends per share reflect dividends declared on UnionBanCalCorporation’s common stock outstanding as of the declaration date.

(4)                   Common shares outstanding reflect common shares issued less treasuryshares.

(5)                   End of period total assets and assets used to calculate all regulatorycapital ratios include those of discontinued operations.

(6)                   Average balances used to calculate our financial ratios are based oncontinuing operations data only, unless otherwise indicated.

(7)                   Annualized.

(8)                   The efficiency ratio is noninterest expense, excluding foreclosed assetexpense (income) and the (reversal of) allowance for losses on off-balancesheet commitments, as a percentage of net interest income (taxable-equivalentbasis) and noninterest income and is calculated for continuing operations only.

(9)                   The allowances for credit losses ratios include the allowances for loanlosses and losses on off-balance sheet commitments. These ratios relate tocontinuing operations only.

nm = not meaningful

5

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**PART I. FINANCIALINFORMATION**

**UnionBanCal Corporationand SubsidiariesCondensed Consolidated Financial Highlights**(1)(Unaudited)

| ** **                                                                      | ** ** | **As of and for the** | ** ** | ** **        | ** ** |
|---------------------------------------------------------------------------------|------------|-------------------------------------------|------------|-------------------|------------|
| ** **                                                                      | ** ** | **Six Months Ended**            | ** ** | ** **        | ** ** |
| ** **                                                                      | ** ** | **June 30,**                         | ** ** | **June 30,** | ** ** | **Percent** | ** ** |
| **(Dollars in thousands, except per share data)** | ** ** | **2005**                                  | ** ** | **2006**          | ** ** | **Change** | ** ** |
| **Results of operations:**                                                      |       |                                      |       |              |       |   |   |   |   |
| Net interest income(2)                                                          |       | $                                         | 896,445    |              | $          | 935,341 |   |   | 4.34 | % |   |
| Reversal of allowance  for loan losses                                          |       | (25,683                                   | )          | (8,000            | )          |   | (68.85 | ) |   |
| Noninterest income                                                              |       | 409,179                                   |       | 437,138           |       |   | 6.83 |   |   |
| Noninterest expense                                                             |       | 781,352                                   |       | 827,574           |       |   | 5.92 |   |   |
| Income before income  taxes(2)                                                  |       | 549,955                                   |       | 552,905           |       |   | 0.54 |   |   |
| Taxable-equivalent  adjustment                                                  |       | 2,073                                     |       | 2,606             |       |   | 25.71 |   |   |
| Income tax expense                                                              |       | 180,653                                   |       | 186,207           |       |   | 3.07 |   |   |
| Income from continuing  operations                                              |       | 367,229                                   |       | 364,092           |       |   | (0.85 | ) |   |
| Income (loss) from  discontinued operations, net of taxes                       |       | 1,930                                     |       | (8,236            | )          |   | nm |   |   |
| Net income                                                                      |       | $                                         | 369,159    |              | $          | 355,856 |   |   | (3.60 | ) |   |
| **Per common share:**                                                           |       |                                      |       |              |       |   |   |   |   |
| Basic earnings:                                                                 |       |                                      |       |              |       |   |   |   |   |
| From continuing  operations                                                     |       | $                                         | 2.52       |              | $          | 2.54 |   |   | 0.79 | % |   |
| Net income                                                                      |       | 2.53                                      |       | 2.49              |       |   | (1.58 | ) |   |
| Diluted earnings:                                                               |       |                                      |       |              |       |   |   |   |   |
| From continuing  operations                                                     |       | 2.47                                      |       | 2.51              |       |   | 1.62 |   |   |
| Net income                                                                      |       | 2.49                                      |       | 2.45              |       |   | (1.61 | ) |   |
| Dividends(3)                                                                    |       | 0.77                                      |       | 0.88              |       |   | 14.29 |   |   |
| Book value (end of  period)                                                     |       | 29.51                                     |       | 32.34             |       |   | 9.59 |   |   |
| Common shares  outstanding (end of period)(4)                                   |       | 144,205,458                               |       | 142,533,794       |       |   | (1.16 | ) |   |
| Weighted average  common shares outstanding—basic(4)                       |       | 145,765,905                               |       | 143,098,104       |       |   | (1.83 | ) |   |
| Weighted average  common shares outstanding—diluted(4)                     |       | 148,412,390                               |       | 145,293,781       |       |   | (2.10 | ) |   |
| **Balance sheet (end of period):**                                              |       |                                      |       |              |       |   |   |   |   |
| Total assets(5)                                                                 |       | $                                         | 51,178,058 |              | $          | 50,800,136 |   |   | (0.74 | )% |   |
| Total loans                                                                     |       | 30,861,235                                |       | 34,747,833        |       |   | 12.59 |   |   |
| Nonperforming assets                                                            |       | 68,945                                    |       | 36,351            |       |   | (47.28 | ) |   |
| Total deposits                                                                  |       | 41,255,737                                |       | 40,544,251        |       |   | (1.72 | ) |   |
| Stockholders’ equity                                                       |       | 4,254,991                                 |       | 4,608,908         |       |   | 8.32 |   |   |
| **Balance sheet (period average):**                                             |       |                                      |       |              |       |   |   |   |   |
| Total assets                                                                    |       | $                                         | 46,900,808 |              | $          | 48,676,618 |   |   | 3.79 | % |   |
| Total loans                                                                     |       | 30,164,834                                |       | 34,602,546        |       |   | 14.71 |   |   |
| Earning assets                                                                  |       | 42,167,574                                |       | 43,724,990        |       |   | 3.69 |   |   |
| Total deposits                                                                  |       | 38,802,180                                |       | 39,276,352        |       |   | 1.22 |   |   |
| Stockholders’ equity                                                       |       | 4,176,724                                 |       | 4,539,080         |       |   | 8.68 |   |   |
| **Financial ratios**(6)**:**                                                    |       |                                      |       |              |       |   |   |   |   |
| Return on average assets(7):                                                    |       |                                      |       |              |       |   |   |   |   |
| From continuing  operations                                                     |       | 1.58                                      | %          | 1.51              | %          |   |   |   |   |
| Net income                                                                      |       | 1.59                                      |       | 1.47              |       |   |   |   |   |
| Return on average  stockholders’ equity(7):                                |       |                                      |       |              |       |   |   |   |   |
| From continuing  operations                                                     |       | 17.73                                     |       | 16.18             |       |   |   |   |   |
| Net income                                                                      |       | 17.82                                     |       | 15.81             |       |   |   |   |   |
| Efficiency ratio(8)                                                             |       | 60.09                                     |       | 61.91             |       |   |   |   |   |
| Net interest margin(2)                                                          |       | 4.27                                      |       | 4.29              |       |   |   |   |   |
| Dividend payout ratio                                                           |       | 30.56                                     |       | 34.65             |       |   |   |   |   |
| Tangible equity ratio                                                           |       | 7.41                                      |       | 8.19              |       |   |   |   |   |
| Tier 1 risk-based  capital ratio(5)                                             |       | 8.88                                      |       | 8.92              |       |   |   |   |   |
| Total risk-based  capital ratio(5)                                              |       | 11.01                                     |       | 12.05             |       |   |   |   |   |
| Leverage ratio(5)                                                               |       | 7.77                                      |       | 8.74              |       |   |   |   |   |
| Allowances for credit  losses to total loans(9)                                 |       | 1.54                                      |       | 1.17              |       |   |   |   |   |
| Allowances for credit  losses to nonaccrual loans(9)                            |       | 721.05                                    |       | 1,130.05          |       |   |   |   |   |
| Net loans charged off  (recovered) to average total loans(7)                    |       | (0.14                                     | )          | 0.09              |       |   |   |   |   |
| Nonperforming assets  to total loans and foreclosed assets                      |       | 0.22                                      |       | 0.10              |       |   |   |   |   |
| Nonperforming assets  to total assets(5)                                        |       | 0.13                                      |       | 0.07              |       |   |   |   |   |

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

(2)                   Taxable-equivalent basis.

(3)                   Dividends per share reflect dividendsdeclared on UnionBanCal Corporation’s common stock outstanding as of thedeclaration date.

(4)                   Common shares outstanding reflect commonshares issued less treasury shares.

(5)                   End of period total assets and assets usedto calculate all regulatory capital ratios include those of discontinuedoperations.

(6)                   Average balances used to calculate ourfinancial ratios are based on continuing operations data only, unless otherwiseindicated.

(7)                   Annualized.

(8)                   The efficiency ratio is noninterestexpense, excluding foreclosed asset expense (income) and the (reversal of)allowance for losses on off-balance sheet commitments, as a percentage of netinterest income (taxable-equivalent basis) and noninterest income and is calculatedfor continuing operations only.

(9)                   The allowances for credit losses ratiosinclude the allowances for loan losses and losses on off-balance sheetcommitments. These ratios relate to continuing operations only.

nm = not meaningful

6

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**Item 1.**              FinancialStatements

**UnionBanCal Corporation and SubsidiariesCondensed Consolidated Statements of Income**(1)(Unaudited)

| ** **                                                                      | ** ** | **For the Three Months**                  | ** ** | **For the Six Months**                    | ** ** |
|---------------------------------------------------------------------------------|------------|----------------------------------------------------------|------------|----------------------------------------------------------|------------|
| ** **                                                                      | ** ** | **Ended June 30,**                             | ** ** | **Ended June 30,**                             | ** ** |
| **(Dollars in thousands, except per share data)** | ** ** | **    2005    ** | ** ** | **    2006    ** | ** ** | **   2005   ** | ** ** | **   2006   ** | ** ** |
| **Interest Income**                                                             | ** ** |                                                     | ** ** | ** **                                               |       |   | ** ** | ** ** |   | ** ** | ** ** | ** ** | ** ** |
| Loans                                                                           |       |                                                     | $          | 438,313                                                  |       |   |   | $ | 547,256 |   |   | $ | 842,943 |   | $ | 1,059,578 |   |
| Securities                                                                      |       |                                                     | 102,530    |                                                     |       |   | 103,542 |   |   | 203,299 |   | 200,409 |   |
| Interest bearing deposits in banks                                              |       |                                                     | 396        |                                                     |       |   | 423 |   |   | 1,129 |   | 1,159 |   |
| Federal funds sold and securities purchased under  resale agreements            |       |                                                     | 5,256      |                                                     |       |   | 4,725 |   |   | 7,629 |   | 8,570 |   |
| Trading account assets                                                          |       |                                                     | 998        |                                                     |       |   | 1,554 |   |   | 1,840 |   | 2,986 |   |
| Total interest income                                                           |       |                                                     | 547,493    |                                                     |       |   | 657,500 |   |   | 1,056,840 |   | 1,272,702 |   |
| **Interest Expense**                                                            | ** ** |                                                     | ** ** | ** **                                               |       |   | ** ** | ** ** |   | ** ** | ** ** | ** ** | ** ** |
| Deposits                                                                        |       |                                                     | 67,424     |                                                     |       |   | 143,677 |   |   | 123,252 |   | 258,986 |   |
| Federal funds purchased and securities sold under  repurchase agreements        |       |                                                     | 4,038      |                                                     |       |   | 8,455 |   |   | 9,036 |   | 17,257 |   |
| Commercial paper                                                                |       |                                                     | 7,807      |                                                     |       |   | 19,137 |   |   | 12,367 |   | 31,585 |   |
| Medium and long-term debt                                                       |       |                                                     | 7,459      |                                                     |       |   | 16,875 |   |   | 13,991 |   | 27,272 |   |
| Trust notes                                                                     |       |                                                     | 238        |                                                     |       |   | 238 |   |   | 476 |   | 476 |   |
| Other borrowed funds                                                            |       |                                                     | 1,817      |                                                     |       |   | 1,476 |   |   | 3,346 |   | 4,391 |   |
| Total interest expense                                                          |       |                                                     | 88,783     |                                                     |       |   | 189,858 |   |   | 162,468 |   | 339,967 |   |
| **Net  Interest Income**                                                        |       |                                                     | 458,710    |                                                     |       |   | 467,642 |   |   | 894,372 |   | 932,735 |   |
| Reversal of allowance for loan losses                                           |       |                                                     | (13,564    | )                                                        |       |   | (1,000 | ) |   | (25,683 | ) | (8,000 | ) |
| Net interest income after reversal of allowance for  loan losses                |       |                                                     | 472,274    |                                                     |       |   | 468,642 |   |   | 920,055 |   | 940,735 |   |
| **Noninterest Income**                                                          | ** ** |                                                     | ** ** | ** **                                               |       |   | ** ** | ** ** |   | ** ** | ** ** | ** ** | ** ** |
| Service charges on deposit accounts                                             |       |                                                     | 79,746     |                                                     |       |   | 81,837 |   |   | 159,013 |   | 163,472 |   |
| Trust and investment management fees                                            |       |                                                     | 41,590     |                                                     |       |   | 48,380 |   |   | 83,553 |   | 98,495 |   |
| Insurance commissions                                                           |       |                                                     | 19,340     |                                                     |       |   | 17,752 |   |   | 41,357 |   | 37,270 |   |
| Brokerage commissions and fees                                                  |       |                                                     | 8,605      |                                                     |       |   | 10,330 |   |   | 17,577 |   | 18,125 |   |
| Merchant banking fees                                                           |       |                                                     | 18,114     |                                                     |       |   | 8,396 |   |   | 24,380 |   | 16,625 |   |
| Foreign exchange gains, net                                                     |       |                                                     | 8,551      |                                                     |       |   | 8,307 |   |   | 16,721 |   | 16,125 |   |
| Card processing fees, net                                                       |       |                                                     | 6,464      |                                                     |       |   | 7,206 |   |   | 12,071 |   | 13,903 |   |
| Securities gains (losses), net                                                  |       |                                                     | (13,313    | )                                                        |       |   | 1,993 |   |   | (12,969 | ) | 1,779 |   |
| Other                                                                           |       |                                                     | 34,457     |                                                     |       |   | 35,027 |   |   | 67,476 |   | 71,344 |   |
| Total noninterest income                                                        |       |                                                     | 203,554    |                                                     |       |   | 219,228 |   |   | 409,179 |   | 437,138 |   |
| **Noninterest Expense**                                                         | ** ** |                                                     | ** ** | ** **                                               |       |   | ** ** | ** ** |   | ** ** | ** ** | ** ** | ** ** |
| Salaries and employee benefits                                                  |       |                                                     | 233,976    |                                                     |       |   | 248,637 |   |   | 465,734 |   | 501,132 |   |
| Net occupancy                                                                   |       |                                                     | 33,553     |                                                     |       |   | 34,519 |   |   | 65,915 |   | 67,356 |   |
| Outside services                                                                |       |                                                     | 26,468     |                                                     |       |   | 30,704 |   |   | 47,715 |   | 59,313 |   |
| Equipment                                                                       |       |                                                     | 16,933     |                                                     |       |   | 16,846 |   |   | 34,336 |   | 34,768 |   |
| Software                                                                        |       |                                                     | 14,731     |                                                     |       |   | 15,323 |   |   | 28,706 |   | 31,667 |   |
| Professional services                                                           |       |                                                     | 13,150     |                                                     |       |   | 17,038 |   |   | 24,891 |   | 31,585 |   |
| Communications                                                                  |       |                                                     | 9,762      |                                                     |       |   | 10,061 |   |   | 20,142 |   | 20,613 |   |
| Foreclosed asset income                                                         |       |                                                     | (2,577     | )                                                        |       |   | (7,782 | ) |   | (2,171 | ) | (15,149 | ) |
| Reversal of allowance for losses on off-balance sheet  commitments              |       |                                                     | (4,000     | )                                                        |       |   | (4,000 | ) |   | (1,000 | ) | (7,000 | ) |
| Other                                                                           |       |                                                     | 46,404     |                                                     |       |   | 51,684 |   |   | 97,084 |   | 103,289 |   |
| Total noninterest expense                                                       |       |                                                     | 388,400    |                                                     |       |   | 413,030 |   |   | 781,352 |   | 827,574 |   |
| Income from continuing operations before income taxes                           |       |                                                     | 287,428    |                                                     |       |   | 274,840 |   |   | 547,882 |   | 550,299 |   |
| Income tax expense                                                              |       |                                                     | 99,950     |                                                     |       |   | 92,203 |   |   | 180,653 |   | 186,207 |   |
| **Income  from Continuing Operations**                                          |       |                                                     | 187,478    |                                                     |       |   | 182,637 |   |   | 367,229 |   | 364,092 |   |
| Income (loss) from discontinued operations before  income taxes                 |       |                                                     | (412       | )                                                        |       |   | 431 |   |   | 3,227 |   | (13,172 | ) |
| Income tax expense (benefit)                                                    |       |                                                     | (116       | )                                                        |       |   | 157 |   |   | 1,297 |   | (4,936 | ) |
| **Income  (loss) from Discontinued Operations**                                 |       |                                                     | (296       | )                                                        |       |   | 274 |   |   | 1,930 |   | (8,236 | ) |
| **Net  Income**                                                                 |       |                                                     | $          | 187,182                                                  |       |   |   | $ | 182,911 |   |   | $ | 369,159 |   | $ | 355,856 |   |
| **Income  from continuing operations per common share—basic**              |       |                                                     | $          | 1.30                                                     |       |   |   | $ | 1.28 |   |   | $ | 2.52 |   | $ | 2.54 |   |
| **Net  Income per common share—basic**                                     |       |                                                     | $          | 1.29                                                     |       |   |   | $ | 1.28 |   |   | $ | 2.53 |   | $ | 2.49 |   |
| **Income  from continuing operations per common share—diluted**            |       |                                                     | $          | 1.27                                                     |       |   |   | $ | 1.26 |   |   | $ | 2.47 |   | $ | 2.51 |   |
| **Net  Income per common share—diluted**                                   |       |                                                     | $          | 1.27                                                     |       |   |   | $ | 1.26 |   |   | $ | 2.49 |   | $ | 2.45 |   |
| **Weighted  average common shares outstanding—basic**                      |       |                                                     | 144,548    |                                                     |       |   | 142,723 |   |   | 145,766 |   | 143,098 |   |
| **Weighted  average common shares outstanding—diluted**                    |       |                                                     | 147,222    |                                                     |       |   | 144,878 |   |   | 148,412 |   | 145,294 |   |

----

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

See accompanying notes tocondensed consolidated financial statements.

7

----

**UnionBanCal Corporation and SubsidiariesCondensed Consolidated Balance Sheets**(1)
|                                                                                                                                                                                       | ** ** | **(Unaudited)**   | ** ** | ** **            | ** ** | **(Unaudited)**   | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|-----------------------|------------|-------------------|------------|
| ** **                                                                                                                                                                            | ** ** | **June 30,** | ** ** | **December 31,** | ** ** | **June 30,** | ** ** |
| **(Dollars in thousands)**                                                                                                                                                  | ** ** | **2005**          | ** ** | **2005**              | ** ** | **2006**          | ** ** |
| **Assets**                                                                                                                                                                            | ** ** | ** **        | ** ** |                  | ** ** | ** **        |       | ** ** | ** ** |
| Cash and due from banks                                                                                                                                                               |       | $                 | 2,268,654  |                  |       | $                 | 2,402,212  |   |   | $ | 2,192,483 |   |
| Interest bearing deposits in banks                                                                                                                                                    |       | 96,051            |       |                  | 771,164    |              |       | 31,691 |   |
| Federal funds sold and securities purchased under  resale agreements                                                                                                                  |       | 2,782,105         |       |                  | 796,500    |              |       | 1,252,514 |   |
| Total cash and cash  equivalents                                                                                                                                                      |       | 5,146,810         |       |                  | 3,969,876  |              |       | 3,476,688 |   |
| Trading account assets                                                                                                                                                                |       | 320,533           |       |                  | 312,655    |              |       | 405,728 |   |
| Securities available for  sale:                                                                                                                                                       |       |              |       |                  |       |              |       |   |   |
| Securities pledged as  collateral                                                                                                                                                     |       | 443,717           |       |                  | 96,994     |              |       | 83,229 |   |
| Held in portfolio                                                                                                                                                                     |       | 9,899,802         |       |                  | 8,072,286  |              |       | 8,573,909 |   |
| Loans (net of allowance for loan losses:  June 30, 2005, $394,972; December 31, 2005, $351,532; June 30,  2006, $328,338)                                              |       | 30,466,263        |       |                  | 32,744,063 |              |       | 34,419,495 |   |
| Due from customers on acceptances                                                                                                                                                     |       | 25,981            |       |                  | 19,252     |              |       | 21,850 |   |
| Premises and equipment, net                                                                                                                                                           |       | 517,073           |       |                  | 536,074    |              |       | 498,555 |   |
| Intangible assets                                                                                                                                                                     |       | 51,766            |       |                  | 42,616     |              |       | 35,759 |   |
| Goodwill                                                                                                                                                                              |       | 450,669           |       |                  | 454,015    |              |       | 453,489 |   |
| Other assets                                                                                                                                                                          |       | 1,899,573         |       |                  | 2,113,577  |              |       | 2,787,288 |   |
| Assets of discontinued operations to be disposed or  sold(1)                                                                                                                          |       | 1,955,871         |       |                  | 1,054,594  |              |       | 44,146 |   |
| Total assets                                                                                                                                                                          |       | $                 | 51,178,058 |                  |       | $                 | 49,416,002 |   |   | $ | 50,800,136 |   |
| **Liabilities**                                                                                                                                                                       | ** ** | ** **        | ** ** |                  | ** ** | ** **        |       | ** ** | ** ** |
| Noninterest bearing                                                                                                                                                                   |       | $                 | 20,584,028 |                  |       | $                 | 19,489,377 |   |   | $ | 18,154,751 |   |
| Interest bearing                                                                                                                                                                      |       | 20,671,709        |       |                  | 20,592,862 |              |       | 22,389,500 |   |
| Total deposits                                                                                                                                                                        |       | 41,255,737        |       |                  | 40,082,239 |              |       | 40,544,251 |   |
| Federal funds purchased and securities sold under  repurchase agreements                                                                                                              |       | 611,233           |       |                  | 651,529    |              |       | 281,593 |   |
| Commercial paper                                                                                                                                                                      |       | 1,102,042         |       |                  | 680,027    |              |       | 1,645,107 |   |
| Other borrowed funds                                                                                                                                                                  |       | 132,368           |       |                  | 134,485    |              |       | 320,837 |   |
| Acceptances outstanding                                                                                                                                                               |       | 25,981            |       |                  | 19,252     |              |       | 21,850 |   |
| Other liabilities                                                                                                                                                                     |       | 1,415,463         |       |                  | 1,466,478  |              |       | 1,876,307 |   |
| Medium and long-term debt                                                                                                                                                             |       | 821,664           |       |                  | 801,095    |              |       | 1,473,924 |   |
| Junior subordinated debt payable to subsidiary  grantor trust                                                                                                                         |       | 15,564            |       |                  | 15,338     |              |       | 15,111 |   |
| Liabilities of discontinued operations to be  extinguished or assumed(1)                                                                                                              |       | 1,543,015         |       |                  | 1,005,859  |              |       | 12,248 |   |
| Total liabilities                                                                                                                                                                     |       | 46,923,067        |       |                  | 44,856,302 |              |       | 46,191,228 |   |
| Commitments and  contingencies—See Note 9                                                                                                                                        |       |              |       |                  |       |              |       |   |   |
| **Stockholders’  Equity**                                                                                                                                                        | ** ** | ** **        | ** ** |                  | ** ** | ** **        |       | ** ** | ** ** |
| Preferred stock:                                                                                                                                                                      |       |              |       |                  |       |              |       |   |   |
| Authorized 5,000,000 shares;  no shares issued or outstanding as of June 30, 2005, December 31,  2005 and June 30, 2006                                                |       | —            |       |                  | —     |              |       | — |   |
| Common stock, par value $1  per share at June 30, 2005, December 31, 2005 and June 30,  2006:                                                                          |       |              |       |                  |       |              |       |   |   |
| Authorized 300,000,000  shares; issued 153,581,401 shares as of June 30, 2005, 154,469,215  shares as of December 31, 2005 and 155,719,517 shares as of  June 30, 2006 |       | 153,581           |       |                  | 154,469    |              |       | 155,720 |   |
| Additional paid-in capital                                                                                                                                                            |       | 948,611           |       |                  | 994,956    |              |       | 1,048,419 |   |
| Treasury stock—9,375,943 shares as of June 30,  2005, 10,262,143 shares as of December 31, 2005 and 13,185,723  shares as of June 30, 2006                   |       | (552,786          | )          |                  | (612,732   | )                 |       | (813,571 | ) |
| Retained earnings                                                                                                                                                                     |       | 3,774,097         |       |                  | 4,141,400  |              |       | 4,390,188 |   |
| Accumulated other comprehensive loss                                                                                                                                                  |       | (68,512           | )          |                  | (118,393   | )                 |       | (171,848 | ) |
| Total stockholders’  equity                                                                                                                                                      |       | 4,254,991         |       |                  | 4,559,700  |              |       | 4,608,908 |   |
| Total liabilities and  stockholders’ equity                                                                                                                                      |       | $                 | 51,178,058 |                  |       | $                 | 49,416,002 |   |   | $ | 50,800,136 |   |

----

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

See accompanying notes to condensed consolidatedfinancial statements.

8

----

**UnionBanCal Corporationand SubsidiariesCondensed Consolidated Statements of Changes in Stockholders’ Equity(Unaudited)**

| ** **                                                               | ** ** | ** **         | ** ** | ** ** | ** ** | ** **     | ** ** | ** **   | ** ** | ** **   | ** ** | **Accumulated**        | ** ** | **Total**         | ** ** |
|--------------------------------------------------------------------------|------------|--------------------|------------|------------|------------|----------------|------------|--------------|------------|--------------|------------|------------------------|------------|-------------------|------------|
| ** **                                                               | ** ** | ** **         | ** ** | ** ** | ** ** | **Additional** | ** ** | ** **   | ** ** | ** **   | ** ** | **other**              | ** ** | **stock-**        | ** ** |
| ** **                                                               | ** ** | **Number**         | ** ** | **Common** | ** ** | **paid-in**    | ** ** | **Treasury** | ** ** | **Retained** | ** ** | **comprehensive**      | ** ** | **holders’** | ** ** |
| **(In thousands, except shares)**                         | ** ** | **of shares** | ** ** | **stock**  | ** ** | **capital**    | ** ** | **stock**    | ** ** | **earnings** | ** ** | **income (loss)** | ** ** | **equity**        | ** ** |
| **BALANCE  DECEMBER 31, 2004**                                           |       | 152,191,818        |       | $          | 152,192    |           | $          | 881,928      |       | $            | (223,361   | )                      | $          | 3,526,312         |       |   | $ | (44,827 | ) |   | $ | 4,292,244 |   |
| Comprehensive income                                                     |       |               |       |       |       |           |       |         |       |         |       |                   |       |              |       |   |   |
| Net income—For the six months ended June 30,  2005             |       |               |       |       |       |           |       |         |       | 369,159      |       |                   |       |              |       | 369,159 |   |
| Other  comprehensive income, net of tax:                                 |       |               |       |       |       |           |       |         |       |         |       |                   |       |              |       |   |   |
| Net change in unrealized losses on cash flow hedges                 |       |               |       |       |       |           |       |         |       |         |       |                   | (11,983    | )                 |       | (11,983 | ) |
| Net change in unrealized losses on securities  available for sale        |       |               |       |       |       |           |       |         |       |         |       |                   | (11,949    | )                 |       | (11,949 | ) |
| Foreign currency translation  adjustment                                 |       |               |       |       |       |           |       |         |       |         |       |                   | 263        |              |       | 263 |   |
| Minimum pension liability adjustment                                     |       |               |       |       |       |           |       |         |       |         |       |                   | (16        | )                 |       | (16 | ) |
| Total comprehensive  income                                              |       |               |       |       |       |           |       |         |       |         |       |                   |       |              |       | 345,474 |   |
| Deferred compensation—restricted  stock awards                      |       | 208,100            |       | 208        |       | 12,414         |       |         |       | (9,976       | )          |                   |       |              |       | 2,646 |   |
| Stock options  exercised                                                 |       | 1,181,483          |       | 1,181      |       | 54,269         |       |         |       |         |       |                   |       |              |       | 55,450 |   |
| Common stock  repurchased(1)                                             |       |               |       |       |       |           |       | (329,425     | )          |         |       |                   |       |              |       | (329,425 | ) |
| Dividends declared on common stock, $0.77 per  share(2)             |       |               |       |       |       |           |       |         |       | (111,398     | )          |                   |       |              |       | (111,398 | ) |
| Net change                                                               |       |               |       | 1,389      |       | 66,683         |       | (329,425     | )          | 247,785      |       |                   | (23,685    | )                 |       | (37,253 | ) |
| **BALANCE  JUNE 30, 2005**                                               |       | 153,581,401        |       | $          | 153,581    |           | $          | 948,611      |       | $            | (552,786   | )                      | $          | 3,774,097         |       |   | $ | (68,512 | ) |   | $ | 4,254,991 |   |
| **BALANCE  DECEMBER 31, 2005**                                           |       | 154,469,215        |       | $          | 154,469    |           | $          | 994,956      |       | $            | (612,732   | )                      | $          | 4,141,400         |       |   | $ | (118,393 | ) |   | $ | 4,559,700 |   |
| Comprehensive income                                                     |       |               |       |       |       |           |       |         |       |         |       |                   |       |              |       |   |   |
| Net income—For the six months ended June 30,  2006             |       |               |       |       |       |           |       |         |       | 355,856      |       |                   |       |              |       | 355,856 |   |
| Other  comprehensive income, net of tax:                                 |       |               |       |       |       |           |       |         |       |         |       |                   |       |              |       |   |   |
| Net change in unrealized losses on cash flow hedges                 |       |               |       |       |       |           |       |         |       |         |       |                   | (15,457    | )                 |       | (15,457 | ) |
| Net change in unrealized losses on securities  available for sale        |       |               |       |       |       |           |       |         |       |         |       |                   | (38,060    | )                 |       | (38,060 | ) |
| Foreign currency translation  adjustment                                 |       |               |       |       |       |           |       |         |       |         |       |                   | 62         |              |       | 62 |   |
| Total comprehensive  income                                              |       |               |       |       |       |           |       |         |       |         |       |                   |       |              |       | 302,401 |   |
| Reclassifications due to impact of SFAS No. 123R  implementation(3) |       |               |       |       |       | (19,035        | )          |         |       | 19,035       |       |                   |       |              |       | — |   |
| Stock options  exercised                                                 |       | 1,053,833          |       | 1,054      |       | 41,574         |       |         |       |         |       |                   |       |              |       | 42,628 |   |
| Restricted stock  granted, net of forfeitures                            |       | 196,469            |       | 197        |       | (197           | )          |         |       |         |       |                   |       |              |       | — |   |
| Excess tax benefit—stock options and restricted stock               |       |               |       |       |       | 10,745         |       |         |       |         |       |                   |       |              |       | 10,745 |   |
| Compensation expense—stock  options                                 |       |               |       |       |       | 11,629         |       |         |       |         |       |                   |       |              |       | 11,629 |   |
| Compensation expense—restricted  stock                              |       |               |       |       |       | 7,063          |       |         |       |         |       |                   |       |              |       | 7,063 |   |
| Compensation expense—performance  share units                  |       |               |       |       |       | 1,684          |       |         |       |         |       |                   |       |              |       | 1,684 |   |
| Common stock  repurchased(1)                                             |       |               |       |       |       |           |       | (200,839     | )          |         |       |                   |       |              |       | (200,839 | ) |
| Dividends declared on common stock, $0.88 per  share(2)             |       |               |       |       |       |           |       |         |       | (126,103     | )          |                   |       |              |       | (126,103 | ) |
| Net change                                                               |       |               |       | 1,251      |       | 53,463         |       | (200,839     | )          | 248,788      |       |                   | (53,455    | )                 |       | 49,208 |   |
| **BALANCE  JUNE 30, 2006**                                               |       | 155,719,517        |       | $          | 155,720    |           | $          | 1,048,419    |       | $            | (813,571   | )                      | $          | 4,390,188         |       |   | $ | (171,848 | ) |   | $ | 4,608,908 |   |

----

(1)                   Common stock repurchased includescommission costs.

(2)                   Dividends are based on UnionBanCalCorporation’s shares outstanding as of the declaration date.

(3)                   Reclassification reflects a reduction inadditional paid-in capital and a corresponding credit to retained earnings forunamortized compensation expense on nonvested restricted stock as ofJanuary 1, 2006. Starting in 2006, amortization of compensation expense relatingto restricted stock will be recorded in additional paid-in capital asrecognized.

See accompanying notes to condensed consolidatedfinancial statements.

