Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-Q

ý

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended March 31, 2010ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period
from                        to


Commission
file number 1-15081

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

Delaware

94-1234979(State of Incorporation)

(I.R.S. Employer Identification No.)400 California Street, San Francisco, California

94104-1302(Address of principal executive offices)

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


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

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

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

Large accelerated filer o

Accelerated filer oNon-accelerated filer þ(Do not check if a smaller reporting company)

Smaller reporting company o


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

Number of shares of Common Stock outstanding at April 30, 2010: 136,330,829

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



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Table of Contents



UnionBanCal Corporation and Subsidiaries    TABLE OF CONTENTS



Page
NumberPART I.Financial InformationCondensed Consolidated Financial Highlights

6ITEM 1. FINANCIAL STATEMENTS

7Condensed Consolidated Statements of Income

7Condensed Consolidated Balance Sheets

8Condensed Consolidated Statements of Changes in Stockholder's
Equity

9Condensed Consolidated Statements of Cash Flows

10Note 1Basis of Presentation and Nature of Operations

11Note 2Recently Issued Accounting Pronouncements

11Note 3Privatization

12Note 4Securities

14Note 5Loans and Allowance for Loan Losses

20Note 6Goodwill and Intangible Assets

21Note 7Variable Interest Entities

23Note 8Private Capital and Other Investments

25Note 9Employee Pension and Other Postretirement
Benefits

27Note 10Other Noninterest Income and Noninterest
Expense

27Note 11Borrowed Funds

28Note 12Medium- and Long-Term Debt

29Note 13Fair Value Measurement and Fair Value of Financial
Instruments

30Note 14Derivative Instruments and Other Financial Instruments Used
For Hedging

38Note 15Accumulated Other Comprehensive Loss

45Note 16Commitments, Contingencies and Guarantees

46Note 17Business Segments

48Note 18Subsequent Events

51ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

53Introduction

53Executive Overview

53Critical Accounting Estimates

55Financial Performance

56Net Interest Income

58Noninterest Income and Noninterest Expense

59Income Tax Expense

60Loans

61Cross-Border Outstandings

63Provision for Credit Losses

64Allowances for Credit Losses

64Nonperforming Assets

66Loans 90 Days or More Past Due and Still Accruing

68Securities

68Deposits

70


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Table of Contents

Page
NumberFair Value of Financial Instruments

71Quantitative and Qualitative Disclosures About Market Risk

72Liquidity Risk

75Regulatory Capital

78Business Segments

78ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

86ITEM 4. CONTROLS AND PROCEDURES

86PART II.Other Information

87ITEM 1. LEGAL PROCEEDINGS

87ITEM 1A. RISK FACTORS

87ITEM 6. EXHIBITS

87SIGNATURES

88


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NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report includes forward-looking statements, which include forecasts of our financial results and condition, expectations for our
operations and business, and our assumptions for those forecasts and expectations. Do not rely unduly on forward-looking statements. Actual results might differ significantly compared to our forecasts
and expectations. See Part I, Item 1A. "Risk Factors," and the other risks described in our 2009 Annual Report on Form 10-K for factors to be considered when reading
any forward-looking statements in this filing.

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

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



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There
are numerous risks and uncertainties that could and will cause actual results to differ materially from those discussed in our forward-looking statements. Many of these factors are
beyond our ability to control or predict and could have a material adverse effect on our financial condition and results of operations or prospects. Such risks and uncertainties include, but are not
limited to, those listed in Item 1A "Risk Factors" of Part II and Item 2 "Management's Discussion and Analysis of Financial Condition and Results of Operations" of Part I
of this Form 10-Q.

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

5

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PART I. FINANCIAL INFORMATION
UnionBanCal Corporation and Subsidiaries
Condensed Consolidated Financial Highlights
(Unaudited)

As of and for the
Three Months Ended(Dollars in thousands)

March 31,
2009

March 31,
2010

Percent
ChangeResults of operations:Net interest income(1)

$
562,620

$
576,794


2.52
%Provision for loan losses


249,000


170,000


(31.73
)Noninterest income


174,716


209,905


20.14Noninterest expense


521,383


524,572


0.61Income (loss) before income taxes and including noncontrolling interests(1)


(33,047
)

92,127


nmTaxable-equivalent adjustment


2,617


2,441


(6.73
)Income tax expense (benefit)


(25,856
)

15,401


nmNet income (loss) including noncontrolling interests


(9,808
)

74,285


nmLess: Net loss from noncontrolling interests





(3,059
)

nmNet income (loss) attributable to UnionBanCal Corporation (UNBC)

$
(9,808
)
$
77,344


nmBalance sheet (end of period):Total assets

$
68,725,270

$
85,471,296


24.37
%Total loans


49,441,063


46,721,210


(5.50
)Nonperforming assets


834,738


1,466,937


75.74Total deposits


48,878,733


66,581,593


36.22Medium- and long-term debt


5,140,931


4,710,979


(8.36
)UNBC Stockholder's equity


7,475,472


9,706,081


29.84Balance sheet (period average):Total assets

$
67,072,499

$
84,810,109


26.45
%Total loans


49,789,046


46,847,523


(5.91
)Earning assets


59,626,207


78,311,856


31.34Total deposits


46,633,173


67,838,145


45.47UNBC Stockholder's equity


7,336,212


9,532,428


29.94Financial ratios:Return on average assets(2)


(0.06
)%

0.37
%Return on average UNBC stockholder's equity(2)


(0.54
)

3.29Efficiency ratio(3)


65.69


64.98Net interest margin(1)(2)


3.79


2.95Tangible common equity ratio(4)


7.12


8.47Tier 1 common capital ratio(5)


8.72


11.96Tier 1 risk-based capital ratio


8.74


11.98Total risk-based capital ratio


11.59


14.70Leverage ratio


8.46


9.22Allowance for loan losses to(6):Total loans


1.76


3.01Nonaccrual loans


107.41


99.06Allowance for credit losses to(7):Total loans


2.07


3.38Nonaccrual loans


126.10


111.11Net loans charged off to average total loans(2)


0.95


1.03Nonperforming assets to total loans, foreclosed assets and distressed loans held for sale


1.69


3.14Nonperforming assets to total assets


1.21


1.72


(1)Amounts
are on a taxable-equivalent basis using the federal statutory tax rate of 35 percent.(2)Annualized.(3)The
efficiency ratio is noninterest expense, excluding foreclosed asset expense (income), the provision for losses on off-balance
sheet commitments, low income housing credit (LIHC) investment amortization expense and expenses of the consolidated variable interest entities (VIEs), as a percentage of net interest and noninterest
income.(4)The
tangible common equity ratio, a non-GAAP financial measure, is calculated as tangible equity (UNBC stockholder's equity less
goodwill and intangible assets net of related deferred taxes) divided by tangible assets (total assets less goodwill and intangible assets net of related deferred taxes). The methodology of
determining tangible common equity may differ among companies. The tangible common equity ratio has been included to facilitate the understanding of the Company's capital structure and for use in
assessing and comparing the quality and composition of UNBC's capital structure to other financial institutions.(5)The
Tier 1 common capital ratio is the ratio of Tier 1 capital, less qualifying trust preferred securities, to risk weighted
assets. The Tier 1 common capital ratio, a non-GAAP financial measure, has been included to facilitate the understanding of the Company's capital structure and for use in assessing
and comparing the quality and composition of UNBC's capital structure to other financial institutions.(6)The
allowance for loan losses ratios are calculated using the allowance for loan losses against end of period total loans or total nonaccrual
loans, as appropriate.(7)The
allowance for credit losses ratios are calculated using the sum of the allowances for loan losses and for losses on
off-balance sheet commitments against end of period total loans or total nonaccrual loans, as appropriate.nm=not
meaningful


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Table of Contents

Item 1.   Financial Statements

UnionBanCal Corporation and Subsidiaries  Condensed Consolidated Statements of Income  (Unaudited)

For the Three Months
Ended March 31,(Amounts in thousands)

2009

2010Interest IncomeLoans

$
601,842

$
539,574Securities


102,897


143,336Interest bearing deposits in banks


900


4,055Federal funds sold and securities purchased under resale agreements


141


119Trading account assets


150


819Total interest income


705,930


687,903Interest ExpenseDeposits


105,038


85,562Federal funds purchased and securities sold under repurchase agreements


53


37Commercial paper


1,592


240Other borrowed funds


11,477


1,202Medium- and long-term debt


27,529


26,241Trust notes


238


268Total interest expense


145,927


113,550Net Interest Income


560,003


574,353Provision for loan losses


249,000


170,000Net interest income after provision for loan losses


311,003


404,353Noninterest IncomeService charges on deposit accounts


71,322


66,140Securities gains, net





33,893Trust and investment management fees


33,907


31,420Trading account activities


22,692


21,093Merchant banking fees


13,832


13,676Card processing fees, net


7,536


8,620Brokerage commissions and fees


8,307


8,528Other


17,120


26,535Total noninterest income


174,716


209,905Noninterest ExpenseSalaries and employee benefits


243,563


279,586Net occupancy


41,921


43,380Intangible asset amortization


40,887


31,793Regulatory agencies


17,938


29,848Outside services


18,834


22,785Professional services


15,938


16,361Equipment


15,413


15,811Software


15,038


14,728Foreclosed asset expense (income)


886


(198
)(Reversal of) provision for losses on off-balance sheet commitments


26,000


(5,000
)Privatization-related expense


26,819


5,153Other


58,146


70,325Total noninterest expense


521,383


524,572Income (loss) before income taxes and including noncontrolling interests


(35,664
)

89,686Income tax expense (benefit)


(25,856
)

15,401Net Income (Loss) including Noncontrolling Interests


(9,808
)

74,285Less: Net loss from noncontrolling interests





(3,059
)Net Income (Loss) attributable to UNBC

$
(9,808
)
$
77,344


See accompanying notes to condensed consolidated financial statements.

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Table of Contents

UnionBanCal Corporation and Subsidiaries  Condensed Consolidated Balance Sheets  (Unaudited)

(Dollars in thousands)

March 31,
2009

December 31,
2009

March 31,
2010AssetsCash and due from banks

$
1,328,279

$
1,198,258

$
1,110,333Interest bearing deposits in banks (includes $9,991 at March 31, 2010 related to consolidated variable interest entities (VIEs))


2,505,861


6,585,029


6,874,338Federal funds sold and securities purchased under resale agreements


110,083


442,552


488,520Total cash and cash equivalents


3,944,223


8,225,839


8,473,191Trading account assets:Pledged as collateral


8,295


15,168


54,380Held in portfolio


1,149,832


710,480


775,915Securities available for sale:Pledged as collateral


43,374


2,500


Held in portfolio


7,506,069


22,556,329


22,164,722Securities held to maturity (Fair value: March 31, 2009, $959,137;December 31, 2009, $1,457,654; March 31, 2010, $1,500,746)


1,150,342


1,227,718


1,247,561Loans (net of allowance for loan losses: March 31, 2009, $870,185;December 31, 2009, $1,357,000; March 31, 2010, $1,408,013)


48,570,878


45,871,508


45,313,197Due from customers on acceptances


15,077


8,514


7,788Premises and equipment, net


670,376


674,298


671,230Intangible assets


672,568


561,040


529,247Goodwill


2,369,326


2,369,326


2,369,326Other assets (includes $297,736 at March 31, 2010 related to consolidated VIEs)


2,624,910


3,375,408


3,864,739Total assets

$
68,725,270

$
85,598,128

$
85,471,296LiabilitiesNoninterest bearing

$
13,543,015

$
14,558,989

$
14,389,261Interest bearing


35,335,718


53,958,664


52,192,332Total deposits


48,878,733


68,517,653


66,581,593Federal funds purchased and securities sold under repurchase agreements


320,376


150,453


575,668Commercial paper


749,381


888,541


799,106Other borrowed funds


3,861,905


591,934


833,617Trading account liabilities


965,105


538,894


736,813Acceptances outstanding


15,077


8,514


7,788Other liabilities (includes $1,675 at March 31, 2010 related to consolidated VIEs)


1,304,423


1,096,095


1,224,440Medium- and long-term debt (includes $7,853 at March 31, 2010 related to consolidated VIEs)


5,140,931


4,212,184


4,710,979Junior subordinated debt payable to subsidiary grantor trust


13,867


13,527


13,444Total liabilities


61,249,798


76,017,795


75,483,448Commitments, contingencies and guaranteesSee Note 16EquityUNBC Stockholder's EquityPreferred stock:Authorized 5,000,000 shares; no shares issued or outstanding








Common stock, par value $1 per share:Authorized 300,000,000 shares; 136,330,829 shares issued


136,331


136,331


136,331Additional paid-in capital


3,195,023


5,195,023


5,195,023Retained earnings


4,954,994


4,899,841


4,977,185Accumulated other comprehensive loss


(810,876
)

(650,862
)

(602,458
)Total UNBC stockholder's equity


7,475,472


9,580,333


9,706,081Noncontrolling interests








281,767Total equity


7,475,472


9,580,333


9,987,848Total liabilities and equity

$
68,725,270

$
85,598,128

$
85,471,296


See accompanying notes to condensed consolidated financial statements.

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UnionBanCal Corporation and Subsidiaries  Condensed Consolidated Statements of Changes in Stockholder's Equity  (Unaudited)

(In thousands, except shares)

Common
stock

Additional
paid-in
capital

Retained
earnings

Accumulated
other
comprehensive
income (loss)

Noncontrolling
interests(1)

Total
stockholder's
equityBALANCE DECEMBER 31, 2008

$
136,331

$
3,195,023

$
4,964,802

$
(811,851
)
$


$
7,484,305Comprehensive loss:Net lossFor the three monthsended March 31, 2009








(9,808
)







(9,808
)Other comprehensive income (loss), net of tax:Net change in unrealized gains on cash flow hedges











(12,972
)




(12,972
)Net change in unrealized losses on securities











10,490





10,490Foreign currency translation adjustment











(420
)




(420
)Net change in pension and other benefits











3,877





3,877Total comprehensive loss, net of tax

















(8,833
)Net change








(9,808
)

975





(8,833
)BALANCE MARCH 31, 2009

$
136,331

$
3,195,023

$
4,954,994

$
(810,876
)
$


$
7,475,472BALANCE DECEMBER 31, 2009

$
136,331

$
5,195,023

$
4,899,841

$
(650,862
)
$


$
9,580,333Cumulative effect of change in accounting for VIEs(1)














271,923


271,923Comprehensive income:Net income (loss)For the three months ended March 31, 2010








77,344





(3,059
)

74,285Other comprehensive income (loss), net of tax:Net change in unrealized gains on cash flow hedges











(13,364
)




(13,364
)Net change in unrealized losses on securities











57,292





57,292Foreign currency translation adjustment











536





536Net change in pension and other benefits











3,940





3,940Total comprehensive income, net of tax

















122,689Noncontrolling interests














12,903


12,903Net change








77,344


48,404


281,767


407,515BALANCE MARCH 31, 2010

$
136,331

$
5,195,023

$
4,977,185

$
(602,458
)
$
281,767

$
9,987,848


(1)For
additional information on the consolidated VIEs, refer to Note 7 to these condensed consolidated financial statements in this
Form 10-Q.


See accompanying notes to condensed consolidated financial statements.

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UnionBanCal Corporation and Subsidiaries  Condensed Consolidated Statements of Cash Flows  (Unaudited)

For the Three Months
Ended March 31,(Dollars in thousands)

2009

2010Cash Flows from Operating Activities:Net income (loss) including noncontrolling interests

$
(9,808
)
$
74,285Adjustments to reconcile net income to net cash provided by (used in) operating activities:Provision for loan losses


249,000


170,000(Reversal of) provision for losses on off-balance sheet commitments


26,000


(5,000
)Depreciation, amortization and accretion


33,937


62,566Deferred income taxes


(39,045
)

(16,794
)Net gains on sales of securities





(33,893
)Net decrease (increase) in trading account assets


58,652


(104,647
)Net increase in prepaid expenses


(28,058
)

(74,481
)Net decrease (increase) in fees and other receivable


10,189


(86,251
)Net increase in other assets


(39,800
)

(60,109
)Net decrease in accrued expenses


(146,786
)

(2,802
)Net increase (decrease) in trading account liabilities


(69,558
)

197,919Net increase (decrease) in other liabilities


(251,929
)

108,525Loans originated for resale


(64,953
)

Net proceeds from sale of loans originated for resale


8,772


Other, net


8,667


(9,027
)Discontinued operations, net


(6,027
)

Total adjustments


(250,939
)

146,006Net cash provided by (used in) operating activities


(260,747
)

220,291Cash Flows from Investing Activities:Proceeds from sales of securities available for sale


5,624


1,046,957Proceeds from matured and called securities available for sale


533,465


1,099,785Purchases of securities available for sale


(1,018,444
)

(1,668,031
)Proceeds from matured securities held to maturity


819


2,057Purchases of premises and equipment, net


(19,437
)

(15,023
)Net decrease in loans


100,203


384,720Other, net


(791
)

(1,281
)Net cash provided by (used in) investing activities


(398,561
)

849,184Cash Flows from Financing Activities:Net increase (decrease) in deposits


2,828,964


(1,913,944
)Net increase in federal funds purchased and securities sold under repurchase agreements


147,618


425,215Net increase (decrease) in commercial paper and other borrowed funds


(3,749,638
)

152,248Proceeds from issuance of medium- and long-term debt


1,625,000


1,000,000Repayment of medium-term debt


(750,000
)

(500,000
)Other, net


(420
)

536Change in noncontrolling interests





12,903Discontinued operations, net


(1,929
)

Net cash provided by (used in) financing activities


99,595


(823,042
)Net increase (decrease) in cash and cash equivalents


(559,713
)

246,433Cash and cash equivalents at beginning of period


4,504,345


8,225,839Effect of exchange rate changes on cash and cash equivalents


(409
)

919Cash and cash equivalents at end of period

$
3,944,223

$
8,473,191Cash Paid During the Period For:Interest

$
151,187

$
101,710Income taxes, net


6,743


(1,849
)Supplemental Schedule of Noncash Investing and Financing Activities:Securities available for sale transferred to securities held to maturity

$
1,144,036

$
Loans transferred to foreclosed assets (OREO)


8,602


28,898


See accompanying notes to condensed consolidated financial statements.

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UnionBanCal Corporation and Subsidiaries        Notes to Condensed Consolidated Financial Statements        (Unaudited)

Note 1Basis of Presentation and Nature of Operations

The unaudited condensed consolidated financial statements of UnionBanCal Corporation and subsidiaries have been prepared in accordance with accounting principles generally accepted in
the United States of America (US GAAP) for interim financial reporting and the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X of the Rules and Regulations of the Securities and Exchange Commission (SEC). However, they do not include all of the disclosures necessary for annual financial
statements in conformity with US GAAP. In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation have been included.
The results of operations for the period ended March 31, 2010 are not necessarily indicative of the operating results anticipated for the full year. Accordingly, these unaudited condensed
consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in UnionBanCal Corporation's Annual Report on Form 10-K
for the year ended December 31, 2009 (2009 Form 10-K). The preparation of financial statements in conformity with US GAAP also requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expense during the reporting period. Actual results could differ compared to those estimates.

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

On
November 4, 2008, the Company became a privately held company (privatization transaction). All of the Company's issued and outstanding shares of common stock are owned by The
Bank of Tokyo-Mitsubishi UFJ, Ltd. (BTMU). Prior to the transaction, BTMU owned approximately 64 percent of the Company's outstanding shares of common stock.