9

----

**UnionBanCal Corporationand SubsidiariesCondensed Consolidated Statements of Cash Flows(Unaudited)**

| ** **                                                                                           | ** ** | **For the Six Months  Ended June 30,** | ** ** |
|------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------|------------|
| **(Dollars in thousands)**                                                                 | ** ** | **2005**                                                        | ** ** | **2006** | ** ** |
| **Cash Flows from Operating  Activities:**                                                           |       |                                                            |       |   |   |
| Net income                                                                                           |       | $                                                               | 369,159    |   | $ | 355,856 |   |
| Income (loss) from  discontinued operations, net of taxes                                            |       | 1,930                                                           |       | (8,236 | ) |
| Income from continuing  operations, net of taxes                                                     |       | 367,229                                                         |       | 364,092 |   |
| Adjustments to reconcile net income to net cash  provided by operating activities:                   |       |                                                            |       |   |   |
| Reversal of allowance  for loan losses                                                               |       | (25,683                                                         | )          | (8,000 | ) |
| Reversal of allowance  for losses on off-balance sheet commitments                                   |       | (1,000                                                          | )          | (7,000 | ) |
| Depreciation,  amortization and accretion                                                            |       | 80,044                                                          |       | 70,988 |   |
| Stock-based  compensation—stock options                                                         |       | —                                                          |       | 11,629 |   |
| Stock-based compensation—restricted  stock                                                      |       | 2,646                                                           |       | 7,063 |   |
| Provision for deferred  income taxes                                                                 |       | 37,984                                                          |       | 53,787 |   |
| (Gains) losses on  sales of securities available for sale, net                                       |       | 12,969                                                          |       | (1,779 | ) |
| Net increase  (decrease) in accrued expenses                                                         |       | 60,901                                                          |       | (58,897 | ) |
| Net increase in  unearned and deferred income                                                        |       | 57,451                                                          |       | 32,789 |   |
| Net increase in  trading account assets                                                              |       | (84,693                                                         | )          | (93,073 | ) |
| Net increase in  prepaid expenses                                                                    |       | (100,010                                                        | )          | (75,037 | ) |
| Net increase in fees  and other receivables                                                          |       | (150                                                            | )          | (93,122 | ) |
| Net increase in other  liabilities                                                                   |       | 147,543                                                         |       | 399,930 |   |
| Net increase in other  assets                                                                        |       | (74,894                                                         | )          | (544,163 | ) |
| Loans originated for  resale                                                                         |       | (90,109                                                         | )          | (230,874 | ) |
| Net proceeds from  loans originated for resale                                                       |       | 198,950                                                         |       | 168,122 |   |
| Excess tax benefit—stock  options and restricted stock                                          |       | (10,336                                                         | )          | (10,745 | ) |
| Other, net                                                                                           |       | (12,427                                                         | )          | (6,596 | ) |
| Discontinued  operations, net                                                                        |       | 100,105                                                         |       | 197,538 |   |
| Total adjustments                                                                                    |       | 299,291                                                         |       | (187,440 | ) |
| Net cash provided by  operating activities                                                           |       | 666,520                                                         |       | 176,652 |   |
| **Cash Flows from Investing  Activities:**                                                           |       |                                                            |       |   |   |
| Proceeds from sales of  securities available for sale                                                |       | 506,224                                                         |       | 33,073 |   |
| Proceeds from matured  and called securities available for sale                                      |       | 1,041,037                                                       |       | 801,731 |   |
| Purchases of  securities available for sale                                                          |       | (797,598                                                        | )          | (1,387,817 | ) |
| Net purchases of  premises and equipment                                                             |       | (33,822                                                         | )          | (22,277 | ) |
| Net increase in loans                                                                                |       | (1,827,008                                                      | )          | (1,599,060 | ) |
| Other, net                                                                                           |       | (326                                                            | )          | 15,477 |   |
| Discontinued  operations, net                                                                        |       | (43,680                                                         | )          | 719,130 |   |
| Net cash used in  investing activities                                                               |       | (1,155,173                                                      | )          | (1,439,743 | ) |
| **Cash Flows from Financing  Activities:**                                                           |       |                                                            |       |   |   |
| Net increase in  deposits                                                                            |       | 2,536,231                                                       |       | 462,012 |   |
| Net increase  (decrease) in federal funds purchased and securities sold under repurchase  agreements |       | 23,984                                                          |       | (369,936 | ) |
| Net increase in  commercial paper and other borrowed funds                                           |       | 236,974                                                         |       | 1,151,432 |   |
| Proceeds from issuance  of long-term debt                                                            |       | —                                                          |       | 693,742 |   |
| Common stock  repurchased                                                                            |       | (329,425                                                        | )          | (200,839 | ) |
| Payments of cash  dividends                                                                          |       | (105,750                                                        | )          | (118,020 | ) |
| Stock options  exercised                                                                             |       | 55,450                                                          |       | 53,209 |   |
| Other, net                                                                                           |       | 263                                                             |       | 5,410 |   |
| Discontinued operations,  net                                                                        |       | 17,960                                                          |       | (908,067 | ) |
| Net cash provided by  financing activities                                                           |       | 2,435,687                                                       |       | 768,943 |   |
| Net increase (decrease) in cash and cash equivalents                                                 |       | 1,947,034                                                       |       | (494,148 | ) |
| Cash and cash equivalents at beginning of period                                                     |       | 3,199,854                                                       |       | 3,969,876 |   |
| Effect of exchange rate changes on cash and cash  equivalents                                        |       | (78                                                             | )          | 960 |   |
| Cash and cash equivalents at end of period                                                           |       | $                                                               | 5,146,810  |   | $ | 3,476,688 |   |
| **Cash Paid During the Period  For:**                                                                |       |                                                            |       |   |   |
| Interest                                                                                             |       | $                                                               | 152,387    |   | $ | 306,562 |   |
| Income taxes                                                                                         |       | 92,654                                                          |       | 189,822 |   |
| **Supplemental Schedule of  Noncash Investing and Financing Activities:**                            |       |                                                            |       |   |   |
| Loans transferred to  foreclosed assets (OREO) and/or distressed loans held for sale                 |       | $                                                               | 333        |   | $ | 15 |   |

 

See accompanying notes to condensed consolidated financial statements.

10

----

**UnionBanCal Corporation and Subsidiaries**

**Notes to Condensed Consolidated Financial Statements (Unaudited)**

**Note 1—Basis ofPresentation and Nature of Operations**

The unaudited condensed consolidated financialstatements of UnionBanCal Corporation and subsidiaries (the Company) have beenprepared in accordance with accounting principles generally accepted in the UnitedStates of America (US GAAP) for interim financial reporting and theinstructions to Form 10-Q and Rule 10-01 of Regulation S-X ofthe Rules and Regulations of the Securities and Exchange Commission (SEC).However, they do not include all of the disclosures necessary for annualfinancial statements in conformity with US GAAP. The results of operations forthe period ended June 30, 2006 are not necessarily indicative of theoperating results anticipated for the full year. Accordingly, these unaudited condensedconsolidated financial statements should be read in conjunction with theaudited consolidated financial statements included in the Company’s AnnualReport on Form 10-K for the year ended December 31, 2005. Thepreparation of financial statements in conformity with US GAAP also requiresmanagement to make estimates and assumptions that affect the reported amountsof assets and liabilities and disclosure of contingent assets and liabilitiesat the date of the financial statements and the reported amounts of revenue andexpense during the reporting period. Actual results could differ from thoseestimates.

UnionBanCal Corporation is a commercial bank holdingcompany and has, as its major subsidiary, a banking subsidiary, Union Bank ofCalifornia, N.A. (the Bank). The Company provides a wide range of financialservices to consumers, small businesses, middle-market companies and majorcorporations, primarily in California, Oregon, and Washington, but alsonationally. Upon completion of the exit from the international correspondentbanking business (see Note 3 “Discontinued Operations” of this Quarterly Reporton Form 10-Q), the Bank will continue to provide trade finance and otherinternational financial services (but not international correspondent banking)to customers. 

Under previously announced stock repurchase plans, theCompany was authorized to repurchase $402 million of the Company’s common stockas of June 30, 2006. The Company repurchased $121 million of common stockin the second quarter of 2006, compared to $89 million in the second quarter of2005. The Bank of Tokyo-MitsubishiUFJ, Ltd. (BTMU), which is a wholly-owned subsidiary of Mitsubishi UFJFinancial Group, Inc., owned approximately 63 percent of theCompany’s outstanding common stock at June 30, 2006.

Certain amounts for priorperiods have been reclassified to conform to current financial statementpresentation.

*Stock-BasedCompensation*

On January 1, 2006, the Company adopted Statementof Financial Accounting Standard (SFAS) No. 123R, “Share-Based Payment,” arevision of SFAS No. 123, “Accounting for Stock-Based Compensation,” andelected to use the modified prospective application method to transition to thenew accounting standard. SFAS No. 123R requires that compensation costsrelated to share-based payment transactions be recognized in the financialstatements. Measurement of the cost of employee service is based on thegrant-date fair value of the equity or liability instrument issued. SFAS 123Ralso prescribes that estimated forfeitures of shares are to be included in thecalculation of compensation expense. 

Under the modified prospective transition method, compensation cost isrecognized for the portion of outstanding awards for which the requisiteservice has not yet been rendered. The cost is being recognized over the periodduring which the employees are required to provide service. The after-taximpact of this 

11

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**UnionBanCal Corporation and Subsidiaries**

**Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited)**

**Note 1—Basis ofPresentation and Nature of Operations**(Continued)

change on income fromcontinuing operations was a reduction of $3.3 million and $7.2 million for thethree months and six months ended June 30, 2006, respectively, whichincludes estimated forfeitures for restricted stock and the amortization ofcompensation costs related to unvested stock options. The corresponding impactto both basic and diluted earnings per share was a reduction of $0.02 and $0.05per share for the three months and six months ended June 30, 2006,respectively. 

For the period ended June 30, 2005, as allowedunder SFAS No. 123, “Accounting for Stock-Based Compensation,” the Companyrecognized compensation expense using the intrinsic value-based method ofvaluing stock options prescribed in Accounting Principles Board Opinion (APB) No. 25,“Accounting for Stock Issued to Employees” and related Interpretations. Underthe intrinsic value-based method, compensation cost was measured as the amountby which the quoted market price of the Company’s stock at the date of grantexceeded the stock option exercise price. For the three months and six monthsended June 30, 2005, options granted under the plans had an exercise priceequal to the market value of the underlying common stock on the date of thegrant and, therefore, were not included in compensation costs. 

At June 30, 2006, the Company had two stock-basedemployee compensation plans. For further discussion concerning the Company’sstock-based employee compensation plans, see Note 12 to these CondensedConsolidated Financial Statements and Note 16 to the Consolidated FinancialStatements in the Company’s Annual Report on Form 10-K for the year ended December 31,2005. Options granted under the plans had an exercise price equal to the marketvalue of the underlying common stock on the date of grant. The value of therestricted stock awards issued under the plans and the value of that portion ofoutstanding option awards for which the requisite service has not yet beenrendered is being amortized over the remaining service period as compensationcost.

The following table illustrates the effect on netincome, which includes discontinued operations, and corresponding earnings pershare if the Company had applied the fair value recognition provisions of SFAS No. 123to stock-based employee compensation. For the purpose of this disclosure, theCompany has recognized compensation costs for graded vesting on a straight-linebasis and did not include an estimate for forfeitures. 

| **(Dollars in thousands)**                                                                       | ** ** | **For the Three  Months Ended  June 30, 2005** | ** ** | **For the Six  Months Ended  June 30, 2005** | ** ** |
|------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|
| As reported net  income                                                                                    |       |                                                                    | $          | 187,182                                                               |       |   |   | $ | 369,159 |   |   |
| Add: stock-based  employee compensation expense included in reported net income, net of  income taxes |       |                                                                    | 1,572      |                                                                  |       |   | 1,634 |   |   |
| Deduct: total  stock-based employee compensation expense, net of income taxes                              |       |                                                                    | 6,753      |                                                                  |       |   | 12,359 |   |   |
| Pro forma net income, after stock-based employee compensation expense                                      |       |                                                                    | $          | 182,001                                                               |       |   |   | $ | 358,434 |   |   |
| Net income per common share—basic                                                                     |       |                                                                    |       |                                                                  |       |   |   |   |   |
| As reported                                                                                                |       |                                                                    | $          | 1.29                                                                  |       |   |   | $ | 2.53 |   |   |
| Pro forma                                                                                                  |       |                                                                    | $          | 1.26                                                                  |       |   |   | $ | 2.46 |   |   |
| Net income per common  share—diluted                                                                  |       |                                                                    |       |                                                                  |       |   |   |   |   |
| As reported                                                                                                |       |                                                                    | $          | 1.27                                                                  |       |   |   | $ | 2.49 |   |   |
| Pro forma                                                                                                  |       |                                                                    | $          | 1.24                                                                  |       |   |   | $ | 2.43 |   |   |

 

12

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**UnionBanCal Corporation and Subsidiaries**

**Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited)**

**Note 2—Recently Issued andProposed Accounting Pronouncements**

*Accounting for CertainHybrid Financial Instruments*

In February 2006, theFinancial Accounting Standards Board (FASB) issued SFAS No. 155, “Accountingfor Certain Hybrid Financial Instruments—an amendment of FASB Statements No. 133and 140.” The Statement allows financial instruments that have embeddedderivatives to be accounted for as a whole, (eliminating the need to bifurcatethe derivative from its host) if the holder elects to irrevocably account forthe whole instrument on a fair value basis. The Statement is effective for allfinancial instruments acquired or issued after December 31, 2006. Managementbelieves that adopting this Statement will not have a material impact on theCompany’s financial position or results of operations.

*Accounting forServicing of Financial Assets*

In March 2006, the FASBissued SFAS No. 156, “Accounting for Servicing of Financial Assets—anamendment of FASB Statement No. 140.” The Statement requires that allseparately recognized servicing assets and servicing liabilities be initiallymeasured at fair value, if practicable. It allows an entity to choose one of twosubsequent measurement methods for each class of separately recognizedservicing assets and servicing liabilities: the amortization method or the fairvalue measurement method. Under the amortization method, servicing assets andliabilities are amortized in proportion to and over the period of estimated netservicing income or servicing loss. Under the fair value method, servicingassets and liabilities are recorded at fair value each reporting period withany changes reported in current period earnings. The Statement is effective forall servicing assets on January 1, 2007. Management believes that adoptingthis Statement will not have a material impact on the Company’s financialposition or results of operations. 

*Accounting for DefinedBenefit Pension and Other Postretirement Plans—Exposure Draft*

In March 2006, the FASBissued an Exposure Draft, “Employers’ Accounting for Defined Benefit Pensionand Other Postretirement Plans, an amendment of FASB Statements No. 87,88, 106, and 132(R).” This proposed Statement would require a company thatsponsors a defined benefit pension plan or other postretirement benefit plan tofully recognize, as an asset or liability, the amount by which thedefined-benefit-postretirement obligation is over- or under-funded. The amountwould be measured as the difference between the fair value of plan assets andthe projected benefit obligation. The proposed Statement would result in theimmediate recognition of unrecognized prior service costs and credits,unrecognized net actuarial gains or losses, and any unrecognized transitionobligation or asset as components of other comprehensive income. The finalStatement is expected to be issued during the third quarter 2006, to beeffective as of December 31, 2006. Based on guidance in the currentexposure draft, the Company’s stockholders’ equity at June 30, 2006 wouldhave been reduced by approximately five percent, if adopted.

*Accounting for Changesin the Timing of Cash Flows Relating to Income Taxes in Leveraged Leases*

In July 2006, the FASB issued Staff Position(FSP) FAS 13-2, “Accounting for a Change or Projected Change in the Timing ofCash Flows Relating to Income Taxes Generated by a Leveraged Lease Transaction.”This FSP requires that if, during the lease term, the projected timing of theincome tax cash flows generated by a leveraged lease is revised, the rate ofreturn and the allocation of income would be 

13

----

**UnionBanCal Corporation and Subsidiaries**

**Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited)**

**Note 2—RecentlyIssued and Proposed Accounting Pronouncements**(Continued)

recalculatedfrom the inception of the lease. At adoption, the change in the net investmentbalance resulting from the calculation would be recognized as an adjustment tothe beginning balance of retained earnings. Following adoption, a change in thenet investment balance resulting from a recalculation would be recognized as again or a loss in the period in which the assumption is changed. The FSP iseffective for all leveraged leases on January 1, 2007. The Company investsin Lease-In/Lease-Out (LILO) transactions that have been challenged by theInternal Revenue Service (IRS). The Company has paid the IRS the income taxassociated with the LILO transactions. However, the Company is defending theinitial filing position as to the timing of the tax benefits associated withthese transactions. The Company may be required to recalculate these leases toreflect a potential change in the timing of income tax cash flows in accordancewith this FSP. Management is currently assessing the impact of the FSP on theCompany’s financial position and results of operations. 

*Accounting forUncertainty in Income Taxes*

In July 2006, the FASB issued Interpretation(FIN) No. 48, “Accounting for Uncertainty in Income Taxes—AnInterpretation of FASB Statement No. 109,” which clarifies the accountingfor uncertainty in income taxes recognized in an enterprise’s financialstatements in accordance with FASB Statement No. 109, “Accounting forIncome Taxes.” The Interpretation establishes a “more-likely-than-not”recognition threshold that must be met before a tax benefit can be recognizedin the financial statements. For tax positions that meet the “more-likely-than-not”threshold, an enterprise should recognize the largest amount of tax benefitthat is greater than 50 percent likely of being realized upon ultimatesettlement with the taxing authority. The Interpretation is effective January 1,2007. The cumulative effect of applying the provisions of the Interpretationwould be recognized as an adjustment to the beginning balance of retainedearnings. Management is currently evaluating the impact of this interpretationon the Company’s financial position and results of operations.

For additional information onrecently issued accounting pronouncements and other significant accountingprinciples, see Note 1 to the Consolidated Financial Statements in the Company’sAnnual Report on Form 10-K for the year ended December 31, 2005.

**Note 3—Discontinued Operations**

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

The Company has accounted for this transaction as adiscontinued operation and restated its prior period financial statements. Theassets of the discontinued operations were reclassified as “held for sale” andaccounted for at the lower of cost or fair value less the costs to sell. All ofthe Company’s offices designated for disposal were closed as of June 30,2006. The remaining assets include deposits with banks awaiting approval ofrepatriation of capital and unremitted profits and loans that are maturing by January 2008.The remaining liabilities primarily consist of accrued expenses, which will besettled when due.

Interest expense was allocated to discontinued operations based onaverage net assets. The amount of interest expense allocated to discontinuedoperations for the three months ended June 30, 2005 and 2006 

14

----

**UnionBanCal Corporation and Subsidiaries**

**Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited)**

**Note 3—DiscontinuedOperations**(Continued)

was $4.2 million and $0.4million, respectively. For the six months ended June 30, 2005 and 2006,the interest expense allocated to discontinued operations was $6.6 million and$1.1 million, respectively.

The severance reserve balances at December 31,2005 and June 30, 2006 were $21.7 million and $4.1 million, respectively.The decrease of $17.6 million from December 31, 2005 primarily related tocash payments to employees.

All assets and liabilitiesrelated to the discontinued operations are recorded at the lower of cost orfair value, less costs of disposal. At June 30, 2005, December 31,2005 and June 30, 2006 the assets and liabilities identified asdiscontinued operations were comprised of the following:

| ** **                                                            | ** ** | **For the Period Ended** | ** ** |
|-----------------------------------------------------------------------|------------|-----------------------------------------|------------|
| **(Dollars in thousands)**                                  | ** ** | **June 30,  2005**                 | ** ** | **December 31,  2005** | ** ** | **June 30,  2006** | ** ** |
| **Assets**                                                            | ** ** | ** **                              | ** ** | ** ** | ** ** | ** ** | ** ** |
| Cash and due from  banks                                              |       | $                                       | 70,873     |   | $ | 119,158 |   | $ | 31,343 |   |
| Interest bearing  deposits in banks                                   |       | 183,504                                 |       | 138,762 |   | — |   |
| Loans                                                                 |       | 1,636,986                               |       | 724,084 |   | 10,286 |   |
| Due from customers on  acceptances                                    |       | 28,208                                  |       | 42,612 |   | 911 |   |
| Premises and  equipment                                               |       | 3,432                                   |       | 1,409 |   | 1 |   |
| Other assets                                                          |       | 32,868                                  |       | 28,569 |   | 1,605 |   |
| Assets of  discontinued operations to be disposed or sold             |       | $                                       | 1,955,871  |   | $ | 1,054,594 |   | $ | 44,146 |   |
| **Liabilities**                                                       | ** ** | ** **                              | ** ** | ** ** | ** ** | ** ** | ** ** |
| Noninterest bearing  deposits                                         |       | $                                       | 529,475    |   | $ | 446,953 |   | $ | 9 |   |
| Interest bearing  deposits                                            |       | 944,815                                 |       | 461,717 |   | 594 |   |
| Other liabilities                                                     |       | 68,725                                  |       | 97,189 |   | 11,645 |   |
| Liabilities of discontinued  operations to be extinguished or assumed |       | $                                       | 1,543,015  |   | $ | 1,005,859 |   | $ | 12,248 |   |

 

Thecomponents of income (loss) from discontinued operations for the three and sixmonths ended June 30, 2005 and 2006 are:

| ** **                                                           | ** ** | **For the Three Months Ended  June 30,**                | ** ** | **For the Six Months Ended  June 30,**                  | ** ** |
|----------------------------------------------------------------------|------------|----------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------|------------|
| **(Dollars in thousands)**                                 | ** ** | **      2005      ** | ** ** | **      2006      ** | ** ** | **2005** | ** ** | **2006** | ** ** |
| Net interest income  (expense)                                       |       |                                                                             | $          | 5,146                                                                            |       |   |   | $ | (86 | ) |   | $ | 10,283 |   | $ | 1,639 |   |
| Provision for loan  losses                                           |       |                                                                             | 2,564      |                                                                             |       |   | — |   |   | 6,683 |   | — |   |
| Noninterest income                                                   |       |                                                                             | 17,796     |                                                                             |       |   | 7,105 |   |   | 34,932 |   | 12,916 |   |
| Noninterest expense                                                  |       |                                                                             | 20,790     |                                                                             |       |   | 6,588 |   |   | 35,305 |   | 27,727 |   |
| Income (loss) from  discontinued operations before income taxes |       |                                                                             | (412       | )                                                                                |       |   | 431 |   |   | 3,227 |   | (13,172 | ) |
| Income tax expense  (benefit)                                        |       |                                                                             | (116       | )                                                                                |       |   | 157 |   |   | 1,297 |   | (4,936 | ) |
| Income (loss) from  discontinued operations                          |       |                                                                             | $          | (296                                                                             | )          |   |   | $ | 274 |   |   | $ | 1,930 |   | $ | (8,236 | ) |

 

15

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**UnionBanCal Corporation and Subsidiaries**

**Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited)**

**Note 3—DiscontinuedOperations (Continued)**

Noninterest income for thesecond quarter 2006 included a $4.0 million payment from Wachovia Bank, N.A.,reflecting the final settlement upon the conversion of the internationalcorrespondent banking customer base to Wachovia Bank, N.A. Included innoninterest expense were compliance related expenses of $8.4 million and $1.8million for the three months ended June 30, 2005 and 2006, respectivelyand $11.0 million and $7.1 million for the six months ended June 30, 2005and 2006, respectively. The Company recorded $1.4 million of expenses relatedto the termination of lease contracts in the second quarter 2006.

**Note 4—Earnings Per Share**

Basicearnings per share (EPS) ratio is computed by dividing net income by theweighted average number of common shares outstanding during the period. For thethree and six months ended June 30, 2006, the Company no longer includesnonvested restricted shares in the weighted average number of common sharesoutstanding—basic. The impact of this change on previous periods is immaterial.Diluted EPS incorporates the dilutive effect of common stock equivalentsoutstanding on an average basis during the period. Stock options and nonvested restrictedstock are common stock equivalents. The following table presents areconciliation of basic and diluted EPS for the three and six months ended June 30,2005 and 2006.

| ** **                                                                      | ** ** | **Three Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|---------------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                                      | ** ** | **2005**                                            | ** ** | **2006**                                          | ** ** | **2005** | ** ** | **2006** | ** ** |
| **(Amounts in thousands, except per share data)** | ** ** | **Basic**                                           | ** ** | **Diluted**                                       | ** ** | **Basic** | ** ** | **Diluted** | ** ** | **Basic** | ** ** | **Diluted** | ** ** | **Basic** | ** ** | **Diluted** | ** ** |
| Income from continuing operations                                               |       | $                                                   | 187,478    |                                              | $          | 187,478 |   | $ | 182,637 |   | $ | 182,637 |   | $ | 367,229 |   | $ | 367,229 |   | $ | 364,092 |   | $ | 364,092 |   |
| Income (loss) from discontinued operations                                      |       | (296                                                | )          | (296                                              | )          | 274 |   | 274 |   | 1,930 |   | 1,930 |   | (8,236 | ) | (8,236 | ) |
| Net income                                                                      |       | $                                                   | 187,182    |                                              | $          | 187,182 |   | $ | 182,911 |   | $ | 182,911 |   | $ | 369,159 |   | $ | 369,159 |   | $ | 355,856 |   | $ | 355,856 |   |
| Weighted average common shares  outstanding                                     |       | 144,548                                             |       | 144,548                                           |       | 142,723 |   | 142,723 |   | 145,766 |   | 145,766 |   | 143,098 |   | 143,098 |   |
| Additional shares due to:                                                       |       |                                                |       |                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Assumed conversion of dilutive stock   options                                  |       | —                                              |       | 2,674                                             |       | — |   | 2,155 |   | — |   | 2,646 |   | — |   | 2,196 |   |
| Adjusted weighted average common shares outstanding                             |       | 144,548                                             |       | 147,222                                           |       | 142,723 |   | 144,878 |   | 145,766 |   | 148,412 |   | 143,098 |   | 145,294 |   |
| Income from continuing operations  per share                                    |       | $                                                   | 1.30       |                                              | $          | 1.27 |   | $ | 1.28 |   | $ | 1.26 |   | $ | 2.52 |   | $ | 2.47 |   | $ | 2.54 |   | $ | 2.51 |   |
| Income (loss) from discontinued operations  per share                           |       | (0.01                                               | )          | 0.00                                              |       | 0.00 |   | 0.00 |   | 0.01 |   | 0.02 |   | (0.05 | ) | (0.06 | ) |
| Net income per share                                                            |       | $                                                   | 1.29       |                                              | $          | 1.27 |   | $ | 1.28 |   | $ | 1.26 |   | $ | 2.53 |   | $ | 2.49 |   | $ | 2.49 |   | $ | 2.45 |   |

 

The following table provides the number of options andthe corresponding exercise prices for those options which were not included inthe computation of diluted earnings per share for the three and six monthsended June 30, 2005 and 2006 because they were anti-dilutive.

| ** **                | ** ** | **For the Three Months Ended June 30,** | ** ** | **For the Six Months Ended June 30,**  | ** ** |
|---------------------------|------------|-----------------------------------------------------------------------|------------|----------------------------------------------------------------------|------------|
| ** **                | ** ** | **     2005     **  | ** ** | **     2006     ** | ** ** | **2005** | ** ** | **2006** | ** ** |
| Options outstanding       |       |                                                                  | 36,800     |                                                                 |       | 1,088,725 |   | 50,200 |   | 1,088,725 |   |
| Exercise price of options |       |                                                                  | $62.42     |                                                                 |       | $68.95 - $71.23 |   | $62.19 - $62.42 |   | $68.95 - $71.23 |   |

 

16

----

**UnionBanCal Corporation and Subsidiaries**

**Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited)**

**Note 5—Accumulated OtherComprehensive Income (Loss)**

Thefollowing table presents the change in each of the components of othercomprehensive income (loss) and the related tax effect of the change allocatedto each component.

| **(Dollars in thousands)**                                                                    | ** ** | **Before  Tax  Amount** | ** ** | **Tax  Effect** | ** ** | **Net of  Tax** | ** ** |
|---------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|-----------------|------------|----------------------|------------|
| **For the Six Months Ended June  30, 2005:**                                                            |       |                    |       |            |       |                 |       |
| Cash flow hedge  activities:                                                                            |       |                    |       |            |       |                 |       |
| Unrealized net losses on hedges arising during the period                                               |       | $                       | (5,712     | )               | $          | 2,185                |       | $ | (3,527 | ) |
| Reclassification adjustment for net gains on hedges included in net  income                             |       | (13,694                 | )          | 5,238           |       | (8,456               | )          |
| Net change in  unrealized losses on hedges                                                              |       | (19,406                 | )          | 7,423           |       | (11,983              | )          |
| Securities available  for sale:                                                                         |       |                    |       |            |       |                 |       |
| Unrealized holding losses arising during the period on securities  available for sale                   |       | (32,319                 | )          | 12,362          |       | (19,957              | )          |
| Reclassification adjustment for net losses on securities available  for sale included in net income     |       | 12,969                  |       | (4,961          | )          | 8,008                |       |
| Net change in  unrealized losses on securities available for sale                                       |       | (19,350                 | )          | 7,401           |       | (11,949              | )          |
| Foreign currency  translation adjustment                                                                |       | 426                     |       | (163            | )          | 263                  |       |
| Minimum pension  liability adjustment                                                                   |       | (26                     | )          | 10              |       | (16                  | )          |
| Net change in  accumulated other comprehensive income (loss)                                            |       | $                       | (38,356    | )               | $          | 14,671               |       | $ | (23,685 | ) |
| **For the  Six Months Ended June 30, 2006:**                                                            |       |                    |       |            |       |                 |       |
| Cash flow hedge  activities:                                                                            |       |                    |       |            |       |                 |       |
| Unrealized net losses on hedges arising during the period                                               |       | $                       | (42,215    | )               | $          | 16,147               |       | $ | (26,068 | ) |
| Reclassification adjustment for net losses on hedges included in net  income                            |       | 17,184                  |       | (6,573          | )          | 10,611               |       |
| Net change in unrealized  losses on hedges                                                              |       | (25,031                 | )          | 9,574           |       | (15,457              | )          |
| Securities available  for sale:                                                                         |       |                    |       |            |       |                 |       |
| Unrealized holding losses arising during the period on securities  available for sale                   |       | (59,856                 | )          | 22,895          |       | (36,961              | )          |
| Reclassification adjustment for net gains on securities available for sale  included in net income |       | (1,779                  | )          | 680             |       | (1,099               | )          |
| Net change in  unrealized losses on securities available for sale                                       |       | (61,635                 | )          | 23,575          |       | (38,060              | )          |
| Foreign currency  translation adjustment                                                                |       | 101                     |       | (39             | )          | 62                   |       |
| Net change in accumulated  other comprehensive income (loss)                                            |       | $                       | (86,565    | )               | $          | 33,110               |       | $ | (53,455 | ) |

 

17

----

**UnionBanCal Corporation and Subsidiaries**

**Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited)**

**Note 5—AccumulatedOther Comprehensive Income (Loss)**(Continued)

The following table presentsaccumulated other comprehensive income (loss) balances.

| ** **                           | ** ** | **Net**                 | ** ** | **Net**                 | ** ** | ** **      | ** ** | ** **     | ** ** | ** **             | ** ** |
|--------------------------------------|------------|-------------------------|------------|-------------------------|------------|-----------------|------------|----------------|------------|------------------------|------------|
| ** **                           | ** ** | **Unrealized**          | ** ** | **Unrealized**          | ** ** | ** **      | ** ** | ** **     | ** ** | ** **             | ** ** |
| ** **                           | ** ** | **Gains (Losses)** | ** ** | **Gains (Losses)** | ** ** | **Foreign**     | ** ** | **Minimum**    | ** ** | **Accumulated**        | ** ** |
| ** **                           | ** ** | **on Cash**        | ** ** | **on Securites**   | ** ** | **Currency**    | ** ** | **Pension**    | ** ** | **Other**              | ** ** |
| ** **                           | ** ** | **Flow**                | ** ** | **Available**           | ** ** | **Translation** | ** ** | **Liability**  | ** ** | **Comprehensive**      | ** ** |
| **(Dollars in thousands)** | ** ** | **Hedges**              | ** ** | **For Sale**       | ** ** | **Adjustment**  | ** ** | **Adjustment** | ** ** | **Income (Loss)** | ** ** |
| **Balance,  December 31, 2004** |       |                    | $          | 1,429                   |       |            |       | $              | (31,696    | )                      |       |   | $ | (7,870 | ) |   | $ | (6,690 | ) |   | $ | (44,827 | ) |   |
| Change during the  period            |       |                    | (11,983    | )                       |       |            | (11,949    | )              |       |                   | 263        |   |   | (16 | ) |   | (23,685 | ) |   |
| **Balance,  June 30, 2005**     |       |                    | $          | (10,554                 | )          |            |       | $              | (43,645    | )                      |       |   | $ | (7,607 | ) |   | $ | (6,706 | ) |   | $ | (68,512 | ) |   |
| **Balance,  December 31, 2005** |       |                    | $          | (34,308                 | )          |            |       | $              | (74,099    | )                      |       |   | $ | 264 |   |   | $ | (10,250 | ) |   | $ | (118,393 | ) |   |
| Change during the  period            |       |                    | (15,457    | )                       |       |            | (38,060    | )              |       |                   | 62         |   |   | — |   |   | (53,455 | ) |   |
| **Balance, June 30, 2006**      |       |                    | $          | (49,765                 | )          |            |       | $              | (112,159   | )                      |       |   | $ | 326 |   |   | $ | (10,250 | ) |   | $ | (171,848 | ) |   |

 

**Note 6—Goodwill and IntangibleAssets**

The tablebelow reflects the Company’s identifiable intangible assets and accumulatedamortization at June 30, 2005 and 2006.

| ** **                         | ** ** | **June 30, 2005** | ** ** | **June 30, 2006**   | ** ** |
|------------------------------------|------------|-----------------------------|------------|-------------------------------|------------|
| **Dollars in thousands** | ** ** | **Gross  Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** | **Net  Carrying  Amount** | ** ** | **Gross  Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** | **Net  Carrying  Amount** | ** ** |
| Core Deposit  Intangibles          |       | $                           | 67,237     |                          |       | $ | (37,424 | ) |   | $ | 29,813 |   | $ | 67,237 |   |   | $ | (49,760 | ) |   | $ | 17,477 |   |
| Rights-to-Expiration               |       | 35,808                      |       |                          | (15,445    | ) |   | 20,363 |   | 36,608 |   |   | (19,470 | ) |   | 17,138 |   |
| Other                              |       | 2,100                       |       |                          | (510       | ) |   | 1,590 |   | 2,100 |   |   | (956 | ) |   | 1,144 |   |
| Total                              |       | $                           | 105,145    |                          |       | $ | (53,379 | ) |   | $ | 51,766 |   | $ | 105,945 |   |   | $ | (70,186 | ) |   | $ | 35,759 |   |

 

Totalamortization expense for the three months ended June 30, 2005 and 2006 was$5.0 million and $3.4 million, respectively. For the six months ended June 30,2005 and 2006, the expense was $10.0 million and $6.9 million, respectively.

| ** **                                            | ** ** | **Core Deposit  Intangibles** | ** ** | **Rights-to-  Expiration** | ** ** | **Other** | ** ** | **Total Identifiable  Intangibles** | ** ** |
|-------------------------------------------------------|------------|------------------------------------|------------|----------------------------|------------|-----------|------------|------------------------------------------|------------|
| Estimated  amortization expense for the years ending: |       |                               |       |                       |       |      |       |                                     |       |   |   |   |   |
| Remaining 2006                                        |       |                               | $          | 4,784                      |       |      | $          | 1,849                                    |       | $ | 195 |   |   | $ | 6,828 |   |   |
| 2007                                                  |       |                               | 5,471      |                       |       | 3,166     |       | 299                                      |       |   | 8,936 |   |   |
| 2008                                                  |       |                               | 3,245      |                       |       | 2,675     |       | 230                                      |       |   | 6,150 |   |   |
| 2009                                                  |       |                               | 1,764      |                       |       | 2,242     |       | 178                                      |       |   | 4,184 |   |   |
| 2010                                                  |       |                               | 807        |                       |       | 1,859     |       | 137                                      |       |   | 2,803 |   |   |
| 2011                                                  |       |                               | 443        |                       |       | 1,519     |       | 105                                      |       |   | 2,067 |   |   |
| thereafter                                            |       |                               | 963        |                       |       | 3,828     |       | —                                   |       |   | 4,791 |   |   |
| Total amortization expense  after June 30, 2006  |       |                               | $          | 17,477                     |       |      | $          | 17,138                                   |       | $ | 1,144 |   |   | $ | 35,759 |   |   |

 

18

----

**UnionBanCal Corporation and Subsidiaries**

**Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited)**

**Note 6—Goodwilland Intangible Assets**(Continued)

The changes in the carryingamount of goodwill during the six months ended June 30, 2005 and 2006 areshown below.

| **(Dollars in thousands)**                | ** ** | **2005** | ** ** | **2006** | ** ** |
|-------------------------------------------|------------|----------|------------|----------|------------|
| Balance,  January 1,                 |       | $        | 450,961    |     | $          | 454,015 |   |
| Contingent period  adjustments            |       | (1,745   | )          | —   |       |
| Adjustment for  contingent considerations |       | 997      |       | (526     | )          |
| Correction of errors                      |       | 456      |       | —   |       |
| Balance, June 30,                    |       | $        | 450,669    |     | $          | 453,489 |   |

 

**Note 7—Business Segments**

In April 2005, theCompany announced several organizational changes that affected its businesssegments. The Global Markets Group was eliminated and the activities of thisgroup were transferred. Corporate Treasury, which is responsible forAsset-Liability Management’s (ALM) wholesale funding and the ALM securities andderivatives hedging portfolios of the Company, is now included in “Other.” Thetrading of securities and foreign exchange contracts, as well as theresponsibilities for customer accommodated derivative contracts, are now includedin the “Global Markets Division” of the Community Banking and InvestmentServices Group. In addition, the discontinued operations resulting from thedisposal of most of the Company’s International Banking Group are alsoreflected in “Other.” The Company is now organized around the target markets itserves and operates in two principal areas:

·       TheCommunity Banking and Investment Services Group offers a range of bankingservices, primarily to individuals and small businesses, delivered generallythrough a tri-state (California, Washington and Oregon) network of branches andATMs. These services include mortgages, home equity lines of credit,consumer and commercial loans, deposit services and cash management as well asfiduciary, private banking, investment and asset management services forindividuals and institutions, and risk management and insurance products forbusinesses and individuals. At June 30, 2005 and 2006, this Group had$312.4 million and $315.7 million, respectively, of goodwill assigned to itsbusinesses.

·       TheCommercial Financial Services Group provides credit, depository and cashmanagement services to large corporate and middle-market companies and numerousspecialty niches. Services include commercial and project loans, real estatefinancing, asset-based financing, trade finance and letters of credit, leasefinancing, customized cash management services and selected capital marketsproducts. At June 30, 2005 and 2006, this Group had $138.3 million and$137.8 million, respectively, of goodwill assigned to its businesses.

The information set forth in the table that followsreflects selected income statement and balance sheet items by business segment.The information presented does not necessarily represent the business units’financial condition and results of operations were they independent entities. Unlikefinancial accounting, there is no authoritative body of guidance for managementaccounting equivalent to US GAAP. Consequently, reported results are notnecessarily comparable with those presented by other companies. Included in thetable within total assets are the amounts of goodwill for each business segmentas of June 30, 2005 and 2006.

19

----

**UnionBanCal Corporation and Subsidiaries**

**Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited)**

**Note 7—BusinessSegments**(Continued)

The information in the table is derived from theinternal management reporting system used by management to measure theperformance of the business segments and the Company overall. The managementreporting system assigns balance sheet and income statement items to eachbusiness segment based on internal management accounting policies. Net interestincome 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 liabilitiesbased on their type, maturity or repricing characteristics. Noninterest incomeand expense directly attributable to a business segment are assigned to thatbusiness segment. Certain indirect costs, such as operations and technologyexpense, are allocated to the segments based on studies of billable unit costsfor product or data processing. Other indirect costs, such as corporateoverhead, are allocated to the business segments based on a predeterminedpercentage of usage. Under the Company’s risk-adjusted return on capital(RAROC) methodology, credit expense is charged to business segments based uponexpected losses arising from credit risk. In addition, the attribution ofeconomic capital is related to unexpected losses arising from credit, marketand operational risks.

“Other” is comprised of certain non-bank subsidiariesof UnionBanCal Corporation, the elimination of the fully taxable-equivalentbasis amount, the transfer pricing center, the amount of the provision forcredit losses over/(under) the RAROC expected loss for the period, the earningsassociated with the unallocated equity capital and allowances for creditlosses, and the residual costs of support groups. In addition, “Other” includesthe Pacific Rim Corporate Group, which offers financial products to Japanese-ownedsubsidiaries located in the U.S., Corporate Treasury, which is responsible forALM, wholesale funding, and the ALM investment securities and derivativeshedging portfolios, and the results of our discontinued operations. Except asdiscussed above, none of the items in “Other” is significant to the Company’sbusiness.

In the first quarter 2006, the Company changed itsreporting to reflect a “market view” perspective in measuring the businesssegments. The market view is a measurement of customer markets aggregated toshow all revenues generated and expenses incurred from all products andservices sold to those customers regardless of where product areasorganizationally report. Therefore, revenues and expenses are included in boththe business segment that provides the service and the business segment thatmanages the customer relationship. The duplicative results from this internalmanagement accounting view are reflected in “Reconciling Items.”

20

----

**UnionBanCal Corporation and Subsidiaries**

**Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited)**

**Note 7—BusinessSegments**(Continued)

The business unit results forthe prior periods have been restated to reflect changes in the transfer pricingmethodology, the organizational changes that have occurred, discontinuedoperations and the market view contribution.

| ** **                                                                    | ** ** | **Community Banking  and Investment  Services Group**                   | ** ** | **Commercial Financial  Services Group**                                     | ** ** |
|-------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------|------------|
| ** **                                                                    | ** ** | **As of and for the  Three Months Ended  June 30,** | ** ** | **As of and for the  Three Months Ended  June 30,** | ** ** |
| ** **                                                                    | ** ** | **2005**                                                                               | ** ** | **2006**                                                                               | ** ** | **2005** | ** ** | **2006** | ** ** |
| **Results of operations—Market  View****(dollars  in thousands):**       |       |                                                                                   |       |                                                                                   |       |   |   |   |   |
| Net interest income  (expense)                                                |       | $                                                                                      | 223,146    |                                                                                   | $          | 239,697 |   | $ | 236,526 |   | $ | 244,522 |   |
| Noninterest income (expense)                                                  |       | 152,622                                                                                |       | 162,440                                                                                |       | 78,027 |   | 69,065 |   |
| Total revenue                                                                 |       | 375,768                                                                                |       | 402,137                                                                                |       | 314,553 |   | 313,587 |   |
| Noninterest expense (income)                                                  |       | 257,925                                                                                |       | 278,095                                                                                |       | 121,840 |   | 130,567 |   |
| Credit expense (income)                                                       |       | 6,308                                                                                  |       | 6,471                                                                                  |       | 25,608 |   | 22,682 |   |
| Income from continuing  operations before income taxes                   |       | 111,535                                                                                |       | 117,571                                                                                |       | 167,105 |   | 160,338 |   |
| Income tax expense                                                            |       | 41,969                                                                                 |       | 44,127                                                                                 |       | 56,368 |   | 54,548 |   |
| Income from continuing  operations                                            |       | 69,566                                                                                 |       | 73,444                                                                                 |       | 110,737 |   | 105,790 |   |
| Income (loss) from  discontinued operations, net of income taxes         |       | —                                                                                 |       | —                                                                                 |       | — |   | — |   |
| Net income                                                                    |       | $                                                                                      | 69,566     |                                                                                   | $          | 73,444 |   | $ | 110,737 |   | $ | 105,790 |   |
| **Total assets, end of period—Market View (dollars in  millions):** |       | $                                                                                      | 15,795     |                                                                                   | $          | 17,806 |   | $ | 20,113 |   | $ | 23,005 |   |

 

| ** **                                                               | ** ** | **Other**                                                                              | ** ** | **Reconciling Items**                                                             | ** ** | **UnionBanCal  Corporation**                                                           | ** ** |
|--------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------|------------|
| ** **                                                               | ** ** | **As of and for the  Three Months Ended  June 30,** | ** ** | **As of and for the  Three Months Ended  June 30,** | ** ** | **As of and for the  Three Months Ended  June 30,** | ** ** |
| ** **                                                               | ** ** | **2005**                                                                               | ** ** | **2006**                                                                               | ** ** | **2005**                                                                               | ** ** | **2006** | ** ** | **2005** | ** ** | **2006** | ** ** |
| **Results  of operations—Market View (dollars in thousands):**      |       |                                                                                   |       |                                                                                   |       |                                                                                   |       |   |   |   |   |   |   |
| Net interest income  (expense)                                           |       | $                                                                                      | (445       | )                                                                                      | $          | (16,116                                                                                | )          | $ | (517 | ) | $ | (461 | ) | $ | 458,710 |   | $ | 467,642 |   |
| Noninterest income  (expense)                                            |       | (8,550                                                                                 | )          | 8,162                                                                                  |       | (18,545                                                                                | )          | (20,439 | ) | 203,554 |   | 219,228 |   |
| Total revenue                                                            |       | (8,995                                                                                 | )          | (7,954                                                                                 | )          | (19,062                                                                                | )          | (20,900 | ) | 662,264 |   | 686,870 |   |
| Noninterest expense  (income)                                            |       | 15,266                                                                                 |       | 11,947                                                                                 |       | (6,631                                                                                 | )          | (7,579 | ) | 388,400 |   | 413,030 |   |
| Credit expense  (income)                                                 |       | (45,234                                                                                | )          | (30,124                                                                                | )          | (246                                                                                   | )          | (29 | ) | (13,564 | ) | (1,000 | ) |
| Income from continuing  operations before income taxes              |       | 20,973                                                                                 |       | 10,223                                                                                 |       | (12,185                                                                                | )          | (13,292 | ) | 287,428 |   | 274,840 |   |
| Income tax expense                                                       |       | 6,274                                                                                  |       | (1,389                                                                                 | )          | (4,661                                                                                 | )          | (5,083 | ) | 99,950 |   | 92,203 |   |
| Income from continuing  operations                                       |       | 14,699                                                                                 |       | 11,612                                                                                 |       | (7,524                                                                                 | )          | (8,209 | ) | 187,478 |   | 182,637 |   |
| Income (loss) from  discontinued operations, net of income taxes         |       | (296                                                                                   | )          | 274                                                                                    |       | —                                                                                 |       | — |   | (296 | ) | 274 |   |
| Net income                                                               |       | $                                                                                      | 14,403     |                                                                                   | $          | 11,886                                                                                 |       | $ | (7,524 | ) | $ | (8,209 | ) | $ | 187,182 |   | $ | 182,911 |   |
| **Total  assets, end of period—Market View (dollars in millions):** |       | $                                                                                      | 15,308     |                                                                                   | $          | 10,026                                                                                 |       | $ | (38 | ) | $ | (37 | ) | $ | 51,178 |   | $ | 50,800 |   |

 

21

----

**UnionBanCal Corporation and Subsidiaries**

**Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited)**

**Note 7—BusinessSegments**(Continued)

| ** **                                                                    | ** ** | **Community Banking  and Investment  Services Group**                 | ** ** | **Commercial Financial  Services Group**                                   | ** ** |
|-------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------|------------|
| ** **                                                                    | ** ** | **As of and for the  Six Months Ended  June 30,** | ** ** | **As of and for the  Six Months Ended  June 30,** | ** ** |
| ** **                                                                    | ** ** | **2005**                                                                             | ** ** | **2006**                                                                             | ** ** | **2005** | ** ** | **2006** | ** ** |
| **Results of operations—Market  View****(dollars  in thousands):**       | ** ** | ** **                                                                           | ** ** | ** **                                                                           | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net interest income  (expense)                                                |       | $                                                                                    | 435,086    |                                                                                 | $          | 470,999 |   | $ | 450,988 |   | $ | 480,708 |   |
| Noninterest income (expense)                                                  |       | 300,898                                                                              |       | 323,340                                                                              |       | 144,941 |   | 136,796 |   |
| Total revenue                                                                 |       | 735,984                                                                              |       | 794,339                                                                              |       | 595,929 |   | 617,504 |   |
| Noninterest expense (income)                                                  |       | 519,189                                                                              |       | 548,992                                                                              |       | 238,153 |   | 261,582 |   |
| Credit expense (income)                                                       |       | 12,969                                                                               |       | 13,104                                                                               |       | 51,385 |   | 47,545 |   |
| Income from continuing  operations before income taxes                   |       | 203,826                                                                              |       | 232,243                                                                              |       | 306,391 |   | 308,377 |   |
| Income tax expense                                                            |       | 76,576                                                                               |       | 87,225                                                                               |       | 102,849 |   | 103,400 |   |
| Income from continuing  operations                                            |       | 127,250                                                                              |       | 145,018                                                                              |       | 203,542 |   | 204,977 |   |
| Income (loss) from  discontinued operations, net of income taxes         |       | —                                                                               |       | —                                                                               |       | — |   | — |   |
| Net income                                                                    |       | $                                                                                    | 127,250    |                                                                                 | $          | 145,018 |   | $ | 203,542 |   | $ | 204,977 |   |
| **Total assets, end of period—Market View (dollars in  millions):** | ** ** | $                                                                                    | 15,795     |                                                                                 | $          | 17,806 |   | $ | 20,113 |   | $ | 23,005 |   |

 

| ** **                                                               | ** ** | **Other**                                                                            | ** ** | **Reconciling Items**                                                           | ** ** | **UnionBanCal  Corporation**                                                         | ** ** |
|--------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------|------------|
| ** **                                                               | ** ** | **As of and for the  Six Months Ended  June 30,** | ** ** | **As of and for the  Six Months Ended  June 30,** | ** ** | **As of and for the  Six Months Ended  June 30,** | ** ** |
| ** **                                                               | ** ** | **2005**                                                                             | ** ** | **2006**                                                                             | ** ** | **2005**                                                                             | ** ** | **2006** | ** ** | **2005** | ** ** | **2006** | ** ** |
| **Results  of operations—****Market View (dollars in thousands):**  | ** ** | ** **                                                                           | ** ** | ** **                                                                           | ** ** | ** **                                                                           | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net interest income  (expense)                                           |       | $                                                                                    | 9,370      |                                                                                 | $          | (18,032                                                                              | )          | $ | (1,072 | ) | $ | (940 | ) | $ | 894,372 |   | $ | 932,735 |   |
| Noninterest income  (expense)                                            |       | (2,053                                                                               | )          | 15,671                                                                               |       | (34,607                                                                              | )          | (38,669 | ) | 409,179 |   | 437,138 |   |
| Total revenue                                                            |       | 7,317                                                                                |       | (2,361                                                                               | )          | (35,679                                                                              | )          | (39,609 | ) | 1,303,551 |   | 1,369,873 |   |
| Noninterest expense  (income)                                            |       | 36,491                                                                               |       | 32,182                                                                               |       | (12,481                                                                              | )          | (15,180 | ) | 781,352 |   | 827,574 |   |
| Credit expense  (income)                                                 |       | (89,648                                                                              | )          | (68,576                                                                              | )          | (389                                                                                 | )          | (73 | ) | (25,683 | ) | (8,000 | ) |
| Income from continuing  operations before income  taxes             |       | 60,474                                                                               |       | 34,033                                                                               |       | (22,809                                                                              | )          | (24,356 | ) | 547,882 |   | 550,299 |   |
| Income tax expense                                                       |       | 9,954                                                                                |       | 4,899                                                                                |       | (8,726                                                                               | )          | (9,316 | ) | 180,653 |   | 186,207 |   |
| Income from continuing  operations                                       |       | 50,520                                                                               |       | 29,134                                                                               |       | (14,083                                                                              | )          | (15,040 | ) | 367,229 |   | 364,092 |   |
| Income (loss) from  discontinued operations, net of income  taxes        |       | 1,930                                                                                |       | (8,236                                                                               | )          | —                                                                               |       | — |   | 1,930 |   | (8,236 | ) |
| Net income                                                               |       | $                                                                                    | 52,450     |                                                                                 | $          | 20,898                                                                               |       | $ | (14,083 | ) | $ | (15,040 | ) | $ | 369,159 |   | $ | 355,856 |   |
| **Total  assets, end of period—Market View (dollars in millions):** | ** ** | $                                                                                    | 15,308     |                                                                                 | $          | 10,026                                                                               |       | $ | (38 | ) | $ | (37 | ) | $ | 51,178 |   | $ | 50,800 |   |

 

22

----

**UnionBanCal Corporation and Subsidiaries**

**Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited)**

**Note 8—Derivative Instrumentsand Other Financial Instruments Used For Hedging**

Derivative positions areintegral components of the Company’s designated ALM activities. The Companyuses interest rate derivatives to manage the sensitivity of the Company’s netinterest income to changes in interest rates. These instruments are used tomanage interest rate risk relating to specified groups of assets andliabilities, primarily LIBOR-based commercial loans, certificates of deposit,medium-term notes and subordinated debt. The following describes thesignificant hedging strategies of the Company.

*Cash Flow Hedges*

*Hedging Strategies forVariable Rate Loans and Certificates of Deposit*

The Company engages in several types of cash flowhedging strategies for which the hedged transactions are forecasted future loaninterest payments, and the hedged risk is the variability in those payments dueto changes in the designated benchmark rate, i.e. U.S. dollar LIBOR. In thesestrategies, the hedging instruments are matched with groups of variable rateloans such that the tenor of the variable rate loans and that of the hedginginstrument are identical. Cash flow hedging strategies include the utilizationof purchased floor, cap and corridor options and interest rate swaps. At June 30,2006, the weighted average remaining life of the currently active (excludingany forward positions) cash flow hedges was approximately 1.4 years.

The Company uses purchased interest rate floors tohedge the variable cash flows associated with 1-month LIBOR or 3-monthLIBOR indexed loans. Payments received under the floor contract offset thedecline in loan interest income caused by the relevant LIBOR index fallingbelow the floor’s strike rate.

The Company uses interest rate floor corridors tohedge the variable cash flows associated with 1-month LIBOR or 3-monthLIBOR indexed loans. Net payments to be received under the floor corridorcontracts offset the decline in loan interest income caused by the relevantLIBOR index falling below the corridor’s upper strike rate, but only to theextent the index falls to the lower strike rate. The corridor will not provideprotection from declines in the relevant LIBOR index to the extent it fallsbelow the corridor’s lower strike rate.

The Company uses interest rate collars to hedge thevariable cash flows associated with 1-month LIBOR or 3-month LIBORindexed loans. Net payments to be received under the collar contract offset thedecline in loan interest income caused by the relevant LIBOR index fallingbelow the collar’s floor strike rate while net payments to be paid will reducethe increase in loan interest income caused by the LIBOR index rising above thecollar’s cap strike rate.

The Company uses interest rate swaps to hedge thevariable cash flows associated with 1-month LIBOR or 3-month LIBORindexed loans. Payments to be received (or paid) under the swap contract willoffset the fluctuations in loan interest income caused by changes in therelevant LIBOR index. As such, these instruments hedge all fluctuations in theloans’ interest income caused by changes in the relevant LIBOR index.

The Company uses purchased interest rate caps to hedge the variableinterest cash flows associated with the forecasted issuance and rollover ofshort-term, fixed rate time deposits (TDs). In these hedging relationships, theCompany hedges the LIBOR component of the TD rates, which is 3-monthLIBOR, based on the TDs’ original term to maturity, which reflects theirrepricing frequency. Net payments to be received 

23

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**UnionBanCal Corporation and Subsidiaries**

**Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited)**

**Note 8—DerivativeInstruments and Other Financial Instruments Used For Hedging**(Continued)

under the cap contract offsetthe increase in interest expense caused by the relevant LIBOR index risingabove the cap’s strike rate.

The Company uses interest rate cap corridors to hedgethe variable cash flows associated with the forecasted issuance and rollover ofshort-term, fixed rate TDs. In these hedging relationships, the Company hedgesthe LIBOR component of the TD rates, either 1-month LIBOR, 3-monthLIBOR, or 6-month LIBOR, based on the original term to maturity of theTDs, which reflects their repricing frequency. Net payments to be receivedunder the cap corridor contract offset the increase in deposit interest expensecaused by the relevant LIBOR index rising above the corridor’s lower strikerate, but only to the extent the index rises to the upper strike rate. Thecorridor will not provide protection from increases in the relevant LIBOR indexto the extent it rises above the corridor’s upper strike rate.

Hedging transactions arestructured at inception so that the notional amounts of the hedge are matchedwith an equal principal amount of loans or TDs, the index and repricingfrequencies of the hedge matches those of the loans or TDs, and the period inwhich 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 fromthe mismatch between the timing of reset dates on the hedge versus those of theloans or TDs. In the second quarter of 2006, the Company recognized a net lossof $0.1 million due to ineffectiveness, which is recognized in othernoninterest expense, compared to a net gain of $0.1 million in the secondquarter of 2005.

*Fair Value Hedges*

*Hedging Strategy forMedium-Term Notes*

The Company engages in an interest rate hedgingstrategy in which an interest rate swap is associated with a specified interestbearing liability, UnionBanCal Corporation’s five-year, medium-term debt issuance,in order to convert the liability from a fixed rate to a floating rateinstrument. This strategy mitigates the changes in fair value of the hedgedliability caused by changes in the designated benchmark interest rate, U.S.dollar LIBOR.

The fair value hedgingtransaction for the medium-term notes was structured at inception to mirror allof the provisions of the medium-term notes, which allows the Company to assumethat no ineffectiveness exists.

*Hedging Strategy forSubordinated Debt*

The Company engages in an interest rate hedgingstrategy in which an interest rate swap is associated with a specified interestbearing liability, the UnionBanCal Corporation’s ten-year, subordinated debtissuance, and in a separate transaction, the Union Bank of California, N.A.’sten-year, subordinated debt issuance, in order to convert these liabilitiesfrom fixed rate to floating rate instruments. This strategy mitigates thechanges in fair value of the hedged liability caused by changes in thedesignated benchmark interest rate, U.S. dollar LIBOR.

The fair value hedgingtransaction for the subordinated debt was structured at inception to mirror allof the provisions of the subordinated debt, which allows the Company to assumethat no ineffectiveness exists.

24

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**UnionBanCal Corporation and Subsidiaries**

**Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited)**

**Note 8—DerivativeInstruments and Other Financial Instruments Used For Hedging**(Continued)

*Other*

The Company usesTo-Be-Announced (TBA) contracts to fix the price and yield of anticipatedpurchases or sales of mortgage-backed securities that will be delivered at anagreed upon date. This strategy hedges the risk of variability in the cashflows to be paid or received upon settlement of the TBA contract.

*Economic HedgingStrategy for “MarketPath” Certificates of Deposit*

The Company engages in aneconomic hedging strategy in which interest bearing certificates of deposit(CDs) issued to customers, which are tied to the changes in the Standard andPoor’s 500 index, are exchanged for a fixed rate of interest. The Company accountsfor the embedded derivative in the CDs at fair value. A total return swap thatencompasses the value of a series of options that had individually hedged eachCD is valued at fair value. The changes in the fair value of the embeddedderivative and the hedge instrument are recognized as interest expense.

**Note 9—Commitments andContingencies**

Standby and commercial letters of credit areconditional commitments issued to guarantee the performance of a customer to athird party. Standby letters of credit generally are contingent upon thefailure of the customer to perform according to the terms of the underlyingcontract with the third party, while commercial letters of credit are issuedspecifically to facilitate foreign or domestic trade transactions. The majorityof these types of commitments have terms of one year or less. As of June 30,2006, the Company’s maximum exposure to loss for standby and commercial lettersof credit was $3.6 billion and $86.3 million, respectively. At June 30,2006, the carrying value of the Company’s standby and commercial letters ofcredit totaled $7.1 million. Exposure to loss related to these commitments iscovered by the allowance for losses on off-balance sheet commitments. Thecarrying value of the standby and commercial letters of credit and theallowance for losses on off-balance sheet commitments are included in otherliabilities on the condensed consolidated balance sheet. In addition, at June 30,2006 the Company’s maximum exposure to loss for standby and commercial lettersof credit related to discontinued operations had declined to $9.5 million and$3.1 million, respectively. The corresponding carrying value of these standbyand commercial letters of credit totaled less than $0.1 million.

The credit risk involved in issuing loan commitmentsand standby and commercial letters of credit is essentially the same as thatinvolved in extending loans to customers and is represented by the contractualamount of these instruments. Collateral may be obtained based on management’scredit assessment of the customer.

Principal investments include direct investments inprivate and public companies and indirect investments in private equity funds. TheCompany issues commitments to provide equity and mezzanine capital financing toprivate and public companies through either direct investments in specificcompanies or through investment funds and partnerships. The timing of futurecash requirements to fund such commitments is generally dependent on theinvestment cycle. This cycle, the period over which privately-held companiesare funded by private equity investors and ultimately sold, merged, or takenpublic through an initial offering, can vary based on overall market conditionsas well as the nature and type of industry in which the companies operate. At June 30,2006, the Company had commitments to fund principal investments of $100.6million.

25

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**UnionBanCal Corporation and Subsidiaries**

**Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited)**

**Note 9—Commitmentsand Contingencies**(Continued)

The Company has a contingent consideration agreementthat guarantees additional payments to an acquired insurance agency’sstockholders based on the agency’s future performance in excess of establishedrevenue and/or earnings before interest, taxes, depreciation and amortization(EBITDA) thresholds. If the insurance agency’s future performance exceeds thesethresholds during a three-year period, the Company will be liable to makepayments to former stockholders. As of June 30, 2006, the Company had noobligation to make any payments under this agreement, which expires in December 2006.

The Company is fund manager for limited liabilitycompanies issuing low-income housing credit (LIHC) investments. LIHCinvestments provide tax benefits to investors in the form of tax deductions fromoperating losses and tax credits. To facilitate the sale of these LIHCinvestments, the Company guarantees the timely completion of projects anddelivery of tax benefits throughout the investment term. Guarantees may includea minimum rate of return, the availability of tax credits, and operatingdeficit thresholds over an eleven-year weighted average period. Additionally,the Company receives project completion and tax credit guarantees from thelimited liability companies issuing the LIHC investments that reduce theCompany’s ultimate exposure to loss. As of June 30, 2006, the Company’smaximum exposure to loss under these guarantees is limited to a return ofinvestor capital and minimum investment yield, or $151.9 million. TheCompany maintains a reserve of $6.1 million for these guarantees.

The Company has guarantees that obligate it to performif its affiliates are unable to discharge their obligations. These obligationsinclude guarantees of commercial paper obligations and leveraged leasetransactions. The guarantee issued by the Bank for an affiliate’s commercialpaper program is done in order to facilitate the sale of the commercial paper. Asof June 30, 2006, the Bank had a maximum exposure to loss under thecommercial paper program guarantee of $1.7 billion. The Bank’s guarantee has anaverage term of less than nine months and is fully collateralized by a pledgeddeposit. The Company guarantees its subsidiaries’ leveraged lease transactionswith terms ranging from fifteen to thirty years. Following the original fundingof these leveraged lease transactions, the Company has no material obligationto be satisfied. As of June 30, 2006, the Company had no exposure to lossfor these agreements.

The Company conducts securities lending transactionsfor institutional customers as a fully disclosed agent. At times, securitieslending indemnifications are issued to guarantee that a security lendingcustomer will be made whole in the event the borrower does not return thesecurity subject to the lending agreement and collateral held is insufficientto cover the market value of the security. All lending transactions arecollateralized, primarily by cash. The amount of securities lent withindemnifications was $2.0 billion at June 30, 2006. The market value ofthe associated collateral was $2.1 billion at June 30, 2006.

The Company occasionally enters into financialguarantee contracts where a premium is received from another financialinstitution counterparty to guarantee a portion of the credit risk on interestrate swap contracts entered into between the financial institution and itscustomer. The Company becomes liable to pay the financial institution only ifthe financial institution is unable to collect amounts owed to them by theircustomer. As of June 30, 2006, the maximum exposure to loss under thesecontracts totaled $0.9 million. At June 30, 2006, the Company maintained areserve of $0.1 million for losses related to these guarantees.

26

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**UnionBanCal Corporation and Subsidiaries**

**Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited)**

**Note 9—Commitmentsand Contingencies**(Continued)

The Company is subject to various pending andthreatened legal actions that arise in the normal course of business. Reservesfor losses from legal actions that are both probable and estimable are recordedat the time of that determination. In addition, management believes that thedisposition of all claims currently pending will not have a material adverseeffect on the Company’s financial position or results of operations.

For further discussion of theCompany’s commitments, contingencies and guarantees, see Note 24 of the Company’sAnnual Report on Form 10-K for the year ended December 31,2005.

**Note 10—Pension and OtherPostretirement Benefits**

Thefollowing tables summarize the components of net periodic benefit cost for thethree and six months ended June 30, 2005 and 2006.

| ** **                                   | ** ** | **Pension Benefits**                                         | ** ** | **Other Benefits**                                           | ** ** |
|----------------------------------------------|------------|-------------------------------------------------------------------|------------|-------------------------------------------------------------------|------------|
| ** **                                   | ** ** | **For the Three Months  Ended June 30,** | ** ** | **For the Three Months  Ended June 30,** | ** ** |
| **(Dollars in thousands)**         | ** ** | **2005**                                                          | ** ** | **2006**                                                          | ** ** | **2005** | ** ** | **2006** | ** ** |
| **Components  of net periodic benefit cost** | ** ** |                                                              |       |                                                              |       |   |   |   |   |
| Service cost                                 |       | $                                                                 | 11,373     |                                                              | $          | 13,379 |   | $ | 1,553 |   | $ | 1,785 |   |
| Interest cost                                |       | 14,856                                                            |       | 16,524                                                            |       | 2,002 |   | 2,240 |   |
| Expected return on  plan assets              |       | (24,028                                                           | )          | (28,364                                                           | )          | (2,576 | ) | (2,842 | ) |
| Amortization of prior  service cost          |       | 267                                                               |       | 267                                                               |       | (24 | ) | (22 | ) |
| Amortization of  transition amount           |       | —                                                            |       | —                                                            |       | 509 |   | 507 |   |
| Recognized net  actuarial loss               |       | 7,211                                                             |       | 8,618                                                             |       | 429 |   | 1,065 |   |
| Total net periodic  benefit cost             |       | $                                                                 | 9,679      |                                                              | $          | 10,424 |   | $ | 1,893 |   | $ | 2,733 |   |

 

| ** **                                   | ** ** | **Pension Benefits**                                       | ** ** | **Other Benefits**                                         | ** ** |
|----------------------------------------------|------------|-----------------------------------------------------------------|------------|-----------------------------------------------------------------|------------|
| ** **                                   | ** ** | **For the Six Months  Ended June 30,** | ** ** | **For the Six Months  Ended June 30,** | ** ** |
| **(Dollars in thousands)**         | ** ** | **2005**                                                        | ** ** | **2006**                                                        | ** ** | **2005** | ** ** | **2006** | ** ** |
| **Components  of net periodic benefit cost** | ** ** | ** **                                                      | ** ** | ** **                                                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| Service cost                                 |       | $                                                               | 22,765     |                                                            | $          | 27,004 |   | $ | 3,102 |   | $ | 3,570 |   |
| Interest cost                                |       | 29,176                                                          |       | 32,573                                                          |       | 4,230 |   | 4,480 |   |
| Expected return on  plan assets              |       | (47,933                                                         | )          | (56,720                                                         | )          | (5,175 | ) | (5,685 | ) |
| Amortization of prior  service cost          |       | 534                                                             |       | 534                                                             |       | (48 | ) | (45 | ) |
| Amortization of  transition amount           |       | —                                                          |       | —                                                          |       | 1,018 |   | 1,015 |   |
| Recognized net  actuarial loss               |       | 13,312                                                          |       | 16,181                                                          |       | 1,397 |   | 2,130 |   |
| Total net periodic  benefit cost             |       | $                                                               | 17,854     |                                                            | $          | 19,572 |   | $ | 4,524 |   | $ | 5,465 |   |

 

During 2006, the Company plansto make $19 million in contributions to its health plan for postretirementbenefits.