See
Note 3 to these condensed consolidated financial statements in this Form 10-Q for additional information on the Company's privatization transaction.

Note 2Recently Issued Accounting Pronouncements



In December 2009, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2009-16,
"Accounting for Transfers of Financial Assets" which formally codifies Statement of Financial Accounting Standards (SFAS) No. 166, "Accounting for Transfers of Financial Assetsan
amendment of FASB Statement 140," which was issued in June 2009. The guidance eliminates the concept of qualifying special purpose entities (QSPEs) and modifies financial asset derecognition
criteria. The elimination of the exception for QSPEs will likely result in many sponsors that transferred financial assets to such vehicles to consolidate them. The derecognition modifications require
that companies consider all arrangements such that the transferred financial asset is legally isolated from the transferor and any of its consolidated affiliates when determining whether derecognition
is appropriate for a transferred financial asset. For a transfer of a portion of a financial asset to be derecognized, it must meet the definition of a participating interest. The guidance also
requires that all beneficial interests retained in transferred financial assets be initially measured at fair value. Disclosures are amended to require description of a company's continuing
involvement with transferred financial assets and details regarding financial or other support provided. The

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UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 2Recently Issued Accounting Pronouncements (Continued)

guidance
was effective January 1, 2010. At adoption, there was no impact on the Company's financial position or results of operations.



In December 2009, the FASB issued ASU 2009-17, "Improvements to Financial Reporting by Enterprises Involved with
Variable Interest Entities" which formally codifies SFAS No. 167, "Amendments to FASB Interpretation No. 46(R)" which was issued in June 2009. The guidance changes the method of
analyzing which party shall consolidate a variable interest entity (VIE) by providing revised criteria for determining the primary beneficiary. A company would be required to determine the primary
beneficiary of a VIE on a continual basis based on a qualitative assessment of which party, if any, has the power to direct activities and the right to receive benefits or the obligation to absorb
losses. The guidance also states that if power is shared by multiple parties such that no one party has the power to direct the activities, then no party shall consolidate the VIE. Disclosures are
also amended to require disclosure of continuing involvement with VIEs and judgments used in the consolidation analysis such as the method, significant judgments and assumptions used for determining
the primary beneficiary. The guidance was effective January 1, 2010. As a result of reviewing the Company's variable interest entities and the determination of the primary beneficiary, the
Company consolidated certain Low Income Housing Tax Credit investment funds. At adoption, management recorded increases in total assets of $281 million, liabilities of $9 million and
stockholder's equity attributable to noncontrolling interests of $272 million. This guidance did not have a material
impact on the Company's results of operations. Disclosures required under this guidance are included in Note 7 to these condensed consolidated financial statements.



In January 2010, the FASB issued ASU 2010-06, "Improving Disclosures about Fair Value Measurements." This guidance
amends FASB ASC 820-10, "Fair Value Measurements and Disclosures" with respect to disclosures. Specifically, this guidance requires the disclosure of transfers in and out of
Level 1 and Level 2 and a gross presentation within the Level 3 rollforward. This guidance also clarifies that the information should be presented by class of financial asset or
liability and that a discussion of valuation techniques and inputs is required for Level 2 and Level 3 recurring and nonrecurring fair value measurements. The guidance, which applies
only to disclosures, was effective March 31, 2010 except for the gross presentation within the Level 3 rollforward, which is effective March 31, 2011. Disclosures required under
this guidance are included within Note 13 to these condensed consolidated financial statements.

Note 3Privatization

The privatization transaction was accounted for as a business combination and the purchase price was pushed down to the Company's consolidated financial statements. Accordingly, the
purchase price paid by BTMU plus related purchase accounting adjustments have been reflected on the Company's consolidated balance sheet as of October 1, 2008. This resulted in a new basis of
accounting, which reflects an adjustment for the estimated fair value of the Company's assets and liabilities. After all of the fair value adjustments to the Company's assets and liabilities were
assigned, the remainder of the purchase price was recorded as goodwill.

12

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 3Privatization (Continued)

The
Company recorded amortization (accretion) of the fair value adjustments by category for the three months ended March 31, 2009 and 2010 as follows:

For the Three Months ended March 31,(Dollars in thousands)

2009

2010Securities

$
(6,787
)
$
(6,575
)Loans


(32,865
)

(14,333
)Cash flow hedges


3,765


1,073Premises and equipment


2,048


2,152Intangible assets


40,524


31,588Long-term debt


910


910Total amortization

$
7,595

$
14,815


The
Company recorded expenses for the privatization transaction for the three months ended March 31, 2009 and 2010 as follows:

For the Three Months ended March 31,(Dollars in thousands)

2009

2010Salaries and employee benefits(1)

$
26,181

$
5,153Professional services


605


Other


33


Total

$
26,819

$
5,153


(1)Represents
the amortization of the bridge award compensation.


13

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)




Note 4Securities

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

Securities Available for Sale

December 31, 2009

March 31, 2010(Dollars in thousands)

Amortized
Cost(1)

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair
Value

Amortized
Cost(1)

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair
ValueU.S. Treasury

$
299,488

$
189

$


$
299,677

$
299,724

$
140

$


$
299,864Other U.S. government


12,311,626


13,165


47,373


12,277,418


13,021,963


30,641


13,322


13,039,282Residential mortgage-backed securitiesagency


9,215,771


171,513


25,161


9,362,123


8,056,257


165,092


8,401


8,212,948Residential mortgage-backed securitiesnon-agency


454,646


36


63,243


391,439


418,094


143


50,395


367,842State and municipal


43,287


1,830


21


45,096


43,888


1,725


19


45,594Asset-backed and debt securities


112,609


1,598


6,072


108,135


111,584


2,103


3,437


110,250Equity securities


74,791


441


291


74,941


88,521


628


207


88,942Total securities available for sale

$
22,512,218

$
188,772

$
142,161

$
22,558,829

$
22,040,031

$
200,472

$
75,781

$
22,164,722


Securities Held to Maturity

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



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

Amortized
Cost(1)

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Carrying
Value

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair
ValueCollateralized loan obligations (CLOs)

$
1,758,716

$


$
531,094

$
1,227,622

$
231,135

$
1,199

$
1,457,558Foreign securities


96








96








96Total securities held to maturity

$
1,758,812

$


$
531,094

$
1,227,718

$
231,135

$
1,199

$
1,457,654




March 31, 2010Recognized in Other Comprehensive Income (OCI)(2)



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

Amortized
Cost(1)

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Carrying
Value

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair
ValueCLOs

$
1,762,268

$


$
514,806

$
1,247,462

$
254,005

$
820

$
1,500,647Foreign securities


99








99








99Total securities held to maturity

$
1,762,367

$


$
514,806

$
1,247,561

$
254,005

$
820

$
1,500,746


(1)Amortized
cost reflects fair value adjustments as a result of the Company's privatization. Refer to Note 3 to these condensed
consolidated financial statements.(2)The
amount recognized in OCI reflects the unrealized loss at date of transfer to the held to maturity classification, net of amortization,
while the amount not recognized in OCI reflects the incremental change in value after such transfer.


14

---



Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 4Securities (Continued)




For the three months ended March 31, 2010, interest income included $0.6 million from non-taxable securities.

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

Maturity Schedule of Securities

Securities Available for Sale(1)

March 31, 2010(Dollars in thousands)

Amortized
Cost(3)

Fair
ValueDue in one year or less

$
3,812,907

$
3,817,978Due after one year through five years


9,827,259


9,847,656Due after five years through ten years


1,290,670


1,332,479Due after ten years


7,020,674


7,077,667Equity securities(2)


88,521


88,942Total securities available for sale

$
22,040,031

$
22,164,722


Securities Held to Maturity

March 31, 2010(Dollars in thousands)

Amortized
Cost(3)

Fair
ValueDue in one year or less

$
99

$
99Due after one year through five years


15,467


14,037Due after five years through ten years


1,399,187


1,216,465Due after ten years


347,614


270,145Total securities held to maturity

$
1,762,367

$
1,500,746


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


The proceeds from sales of securities available for sale, gross realized gains and gross realized losses are shown below. The specific
identification method is used to calculate realized gains and losses on sales.

For the Three Months Ended March 31,(Dollars in thousands)

2009

2010Proceeds from sales

$
5,624

$
1,046,957Gross realized gains


4


35,173Gross realized losses








15

---



Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 4Securities (Continued)

Analysis of Unrealized Losses on Securities

At December 31, 2009 and March 31, 2010, the Company's securities, shown below, were in a continuous unrealized loss
position for the periods less than 12 months and 12 months or more.

Securities Available for Sale

December 31, 2009Less than 12 months

12 months or more

Total(Dollars in thousands)

Fair
Value

Unrealized
Losses

Count

Fair
Value

Unrealized
Losses

Count

Fair
Value

Unrealized
Losses

CountOther U.S. government

$
8,682,501

$
47,373


106

$


$





$
8,682,501

$
47,373


106Residential mortgage-backed securitiesagency


2,928,456


24,628


61


232,670


533


28


3,161,126


25,161


89Residential mortgage-backed securitiesnon-agency











362,471


63,243


17


362,471


63,243


17State and municipal


760


1


2


1,498


20


6


2,258


21


8Asset-backed and debt securities


27,325


2,219


3


62,427


3,853


9


89,752


6,072


12Equity securities











164


291


2


164


291


2Total securities available for sale

$
11,639,042

$
74,221


172

$
659,230

$
67,940


62

$
12,298,272

$
142,161


234




March 31, 2010Less than 12 months

12 months or more

Total(Dollars in thousands)

Fair
Value

Unrealized
Losses

Count

Fair
Value

Unrealized
Losses

Count

Fair
Value

Unrealized
Losses

CountOther U.S. government

$
3,756,551

$
13,322


56

$


$





$
3,756,551

$
13,322


56Residential mortgage-backed securitiesagency


1,238,210


8,298


32


54,308


104


10


1,292,518


8,402


42Residential mortgage-backed securitiesnon-agency











342,962


50,395


17


342,962


50,395


17State and municipal


427





1


1,495


19


6


1,922


19


7Asset-backed and debt securities


21,247


660


2


55,856


2,776


8


77,103


3,436


10Equity securities











249


207


2


249


207


2Total securities available for sale

$
5,016,435

$
22,280


91

$
454,870

$
53,501


43

$
5,471,305

$
75,781


134


Securities Held to Maturity

December 31, 2009Less than 12 months

12 months or more

Total(Dollars in thousands)

Fair
Value

Unrealized
Losses

Count

Fair
Value

Unrealized
Losses

Count

Fair
Value

Unrealized
Losses

CountCLOs

$
103,921

$
26,412


21

$
1,353,637

$
505,881


201

$
1,457,558

$
532,293


222Total securities held to maturity

$
103,921

$
26,412


21

$
1,353,637

$
505,881


201

$
1,457,558

$
532,293


222


16

---



Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 4Securities (Continued)



March 31, 2010Less than 12 months

12 months or more

Total(Dollars in thousands)

Fair
Value

Unrealized
Losses

Count

Fair
Value

Unrealized
Losses

Count

Fair
Value

Unrealized
Losses

CountCLOs

$


$





$
1,500,647

$
515,626


222

$
1,500,647

$
515,626


222Total securities held to maturity

$


$





$
1,500,647

$
515,626


222

$
1,500,647

$
515,626


222


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

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

At
March 31, 2010, the Company did not have the intent to sell temporarily impaired securities until a recovery of the fair value, which may be maturity, and it is not more likely
than not that the Company will have to sell the securities prior to recovery of fair value.



Other U.S. Government securities are securities issued by one of the several Government-Sponsored Enterprises (GSEs) such as Fannie
Mae, Freddie Mac, Federal Home Loan Banks or Federal Farm Credit Banks. They are not backed by the full faith and credit of the United States government. These securities are issued with a stated
interest rate and mature in less than five years. The unrealized losses on other U.S. Government securities resulted from higher interest rates subsequent to purchase and not credit quality. As a
result, the securities were not other-than-temporarily impaired at March 31, 2010.



Agency residential mortgage-backed securities consist of securities guaranteed by a GSE such as Fannie Mae, Freddie Mac, and Ginnie
Mae. These securities are collateralized by residential mortgage loans and may be prepaid at par prior to maturity. The unrealized
losses on agency residential mortgage-backed securities resulted from higher interest rates subsequent to purchase and not credit quality. As a result, the securities were not
other-than-temporarily impaired at March 31, 2010.

17

---





Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 4Securities (Continued)



Non-agency residential mortgage backed securities are issued by financial institutions with no guarantee from GSEs. These
securities are collateralized by residential mortgage loans and may be prepaid at par prior to maturity. The securities are primarily rated investment grade. The unrealized losses on
non-agency residential mortgage-backed securities resulted from declining credit quality of underlying collateral and credit spreads widening since purchase. The Company estimated loss
projections for each security by assessing the loans collateralizing each security. The Company estimates the portion of loss attributable to credit based on the expected cash flows of the underlying
collateral provided by a third-party vendor using industry consensus estimates of current key assumptions, such as default rates, loss severity and prepayment rates. Based on this assessment of
expected credit losses of each security, an insignificant amount of impairment was recognized on two securities during the first quarter of 2010. No observable credit quality issues were present in
the remaining portfolio at March 31, 2010.



State and municipal securities are primarily securities issued by state and local governments to finance operating expenses and various
projects. These securities are issued at a stated interest rate and have varying expected maturities ranging up to 30 years. The unrealized losses on the state and municipal securities resulted
from higher interest rates subsequent to purchase and not from credit quality. As a result, the securities were not other-than-temporarily impaired at March 31, 2010.



Asset-backed and debt securities in a loss position at March 31, 2010 consist of $71.6 million in privately placed debt
securities issued by power and utilities companies and $5.4 million in commercial mortgage-backed securities. Expected cash flows of these debt securities are assessed to determine if the
amortized cost basis of these securities is recoverable. Based on this assessment, the Company concluded that these securities were not other-than-temporarily impaired as of
March 31, 2010.



The Company's CLOs consist of Cash Flow CLOs. A Cash Flow CLO is a structured finance product that securitizes a diversified pool of
loan assets into multiple classes of notes. Cash Flow CLOs pay the note holders through the receipt of interest and principal repayments from the underlying loans unlike other types of CLOs that pay
note holders through the trading and sale of underlying collateral. During the first quarter of 2009, the Company reclassified its CLOs from available for sale to held to maturity. The Company
considers the held to maturity classification to be more appropriate because the Company has the ability and the intent to hold these securities to maturity.

Certain
of these CLOs are highly illiquid securities for which fair values are difficult to obtain. Unrealized losses arise from widening credit spreads, credit quality of the underlying
collateral, uncertainty regarding the valuation of such securities and the market's opinion of the performance of the fund managers. Cash flow analysis of the underlying collateral provides an
estimate of other-than-temporary impairment, which is performed quarterly when the fair value of a security is lower than its amortized cost. Any security with a change in
credit rating is also subject to cash flow analysis to determine whether or not an other-than-temporary impairment exists. The fair value of the CLO portfolio was adversely
impacted in 2009

18

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 4Securities (Continued)

and
the first quarter of 2010 by the overall financial market crisis. Although none of the CLOs in the Company's portfolio contain subprime loan assets, widening credit spreads caused their value to
decline. An analysis was performed as of March 31, 2010 to determine whether any of the unrealized losses related to CLOs was believed to be other-than-temporary. Based
on this analysis, the Company concluded that since no observable credit quality issues were present in the CLO portfolio at March 31, 2010, these securities were not
other-than-temporarily impaired.



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

The
Company separately identifies in the condensed consolidated balance sheets, securities pledged as collateral in secured borrowings and other arrangements when the secured party can
sell or repledge the securities. If the secured party cannot resell or repledge the securities that have been placed as collateral, those securities are not separately identified. At March 31,
2010, the Company had $5.4 billion of securities available for sale pledged as collateral where the secured party cannot resell or repledge such securities. These available for sale securities
have been pledged to secure borrowings ($312.5 million), to support unrealized losses on derivative transactions reported in trading liabilities ($376.1 million) and to secure public and
trust department deposits ($4.7 billion).

At
March 31, 2009, December 31, 2009, and March 31, 2010, the Company accepted securities as collateral that it is permitted by contract to sell or repledge of
$109.9 million ($109.9 million of which has been repledged to secure public agency or bankruptcy deposits and to cover short sells), $442.6 million ($434.6 million of which
has been repledged to secure public agency or bankruptcy deposits and to cover short sells), and $338.4 million ($296.4 million of which has been repledged to secure bankruptcy deposits
and to cover short sells), respectively. These securities were received as collateral for secured lending and to obtain qualified securities to meet the Company's collateral needs.

19

---



Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 5Loans and Allowance for Loan Losses

A summary of loans, net of unearned interest and deferred fees of $23 million, $53 million and $47 million, at March 31, 2009, December 31, 2009 and
March 31, 2010, respectively, is as follows:

(Dollars in thousands)

March 31,
2009

December 31,
2009

March 31,
2010Commercial, financial and industrial

$
17,902,431

$
15,258,081

$
14,870,549Construction


2,781,192


2,429,009


2,151,432Mortgage:Residential


15,998,637


16,716,048


16,892,822Commercial


8,233,371


8,245,778


8,248,574Total mortgage


24,232,008


24,961,826


25,141,396Consumer:Installment


2,336,931


2,244,239


2,185,539Revolving lines of credit


1,451,193


1,672,842


1,728,828Total consumer


3,788,124


3,917,081


3,914,367Lease financing


662,295


653,743


640,741Total loans held for investment


49,366,050


47,219,740


46,718,485Total loans held for sale


75,013


8,768


2,725Total loans


49,441,063


47,228,508


46,721,210Allowance for loan losses


870,185


1,357,000


1,408,013Loans, net

$
48,570,878

$
45,871,508

$
45,313,197


Changes
in the allowance for loan losses were as follows:

For the Three Months
Ended March 31,(Dollars in thousands)

2009

2010Allowance for loan losses, beginning of period

$
737,767

$
1,357,000Loans charged off


117,883


135,620Recoveries of loans previously charged off


1,505


16,209Total net loans charged off


116,378


119,411Provision for loan losses


249,000


170,000Foreign translation adjustment


(204
)

424Allowance for loan losses, end of period


870,185


1,408,013Allowance for losses on off-balance sheet commitments


151,374


171,374Allowances for credit losses, end of period

$
1,021,559

$
1,579,387


The provision for loan losses decreased by $79 million to $170 million for the first quarter of 2010 from $249 million for
the first quarter of 2009, primarily due to a decrease in criticized assets and lower loss content in nonaccrual loans, partially offset by higher loss content in the residential mortgage and consumer
loan portfolios during the first quarter of 2010 versus an increase in criticized assets during the first quarter of

20

---



Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 5Loans and Allowance for Loan Losses (Continued)

2009,
partially offset by an increase in unallocated allowance mainly attributable to higher estimated inherent loss in retail credits during the first quarter of 2010.

Nonaccrual
loans totaled $810.1 million, $1.3 billion and $1.4 billion at March 31, 2009, December 31, 2009 and March 31,2010, respectively.
There were $2.8 million, $20.8 million, and $22.3 million (none, $3.8 million and $6.7 million of which were on accrual status at March 31, 2009,
December 31, 2009, and March 31, 2010, respectively) of troubled debt restructured loans at March 31, 2009, December 31, 2009 and March 31, 2010, respectively. Loans
90 days or more past due and still accruing totaled $23.6 million, $5.0 million and $15.0 million at March 31, 2009, December 31, 2009 and March 31,
2010, respectively.