**Note 11—Long-Term SubordinatedDebt**

On May 11, 2006, the Bank issued $700 million of ten-year SubordinatedNotes due on May 11, 2016. The Subordinated Notes, which were issued at adiscount price of 99.61 percent of their face value, 

27

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**UnionBanCal Corporation and Subsidiaries**

**Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited)**

**Note 11—Long-TermSubordinated Debt**(Continued)

bear a fixed interest rate of5.95 percent, payable semi-annually on May 11 and November 11, withthe first interest payment date on November 11, 2006. After including theimpact of the related interest rate swap discussed below, the amortization ofdiscount and deferred issuance costs, the weighted average interest rate of theSubordinated Notes was 5.66 percent for the period ended June 30, 2006.The Subordinated Notes are junior obligations to the Bank’s existing and futureoutstanding senior indebtedness and the claims of depositors and generalcreditors of the Bank. The Subordinated Notes are not redeemable at the optionof the Bank prior to maturity or subject to repayment at the option of theholders prior to maturity. Provisions of the Subordinated Notes restrict the Bank’sability to engage in mergers, consolidations, and transfers of substantiallyall assets.

The Bank has converted its 5.95 percent fixed rate onthese notes to a floating rate of interest utilizing $700 million notionalamount of interest rate swaps, which qualified as a fair value hedge at June 30,2006. This transaction meets all of the requirements for utilizing the shortcutmethod for measuring hedge effectiveness. The market value adjustment to thelong-term debt was an unrealized gain of $4.7 million, and the fair value ofthe hedge was an unrealized loss of $4.7 million.

The Subordinated Notes qualifyas Tier 2 risk-based capital under the guidelines for assessing regulatorycapital established by the Office of the Comptroller of the Currency.

**Note 12—Management Stock Plans**

The Company has two management stock plans. The Year2000 UnionBanCal Corporation Management Stock Plan, as amended (the 2000 StockPlan), and the UnionBanCal Corporation Management Stock Plan, restatedeffective June 1, 1997 (the 1997 Stock Plan), have 20.0 million and 6.6million shares, respectively, of the Company’s common stock authorized to beawarded to key employees, outside directors and consultants of the Company atthe discretion of the Executive Compensation and Benefits Committee of theBoard of Directors (the Committee). Employees on rotational assignment fromBTMU are not eligible for stock awards.

The Committee determines the term of each stock optiongrant, up to a maximum of ten years from the date of grant. The exercise priceof the options issued under the stock plans may not be less than the fairmarket value on the date the option is granted. Starting in 2006, the value ofoptions is amortized to compensation expense over the vesting period duringwhich the employees are required to provide service. Prior to January 1,2006, the Company’s unrecognized compensation expense for nonvested restricted stockreduced retained earnings. With the adoption of SFAS No. 123R, $19 millionwas reclassified from retained earnings to additional paid-in capital. Thevalue of the restricted stock at the date of grant is amortized to compensationexpense over its vesting period with a corresponding credit adjustment toadditional paid-in capital. All cancelled or forfeited options and restrictedstock become available for future grants.

Under the 2000 Stock Plan, the Company grants stockoptions and restricted stock and issues shares upon vesting of performanceshares that are settled in common stock. Under the 1997 Stock Plan, the Companyissues shares upon exercise of outstanding stock options. The Company issuesnew shares for all awards under the stock plans. At June 30, 2005 and June 30,2006, a total of 5,672,734 shares and 4,216,223 shares, respectively, wereavailable for future grants under the 2000 Stock Plan as stock options,restricted stock or shares issued upon vesting of performance shares settled incommon stock. The remaining shares under the 1997 Stock Plan are not availablefor future grants.

28

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**UnionBanCal Corporation and Subsidiaries**

**Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited)**

**Note 12—ManagementStock Plans**(Continued)

In the first quarter of 2006,the Committee determined that performance share awards granted in 2006 are tobe redeemed in shares.

*Stock Options*

Under the 2000 Stock Plan, the Company granted optionsto various key employees, including policy-making officers, and to non-employeedirectors for selected years. Under both stock plans, options granted toemployees vest pro-rata on each anniversary of the grant date and become fullyexercisable three years from the grant date, provided that the employee hascompleted the specified continuous service requirement. The options vestearlier if the employee dies, is permanently disabled, or retires under certaingrant, age, and service conditions or terminates employment under certainconditions. Options granted to non-employee directors are fully vested on thegrant date and exercisable 33 1/3 percent on each anniversary under the 1997Stock Plan, and are fully vested and exercisable on the grant date under the2000 Stock Plan.

Thefollowing is a summary of stock option transactions under the stock plans forthe six months ended June 30, 2006.

| ** **                                    | ** ** | **For the Six Months Ended June 30, 2006** | ** ** |
|-----------------------------------------------|------------|-------------------------------------------------------------------------------|------------|
| ** **                                    | ** ** | **Number of  Shares**                                                    | ** ** | **Weighted-  Average  Exercise  Price** | ** ** | **Weighted-  Average  Remaining  Contractual Term** | ** ** | **Aggregate  Intrinsic Value** | ** ** |
| ** **                                    | ** ** | ** **                                                                    | ** ** | ** ** | ** ** | ** ** | ** ** | **(in thousands)** | ** ** |
| Options outstanding, beginning  of the period |       | 8,696,589                                                                     |       |   | $ | 45.26 |   |   |   |   |   |   |   |   |   |   |
| Granted                                       |       | 1,052,525                                                                     |       |   | 70.13 |   |   |   |   |   |   |   |   |   |   |
| Exercised                                     |       | (1,053,833                                                                    | )          |   | 40.45 |   |   |   |   |   |   |   |   |   |   |
| Forfeited                                     |       | (18,088                                                                       | )          |   | 59.73 |   |   |   |   |   |   |   |   |   |   |
| Options outstanding, end of the period        |       | 8,677,193                                                                     |       |   | $ | 48.83 |   |   |   | 5.95 |   |   |   | $ | 142,973 |   |   |
| Options exercisable, end  of the period       |       | 6,134,772                                                                     |       |   | $43.20 |   |   |   | 5.62 |   |   |   | $131,371 |   |   |
|                                               |            |                                                                               |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

The fair value of each option grant is estimated onthe date of grant using the Black-Scholes option pricing model that uses theassumptions noted in the following table. Because the Black-Scholes optionpricing model uses tranches based on expected terms that result in ranges ofinput assumptions, such ranges are disclosed below. Expected volatilities arebased on historical data and implied volatilities from trade options on theCompany’s stock, and other factors. The Company uses historical data toestimate option exercise and employee terminations within the valuation model. Theexpected term of an option granted is derived from the output of the optionvaluation model, which is based on historical data and represents the period oftime that the option granted is expected to be outstanding. The risk-free ratefor periods within the contractual life of the option is based on the U.S.Treasury yield curve in effect at the time of grant based on the expected term.

29

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**UnionBanCal Corporation and Subsidiaries**

**Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited)**

**Note 12—ManagementStock Plans**(Continued)

| ** **                                                 | ** ** | **For the Six Months Ended  June 30, 2006** | ** **  |
|------------------------------------------------------------|------------|---------------------------------------------------------------------------|-------------|
| Weighted-average fair value—per  share                |       |                                                                      | $           | 12.30 |   |   |
| Risk-free interest rates (a  range for 1 to 7 year tenors) |       |                                                                      | 4.3 - 4.8   | % |   |
| Expected volatility                                        |       |                                                                      | 16.6 - 22.9 | % |   |
| Weighted-average expected  volatility                      |       |                                                                      | 19.3        | % |   |
| Expected term (in years)                                   |       |                                                                      | 3.4 - 5.4   |   |   |
| Expected dividend yield                                    |       |                                                                      | 2.7         | % |   |

 

The weighted-average fairvalue of options granted during the six months ended June 30, 2005 and2006 was $13.38 and $12.30 per share, respectively. The total intrinsic valueof options exercised during the six months ended June 30, 2005 and 2006was $29.2 million and $30.5 million, respectively.

As of June 30, 2006, thetotal unrecognized compensation cost related to nonvested stock option awardswas $25.7 million and the weighted-average period over which it is expected tobe recognized was 1.0 year.

*Restricted Stock*

In general, restricted sharesare granted under the 2000 Stock Plan to key employees, and in 2005, tonon-employee directors. The awards of restricted stock granted to employees vestpro-rata on each anniversary of the grant date and become fully vested fouryears from the grant date, provided that the employee has completed thespecified continuous service requirement. They vest earlier if the employeedies, is permanently and totally disabled, retires under certain grant, age,and service conditions or terminates employment under certain conditions. Theawards of restricted stock granted to existing non-employee directors in 2005will vest in full in July 2006. Restricted stockholders have the right tovote their restricted shares and receive dividends.

The following is a summary ofthe Company’s nonvested restricted stock awards as of June 30, 2006 andchanges during the period ended June 30, 2006.

| ** **                                            | ** ** | **For the Six Months Ended  June 30, 2006** | ** ** |
|-------------------------------------------------------|------------|---------------------------------------------------------------------------|------------|
| ** **                                            | ** ** | **Number of  Shares**                                                | ** ** | **Weighted-Average Grant  Date Fair Value** | ** ** |
| Nonvested restricted awards,  beginning of the period |       | 397,957                                                                   |       |   | $ | 64.06 |   |   |
| Granted                                               |       | 201,543                                                                   |       |   | 69.96 |   |   |
| Vested                                                |       | (54,595                                                                   | )          |   | 61.19 |   |   |
| Forfeited                                             |       | (5,074                                                                    | )          |   | 65.48 |   |   |
| Nonvested restricted awards, end of the period        |       | 539,831                                                                   |       |   | $ | 66.54 |   |   |

 

The total fair value of the restricted stock awardsthat vested during the six months ended June 30, 2005 and 2006 was $0.7million and $3.3 million, respectively.

The Company recognized $7.1 million of compensationcost for share-based payment arrangements related to restricted stock awardswith $2.7 million of corresponding tax benefit for the six months ended June 30,2006. As of June 30, 2006, the total unrecognized compensation costrelated to nonvested

30

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**UnionBanCal Corporation and Subsidiaries**

**Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited)**

**Note 12—ManagementStock Plans**(Continued)

restrictedawards was $25.8 million, and the weighted-average period over which it isexpected to be recognized was 1.5 years.

*Performance Share Plan*

Effective January 1, 1997, the Companyestablished a Performance Share Plan. At the discretion of the Committee,eligible participants may earn performance share awards to be redeemed in cashand/or shares three years after the date of grant. Performance shares arelinked to stockholder value in two ways: (1) the market price of theCompany’s common stock; and (2) return on equity, a performance measureclosely linked to value creation. Eligible participants generally receivegrants of performance shares annually. The plan was amended in 2004 increasingthe total number of shares that can be granted under the plan to 2.6 millionshares. There were 2,133,733 performance shares remaining for future awards asof June 30, 2006. All performance shares granted prior to 2006 areredeemable in cash and are therefore being accounted for as liabilities. Therewere 1,050 of these performance shares forfeited for the six months ended June 30,2006. The value of a performance share under the liability method is equal tothe average month-end closing price of the Company’s common stock for the finalsix months of the performance period. All cancelled or forfeited performanceshares become available for future grants. At June 30, 2005 and 2006, theCompany’s liability for the cash settlement of the performance shares was $12.6million and $13.3 million, respectively.

Under the Performance SharePlan, the Company granted 60,700 units with a grant date of April 1, 2006.These units will be settled in stock at the vesting date of December 31,2008. The grants have a fair value equal to the stock price on the date ofgrant of $70.16. At grant date, it was estimated that 6 percent of the shareswould forfeit by the vesting date. For the six months ended June 30, 2006,the Company recognized $1.7 million of compensation cost with a corresponding$0.6 million in tax benefits related to this year’s grants. The Company will issuenew shares under the 2000 Stock Plan upon vesting for these grants that areredeemable in shares.

**Note 13—Subsequent Events**

On July 26, 2006, the Company’s Board ofDirectors declared a quarterly cash dividend of $0.47 per share of common stock.The dividend will be paid on October 6, 2006 to stockholders of record asof September 1, 2006.

31

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**Item 2.**            Management’sDiscussion and Analysis of Financial Condition and Results of Operations

*This report includesforward-looking statements, which include forecasts of our financial resultsand condition, expectations for our operations and business, and ourassumptions for those forecasts and expectations. Do not rely unduly onforward-looking statements. Actual results might differ significantly from ourforecasts and expectations. Please refer to Part II Item 1A”Risk Factors “ofthis Quarterly Report on Form 10-Q and Part I, Item 1A “Risk Factors”of our Annual Report on Form 10-K for the year ended December 31,2005 for a discussion of some factors that may cause results to differ.*

You should read the followingdiscussion and analysis of our condensed consolidated financial condition andresults of operations for the period ended June 30, 2006 in this QuarterlyReport on Form 10-Q together with our Consolidated Financial Statementsand the Notes to Consolidated Financial Statements included in our AnnualReport on Form 10-K for the year ended December 31, 2005. Averages,as presented in the following tables, are substantially all based upon dailyaverage balances.

**Introduction**

We are a California-based,commercial bank holding company and have, as our major subsidiary, a bankingsubsidiary, Union Bank of California, N.A. (the Bank). We had consolidatedassets of $50.8 billion at June 30, 2006. At June 30, 2006, The Bankof Tokyo-Mitsubishi UFJ, Ltd., our majority owner, owned approximately 63percent of our outstanding common stock. 

**Executive Overview**

We are providing you with an overview of what webelieve are the most significant factors and developments that impacted oursecond quarter 2006 results and that could impact our future results. We askthat you carefully read the rest of this document and any other reports that werefer to in this Quarterly Report, for more detailed information that willcomplete your understanding of trends, events and uncertainties that impact us.

Our average loans grew by 15 percent in second quarter2006 compared to the second quarter 2005 and by 3 percent over the firstquarter 2006. This growth has been concentrated in our commercial andresidential mortgage lending areas, although we expect that the growth rate inresidential mortgage loans will slow if interest rates continue to rise.

Although our deposit base continues to be strong, ouraverage noninterest bearing deposits declined by $1.3 billion in the secondquarter 2006 compared to the second quarter of 2005 as deposit pricingpressures, caused by rising short-term interest rates, resulted in customertransfers of funds to interest bearing deposits or other investments. At 44percent of average total deposits, we believe our average noninterest bearingdeposits continue to provide us with a funding advantage compared to most ofour peers. 

Overall credit quality remained strong during thesecond quarter 2006. Our nonperforming assets totaled $36 million at June 30,2006 compared to $62 million at December 31, 2005 and $69 million at June 30,2005. While such low levels of nonperforming assets are not sustainable, webelieve that our responsible lending and monitoring practices will help usmaintain high credit quality in our loan portfolios.

During the second quarter 2006, we reversed $5 millionof our provision for credit losses ($1 million reversal related to loansand a $4 million reversal of allowance for losses on off-balance sheetcommitments)  compared with a reversal of$18 million in the second quarter 2005. We expect that we may need to providefor credit losses during the latter part of 2006 as a result of our anticipatedloan growth.

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In the second quarter 2006,our net interest income was $468 million compared to $459 million in the secondquarter 2005, as we benefited from strong loan growth and higher interest ratesoffset by higher interest costs.

Noninterest income grew 8percent in the second quarter 2006 compared with the second quarter 2005,primarily from higher trust and investment management fees related to the stronggrowth in trust assets.

In the second quarter 2006,our noninterest expense grew to $413 million compared to $388 million in thesecond quarter 2005. Most of this increase was related to salaries and employeebenefits, of which $6 million related to both our adoption of the newshare-based compensation accounting rules and higher costs for restrictedstock awards.

Our effective tax ratedeclined to 33.5 percent in the second quarter 2006 from 34.8 percent duringthe second quarter 2005. This decrease resulted from higher tax credits appliedin the current year.

In the second quarter 2006, wereturned a significant amount of capital to our stockholders in the form ofdividends and common stock repurchases. During the second quarter 2006, werepurchased $121 million in shares of common stock and have $402 millionremaining under our current board authorization.

**Discontinued Operations**

During the third quarter 2005,we committed to a plan to exit our international correspondent banking businessand entered into a definitive agreement to sell this business to Wachovia Bank,N.A. This business consisted of international payment and trade processingalong with the related lending activities. The principal legal closing of thetransaction occurred on October 6, 2005 and we received $245 million. Duringthe second quarter 2006, we received an additional $4 million as a contingentpurchase price payment.

This transaction has beenaccounted for as a discontinued operation and all prior periods, except wherespecifically mentioned, have been restated to reflect this accounting treatment.All of the assets and liabilities of the discontinued operations have beenseparately identified on our condensed consolidated balance sheet and theassets are shown at the lower of cost or fair value less costs to dispose. Theaverage net assets or liabilities of our discontinued operations are reflectedin our analysis of net interest margin. All of our offices designated fordisposal were closed as of June 30, 2006. The remaining assets includedeposits with banks awaiting approval of repatriation of capital and unremittedprofits and loans that are maturing by January 2008. The remainingliabilities primarily consist of accrued expenses, which will be settled whendue. For the detailed components of our assets and liabilities fromdiscontinued operations, see Note 3 “Discontinued Operations” to the CondensedConsolidated Financial Statements of this Quarterly Report on Form 10-Q.

Includedin our net income are the net results of our discontinued operations. For thethree and six months ended June 30, 2005 and 2006, income fromdiscontinued operations included the following:

| ** **                                                      | ** ** | **For the Three Months Ended  June 30,**    | ** ** | **For the Six Months Ended  June 30,**      | ** ** |
|-----------------------------------------------------------------|------------|----------------------------------------------------------------------|------------|----------------------------------------------------------------------|------------|
| **(Dollars in thousands)**                            | ** ** | **     2005     ** | ** ** | **     2006     ** | ** ** | **2005** | ** ** | **2006** | ** ** |
| Net interest income  (expense)                                  |       |                                                                 | $          | 5,146                                                                |       |   |   | $ | (86 | ) |   | $ | 10,283 |   | $ | 1,639 |   |
| Provision for loan  losses                                      |       |                                                                 | 2,564      |                                                                 |       |   | — |   |   | 6,683 |   | — |   |
| Noninterest income                                              |       |                                                                 | 17,796     |                                                                 |       |   | 7,105 |   |   | 34,932 |   | 12,916 |   |
| Noninterest expense                                             |       |                                                                 | 20,790     |                                                                 |       |   | 6,588 |   |   | 35,305 |   | 27,727 |   |
| Income (loss) from  discontinued operations before income taxes |       |                                                                 | (412       | )                                                                    |       |   | 431 |   |   | 3,227 |   | (13,172 | ) |
| Income tax expense  (benefit)                                   |       |                                                                 | (116       | )                                                                    |       |   | 157 |   |   | 1,297 |   | (4,936 | ) |
| Income (loss) from  discontinued operations                     |       |                                                                 | $          | (296                                                                 | )          |   |   | $ | 274 |   |   | $ | 1,930 |   | $ | (8,236 | ) |

 

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For the three months ended June 30,2005 and 2006, net interest income included the allocation of interest expensefrom continuing operations to discontinued operations of approximately $4.2million and $0.4 million, respectively. For the six months ended June 30,2005 and 2006, the interest expense allocated to discontinued operationswas  $6.6 million and $1.1 million,respectively. Interest expense allocated to discontinued operations iscalculated based on its average net assets and the corresponding cost of fundsrate equivalent to the average federal funds purchased rate for the period.

Noninterest income for thesecond quarter 2006 included a $4 million payment from Wachovia Bank, N.A.,reflecting the final settlement upon the conversion of our internationalcorrespondent banking customer base. Included in noninterest expense werecompliance related expenses of $8.4 million and $1.8 million for the threemonths ended June 30, 2005 and 2006, respectively, and $11.0 million and$7.1 million for the six months ended June 30, 2005 and 2006,respectively. We recorded $1.4 million of expenses related to the terminationof lease contracts in the second quarter 2006.

The remaining discussion ofour financial results is based on results from continuing operations, unlessotherwise stated.

**Critical Accounting Policies**

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

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

Understanding our accountingpolicies is fundamental to understanding our consolidated financial conditionand consolidated results of operations. Accordingly, both our CriticalAccounting Policies and our significant accounting policies are discussed indetail in our 2005 Annual Report on Form 10-K filed with the Securitiesand Exchange Commission.

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**Financial Performance**

**Summary of FinancialPerformance**

| ** **                                                         | ** ** | **For the Three Months** | ** ** | ** ** | ** ** | **Increase (Decrease)**   | ** ** | **For the Six Months** | ** ** | ** **  | ** ** | **Increase (Decrease)**   | ** ** |
|--------------------------------------------------------------------|------------|-----------------------------------------|------------|------------|------------|--------------------------------|------------|---------------------------------------|------------|-------------|------------|--------------------------------|------------|
| ** **                                                         | ** ** | **Ended June 30,**            | ** ** | ** ** | ** ** | **2006 versus 2005** | ** ** | **Ended June 30,**          | ** ** | ** **  | ** ** | **2006 versus 2005** | ** ** |
| **(Dollars in thousands)**                               | ** ** | **2005**                                | ** ** | **2006**   | ** ** | ** **                     | ** ** | **Amount**                            | ** ** | **Percent** | ** ** | **2005**                       | ** ** | **2006** | ** ** | ** ** | ** ** | **Amount** | ** ** | **Percent** | ** ** |
| **Results  of Operations**                                         | ** ** | ** **                              | ** ** | ** ** | ** ** |                           |       | ** **                            | ** ** |        | ** ** | ** **                     |       | ** ** | ** ** | ** ** | ** ** |   |   | ** ** | ** ** |   | ** ** | ** ** |   |
| Net interest income(1)                                             |       | $                                       | 458,710    |       | $          | 467,642                        |       |                                  |       | $           | 8,932      |                           |       | 1.9 | % |   | $ | 894,372 |   | $ | 932,735 |   |   |   | $ | 38,363 |   |   | 4.3 | % |   |
| Noninterest income                                                 |       |                                    |       |       |       |                           |       |                                  |       |        |       |                           |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Service charges on  deposit accounts                               |       | 79,746                                  |       | 81,837     |       |                           |       | 2,091                                 |       |        | 2.6        |                           |       | 159,013 |   | 163,472 |   |   |   | 4,459 |   |   | 2.8 |   |   |
| Trust and investment  management fees                              |       | 41,590                                  |       | 48,380     |       |                           |       | 6,790                                 |       |        | 16.3       |                           |       | 83,553 |   | 98,495 |   |   |   | 14,942 |   |   | 17.9 |   |   |
| Insurance commissions                                              |       | 19,340                                  |       | 17,752     |       |                           |       | (1,588                                | )          |        | (8.2       | )                              |       | 41,357 |   | 37,270 |   |   |   | (4,087 | ) |   | (9.9 | ) |   |
| Merchant banking fees                                              |       | 18,114                                  |       | 8,396      |       |                           |       | (9,718                                | )          |        | (53.6      | )                              |       | 24,380 |   | 16,625 |   |   |   | (7,755 | ) |   | (31.8 | ) |   |
| Securities gains  (losses), net                                    |       | (13,313                                 | )          | 1,993      |       |                           |       | 15,306                                |       |        | nm         |                           |       | (12,969 | ) | 1,779 |   |   |   | 14,748 |   |   | nm |   |   |
| Gain on private  capital investments, net                          |       | 5,261                                   |       | 3,702      |       |                           |       | (1,559                                | )          |        | (29.6      | )                              |       | 13,196 |   | 6,529 |   |   |   | (6,667 | ) |   | (50.5 | ) |   |
| Other noninterest  income                                          |       | 52,816                                  |       | 57,168     |       |                           |       | 4,352                                 |       |        | 8.2        |                           |       | 100,649 |   | 112,968 |   |   |   | 12,319 |   |   | 12.2 |   |   |
| Total noninterest  income                                          |       | 203,554                                 |       | 219,228    |       |                           |       | 15,674                                |       |        | 7.7        |                           |       | 409,179 |   | 437,138 |   |   |   | 27,959 |   |   | 6.8 |   |   |
| Total revenue                                                      |       | 662,264                                 |       | 686,870    |       |                           |       | 24,606                                |       |        | 3.7        |                           |       | 1,303,551 |   | 1,369,873 |   |   |   | 66,322 |   |   | 5.1 |   |   |
| Reversal of allowance  for loan losses                             |       | (13,564                                 | )          | (1,000     | )          |                           |       | 12,564                                |       |        | 92.6       |                           |       | (25,683 | ) | (8,000 | ) |   |   | 17,683 |   |   | 68.9 |   |   |
| Noninterest expense                                                |       |                                    |       |       |       |                           |       |                                  |       |        |       |                           |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Salaries and employee  benefits                                    |       | 233,976                                 |       | 248,637    |       |                           |       | 14,661                                |       |        | 6.3        |                           |       | 465,734 |   | 501,132 |   |   |   | 35,398 |   |   | 7.6 |   |   |
| Outside services                                                   |       | 26,468                                  |       | 30,704     |       |                           |       | 4,236                                 |       |        | 16.0       |                           |       | 47,715 |   | 59,313 |   |   |   | 11,598 |   |   | 24.3 |   |   |
| Professional services                                              |       | 13,150                                  |       | 17,038     |       |                           |       | 3,888                                 |       |        | 29.6       |                           |       | 24,891 |   | 31,585 |   |   |   | 6,694 |   |   | 26.9 |   |   |
| Advertising and public  relations                                  |       | 8,903                                   |       | 11,270     |       |                           |       | 2,367                                 |       |        | 26.6       |                           |       | 16,543 |   | 21,501 |   |   |   | 4,958 |   |   | 30.0 |   |   |
| Foreclosed asset  income                                           |       | (2,577                                  | )          | (7,782     | )          |                           |       | (5,205                                | )          |        | nm         |                           |       | (2,171 | ) | (15,149 | ) |   |   | (12,978 | ) |   | nm |   |   |
| Reversal of allowance  for losses on off-balance sheet commitments |       | (4,000                                  | )          | (4,000     | )          |                           |       | —                                |       |        | —     |                           |       | (1,000 | ) | (7,000 | ) |   |   | (6,000 | ) |   | nm |   |   |
| Other noninterest  expense                                         |       | 112,480                                 |       | 117,163    |       |                           |       | 4,683                                 |       |        | 4.2        |                           |       | 229,640 |   | 235,544 |   |   |   | 5,904 |   |   | 2.6 |   |   |
| Total noninterest  expense                                         |       | 388,400                                 |       | 413,030    |       |                           |       | 24,630                                |       |        | 6.3        |                           |       | 781,352 |   | 827,574 |   |   |   | 46,222 |   |   | 5.9 |   |   |
| Income from continuing  operations before income taxes             |       | 287,428                                 |       | 274,840    |       |                           |       | (12,588                               | )          |        | (4.4       | )                              |       | 547,882 |   | 550,299 |   |   |   | 2,417 |   |   | 0.4 |   |   |
| Income tax expense                                                 |       | 99,950                                  |       | 92,203     |       |                           |       | (7,747                                | )          |        | (7.8       | )                              |       | 180,653 |   | 186,207 |   |   |   | 5,554 |   |   | 3.1 |   |   |
| Income from continuing  operations                                 |       | 187,478                                 |       | 182,637    |       |                           |       | (4,841                                | )          |        | (2.6       | )                              |       | 367,229 |   | 364,092 |   |   |   | (3,137 | ) |   | (0.9 | ) |   |
| Income (loss) from  discontinued operations before income taxes    |       | (412                                    | )          | 431        |       |                           |       | 843                                   |       |        | nm         |                           |       | 3,227 |   | (13,172 | ) |   |   | (16,399 | ) |   | nm |   |   |
| Income tax expense  (benefit)                                      |       | (116                                    | )          | 157        |       |                           |       | 273                                   |       |        | nm         |                           |       | 1,297 |   | (4,936 | ) |   |   | (6,233 | ) |   | nm |   |   |
| Income (loss) from  discontinued operations                        |       | (296                                    | )          | 274        |       |                           |       | 570                                   |       |        | nm         |                           |       | 1,930 |   | (8,236 | ) |   |   | (10,166 | ) |   | nm |   |   |
| Net income                                                         |       | $                                       | 187,182    |       | $          | 182,911                        |       |                                  |       | $           | (4,271     | )                              |       | (2.3 | )% |   | $ | 369,159 |   | $ | 355,856 |   |   |   | $ | (13,303 | ) |   | (3.6 | )% |   |

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(1)                   Net interest income does not include anyadjustments for fully taxable equivalence.

nm = notmeaningful

*The primary contributorsto our financial performance for the second quarter of 2006 compared to thesecond quarter of 2005 are presented below.*

·       The reversal of ourallowance for loan losses in the second quarter of 2006 is due to sustainedimprovement in credit quality, primarily in our commercial loan portfolio. However,this trend is 

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balanced by increasinguncertainty in the economic outlook coupled with indications that theimprovement in credit quality could be at its peak. (See our discussion under “Allowances for Credit Losses.”)

·       Our net interest income wasfavorably influenced by higher earning asset volumes (including higher volumefor commercial, financial and industrial loans, residential mortgages andconstruction loans) and higher average yields on our earning assets. Offsettingthese positive influences to our net interest income were higher rates oninterest bearing liabilities, lower hedge income and lower noninterest bearingdeposits. (See our discussion under “Net Interest Income.”)

The increase in our noninterest income was due toseveral factors:

—              Servicecharges on deposits increased slightly primarily due to higher overdraft feesrelated to a change in our overdraft and nonsufficient funds fee structure,partly offset by lower account analysis fees stemming from an increase in theearnings credit rates on deposit balances;

—              Trustand investment management fees were higher primarily due to continued strongsales and growth in trust assets. Managed assets increased by approximately 2percent and non-managed assets increased by approximately 4 percent from June 30,2005 to June 30, 2006. Total assets under administration increased byapproximately 4 percent, to $217.2 billion, for the same period;

—              Insurancecommissions were lower mainly due to lower revenues from construction-relatedprojects, which slowed in 2006, and the timing lag in policy renewals;

—              Merchantbanking fees were lower due to a higher volume of syndication transactions inthe prior year quarter;

—              Securitiesgains were higher mainly due to a $13.3 million loss on the sale of governmentagency securities in the same period last year;

—              Netgains on the sales and capital distributions on private capital investmentswere lower compared to the prior year due to lower activity; and

—              Includedin other noninterest income was a $1.8 million gain that resulted from theshare redemption by MasterCard Incorporated as part of its May 2006initial public offering and lower trading provision adjustments to our reservefor losses on customer derivative contracts.

Our higher noninterest expense was due to severalfactors:

—              Salariesand employee benefits increased primarily as a result of:

·       higherperformance-related incentive expense from the amortization of stock optionsand the increased expense for higher levels of grants of restricted stock inthe second quarter of 2006;

·       additionalcontract labor staff for compliance related activities; and

·       annualmerit increases and higher staff levels;

—              Outsideservices expense increased mainly due to increased trust sub-advisory andadministrative expenses;

—              Professionalservices expense increased mainly due to consulting costs related to certain complianceactivities; and

—              Foreclosedasset income reflected a $7.8 million gain on the sale of foreclosed property,compared to a $2.6 million gain on sale in the second quarter of 2005.

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*The primarycontributors to our financial performance for the first six months of 2006compared to the first six months of 2005 are presented below.*

·       The reversal of ourallowance for loan losses for the first six months of 2006 is due to sustainedimprovement in credit quality, primarily in our commercial loan portfolio. However,this trend is balanced by increasing uncertainty in the economic outlookcoupled with indications that the improvement in credit quality could beat  its peak. (See our discussion under “Allowancesfor Credit Losses.”)

·       Our net interest income wasfavorably influenced by higher earning asset volumes (including higher volumesfor commercial, financial and industrial loans, residential mortgages andconstruction loans) and higher average yields on our earning assets. Offsettingthese positive influences to our net interest income were higher rates on interestbearing liabilities, lower hedge income and lower noninterest bearing deposits.(See our discussion under “Net Interest Income.”)

The increase in our noninterest income was due toseveral factors:

—              Service charges on deposits increased primarily dueto higher overdraft fees related to a change in our overdraft and nonsufficientfunds fee structure, partly offset by lower account analysis fees stemming froman increase in the earnings credit rates on deposit balances;

—              Trust and investment management fees benefitedfrom continued strong sales and growth in trust assets and a one-time $3.8million increase in trust fees resulting from a refinement in our accrualaccounting methodology;

—              Insurance commissions decreased mainly due tolower revenues from construction-related projects, which slowed in 2006, andlower contingent revenues;

—              Merchant banking fees decreased due to a lowervolume of syndication transactions than in the same period last year;

—              Securities gains were higher mainly due to a $13.3million loss on the sale of government agency securities in the same periodlast year;

—              Lower net gains on the sales and capitaldistributions on private capital investments compared to the prior year;and

—              Higher other noninterest income, which included gainsof $4.2 million from the sales of leased equipment, a $1.8 million gain thatresulted from the share redemption by MasterCard Incorporated and lower tradingprovision adjustments to our reserve for losses on customer derivativecontracts.

Our higher noninterest expense was due to severalfactors:

—              Salaries and employee benefits increased primarilyas a result of:

·       higherperformance-related incentive expense from the amortization of stock optionsand the increased expense for higher levels of grants of restricted stock inthe second quarter of 2006;

·       additionalcontract labor staff for compliance related activities;

·       annualmerit increases and higher staff levels; and

·       higheremployee benefits expense mainly due to increased employee taxes resulting fromincreased base salaries and the impact of the lower discount rate we used tocalculate our future pension and other postretirement liabilities (reduced from5.75 percent at 

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December 31, 2004to 5.50 percent at December 31, 2005) and higher health insurance expense;

—              Outsideservices expense increased mainly as a result of higher cost of servicesrelated to title and escrow deposit balances stemming from a higher earningscredit rate in the first half of 2006 as well as increased trust sub-advisoryand administrative expenses;

—              Professionalservices expense increased mainly dueto compliance related expenses;

—              Foreclosedasset income for the first six months of 2006, which was higher due to sales offoreclosed properties;

—              Provisionfor losses on off-balance sheetcommitments, which declined by $6.0 million compared to the first six months of2005 as a result of improvements in the credit quality of our borrowers; and

—              Higherother noninterest expense, whichincluded higher software costs, business development costs and charitablecontributions, partly offset by declining amortization of intangibles expense.

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**Net Interest Income**

Thefollowing table shows the major components of net interest income and netinterest margin.

| ** **                                                               | ** ** | **For  the Three Months Ended** | ** ** | **Increase (Decrease) in** | ** ** |
|--------------------------------------------------------------------------|------------|---------------------------------|------------|----------------------------|------------|
| ** **                                                               | ** ** | **June 30,  2005**         | ** ** | **June 30,  2006**    | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                               | ** ** | ** **                      | ** ** | **Interest**               | ** ** | **Average** | ** ** | ** ** | ** ** | **Interest** | ** ** | **Average** | ** ** | **Average** | ** ** | **Income/** | ** ** |
| ** **                                                               | ** ** | **Average**                     | ** ** | **Income/**                | ** ** | **Yield/** | ** ** | **Average** | ** ** | **Income/** | ** ** | **Yield/** | ** ** | **Balance** | ** ** | **Expense**(1) | ** ** |
| **(Dollars in thousands)**                                     | ** ** | **Balance**                     | ** ** | **Expense**(1)             | ** ** | **Rate**(1)(2) | ** ** | **Balance** | ** ** | **Expense**(1) | ** ** | **Rate**(1)(2) | ** ** | **Amount** | ** ** | **Percent** | ** ** | **Amount** | ** ** | **Percent** | ** ** |
| **Assets**                                                               | ** ** | ** **                      | ** ** | ** **                 | ** ** | ** ** | ** ** | ** ** | ** ** |   | ** ** | ** ** |   | ** ** | ** ** | ** ** | ** ** |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Loans:(3)                                                                |       | $                               | 30,610,512 |                       | $          | 438,791 |   | 5.74 | % | $ | 35,146,976 |   |   | $ | 548,017 |   |   | 6.25 | % | $ | 4,536,464 |   |   | 14.8 | % |   |   | $ | 109,226 |   |   |   | 24.9 | % |   |
| Securities—taxable                                                  |       | 10,959,220                      |       | 101,672                    |       | 3.71 |   | 8,349,759 |   |   | 102,733 |   |   | 4.92 |   | (2,609,461 | ) |   | (23.8 | ) |   |   | 1,061 |   |   |   | 1.0 |   |   |
| Securities—tax-exempt                                               |       | 66,207                          |       | 1,347                      |       | 8.14 |   | 63,222 |   |   | 1,275 |   |   | 8.06 |   | (2,985 | ) |   | (4.5 | ) |   |   | (72 | ) |   |   | (5.3 | ) |   |
| Interest bearing deposits in banks                                       |       | 74,200                          |       | 396                        |       | 2.14 |   | 34,462 |   |   | 423 |   |   | 4.92 |   | (39,738 | ) |   | (53.6 | ) |   |   | 27 |   |   |   | 6.8 |   |   |
| Federal funds sold and securities purchased  under resale agreements     | ** ** | 696,177                         |       | 5,256                      |       | 3.03 |   | 379,412 |   |   | 4,725 |   |   | 4.99 |   | (316,765 | ) |   | (45.5 | ) |   |   | (531 | ) |   |   | (10.1 | ) |   |
| Trading account assets                                                   |       | 261,753                         |       | 1,049                      |       | 1.61 |   | 384,763 |   |   | 1,685 |   |   | 1.76 |   | 123,010 |   |   | 47.0 |   |   |   | 636 |   |   |   | 60.6 |   |   |
| Total earning assets                                                     |       | 42,668,069                      |       | 548,511                    |       | 5.15 |   | 44,358,594 |   |   | 658,858 |   |   | 5.95 |   | 1,690,525 |   |   | 4.0 |   |   |   | 110,347 |   |   |   | 20.1 |   |   |
| Allowance for loan losses                                                |       | (399,243                        | )          | ** **                 | ** ** | ** ** |   | (334,556 | ) |   | ** ** | ** ** |   | ** ** |   | 64,687 |   |   | (16.2 | ) |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Cash and due from banks                                                  |       | 2,307,361                       | ** ** | ** **                 | ** ** | ** ** |   | 2,107,846 | ** ** |   | ** ** | ** ** |   | ** ** |   | (199,515 | ) |   | (8.6 | ) |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Premises and equipment,  net                                             |       | 521,362                         | ** ** | ** **                 | ** ** | ** ** |   | 506,607 | ** ** |   | ** ** | ** ** |   | ** ** |   | (14,755 | ) |   | (2.8 | ) |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Other assets                                                             |       | 2,385,261                       | ** ** | ** **                 | ** ** | ** ** |   | 2,690,883 | ** ** |   | ** ** | ** ** |   | ** ** |   | 305,622 |   |   | 12.8 | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Total assets                                                             |       | $                               | 47,482,810 | ** **                 | ** ** | ** ** | ** ** |   | $ | 49,329,374 | ** ** |   | ** ** | ** ** |   | ** ** |   | $ | 1,846,564 |   |   | 3.9 | % |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| **Liabilities**                                                          | ** ** | ** **                      | ** ** | ** **                 | ** ** | ** ** | ** ** | ** ** | ** ** |   | ** ** | ** ** |   | ** ** | ** ** | ** ** | ** ** |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Domestic deposits:                                                       | ** ** | ** **                      | ** ** | ** **                 | ** ** | ** ** | ** ** | ** ** | ** ** |   | ** ** | ** ** |   | ** ** | ** ** | ** ** | ** ** |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Interest bearing                                                         |       | $                               | 12,444,947 |                       | $          | 32,017 |   | 1.03 |   | $ | 12,614,869 |   |   | $ | 65,457 |   |   | 2.08 |   | $ | 169,922 |   |   | 1.4 | % |   |   | $ | 33,440 |   |   |   | nm |   |   |
| Savings and consumer  time                                               |       | 4,703,221                       |       | 14,129                     |       | 1.20 |   | 4,470,764 |   |   | 21,502 |   |   | 1.93 |   | (232,457 | ) |   | (4.9 | ) |   |   | 7,373 |   |   |   | 52.2 |   |   |
| Large time                                                               |       | 3,441,815                       |       | 21,278                     |       | 2.48 |   | 5,062,473 |   |   | 56,718 |   |   | 4.49 |   | 1,620,658 |   |   | 47.1 |   |   |   | 35,440 |   |   |   | nm |   |   |
| Total interest bearing  deposits                                         |       | 20,589,983                      |       | 67,424                     |       | 1.31 |   | 22,148,106 |   |   | 143,677 |   |   | 2.60 |   | 1,558,123 |   |   | 7.6 |   |   |   | 76,253 |   |   |   | nm |   |   |
| Federal funds purchased and securities sold under  repurchase agreements | ** ** | 1,160,373                       |       | 8,217                      |       | 2.84 |   | 748,050 |   |   | 8,902 |   |   | 4.77 |   | (412,323 | ) |   | (35.5 | ) |   |   | 685 |   |   |   | 8.3 |   |   |
| Net funding allocated from  (to) discontinued operations(4)              |       | (590,255                        | )          | (4,179                     | )          | 2.84 |   | (36,123 | ) |   | (447 | ) |   | 4.97 |   | 554,132 |   |   | (93.9 | ) |   |   | 3,732 |   |   |   | (89.3 | ) |   |
| Commercial paper                                                         |       | 1,158,629                       |       | 7,807                      |       | 2.70 |   | 1,650,266 |   |   | 19,137 |   |   | 4.65 |   | 491,637 |   |   | 42.4 |   |   |   | 11,330 |   |   |   | nm |   |   |
| Other borrowed funds                                                     |       | 197,694                         |       | 1,817                      |       | 3.69 |   | 108,095 |   |   | 1,476 |   |   | 5.47 |   | (89,599 | ) |   | (45.3 | ) |   |   | (341 | ) |   |   | (18.8 | ) |   |
| Medium and long-term debt                                                |       | 799,514                         |       | 7,459                      |       | 3.74 |   | 1,179,432 |   |   | 16,875 |   |   | 5.74 |   | 379,918 |   |   | 47.5 |   |   |   | 9,416 |   |   |   | nm |   |   |
| Trust notes                                                              |       | 15,619                          |       | 238                        |       | 6.10 |   | 15,167 |   |   | 238 |   |   | 6.28 |   | (452 | ) |   | (2.9 | ) |   |   | — |   |   |   | — |   |   |
| Total borrowed funds                                                     |       | 2,741,574                       |       | 21,359                     |       | 3.12 |   | 3,664,887 |   |   | 46,181 |   |   | 5.05 |   | 923,313 |   |   | 33.7 |   |   |   | 24,822 |   |   |   | nm |   |   |
| Total interest bearing  liabilities                                      |       | 23,331,557                      |       | 88,783                     |       | 1.53 |   | 25,812,993 |   |   | 189,858 |   |   | 2.95 |   | 2,481,436 |   |   | 10.6 |   |   |   | 101,075 |   |   |   | nm |   |   |
| Noninterest bearing deposits                                             |       | 18,808,040                      | ** ** | ** **                 |       |   | ** ** | 17,543,946 | ** ** |   | ** ** |   |   |   |   | (1,264,094 | ) |   | (6.7 | ) |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Other liabilities                                                        |       | 1,198,063                       | ** ** | ** **                 | ** ** | ** ** |   | 1,432,959 | ** ** |   | ** ** | ** ** |   | ** ** |   | 234,896 |   |   | 19.6 | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Total liabilities                                                        |       | 43,337,660                      | ** ** | ** **                 | ** ** | ** ** |   | 44,789,898 | ** ** |   | ** ** | ** ** |   | ** ** |   | 1,452,238 |   |   | 3.4 | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| **Stockholders’ Equity**                                            | ** ** | ** **                      | ** ** | ** **                 | ** ** | ** ** | ** ** | ** ** | ** ** |   | ** ** | ** ** |   | ** ** | ** ** | ** ** | ** ** |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Common equity                                                            |       | 4,145,150                       | ** ** | ** **                 | ** ** | ** ** |   | 4,539,476 | ** ** |   | ** ** | ** ** |   | ** ** |   | 394,326 |   |   | 9.5 | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Total stockholders’  equity                                         |       | 4,145,150                       | ** ** | ** **                 | ** ** | ** ** |   | 4,539,476 | ** ** |   | ** ** | ** ** |   | ** ** |   | 394,326 |   |   | 9.5 | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Total liabilities and stockholders’ equity                          |       | $                               | 47,482,810 | ** **                 | ** ** | ** ** | ** ** |   | $ | 49,329,374 | ** ** |   | ** ** | ** ** |   | ** ** |   | $ | 1,846,564 |   |   | 3.9 | % |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| **Net Interest Income/Margin**                                           | ** ** | ** **                      | ** ** | ** **                 | ** ** | ** ** | ** ** | ** ** | ** ** |   | ** ** | ** ** |   | ** ** | ** ** | ** ** | ** ** |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Net interest income/margin (taxable-equivalent  basis)                   | ** ** | ** **                      |       | 459,728                    |       | 4.32 | % | ** ** |   |   | 469,000 |   |   | 4.23 | % | ** ** | ** ** |   | ** ** |   |   |   | 9,272 |   |   |   | 2.0 |   |   |
| Less: taxable-equivalent adjustment                                      | ** ** | ** **                      |       | 1,018                      | ** ** | ** ** | ** ** | ** ** |   |   | 1,358 | ** ** |   | ** ** | ** ** | ** ** | ** ** |   | ** ** |   |   |   | 340 |   |   |   | 33.4 |   |   |
| Net interest income                                                      | ** ** | ** **                      |       | $                          | 458,710    | ** ** | ** ** | ** ** | ** ** |   |   | $ | 467,642 | ** ** |   | ** ** | ** ** | ** ** | ** ** |   | ** ** |   |   |   | $ | 8,932 |   |   |   | 1.9 | % |   |

 

| ** **  | **Average Assets and Liabilities of Discontinued  Operations for the Three Months Ended:** | ** ** | ** ** | ** ** | **June 30,  2005** | ** ** | ** ** | ** ** | ** ** | ** ** | **June 30,  2006** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
|-------------|--------------------------------------------------------------------------------------------|------------|------------|------------|--------------------|------------|------------|------------|------------|------------|--------------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|
| Assets      |                                                                                       |       |       | $          | 1,981,576          |       |       |       |       |       |               |       | $          | 79,188     |       |       |       |       |       |       |       |       |   |   |   |   |   |   |   |   |   |
| Liabilities |                                                                                       |       |       | $          | 1,391,321          |       |       |       |       |       |               |       | $          | 43,065     |       |       |       |       |       |       |       |       |   |   |   |   |   |   |   |   |   |
| Net assets  |                                                                                       |       |       | $          | 590,255            |       |       |       |       |       |               |       | $          | 36,123     |       |       |       |       |       |       |       |       |   |   |   |   |   |   |   |   |   |

----

(1)                   Yields and interest income are presentedon a taxable-equivalent basis using the federal statutory tax rate of 35percent.

(2)                   Annualized.

(3)                   Average balances on loans outstandinginclude all nonperforming loans. The amortized portion of net loan originationfees (costs) is included in interest income on loans, representing anadjustment to the yield.

(4)                   In September 2005, Union Bank ofCalifornia, N.A. committed to a plan for disposal of its internationalcorrespondent banking  business. Allperiods presented have been restated to reflect discontinued operations. Netfunding allocated from (to) discontinued operations represents the shortage(excess) of assets over liabilities of discontinued operations. The expense(earnings) on funds allocated from (to) discontinued operations are calculatedby taking the net balance and applying an earnings rate or a cost of fundsequivalent to the corresponding quarter’s fed funds purchased rate.

nm = not meaningful

39

----

 

| ** **                                                               | ** ** | **For the Six Months Ended** | ** ** | **Increase (Decrease) in** | ** ** |
|--------------------------------------------------------------------------|------------|------------------------------|------------|----------------------------|------------|
| ** **                                                               | ** ** | **June 30, 2005**            | ** ** | **June 30, 2006**          | ** ** | **Average  Balance** | ** ** | **Interest**

**Income/  Expense**(1) | ** ** |
| ** **                                                               | ** ** | **Average**                  | ** ** | **Interest  Income/**      | ** ** | **Average  Yield/** | ** ** | **Average** | ** ** | **Interest  Income/** | ** ** | **Average  Yield/** | ** ** |
| **(Dollars in thousands)**                                     | ** ** | **Balance**                  | ** ** | **Expense**(1)             | ** ** | **Rate**(1)(2) | ** ** | **Balance** | ** ** | **Expense**(1) | ** ** | **Rate**(1)(2) | ** ** | **Amount** | ** ** | **Percent** | ** ** | **Amount** | ** ** | **Percent** | ** ** |
| **Assets**                                                               | ** ** | ** **                   | ** ** | ** **                 | ** ** |   | ** ** | ** ** |   | ** ** | ** ** | ** ** | ** ** |   | ** ** | ** ** |   | ** ** | ** ** |   | ** ** | ** ** |   | ** ** | ** ** |   | ** ** | ** ** |   |
| Loans:(3)                                                                |       | $                            | 30,164,834 |                       | $          | 843,915 |   |   | 5.63 | % |   | $ | 34,602,546 |   | $ | 1,061,005 |   |   | 6.17 | % |   | $ | 4,437,712 |   |   | 14.7 | % |   | $ | 217,090 |   |   | 25.7 | % |   |
| Securities—taxable                                                  |       | 11,037,856                   |       | 201,611                    |       |   | 3.65 |   |   | 8,292,126 |   | 198,787 |   |   | 4.79 |   |   | (2,745,730 | ) |   | (24.9 | ) |   | (2,824 | ) |   | (1.4 | ) |   |
| Securities—tax-exempt                                               |       | 66,673                       |       | 2,672                      |       |   | 8.02 |   |   | 64,207 |   | 2,572 |   |   | 8.01 |   |   | (2,466 | ) |   | (3.7 | ) |   | (100 | ) |   | (3.7 | ) |   |
| Interest bearing deposits in banks                                       |       | 117,253                      |       | 1,129                      |       |   | 1.94 |   |   | 47,084 |   | 1,159 |   |   | 4.96 |   |   | (70,169 | ) |   | (59.8 | ) |   | 30 |   |   | 2.7 |   |   |
| Federal funds sold and securities purchased under  resale  agreements    |       | 537,615                      |       | 7,629                      |       |   | 2.86 |   |   | 362,471 |   | 8,570 |   |   | 4.77 |   |   | (175,144 | ) |   | (32.6 | ) |   | 941 |   |   | 12.3 |   |   |
| Trading account assets                                                   |       | 243,343                      |       | 1,957                      |       |   | 1.62 |   |   | 356,556 |   | 3,215 |   |   | 1.82 |   |   | 113,213 |   |   | 46.5 |   |   | 1,258 |   |   | 64.3 |   |   |
| Total earning assets                                                     |       | 42,167,574                   |       | 1,058,913                  |       |   | 5.05 |   |   | 43,724,990 |   | 1,275,308 |   |   | 5.86 |   |   | 1,557,416 |   |   | 3.7 |   |   | 216,395 |   |   | 20.4 |   |   |
| Allowance for loan losses                                                |       | (401,328                     | )          | ** **                 | ** ** |   | ** ** |   |   | (341,568 | ) | ** ** | ** ** |   | ** ** |   |   | 59,760 |   |   | (14.9 | ) |   | ** ** | ** ** |   | ** ** | ** ** |   |
| Cash and due from banks                                                  |       | 2,245,353                    | ** ** | ** **                 | ** ** |   | ** ** |   |   | 2,113,853 | ** ** | ** ** | ** ** |   | ** ** |   |   | (131,500 | ) |   | (5.9 | ) |   | ** ** | ** ** |   | ** ** | ** ** |   |
| Premises and equipment, net                                              |       | 522,843                      | ** ** | ** **                 | ** ** |   | ** ** |   |   | 516,748 | ** ** | ** ** | ** ** |   | ** ** |   |   | (6,095 | ) |   | (1.2 | ) |   | ** ** | ** ** |   | ** ** | ** ** |   |
| Other assets                                                             |       | 2,366,366                    | ** ** | ** **                 | ** ** |   | ** ** |   |   | 2,662,595 | ** ** | ** ** | ** ** |   | ** ** |   |   | 296,229 |   |   | 12.5 | ** ** |   | ** ** | ** ** |   | ** ** | ** ** |   |
| Total assets                                                             |       | $                            | 46,900,808 | ** **                 | ** ** | ** ** |   | ** ** |   |   | $ | 48,676,618 | ** ** | ** ** | ** ** |   | ** ** |   |   | $ | 1,775,810 |   |   | 3.8 | % |   | ** ** | ** ** |   | ** ** | ** ** |   |
| **Liabilities**                                                          | ** ** | ** **                   | ** ** | ** **                 | ** ** |   | ** ** | ** ** |   | ** ** | ** ** | ** ** | ** ** |   | ** ** | ** ** |   | ** ** | ** ** |   | ** ** | ** ** |   | ** ** | ** ** |   | ** ** | ** ** |   |
| Domestic deposits:                                                       | ** ** | ** **                   | ** ** | ** **                 | ** ** |   | ** ** | ** ** |   | ** ** | ** ** | ** ** | ** ** |   | ** ** | ** ** |   | ** ** | ** ** |   | ** ** | ** ** |   | ** ** | ** ** |   | ** ** | ** ** |   |
| Interest bearing                                                         |       | $                            | 12,339,352 |                       | $          | 57,434 |   |   | 0.94 |   |   | $ | 12,936,591 |   | $ | 127,815 |   |   | 1.99 |   |   | $ | 597,239 |   |   | 4.8 | % |   | $ | 70,381 |   |   | nm |   |   |
| Savings and consumer time                                                |       | 4,740,418                    |       | 27,173                     |       |   | 1.16 |   |   | 4,469,204 |   | 39,990 |   |   | 1.80 |   |   | (271,214 | ) |   | (5.7 | ) |   | 12,817 |   |   | 47.2 |   |   |
| Large time                                                               |       | 3,232,911                    |       | 38,645                     |       |   | 2.41 |   |   | 4,339,551 |   | 91,181 |   |   | 4.24 |   |   | 1,106,640 |   |   | 34.2 |   |   | 52,536 |   |   | nm |   |   |
| Total interest bearing deposits                                          |       | 20,312,681                   |       | 123,252                    |       |   | 1.22 |   |   | 21,745,346 |   | 258,986 |   |   | 2.40 |   |   | 1,432,665 |   |   | 7.1 |   |   | 135,734 |   |   | nm |   |   |
| Federal funds purchased and  securities sold under repurchase agreements |       | 1,219,788                    |       | 15,672                     |       |   | 2.59 |   |   | 810,704 |   | 18,312 |   |   | 4.55 |   |   | (409,084 | ) |   | (33.5 | ) |   | 2,640 |   |   | 16.8 |   |   |
| Net funding allocated from (to) discontinued  operations(4)              |       | (506,651                     | )          | (6,636                     | )          |   | 2.64 |   |   | (46,548 | ) | (1,055 | ) |   | 4.57 |   |   | 460,103 |   |   | (90.8 | ) |   | 5,581 |   |   | (84.1 | ) |   |
| Commercial paper                                                         |       | 1,012,855                    |       | 12,367                     |       |   | 2.46 |   |   | 1,447,492 |   | 31,585 |   |   | 4.40 |   |   | 434,637 |   |   | 42.9 |   |   | 19,218 |   |   | nm |   |   |
| Other borrowed funds                                                     |       | 189,154                      |       | 3,346                      |       |   | 3.57 |   |   | 187,736 |   | 4,391 |   |   | 4.72 |   |   | (1,418 | ) |   | (0.7 | ) |   | 1,045 |   |   | 31.2 |   |   |
| Medium and long-term debt                                                |       | 804,154                      |       | 13,991                     |       |   | 3.51 |   |   | 990,771 |   | 27,272 |   |   | 5.55 |   |   | 186,617 |   |   | 23.2 |   |   | 13,281 |   |   | 94.9 |   |   |
| Trust notes                                                              |       | 15,676                       |       | 476                        |       |   | 6.08 |   |   | 15,223 |   | 476 |   |   | 6.26 |   |   | (453 | ) |   | (2.9 | ) |   | — |   |   | — |   |   |
| Total borrowed funds                                                     |       | 2,734,976                    |       | 39,216                     |       |   | 2.89 |   |   | 3,405,378 |   | 80,981 |   |   | 4.80 |   |   | 670,402 |   |   | 24.5 |   |   | 41,765 |   |   | nm |   |   |
| Total interest bearing liabilities                                       |       | 23,047,657                   |       | 162,468                    |       |   | 1.42 |   |   | 25,150,724 |   | 339,967 |   |   | 2.73 |   |   | 2,103,067 |   |   | 9.1 |   |   | 177,499 |   |   | nm |   |   |
| Noninterest bearing deposits                                             |       | 18,489,499                   | ** ** | ** **                 | ** ** |   | ** ** |   |   | 17,531,006 | ** ** | ** ** | ** ** |   | ** ** |   |   | (958,493 | ) |   | (5.2 | ) |   | ** ** | ** ** |   | ** ** | ** ** |   |
| Other liabilities                                                        |       | 1,186,928                    | ** ** | ** **                 | ** ** |   | ** ** |   |   | 1,455,808 | ** ** | ** ** | ** ** |   | ** ** |   |   | 268,880 |   |   | 22.7 | ** ** |   | ** ** | ** ** |   | ** ** | ** ** |   |
| Total liabilities                                                        |       | 42,724,084                   | ** ** | ** **                 | ** ** |   | ** ** |   |   | 44,137,538 | ** ** | ** ** | ** ** |   | ** ** |   |   | 1,413,454 |   |   | 3.3 | ** ** |   | ** ** | ** ** |   | ** ** | ** ** |   |
| **Stockholders’ Equity**                                            | ** ** | ** **                   | ** ** | ** **                 | ** ** |   | ** ** | ** ** |   | ** ** | ** ** | ** ** | ** ** |   | ** ** |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Common equity                                                            |       | 4,176,724                    | ** ** | ** **                 | ** ** |   | ** ** |   |   | 4,539,080 | ** ** | ** ** | ** ** |   | ** ** |   |   | 362,356 |   |   | 8.7 | ** ** |   | ** ** | ** ** |   | ** ** | ** ** |   |
| Total stockholders’ equity                                          |       | 4,176,724                    | ** ** | ** **                 | ** ** |   | ** ** |   |   | 4,539,080 | ** ** | ** ** | ** ** |   | ** ** |   |   | 362,356 |   |   | 8.7 | ** ** |   | ** ** | ** ** |   | ** ** | ** ** |   |
| Total liabilities and stockholders’  equity                         |       | $                            | 46,900,808 | ** **                 | ** ** | ** ** |   | ** ** |   |   | $ | 48,676,618 | ** ** | ** ** | ** ** |   | ** ** |   |   | $ | 1,775,810 |   |   | 3.8 | % |   | ** ** | ** ** |   | ** ** | ** ** |   |
| **Net Interest Income/Margin**                                           | ** ** | ** **                   | ** ** | ** **                 | ** ** |   | ** ** | ** ** |   | ** ** | ** ** | ** ** | ** ** |   | ** ** | ** ** |   | ** ** | ** ** |   | ** ** | ** ** |   | ** ** | ** ** |   | ** ** | ** ** |   |
| Net interest income/margin  (taxable-equivalent basis)                   | ** ** | ** **                   |       | 896,445                    |       |   | 4.27 | % |   | ** ** |   | 935,341 |   |   | 4.29 | % |   | ** ** | ** ** |   | ** ** |   |   | 38,896 |   |   | 4.3 |   |   |
| Less: taxable-equivalent adjustment                                      | ** ** | ** **                   |       | 2,073                      | ** ** |   | ** ** | ** ** |   | ** ** |   | 2,606 | ** ** |   | ** ** | ** ** |   | ** ** | ** ** |   | ** ** |   |   | 533 |   |   | 25.7 |   |   |
| Net interest income                                                      | ** ** | ** **                   |       | $                          | 894,372    | ** ** |   | ** ** | ** ** |   | ** ** |   | $ | 932,735 | ** ** |   | ** ** | ** ** |   | ** ** | ** ** |   | ** ** |   |   | $ | 38,363 |   |   | 4.3 | % |   |

 

| ** **  | **Average Assets and Liabilities of Discontinued  Operations for the Six Months Ended:** | ** ** | ** ** | ** ** | **June 30,  2005** | ** ** | ** ** | ** ** | ** ** | ** ** | **June 30,  2006** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
|-------------|------------------------------------------------------------------------------------------|------------|------------|------------|--------------------|------------|------------|------------|------------|------------|--------------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|
| Assets      |                                                                                     |       |       | $          | 1,973,171          |       |       |       |       |       |               |       | $          | 347,431    |       |       |       |       |       |       |       |       |   |   |   |   |   |   |   |   |   |
| Liabilities |                                                                                     |       |       | $          | 1,466,520          |       |       |       |       |       |               |       | $          | 300,883    |       |       |       |       |       |       |       |       |   |   |   |   |   |   |   |   |   |
| Net assets  |                                                                                     |       |       | $          | 506,651            |       |       |       |       |       |               |       | $          | 46,548     |       |       |       |       |       |       |       |       |   |   |   |   |   |   |   |   |   |

----

(1)          Yieldsand interest income are presented on a taxable-equivalent basis using thefederal statutory tax rate of 35 percent.

(2)          Annualized.

(3)          Averagebalances on loans outstanding include all nonperforming loans. The amortizedportion of net loan origination fees (costs) is included in interest income onloans, representing an adjustment to the yield.

(4)          InSeptember 2005, Union Bank of California, N.A. committed to a plan for disposalof its international correspondent banking business. All periods presented havebeen restated to reflect discontinued operations.  Net funding allocated from (to) discontinuedoperations represents the shortage (excess) of assets over liabilities ofdiscontinued operations.  The expense(earnings) on funds allocated from (to) discontinued operations are calculatedby taking the net balance and applying an earnings rate or a cost of fundsequivalent to the corresponding quarter's fed funds purchased rate. Theyear-to-date expense (earnings) amount is the sum of the quarterly amounts.

nm = not meaningful

Net interest income in the second quarter 2006, on ataxable-equivalent basis, increased 2 percent from the second quarter2005. Our results were primarily due to the following:

·       Averageearning assets increased $1.7 billion, or 4 percent, primarily due to anincrease in average loans, partly offset by a decline in average securities.The increase in average loans was largely due to a $2.4 billion increase inaverage commercial loans and a $1.4 billion increase in average residentialmortgages, while average securities declined by $2.6 billion as a result ofsales of 

40

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approximately $1.5 billion inlower yielding agency securities between June 2005 and December 2005and maturities offset by purchases of $1.0 billion in higher yieldingnon-agency securities between December 2005 and February 2006;

·       Yieldson our earning assets were favorably impacted by the increasing interest rateenvironment resulting in a higher average yield on average earning assets of 80basis points, despite being negatively impacted by lower hedge income, whichdecreased by $15.1 million;

·       Averagenoninterest bearing deposits decreased $1.3 billion, or 7 percent, including adecrease of $733 million, or 22 percent, in average title and escrow depositsdue to lower residential real estate activity. Average business demanddeposits, excluding title and escrow deposits, declined $441 million, or 4percent, primarily due to deposit pricing pressures resulting from risingshort-term interest rates. Consumer demand deposits decreased $90 million, or 3percent. Average noninterest bearing deposits represented 44 percent of averagetotal deposits in second quarter 2006 compared to 48 percent in the secondquarter of 2005; and

·       Inthe second quarter 2006, the annualized average all-in cost of funds, whichincluded lower hedge income of $4.3 million, was 1.76 percent, reflecting ouraverage deposit-to-loan ratio of 113 percent and the relatively high proportionof noninterest bearing deposits to total deposits.

As a result of these changes, our net interest margindecreased by 9 basis points.

We use derivatives to hedge expected changes in theyields on our variable rate loans and term certificates of deposit (CDs), andto convert our long-term, fixed-rate borrowings to floating rate. For 2006,these derivative positions are expected to provide less net interest incomethan in 2005, as positions mature and, to a lesser extent, as interest ratesrise. However, as we expected, the declines in hedge income have been offset byincreased yields on the underlying variable rate loans. For the quarters ended June 30,2005 and 2006, we had hedge income for our loans of $3.1 million and hedgeexpense of $12.0 million, respectively. For deposits and long-term fixed rateborrowings, we had hedge income of $4.3 million and hedge expense of less than$0.1 million in the quarters ended June 30, 2005 and 2006, respectively.

Net interest income inthe first six months of 2006, on a taxable-equivalent basis, increased 4percent, from the first six months of 2005. Our results were primarily due tothe following:

·       Averageearning assets increased $1.6 billion, or 4 percent, primarily due to anincrease in average loans, partly offset by a decline in average securities.The increase in average loans was largely due to a $2.2 billion increase inaverage commercial loans and a $1.5 billion increase in average residentialmortgages, while average securities declined by $2.7 billion;

·       Yieldson our earning assets were favorably impacted by the increasing interest rateenvironment resulting in a higher average yield on average earning assets of 81basis points, despite being negatively impacted by lower hedge income, whichdecreased by $29.0 million;

·       Average noninterest bearingdeposits decreased $958 million, or 5 percent, including a decrease of $557million, or 18 percent, in average title and escrow deposits due to lower residential real estate activity. Averagebusiness demand deposits, excluding title and escrow deposits, declined $371million, or 3 percent, primarily due to deposit pricing pressures resultingfrom rising short-term interest rates. Consumer demand deposits decreased $31million, or 1 percent. Average noninterest bearing deposits represented45 percent of average total deposits in the first six months of 2006 comparedto 48 percent of average total deposits in the first six months of 2005; and

·  In the first six months of 2006, theannualized average all-in cost of funds, which included lower hedge income of$6.9 million, was 1.61 percent, reflecting our average deposit-to-loan ratio of114 percent and the relatively high proportion of noninterest bearing depositsto total deposits.

41

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As a result of these changes, our net interest marginincreased by 2 basis points.

We use derivatives to hedgeexpected changes in the yields on our variable rate loans and term CDs, and toconvert our long-term, fixed-rate borrowings to floating rate. For the sixmonths ended June 30, 2005 and 2006, we had hedge income for our loans of$9.2 million and hedge expense of $19.8 million, respectively. For deposits andlong-term fixed rate borrowings, hedge income was $7.7 million and $0.8 millionfor the first six months of June 30, 2005 and 2006, respectively.