Note 6Goodwill and Intangible Assets

As part of the Company's privatization transaction, the Company recorded goodwill of $2.0 billion and
intangible assets of $752 million. See Note 3 to these condensed consolidated financial statements in this Form 10-Q for information on the Company's privatization
transaction.



There were no changes in the carrying amount of goodwill during the three months ended March 31, 2009 and 2010. The carrying
amount of goodwill at March 31, 2009, December 31, 2009 and March 31, 2010 was $2.4 billion. The Company's goodwill by reportable business segment at each of
March 31, 2009, December 31, 2009 and March 31, 2010 was $1.2 billion for Retail Banking and $1.2 billion for Corporate Banking.

The
Company reviews its goodwill for impairment on an annual basis, and whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

21

---



Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 6Goodwill and Intangible Assets (Continued)



The table below reflects the Company's identifiable intangible assets and accumulated amortization at March 31, 2009,
December 31, 2009 and March 31, 2010.

March 31, 2009

December 31, 2009

March 31, 2010(Dollars in thousands)

Gross
Carrying
Amount

Accumulated
Amortization

Net
Carrying
Amount

Gross
Carrying
Amount

Accumulated
Amortization

Net
Carrying
Amount

Gross
Carrying
Amount

Accumulated
Amortization

Net
Carrying
AmountCore deposit intangibles

$
619,398

$
(117,949
)
$
501,449

$
619,398

$
(233,042
)
$
386,356

$
619,398

$
(262,664
)
$
356,734Trade name


108,733


(1,369
)

107,364


108,733


(3,430
)

105,303


108,733


(4,117
)

104,616Customer relationships


53,761


(2,375
)

51,386


53,761


(5,531
)

48,230


53,761


(6,592
)

47,169Other


9,555


(814
)

8,741


9,555


(1,498
)

8,057


9,555


(1,921
)

7,634Subtotalintangibles with a definite useful life

$
791,447

$
(122,507
)
$
668,940

$
791,447

$
(243,501
)
$
547,946

$
791,447

$
(275,294
)
$
516,153Other intangibles with an indefinite useful life


3,628





3,628


13,094





13,094


13,094





13,094Total intangibles

$
795,075

$
(122,507
)
$
672,568

$
804,541

$
(243,501
)
$
561,040

$
804,541

$
(275,294
)
$
529,247


Total amortization expense for the three months ended March 31, 2009 and 2010 was $40.9 million and $31.8 million,
respectively.

Estimated
future amortization expense at March 31, 2010 is as follows:

(Dollars in thousands)

Core Deposit
Intangibles (CDI)

Trade Name

Customer
Relationships

Other

Total Identifiable
Intangible Assets
with a Definite
Useful LifeEstimated amortization expense for the years ending:Remaining 2010

$
84,407

$
2,060

$
3,184

$
1,102

$
90,7532011


88,015


2,747


3,968


1,305


96,0352012


69,260


2,747


3,679


856


76,5422013


44,743


2,747


3,436


849


51,7752014


31,803


2,747


3,232


712


38,494Thereafter


38,506


91,568


29,670


2,810


162,554Total estimated amortization expense

$
356,734

$
104,616

$
47,169

$
7,634

$
516,153


22

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 7Variable Interest Entities

Effective January 1, 2010, the Company adopted ASU 2009-17, "Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities". At adoption
of this guidance, the Company recorded increases in total assets of $281 million, liabilities of $9 million and stockholder's equity attributable to noncontrolling interests of
$272 million. The cumulative effect on retained earnings was not significant.

The
Company is involved in various structures that are considered to be VIEs. Generally, a VIE is a corporation, partnership, trust or any other legal structure that has equity investors
that: 1) do not have sufficient equity at risk for the entity to independently finance its activities; 2) lack the power to direct the activities that significantly impact the entity's
economic success; and/or 3) do not have an obligation to absorb the entity's losses or the right to receive the entity's returns. The Company's investments in VIEs primarily consist of equity
investments in low income housing credit (LIHC) structures and renewable energy projects, which are designed to generate a return primarily through the realization of federal tax credits, and private
capital investments.

Consolidated VIEs

The Company is required to consolidate VIEs in which it is the primary beneficiary. The Company is determined to be the primary
beneficiary of a VIE when it has the power to direct matters that most significantly impact the activities of the VIE and has the obligation to absorb losses or the right to receive benefits of the
VIE that could potentially be significant to the VIE.

At
March 31, 2010, $308 million in assets and $10 million in liabilities were consolidated by the Company on its condensed consolidated balance sheet related to two
LIHC investment fund structures because the Company sponsors, manages and syndicates the funds. The assets are included in other assets as well as cash and due from banks, the liabilities are
primarily included in medium- and long-term debt, and third-party investor interests are included in stockholder's equity as noncontrolling interests. Neither creditors nor equity
investors in the LIHC investments have any recourse to the general credit of the Company and the Company's creditors do not have any recourse to the assets of the consolidated LIHC investments.

During
the first quarter of 2010, the Company recorded $5 million of expenses related to its consolidated VIEs. The expenses are included in other noninterest expense on the
Company's condensed consolidated statements of income.



The Company is a sponsor and syndicator of low-income housing tax credit investments. In these syndication transactions,
the Company creates the investment funds, serves as the managing investor member, and sells limited investor member interests to third parties. The Company receives benefits through income from the
structuring of these funds, servicing fees for managing the funds and, as an investor member, tax benefits and tax credits to reduce the Company's tax liability. As sponsor and managing member of the
funds, the Company's activities include selecting, evaluating, structuring, negotiating and closing the fund investment in operating limited partnerships, as well as oversight of the ongoing
operations of the fund portfolio. There is no single third-party investor with the power to remove the Company as managing member. In this role, the Company directs the activities that most
significantly impact the fund's economic performance and receives benefits from the fund.

23

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 7Variable Interest Entities (Continued)



The Company also forms limited liability companies (LLCs), which in turn invest in low income housing tax credit operating
partnerships. Interests in these funds are sold to third parties who pay a premium for a guaranteed return. The Company earns structuring fees from the sale of these funds and asset management fees.
The Company also serves as the funds' non-member asset manager and guarantor. As sponsor and non-member asset manager of the funds, the Company's activities include selecting,
evaluating, structuring, negotiating and closing investments in operating limited partnerships, as well as oversight of the ongoing operations of the fund portfolio. As guarantor, the Company
guarantees a minimum rate of return throughout the investment term. There is no single third-party investor with the power to remove the Company as asset manager. In the Company's role as sponsor and
asset manager, it directs the activities that most significantly impact the funds economic performance. Separately, it has an obligation to absorb losses pertaining to its minimum rate of return
guarantee to investors. For details of the guarantee, see Note 16 in these condensed consolidated financial statements.

Unconsolidated VIEs in Which the Company has a Variable Interest

The Company holds variable interests in other VIEs that it is not required to consolidate as it is not the primary beneficiary. In such
cases, it does not hold the power, through its equity investments or otherwise, to direct the VIE's significant activities. The following table presents the Company's carrying amounts related to the
unconsolidated VIEs and location on the condensed consolidated balance sheet at March 31, 2010. The table also presents the Company's maximum exposure to loss resulting from its involvement
with these VIEs. The maximum exposure to loss represents the carrying value of the Company's involvement plus, any legally binding unfunded commitments in the unlikely event that all of the assets in
the VIEs become worthless.

March 31, 2010(Dollars in thousands)

Other
Assets

Other
Liabilities

Maximum
Exposure to
LossLIHC investments

$
467,071

$
5,720

$
643,415Renewable energy investments


304,770





304,770Private capital investments


156,459





248,211Total unconsolidated VIEs

$
928,300

$
5,720

$
1,196,396




The Company makes equity investments in various private investment partnership funds and limited partnerships that sponsor qualified
affordable housing projects. As a limited partner and non-managing investor member in these operating partnerships, the Company is allocated tax credits and tax deductions from operating
losses associated with the underlying properties. The power to direct the activities of the investments resides with the general partner and/or managing member of these partnerships. As a result, the
Company does not consolidate these investments. These LIHC investments are accounted for under the equity or effective yield method and are reflected in other assets on the Company's condensed
consolidated balance sheet. The Company increases the LIHC investment carrying amount and recognizes a liability for all unconditional unfunded equity commitments. These liabilities are reflected in
other liabilities on the

24

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 7Variable Interest Entities (Continued)

Company's
condensed consolidated balance sheet. In addition, the Company has $176 million in off-balance sheet conditional unfunded commitments that may be drawn when specific
conditions are achieved, including the completion of construction of low income housing units. These unfunded commitments are included in the maximum exposure to loss attributable to LIHC investments
in the table above.



The Company makes equity investments in LLCs created to operate and manage renewable energy projects. The managing member or
general partner of the LLC identifies and selects the assets of the entity and provides management and/or oversight of the ongoing operations of the renewable energy project. As a passive and
limited investor member, the Company is allocated production tax credits and taxable income or losses associated with the projects. These renewable energy investments are accounted for under the
equity method with the investments reflected in other assets on the Company's condensed consolidated balance sheet.



The Company makes equity investments in various private capital investment funds either directly in privately held companies or
indirectly through private equity funds. As a passive investor, the Company has no rights that provide the power to direct the activities of the
investments. The power to identify and select the assets of the investments resides with the managing member and/or general partner of each direct and fund investment. These private capital
investments are accounted for under either the cost or equity method and are reflected in other assets on the Company's condensed consolidated balance sheet. In addition, the Company has
off-balance sheet unfunded commitments of $92 million to provide additional liquidity as required by the funds. These unfunded commitments are reflected in the maximum exposure to
loss attributable to private capital investments in the table above.

Note 8Private Capital and Other Investments

The following table shows the balances of private capital and other investments, which are recorded in other assets, at March 31, 2009, December 31, 2009 and
March 31, 2010.

(Dollars in thousands)

March 31,
2009

December 31,
2009

March 31,
2010Private capital and other investments:Private capital investmentscost basis

$
153,600

$
119,121

$
118,215Private capital investmentsequity method





46,296


60,528LIHC investmentsguaranteed


209,858


185,779


175,703LIHC investmentsunguaranteed


331,702


319,031


293,959Consolidated VIEs








297,736Renewable energy investments


261,971


305,917


304,770Total private capital and other investments

$
957,131

$
976,144

$
1,250,911


The Company invests in private capital funds either directly in privately held companies or indirectly through private equity funds. These
investments are accounted for based on the cost or equity method depending on whether the Company has significant influence over the investee. The investments' fair value is

25

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 8Private Capital and Other Investments (Continued)

estimated
when events or conditions indicate that it is probable that the carrying value of the investment will not be fully recovered in the foreseeable future. Fair value is estimated based on the
company's business model, current and projected financial performance, liquidity and overall economic and market conditions. As a practical expedient, fair value can also be estimated as the NAV of
the fund. If fair value is estimated to be below cost, an evaluation for other-than-temporary impairment is performed. If any of the factors used to determine fair value
indicate that a recovery is unlikely or will not occur for a reasonable period of time, an other-than-temporary impairment is recorded. Based on this analysis, the Company
recorded $1.8 million of other-than-temporary impairment on its private capital investments in the first quarter of 2010.

The
Company also invests in limited liability partnerships and other entities operating qualified affordable housing projects to receive tax benefits in the form of tax deductions from
operating losses and tax credits. These LIHC investments provide tax benefits to investors in the form of tax deductions from operating losses and tax credits. The unguaranteed LIHC investments are
accounted for under the equity method. As of March 31, 2010, this category also includes $29.5 million of investments in real estate private equity funds that are compliant with the
Community Reinvestment Acts Standards (CRA investments). These investments are tested quarterly for impairment. The Company had no other-than-temporary impairment on its
unguaranteed LIHC and CRA investments.

The
Company also invests in guaranteed LIHC investments where the availability of tax credits are guaranteed by a creditworthy entity. The investments are initially recorded at cost and
amortized over the period the tax credits are allocated to provide a constant effective yield. These investments are tested quarterly for impairment. The Company had no
other-than-temporary impairment on its guaranteed LIHC investments during the first quarter of 2010.

The
Company invests in limited liability partnerships that operate renewable energy projects. Tax credits, taxable income and distributions associated with these renewable energy
projects are allocated to investors according to the terms of the partnership agreements. These investments are accounted for under the equity method, with the initial investment recorded at cost and
the carrying value adjusted for the Company's share of partnership net income and distributions received. These investments are tested annually for impairment, based on projected operating results and
expected realizability of tax credits.
The Company had no other-than-temporary impairment during the first quarter of 2010 on its renewable energy investments.

26

---



Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 9Employee Pension and Other Postretirement Benefits

The following tables summarize the components of net periodic benefit cost for the three months ended March 31, 2009 and 2010.

Pension Benefits

Other Benefits

Superannuation, SERP(1) and ESBP(2)For the Three Months
Ended March 31,

For the Three Months
Ended March 31,

For the Three Months
Ended March 31,(Dollars in thousands)

2009

2010

2009

2010

2009

2010Components of net periodic benefit costService cost

$
13,616

$
11,898

$
2,332

$
2,347

$
256

$
263Interest cost


20,811


22,369


3,055


3,287


941


934Expected return on plan assets


(35,219
)

(36,514
)

(2,501
)

(3,092
)




Amortization of prior service cost








(16
)

(16
)




Amortization of transition amount








328


328





Recognized net actuarial loss


3,055


3,177


2,153


1,363


865


218Total net periodic benefit cost

$
2,263

$
930

$
5,351

$
4,217

$
2,062

$
1,415


(1)Supplemental
Executives Retirement Plan (SERP)(2)Executive
Supplemental Benefit Plans (ESBP)


Note 10Other Noninterest Income and Noninterest Expense

The details of other noninterest income and noninterest expense are as follows:

Other Noninterest Income

For the Three Months Ended(Dollars in thousands)

March 31,
2009

March 31,
2010Standby letters of credit fees

$
7,045

$
8,458Trade related commission and fees


7,325


6,762Private capital and other investment income (expense)


(2,554
)

3,434Other


5,304


7,881Total other noninterest income

$
17,120

$
26,535


27

---



Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 10Other Noninterest Income and Noninterest Expense (Continued)

Other Noninterest Expense

For the Three Months Ended(Dollars in thousands)

March 31,
2009

March 31,
2010Low income housing credit investment amortization

$
10,166

$
13,526Advertising and public relations


10,621


10,165Communications


8,718


9,529Data processing


8,575


8,110Printing and office supplies


4,940


4,958Travel


6,353


5,459Foreclosed asset expense (income)


886


(198
)Expenses related to consolidated VIEs





5,039Other


7,887


13,737Total other noninterest expense

$
58,146

$
70,325


Note 11Borrowed Funds

The following is a summary of the major categories of borrowed funds:

(Dollars in thousands)

March 31,
2009

December 31,
2009

March 31,
2010Federal funds purchased and securities sold under repurchase agreements, with weighted average interest rates of 0.10%, 0.07% and 0.10% at March 31,
2009, December 31, 2009 and March 31, 2010, respectively

$
320,376

$
150,453

$
575,668Commercial paper, with weighted average interest rates of 0.77%, 0.16%, and 0.18% at March 31, 2009, December 31, 2009 and March 31, 2010,
respectively


749,381


888,541


799,106Other borrowed funds:Federal Home Loan Bank borrowings, with weighted average interest rates of 1.13% at March 31, 2009


650,000





Term federal funds purchased, with weighted average interest rates of 0.97%, 0.19% and 0.18% at March 31, 2009, December 31, 2009 and
March 31, 2010, respectively


105,500


505,000


730,000Federal Reserve Bank Term Borrowings, with weighted average interest rate of 0.25% at March 31, 2009


3,000,000





All other borrowed, with weighted average interest rates of 1.67%, 1.75% and 0.74% at March 31, 2009, December 31, 2009 and March 31, 2010,
respectively


106,405


86,934


103,617Total borrowed funds

$
4,931,662

$
1,630,928

$
2,208,391


28

---



Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 12Medium- and Long-Term Debt

The following is a summary of the Company's medium-term senior debt, medium-term note payable, and long-term subordinated debt:

(Dollars in thousands)

March 31,
2009

December 31,
2009

March 31,
2010Medium-Term senior debt:Fixed rate Federal Home Loan Bank Advances. These notes bear a combined weighted average rate of 2.42% at March 31, 2009, 2.93% at December 31,
2009 and 2.62% at March 31, 2010

$
2,901,000

$
2,001,000

$
2,501,000Floating rate notes due March 2011. These notes, which bear interest at 0.08% above 3-month LIBOR, had a rate of 1.40% at March 31, 2009, 0.33% at
December 31, 2009, and 0.34% at March 31, 2010


500,000


500,000


500,000Floating rate notes due March 2012. These notes, which bear interest at 0.20% above 3-month LIBOR, had a rate of 1.52% at March 31, 2009, 0.45% at
December 31, 2009 and 0.46% at March 31, 2010


500,000


500,000


500,000Medium-Term note payable:Fixed rate 6.03% notes due July 2014 (related to consolidated VIE)








7,853Long-Term subordinated debt:Fixed rate 5.25% notes due December 2013


445,167


434,362


431,008Fixed rate 5.95% notes due May 2016


794,764


776,822


771,118Total medium- and long-term debt

$
5,140,931

$
4,212,184

$
4,710,979


As of March 31, 2009, December 31, 2009 and March 31, 2010, the Company had pledged loans and securities of
$40.5 billion, $38.0 billion, and $35.9 billion, respectively, as collateral for short- and medium-term advances from the Federal Reserve Bank and Federal Home Loan
Bank.

In
October 2008, the Federal Deposit Insurance Corporation (FDIC) established the Temporary Liquidity Guarantee (TLG) Program. On March 16, 2009, the Bank issued
$1.0 billion principal amount of Senior Floating Rate Notes under the TLG Program. The proceeds thereof were used for general corporate purposes. Of the $1.0 billion of senior notes,
$500 million in principal amount bear interest at a rate equal to three-month LIBOR plus 0.08% per annum and mature on March 16, 2011 (2011 Notes). The remaining $500 million in
principal amount bear interest at a rate equal to three-month LIBOR plus 0.20% per annum and mature on March 16, 2012 (2012 Notes). In connection with the FDIC guarantee under the TLG Program,
a fee of 1% per annum is charged to the Bank on the $1.0 billion of senior notes. The interest on the 2011 Notes and the 2012 Notes is payable and reset quarterly on the
16th of March, June, September and December of each year.

Under
the TLG Program, as amended on June 3, 2009, the Bank's senior unsecured debt with a maturity of more than 30 days and issued between October 14, 2008 and
October 31, 2009 is guaranteed by the full faith and credit of the United States. For debt issued prior to April 1, 2009, the FDIC guarantee expires upon the earlier of either the
maturity date of the debt or June 30, 2012. For debt issued on or after April 1, 2009, the FDIC guarantee expires upon the earlier of either the maturity date of the debt or
December 31, 2012. The Bank has elected to opt-out of the TLG Program effective January 1, 2010.

29

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 13Fair Value Measurement and Fair Value of Financial Instruments



Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., an exit price)
in an orderly transaction between willing market participants at the measurement date. In determining fair value, the Company maximizes the use of observable market inputs and minimizes the use of
unobservable inputs. Observable inputs reflect market-derived or market-based information obtained from independent sources, while unobservable inputs reflect the Company's estimate about market data.
Based on the observability of the significant inputs used, the Company classifies its fair value measurements in accordance with the three-level hierarchy. This hierarchy is based on the quality and
reliability of the information used to determine fair value.



In
assigning the appropriate levels, the Company performs a detailed analysis of the assets and liabilities that are measured at fair value. In certain cases, the inputs used to measure
fair value may fall into different levels of the fair value hierarchy. The level within which the fair value measurement is categorized is based on the lowest level input that is significant to the
fair value measurement in its entirety. Therefore, an item may be classified in Level 3 even though there may be many significant inputs that are readily observable.



The Company has an established and documented process for determining fair value for financial assets and financial liabilities that
are measured at fair value on either a recurring or nonrecurring basis. When available, quoted market prices are used to determine fair value. If quoted market prices are not available, fair value is
based upon valuation techniques that use, where possible, current market-based or independently sourced parameters, such as interest rates, yield curves, foreign exchange rates, volatilities and
credit curves. Valuation adjustments may be made to ensure the financial instruments are recorded at fair value. These adjustments include amounts that reflect counterparty credit quality and that
consider the Company's creditworthiness in determining the fair value of its trading liabilities. A description of the valuation methodologies used for certain financial assets and financial
liabilities measured at fair value is as follows:

Recurring
Fair Value Measurements:



30

---



Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 13Fair Value Measurement and Fair Value of Financial Instruments (Continued)



Nonrecurring
Fair Value Measurements:



31

---



Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 13Fair Value Measurement and Fair Value of Financial Instruments (Continued)



32

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 13Fair Value Measurement and Fair Value of Financial Instruments (Continued)



The following tables present financial assets and financial liabilities measured at fair value on a recurring basis as of
March 31, 2009, December 31, 2009 and March 31, 2010, by major category and by valuation hierarchy level.

March 31, 2009(Dollars in thousands)

Level 1

Level 2

Level 3

Netting Adjustment(1)

Fair ValueAssetsTrading account assets

$
48,275

$
1,167,710

$


$
(57,858
)
$
1,158,127Securities available for sale


826,652


6,718,060


4,731





7,549,443Other assets(2)





130,045





(47,475
)

82,570Total assets

$
874,927

$
8,015,815

$
4,731

$
(105,333
)
$
8,790,140LiabilitiesTrading account liabilities

$
21,126

$
1,049,312

$


$
(105,333
)
$
965,105Total liabilities

$
21,126

$
1,049,312

$


$
(105,333
)
$
965,105




December 31, 2009(Dollars in thousands)

Level 1

Level 2

Level 3

Netting
Adjustment(1)

Fair ValueAssetsTrading account assets:U.S. Treasury

$
15,430

$


$


$


$
15,430Other U.S. government


28,649











28,649State and municipal





24,878








24,878Commercial paper





74,594








74,594Derivative contracts


1,453


648,227





(67,583
)

582,097Total trading account assets


45,532


747,699





(67,583
)

725,648Securities available for sale:U.S. Treasury


299,677











299,677Other U.S. government


12,277,418











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





9,362,123








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





391,439








391,439State and municipal





39,637


5,459





45,096Asset-backed and debt securities





108,135








108,135Equity securities


73,522





1,419





74,941Total securities available for sale


12,650,617


9,901,334


6,878





22,558,829Other assets(2)





97,186





(68,302
)

28,884Total assets

$
12,696,149

$
10,746,219

$
6,878

$
(135,885
)
$
23,313,361LiabilitiesTrading account liabilities:Derivatives

$
1,978

$
630,951

$


$
(101,958
)
$
530,971Securities sold, not yet purchased


7,923











7,923Total trading account liabilities


9,901


630,951





(101,958
)

538,894Other liabilities(2)





12,164





(9,927
)

2,237Total liabilities

$
9,901

$
643,115

$


$
(111,885
)
$
541,131


(1)Amounts
represent the impact of legally enforceable master netting agreements between the same counterparties that allow the Company to net
settle all contracts.(2)Other
assets and liabilities include nontrading derivatives.


33

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 13Fair Value Measurement and Fair Value of Financial Instruments (Continued)




March 31, 2010(Dollars in thousands)

Level 1

Level 2

Level 3

Netting Adjustment(1)

Fair ValueAssetsTrading account assets:U.S. Treasury

$
54,380

$


$


$


$
54,380Other U.S. government


55,627











55,627State and municipal





17,697








17,697Commercial paper





47,295








47,295Foreign exchange derivative contracts


613


27,290





(5,469
)

22,434Energy derivative contracts





208,992





(57,459
)

151,533Interest rate derivative contracts


100


474,916





(12,250
)

462,766Equity derivative contracts





19,123





(560
)

18,563Total trading account assets


110,720


795,313





(75,738
)

830,295Securities available for sale:U.S. Treasury


299,864











299,864Other U.S. government


13,039,282











13,039,282Residential mortgage-backed securitiesagency





8,212,948








8,212,948Residential mortgage-backed securitiesnon-agency





367,842








367,842State and municipal





38,838


6,756





45,594Asset-backed and debt securities





110,250








110,250Equity securities


87,516





1,426





88,942Total securities available for sale


13,426,662


8,729,878


8,182





22,164,722Other assets:Interest rate hedging contracts





29,989





(12,683
)

17,306Total other assets





29,989





(12,683
)

17,306Total assets

$
13,537,382

$
9,555,180

$
8,182

$
(88,421
)
$
23,012,323LiabilitiesTrading account liabilities:Foreign exchange derivative contracts

$
674

$
45,247

$


$
(9,145
)
$
36,776Energy derivative contracts





209,011





(39,287
)

169,724Interest rate derivative contracts


893


447,208





(33,496
)

414,605Equity derivative contracts





19,123








19,123Securities sold, not yet purchased


96,585











96,585Total trading account liabilities


98,152


720,589





(81,928
)

736,813Other liabilities:Interest rate hedging contracts














Total other liabilities














Total liabilities

$
98,152

$
720,589

$


$
(81,928
)
$
736,813


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


34

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 13Fair Value Measurement and Fair Value of Financial Instruments (Continued)




The following tables present a reconciliation of the assets measured at fair value on a recurring basis using significant unobservable inputs
(Level 3) for the three months ended March 31, 2009 and 2010. Level 3 available for sale securities primarily consist of community redevelopment bonds. These bonds were carried at
cost, which approximates fair value.

For the Three Months Ended March 31,(Dollars in thousands)

2009

2010Balance, beginning of period

$
1,203,092

$
6,878Total gains/(losses) (realized/unrealized):Included in income before taxes


20


Included in other comprehensive income (loss)


(54,749
)

7Purchases, sales, issuances and settlements


126


1,297Transfers in (out) Level 3(1)


(1,143,758
)

Balance, end of period

$
4,731

$
8,182Changes in unrealized gains (losses) included in income before taxes for assets and liabilities still held at end of period

$


$



(1)The
CLO portfolio was transferred out of Level 3 during the first quarter of 2009 as a result of the reclassification from available
for sale to held to maturity. Held to maturity securities are not measured at fair value on a recurring basis and therefore are not subject to this fair value disclosure requirement.


There were no transfers in or out of the Level 1 and 2 valuation hierarchies during the first quarter of 2010.



Certain financial assets may be measured at fair value on a nonrecurring basis. These assets are subject to fair value adjustments that
result from the application of the lower of cost or fair value accounting or write-downs of individual assets. For assets measured at fair value on a nonrecurring basis during the three months ended
March 31, 2009, December 31, 2009, and March 31, 2010 that were still held on the condensed consolidated balance sheet as of the respective periods ended, the following tables
present the carrying value of such financial instruments by the level of valuation assumptions used to determine each fair value adjustment.

35

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 13Fair Value Measurement and Fair Value of Financial Instruments (Continued)

March 31, 2009(Dollars in thousands)

Carrying
Value

Level 1

Level 2

Level 3

Loss for the
Three Months Ended
March 31, 2009Loans

$
178,859

$


$


$
178,859

$
(40,290
)Other Assets


14,959








14,959


(3,404
)Total

$
193,818

$


$


$
193,818

$
(43,694
)




March 31, 2010(Dollars in thousands)

Carrying
Value

Level 1

Level 2

Level 3

Loss for the
Three Months Ended
March 31, 2010Loans:Impaired Loans

$
614,901

$


$


$
614,901

$
(14,767
)Other Assets:OREO


8,374








8,374


(1,046
)Private Equity Investments


4,852








4,852


(1,762
)Total

$
628,127

$


$


$
628,127

$
(17,575
)


Loans include residential mortgage and commercial loans held for sale measured at the lower of cost or fair value and individually impaired loans
that are measured based on the fair value of the underlying collateral or the fair value of the loan. The fair value of fixed-rate residential mortgage loans was determined using whole
loan forward prices obtained from GSEs. The fair value of commercial loans was determined using market pricing for similar assets, adjusted for management judgment. The fair value of impaired loans
was determined based on appraised values of the underlying collateral or market pricing for the loan, adjusted for management judgment.

Other
assets consist of private equity investments that were written down to fair value due to impairment, and OREO that was measured at the lower of cost or fair value. The fair value
of OREO was primarily based on independent appraisals.

Private
equity investments with a total fair value of $4.9 million at March 31, 2010 relate to one fund that invests in bank loans, distressed debt, stressed high yield
debt, mezzanine investments and public equities. The fair value of these investments was estimated using NAV. Generally, these investments cannot be redeemed with the funds and the return of invested
capital and its gains are derived from distributions received upon the liquidation of the underlying assets of the fund. It is estimated that the underlying assets of the fund would be liquidated
within a 10-year period and the Company does not plan to sell any of these investments at this time. There was no unfunded commitment related to this investment included in the above
nonrecurring fair value table at March 31, 2010.



In addition to financial instruments recorded at fair value in the Company's financial statements, the disclosure of the estimated fair
value of financial instruments that are not carried at fair value is also required. Excluded from this disclosure requirement are lease financing arrangements, investments accounted for under the
equity method, employee pension and other postretirement obligations and all nonfinancial assets and

36

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 13Fair Value Measurement and Fair Value of Financial Instruments (Continued)

liabilities,
including goodwill and other intangible assets such as long-term customer relationships. The fair values presented are estimates for certain individual financial instruments
and do not represent an estimate of the fair value of the Company as a whole.

Certain
financial instruments that are not recognized at fair value on the consolidated balance sheet are carried at amounts that approximate fair value due to their
short-term nature. These financial instruments include cash and due from banks, interest bearing deposits in banks, federal funds sold and purchased, securities purchased under resale
agreements, securities sold under repurchase agreements and commercial paper. In addition, the fair value of deposits with no stated maturity, such as noninterest-bearing demand deposits,
interest-bearing checking, and market rate and other savings are deemed to equal their carrying values.

Private
equity investments including direct investments in privately held companies and indirect investments in private equity funds are carried at amounts that approximate fair value.
Due to the unavailability of quoted market prices, the investments are initially valued based on cost and subsequently valued utilizing available market data to determine if the carrying value of
these investments should be adjusted. Valuations are based on the investee's recent financial performance and future potential, the value of underlying investee's assets, the risks associated with the
particular business, current market conditions, and other relevant factors.

Although
off-balance sheet commitments, which include commitments to extend credit and standby and commercial letters of credit, are not required to be recorded at fair value
on the consolidated balance sheet, they are carried at amounts that approximate fair value. The carrying value of these off-balance sheet instruments represents the unamortized fee income
assessed based on the credit quality and other covenants imposed on the borrower. Since the amount assessed represents the market rate that would be charged for similar agreements, management believes
that the carrying value approximates the fair value of these instruments.

Financial
instruments for which their carrying values do not approximate fair value include loans, interest bearing deposits with stated maturities, other borrowed funds, medium- and
long-term debt, and trust notes.

Securities held to maturity:The fair value of CLOs classified as held to maturity was estimated using a pricing model and broker
quotes. The model
is based on internally developed assumptions using available market data obtained from market participants and credit rating agencies.

Loans:The fair values of mortgage loans were estimated based on quoted market prices for loans with similar credit and interest rate
risk
characteristics. The fair values of other types of loans were estimated based upon the type of loan and maturity. The fair value of these loans was determined by discounting the future expected cash
flows using the current origination rates for similar loans made to borrowers with similar credit ratings.

Interest bearing deposits:The fair values of savings accounts and certain money market accounts were based on the amounts payable on
demand at the
reporting date. The fair value of fixed maturity certificates of deposit was estimated using a discounted cash flow calculation that applies current interest rates being offered on certificates with
similar maturities.

37

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 13Fair Value Measurement and Fair Value of Financial Instruments (Continued)

Other borrowed funds:The fair values of Federal Reserve Bank term borrowings, Federal Home Loan Bank borrowings and term federal funds
purchased
were estimated using a discounted cash flow calculation that applies current market rates for applicable maturities. The carrying values of other short-term borrowed funds were assumed to
approximate their fair value due to their limited duration.

Medium- and long-term debt:The fair value of medium- and long-term debt
was estimated using either a discounted cash flow analysis based on current market interest rates for debt with similar maturities and credit quality or estimated using market quotes.

Trust notes:The fair value of trust notes was estimated using market quotes of similar securities.

The
table below presents the carrying value and estimated fair value of certain financial instruments held by the Company as of December 31, 2009 and March 31, 2010.

December 31, 2009

March 31, 2010(Dollars in thousands)

Carrying
Value

Fair
Value

Carrying
Value

Fair
ValueAssetsSecurities held to maturity

$
1,227,718

$
1,457,558

$
1,247,561

$
1,500,746Loans, net of allowance for loan losses(1)


45,222,765


44,924,749


44,677,956


44,429,098LiabilitiesInterest bearing deposits


53,958,664


53,969,991


52,192,332


52,218,554Other borrowed funds


591,934


591,953


833,617


833,617Medium- and long-term debt


4,212,184


4,180,328


4,710,979


4,690,838Junior subordinated debt payable to subsidiary grantor trust


13,527


13,076


13,444


14,233Off-Balance Sheet InstrumentsCommitments to extend credit


122,986


122,986


116,779


116,779Standby and commercial letters of credit


5,772


5,772


5,011


5,011


(1)Excludes
lease financing, net of related allowance.


Note 14Derivative Instruments and Other Financial Instruments Used For Hedging

The Company is a party to certain derivative and other financial instruments that are entered into for the purpose of trading, meeting the needs of customers, and changing the impact on
the Company's operating results due to market fluctuations in currency and/or interest rates.

Credit
and market risks are inherent in derivative instruments. Credit risk is defined as the possibility that a loss may occur from the failure of another party to perform in accordance
with the terms of the contract, which exceeds the value of the existing collateral, if any. The Company utilizes master netting and collateral support annex (CSA) agreements in order to reduce its
exposure to credit risk. Master netting agreements mitigate credit risk by permitting the offset of amounts due from and to individual counterparties in the event of default. The CSA requires the
counterparty with derivatives in a net loss position to provide collateral as

38

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 14Derivative Instruments and Other Financial Instruments Used For Hedging (Continued)

prescribed
by such agreement. Additionally, the Company considers the potential loss in the event of counterparty default in estimating the fair value amount of the derivative instrument. Market risk
is the possibility that future changes in market conditions may make the financial instrument less valuable.

Derivatives
are used to manage exposure to interest rate and foreign currency risk, generate profits from proprietary trading and assist customers with their risk management objectives.
The Company designates derivative instruments as those used for US GAAP hedge accounting purposes, and those for trading or economic hedge purposes. All derivative instruments are recognized as
assets or liabilities on the condensed consolidated balance sheet at fair value.

The
tables below present the notional amounts, and the location and fair value amounts of the Company's derivative instruments reported on the condensed consolidated balance sheet,
segregated between derivative instruments designated and qualifying as hedging instruments under US GAAP and all other derivative instruments as of March 31, 2009, December 31,
2009 and March 31, 2010.

March 31, 2009Asset Derivatives(1)

Liability Derivatives(1)(Dollars in thousands)

Notional
Amount

Balance
Sheet
Location

Fair
Value

Balance
Sheet
Location

Fair
ValueTotal derivatives designated as hedging instruments under US GAAP:Interest rate contracts(2)

$
5,000,000

Other assets

$
130,045

Other liabilities

$
Derivatives not designated as hedging instruments under US GAAP:Foreign exchange contracts

$
4,108,972

Trading account assets

$
84,712

Trading account liabilities

$
59,238Energy contracts


3,214,646

Trading account assets


368,292

Trading account liabilities


367,491Interest rate contracts


23,304,525

Trading account assets


649,688

Trading account liabilities


618,880Equity contracts


53,910

Trading account assets


1,900

Trading account liabilities


1,900Other contracts


6,466

Other assets


157

Other liabilities


(1,080
)Total derivatives not designated as hedging instruments under US GAAP:

$
30,688,519



$
1,104,749



$
1,046,429


39

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 14Derivative Instruments and Other Financial Instruments Used For Hedging (Continued)



December 31, 2009Asset Derivatives(1)

Liability Derivatives(1)(Dollars in thousands)

Notional
Amount

Balance
Sheet
Location

Fair
Value

Balance
Sheet
Location

Fair
ValueTotal derivatives designated as hedging instruments under US GAAP:Interest rate contracts(2)

$
8,800,000

Other assets

$
97,186

Other liabilities

$
12,164Derivatives not designated as hedging instruments under US GAAP:Foreign exchange contracts

$
2,701,925

Trading account assets

$
22,398

Trading account liabilities

$
27,097Energy contracts


3,405,389

Trading account assets


166,395

Trading account liabilities


167,640Interest rate contracts


25,226,564

Trading account assets


446,756

Trading account liabilities


424,060Equity contracts


254,372

Trading account assets


14,133

Trading account liabilities


14,133Other contracts


5,350

Other assets


389

Other liabilities


(848
)Total derivatives not designated as hedging instruments under US GAAP

$
31,593,600



$
650,071



$
632,082




March 31, 2010Asset Derivatives(1)

Liability Derivatives(1)(Dollars in thousands)

Notional
Amount

Balance
Sheet
Location

Fair
Value

Balance
Sheet
Location

Fair
ValueTotal derivatives designated as hedging instruments under US GAAP:Interest rate contracts(2)

$
4,000,000

Other assets

$
29,989

Other liabilities

$
Derivatives not designated as hedging instruments under US GAAP:Foreign exchange contracts

$
2,527,780

Trading account assets

$
27,903

Trading account liabilities

$
45,921Energy contracts


3,445,900

Trading account assets


208,992

Trading account liabilities


209,011Interest rate contracts


25,727,337

Trading account assets


475,016

Trading account liabilities


448,101Equity contracts


433,378

Trading account assets


19,123

Trading account liabilities


19,123Other contracts


5,163

Other assets


462

Other liabilities


(775
)Total derivatives not designated as hedging instruments under US GAAP

$
32,139,558



$
731,496



$
721,381


(1)Asset
and liability values are presented gross, excluding the impact of legally enforceable master netting and CSA agreements.(2)The
fair value includes unamortized premium of $7.7 million, $3.0 million and $6.7 million related to terminated
contracts at March 31, 2009, December 31, 2009 and March 31, 2010, respectively.


Certain of the Company's derivative instruments contain provisions that require the Company to maintain a specified credit rating. If the
Company's credit rating was to fall below the specified rating, the counterparties

40

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 14Derivative Instruments and Other Financial Instruments Used For Hedging (Continued)

to
these derivative instruments could terminate the contract and demand immediate payment or demand immediate and ongoing full overnight collateralization for those derivative instruments in net
liability positions. At March 31, 2010, the aggregate fair value (including net interest payable/receivable) of all
derivative instruments with credit-risk mitigated contingent features that are in a liability position was $57.6 million. The Company had pledged securities (including accrued
interest) of $41.8 million for collateral in the normal course of business. If all of the credit-risk-related contingent features underlying these agreements had been
triggered on March 31, 2010, the Company would have been required to provide additional collateral of $15.8 million to settle these contracts.