**Noninterest Income**

| ** **                               | ** ** | **For the Three Months Ended** | ** ** | **For the Six Months Ended** | ** ** |
|------------------------------------------|------------|----------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                               | ** ** | **June 30,**                                  | ** ** | **June 30,**                                | ** ** | **Increase (Decrease)** | ** ** | **June 30,** | ** ** | **June 30,** | ** ** | **Increase (Decrease)** | ** ** |
| **(Dollars in thousands)**     | ** ** | **2005**                                           | ** ** | **2006**                                         | ** ** | **Amount** | ** ** | **Percent** | ** ** | **2005** | ** ** | **2006** | ** ** | **Amount** | ** ** | **Percent** | ** ** |
| Service charges on deposit accounts      |       | $                                                  | 79,746     |                                             | $          | 81,837 |   | $ | 2,091 |   |   | 2.6 | % |   | $ | 159,013 |   | $ | 163,472 |   | $ | 4,459 |   |   | 2.8 | % |   |
| Trust and investment management fees     |       | 41,590                                             |       | 48,380                                           |       | 6,790 |   |   | 16.3 |   |   | 83,553 |   | 98,495 |   | 14,942 |   |   | 17.9 |   |   |
| Insurance commissions                    |       | 19,340                                             |       | 17,752                                           |       | (1,588 | ) |   | (8.2 | ) |   | 41,357 |   | 37,270 |   | (4,087 | ) |   | (9.9 | ) |   |
| Brokerage commissions and fees           |       | 8,605                                              |       | 10,330                                           |       | 1,725 |   |   | 20.0 |   |   | 17,577 |   | 18,125 |   | 548 |   |   | 3.1 |   |   |
| Merchant banking fees                    |       | 18,114                                             |       | 8,396                                            |       | (9,718 | ) |   | (53.6 | ) |   | 24,380 |   | 16,625 |   | (7,755 | ) |   | (31.8 | ) |   |
| Foreign exchange gains, net              |       | 8,551                                              |       | 8,307                                            |       | (244 | ) |   | (2.9 | ) |   | 16,721 |   | 16,125 |   | (596 | ) |   | (3.6 | ) |   |
| Card processing fees, net                |       | 6,464                                              |       | 7,206                                            |       | 742 |   |   | 11.5 |   |   | 12,071 |   | 13,903 |   | 1,832 |   |   | 15.2 |   |   |
| Securities gains (losses), net           |       | (13,313                                            | )          | 1,993                                            |       | 15,306 |   |   | nm |   |   | (12,969 | ) | 1,779 |   | 14,748 |   |   | nm |   |   |
| Gain on private capital investments, net |       | 5,261                                              |       | 3,702                                            |       | (1,559 | ) |   | (29.6 | ) |   | 13,196 |   | 6,529 |   | (6,667 | ) |   | (50.5 | ) |   |
| Other                                    |       | 29,196                                             |       | 31,325                                           |       | 2,129 |   |   | 7.3 |   |   | 54,280 |   | 64,815 |   | 10,535 |   |   | 19.4 |   |   |
| Total noninterest  income                |       | $                                                  | 203,554    |                                             | $          | 219,228 |   | $ | 15,674 |   |   | 7.7 | % |   | $ | 409,179 |   | $ | 437,138 |   | $ | 27,959 |   |   | 6.8 | % |   |

----

nm =not meaningful

**Noninterest Expense**

| ** **                                                         | ** ** | **For the Three Months Ended** | ** ** | **For the Six Months Ended** | ** ** |
|--------------------------------------------------------------------|------------|----------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                         | ** ** | **June**                                           | ** ** | **June**                                         | ** ** | **Increase (Decrease)** | ** ** | **June** | ** ** | **June** | ** ** | **Increase (Decrease)** | ** ** |
| **(Dollars in thousands)**                               | ** ** | **2005**                                           | ** ** | **2006**                                         | ** ** | **Amount** | ** ** | **Percent** | ** ** | **2005** | ** ** | **2006** | ** ** | **Amount** | ** ** | **Percent** | ** ** |
| Salaries and other compensation                                    |       | $                                                  | 186,998    |                                             | $          | 201,689 |   | $ | 14,691 |   |   | 7.9 | % |   | $ | 365,955 |   | $ | 395,948 |   | $ | 29,993 |   |   | 8.2 | % |   |
| Employee benefits                                                  |       | 46,978                                             |       | 46,948                                           |       | (30 | ) |   | (0.1 | ) |   | 99,779 |   | 105,184 |   | 5,405 |   |   | 5.4 |   |   |
| Salaries and employee benefits                                     |       | 233,976                                            |       | 248,637                                          |       | 14,661 |   |   | 6.3 |   |   | 465,734 |   | 501,132 |   | 35,398 |   |   | 7.6 |   |   |
| Net occupancy                                                      |       | 33,553                                             |       | 34,519                                           |       | 966 |   |   | 2.9 |   |   | 65,915 |   | 67,356 |   | 1,441 |   |   | 2.2 |   |   |
| Outside services                                                   |       | 26,468                                             |       | 30,704                                           |       | 4,236 |   |   | 16.0 |   |   | 47,715 |   | 59,313 |   | 11,598 |   |   | 24.3 |   |   |
| Equipment                                                          |       | 16,933                                             |       | 16,846                                           |       | (87 | ) |   | (0.5 | ) |   | 34,336 |   | 34,768 |   | 432 |   |   | 1.3 |   |   |
| Software                                                           |       | 14,731                                             |       | 15,323                                           |       | 592 |   |   | 4.0 |   |   | 28,706 |   | 31,667 |   | 2,961 |   |   | 10.3 |   |   |
| Professional services                                              |       | 13,150                                             |       | 17,038                                           |       | 3,888 |   |   | 29.6 |   |   | 24,891 |   | 31,585 |   | 6,694 |   |   | 26.9 |   |   |
| Advertising and public relations                                   |       | 8,903                                              |       | 11,270                                           |       | 2,367 |   |   | 26.6 |   |   | 16,543 |   | 21,501 |   | 4,958 |   |   | 30.0 |   |   |
| Communications                                                     |       | 9,762                                              |       | 10,061                                           |       | 299 |   |   | 3.1 |   |   | 20,142 |   | 20,613 |   | 471 |   |   | 2.3 |   |   |
| Data processing                                                    |       | 8,427                                              |       | 7,845                                            |       | (582 | ) |   | (6.9 | ) |   | 17,296 |   | 15,243 |   | (2,053 | ) |   | (11.9 | ) |   |
| Intangible asset amortization                                      |       | 4,985                                              |       | 3,427                                            |       | (1,558 | ) |   | (31.3 | ) |   | 9,971 |   | 6,857 |   | (3,114 | ) |   | (31.2 | ) |   |
| Foreclosed asset income                                            |       | (2,577                                             | )          | (7,782                                           | )          | (5,205 | ) |   | nm |   |   | (2,171 | ) | (15,149 | ) | (12,978 | ) |   | nm |   |   |
| Reversal of allowance for losses on off-balance sheet  commitments |       | (4,000                                             | )          | (4,000                                           | )          | — |   |   | — |   |   | (1,000 | ) | (7,000 | ) | (6,000 | ) |   | nm |   |   |
| Other                                                              |       | 24,089                                             |       | 29,142                                           |       | 5,053 |   |   | 21.0 |   |   | 53,274 |   | 59,688 |   | 6,414 |   |   | 12.0 |   |   |
| Total noninterest  expense                                         |       | $                                                  | 388,400    |                                             | $          | 413,030 |   | $ | 24,630 |   |   | 6.3 | % |   | $ | 781,352 |   | $ | 827,574 |   | $ | 46,222 |   |   | 5.9 | % |   |

----

nm = not meaningful

42

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**Income Tax Expense**

Income tax expense oncontinuing operations in the second quarter 2006 resulted in a 33.5 percenteffective income tax rate compared with an effective tax rate of 34.8 percentfor the second quarter 2005. The decrease in the effective tax rate was dueprimarily to higher tax credits in 2006. Income tax expense in the first sixmonths of 2006 resulted in a 33.8 percent effective tax rate compared with aneffective tax rate of 33.0 percent for the first six months of 2005. The lowertax rate in 2005 was due primarily to a reduction in reserves of $10.0 millionin the first quarter of 2005 for estimated amounts owed to the Internal RevenueService with respect to certain leveraged leasing transactions.

For further informationregarding income tax expense, see “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations—Income Tax Expense” in our AnnualReport on Form 10-K for the year ended December 31, 2005.

**Loans**

Thefollowing table shows loans outstanding by loan type.

| ** **                            | ** ** | ** **        | ** ** | ** **            | ** ** | ** **        | ** ** | **Increase (Decrease)  June 30, 2006 From:** | ** ** |
|---------------------------------------|------------|-------------------|------------|-----------------------|------------|-------------------|------------|------------------------------------------------------------------|------------|
| ** **                            | ** ** | **June 30,** | ** ** | **December 31,** | ** ** | **June 30,** | ** ** | **June 30, 2005**                                           | ** ** | **December 31, 2005** | ** ** |
| **(Dollars in thousands)**  | ** ** | **2005**          | ** ** | **2005**              | ** ** | **2006**          | ** ** | **Amount**                                                       | ** ** | **Percent** | ** ** | **Amount** | ** ** | **Percent** | ** ** |
| Domestic:                             | ** ** | ** **        | ** ** |                  | ** ** | ** **        |       | ** **                                                       | ** ** | ** ** | ** ** |   | ** ** | ** ** |   | ** ** | ** ** |   | ** ** | ** ** |   |
| Commercial, financial  and industrial |       | $                 | 10,546,329 |                  |       | $                 | 11,450,955 | ** **                                                       |       | $ | 12,218,058 |   | $ | 1,671,729 |   |   | 15.9 | % |   | $ | 767,103 |   |   | 6.7 | % |   |
| Construction                          |       | 1,240,752         |       |                  | 1,447,292  | ** **        |       | 1,849,236                                                        |       | 608,484 |   |   | 49.0 |   |   | 401,944 |   |   | 27.8 |   |   |
| Mortgage:                             |       |              |       |                  |       | ** **        |       |                                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Residential                           |       | 10,457,449        |       |                  | 11,380,728 | ** **        |       | 11,844,946                                                       |       | 1,387,497 |   |   | 13.3 |   |   | 464,218 |   |   | 4.1 |   |   |
| Commercial                            |       | 5,538,578         |       |                  | 5,682,624  | ** **        |       | 5,649,504                                                        |       | 110,926 |   |   | 2.0 |   |   | (33,120 | ) |   | (0.6 | ) |   |
| Total mortgage                        |       | 15,996,027        |       |                  | 17,063,352 | ** **        |       | 17,494,450                                                       |       | 1,498,423 |   |   | 9.4 |   |   | 431,098 |   |   | 2.5 |   |   |
| Consumer:                             |       |              |       |                  |       | ** **        |       |                                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Installment                           |       | 790,963           |       |                  | 891,062    | ** **        |       | 1,021,542                                                        |       | 230,579 |   |   | 29.2 |   |   | 130,480 |   |   | 14.6 |   |   |
| Revolving lines of  credit            |       | 1,676,701         |       |                  | 1,610,680  | ** **        |       | 1,488,533                                                        |       | (188,168 | ) |   | (11.2 | ) |   | (122,147 | ) |   | (7.6 | ) |   |
| Total consumer                        |       | 2,467,664         |       |                  | 2,501,742  | ** **        |       | 2,510,075                                                        |       | 42,411 |   |   | 1.7 |   |   | 8,333 |   |   | 0.3 |   |   |
| Lease financing                       |       | 594,952           |       |                  | 579,593    | ** **        |       | 568,914                                                          |       | (26,038 | ) |   | (4.4 | ) |   | (10,679 | ) |   | (1.8 | ) |   |
| Total loans held to  maturity         |       | 30,845,724        |       |                  | 33,042,934 | ** **        |       | 34,640,733                                                       |       | 3,795,009 |   |   | 12.3 |   |   | 1,597,799 |   |   | 4.8 |   |   |
| Total loans held for  sale            |       | 15,511            |       |                  | 52,661     | ** **        |       | 107,100                                                          |       | 91,589 |   |   | nm |   |   | 54,439 |   |   | nm |   |   |
| Total loans                           |       | $                 | 30,861,235 |                  |       | $                 | 33,095,595 | ** **                                                       |       | $ | 34,747,833 |   | $ | 3,886,598 |   |   | 12.6 | % |   | $ | 1,652,238 |   |   | 5.0 | % |   |

 

*Commercial, Financial and Industrial Loans*

Commercial, financial andindustrial 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 oftotal loans. Although many of our customers are located in California, theportfolio has a high degree of geographic diversification based upon ourcustomers’ revenue bases, which we believe lowers our vulnerability to changesin the economic outlook of any particular region of the U.S.

Our commercial market lending originatesprimarily through our commercial banking offices. These offices, which relyextensively on relationship-oriented banking, provide a variety of servicesincluding cash management services, lines of credit, accounts receivable andinventory financing. Separately, we originate or participate in a wide varietyof financial services to major corporations. These services include traditionalcommercial banking and specialized financing tailored to the needs of eachcustomer’s specific industry. Presently, we are active in, among other sectors,the oil and gas, communications, entertainment, retailing, power and utilitiesand financial services industries.

The commercial, financial andindustrial loan portfolio increased in the second quarter 2006 from the secondquarter 2005 mainly due to increased loan demand primarily in the oil and gasand national corporate segments as well as the California middle market.

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*Construction and Commercial Mortgage Loans*

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

The construction loanportfolio increase in the second quarter 2006 from the second quarter 2005 wasmainly due to increased demand for commercial financing of office, industrial,and retail projects.

The commercial mortgage loanportfolio consists of loans on commercial income properties primarily inCalifornia. The increase in commercial mortgages between the second quarter of2006 and the second quarter of 2005 was mainly due to increased demand in the California middle market forreal estate related financing.

*Residential Mortgage Loans*

We originate residentialmortgage loans, secured by one-to-four family residential properties, throughour multiple channel network (including branches, mortgage brokers, andloan-by-phone) throughout California, Oregon and Washington, and weperiodically purchase loans in our market area. At June 30, 2006, 61percent of our residential mortgage loans were interest only, of which none arenegative amortizing. At origination, these interest only loans had relativelyhigh credit scores and had weighted average loan-to-value (LTV) ratios ofapproximately 65 percent. The remainder of the portfolio consists of balloon orregular amortizing loans.

We hold most of the loans weoriginate, selling only our 30-year, fixed rate loans, except forCommunity Reinvestment Act (CRA) loans.

*Consumer Loans*

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

*Lease Financing*

We offer two types of leasesto our customers: direct financing leases, where the assets leased are acquiredwithout additional financing from other sources; and leveraged leases, where asubstantial portion of the financing is provided by debt with no recourse to us.Included in our lease portfolio are leveraged leases of $550 million, which arenet of non-recourse debt of approximately $1.1 billion. We utilize a number ofspecial purpose entities for our leveraged leases. These entities serve legaland tax purposes and do not function as vehicles to shift liabilities to otherparties or to deconsolidate affiliates for financial reporting purposes. Asallowed by US GAAP and by law, the gross lease receivable is offset by thequalifying non-recourse debt. In leveraged lease transactions, the third-partylender may only look to the collateral value of the leased assets forrepayment.

**Cross-Border Outstandings**

Our cross-borderoutstandings, including those that are part of our discontinued operations,reflect certain additional economic and political risks that are not reflectedin domestic outstandings. These risks include those arising from exchange ratefluctuations and restrictions on the transfer of funds. The following tablesets forth our cross-border outstandings as of June 30, 2005, forany country where such outstandings exceeded 1 percent of total assets. For theperiods ended December 31, 2005 and June 30, 2006 there were no countrieswhere such cross-border outstandings exceeded 1 percent of total assets. Thecross-border outstandings were compiled based upon category and domicileof ultimate risk and are 

44

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comprised ofbalances with banks, trading account assets, securities available for sale,securities purchased under resale agreements, loans, accrued interestreceivable, acceptances outstanding and investments with foreign entities. Forany country shown in the table below, any significant local currency outstandingsare either hedged or funded by local currency borrowings.

| ** **                          | ** ** | ** **       | ** ** | **Public**   | ** ** | **Corporations**   | ** ** | ** **       | ** ** |
|-------------------------------------|------------|------------------|------------|--------------|------------|--------------------|------------|------------------|------------|
| ** **                          | ** ** | **Financial**    | ** ** | **Sector**   | ** ** | **and Other** | ** ** | **Total**        | ** ** |
| **(Dollars in millions)** | ** ** | **Institutions** | ** ** | **Entities** | ** ** | **Borrowers**      | ** ** | **Outstandings** | ** ** |
| June 30, 2005                  |       |             |       |         |       |               |       |             |       |   |   |   |   |   |   |   |   |
| Korea                               |       |             | $          | 626          |       |               |       | $                | —     |   |   |   | $ | 7 |   |   |   | $ | 633 |   |   |
|                                     |            |                  |            |              |            |                    |            |                  |            |  |  |  |  |  |  |  |  |  |  |  |  |

 

**Provision for LoanLosses**

We recorded a reversal of theallowance for loan losses of $1 million in the second quarter of 2006, comparedwith a reversal of the allowance for loan losses of $14 million in the secondquarter of 2005. Provisions for loan losses are charged to income to bring ourallowance for loan losses to a level deemed appropriate by management based onthe factors discussed under “Allowances for Credit Losses” below. We recorded arecovery of $4 million for losses related to the change in the allowance forlosses on off-balance sheet commitments in both the second quarter 2006 and2005.

**Allowances for CreditLosses**

*Allowance Policy andMethodology*

We maintain allowances forcredit losses (defined as both the allowance for loan losses and the allowancefor off-balance sheet commitment losses) to absorb losses inherent in the loanportfolio as well as for leases and off-balance sheet commitments. Understandingour policies on the allowances for credit losses is fundamental tounderstanding our consolidated financial condition and consolidated results ofoperations. Accordingly, our significant policies and methodology on theallowances for credit losses are discussed in detail in Note 1 to our ConsolidatedFinancial Statements and in the section “Allowances for Credit Losses” includedin our “Management’s Discussion and Analysis of Financial Condition and Resultsof Operations” in our Annual Report on Form 10-K for the year endedDecember 31, 2005.

*Comparison of the Total Allowances and RelatedProvision for Credit Losses from December 31, 2005*

At June 30, 2006, our total allowances for creditlosses was $408 million, which consisted of $329 million related to loansand $79 million related to off-balance sheet commitments. The allowances forcredit losses consisted of $341 million and $67 million of allocated andunallocated allowance, respectively. At June 30, 2006, our allowances forcredit loss coverage ratios were 1.17 percent of total loans and 1,130 percentof total nonaccrual loans. At December 31, 2005, our total allowances forcredit losses was $438 million, or 1.32 percent of the total loan portfolio and744 percent of total nonaccrual loans.

In addition, the allowances incorporate the results ofmeasuring impaired loans as provided in SFAS No. 114, “Accounting byCreditors for Impairment of a Loan” as amended by SFAS No. 118, “Accountingby Creditors for Impairment of a Loan—Income Recognition and Disclosures.”These accounting standards prescribe the measurement methods, incomerecognition and disclosures related to impaired loans. At June 30, 2006,total impaired loans were $21 million, and the associated impairment allowancewas $1 million, compared with $59 million and $13 million, respectively,at December 31, 2005.

At June 30, 2006 and December 31, 2005, theallowance for losses related to off-balance sheet commitments included withinour total allowances for credit losses, was $79 million and $86 million, 

45

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respectively. In determiningthe adequacy of our allowances for credit losses, we consider both theallowance for loan losses and for off-balance sheet commitment losses.

We recorded a reversal of our allowance for loanlosses of $1 million in the second quarter 2006, as a result of management’sassessment of factors, including improvements in the quality of our loanportfolio, growth in the U.S. economy and stable conditions in domestic marketsin which we operate, offset by the growth in the loan portfolio.

During the second quarter of2006, there were no material changes in estimation methods or assumptions thataffected our methodology for assessing the appropriateness of the formula andspecific allowances for credit losses.

*Changes in theAllocated (Formula and Specific) Allowance*

At June 30, 2006, the formula allowance decreasedto $335 million, compared to $356 million at December 31, 2005. The netdecrease was due primarily to the impact of a decrease in criticized loans andto changes in our estimated loss factors, partially offset by growth in thecommercial loan portfolio.

At June 30, 2006, thespecific allowance decreased to $6 million, compared to $17 million at December 31,2005. This decrease was primarily reflective of lower nonaccrual loans.

*Changes in theUnallocated Allowance*

At June 30, 2006, the unallocated allowanceincreased modestly to $67 million from $65 million at December 31, 2005,reflecting management’s belief that maintaining the unallocated allowance nearour December 31, 2005 assessment is appropriate based on continuinguncertainty associated with our principal portfolio segments as we approach aturning point in credit quality trends. Additionally, the reasons for which webelieve an unallocated allowance is warranted are detailed below.

In our assessment as of June 30, 2006, managementfocused, in particular, on the factors and conditions set out below. There canbe no assurance that the adverse impact of any of these conditions on us willnot be in excess of the ranges set forth.

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

The following describesthe specific conditions we considered.

·       Withrespect to fuel prices, we considered the ability of borrowers to absorb higheroil prices without anticipated negative effects, the prospects of high costs ofoil and petroleum products and the impact across virtually all sectors of theeconomy, which could be in a range of $6 million to $29 million.

·       Withrespect to commercial real estate, we considered the improvement in thecommercial real estate sector, partly offset by weakness in the residentialconstruction market, which could be in the range of $8 million to $18 million.

·       Withrespect to concentrated sales, which include suppliers of “big box” stores likeCostco, Wal-Mart, Home Depot, Lowe’s and other companies that generate 15percent or more of their revenues 

46

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from one customer, weconsidered the potential negative impact competitive market pricing would haveon their profit margins, which could be in the range of $7 million to $12million.

·       Withrespect to contractors, we considered the decline in new home sales and theimpact of higher commodity prices on contractor margins, which could be in therange of $5 million to $7 million.

·       Withrespect to leasing, we considered the uncertain state of the airline industry,as well as improving positions in our utilities portfolio, which could be inthe range of $3 million to $6 million.

Accordingly, our evaluation ofthe probable losses related to the impact of these factors was reflected in theunallocated allowance.

*Change in the TotalAllowances for Credit Losses*

Thefollowing table sets forth a reconciliation of changes in our allowances forcredit losses:

| ** **                                                                                  | ** ** | **For the Three Months  Ended June 30,** | ** ** | **Increase (Decrease)** | ** ** | **For the Six Months  Ended June 30,** | ** ** | **Increase (Decrease)** | ** ** |
|---------------------------------------------------------------------------------------------|------------|------------------------------------------|------------|-------------------------|------------|----------------------------------------|------------|-------------------------|------------|
| **(Dollars in thousands)**                                                        | ** ** | **2005**                                 | ** ** | **2006**                | ** ** | **Amount**                             | ** ** | **Percent**             | ** ** | **2005** | ** ** | **2006** | ** ** | **Amount** | ** ** | **Percent** | ** ** |
| Balance, beginning of period                                                                |       | $                                        | 401,275    |                    | $          | 339,443                                |       | $                       | (61,832    | ) |   | (15.4 | )% |   | $ | 399,156 |   | $ | 351,532 |   | $ | (47,624 | ) |   | (11.9 | )% |   |
| Loans charged off:                                                                          |       |                                     |       |                    |       |                                   |       |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial, financial  and industrial                                                       |       | 4,026                                    |       | 18,425                  |       | 14,399                                 |       |                    | nm         |   |   | 7,363 |   | 29,169 |   | 21,806 |   |   | nm |   |   |
| Construction                                                                                |       | —                                   |       | —                  |       | —                                 |       |                    | nm         |   |   | 118 |   | — |   | (118 | ) |   | (100.0 | ) |   |
| Mortgage                                                                                    |       | 11                                       |       | 336                     |       | 325                                    |       |                    | nm         |   |   | 1,307 |   | 336 |   | (971 | ) |   | (74.3 | ) |   |
| Consumer                                                                                    |       | 1,018                                    |       | 876                     |       | (142                                   | )          |                    | (13.9      | ) |   | 2,101 |   | 1,794 |   | (307 | ) |   | (14.6 | ) |   |
| Lease financing                                                                             |       | 71                                       |       | 3                       |       | (68                                    | )          |                    | (95.8      | ) |   | 202 |   | 22 |   | (180 | ) |   | (89.1 | ) |   |
| Total loans charged off                                                                     |       | 5,126                                    |       | 19,640                  |       | 14,514                                 |       |                    | nm         |   |   | 11,091 |   | 31,321 |   | 20,230 |   |   | nm |   |   |
| Recoveries of loans  previously charged off:                                                |       |                                     |       |                    |       |                                   |       |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial, financial  and industrial                                                       |       | 11,842                                   |       | 8,937                   |       | (2,905                                 | )          |                    | (24.5      | ) |   | 31,442 |   | 10,846 |   | (20,596 | ) |   | (65.5 | ) |   |
| Construction                                                                                |       | 34                                       |       | —                  |       | (34                                    | )          |                    | (100.0     | ) |   | 34 |   | — |   | (34 | ) |   | (100.0 | ) |   |
| Mortgage                                                                                    |       | 25                                       |       | —                  |       | (25                                    | )          |                    | (100.0     | ) |   | 48 |   | 2 |   | (46 | ) |   | (95.8 | ) |   |
| Consumer                                                                                    |       | 411                                      |       | 436                     |       | 25                                     |       |                    | 6.1        |   |   | 1,001 |   | 876 |   | (125 | ) |   | (12.5 | ) |   |
| Lease financing                                                                             |       | 120                                      |       | 10                      |       | (110                                   | )          |                    | (91.7      | ) |   | 137 |   | 4,238 |   | 4,101 |   |   | nm |   |   |
| Total recoveries of  loans previously charged off                                           |       | 12,432                                   |       | 9,383                   |       | (3,049                                 | )          |                    | (24.5      | ) |   | 32,662 |   | 15,962 |   | (16,700 | ) |   | (51.1 | ) |   |
| Net loans charged off  (recovered)                                                          |       | (7,306                                   | )          | 10,257                  |       | 17,563                                 |       |                    | nm         |   |   | (21,571 | ) | 15,359 |   | 36,930 |   |   | nm |   |   |
| Reversal of allowance for loan losses                                                       |       | (13,564                                  | )          | (1,000                  | )          | 12,564                                 |       |                    | (92.6      | ) |   | (25,683 | ) | (8,000 | ) | 17,683 |   |   | (68.9 | ) |   |
| Foreign translation  adjustment and other net additions (deductions)                   |       | (45                                      | )          | 152                     |       | 197                                    |       |                    | nm         |   |   | (72 | ) | 165 |   | 237 |   |   | nm |   |   |
| Ending balance of  allowance for loan losses                                                |       | 394,972                                  |       | 328,338                 |       | (66,634                                | )          |                    | (16.9      | )% |   | 394,972 |   | 328,338 |   | (66,634 | ) |   | (16.9 | )% |   |
| Allowance for losses  on off-balance sheet commitments                                 |       | 81,375                                   |       | 79,374                  |       | (2,001                                 | )          |                    | (2.5       | ) |   | 81,375 |   | 79,374 |   | (2,001 | ) |   | (2.5 | ) |   |
| Allowances for credit  losses                                                               |       | $                                        | 476,347    |                    | $          | 407,712                                |       | $                       | (68,635    | ) |   | (14.4 | )% |   | $ | 476,347 |   | $ | 407,712 |   | $ | (68,635 | ) |   | (14.4 | )% |   |
| Allowances for credit  losses to total loans                                           |       | 1.54                                     | %          | 1.17                    | %          |                                   |       |                    |       |   |   | 1.54 | % | 1.17 | % |   |   |   |   |   |   |
| Reversal of allowance  for loan losses to net loans charged off (recovered)                 |       | 185.66                                   |       | (9.75                   | )          |                                   |       |                    |       |   |   | 119.06 |   | (52.09 | ) |   |   |   |   |   |   |
| Net loans charged off  (recovered) to average loans outstanding for the period(1) |       | (0.10                                    | )          | 0.12                    |       |                                   |       |                    |       |   |   | (0.14 | ) | 0.09 |   |   |   |   |   |   |   |

----

(1)           Annualized.

nm = not meaningful

47

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Total loans charged off in thesecond quarter 2006 increased from the second quarter 2005, primarily due to the charge-off of two commercialloans, one of which was in excess of $11 million. Charge-offs reflectthe realization of losses in the portfolio that were recognized previouslythrough provision for credit losses. In addition, second quarter 2006recoveries of loans previously charged off decreased from the second quarter of2005 primarily as a result of three large recoveries in the second quarter of2005 totaling over $8.0 million. Such fluctuations in loan recoveries fromyear-to-year are due to variability in timing of recoveries and tend to trailthe periods in which charge-offs are recorded.

**Nonperforming Assets**

Nonperforming assets consist of nonaccrual loans andforeclosed assets. Nonaccrual loans are those for which management hasdiscontinued accrual of interest because there exists significant uncertaintyas to the full and timely collection of either principal or interest or suchloans have become contractually past due 90 days with respect to principal orinterest. For a more detailed discussion of the accounting for nonaccrualloans, see Note 1 to our Consolidated Financial Statements included in ourAnnual Report on Form 10-K for the year ended December 31,2005.

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

Thefollowing table sets forth an analysis of nonperforming assets.

| ** **                                                      | ** ** | ** **        | ** ** | ** **            | ** ** | ** **        | ** ** | **Increase (Decrease)  June 30, 2006 From:** | ** ** |
|-----------------------------------------------------------------|------------|-------------------|------------|-----------------------|------------|-------------------|------------|------------------------------------------------------------------|------------|
| ** **                                                      | ** ** | **June 30,** | ** ** | **December 31,** | ** ** | **June 30,** | ** ** | **June 30, 2005**                                      | ** ** | **December 31, 2005** | ** ** |
| **(Dollars in thousands)**                            | ** ** | **2005**          | ** ** | **2005**              | ** ** | **2006**          | ** ** | **Amount**                                                       | ** ** | **Percent** | ** ** | **Amount** | ** ** | **Percent** | ** ** |
| Commercial, financial and industrial                       |       | $                 | 35,510     |                  |       | $                 | 50,073     |                                                             |       | $ | 4,021 |   | $ | (31,489 | ) |   | (88.7 | )% |   | $ | (46,052 | ) |   | (92.0 | )% |   |
| Construction                                                    |       | 1,425             |       |                  | —     |              |       | —                                                           |       | (1,425 | ) |   | (100.0 | ) |   | — |   |   | nm |   |   |
| Commercial mortgage                                             |       | 11,168            |       |                  | 8,819      |              |       | 16,918                                                           |       | 5,750 |   |   | 51.5 |   |   | 8,099 |   |   | 91.8 |   |   |
| Lease financing                                                 |       | 17,960            |       |                  | —     |              |       | 15,140                                                           |       | (2,820 | ) |   | (15.7 | ) |   | 15,140 |   |   | nm |   |   |
| Total nonaccrual loans                                          |       | 66,063            |       |                  | 58,892     |              |       | 36,079                                                           |       | (29,984 | ) |   | (45.4 | ) |   | (22,813 | ) |   | (38.7 | ) |   |
| Foreclosed assets                                               |       | 2,882             |       |                  | 2,753      |              |       | 272                                                              |       | (2,610 | ) |   | (90.6 | ) |   | (2,481 | ) |   | (90.1 | ) |   |
| Total nonperforming assets                                      |       | $                 | 68,945     |                  |       | $                 | 61,645     |                                                             |       | $ | 36,351 |   | $ | (32,594 | ) |   | (47.3 | ) |   | $ | (25,294 | ) |   | (41.0 | ) |   |
| Allowances for credit losses(1)                                 |       | $                 | 476,347    |                  |       | $                 | 437,907    |                                                             |       | $ | 407,712 |   | $ | (68,635 | ) |   | (14.4 | )% |   | $ | (30,195 | ) |   | (6.9 | )% |   |
| Nonaccrual loans to total loans                                 |       | 0.21              | %          |                  | 0.18       | %                 |       | 0.10                                                             | %          |   |   |   |   |   |   |   |   |   |   |   |   |
| Allowances for credit losses to nonaccrual loans                |       | 721.05            |       |                  | 743.58     |              |       | 1,130.05                                                         |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Nonperforming assets to total loans and  foreclosed assets |       | 0.22              |       |                  | 0.19       |              |       | 0.10                                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Nonperforming assets  to total assets                           |       | 0.13              |       |                  | 0.12       |              |       | 0.07                                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |

----

(1)                   Includes allowance for losses related tooff-balance sheet commitments.

nm = not meaningful

The decrease in nonaccrualcommercial, financial, and industrial loans was primarily due to pay-downs,note sales, and charge-offs. During the second quarter 2006, we soldapproximately $8 million of nonperforming loans with no comparable sales in thesecond quarter 2005. Losses and recoveries that result when the sale decisionis made are reflected in our net charge-offs.

48

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**Loans 90 Days or More Past Due and Still Accruing**

| ** **                                                    | ** ** | ** **        | ** ** | ** **            | ** ** | ** **        | ** ** | **Increase (Decrease)  June 30, 2006 From:** | ** ** |
|---------------------------------------------------------------|------------|-------------------|------------|-----------------------|------------|-------------------|------------|------------------------------------------------------------------|------------|
| ** **                                                    | ** ** | **June 30,** | ** ** | **December 31,** | ** ** | **June 30,** | ** ** | **June 30, 2005**                                      | ** ** | **December 31, 2005** | ** ** |
| **(Dollars in thousands)**                          | ** ** | **2005**          | ** ** | **2005**              | ** ** | **2006**          | ** ** | **Amount**                                                       | ** ** | **Percent** | ** ** | **Amount** | ** ** | **Percent** | ** ** |
| Commercial, financial and industrial                          |       |              | $          | 578                   |       |              |       | $                                                                | 187        |   |   |   | $ | 426 |   |   | $ | (152 | ) |   | (26.3 | )% |   | $ | 239 |   |   | 127.8 | % |   |
| Construction                                                  |       |              | 1,180      |                  |       |              | 677        |                                                             |       |   | — |   |   | (1,180 | ) |   | (100.0 | ) |   | (677 | ) |   | (100.0 | ) |   |
| Mortgage:                                                     |       |              |       |                  |       |              |       |                                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Residential                                                   |       |              | 1,929      |                  |       |              | 2,784      |                                                             |       |   | 1,480 |   |   | (449 | ) |   | (23.3 | ) |   | (1,304 | ) |   | (46.8 | ) |   |
| Commercial                                                    |       |              | 30         |                  |       |              | 499        |                                                             |       |   | 568 |   |   | 538 |   |   | nm |   |   | 69 |   |   | 13.8 |   |   |
| Total mortgage                                                |       |              | 1,959      |                  |       |              | 3,283      |                                                             |       |   | 2,048 |   |   | 89 |   |   | 4.5 |   |   | (1,235 | ) |   | (37.6 | ) |   |
| Consumer and other                                            |       |              | 643        |                  |       |              | 819        |                                                             |       |   | 976 |   |   | 333 |   |   | 51.8 |   |   | 157 |   |   | 19.2 |   |   |
| Total loans 90 days or  more past due and still accruing |       |              | $          | 4,360                 |       |              |       | $                                                                | 4,966      |   |   |   | $ | 3,450 |   |   | $ | (910 | ) |   | (20.9 | )% |   | $ | (1,516 | ) |   | (30.5 | )% |   |

 

**Quantitative andQualitative Disclosures About Market Risk**

Our exposure to market risk exists primarily ininterest rate risk in our non-trading balance sheet and, to a much lesserdegree, in price risk in our trading portfolio for our customer-focused tradingand sales activities. The objective of market risk management is to mitigateany undue adverse impact on earnings and capital arising from changes ininterest rates and other market variables and to ensure the Bank has adequatesources of liquidity. This risk management objective supports our broadobjective of enhancing shareholder value, which encompasses stable earningsgrowth over time and capital stability. During the second quarter 2006, theBank’s structure for governing market risk was enhanced by expanding theinvolvement of Executive Management in the process.