Derivative instruments are integral components of the Company's asset and liability management activities. The Company uses interest
rate derivatives to manage the Company's net interest income sensitivity to changes in market interest rates. These instruments are used to manage interest rate risk relating to specified groups of
assets and liabilities, primarily LIBOR-based commercial loans, certificates of deposit, borrowings, and fixed rate subordinated debt. The following describes the significant hedging strategies of the
Company.



The Company engages in several types of cash flow hedging strategies related to forecasted future interest payments, with the hedged
risk being the variability in those payments due to changes in the designated benchmark rate (i.e., U.S. dollar LIBOR). In these strategies, the hedging instruments are matched with groups of
similar variable rate instruments such that the reset tenor of the variable rate instruments and that of the hedging instrument are identical. Cash flow hedging strategies include the utilization of
purchased floor, cap, collars and corridor options and interest rate swaps. At March 31, 2010, the weighted average remaining life of the currently active (excluding any forward positions) cash
flow hedges was approximately 3.0 years.

The
Company uses purchased interest rate floors to hedge the variable cash flows associated with 1-month or 3-month LIBOR indexed loans. Payments received under
the
floor contract offset the decline in loan interest income if the relevant LIBOR index falls below the floor's strike rate.

The
Company uses interest rate floor corridors to hedge the variable cash flows associated with 1-month or 3-month LIBOR indexed loans. Net payments to be
received under the floor corridor contracts offset the decline in loan interest income if the relevant LIBOR index falls below the corridor's upper strike rate, but only to the extent the index
remains above the lower strike rate. The corridor will not provide protection from declines in the relevant LIBOR index to the extent it falls below the corridor's lower strike rate.

The
Company uses interest rate collars to hedge the variable cash flows associated with 1-month or 3-month LIBOR indexed loans. Net payments received under the
collar contract offset declines in loan interest income if the relevant LIBOR index falls below the collar's floor strike rate, while net payments paid reduce the increase in loan interest income if
the LIBOR index rises above the collar's cap strike rate.

41

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 14Derivative Instruments and Other Financial Instruments Used For Hedging (Continued)

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

The
Company uses purchased interest rate caps to hedge the variable interest cash flows associated with 1-month or 3-month LIBOR indexed borrowings. Payments
received under the cap contract offset the increase in borrowing interest expense if the relevant LIBOR index rises above the cap's strike rate.

The
Company uses purchased interest rate caps to hedge the variable interest cash flows associated with the forecasted issuance and rollover of short-term, fixed rate CDs. In
these hedging relationships, the Company hedges the change in interest rates based on 1-month, 3-month, and 6-month LIBOR, which is consistent with the CDs'
original term to maturity and reflects their repricing frequency. Net payments to be received under the cap contract offset increases in interest expense caused by the relevant LIBOR index rising
above the cap's strike rate.

The
Company uses interest rate cap corridors to hedge the variable cash flows associated with the forecasted issuance and rollover of short-term, fixed rate CDs. In these
hedging relationships, the Company hedges changes in interest rates, either 1-month, 3-month, or 6-month LIBOR, based on the original term to maturity of the CDs.
Net payments received under the cap corridor contract offset increases in deposit interest expense caused by the relevant LIBOR index rising above the corridor's lower strike rate, but only to the
extent the index does not exceed the upper strike rate. The corridor will not provide protection from increases in the relevant LIBOR index to the extent it rises above the corridor's upper strike
rate.

Hedging
transactions are structured at inception so that the notional amounts of the hedging instruments are matched to an equal principal amount of loans, CDs, or borrowings, the index
and repricing frequencies of the hedging instruments match those of the loans, CDs, or borrowings and the period in which the designated hedged cash flows occurs is equal to the term of the hedge
instruments. As such, most of the ineffectiveness in the hedging relationship results from the mismatch between the timing of reset dates on the hedging instruments versus those of the loans, CDs or
borrowings.

For
cash flow hedges, the effective portion of the gain or loss on the hedging instruments is reported as a component of other comprehensive income and reclassified into earnings in the
same period or periods during which the hedged cash flows are recognized in net interest income. Gains and losses representing hedge ineffectiveness or hedge components excluded from the assessment of
hedge effectiveness are recognized in noninterest expense in the period in which they arise. Based upon amounts included in accumulated other comprehensive income at March 31, 2010, the Company
expects to realize approximately $14.0 million in net interest income during the twelve months ending March 31, 2011. This amount could differ from amounts actually realized due to
changes in interest rates and the addition of other hedges subsequent to March 31, 2010.

42

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 14Derivative Instruments and Other Financial Instruments Used For Hedging (Continued)

The
following tables present the amount and location of the net gains and losses recorded in the Company's condensed consolidated statements of income and changes in stockholder's equity
for derivatives designated as cash flow hedges for the three months ended March 31, 2009 and March 31, 2010.

For the Three Months Ended March 31, 2009Gain or (Loss) Recognized in
Income on Derivative
Instruments (Ineffective
Portion and Amount Excluded
from Effectiveness Testing)Gain or (Loss) Reclassified
from Accumulated OCI into
Income (Effective Portion)Amount of Gain or (Loss)
Recognized in OCI on
Derivative Instruments
(Effective Portion)(Dollars in thousands)

Location

Amount

Location

AmountDerivatives in Cash Flow Hedging RelationshipsInterest Income

$
32,138Interest rate contracts

$
6,982

Interest Expense


(26
)
Noninterest Expense

$
14Total

$
6,982



$
32,112



$
14




For the Three Months Ended March 31, 2010Gain or (Loss) Recognized in
Income on Derivative
Instruments (Ineffective
Portion and Amount Excluded
from Effectiveness Testing)Gain or (Loss) Reclassified
from Accumulated OCI into
Income (Effective Portion)Amount of Gain or (Loss)
Recognized in OCI on
Derivative Instruments
(Effective Portion)(Dollars in thousands)

Location

Amount

Location

AmountDerivatives in Cash Flow Hedging RelationshipsInterest Income

$
20,116Interest rate contracts

$
(1,897
)
Interest Expense




Noninterest Expense

$
(6
)Total

$
(1,897
)


$
20,116



$
(6
)




Derivative instruments classified as trading include both derivatives entered into for the Company's own account and as an
accommodation for customers. Derivatives held for trading purposes are included in trading assets or trading liabilities with changes in fair value reflected in trading income or losses. The majority
of the Company's derivative transactions for customers were essentially offset by contracts with third parties that reduce or eliminate market risk exposures.

The
Company offers market-linked certificates of deposit, which allow the client to earn the higher of either a minimum fixed rate of interest or a return tied to the S&P 500, the
Dow Jones UBS Commodity Index or a currency-linked index. The Company hedges its exposure to the embedded derivative contained in market-linked CDs with a perfectly matched
over-the-counter call option. Both the embedded derivative and call option are recorded at fair value with the realized and unrealized changes in fair value recorded in
noninterest income within trading account activities.

The
Company has a limited portfolio of market path CDs, which provide the current CD holders with a return tied to the respective index. The Company engages in an economic hedging
strategy in which the interest paid based on the respective index is exchanged for a fixed rate of interest. The Company accounts for

43

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 14Derivative Instruments and Other Financial Instruments Used For Hedging (Continued)

the
derivative embedded in the market path CD separately at fair value. A total return swap that encompasses the value of a series of options that had individually hedged each CD is recorded at fair
value. The fair value of the embedded derivative and the hedge instrument are recorded in other assets and other liabilities and the changes in the fair value of the embedded derivative and the hedge
instrument are recognized as interest expense.

The
following table presents the amount and location of the net gains and losses reported in the condensed consolidated statement of income for derivative instruments classified as
trading and derivatives used as economic hedges for the three months ended March 31, 2009 and March 31, 2010.

Gain or (Loss) Recognized in Income on Derivative InstrumentsFor the Three Months Ended
March 31, 2009

For the Three Months Ended
March 31, 2010(Dollars in thousands)

Location

Amount

AmountTrading Derivatives and Economic Hedges:Interest rate contracts

Trading account activities

$
4,557

$
2,441Foreign exchange contracts

Trading account activities


8,071


8,919Energy contracts

Trading account activities


4,335


2,284Equity contracts

Trading account activities


427


2,941Other contracts

Interest expense


(38
)

(24
)Total



$
17,352

$
16,561


44

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 15Accumulated Other Comprehensive Loss

The following table presents the change in each of the components of other comprehensive loss and the related tax effect of the change allocated to each component.

(Dollars in thousands)

Before
Tax
Amount

Tax
Effect

Net of
TaxFor the Three Months Ended March 31, 2009:Cash flow hedge activities:Unrealized net gains on hedges arising during the period

$
6,982

$
(2,743
)
$
4,239Less: accretion of fair value adjustment


3,765


(1,441
)

2,324Less: reclassification adjustment for net gains on hedges included in net income


(32,112
)

12,577


(19,535
)Net change in unrealized gains on hedges


(21,365
)

8,393


(12,972
)Securities:Unrealized holding gains arising during the period on securities available for sale


16,737


(6,576
)

10,161Less: accretion of fair value adjustment on securities available for sale


(6,787
)

2,666


(4,121
)Less: accretion of net unrealized losses on held to maturity securities


7,330


(2,880
)

4,450Net change in unrealized losses on securities


17,280


(6,790
)

10,490Foreign currency translation adjustment


(692
)

272


(420
)Reclassification adjustment for pension and other benefits included in net income:Amortization of prior service costs


(16
)

6


(10
)Amortization of transition amount


328


(129
)

199Recognized net actuarial loss


6,074


(2,386
)

3,688Net change in pension and other benefits


6,386


(2,509
)

3,877Net change in accumulated other comprehensive loss

$
1,609

$
(634
)
$
975For the Three Months Ended March 31, 2010:Cash flow hedge activities:Unrealized net losses on hedges arising during the period

$
(1,897
)
$
746

$
(1,151
)Less: accretion of fair value adjustment


1,073


(422
)

651Less: Reclassification adjustment for net gains on hedges included in net income


(21,189
)

8,325


(12,864
)Net change in unrealized gains on hedges


(22,013
)

8,649


(13,364
)Securities:Unrealized holding gains arising during the period on securities available for sale


112,088


(44,040
)

68,048Reclassification adjustment for net gains on securities available for sale included in net income


(33,900
)

13,319


(20,581
)Less: accretion of fair value adjustment on securities available for sale


(104
)

41


(63
)Less: accretion of fair value adjustment on held to maturity securities


(6,471
)

2,543


(3,928
)Less: accretion of net unrealized losses on held to maturity securities


22,757


(8,941
)

13,816Net change in unrealized losses on securities


94,370


(37,078
)

57,292Foreign currency translation adjustment


883


(347
)

536Reclassification adjustment for pension and other benefits included in net income:Amortization of prior service costs


(16
)

6


(10
)Amortization of transition amount


328


(129
)

199Recognized net actuarial loss


4,758


(1,007
)

3,751Net change in pension and other benefits


5,070


(1,130
)

3,940Net change in accumulated other comprehensive loss

$
78,310

$
(29,906
)
$
48,404


45

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 15Accumulated Other Comprehensive Loss (Continued)

The following table presents the change in accumulated other comprehensive loss balances.

(Dollars in thousands)

Net
Unrealized
Gains (Losses)
on Cash Flow Hedges

Net
Unrealized
Gains (Losses)
on Securities

Foreign
Currency
Translation
Adjustment

Pension and
Other
Benefits
Adjustment

Accumulated
Other
Comprehensive
LossBalance, December 31, 2008

$
73,308

$
(352,710
)
$
(1,113
)
$
(531,336
)
$
(811,851
)Change during the period


(12,972
)

10,490


(420
)

3,877


975Balance, March 31, 2009

$
60,336

$
(342,220
)
$
(1,533
)
$
(527,459
)
$
(810,876
)Balance, December 31, 2009

$
19,298

$
(296,309
)
$
263

$
(374,114
)
$
(650,862
)Change during the period


(13,364
)

57,292


536


3,940


48,404Balance, March 31, 2010

$
5,934

$
(239,017
)
$
799

$
(370,174
)
$
(602,458
)


Note 16Commitments, Contingencies and Guarantees

The following table summarizes the Company's significant commitments.

(Dollars in thousands)

March 31, 2010Commitments to extend credit

$
21,712,125Standby letters of credit


4,651,352Commercial letters of credit


48,493Risk participations in bankers' acceptances


305Commitments to fund principal investments


92,417Commitments to fund LIHC investments


176,344Commitments to fund CLO securities


9,663


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

Standby
and commercial letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. Standby letters of credit generally are
contingent upon the failure of the customer to perform according to the terms of the underlying contract with the third party, while commercial letters of credit are issued specifically to facilitate
foreign or domestic trade transactions. Additionally, the Company enters into risk participations in bankers' acceptances wherein a fee is received to guarantee a portion of the credit risk on an
acceptance of another bank. The majority of these types of commitments have terms of one year or less. At March 31, 2010, the carrying value of the Company's risk participations in bankers'
acceptances and standby and commercial letters of credit totaled $5.0 million. Estimated exposure to loss related to these commitments is covered by the allowance for losses on
off-balance sheet commitments. The carrying value of the standby
and commercial letters of credit and the allowance for losses on off-balance sheet commitments are included in other liabilities on the consolidated balance sheet.

46

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 16Commitments, Contingencies and Guarantees (Continued)

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

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

The
Company invests in either guaranteed or unguaranteed LIHC investments. The guaranteed LIHC investments carry a minimum rate of return guarantee by a creditworthy entity. The
unguaranteed LIHC investments carry partial guarantees covering the timely completion of projects, availability of tax credits and operating deficit thresholds from the issuer. For these LIHC
investments, the Company has committed to provide additional funding as stipulated by its investment participation.

The
Company is a fund manager for limited liability companies issuing LIHC investments. LIHC investments provide tax benefits to investors in the form of tax deductions from operating
losses and tax credits. To facilitate the sale of these LIHC investments, the Company guarantees a minimum rate of return throughout the investment term of over a twelve-year weighted
average period. Additionally, the Company receives guarantees which include the timely completion of projects, availability of tax credits and operating deficit thresholds from the limited liability
partnerships/corporations issuing the LIHC investments that reduce the Company's ultimate exposure to loss. As of March 31, 2010, the Company's maximum exposure to loss under these guarantees
is limited to a return of investor capital and minimum investment yield, or $192.2 million. The risk that the Company would be required to pay investors for a yield deficiency is low, based on
the continued satisfactory performance of the underlying properties. The Company has a reserve of $6.8 million recorded related to these guarantees, which represents the remaining unamortized
fair value of the guarantee fees that were recognized at inception. For information on the Company's LIHC investments that were consolidated, refer to Note 7 in these condensed consolidated
financial statements.

The
Company guarantees its subsidiaries' leveraged lease transactions with terms ranging from fifteen to thirty years. Following the original funding of these leveraged lease
transactions, the Company does not have any material obligation to be satisfied. As of March 31, 2010, we had no exposure to loss for these agreements.

The
Company conducts securities lending transactions for institutional customers as a fully disclosed agent. At times, securities lending indemnifications are issued to guarantee that a
security lending customer will be made whole in the event the borrower does not return the security subject to the lending agreement and collateral held is insufficient to cover the market value of
the security. All lending transactions are collateralized, primarily by cash. The amount of securities lent with indemnifications was $1,699 million at March 31, 2010. The market value
of the associated collateral was $1,746 million at March 31, 2010. As of March 31, 2010, the Company had no exposure that would require it to pay under this securities lending
indemnification, since the collateral market value exceeds the securities lent.

47

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 16Commitments, Contingencies and Guarantees (Continued)

The
Company occasionally enters into financial guarantee contracts where a premium is received from another financial institution counterparty to guarantee a portion of the credit risk
on interest rate swap contracts entered into between the financial institution and its customer. The Company becomes liable to pay the financial institution only if the financial institution is unable
to collect amounts owed to them by their customer. As of March 31, 2010, the maximum exposure to loss under these contracts totaled $44.1 million. The risk that the Company would be
required to perform under these guarantees varies based on the creditworthiness of the other financial institution's customer. Credit risk grades are assigned by the Company based on the estimated
probability of default. The risk of default is considered low for those with superior to good credit ratings, moderate for those with satisfactory to adequate credit ratings, and high for those
considered special mention, substandard, doubtful and loss. Based on these criteria, at March 31, 2010, the Company had a maximum exposure to loss under these contracts with a low, moderate,
and high risk of payment exposure of $8.3 million, $24.4 million, and $11.4 million, respectively. At March 31, 2010, the Company maintained a reserve of
$2.4 million for losses related to these guarantees.

The
Company is a member of the Visa USA network (Visa). Visa's bylaws obligate its members to indemnify Visa for losses in connection with the settlement of certain antitrust lawsuits.
The Company's indemnification obligation is limited to its proportionate share. The Company had a liability of $4.2 million both in December 31, 2009 and March 31, 2010,
representing the estimated fair value of the Company's obligations under the indemnity provisions. The $4.2 million liability represents the Company's estimate of the fair value of its
proportionate share of the sum of Visa's remaining amount owed to American Express under the previously executed settlement agreement plus the Company's estimate of Visa's future settlements under
pending lawsuits, after subtracting the balance in Visa's escrow account. The Company's maximum exposure to loss for the remaining pending Visa antitrust lawsuits is not determinable, as it is
dependent on the outcome of the litigation, but any loss will be proportionate to the Company's ownership interest in Visa. At March 31, 2010, the risk that the Company would be required
to pay as a result of this guarantee is considered to be low, based on Visa's continued cash funding of the escrow account to pay its antitrust lawsuit settlements.

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

Note 17Business Segments

As a result of a corporate reorganization in the fourth quarter of 2009, the Company reevaluated its business segments. Under the new organizational structure, the Company has three
operating segments: Retail Banking Group, Corporate Banking Group and Pacific Rim Corporate Group. The Corporate Banking Group and Pacific Rim Corporate Group segments have been aggregated together.
The Company has two reportable business segments: Retail Banking and Corporate Banking.

Prior
to this reorganization, the various operating segments were aggregated into two reportable business segments formerly known as "Retail Banking" and "Wholesale Banking". The
Company's new reportable business segment structure is similar to the previous structure. However, the Global and Wealth Markets division, which was previously included in Retail Banking, is now
included in Corporate Banking. Additionally, the goodwill, intangible assets, and related amortization/accretion associated with the privatization transaction previously were included in the Company's
segment results. To align with the chief operating

48

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 17Business Segments (Continued)

decision
maker's view of these segments, the Company has adjusted the 2009 reportable business segment results to exclude privatization-related goodwill, intangible assets, and related
amortization/accretion from the reportable business segment results and included such amounts in "Other."



Other
is comprised of certain non-bank subsidiaries of UnionBanCal Corporation; the transfer pricing center; the earnings associated with the allowance for credit losses; the
amount of the provision for credit losses over/(under) the risk-adjusted return on capital (RAROC) expected loss for the period; the residual costs of support groups; goodwill, intangible
assets, and the related amortization/accretion associated with the Company's privatization transaction; the elimination of the fully taxable-equivalent basis amount; and the difference between the
marginal tax rate and the consolidated effective tax rate. In addition, "Other" includes Corporate Treasury, which is responsible for Asset-Liability Management (ALM), wholesale funding, and the ALM
investment securities and derivatives hedging portfolios.