The Board of Directors, through its Finance andCapital Committee, approves our Asset and Liability Management (ALM),Investment and Derivatives Policy, which governs the management of market risk andguides our investment and derivatives activities. The ALM Committee (ALCO) iscomprised of the members of the CEO Forum and our Treasurer. ALCO provides thebroad and strategic guidance of market risk management. ALCO is alsoresponsible for ongoing management of market risk and approves specific riskmanagement programs. The Treasurer is primarily responsible for theimplementation of risk management strategies approved by ALCO and for operatingmanagement of market risk through the funding, investment, and derivativeshedging activities of Corporate Treasury. The manager of the Global MarketsDivision is responsible for operating management of price risk through thetrading activities conducted in that division. The Market Risk Monitoring unitis responsible for the monitoring of market risk and functions independently ofall operating and management units.

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

*Interest Rate RiskManagement (Other Than Trading)*

During the second quarter of 2006, our interest raterisk shifted from asset sensitive to a neutral profile as a result of severalfactors. We allowed $200 million notional amount of interest rate floors toexpire without replacement (see our discussion of “ALM Derivatives” below) andwe added $700 million notional amount of interest rate swaps to convert theBank’s $700 million fixed rate debt issuance to floating rates. Additionally,changes in our core balance sheet composition and refinements to our depositmodeling continued to reduce our asset sensitivity.

At June 30, 2006,Economic Net Interest Income (NII) sensitivity was neutral to parallel rateshifts. A +200 basis point parallel shift would reduce 12-monthEconomic NII by 0.36 percent, while a similar downward shift would reduce it by0.13 percent. This compares with an estimated 2.68 percent increase and 3.48percent decrease, respectively, at June 30, 2005. We caution that ongoingenhancements to our interest rate risk modeling may make prior-year comparisonsof Economic NII less meaningful. Economic 

49

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NII adjustsour reported NII for the effect of certain non-interest bearing deposit relatedfee and expense items. Those adjustment items are innately liability-sensitive,meaning that reported NII is more asset-sensitive than is Economic NII.

**EconomicNII**

| ** **                          | ** ** | **June 30,** | ** ** | **December 31,** | ** ** | **June 30,** | ** ** |
|-------------------------------------|------------|-------------------|------------|-----------------------|------------|-------------------|------------|
| **(Dollars in millions)** | ** ** | **2005**          | ** ** | **2005**              | ** ** | **2006**          | ** ** |
| +200 basis points                   |       |              | $          | 51.3                  |       |              |       | $ | 18.9 |   |   |   | $ | (7.3 | ) |   |
| as a percentage of  base case NII   |       |              | 2.68       | %                     |       |              | 0.93       | % |   |   | 0.36 | % |   |
| -200  basis points                  |       |              | $          | (66.5                 | )          |              |       | $ | (40.2 | ) |   |   | $ | (2.6 | ) |   |
| as a percentage of base case  NII   |       |              | 3.48       | %                     |       |              | 1.97       | % |   |   | 0.13 | % |   |

 

The figures in the above tableare reported on a continuing operations basis, with all assets and liabilitiesassociated with the disposal of the international correspondent bankingbusiness eliminated. We believe that this approach provides the bestrepresentation of our risk profiles. In the case of non-parallel yield curvechanges, our Economic NII is neutral to short-term rates changes (withlong-term rates held constant) and relatively neutral to changes in long-termrates (with short-term rates held constant).

*ALM Activities*

During the second quarter of2006, our core balance sheet shifted from an asset sensitive profile to aneutral profile, meaning that the current mix of assets re-prices at the samepace as our current mix of liabilities. The change in profile resultedprimarily from increased asset growth funded by proportionally more short-termwholesale liabilities. In managing the interest sensitivity of our balancesheet, we use the ALM investment securities portfolio and derivatives positionsas the primary tools to adjust our interest rate risk profile, if necessary. Duringthe second quarter of 2006, we reinvested maturing ALM securities intosecurities with like terms and asset allocation. New derivative hedges werealso added during the quarter as described below.

*ALM Investments*

At June 30, 2005 and 2006, our securitiesavailable for sale portfolio included $9.0 billion and $6.7 billion,respectively, of securities for ALM purposes. During the first half of 2006, wepurchased approximately $1.2 billion of securities as part of our portfoliorebalancing strategy and for liquidity management purposes. Approximately $776million of ALM securities matured or were called during this period. Thecomposition of the portfolio is expected to remain relatively stable for theremainder of 2006. The estimated ALM portfolio effective duration was 2.2 at June 30,2006, compared to 1.9 at June 30, 2005.

Effective duration is ameasure of price sensitivity of a bond portfolio to immediate parallel shiftsin interest rates. An effective duration of 2.2 suggests an expected pricechange of approximately minus 2.2 percent for an immediate one percent increasein interest rates*.*

*ALM Derivatives*

During the first quarter 2006, we purchased $1 billionnotional amount of LIBOR floors in order to moderate the downsideasset-sensitivity of our overall risk position while retaining the upsidesensitivity should rates rise further. We also allowed $1.8 billion notionalamount of caps and cap corridors, which hedged our CDs portfolios, to mature.During the second quarter 2006, we allowed $200 million notional amount offloor option contracts, which hedged our adjustable LIBOR-indexed commercialloans, to mature. Additionally, during the second quarter 2006, the Bankinitiated a $4 billion Bank Note program and issued $700 million principalamount of ten-year, fixed-rate subordinated notes, which were converted 

50

----

to a floating rate through theuse of interest rate swap contracts. The net effect of the purchases andmaturities was a decrease in our ALM derivatives portfolio of approximately$250 million notional amount from December 31, 2005 to June 30, 2006.

The fair value of the ALM derivative contracts hasdeclined throughout the year as several “in-the-money” interest rate swapcontracts have matured and as the value of our remaining receive fixed interestrate swaps and floor option contracts has declined with rising interest rates.For additional discussion of derivative instruments and our hedging strategies,see Note 8 to our Condensed Consolidated Financial Statements included in thisreport and Note 19 to our Consolidated Financial Statements included in ourAnnual Report on Form 10-K for the year ended December 31,2005.

Thefollowing table provides the notional value and the fair value of our ALMderivatives portfolio as of June 30, 2005, December 31, 2005, and June 30,2006 and the change in fair value between December 31, 2005 and June 30,2006.

| **(Dollars in thousands)**                                            | ** ** | **June 30,  2005** | ** ** | **December 31,  2005** | ** ** | **June 30,  2006** | ** ** | **Increase / (Decrease)  From December 31, 2005  to June 30, 2006** | ** ** |
|---------------------------------------------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|-------------------------|------------|-------------------------------------------------------------------------------------------------------------|------------|
| Total gross notional  amount of positions held for purposes other than trading: |       | $                       | 7,450,000  |                        | $          | 7,550,000               |       | $                                                                                                           | 7,300,000  |   |   | $ | (250,000 | ) |   |
| Of which, interest rate swaps pay fixed rates of interest:                      |       | $                       | —     |                        | $          | —                  |       | $                                                                                                           | —     |   |   | $ | — |   |   |
| Fair value of positions held  for purposes other than trading:                  |       |                    |       |                        |       |                    |       |                                                                                                        |       |   |   |
| Gross positive fair value                                                       |       | $                       | 36,596     |                        | $          | 5,721                   |       | $                                                                                                           | 1,757      |   |   | $ | (3,964 | ) |   |
| Gross negative fair value                                                       |       | (23,259                 | )          | (55,943                     | )          | (96,832                 | )          |                                                                                                        | (40,889    | ) |   |
| Positive (Negative)  Fair value of positons, net                                |       | $                       | 13,337     |                        | $          | (50,222                 | )          | $                                                                                                           | (95,075    | ) |   | $ | (44,853 | ) |   |

 

*Trading Activities*

We market energy derivatives contracts to existingenergy industry customers, primarily oil and gas producers, in order to meettheir hedging needs. Volume increased from $1.5 billion in notional amount ofcontracts outstanding at December 31, 2005 to $2.7 billion notional amountat June 30, 2006. Consistent with our customer interest rate derivativesbusiness, all transactions are fully matched to remove our exposure to marketrisk, with income produced from the credit spread earned.

For information about themarket risk in our trading activities, please see “Quantitative and QualitativeDisclosures about Market Risk” in “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations” in our Annual Report on Form 10-Kfor the year ended December 31, 2005.

**Liquidity Risk**

Liquidity risk is the undue risk to the Bank’searnings and capital, which would result from the Bank’s inability to meet itsobligations as they come due without incurring unacceptable costs. Liquidityrisk management is governed by the ALM Policy, which is approved by the Financeand Capital Committee of the Board. Working ALCO conducts monthly ongoingreviews of our liquidity situation and provides regular updates to ALCO, whichapproves our Liquidity Contingency Plan. Liquidity is managed through this ALCOcoordination process on an entity-wide basis, encompassing all major businessunits. Our liquidity management is implemented through our three primarysources of liquidity: core deposits, drawing upon the strengths of ourextensive retail and commercial core deposit franchise; asset liquidation,including securities sold under repurchase agreements; and treasury funding,which includes funds raised from interbank and other sources, both domestic andoffshore.

51

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Core deposits provide us with a sizable source ofrelatively stable and low-cost funds. Our average core deposits, which includedemand deposits, money market demand accounts, and savings and consumer timedeposits, combined with average common stockholders’ equity, funded over 79percent of average total assets of approximately $49 billion in the secondquarter of 2006. Most of the remaining funding was provided by short-termborrowings in the form of certificates of deposit, large time deposits, foreigndeposits, federal funds purchased, securities sold under repurchase agreements,commercial paper, and other borrowings.

Our securities portfolioprovides additional enhancement to our liquidity position, which may be createdthrough either securities sales or repurchase agreements. At June 30, 2006,we could have sold or transferred under repurchase agreements approximately $4billion of our available for sale securities. Liquidity may also be provided bythe sale or maturity of other assets such as interest-bearing deposits inbanks, federal funds sold, and trading account securities. The aggregatebalance of these assets averaged $799 million in the second quarter of 2006. Additionalliquidity may be provided through loan maturities and sales.

**Regulatory Capital**

Thefollowing tables summarize our risk-based capital, risk-weightedassets, and risk-based capital ratios. The tables include assets ofdiscontinued operations.

**UnionBanCal Corporation**

| ** **                           | ** ** | ** **        | ** ** | ** **            | ** ** | ** **        | ** ** | **Minimum**     | ** ** |
|--------------------------------------|------------|-------------------|------------|-----------------------|------------|-------------------|------------|-----------------|------------|
| ** **                           | ** ** | **June 30,** | ** ** | **December 31,** | ** ** | **June 30,** | ** ** | **Regulatory**  | ** ** |
| **(Dollars in thousands)** | ** ** | **2005**          | ** ** | **2005**              | ** ** | **2006**          | ** ** | **Requirement** | ** ** |
| **Capital Components**               | ** ** |              | ** ** | ** **            |       |              | ** ** | ** **      |       |   | ** ** | ** ** |   | ** ** | ** ** |
| Tier 1 capital                       |       |              | $          | 3,814,576             | ** ** |              |       | $               | 4,178,160  | ** ** |   |   | $ | 4,281,005 | ** ** |   |   |   |
| Tier 2 capital                       |       |              | 915,081    | ** **            |       |              | 876,713    | ** **      |       |   | 1,503,898 | ** ** |   |   |   |
| Total risk-based capital             |       |              | $          | 4,729,657             | ** ** |              |       | $               | 5,054,873  | ** ** |   |   | $ | 5,784,903 | ** ** |   |   |   |
| Risk-weighted assets                 |       |              | $          | 42,958,478            | ** ** |              |       | $               | 45,540,448 | ** ** |   |   | $ | 48,001,100 | ** ** |   |   |   |
| Quarterly average  assets            |       |              | $          | 49,123,946            | ** ** |              |       | $               | 49,789,877 | ** ** |   |   | $ | 48,983,260 | ** ** |   |   |   |

 

| ** **                               | ** ** | **Amount** | ** ** | **Ratio** | ** ** | **Amount** | ** ** | **Ratio** | ** ** | **Amount** | ** ** | **Ratio** | ** ** | **Amount**                  | ** ** | **Ratio** | ** **       |
|------------------------------------------|------------|------------|------------|-----------|------------|------------|------------|-----------|------------|------------|------------|-----------|------------|-----------------------------|------------|-----------|------------------|
| **Capital Ratios**                  |       |       |       |      |       |       |       |      |       |       |       |      |       |                        |       |      |             |   |   |
| Total capital (to risk-weighted assets)  |       | $          | 4,729,657  |      | 11.01      | %          | $          | 5,054,873 |       | 11.10      | %          | $         | 5,784,903  |                        | 12.05      | %         | 3$3,840,088 |   |   | 8.0 | % |   |
| Tier 1 capital (to risk-weighted assets) |       | 3,814,576  |       | 8.88      |       | 4,178,160  |       | 9.17      |       | 4,281,005  |       | 8.92      |       | 3  1,920,044 |       |      | 4.0              |   |   |
| Leverage(1)                              |       | 3,814,576  |       | 7.77      |       | 4,178,160  |       | 8.39      |       | 4,281,005  |       | 8.74      |       | 3  1,959,330 |       |      | 4.0              |   |   |
|                                          |            |            |            |           |            |            |            |           |            |            |            |           |            |                             |            |           |                  |  |  |  |  |  |

----

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

52

----

**Union Bank of California, N.A.**

| ** **                           | ** ** | ** **        | ** ** | ** **            | ** ** | ** **        | ** ** | **Minimum**     | ** ** | **“Well-Capitalized”** | ** ** |
|--------------------------------------|------------|-------------------|------------|-----------------------|------------|-------------------|------------|-----------------|------------|----------------------------------|------------|
| ** **                           | ** ** | **June 30,** | ** ** | **December 31,** | ** ** | **June 30,** | ** ** | **Regulatory**  | ** ** | **Regulatory**                   | ** ** |
| **(Dollars in thousands)** | ** ** | **2005**          | ** ** | **2005**              | ** ** | **2006**          | ** ** | **Requirement** | ** ** | **Requirement**                  | ** ** |
| **Capital Components**               | ** ** |              | ** ** | ** **            |       |              | ** ** | ** **      |       |                             | ** ** | ** ** |   | ** ** | ** ** | ** ** | ** ** |
| Tier 1 capital                       |       |              | $          | 3,844,620             | ** ** |              |       | $               | 4,315,471  | ** **                       |       |   | $ | 4,404,052 | ** ** |   | ** ** | ** ** | ** ** | ** ** |
| Tier 2 capital                       |       |              | 457,607    | ** **            |       |              | 433,353    | ** **      |       |                             | 1,093,836  | ** ** |   | ** ** | ** ** | ** ** | ** ** |
| Total risk-based  capital            |       |              | $          | 4,302,227             | ** ** |              |       | $               | 4,748,824  | ** **                       |       |   | $ | 5,497,888 | ** ** |   | ** ** | ** ** | ** ** | ** ** |
| Risk-weighted assets                 |       |              | $          | 42,299,041            | ** ** |              |       | $               | 44,851,154 | ** **                       |       |   | $ | 47,398,029 | ** ** |   | ** ** | ** ** | ** ** | ** ** |
| Quarterly average  assets            |       |              | $          | 48,528,048            | ** ** |              |       | $               | 49,127,241 | ** **                       |       |   | $ | 48,341,174 | ** ** |   | ** ** | ** ** | ** ** | ** ** |

 

| ** **                                | ** ** | **Amount** | ** ** | **Ratio**  | ** ** | **Amount** | ** ** | **Ratio**  | ** ** | **Amount** | ** ** | **Ratio**  | ** ** | **Amount**                  | ** ** | **Ratio** | ** **       | **Amount** | ** ** | **Ratio**                   | ** ** |
|-------------------------------------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|-----------------------------|------------|-----------|------------------|------------|------------|-----------------------------|------------|
| **Capital Ratios**                        | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **                  | ** ** |      | ** **       | ** ** |       | ** **                  | ** ** |   | ** ** | ** ** |   |
| Total capital (to risk-  weighted assets) |       | $          | 4,302,227  |       | 10.17      | %          | $          | 4,748,824  |       | 10.59      | %          | $          | 5,497,888  |                        | 11.60      | %         | 3$3,791,842 |       |       | 8.0                         | %          |   | 3$4,739,803 |   |   | 10.0 | % |   |
| Tier 1 capital (to risk-weighted assets)  |       | 3,844,620  |       | 9.09       |       | 4,315,471  |       | 9.62       |       | 4,404,052  |       | 9.29       |       | 3  1,895,921 |       |      | 4.0              |       |       | 3  2,843,882 |       |   | 6.0 |   |   |
| Leverage(1)                               |       | 3,844,620  |       | 7.92       |       | 4,315,471  |       | 8.78       |       | 4,404,052  |       | 9.11       |       | 3  1,933,647 |       |      | 4.0              |       |       | 3  2,417,059 |       |   | 5.0 |   |   |
|                                           |            |            |            |            |            |            |            |            |            |            |            |            |            |                             |            |           |                  |            |            |                             |            |  |  |  |  |  |  |  |

----

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

We and Union Bank of California, N.A. are subject tovarious regulations of the federal banking agencies, including minimum capitalrequirements. We both are required to maintain minimum ratios of Total and Tier1 capital to risk-weighted assets and of Tier 1 capital to quarterlyaverage assets (the Leverage ratio).

The increase in the Total capital ratios from June 30,2005 was primarily due to an increase in our total risk-based capital, whichresulted from our net income and the Bank’s issuance of $700 million ofsubordinated notes in May 2006, offset by an increase in risk-weightedassets stemming from growth in our loans and unfunded commitments. The increasein our leverage ratios from June 30, 2005 was primarily due to theincrease in our Tier 1 capital.

As of June 30, 2006,management believes the capital ratios of Union Bank of California, N.A. metall regulatory requirements of “well-capitalized” institutions, which are10 percent for the Total risk-based capital ratio, 6 percent for the Tier 1risk-based capital ratio and 5 percent for the Leverage ratio.

**Business Segments**

In April 2005, we announced severalorganizational changes that affected our business segments. The Global MarketsGroup was eliminated and the activities of this group were transferred. CorporateTreasury, which is responsible for ALM, wholesale funding and the ALMinvestment securities and derivatives hedging portfolio, is now included in “Other.”  The trading of securities and foreignexchange contracts, as well as the responsibilities for customer accommodatedderivative contracts, are now included in the “Global Markets Division” of theCommunity Banking and Investment Services Group. In addition, the discontinuedoperations resulting from the sale of most of our International Banking Groupis also reflected in “Other.”  We are noworganized around the target markets we serve and operate in two principalareas, as shown in the tables that follow in this section. The results show thefinancial performance of our major business units.

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

53

----

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

The following tables reflect the condensed incomestatements, selected average balance sheet items, and selected financialratios, including changes from the prior year, for each of our primary businessunits. The information presented does not necessarily represent the businessunits’ financial condition and results of operations as if they wereindependent entities. In the first quarter of 2006, we changed our reporting toreflect a “market view” perspective in measuring our business segments. Themarket view is a measurement of our customer markets aggregated to show allrevenues generated and expenses incurred from all products and services sold tothose customers regardless of where product areas organizationally report. Therefore,revenues and expenses are included in both the business segment that providesthe service and the business segment that manages the customer relationship. Theduplicative results from this internal management accounting view are reflectedin “Reconciling Items.”  The market viewapproach fosters cross selling with a total profitability view of the productsand services being managed. For example, the Securities Trading and Sales unitwithin the Global Markets Division is a business unit that manages the fixedincome securities activities for all retail and corporate customers throughoutthe Bank. This unit retains and also allocates revenues and expenses todivisions responsible for such retail and commercial customer relationships.

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

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

However, over an economic cycle, the cumulativeprovision for credit losses and credit expense for expected losses should besubstantially the same. Business unit results are based on an internalmanagement reporting system used by management to measure the performance ofthe units and UnionBanCal Corporation as a whole. Our management reportingsystem identifies balance sheet and income statement items for each businessunit based on internal management accounting policies. Net interest income isdetermined using our internal funds transfer pricing system, which assigns acost of funds to assets or a credit for funds to liabilities and capital, basedon their type, maturity or repricing characteristics. Noninterest income andexpense directly or indirectly attributable to a business unit are assigned tothat business. The business units are assigned the costs of products andservices directly attributable to their business activity through standard unitcost accounting based on volume of usage. All other corporate expenses(overhead) are allocated to the business units based on a predeterminedpercentage of usage.

The business unit results for the prior periods havebeen adjusted to reflect changes in the transfer pricing methodology, theorganizational changes that have occurred, our discontinued operations and themarket view contribution.

54

----

 

| ** **                                                          | ** ** | **Community Banking  and Investment  Services Group**                   | ** ** | ** **              | ** ** | **Commercial Financial  Services Group**                                     | ** ** | ** **              | ** ** |
|---------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------|------------|-------------------------|------------|----------------------------------------------------------------------------------------|------------|-------------------------|------------|
| ** **                                                          | ** ** | **As of and for the  Three Months  Ended June 30,** | ** ** | **Increase/(decrease)** | ** ** | **As of and for the  Three Months  Ended June 30,** | ** ** | **Increase/(decrease)** | ** ** |
| ** **                                                          | ** ** | **2005**                                                                               | ** ** | **2006**                | ** ** | **Amount**                                                                             | ** ** | **Percent**             | ** ** | **2005** | ** ** | **2006** | ** ** | **Amount** | ** ** | **Percent** | ** ** |
| **Results  of operations—Market View (dollars in thousands):** | ** ** | ** **                                                                             | ** ** | ** **              | ** ** | ** **                                                                             | ** ** |                    | ** ** | ** ** |   | ** ** | ** ** | ** ** | ** ** |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Net interest income (expense)                                       |       | $                                                                                      | 223,146    |                    | $          | 239,697                                                                                |       | $                       | 16,551     |   |   | 7 | % |   | $ | 236,526 |   | $ | 244,522 |   |   | $ | 7,996 |   |   |   | 3 | % |   |
| Noninterest income (expense)                                        |       | 152,622                                                                                |       | 162,440                 |       | 9,818                                                                                  |       |                    | 6          |   |   | 78,027 |   | 69,065 |   |   | (8,962 | ) |   |   | (11 | ) |   |
| Total revenue                                                       |       | 375,768                                                                                |       | 402,137                 |       | 26,369                                                                                 |       |                    | 7          |   |   | 314,553 |   | 313,587 |   |   | (966 | ) |   |   | 0 |   |   |
| Noninterest expense (income)                                        |       | 257,925                                                                                |       | 278,095                 |       | 20,170                                                                                 |       |                    | 8          |   |   | 121,840 |   | 130,567 |   |   | 8,727 |   |   |   | 7 |   |   |
| Credit expense                                                      |       | 6,308                                                                                  |       | 6,471                   |       | 163                                                                                    |       |                    | 3          |   |   | 25,608 |   | 22,682 |   |   | (2,926 | ) |   |   | (11 | ) |   |
| Income from continuing operations before  income taxes         |       | 111,535                                                                                |       | 117,571                 |       | 6,036                                                                                  |       |                    | 5          |   |   | 167,105 |   | 160,338 |   |   | (6,767 | ) |   |   | (4 | ) |   |
| Income tax expense (income)                                         |       | 41,969                                                                                 |       | 44,127                  |       | 2,158                                                                                  |       |                    | 5          |   |   | 56,368 |   | 54,548 |   |   | (1,820 | ) |   |   | (3 | ) |   |
| Income from continuing operations                                   |       | 69,566                                                                                 |       | 73,444                  |       | 3,878                                                                                  |       |                    | 6          |   |   | 110,737 |   | 105,790 |   |   | (4,947 | ) |   |   | (4 | ) |   |
| Income (loss) from discontinued operations, net of  income taxes    |       | —                                                                                 |       | —                  |       | —                                                                                 |       |                    | na         |   |   | — |   | — |   |   | — |   |   |   | na |   |   |
| Net income (loss)                                                   |       | $                                                                                      | 69,566     |                    | $          | 73,444                                                                                 |       | $                       | 3,878      |   |   | 6 |   |   | $ | 110,737 |   | $ | 105,790 |   |   | $ | (4,947 | ) |   |   | (4 | ) |   |
| **Average  balances—Market View (dollars in millions):**       |       |                                                                                   |       |                    |       |                                                                                   |       |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total loans                                                         |       | $                                                                                      | 14,042     |                    | $          | 15,616                                                                                 |       | $                       | 1,574      |   |   | 11 |   |   | $ | 16,410 |   | $ | 19,449 |   |   | $ | 3,039 |   |   |   | 19 |   |   |
| Total assets                                                        |       | 15,494                                                                                 |       | 17,236                  |       | 1,742                                                                                  |       |                    | 11         |   |   | 19,871 |   | 23,494 |   |   | 3,623 |   |   |   | 18 |   |   |
| Total deposits                                                      |       | 19,957                                                                                 |       | 19,120                  |       | (837                                                                                   | )          |                    | (4         | ) |   | 15,966 |   | 15,779 |   |   | (187 | ) |   |   | (1 | ) |   |
| **Financial  ratios—Market View**                              | ** ** | ** **                                                                             | ** ** | ** **              | ** ** | ** **                                                                             | ** ** |                    | ** ** | ** ** |   | ** ** | ** ** | ** ** | ** ** |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Risk adjusted return on capital(1)                                  |       | 41                                                                                     | %          | 35                      | %          |                                                                                   |       |                    |       |   |   | 26 | % | 23 | % |   |   |   |   |   |   |   |   |
| Return on average assets(1)                                         |       | 1.80                                                                                   |       | 1.71                    |       |                                                                                   |       |                    |       |   |   | 2.24 |   | 1.81 |   |   |   |   |   |   |   |   |   |
| Efficiency ratio(2)                                                 |       | 68.64                                                                                  |       | 69.15                   |       |                                                                                   |       |                    |       |   |   | 38.74 |   | 43.57 |   |   |   |   |   |   |   |   |   |

 

| ** **                                                          | ** ** | **Other**                                           | ** ** | ** **              | ** ** | **Reconciling Items**                                | ** ** | **UnionBanCal  Corporation**                         | ** ** | ** **              | ** ** |
|---------------------------------------------------------------------|------------|-----------------------------------------------------|------------|-------------------------|------------|------------------------------------------------------|------------|------------------------------------------------------|------------|-------------------------|------------|
| ** **                                                          | ** ** | **As of and for the  Three Months  Ended June 30,** | ** ** | **Increase/(decrease)** | ** ** | **As of and for the  Three Months   Ended June 30,** | ** ** | **As of and for the  Three Months   Ended June 30,** | ** ** | **Increase/(decrease)** | ** ** |
| ** **                                                          | ** ** | **2005**                                            | ** ** | **2006**                | ** ** | **Amount**                                           | ** ** | **Percent**                                          | ** ** | **2005**                | ** ** | **2006** | ** ** | **2005** | ** ** | **2006** | ** ** | **Amount** | ** ** | **Percent** | ** ** |
| **Results  of operations—Market View (dollars in thousands):** |       |                                                |       |                    |       |                                                 |       |                                                 |       |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net interest income (expense)                                       |       | $                                                   | (445       | )                       | $          | (16,116                                              | )          | $                                                    | (15,671    | )                       |       | nm |   |   | $ | (517 | ) | $ | (461 | ) | $ | 458,710 |   | $ | 467,642 |   | $ | 8,932 |   |   | 2 | % |   |
| Noninterest income (expense)                                        |       | (8,550                                              | )          | 8,162                   |       | 16,712                                               |       |                                                 | nm         |                    |       | (18,545 | ) | (20,439 | ) | 203,554 |   | 219,228 |   | 15,674 |   |   | 8 |   |   |
| Total revenue                                                       |       | (8,995                                              | )          | (7,954                  | )          | 1,041                                                |       |                                                 | 12         | %                       |       | (19,062 | ) | (20,900 | ) | 662,264 |   | 686,870 |   | 24,606 |   |   | 4 |   |   |
| Noninterest expense (income)                                        |       | 15,266                                              |       | 11,947                  |       | (3,319                                               | )          |                                                 | (22        | )                       |       | (6,631 | ) | (7,579 | ) | 388,400 |   | 413,030 |   | 24,630 |   |   | 6 |   |   |
| Credit expense                                                      |       | (45,234                                             | )          | (30,124                 | )          | 15,110                                               |       |                                                 | 33         |                    |       | (246 | ) | (29 | ) | (13,564 | ) | (1,000 | ) | 12,564 |   |   | 93 |   |   |
| Income from continuing operations before income taxes               |       | 20,973                                              |       | 10,223                  |       | (10,750                                              | )          |                                                 | (51        | )                       |       | (12,185 | ) | (13,292 | ) | 287,428 |   | 274,840 |   | (12,588 | ) |   | (4 | ) |   |
| Income tax expense (income)                                         |       | 6,274                                               |       | (1,389                  | )          | (7,663                                               | )          |                                                 | nm         |                    |       | (4,661 | ) | (5,083 | ) | 99,950 |   | 92,203 |   | (7,747 | ) |   | (8 | ) |   |
| Income from continuing operations                                   |       | 14,699                                              |       | 11,612                  |       | (3,087                                               | )          |                                                 | (21        | )                       |       | (7,524 | ) | (8,209 | ) | 187,478 |   | 182,637 |   | (4,841 | ) |   | (3 | ) |   |
| Income (loss) from discontinued operations, net of  income taxes    |       | (296                                                | )          | 274                     |       | 570                                                  |       |                                                 | nm         |                    |       | — |   | — |   | (296 | ) | 274 |   | 570 |   |   | nm |   |   |
| Net income (loss)                                                   |       | $                                                   | 14,403     |                    | $          | 11,886                                               |       | $                                                    | (2,517     | )                       |       | (17 | ) |   | $ | (7,524 | ) | $ | (8,209 | ) | $ | 187,182 |   | $ | 182,911 |   | $ | (4,271 | ) |   | (2 | ) |   |
| **Average  balances—Market View (dollars in millions):**       | ** ** | ** **                                          | ** ** | ** **              | ** ** | ** **                                           | ** ** |                                                 |       |                    | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |   |   |   |   |
| Total loans                                                         |       | $                                                   | 200        |                    | $          | 117                                                  |       | $                                                    | (83        | )                       |       | (42 | ) |   | $ | (41 | ) | $ | (35 | ) | $ | 30,611 |   | $ | 35,147 |   | $ | 4,536 |   |   | 15 |   |   |
| Total assets                                                        |       | 12,162                                              |       | 8,637                   |       | (3,525                                               | )          |                                                 | (29        | )                       |       | (45 | ) | (38 | ) | 47,482 |   | 49,329 |   | 1,847 |   |   | 4 |   |   |
| Total deposits                                                      |       | 3,505                                               |       | 4,818                   |       | 1,313                                                |       |                                                 | 37         |                    |       | (30 | ) | (25 | ) | 39,398 |   | 39,692 |   | 294 |   |   | 1 |   |   |
| **Financial  ratios—Market View**                              | ** ** | ** **                                          | ** ** | ** **              | ** ** | ** **                                           | ** ** |                                                 |       |                    | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |   |   |   |   |
| Risk adjusted return on capital(1)                                  |       | na                                                  |       | na                      |       |                                                 |       |                                                 |       |                    |       | na |   | na |   | na |   | na |   |   |   |   |   |   |   |
| Return on average assets(1)                                         |       | na                                                  |       | na                      |       |                                                 |       |                                                 |       |                    |       | na |   | na |   | 1.58 | % | 1.49 | % |   |   |   |   |   |   |
| Efficiency ratio(2)                                                 |       | na                                                  |       | na                      |       |                                                 |       |                                                 |       |                    |       | na |   | na |   | 59.55 |   | 61.73 |   |   |   |   |   |   |   |

----

(1)                    Annualized.