The
information, set forth in the table that follows, reflects selected income statement and balance sheet items by business segment. The information presented does not necessarily
represent the business units' financial condition and results of operations were they independent entities. Unlike financial accounting, there is no authoritative body of guidance for management
accounting equivalent to US GAAP. Consequently, reported results are not necessarily comparable with those presented by other companies.

The
information in the table is derived from the internal management reporting system used by management to measure the performance of the individual segments and the Company overall.
The management reporting system assigns balance sheet and income statement items to each operating segment based on internal management accounting policies. Net interest income is determined by the
Company's internal funds transfer pricing system, which assigns a cost of funds or a credit for funds to assets or liabilities based on their type, maturity or repricing characteristics. During the
first quarter of 2010, the Company refined its transfer pricing methodology with respect to reference rates for deposits
and to include additional assumptions about liquidity premiums, benefits granted for eligible loan collateral and charges for collateral requirements on deposits. Noninterest income and expense
directly attributable to an operating segment are assigned to that operating segment. Certain indirect costs, such as operations and technology expense, are allocated to the segments based on studies
of billable unit costs for product or data processing. Other indirect costs, such as corporate overhead, are allocated to an operating segment based on a predetermined percentage of usage. Under the
Company's RAROC methodology, credit expense is charged to an operating segment based upon expected losses arising from credit risk. In addition, the attribution of economic capital is related to
unexpected losses arising from credit, market and operational risks.

49

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 17Business Segments (Continued)

The
Company reflects a "market view" perspective in measuring the business segments. The market view is a measurement of customer markets aggregated to show all revenues generated and
expenses incurred from all products and services sold to those customers regardless of where product areas organizationally report. Therefore, revenues and expenses are included in both the business
segment that provides the service and the business segment that manages the customer relationship. The duplicative results from this internal management accounting view are reflected in "Reconciling
Items."

The
business segment results for prior periods have been restated to reflect changes in the transfer pricing methodology, the organizational changes that have occurred and the market
view contribution.

Retail Banking

Corporate BankingAs of and for the
Three Months Ended
March 31,

As of and for the
Three Months Ended
March 31,2009

2010

2009

2010Results of operationsMarket View (dollars in thousands):Net interest income (expense)

$
190,443

$
243,032

$
292,838

$
384,641Noninterest income (expense)


67,320


65,952


115,016


117,915Total revenue


257,763


308,984


407,854


502,556Noninterest expense (income)


203,018


214,077


217,855


244,558Credit expense (income)


7,438


6,613


69,084


79,899Income (loss) before income taxes and including noncontrolling interests


47,307


88,294


120,915


178,099Income tax expense (benefit)


18,497


34,523


25,693


47,116Net income (loss) including noncontrolling interests


28,810


53,771


95,222


130,983Less: Net loss from noncontrolling interests











Net income (loss) attributable to UNBC

$
28,810

$
53,771

$
95,222

$
130,983Total assets, end of periodMarket View (dollars in millions):

$
21,679

$
22,567

$
35,007

$
32,594


50

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 17Business Segments (Continued)



Other

Reconciling Items

UnionBanCal
CorporationAs of and for the
Three Months Ended
March 31,

As of and for the
Three Months Ended
March 31,

As of and for the
Three Months Ended
March 31,2009

2010

2009

2010

2009

2010Results of operationsMarket View (dollars in thousands):Net interest income (expense)

$
87,453

$
(35,551
)
$
(10,731
)
$
(17,769
)
$
560,003

$
574,353Noninterest income (expense)


3,072


38,557


(10,692
)

(12,519
)

174,716


209,905Total revenue


90,525


3,006


(21,423
)

(30,288
)

734,719


784,258Noninterest expense (income)


109,552


76,510


(9,042
)

(10,573
)

521,383


524,572Credit expense (income)


172,675


83,620


(197
)

(132
)

249,000


170,000Income (loss) before income taxes and including noncontrolling interests


(191,702
)

(157,124
)

(12,184
)

(19,583
)

(35,664
)

89,686Income tax expense (benefit)


(65,282
)

(58,581
)

(4,764
)

(7,657
)

(25,856
)

15,401Net income (loss) including noncontrolling interests


(126,420
)

(98,543
)

(7,420
)

(11,926
)

(9,808
)

74,285Less: Net loss from noncontrolling interests





(3,059
)










(3,059
)Net income (loss) attributable to UNBC

$
(126,420
)
$
(95,484
)
$
(7,420
)
$
(11,926
)
$
(9,808
)
$
77,344Total assets, end of periodMarket View (dollars in millions):

$
13,572

$
32,225

$
(1,533
)
$
(1,915
)
$
68,725

$
85,471


Note 18Subsequent Events



On April 16, 2010, the Bank entered into a Purchase and Assumption Agreement (Tamalpais Agreement) with the Federal Deposit
Insurance Corporation (FDIC) as receiver of Tamalpais Bank of San Rafael, California to purchase certain assets and assume certain deposits and other liabilities of Tamalpais Bank.

Of
the approximately $0.6 billion in total assets acquired, the Bank acquired approximately $0.5 billion in loans and other real estate owned which are covered under a loss
share agreement with the FDIC. The Bank also assumed more than $0.4 billion in deposits. These amounts are estimates, subject to adjustment based upon final settlement with the FDIC. Certain of
the assumed deposits were acquired at a premium of 2 percent and the assets were acquired at a discount to Tamalpais Bank's book value of 10 percent.

During
the second quarter of 2010, the Bank will record the purchased assets and assumed liabilities at fair value. Due to substantial effort required to estimate the fair values of the
assets purchased and liabilities assumed, the contingencies resulting from the acquisition, and various other calculations, the
accounting for the acquisition is not complete at the time the accompanying financial statements are filed. Until the fair values are established, any gain or goodwill to be recognized during the
second quarter of 2010 resulting from the acquisition cannot be calculated.

The
Tamalpais Agreement only covers designated assets and liabilities of Tamalpais Bank. None of the assets, liabilities or common stock of Tamalpais Bank's former parent company,
Tamalpais Bancorp, were purchased or assumed by the Bank.

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 18Subsequent Events (Continued)



On April 30, 2010, the Bank entered into a Purchase and Assumption Agreement (Frontier Agreement) with the FDIC as receiver of
Frontier Bank of Everett, Washington to purchase certain assets and assume certain deposit and other liabilities of Frontier Bank.

Of
the approximately $3.2 billion in assets acquired, the Bank acquired approximately $2.8 billion in loans and other real estate owned which are covered under a loss share
agreement with the FDIC. The Bank also assumed approximately $2.5 billion in deposits. These amounts are estimates, subject to adjustment based upon final settlement with the FDIC. The deposits
were acquired without a premium and the assets were acquired at a discount to Frontier Bank's book value of 11 percent.

During
the second quarter of 2010, the Bank will record the purchased assets and assumed liabilities at fair value. Due to substantial effort required to estimate the fair values of the
assets purchased and liabilities assumed, the contingencies resulting from the acquisition, and various other calculations, the accounting for the acquisition is not complete at the time the
accompanying financial statements are filed. Until the fair values are established, any gain or goodwill to be recognized during the second quarter of 2010 resulting from the acquisition cannot be
calculated.

The
Frontier Agreement only covers designated assets and liabilities of Frontier Bank. None of the assets, liabilities or common stock of Frontier Bank's former parent company, Frontier
Financial Corporation, were purchased or assumed by the Bank.



In addition to the subsequent events listed above, the Company has evaluated the potential disclosure of subsequent events through the
filing date of this Form 10-Q and has determined that there are no additional subsequent events required to be disclosed.

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Table of Contents

Item 2.   Management's Discussion and Analysis of Financial Condition and Results of Operations

This report includes forward-looking statements, which include forecasts of our financial
results and condition, expectations for our operations and business, and our assumptions for those forecasts and expectations. Do not rely unduly on forward-looking statements. Actual results might
differ significantly compared to our forecasts and expectations. Please refer to Part II Item 1A "Risk Factors" of our Quarterly Report on Form 10-Q (this
Form 10-Q) for a discussion of some factors that may cause results to differ.

Please
refer to our Consolidated Financial Statements and the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended
December 31, 2009 (2009 Form 10-K) along with the following discussion and analysis of our consolidated financial condition and results of operations for the period ended
March 31, 2010 in this Form 10-Q. Averages, as presented in the following tables, are substantially all based upon daily average balances.

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

Introduction

We are a California-based financial holding company and bank holding company whose major subsidiary, Union Bank, N.A. (the Bank), is a
commercial bank. We provide a wide range of financial services to consumers, small businesses, middle-market companies and major corporations, primarily in California, Oregon, Washington and Texas as
well as nationally and internationally. We had consolidated assets of $85.5 billion at March 31, 2010.

On
November 4, 2008, we became a privately held company (privatization transaction). All of our issued and outstanding shares of common stock are owned by The Bank of
Tokyo-Mitsubishi UFJ, Ltd. (BTMU). Prior to the transaction, BTMU owned approximately 64 percent of our outstanding shares of common stock. Refer to Note 3 to our condensed
consolidated financial statements in this Form 10-Q for further information on UnionBanCal's privatization transaction.

Executive Overview

We are providing you with an overview of what we believe are the most significant factors and developments that impacted our first
quarter 2010 results and that could impact our future results. Further detailed information can be found elsewhere in this Form 10-Q. In addition, we ask that you carefully read
this entire document and any other reports that we refer to in this Form 10-Q for more detailed information that will assist your understanding of trends, events and uncertainties
that impact us.

In
2008 and 2009, the U.S. and global economies experienced a serious recession and unprecedented volatility in the financial markets, and there was significant deterioration in sectors
of the U.S consumer and business economy, all of which continue to present challenges for the banking and financial services industry.

Our
sources of revenue are net interest income (predominantly from loans and deposits, and also from investment securities and other funding sources) and noninterest income. For the
first quarter of 2010, total revenue was comprised of 73 percent net interest income and 27 percent noninterest income. Changes in interest rates, credit quality, economic trends and the
capital markets are primary factors that impact our revenue sources.

Our
primary sources of liquidity are core deposits and wholesale funding. Core deposits consist of total deposits, excluding brokered deposits and time deposits of $100,000 and over.
Wholesale funding includes unsecured funds raised from interbank and other sources, both domestic and international, and secured funds raised by selling securities under repurchase agreements and by
borrowing from the Federal Home Loan Bank

53

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Table of Contents

of
San Francisco (FHLB). We evaluate and monitor the stability and reliability of our various funding sources to help ensure that we have sufficient liquidity in adverse situations.



In the first quarter of 2010, our net interest income (on a taxable-equivalent basis) increased 3 percent from the first quarter
of 2009 to $576.8 million, primarily due to lower rates paid on interest bearing liabilities, investment securities growth, and purchase price accounting accretions related to our
privatization, partially offset by lower yields on earning assets. However, our net interest margin of 2.95 percent contracted 84 basis points compared to the same period last year, primarily
as a result of a decrease in our interest rate spread (the difference between our earning assets yield and total interest bearing liabilities rate) attributable to a significant growth in our average
interest bearing deposit liabilities, which was primarily used to invest in lower yielding U.S. government securities and interest bearing deposits in banks.

In
the first quarter of 2010, our noninterest income of $209.9 million increased 20 percent from the first quarter of 2009, primarily due to a gain of $35.2 million
on the sale of agency mortgage-backed securities. In the first quarter of 2010, our noninterest expense of $524.6 million was relatively flat compared to the first quarter of 2009.

Our
effective tax rate was 17.2 percent in the first quarter of 2010, compared to (72.5) percent in the first quarter of 2009. The change in the effective tax rate was primarily
due to pre-tax loss in the prior year compared to pre-tax income in the current year, as well as the impact of tax credits and state income taxes.



Our total assets at March 31, 2010 of $85.5 billion grew $16.7 billion, or 24 percent, from
March 31, 2009 primarily due to higher securities balances. Our stockholder's equity of $9.7 billion at March 31, 2010 grew $2.2 billion from March 31, 2009
primarily due to a $2.0 billion capital contribution from BTMU in September 2009.

In
first quarter of 2010, our average total loans decreased 6 percent from the first quarter of 2009 to $46.8 billion. This decrease was primarily in the construction and
commercial, financial and industrial sectors, due to tighter underwriting standards, proactive portfolio management, and a decrease in loan demand.

In
the first quarter of 2010, our average total deposits increased 45 percent to $67.8 billion compared to the first quarter of 2009. In the first quarter of 2010, our
average noninterest bearing deposits increased 15 percent to $14.4 billion compared to the first quarter of 2009. In the first quarter of 2010, our average interest bearing deposits
increased by 57 percent to $53.5 billion compared to the first quarter of 2009. These increases reflect the results of targeted retail and corporate deposit-gathering marketing
initiatives throughout Union Bank, including a new industry strategy targeting retail brokerage firm clients and other long standing industry markets, as well as significant growth in money market
account deposits from state and local governments, and institutional escrow clients. Average noninterest bearing deposits represented 21 percent of average total deposits in the first quarter
of 2010, compared to 27 percent in the first quarter of 2009. The annualized average all-in-cost of funds improved to 0.62 percent in the first quarter of 2010,
compared to 1.03 percent in the first quarter of 2009.



During the first quarter of 2010, we provided $165 million for our allowances for credit losses compared to $275 million
in the first quarter of 2009. The decrease was primarily attributable to a decrease in criticized assets and commitments and lower loss content in our nonaccrual loans, partially offset by higher loss
content in the residential mortgage and consumer loan portfolios during the first quarter of 2010 versus an increase in

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Table of Contents

criticized
assets and commitments during the first quarter of 2009. See further discussion below in "Allowances for Credit Losses."

Our
nonperforming assets totaled $835 million, $1.4 billion and $1.5 billion at March 31, 2009, December 31, 2009 and March 31, 2010,
respectively. The increase in nonperforming assets resulted from weak economic conditions which drove higher levels of nonaccrual loans primarily in our commercial mortgage and residential mortgage
portfolios. Net charge offs were $116 million, $95 million and $119 million in first quarter 2009, fourth quarter 2009 and first quarter 2010, respectively.

At
March 31, 2009, December 31, 2009 and March 31, 2010, our allowances for credit losses as a percent of total loans were 2.07 percent, 3.25 percent
and 3.38 percent, respectively. At March 31, 2009, December 31, 2009 and March 31, 2010, our allowances for credit losses as a percent of nonaccrual loans were
126 percent, 116 percent and 111 percent, respectively. At March 31, 2009, December 31, 2009 and March 31, 2010, our allowance for loan losses as a percent of
total loans was 1.76 percent, 2.87 percent and 3.01 percent, respectively. At March 31, 2009, December 31, 2009 and March 31, 2010, our allowance for loan
losses as a percent of nonaccrual loans was 107 percent, 103 percent and 99 percent, respectively.



See our discussion of subsequent events in Note 18 to our condensed consolidated financial statements in this
Form 10-Q regarding Tamalpais Bank and Frontier Bank.

Critical Accounting Estimates

UnionBanCal Corporation's consolidated financial statements are prepared in accordance with accounting principles generally accepted in
the United States of America (US GAAP) and the general practices of the banking industry, which include management estimates and judgments.

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

Understanding
our accounting policies is fundamental to understanding our consolidated financial condition and consolidated results of operations. Accordingly, both our Critical
Accounting Policies and our significant accounting policies are discussed in detail in our 2009 Form 10-K filed with the Securities and Exchange Commission (the SEC). There have
been no material changes to these critical accounting estimates during the three months ended March 31, 2010.

55

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Table of Contents

Financial Performance

Summary of Financial Performance

Increase (Decrease)For the Three Months Ended March 31,2010 versus 2009(Dollars in thousands)

2009

2010

Amount

PercentResults of OperationsNet interest income(1)

$
560,003

$
574,353

$
14,350


2.6
%Noninterest incomeService charges on deposit accounts


71,322


66,140


(5,182
)

(7.3
)Securities gains, net





33,893


33,893


nmTrust and investment management fees


33,907


31,420


(2,487
)

(7.3
)Other noninterest income


69,487


78,452


8,965


12.9Total noninterest income


174,716


209,905


35,189


20.1Total revenue


734,719


784,258


49,539


6.7Provision for loan losses


249,000


170,000


(79,000
)

(31.7
)Noninterest expenseSalaries and other compensation


188,223


224,400


36,177


19.2Employee benefits


55,340


55,186


(154
)

(0.3
)Salaries and employee benefits


243,563


279,586


36,023


14.8Intangible asset amortization


40,887


31,793


(9,094
)

(22.2
)Regulatory agencies


17,938


29,848


11,910


66.4Outside services


18,834


22,785


3,951


21.0Low income housing credit investment amortization


10,166


13,526


3,360


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


26,000


(5,000
)

(31,000
)

nmExpenses related to consolidated VIEs





5,039


5,039


nmPrivatization-related expense


26,819


5,153


(21,666
)

(80.8
)Other noninterest expense


137,176


141,842


4,666


3.4Total noninterest expense


521,383


524,572


3,189


0.6Income (loss) before income taxes and including noncontrolling interest


(35,664
)

89,686


125,350


nmIncome tax expense (benefit)


(25,856
)

15,401


41,257


nmNet Income (Loss) including Noncontrolling Interests


(9,808
)

74,285


84,093


nmLess: Net loss from noncontrolling interests





(3,059
)

(3,059
)

nmNet Income (Loss) attributable to UNBC

$
(9,808
)
$
77,344

$
87,152


nm
%


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


The primary contributors to our financial performance for the first quarter of 2010 compared to the first quarter of 2009
are presented below.



56

---



Table of Contents



The
increase in our noninterest income was due to several factors:



The
increase in our noninterest expense was due to several factors:



57

---







Table of Contents

Net Interest Income

The following table shows the major components of net interest income and net interest margin.

For the Three Months Ended

Increase (Decrease) inMarch 31, 2009

March 31, 2010





Interest Income/
Expense(1)Average BalanceAverage
Balance

Interest
Income/
Expense(1)

Average
Yield/
Rate(1)(2)

Average
Balance

Interest
Income/
Expense(1)

Average
Yield/
Rate(1)(2)(Dollars in thousands)

Amount

Percent

Amount

PercentAssetsLoans:(3)Commercial, financial and industrial

$
18,503,965

$
193,787


4.25
%
$
14,954,956

$
161,889


4.39
%
$
(3,549,009
)

(19
)%
$
(31,898
)

(16
)%Construction


2,733,630


19,261


2.86


2,308,856


16,890


2.97


(424,774
)

(16
)

(2,371
)

(12
)Residential mortgage


15,923,191


234,438


5.89


16,784,420


227,489


5.42


861,229


5


(6,949
)

(3
)Commercial mortgage


8,253,324


102,389


4.96


8,234,255


86,393


4.20


(19,069
)

(0
)

(15,996
)

(16
)Consumer


3,722,252


46,539


5.07


3,915,724


42,809


4.43


193,472


5


(3,730
)

(8
)Lease financing


652,684


7,653


4.69


649,312


6,181


3.81


(3,372
)

(1
)

(1,472
)

(19
)Total Loans


49,789,046


604,067


4.88


46,847,523


541,651


4.65


(2,941,523
)

(6
)

(62,416
)

(10
)Securitiestaxable


8,319,754


102,256


4.92


23,504,338


142,774


2.43


15,184,584


nm


40,518


40Securitiestax-exempt


50,417


1,025


8.13


42,327


885


8.37


(8,090
)

(16
)

(140
)

(14
)Interest bearing deposits in banks


4,220


900


0.48


6,596,843


4,055


0.25


6,592,623


nm


3,155


nmFederal funds sold and securities purchased under resale agreements


196,567


141


0.29


461,098


119


0.10


264,531


nm


(22
)

(16
)Trading account assets


1,266,203


158


0.05


859,727


860


0.41


(406,476
)

(32
)

702


nmTotal earning assets


59,626,207


708,547


4.78


78,311,856


690,344


3.54


18,685,649


31


(18,203
)

(3
)Allowance for loan losses


(708,736
)







(1,407,252
)







(698,516
)

(99
)Cash and due from banks


2,142,198








1,205,261








(936,937
)

(44
)Premises and equipment, net


674,021








673,907








(114
)

(0
)Other assets


5,338,809








6,026,337








687,528


13Total assets

$
67,072,499







$
84,810,109







$
17,737,610


26
%LiabilitiesDeposits:Transaction accounts

$
22,497,062

$
61,097


1.10

$
39,861,094

$
63,079


0.64

$
17,364,032


77
%
$
1,982


3Savings and consumer time


4,367,945


15,939


1.48


5,971,776


11,945


0.81


1,603,831


37


(3,994
)

(25
)Large time


7,232,767


28,002


1.57


7,621,415


10,538


0.56


388,648


5


(17,464
)

(62
)Total interest bearing deposits


34,097,774


105,038


1.25


53,454,285


85,562


0.65


19,356,511


57


(19,476
)

(19
)Federal funds purchased and securities sold under repurchase agreements


251,946


53


0.09


205,765


37


0.07


(46,181
)

(18
)

(16
)

(30
)Commercial paper


721,416


1,592


0.89


576,429


240


0.17


(144,987
)

(20
)

(1,352
)

(85
)Other borrowed funds(4)


5,083,086


11,477


0.92


713,687


1,202


0.68


(4,369,399
)

(86
)

(10,275
)

(90
)Medium- and long-term debt


4,743,352


27,529


2.35


4,560,180


26,241


2.33


(183,172
)

(4
)

(1,288
)

(5
)Trust notes


13,922


238


6.84


13,475


268


7.95


(447
)

(3
)

30


13Total borrowed funds


10,813,722


40,889


1.53


6,069,536


27,988


1.87


(4,744,186
)

(44
)

(12,901
)

(32
)Total interest bearing liabilities


44,911,496


145,927


1.32


59,523,821


113,550


0.77


14,612,325


33


(32,377
)

(22
)Noninterest bearing deposits


12,535,399








14,383,860








1,848,461


15Other liabilities


2,289,392








1,276,119








(1,013,273
)

(44
)Total liabilities


59,736,287








75,183,800








15,447,513


26EquityUNBC Stockholder's equity


7,336,212








9,532,428








2,196,216


30Noncontrolling interests











93,881








93,881


nmTotal equity


7,336,212








9,626,309








2,290,097


31Total liabilities and equity

$
67,072,499







$
84,810,109







$
17,737,610


26
%Net Interest Income/MarginNet interest income/margin (taxable-equivalent basis)





562,620


3.79
%




576,794


2.95
%







14,174


3Less: taxable-equivalent adjustment





2,617








2,441











(176
)

(7
)Net interest income




$
560,003







$
574,353










$
14,350


3
%


(1)Yields
and interest income are presented on a taxable-equivalent basis using the federal statutory tax rate of 35 percent.(2)Annualized.(3)Average
balances on loans outstanding include all nonperforming loans and loans held for sale. The amortized portion of net loan origination
fees (costs) is included in interest income on loans, representing an adjustment to the yield.(4)Includes
interest bearing trading liabilities.nm=
not meaningful


58

---



Table of Contents

Net interest income in the first quarter of 2010, on a taxable-equivalent basis, increased $14.2 million, or 3 percent, compared to
the first quarter of 2009. Our net interest margin in the first quarter of 2010 decreased by 84 basis points to 2.95 percent compared to the first quarter of 2009. These results were primarily
due to the following:



Noninterest Income and Noninterest Expense

The following tables detail our noninterest income and noninterest expense that exceeded 1 percent of our total revenues for the
three months ended March 31, 2009 and 2010.

Noninterest Income

For the Three Months EndedIncrease
(Decrease)March 31,
2009

March 31,
2010(Dollars in thousands)

Amount

PercentService charges on deposit accounts

$
71,322

$
66,140

$
(5,182
)

(7.3
)%Securities gains, net





33,893


33,893


nmTrust and investment management fees


33,907


31,420


(2,487
)

(7.3
)Trading account activities


22,692


21,093


(1,599
)

(7.0
)Merchant banking fees


13,832


13,676


(156
)

(1.1
)Card processing fees, net


7,536


8,620


1,084


14.4Brokerage commissions and fees


8,307


8,528


221


2.7Losses on private capital investments, net


(2,121
)

(192
)

1,929


(90.9
)Other


19,241


26,727


7,486


38.9Total noninterest income

$
174,716

$
209,905

$
35,189


20.1
%


nm = not meaningful


59

---



Table of Contents




Noninterest Expense

For the Three Months EndedIncrease
(Decrease)March 31,
2009

March 31,
2010(Dollars in thousands)

Amount

PercentSalaries and other compensation

$
188,223

$
224,400

$
36,177


19.2
%Employee benefits


55,340


55,186


(154
)

(0.3
)Salaries and employee benefits


243,563


279,586


36,023


14.8Net occupancy


41,921


43,380


1,459


3.5Intangible asset amortization


40,887


31,793


(9,094
)

(22.2
)Regulatory agencies


17,938


29,848


11,910


66.4Outside services


18,834


22,785


3,951


21.0Professional services


15,938


16,361


423


2.7Equipment


15,413


15,811


398


2.6Software


15,038


14,728


(310
)

(2.1
)Low income housing credit investment amortization


10,166


13,526


3,360


33.1Advertising and public relations


10,621


10,165


(456
)

(4.3
)Communications


8,718


9,529


811


9.3Data processing


8,575


8,110


(465
)

(5.4
)Foreclosed asset expense (income)


886


(198
)

(1,084
)

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


26,000


(5,000
)

(31,000
)

nmExpenses related to consolidated VIEs





5,039


5,039


nmPrivatization-related expense


26,819


5,153


(21,666
)

(80.8
)Other


20,066


23,956


3,890


19.4Total noninterest expense

$
521,383

$
524,572

$
3,189


0.6
%


nm = not meaningful


Income Tax Expense

Our effective tax rate in the first quarter of 2010 was 17.2 percent, compared to (72.5) percent for the first quarter of 2009.
A negative effective tax rate indicates a net income tax benefit. The change in the effective tax rate was primarily due to a pre-tax loss in the prior year compared to pre-tax
income in the current year, as well as the impact of tax credits and state income taxes.

Our
quarterly effective tax rate for the first quarters of 2009 and 2010 was computed on an individual quarterly basis.

For
further information regarding income tax expense, see "Management's Discussion and Analysis of Financial Condition and Results of OperationsIncome Tax Expense" in our
2009 Form 10-K and Note 9 to the condensed consolidated financial statements in this Form 10-Q.

60

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Table of Contents

Loans

The following table shows loans outstanding by loan type at the end of each period presented.

Increase (Decrease)
March 31, 2010 From:March 31,
2009

December 31,
2009March 31,
2009

December 31,
2009

March 31,
2010(Dollars in thousands)

Amount

Percent

Amount

PercentCommercial, financial and industrial

$
17,902,431

$
15,258,081

$
14,870,549

$
(3,031,882
)

(16.9
)%
$
(387,532
)

(2.5
)%Construction


2,781,192


2,429,009


2,151,432


(629,760
)

(22.6
)

(277,577
)

(11.4
)Mortgage:Residential


15,998,637


16,716,048


16,892,822


894,185


5.6


176,774


1.1Commercial


8,233,371


8,245,778


8,248,574


15,203


0.2


2,796


0.0Total mortgage


24,232,008


24,961,826


25,141,396


909,388


3.8


179,570


0.7Consumer:Installment


2,336,931


2,244,239


2,185,539


(151,392
)

(6.5
)

(58,700
)

(2.6
)Revolving lines of credit


1,451,193


1,672,842


1,728,828


277,635


19.1


55,986


3.3Total consumer


3,788,124


3,917,081


3,914,367


126,243


3.3


(2,714
)

(0.1
)Lease financing


662,295


653,743


640,741


(21,554
)

(3.3
)

(13,002
)

(2.0
)Total loans held for investment


49,366,050


47,219,740


46,718,485


(2,647,565
)

(5.4
)

(501,255
)

(1.1
)Total loans held for sale


75,013


8,768


2,725


(72,288
)

(96.4
)

(6,043
)

(68.9
)Total loans

$
49,441,063

$
47,228,508

$
46,721,210

$
(2,719,853
)

(5.5
)%
$
(507,298
)

(1.1
)%




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

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

The
commercial, financial and industrial loan portfolio decreases from March 31, 2009 to March 31, 2010 and from December 31, 2009 to March 31, 2010 are
mainly due to a decline in the utilization rate of revolving credit lines by existing customers, our proactive portfolio management, our tighter underwriting standards, and a decline in loan demand in
many sectors as a result of the difficult economic environment.



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

Construction
loans are extended primarily to commercial property developers and to residential builders. As of March 31, 2010, the construction loan portfolio consisted of
approximately 90 percent in the commercial income producing real estate industry and 10 percent with residential homebuilders. The construction loan portfolio decreased 23 percent
from March 31, 2009 to March 31, 2010 due to declines of approximately $290 million, or 60 percent, in the homebuilder portfolio and $340 million, or
16 percent, in the income property portfolio. The income property reductions were concentrated mostly in the retail and industrial property types. The construction loan portfolio decreased
11 percent from December 31, 2009 to

61

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Table of Contents

March 31,
2010 due to reductions primarily in the income property portfolio that were spread across almost all property types.

Geographically,
the outstanding construction loan portfolio was concentrated 43 percent in California and 57 percent out of state as of March 31, 2010. The largest
out of state concentration was 14 percent in Washington. The California outstandings are distributed as follows: 39 percent in the Los Angeles/Orange County region, including the Inland
Empire, 25 percent in the San Francisco Bay Area, 15 percent in Sacramento and the Central Valley, 16 percent in San Diego, and 5 percent in the Central Coast region.

The
commercial mortgage loan portfolio consists of loans secured by commercial income properties primarily in California. The commercial mortgage portfolio increased slightly from
March 31, 2009 to March 31, 2010 due to continued moderate originations and a reduced rate of early loan repayments associated with the tightening of the credit markets.



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

At
March 31, 2010, 71 percent of our residential mortgage loans were interest only, none of which are negative amortizing. At origination, these interest only loans had
relatively high credit scores and had weighted average loan-to-value (LTV) ratios of approximately 66 percent. The remainder of the portfolio consists of a small amount
of balloon loans and regular amortizing loans.

We
do not have a program for originating or purchasing subprime loan products. However, we have loan products that allow a customer to move more quickly through the loan origination
process by reducing the need to verify the income or assets of the customer. We refer to these as Portfolio Express loans. Portfolio Express loans are only available to existing clients for
no-cash-out/rate and term refinance of existing residential mortgages with the Bank and eliminate the verification of both income and assets but must pass a reasonability test.
"Low doc" and "no doc" (discontinued in 2008) loans comprise less than half of our residential loan portfolio, and the delinquency rates relative to the outstanding balances at March 31, 2010
were slightly higher than fully documented loans. At March 31, 2010, the total amount of "no doc" and "low doc" loans past due 30 days or more was $176.7 million, compared to
$122.6 million at March 31, 2009. The total amount of residential mortgages delinquent 30 days or more was $374.7 million at March 31, 2010, compared to
$242.7 million at March 31, 2009. Although delinquencies have risen since March 31, 2009 as a result of the declining real estate market and downturn in the economy, the
delinquency rate remains low compared to the industry average for California prime loans. We believe that our underwriting standards remain conservative and as described above, programs with higher
risk have been discontinued.

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

62

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Table of Contents



We originate consumer loans, such as auto loans and home equity loans and lines, through our branch network, Private Banking Offices
and via the internet. The increase in consumer loans from March 31, 2009 was primarily in our FlexEquity line/loan product. The FlexEquity line/loan allows our customers the flexibility to
manage a line of credit with as many as four fixed rate loans under a single product. When customers convert all or a portion of their FlexEquity lines to fixed rate loans, these new loans are
classified as installment loans. As a result of the continuing decline in the overall property values in California, we have reduced our maximum loan to value limits on all second trust deed programs
we offer. At origination, these loans had relatively high credit scores and had weighted-average loan-to-value (LTV) ratios of approximately 60 percent. Our total home
equity loans and lines delinquent 30 days or more were $42.2 million at March 31, 2010, compared to $36.2 million at March 31, 2009. Our annual review program
reviews all equity secured lines with a commitment amount of $200,000 or more and an origination date between 2004-2008, and includes obtaining an updated credit report as well as an
updated value
on the property to reassess our LTV position. Action is taken to reduce or freeze limits, as applicable and pursuant to applicable laws and regulations, to minimize additional exposure in a declining
market.



We offer two types of leases to our customers: direct financing leases, where the assets leased are acquired without additional
financing from other sources; and leveraged leases, where a substantial portion of the financing is provided by debt with no recourse to us. At March 31, 2010, we had leveraged leases of
$543.7 million, which were net of non-recourse debt of approximately $1.1 billion. We utilize a number of special purpose entities for our leveraged leases. These entities do
not function as vehicles to shift liabilities to other parties or to deconsolidate affiliates for financial reporting purposes. As allowed by US GAAP and by law, the gross lease receivable is
offset by the qualifying non-recourse debt. In leveraged lease transactions, the third-party lender may only look to the collateral value of the leased assets for repayment.

Cross-Border Outstandings

Our cross-border outstandings reflect certain additional economic and political risks that are not reflected in domestic outstandings.
These risks include those arising from exchange rate fluctuations and restrictions on the transfer of funds. The following table sets forth our cross-border outstandings as of March 31 and
December 31, 2009 and March 31, 2010 for Canada, the only country where such outstandings exceeded one percent of total assets. The cross-border outstandings were compiled based upon
category and domicile of ultimate risk and are comprised of balances with banks, trading account assets, securities available for sale, securities purchased under resale agreements, loans, accrued
interest receivable, acceptances outstanding and investments with foreign entities. For the country shown in the table below, any significant local currency outstandings are funded by local currency
borrowings.

(Dollars in millions)

Financial
Institutions

Public
Sector
Entities

Corporations
and Other
Borrowers

Total
OutstandingsMarch 31, 2009
Canada

$
124

$


$
813

$
937December 31, 2009
Canada

$
88

$


$
837

$
925March 31, 2010
Canada

$
70

$


$
789

$
859


63

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Table of Contents

Provision for Credit Losses

We recorded a provision for loan losses of $249 million and $170 million in the first quarter of 2009 and 2010,
respectively. We recorded a provision (reversal) for losses on off-balance sheet commitments of $26 million and ($5) million in the first quarter of 2009 and 2010, respectively. The
provisions for loan losses and for losses on off-balance sheet commitments are charged to income to bring our total allowances for credit losses to a level deemed appropriate by management
based on the factors discussed under "Allowances for Credit Losses" below.

Allowances for Credit Losses



We maintain allowances for credit losses (defined as both the allowance for loan losses and the allowance for off-balance
sheet commitment losses) to absorb losses inherent in the loan portfolio as well as for leases and off-balance sheet commitments. Understanding our policies on the allowances for credit
losses is fundamental to understanding our consolidated financial condition and consolidated results of operations. Accordingly, our significant policies and methodology on the allowances for credit
losses are discussed in detail in Note 1 to our Consolidated Financial Statements and in the section "Allowances for Credit Losses" included in our "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in our 2009 Form 10-K.



At March 31, 2010, our total allowances for credit losses were $1,579 million, which consisted of $1,408 million
for loan losses and $171 million for losses on
off-balance sheet commitments. The allowances for credit losses consisted of $1,281 million and $298 million of allocated and unallocated allowance, respectively. At
March 31, 2010, our allowances for credit loss coverage ratios were 3.38 percent of total loans and 111 percent of total nonaccrual loans. At December 31, 2009, our total
allowances for credit losses were $1,533 million, or 3.25 percent of total loans, and 116 percent of total nonaccrual loans.

In
addition, the allowances incorporate the results of measuring impairment for specifically identified impaired loans utilizing a methodology based on the present value of the remaining
expected cash flows or as a practical expedient, the loan's observable market price or the underlying collateral securing the loan (provided that the loan is collateral dependent). At March 31,
2010 and December 31, 2009, total impaired loans were $1,421 million and $1,317 million, respectively, and the associated impairment allowances were $199 million and
$223 million, respectively.

At
March 31, 2010 and December 31, 2009, the allowance for losses on off-balance sheet commitments included within our total allowances for credit losses was
$171 million and $176 million, respectively. In determining the adequacy of our allowances for credit losses, we consider both the allowance for loan losses and for
off-balance sheet commitment losses. Net charge offs were $119 million in the first quarter of 2010, compared to $116 million in the first quarter of 2009. We expect the
elevated level of charge offs, which we began to experience in the latter half of 2008, to continue during the remainder of 2010.

As
a result of management's assessment of the relevant factors, including the credit quality of our loan portfolio, the negative impact from the economic slowdown on our lending
portfolios (especially our commercial real estate portfolio) and changes in the composition of the loan portfolio, we recorded a provision for loan losses of $170 million in the first quarter
of 2010, compared to a provision for loan losses of $249 million in the first quarter of 2009. The decrease was primarily attributable to a decrease in criticized assets and lower loss content
in our nonaccrual loans, partially offset by higher loss content in the residential mortgage and consumer loan portfolios during the first quarter of 2010 versus an increase in criticized assets
during the first quarter of 2009.

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During
the first quarter of 2010, the loss factors for certain loan portfolios were increased based on management's judgment, largely due to changes in the competitive environment and
increasing concentrations of credit risk. We also increased commercial loss factors based on past loss experience over a slightly longer economic time frame. Other than the change in our loss factors,
as well as for the refinement in estimates and assumptions regarding the effects of economic and business conditions on borrowers and other factors, there were no other significant changes in
estimation methods or assumptions that affected our methodology for assessing the appropriateness of the formula and specific or unallocated allowances for credit losses.



At March 31, 2010, the formula allowance decreased to $1,071 million, compared to $1,110 million at
December 31, 2009. The net decrease was primarily due to a decrease in criticized assets and lower loss content in the non-accrual loans, partially offset by changes in our loss
factors. At March 31, 2010, the specific allowance was $210 million, compared to $232 million at December 31, 2009.



At March 31, 2010, the unallocated allowance increased to $298 million, compared to $191 million at
December 31, 2009 primarily due to the negative impact of high unemployment on residential real estate loans, the effect of continued fiscal challenges for the State of California and
California local governments and the effect of commercial real estate property devaluations.