(2)                    The efficiency ratio is noninterestexpense, excluding foreclosed asset expense (income) and the reversal ofallowance for losses on off-balance sheet commitments, as a percentage of netinterest income and noninterest income.

na = not applicable

nm = not meaningful

55

----

 

| ** **                                                          | ** ** | **Community Banking  and Investment  Services Group**                       | ** ** | ** **              | ** ** | **Commercial Financial  Services Group**                                         | ** ** | ** **              | ** ** |
|---------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------|------------|-------------------------|------------|--------------------------------------------------------------------------------------------|------------|-------------------------|------------|
| ** **                                                          | ** ** | **As of and for the  Six Months   Ended June 30,** | ** ** | **Increase/(decrease)** | ** ** | **As of and for the  Six Months   Ended June 30,** | ** ** | **Increase/(decrease)** | ** ** |
| ** **                                                          | ** ** | **2005**                                                                                   | ** ** | **2006**                | ** ** | **Amount**                                                                                 | ** ** | **Percent**             | ** ** | **2005** | ** ** | **2006** | ** ** | **Amount** | ** ** | **Percent** | ** ** |
| **Results  of operations—Market View (dollars in thousands):** | ** ** | ** **                                                                                 | ** ** | ** **              | ** ** | ** **                                                                                 | ** ** |                    | ** ** | ** ** |   | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |   | ** ** | ** ** |   |
| Net interest income (expense)                                       |       | $                                                                                          | 435,086    |                    | $          | 470,999                                                                                    |       | $                       | 35,913     |   |   | 8 | % |   | $ | 450,988 |   | $ | 480,708 |   | $ | 29,720 |   |   | 7 | % |   |
| Noninterest income (expense)                                        |       | 300,898                                                                                    |       | 323,340                 |       | 22,442                                                                                     |       |                    | 7          |   |   | 144,941 |   | 136,796 |   | (8,145 | ) |   | (6 | ) |   |
| Total revenue                                                       |       | 735,984                                                                                    |       | 794,339                 |       | 58,355                                                                                     |       |                    | 8          |   |   | 595,929 |   | 617,504 |   | 21,575 |   |   | 4 |   |   |
| Noninterest expense (income)                                        |       | 519,189                                                                                    |       | 548,992                 |       | 29,803                                                                                     |       |                    | 6          |   |   | 238,153 |   | 261,582 |   | 23,429 |   |   | 10 |   |   |
| Credit expense                                                      |       | 12,969                                                                                     |       | 13,104                  |       | 135                                                                                        |       |                    | 1          |   |   | 51,385 |   | 47,545 |   | (3,840 | ) |   | (7 | ) |   |
| Income from continuing operations before income taxes               |       | 203,826                                                                                    |       | 232,243                 |       | 28,417                                                                                     |       |                    | 14         |   |   | 306,391 |   | 308,377 |   | 1,986 |   |   | 1 |   |   |
| Income tax expense (income)                                         |       | 76,576                                                                                     |       | 87,225                  |       | 10,649                                                                                     |       |                    | 14         |   |   | 102,849 |   | 103,400 |   | 551 |   |   | 1 |   |   |
| Income from continuing operations                                   |       | 127,250                                                                                    |       | 145,018                 |       | 17,768                                                                                     |       |                    | 14         |   |   | 203,542 |   | 204,977 |   | 1,435 |   |   | 1 |   |   |
| Income (loss) from discontinued operations, net of  income taxes    |       | —                                                                                     |       | —                  |       | —                                                                                     |       |                    | na         |   |   | — |   | — |   | — |   |   | na |   |   |
| Net income (loss)                                                   |       | $                                                                                          | 127,250    |                    | $          | 145,018                                                                                    |       | $                       | 17,768     |   |   | 14 |   |   | $ | 203,542 |   | $ | 204,977 |   | $ | 1,435 |   |   | 1 |   |   |
| **Average  balances—Market View (dollars in millions):**       | ** ** | ** **                                                                                 | ** ** | ** **              | ** ** | ** **                                                                                 | ** ** |                    | ** ** | ** ** |   | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |   | ** ** | ** ** |   |
| Total loans                                                         |       | $                                                                                          | 13,784     |                    | $          | 15,452                                                                                     |       | $                       | 1,668      |   |   | 12 |   |   | $ | 16,167 |   | $ | 19,022 |   | $ | 2,855 |   |   | 18 |   |   |
| Total assets                                                        |       | 15,243                                                                                     |       | 17,069                  |       | 1,826                                                                                      |       |                    | 12         |   |   | 19,499 |   | 23,009 |   | 3,510 |   |   | 18 |   |   |
| Total deposits                                                      |       | 19,943                                                                                     |       | 19,175                  |       | (768                                                                                       | )          |                    | (4         | ) |   | 15,645 |   | 15,916 |   | 271 |   |   | 2 |   |   |
| **Financial  ratios—Market View**                              | ** ** | ** **                                                                                 | ** ** | ** **              | ** ** | ** **                                                                                 | ** ** |                    | ** ** | ** ** |   | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |   | ** ** | ** ** |   |
| Risk adjusted return on capital(1)                                  |       | 37                                                                                         | %          | 36                      | %          |                                                                                       |       |                    |       |   |   | 24 | % | 22 | % |   |   |   |   |   |   |
| Return on average assets(1)                                         |       | 1.68                                                                                       |       | 1.71                    |       |                                                                                       |       |                    |       |   |   | 2.11 |   | 1.8 |   |   |   |   |   |   |   |
| Efficiency ratio(2)                                                 |       | 70.54                                                                                      |       | 69.11                   |       |                                                                                       |       |                    |       |   |   | 40.28 |   | 44.81 |   |   |   |   |   |   |   |

 

| ** **                                                         | ** ** | **Other**                                                                                  | ** ** | ** **              | ** ** | **Reconciling Items**                                                                 | ** ** | **UnionBanCal Corporation**                                                           | ** ** | ** **              | ** ** |
|--------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------|------------|-------------------------|------------|--------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------|------------|-------------------------|------------|
| ** **                                                         | ** ** | **As of and for the  Six Months   Ended June 30,** | ** ** | **Increase/(decrease)** | ** ** | **As of and for the  Six Months   Ended June 30,** | ** ** | **As of and for the  Six Months   Ended June 30,** | ** ** | **Increase/(decrease)** | ** ** |
| ** **                                                         | ** ** | **2005**                                                                                   | ** ** | **2006**                | ** ** | **Amount**                                                                                 | ** ** | **Percent**                                                                                | ** ** | **2005**                | ** ** | **2006** | ** ** | **2005** | ** ** | **2006** | ** ** | **Amount** | ** ** | **Percent** | ** ** |
| **Results of operations—Market View (dollars in thousands):** | ** ** | ** **                                                                                 | ** ** | ** **              | ** ** | ** **                                                                                 | ** ** |                                                                                       | ** ** | ** **              |       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |   | ** ** | ** ** |   |
| Net interest income (expense)                                      |       | $                                                                                          | 9,370      |                    | $          | (18,032                                                                                    | )          | $                                                                                          | (27,402    | )                       |       | nm |   |   | $ | (1,072 | ) | $ | (940 | ) | $ | 894,372 |   | $ | 932,735 |   | $ | 38,363 |   |   | 4 | % |   |
| Noninterest income (expense)                                       |       | (2,053                                                                                     | )          | 15,671                  |       | 17,724                                                                                     |       |                                                                                       | nm         |                    |       | (34,607 | ) | (38,669 | ) | 409,179 |   | 437,138 |   | 27,959 |   |   | 7 |   |   |
| Total revenue                                                      |       | 7,317                                                                                      |       | (2,361                  | )          | (9,678                                                                                     | )          |                                                                                       | nm         |                    |       | (35,679 | ) | (39,609 | ) | 1,303,551 |   | 1,369,873 |   | 66,322 |   |   | 5 |   |   |
| Noninterest expense (income)                                       |       | 36,491                                                                                     |       | 32,182                  |       | (4,309                                                                                     | )          |                                                                                       | (12        | )%                      |       | (12,481 | ) | (15,180 | ) | 781,352 |   | 827,574 |   | 46,222 |   |   | 6 |   |   |
| Credit expense                                                     |       | (89,648                                                                                    | )          | (68,576                 | )          | 21,072                                                                                     |       |                                                                                       | 24         |                    |       | (389 | ) | (73 | ) | (25,683 | ) | (8,000 | ) | 17,683 |   |   | 69 |   |   |
| Income from continuing operations  before income taxes             |       | 60,474                                                                                     |       | 34,033                  |       | (26,441                                                                                    | )          |                                                                                       | (44        | )                       |       | (22,809 | ) | (24,356 | ) | 547,882 |   | 550,299 |   | 2,417 |   |   | 0 |   |   |
| Income tax expense (income)                                        |       | 9,954                                                                                      |       | 4,899                   |       | (5,055                                                                                     | )          |                                                                                       | (51        | )                       |       | (8,726 | ) | (9,316 | ) | 180,653 |   | 186,207 |   | 5,554 |   |   | 3 |   |   |
| Income from continuing operations                                  |       | 50,520                                                                                     |       | 29,134                  |       | (21,386                                                                                    | )          |                                                                                       | (42        | )                       |       | (14,083 | ) | (15,040 | ) | 367,229 |   | 364,092 |   | (3,137 | ) |   | (1 | ) |   |
| Income (loss) from discontinued operations, net of  income taxes   |       | 1,930                                                                                      |       | (8,236                  | )          | (10,166                                                                                    | )          |                                                                                       | nm         |                    |       | — |   | — |   | 1,930 |   | (8,236 | ) | (10,166 | ) |   | nm |   |   |
| Net income (loss)                                                  |       | $                                                                                          | 52,450     |                    | $          | 20,898                                                                                     |       | $                                                                                          | (31,552    | )                       |       | (60 | ) |   | $ | (14,083 | ) | $ | (15,040 | ) | $ | 369,159 |   | $ | 355,856 |   | $ | (13,303 | ) |   | (4 | ) |   |
| **Average balances—Market View (dollars in  millions):**      | ** ** | ** **                                                                                 | ** ** | ** **              | ** ** | ** **                                                                                 | ** ** |                                                                                       | ** ** | ** **              |       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |   | ** ** | ** ** |   |
| Total loans                                                        |       | $                                                                                          | 257        |                    | $          | 163                                                                                        |       | $                                                                                          | (94        | )                       |       | (37 | ) |   | $ | (43 | ) | $ | (34 | ) | $ | 30,165 |   | $ | 34,603 |   | $ | 4,438 |   |   | 15 |   |   |
| Total assets                                                       |       | 12,209                                                                                     |       | 8,638                   |       | (3,571                                                                                     | )          |                                                                                       | (29        | )                       |       | (50 | ) | (39 | ) | 46,901 |   | 48,677 |   | 1,776 |   |   | 4 |   |   |
| Total deposits                                                     |       | 3,245                                                                                      |       | 4,212                   |       | 967                                                                                        |       |                                                                                       | 30         |                    |       | (31 | ) | (27 | ) | 38,802 |   | 39,276 |   | 474 |   |   | 1 |   |   |
| **Financial ratios—Market View**                              | ** ** | ** **                                                                                 | ** ** | ** **              | ** ** | ** **                                                                                 | ** ** |                                                                                       | ** ** | ** **              |       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |   | ** ** | ** ** |   |
| Risk adjusted return on capital(1)                                 |       | na                                                                                         |       | na                      |       |                                                                                       |       |                                                                                       |       |                    |       | na |   | na |   | na |   | na |   |   |   |   |   |   |   |
| Return on average assets(1)                                        |       | na                                                                                         |       | na                      |       |                                                                                       |       |                                                                                       |       |                    |       | na |   | na |   | 1.58 | % | 1.51 | % |   |   |   |   |   |   |
| Efficiency ratio(2)                                                |       | na                                                                                         |       | na                      |       |                                                                                       |       |                                                                                       |       |                    |       | na |   | na |   | 60.09 |   | 61.91 |   |   |   |   |   |   |   |

----

(1)                    Annualized.

(2)                    The efficiency ratio is noninterestexpense, excluding foreclosed asset expense (income) and the reversal ofallowance for losses on off-balance sheet commitments, as a percentage of netinterest income and noninterest income.

na = not applicable

nm = not meaningful

*Community Banking andInvestment Services Group*

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

During the six months ended June 30, 2006, netincome of the group increased by 14 percent over the same period in 2005,reflecting the group’s continued focus on growing the consumer asset portfolioand attracting retail and small business deposits. Net interest income increasedby 8 percent due to higher transfer pricing credits received on deposits.

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The group’s strategy is to grow assets through anexpanded small business sales force, increased emphasis on real estate-securedand Small Business Administration (SBA) guaranteed loans to small business, anda stronger network of residential real estate brokers. The focus on home equityloans and more effective cross-selling efforts have led to an overall growth inconsumer loans. In addition, the group expects a larger branch network, createdfrom new branches and acquired branches, to improve growth prospects whencombined with more robust efforts in the telephone and internet channels.

Despite the decrease of 4 percent in total depositsfrom the prior year, primarily reflecting increased competition for interestbearing deposits, the group continues to focus on attracting consumer and smallbusiness deposits through marketing activities, relationship management,increased and improved sales resources, new locations, and new products.

Of the 7 percent increase in the group’s noninterestincome, trust fees contributed 5 percent of the growth, primarily due to growthin trust assets and a refinement in accrual methodology implemented in thefirst quarter of 2006. In addition, deposit fees contributed 2 percent to theincrease. Overall, total revenues for the six months ended June 30, 2006increased by over 8 percent compared to the same period in 2005.

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

*CommunityBanking* serves its customers through 317 full-servicebranches in California, 4 full-service branches in Oregon and Washington, and anetwork of 605 proprietary ATMs. Customers may also access our services 24hours a day by telephone or through our website at www.uboc.com. In addition,the division offers automated teller and point-of-sale merchant services.

This division isorganized by service delivery method, by markets and by geography. We serve ourcustomers in the following ways:

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

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

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

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

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

·       ThePrivate Bank focuses primarily on delivering financial services to high networth individuals with sophisticated financial needs as well as to professionalservice firms. Specific products and services include trust and estateservices, investment account management services, and deposit and creditproducts. A key strategy of The Private Bank is to expand its business byleveraging existing Bank client relationships. Through 15 existing locations,The Private Bank relationship managers offer all of our available products andservices.

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

·       HighMarkCapital Management, Inc., a registered investment advisor, providesinvestment management and advisory services to institutional clients as well asinvestment advisory, administration and support services to our proprietarymutual funds, the affiliated HighMark Funds. It also provides investmentmanagement services to Union Bank of California, N.A. with respect to 

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most of its trust and agencyclients, including corporations, pension funds and individuals. HighMarkCapital Management, Inc.’s strategy is to broaden its client base and toincrease the assets of the HighMark Funds.

·       InstitutionalServices provides custody, corporate trust, and retirement plan services.Custody Services provides both domestic and internationalsafekeeping/settlement services in addition to securities lending. CorporateTrust acts as trustee for corporate and municipal debt issues, provides escrowservices and trustee services for project finance. Retirement Services providesa full range of defined benefit and defined contribution administrativeservices, including trustee services, administration, investment management,and 401(k) valuation services. The client base of Institutional Servicesincludes financial institutions, corporations, government agencies, unions,insurance companies, mutual funds, investment managers and non-profitorganizations. Institutional Services’ strategy is to continue to leverage andexpand its position in our target markets.

*ConsumerAsset Management* provides the centralized origination, underwriting, processing,servicing, collection and administration for consumer assets includingresidential mortgages.

*GlobalMarkets* servesour customers with their insurance, foreign exchange and interest rate riskmanagement and investment needs. The Global Markets Division offers energyderivative contracts, on a limited basis, to serve our energy sector clientbase. The division takes market risk when buying and selling securities andforeign exchange contracts for its own account, but takes no market risk whenproviding insurance or derivative contracts, since the market risk for theseproducts is offset with third parties.

*InsuranceServices* productsare sold through UnionBanc Insurance Services, Inc., the insurance agencysubsidiary of UBOC Insurance, Inc., and securities are sold through UnionBancInvestment Services LLC. Both UBOC Insurance, Inc. and UnionBanc InvestmentServices LLC are subsidiaries of Union Bank of California, N.A.

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

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

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

*Commercial FinancialServices Group*

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

During the six months ended June 30, 2006, netincome of the group increased by 1 percent due to higher net interest incomepartially offset by lower noninterest income and higher noninterest expense.Net 

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interest income increased by 7percent primarily due to higher transfer pricing credits received on depositsand continued strong growth in loans.

During the first half of 2006, average loans increasedby 18 percent over the same period last year. This was primarily due toincreased commercial loan demand in the oil and gas and national corporatesegments as well as the California middle market.

Noninterest income decreased by 6 percent primarilydue to a lower volume of syndication transactions over the same period lastyear. The increase in noninterest expense during the first six months of 2006,compared to the same period in 2005, was mainly due to increased outsideservices expense related to title and escrow deposit balances, stemming from ahigher earnings credit rate, as well as higher performance-related incentiveexpense, including the impact of stock options and restricted stock expenses,which prior to 2006 had not been allocated to the business units.

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

The CommercialFinancial Services Group is comprised of the following business units:

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

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

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

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

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

The group’s main strategy isto target industries and companies for which the group can reasonably expect tobe one of a customer’s primary banks. Consistent with its strategy, the groupattempts to serve a large part of its targeted customers’ credit and depositoryneeds. The group competes with other banks primarily on the basis of thequality of its relationship managers, the level of industry expertise, thedelivery of quality customer service, and its reputation as a “business bank.”The group also competes with a variety of other financial services companies aswell as non-bank companies. Competitors include other major California banks,as well as regional, national and international banks. In addition, the groupcompetes with investment banks, commercial finance companies, leasing companiesand insurance companies.

*Other*

During the six months ended June 30, 2006, net incomedecreased by $32 million over the same period in 2005, due to lower netinterest income related to the funds transfer pricing center and lower 

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income from ALM derivativehedges. Also contributing to the decline was a lower credit to the loan lossprovision compared with the prior year. The decrease was partially offset byhigher noninterest income resulting from a $13 million loss on the sale ofsecurities in 2005.

“Other” includes thefollowing items:

·       corporateactivities that are not directly attributable to one of the two major businesssegments. Included in this category are certainother items such as the results of operations of certain non-banksubsidiaries of UnionBanCal Corporation and the elimination of the fullytaxable-equivalent basis amount;

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

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

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

·       thePacific Rim Corporate Group, with assets of $220 million at June 30, 2006,which offers a range of credit, deposit, and investment management products andservices to companies in the U.S., which are affiliated with companiesheadquartered in Japan;

·       CorporateTreasury, which is responsible for our ALM, wholesale funding, and the ALMInvestment and derivatives hedging portfolios. These treasury managementactivities are carried out to counter-balance the residual risk positions ofour core balance sheet and to manage those risks within the guidelinesestablished by ALCO. (For additional discussion regarding these risk managementactivities, see “Quantitative and Qualitative Disclosures About Market Risk.”);

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

·       theresidual costs of support groups.

The financial resultsfor the period ended June 30, 2006 were impacted by the following factors:

·       creditexpense (income) of ($68.6) million was due to the difference between the $8.0million reversal of allowance for loan losses calculated under our US GAAPmethodology and the $60.6 million in expected losses for the reportablebusiness segments, which utilizes the RAROC methodology;

·       netinterest income is the result of differences between the credit for equity forthe reportable segments under RAROC and the net interest income earned byUnionBanCal Corporation, a credit for deposits in the Pacific Rim CorporateGroup and transfer pricing results. Net interest income declined $27.4 millioncompared to the six months ended June 30, 2005 primarily as a result of adecrease in income from ALM derivatives hedges and from the net impact ofchanges in transfer pricing rates over the prior period as market ratesincreased;

·       noninterestincome of $15.7 million;

·       noninterestexpense of $32.2 million; and

·       lossfrom discontinued operations of $8.2 million.

The financial resultsfor the period ended June 30, 2005 were impacted by the following factors:

·       creditexpense (income) of ($89.6) million was due to the difference between the $25.7million reversal of provision for loan losses calculated under our US GAAPmethodology and the 

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$63.9 million in expectedlosses for the reportable business segments, which utilizes the RAROCmethodology;

·       netinterest income is the result of differences between the credit for equity forthe reportable segments under RAROC, the net transfer pricing results, the netinterest income earned by UnionBanCal Corporation, and a credit for deposits inthe Pacific Rim Corporate Group;

·       noninterestincome (expense) of ($2.1) million;

·       noninterest expense of$36.5 million; and

·       income tax expense includeda credit adjustment of $10.0 million to reflect a reduction in reserves forestimated amounts owed to the Internal Revenue Service with respect to the taxtreatment of certain leasing transactions*.*

**Regulatory Matters**

In October 2004,Union Bank of California International entered into a written agreement withthe Federal Reserve Bank of New York relating to Union Bank of CaliforniaInternational’s Bank Secrecy Act and anti-money laundering controls andprocesses. Union Bank of California International, a wholly owned subsidiary ofUnion Bank of California, N.A., and an Edge Act subsidiary, is limited toengaging in international banking activities, most of which were sold in October 2005.We expect to dissolve this subsidiary in 2006. Although the principal businessactivities of this subsidiary have been sold, we remain legally responsible forresolving the issues raised by the Federal Reserve Bank of New York.

In March 2005, Union Bank of California, N.A.entered into a memorandum of understanding with the Office of the Comptrollerof the Currency, which requires Union Bank of California, N.A. to strengthenits Bank Secrecy Act and anti-money laundering controls and processes. During 2005, we began the process ofstrengthening those controls and processes, which continues.

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

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

**Item 3.   Quantitative and Qualitative Disclosures About MarketRisk**

A discussion of our marketrisk exposure is incorporated by reference to Part I, Item 2 of thisdocument under the captions “Quantitative and Qualitative Disclosures AboutMarket Risk,” “Liquidity Risk,” and Part II, Item 1A “Risk Factors” and inItem 1A “Risk Factors” of our Annual Report on Form 10-K for theyear ended December 31, 2005.

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**Item 4.   Controls and Procedures**

Our Chief Executive Officer (principal executive officer) and ChiefFinancial Officer (principal financial officer) have concluded that the designand operation of our disclosure controls and procedures are effective as of June 30,2006. This conclusion is based on an evaluation conducted under the supervisionand with the participation of management. Disclosure controls and proceduresare those controls and procedures which ensure that information required to bedisclosed in this filing is accumulated and communicated to management and isrecorded, processed, summarized and reported in a timely manner and inaccordance with Securities and Exchange Commission rules and regulations.

During the quarter ended June 30, 2006, there were no changes inour internal controls over financial reporting that materially affected, or arereasonably likely to materially affect, our internal controls over financialreporting.

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**PART II.OTHER INFORMATION**

**Item 1.**            Legal Proceedings

UnionBanCal Corporation and Union Bank of CaliforniaN.A. have been named, along with 54 other parties, as defendants in an actionfiled by DataTreasury Corporation in the United States District Court for theEastern District of Texas on February 24, 2006. Plaintiff alleges thatdefendants are “making, using, selling, offering for sale, and/or importing inor into the United States, directly, contributory and/or by inducement, withoutauthority, products and services” that are asserted to fall within the scope ofthe claims of United States Patents Nos. 5,910,988, 6,032,137, 5,265,007 and5,717,868, which are collectively addressed to various aspects of checkprocessing, including remote data capture, electronic imaging, centralprocessing and storage. Plaintiff seeks unspecified damages and injunctiverelief against infringement.

We are subject to variousother pending and threatened legal actions that arise in the normal course ofbusiness. We maintain reserves for losses from legal actions that are bothprobable and estimable. In addition, we believe the disposition of all claimscurrently pending will not have a material adverse effect on our financialposition or results of operations.

**Item 1A.**           Risk Factors

For a discussion of riskfactors relating to our business, please refer to Item 1A of Part I of ourAnnual Report on Form 10-K for the year ended December 31,2005, which is incorporated by reference herein, in addition to “Management’sDiscussion and Analysis of Financial Condition and Results of Operations—RegulatoryMatters” in Item 2 of Part I of this Quarterly Report on Form 10-Qand the following information.

*Our deposit customers may pursue alternatives to bank deposits or seekhigher yielding deposits, causing us to incur increased funding costs*

We are facingincreasing deposit-pricing pressures. Checking and savings account balances andother forms of deposits can decrease when our deposit customers perceivealternative investments, such as the stock market, other non-depositoryinvestments or higher yielding deposits, as providing superior expectedreturns. Technology and other changes have made it more convenient for bankcustomers to transfer funds into alternative investments or other depositaccounts, including products offered by other financial institutions ornon-bank service providers. Additional increases in short-term interest ratescould exacerbate such transfers of deposits to higher yielding deposits orother investments. Efforts and initiatives we undertake to retain and increasedeposits, including deposit pricing, can increase our costs. When bankcustomers move money out of bank deposits in favor of alternative investmentsor into higher yielding deposits, we can lose a relatively inexpensive sourceof funds, increasing our funding cost.

*Changes in the premiumspayable to the Federal Deposit Insurance Corporation could increase our costsand adversely affect our business*

Deposits of Union Bank ofCalifornia are insured up to statutory limits by the Federal Deposit InsuranceCorporation, or FDIC, and, accordingly, are subjected to deposit insuranceassessments to maintain the Deposit Insurance Fund. Union Bank of Californiacurrently pays no insurance assessments on these deposits under the FDIC’srisk-related assessment system. However, in July 2006, the FDIC released aproposal that would create a new assessment system designed to more closely tiewhat banks pay for deposit insurance to the risks they pose and adopt a newbase schedule of rates that the FDIC could adjust up or down, depending on therevenue needs of the insurance fund. This new assessment system, if adopted asproposed, would result in increased annual assessments on deposits of at least2 basis points that may only initially be offset by the FDIC’s proposed creditto represent prior contributions. Significant increases in the insuranceassessments Union Bank of California pays will increase our costs once the 

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credit isexceeded. In addition, because the FDIC proposes to use a different methodconsisting of assigning subcategories of assessments for large institutionswith $10 billion or more in assets while providing for individualized rates forsmall institutions with less than $10 billion in assets, Union Bank ofCalifornia could pay greater assessments and incur greater costs than smallercompetitors.

**Item 2.**            Unregistered Sales ofEquity Securities and Use of Proceeds

*Repurchases of EquitySecurities*

Thefollowing table presents repurchases by us of our equity securities during thesecond quarter 2006:

| ** **                                 | ** ** | ** **                    | ** ** | ** **                       | ** ** | ** **                             | ** ** | **Approximate **                   | ** ** |
|--------------------------------------------|------------|-------------------------------|------------|----------------------------------|------------|----------------------------------------|------------|-----------------------------------------|------------|
| ** **                                 | ** ** | ** **                    | ** ** | ** **                       | ** ** | ** **                             | ** ** | **Dollar**                              | ** ** |
| ** **                                 | ** ** | ** **                    | ** ** | ** **                       | ** ** | **Total Number**                  | ** ** | **Value of Shares that** | ** ** |
| ** **                                 | ** ** | ** **                    | ** ** | ** **                       | ** ** | **of Shares Purchased**      | ** ** | **May Yet Be**                | ** ** |
| ** **                                 | ** ** | **Total Number of** | ** ** | **Average Price Paid** | ** ** | **as Part of Publicly** | ** ** | **Purchased**                           | ** ** |
| **Period**                                 | ** ** | **Shares Purchased**(3)  | ** ** | **per Share**               | ** ** | **Announced Programs**            | ** ** | **Under the Programs**        | ** ** |
| **April 2006**  (April 25, 2006) |       |                          | 15,162     | ** **                       |       |                                   | $          | 70.16                                   | ** ** |   |   | — | ** ** |   |   | $ | 521,254,656 | (1) |   |
| **May 2006**  (May 1-31, 2006)   |       |                          | 1,288,841  | ** **                       |       |                                   | $          | 69.13                                   | ** ** |   |   | 1,288,700 | ** ** |   |   | $ | 432,202,117 |   |   |
| **June 2006**  (June 1-22, 2006) |       |                          | 451,877    | ** **                       |       |                                   | $          | 67.79                                   | ** ** |   |   | 451,400 | ** ** |   |   | $ | 401,583,231 | (2) |   |
| **Total**                                  |       |                          | 1,755,880  | ** **                       |       |                                   | $          | 68.79                                   | ** ** |   |   | 1,740,100 | ** ** |   |   |   |   |   |

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(1)                   OnApril 26, 2006, UnionBanCal Corporation announced the Board of Directors’authorization of an additional $500 million repurchase of the Company’s commonstock.

(2)                   Inthe second quarter of 2006, UnionBanCal Corporation used the remaining $22.3million from the $200 million repurchase program announced on April 21, 2005and $98.4 million from the $500 million repurchase program announced on April 26,2006.

(3)                   Includes 15,162shares, 141 shares and 477 shares of common stock repurchased during April, Mayand June 2006, respectively, from employees for required personal income taxwithholdings on the vesting of restricted stock issued under the Year 2000UnionBanCal Corporation Management Stock Plan. These purchases are notconsidered in arriving at the approximate dollar value of shares that may yetbe purchased under the Board of Directors’ repurchase program authorization.

**Item 4.**            Submission of Mattersto a Vote of Security Holders

For information regardingmatters submitted to a vote at the Annual Meeting of Stockholders on April 26,2006, see Part II, Item 4 of our Quarterly Report on Form 10-Qfor the period ended March 31, 2006, incorporated by reference herein.

**Item 6.**            Exhibits
| No.  | ** ** | **Description**                                                                                                         |
|------|------------|-------------------------------------------------------------------------------------------------------------------------|
| 10.1 |       | Amendment No. 1 to the Union Bank of  California, N.A. Supplemental Executive Retirement Plan(1)                   |
| 10.2 |       | Amendment No. 1 to the  Union Bank of California, N.A. Supplemental Retirement Plan for Policy Making  Officers(1) |
| 10.3 |       | Form of 2006 Restricted  Stock Agreement under the Year 2000 UnionBanCal Corporation Management Stock  Plan(1)     |

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| 10.4 |   | Amended and Restated 1997  UnionBanCal Corporation Performance Share Plan(2)                                                                                         |
|------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.5 |   | Union Bank of California, N.A. Senior Executive  Bonus Plan(3)                                                                                                       |
| 10.6 |   | Forms of Restricted Stock  Unit Agreement for Non-Employee Directors under the Year 2000 UnionBanCal  Corporation Management Stock Plan(4)                           |
| 31.1 |   | Certification of the Chief  Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of  2002(1)                                                     |
| 31.2 |   | Certification of the Chief  Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of  2002(1)                                                     |
| 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(1) |
| 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(1) |

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(1)                   Filedherewith.

(2)                   Incorporatedby reference to Appendix A to the UnionBanCal Corporation Definitive ProxyStatement on Schedule 14A filed on March 23, 2006 (SEC File No. 001-15081).

(3)                   Incorporatedby reference to Appendix B to the UnionBanCal Corporation Definitive ProxyStatement on Schedule 14A filed on March 23, 2006 (SEC File No. 001-15081).

(4)                   Incorporatedby reference to Exhibit 10.1 to UnionBanCal Corporation’s Current Reporton Form 8-K dated July 1, 2006 (SEC File No. 001-15081).

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**Signatures**

Pursuant to the requirementsof the Securities Exchange Act of 1934, the registrant has duly caused thisreport to be signed on its behalf by the undersigned, thereunto dulyauthorized.
|                            | UNIONBANCAL CORPORATION (Registrant) |
|----------------------------|--------------------------------------|
|                       |                                 |   |
| Date: August 7,  2006 | By:                                  | /s/ TAKASHI MORIMURA |
|                       |                                 | Takashi Morimura |
| *** ***               | * *                             | *President  and Chief Executive Officer* |
|                       |                                 | *(Principal  Executive Officer)* |
| Date: August 7,  2006 | By:                                  | /s/ DAVID I. MATSON |
|                       |                                 | David I. Matson |
| * *                   | * *                             | *Vice  Chairman and Chief Financial Officer* |
| * *                   |                                 | *(Principal  Financial Officer)* |
|                       |                                 |   |
| Date: August 7,  2006 | By:                                  | /s/ DAVID A. ANDERSON |
|                       |                                 | David A. Anderson |
| * *                   | * *                             | *Executive  Vice President and Controller* |
|                       |                                 | *(Chief  Accounting Officer)* |

 

66

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**EXHIBIT INDEX**
| No.  | ** ** | **Description**                                                                                                                                                      |
|------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.1 |       | Amendment No. 1 to the Union Bank of  California, N.A. Supplemental Executive Retirement Plan(1)                                                                |
| 10.2 |       | Amendment No. 1 to the Union Bank of  California, N.A. Supplemental Retirement Plan for Policy Making Officers(1)                                               |
| 10.3 |       | Form of 2006 Restricted Stock Agreement under  the Year 2000 UnionBanCal Corporation Management Stock Plan(1)                                                   |
| 10.4 |       | Amended and Restated 1997 UnionBanCal Corporation  Performance Share Plan(2)                                                                                         |
| 10.5 |       | Union Bank of California, N.A. Senior Executive  Bonus Plan(3)                                                                                                       |
| 10.6 |       | Forms of Restricted Stock Unit Agreement for  Non-Employee Directors under the Year 2000 UnionBanCal Corporation Management  Stock Plan(4)                           |
| 31.1 |       | Certification of the Chief Executive Officer pursuant  to Section 302 of the Sarbanes-Oxley Act of 2002(1)                                                      |
| 31.2 |       | Certification of the Chief Financial Officer  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(1)                                                      |
| 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(1) |
| 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(1) |

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(1)                   Filed herewith.

(2)                   Incorporated byreference to Appendix A to the UnionBanCal Corporation Definitive ProxyStatement on Schedule 14A filed on March 23, 2006 (SEC File No. 001-15081).

(3)                   Incorporated byreference to Appendix B to the UnionBanCal Corporation Definitive ProxyStatement on Schedule 14A filed on March 23, 2006 (SEC File No. 001-15081).

(4)                   Incorporated byreference to Exhibit 10.1 to UnionBanCal Corporation’s Current Report on Form 8-Kdated July 1, 2006 (SEC File No. 001-15081).

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