65

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Table of Contents



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

For the Three Months
Ended March 31,

Increase (Decrease)(Dollars in thousands)

2009

2010

Amount

PercentBalance, beginning of period

$
737,767

$
1,357,000

$
619,233


83.9
%Loans charged off:Commercial, financial and industrial


95,768


67,160


(28,608
)

(29.9
)Construction


2,316


16,552


14,236


nmCommercial mortgage


4,336


31,869


27,533


nmResidential mortgage


6,053


10,276


4,223


69.8Consumer


9,410


9,763


353


3.8Total loans charged off


117,883


135,620


17,737


15.0Recoveries of loans previously charged off:Commercial, financial and industrial


1,151


13,119


11,968


nmConstruction





2,391


2,391


nmCommercial mortgage


207


236


29


14Residential mortgage


15


28


13


87Consumer


132


435


303


nmTotal recoveries of loans previously charged off


1,505


16,209


14,704


nmNet loans charged off


116,378


119,411


3,033


2.6Provision for loan losses


249,000


170,000


(79,000
)

(31.7
)Foreign translation adjustment and other net additions


(204
)

424


628


nmEnding balance of allowance for loan losses

$
870,185

$
1,408,013

$
537,828


61.8
%Allowance for losses on off-balance sheet commitments


151,374


171,374


20,000


13.2Allowances for credit losses

$
1,021,559

$
1,579,387

$
557,828


54.6
%Allowance for loan losses to total loans(1)


1.76
%

3.01
%Allowances for credit losses to total loans(2)


2.07


3.38Provision for loan losses to net loans charged off


213.96


142.37Net loans charged off to average loans outstanding for the period(3)


0.95


1.03


(1)The
allowance for loan losses ratios are calculated using the allowance for loan losses against end of period total loans or total
nonperforming loans, as appropriate.(2)The
allowance for credit losses ratios are calculated using the sum of the allowances for loan losses and for losses on
off-balance sheet commitments against end of period total loans or total nonperforming loans, as appropriate.(3)Annualized. nm = not meaningful


Nonperforming Assets

Nonperforming assets consist of nonaccrual loans, restructured loans that are nonperforming and foreclosed assets. Nonaccrual loans are
those for which management has discontinued accrual of interest because there exists significant uncertainty as to the full and timely collection of either principal or interest or such loans have
become contractually past due 90 days with respect to principal or interest. For a more detailed discussion of the accounting for nonaccrual loans, see Note 1 to the Consolidated
Financial Statements included in the Company's 2009 Form 10-K.

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

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

The
following table sets forth an analysis of nonperforming assets.

Increase (Decrease)
March 31, 2010 From:March 31,
2009

December 31,
2009March 31,
2009

December 31,
2009

March 31,
2010(Dollars in thousands)

Amount

Percent

Amount

PercentCommercial, financial and industrial

$
347,073

$
335,581

$
251,611

$
(95,462
)

(27.5
)%
$
(83,970
)

(25.0
)%Construction


218,228


335,085


412,083


193,855


88.8


76,998


23.0Commercial mortgage


124,772


414,429


500,632


375,860


nm


86,203


20.8Residential mortgage


101,810


194,482


217,392


115,582


nm


22,910


11.8Consumer


18,256


20,492


24,046


5,790


31.7


3,554


17.3Lease financing





108


108


108


nm





Restructurednonaccrual





16,954


15,573


15,573


nm


(1,381
)

(8.1
)Total nonaccrual loans


810,139


1,317,131


1,421,445


611,306


75.5


104,314


7.9Foreclosed assets


21,809


32,662


45,492


23,683


nm


12,830


39.3Restructurednonperforming


2,790








(2,790
)

(100.0
)




Total nonperforming assets

$
834,738

$
1,349,793

$
1,466,937

$
632,199


75.7
%
$
117,144


8.7
%Restructured loans that continue to accrue interest

$


$
3,811

$
6,692

$
6,692


nm

$
2,881


75.6
%Allowance for loan losses

$
870,185

$
1,357,000

$
1,408,013

$
537,828


61.8
%
$
51,013


3.8
%Allowances for credit losses

$
1,021,559

$
1,533,374

$
1,579,387

$
557,828


54.6
%
$
46,013


3.0
%Nonaccrual loans to total loans


1.64
%

2.79
%

3.04
%Allowance for loan losses to nonaccrual loans(1)


107.41


103.03


99.06Allowances for credit losses to nonaccrual loans(2)


126.10


116.42


111.11Nonperforming assets to total loans, foreclosed assets and distressed loans held for sale


1.69


2.86


3.14Nonperforming assets to total assets


1.21


1.58


1.72


(1)The
allowance for loan losses ratios are calculated using the allowance for loan losses against end of period total loans or total
nonperforming loans, as appropriate.(2)The
allowances for credit losses ratios are calculated using the sum of the allowances for loan losses and for losses on
off-balance sheet commitments against end of period total loans or total nonaccrual loans, as appropriate. nm = not meaningful


The increase in nonaccrual loans from March 31, 2009 to March 31, 2010 was primarily due to an increase in construction and
commercial mortgage loans, primarily within the commercial real estate industry sector. During the first quarters of 2009 and 2010, we had $6.9 million and $34.4 million in sales of
nonperforming loans, respectively. Losses from these sales were reflected in charge offs.

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Table of Contents

Loans 90 Days or More Past Due and Still Accruing

Increase (Decrease)
March 31, 2010 From:March 31,
2009

December 31,
2009March 31,
2009

December 31,
2009

March 31,
2010(Dollars in thousands)

Amount

Percent

Amount

PercentCommercial, financial and industrial

$
3,262

$
4,393

$
3,196

$
(66
)

(2.0
)%
$
(1,197
)

(27.2
)%Construction


18,421





4,380


(14,041
)

(76.2
)

4,380


nmMortgage:Residential(1)








1,289


1,289


nm


1,289


nmCommercial


1,468


413


5,726


4,258


nm


5,313


nmTotal mortgage


1,468


413


7,015


5,547


nm


6,602


nmConsumer and other(1)


427


229


434


7


1.6


205


89.5Total loans 90 days or more past due and still accruing

$
23,578

$
5,035

$
15,025

$
(8,553
)

(36.3
)
$
9,990


nm


nm = not meaningful (1)Effective
January 1, 2009, the Company changed its nonaccrual accounting policy to place consumer home equity loans and
one-to-four single family residential loans on nonaccrual status when these loans are delinquent 90 days or more, or in foreclosure.


Securities

Management of the securities portfolio involves the maximization of return while maintaining prudent levels of quality, market risk and
liquidity. At March 31, 2010, approximately 97 percent of our securities, based upon carrying value, were investment grade. The amortized cost, gross unrealized gains, gross unrealized
losses and fair values of securities are detailed in Note 4 to our condensed consolidated financial statements included in this Form 10-Q.

Our
securities available for sale are recorded at fair value with the change in fair value recognized in accumulated other comprehensive income. Our ALM Securities portfolio, which
consists of available for sale U.S. government, state and municipal, and mortgage-backed securities held for Asset and Liability Management (ALM) purposes, totaled $22.0 billion at
March 31, 2010. ALM Securities are valued at fair value by a pricing service whose prices can be corroborated by recent security trading activities.

Our
asset-backed securities primarily consist of collateralized loan obligations (CLO) securities, which are known as Cash Flow CLOs. A Cash Flow CLO is a structured finance product that
securitizes a diversified
pool of loan assets into multiple classes of notes from the cash flows generated by such loans. Cash Flow CLOs pay the note holders through the receipt of interest and principal repayments from the
underlying loans unlike other types of CLOs that pay note holders through the trading and sale of underlying collateral. During the first quarter of 2009, we reclassified our CLOs from available for
sale to held to maturity. We consider the held to maturity classification to be more appropriate because we have the ability and the intent to hold these securities to maturity.

At
March 31, 2010, the fair value of our CLO securities had increased by approximately $43.0 million from December 31, 2009, primarily due to an increase in
liquidity in the marketplace. We estimate the fair value of our CLOs using a pricing model, as well as broker quotes. The model is based on internally-developed assumptions, utilizing market data
derived from market participants and credit rating agencies. These assumptions include, but are not limited to, estimated default rates, recovery rates, prepayment rates and reinvestment rates.

We
conduct a formal review of our securities available for sale and securities held to maturity portfolios on a quarterly basis for the presence of
other-than-temporary impairment (OTTI). We recognized an insignificant amount of impairment on two non-agency residential mortgage-backed securities during the
first quarter of 2010. There was no observable credit quality issues present in the remaining securities available for sale

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Table of Contents

portfolio
at March 31, 2010. Since no observable credit quality issues were present in the CLO portfolio at March 31, 2010, we concluded that these securities were not
other-than-temporarily impaired.

Analysis of Securities

The following tables show the remaining contractual maturities and expected yields of the securities based upon amortized cost at
March 31, 2010.

Securities Available For Sale

March 31, 2010MaturityOne Year
or Less

Over One Year
Through
Five Years

Over Five Years
Through
Ten Years

Over
Ten Years

Total
Amortized Cost(Dollars in thousands)

Amount

Yield

Amount

Yield

Amount

Yield

Amount

Yield

Amount

YieldU.S. Treasury

$
299,724


0.32
%
$




%
$




%
$




%
$
299,724


0.32
%Other U.S. government


3,511,170


0.60


9,510,793


1.55














13,021,963


1.29Residential mortgage-backed securitiesagency(1)(2)


8


4.41


283,233


3.69


1,246,155


3.84


6,526,861


3.92


8,056,257


3.90Residential mortgage-backed securitiesnon-agency(1)(2)














12,107


5.07


405,987


5.33


418,094


5.32State and municipal


2,005


7.43


9,670


6.81


11,058


3.58


21,155


5.41


43,888


5.35Asset-backed and debt securities








23,563


7.25


21,350


3.94


66,671


7.03


111,584


6.49Equity securities(3)


























88,521


Total securities available for sale

$
3,812,907


0.58
%
$
9,827,259


1.63
%
$
1,290,670


3.85
%
$
7,020,674


4.04
%
$
22,040,031


2.34
%


Securities Held to Maturity

March 31, 2010MaturityOne Year
or Less

Over One Year
Through
Five Years

Over Five Years
Through
Ten Years

Over
Ten Years

Total
Amortized Cost(Dollars in thousands)

Amount

Yield

Amount

Yield

Amount

Yield

Amount

Yield

Amount

YieldCollateralized loan obligations

$




%
$
15,467


3.43
%
$
1,399,187


1.08
%
$
347,614


1.01
%
$
1,762,268


1.09
%Foreign securities


99


0.25




















99


0.25Total securities held to maturity

$
99


0.25
%
$
15,467


3.43
%
$
1,399,187


1.08
%
$
347,614


1.01
%
$
1,762,367


1.09
%


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


Our securities available for sale portfolio at March 31, 2010 included ALM Securities of $22.0 billion. These securities had an
expected weighted average maturity of 2.7 years.

69

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Table of Contents

Deposits

The table below provides information on our deposits for the periods ending March 31, 2009, December 31, 2009 and
March 31, 2010.

Increase (Decrease)
March 31, 2010 From
 31, 2009March 31,
2009

December 31,
2009

March 31,
2010(Dollars in thousands)

Amount

PercentInterest checking

$
773,744

$
849,283

$
1,376,854

$
527,571


62
%Money market


23,054,423


39,952,337


36,572,409


(3,379,928
)

(8
)Total interest bearing transaction accounts


23,828,167


40,801,620


37,949,263


(2,852,357
)

(7
)Savings


2,056,676


3,716,566


4,270,607


554,041


15Time


9,450,875


9,440,478


9,972,462


531,984


6Total interest bearing deposits(1)


35,335,718


53,958,664


52,192,332


(1,766,332
)

(3
)Noninterest bearing deposits


13,543,015


14,558,989


14,389,261


(169,728
)

(1
)Total deposits

$
48,878,733

$
68,517,653

$
66,581,593

$
(1,936,060
)

(3
)%(1) Total interest bearing deposits include:Brokered deposits:Interest bearing transaction accounts

$
25,691

$
5,340,452

$
5,488,615

$
148,163


3
%Time


637,313


979,352


901,177


(78,175
)

(8
)Total brokered deposits


663,004


6,319,804


6,389,792


69,988


1Nonbrokered deposits


34,672,714


47,638,860


45,802,540


(1,836,320
)

(4
)Total interest bearing deposits

$
35,335,718

$
53,958,664

$
52,192,332

$
(1,766,332
)

(3
)%Core Deposits:Total deposits

$
48,878,733

$
68,517,653

$
66,581,593

$
(1,936,060
)

(3
)%Less: Total brokered deposits


663,004


6,319,804


6,389,792


69,988


1Less: Total nonbrokered time deposits of $100,000 and over


6,553,565


6,510,741


7,118,392


607,651


9Total core deposits

$
41,662,164

$
55,687,108

$
53,073,409

$
(2,613,699
)

(5
)%


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Table of Contents

Fair Value of Financial Instruments

The following table reflects financial instruments measured at fair value on a recurring basis as of March 31, 2009,
December 31, 2009 and March 31, 2010. For additional information on the fair value of financial instruments, see Note 13 to the condensed consolidated financial statements in this
Form 10-Q.

March 31, 2009

December 31, 2009

March 31, 2010(Dollars in thousands)

Fair Value

Percentage
of Total

Fair Value

Percentage
of Total

Fair Value

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

$
874,927


10
%
$
12,696,149


55
%
$
13,537,382


59
%Level 2


8,015,815


91


10,746,219


46


9,555,180


42Level 3


4,731





6,878





8,182


Netting Adjustment(1)


(105,333
)

(1
)

(135,885
)

(1
)

(88,421
)

(1
)Total

$
8,790,140


100
%
$
23,313,361


100
%
$
23,012,323


100
%As a percentage of total Company assets





13
%




27
%




27
%Liabilities:Level 1

$
21,126


2
%
$
9,901


2
%
$
98,152


13
%Level 2


1,049,312


109


643,115


119


720,589


98Level 3

















Netting Adjustment(1)


(105,333
)

(11
)

(111,885
)

(21
)

(81,928
)

(11
)Total

$
965,105


100
%
$
541,131


100
%
$
736,813


100
%As a percentage of total Company liabilities





2
%




1
%




1
%


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


71

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Table of Contents

Quantitative and Qualitative Disclosures About Market Risk

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

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

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

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

We
have separate and distinct methods for managing the market risk associated with our asset and liability management activities and our trading activities, as described below. For
additional information about our market risk management, please see "Quantitative and Qualitative Disclosures about Market Risk" in "Management's Discussion and Analysis of Financial Condition and
Results of Operations" in our 2009 Form 10-K.



During the first quarter of 2010, our interest rate risk profile was proactively increased in asset sensitivity as measured by earnings
at risk by the termination of positions in receive fixed swaps and floor portfolios and the repositioning of mortgage securities from longer to shorter durations and the execution of term funding.
Additionally, increased deposit balances and cash holdings contributed to the asset sensitive position.

During
the first quarter of 2010, under RCC delegated authority to approve temporary changes to risk measurement, the -200 basis point parallel scenario was replaced with a
-100 basis point parallel scenario. This change reflects the low probability associated with rate reductions of 200 basis point in the current extremely low rate environment, and the
acceptance of a
scenario that better reflects historically low rate levels achieved in the past. The RCC will monitor the rate environment and will consider restoring the measure in the future when deemed
appropriate.

72

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Table of Contents

At
March 31, 2010, Economic NII sensitivity was asset sensitive to parallel rate shifts. A +200 basis point parallel shift in rates would increase 12-month Economic
NII by 2.88 percent, while a -100 bp downward shift in rates would decrease it by 2.07 percent. At December 31, 2009, a +200 basis point parallel shift in rates would
increase 12-month Economic NII by 0.03 percent, while a -100 bp downward shift in rates would reduce it by 1.65 percent. We caution that significant low levels of
current interest rates and ongoing enhancements to our interest rate risk modeling may make prior year comparisons of Economic NII less meaningful. Economic NII adjusts our reported NII for the effect
of certain noninterest bearing deposit related fee and expense items. Those adjustment items are innately liability sensitive, meaning that reported NII is less liability sensitive than Economic NII.

Economic NII

(Dollars in millions)

March 31,
2009

December 31,
2009

March 31,
2010+200 basis points

$
19.9

$
0.9

$
75.7as a percentage of base case NII


0.81
%

0.03
%

2.88
%-100 basis points


N/A

$
(44.7
)
$
(54.4
)as a percentage of base case NII


N/A


(1.65
)%

(2.07
)%


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



During the first quarter of 2010, the Bank increased its sensitive interest rate risk profile to position the Bank for rising rates in
the future. The termination of positions in receive fixed swaps and floor portfolios, the repositioning of mortgage securities from longer to shorter durations and the execution of term funding were
the main contributing factors. Additionally, increased deposit balances and cash holdings continue to contribute to the asset sensitive position. In managing the interest rate sensitivity of our
balance sheet, we use the ALM investment securities portfolio and derivatives positions as the primary tools to adjust our interest rate risk profile, if necessary.



At March 31, 2009 and 2010, our available for sale securities portfolio included $7.4 billion and $21.9 billion,
respectively, of securities for ALM purposes. At March 31, 2010, approximately $5.4 billion of the portfolio was pledged to secure trust and public deposits and for other purposes as
required or permitted by law. During the first quarter of 2010, we purchased $1.6 billion and sold $1.0 billion par value of securities, as part of our investment portfolio strategy,
while $1.1 billion par value of ALM securities matured or were called.

Based
on current prepayment projections, the estimated ALM Securities portfolio's effective duration was 2.1 at March 31, 2010, compared to 1.9 at March 31, 2009. Effective
duration is a measure of price sensitivity of a bond portfolio to immediate parallel shifts in interest rates. An effective duration of 2.1 suggests an expected price decrease of approximately
2.1 percent for an immediate 1.0 percent parallel increase in interest rates.



During the first quarter of 2010, the ALM derivatives portfolio decreased by $4.8 billion notional amount due to terminations of
received fixed interest rate swaps and LIBOR floor contracts.

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The
fair value of the ALM derivatives portfolio decreased primarily due to the termination of LIBOR floor contracts and the impact of a decline in interest rates on cap contracts, which
benefit from the expectation of higher future interest rates. The decrease was partially offset by the termination of receive fixed interest rate swaps. For additional discussion of derivative
instruments and our hedging strategies, see Note 14 to the condensed consolidated financial statements in this Form 10-Q and Note 18 to our consolidated financial
statements included in our 2009 Form 10-K.

The
following table provides the notional value and the fair value of our ALM derivatives portfolio as of March 31, 2009, December 31, 2009 and March 31, 2010 and
the change in fair value between December 31, 2009 and March 31, 2010.

(Dollars in thousands)

March 31,
2009

December 31,
2009

March 31,
2010

Increase (Decrease)
From December 31,
2009
to March 31,
2010Total gross notional amount of positions held for purposes other than trading:

$
5,000,000

$
8,800,000

$
4,000,000

$
(4,800,000
)of which, interest rate swaps pay fixed rates of interest











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

$
130,045

$
97,186

$
29,989

$
(67,197
)Gross negative fair value





12,164





(12,164
)Positive (negative) fair value of positions, net

$
130,045

$
85,022

$
29,989

$
(55,033
)


Trading Activities

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

As
of March 31, 2010, we had $25.7 billion notional amount of interest rate derivative contracts. We enter into these agreements for customer accommodations and for our own
account, accepting risks up to management approved Value-at-Risk levels.

We
market energy derivative contracts to existing energy industry customers, primarily oil and gas producers, in order to meet their hedging needs. All transactions are fully matched to
offsetting (mirror) derivative contracts with third parties to remove our exposure to market risk, with income earned on the credit spread. As of March 31, 2010, we had $3.4 billion
notional amount of energy derivative contracts with approximately half of these energy derivative contracts entered into as an accommodation for customers and the remaining half entered into as
matching contracts to remove our exposure to market risk on our customer accommodation transactions.

74

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Table of Contents

The
following table provides the notional value and the fair value of our trading derivatives portfolio as of March 31, 2009, December 31, 2009 and March 31, 2010
and the change in fair value between December 31, 2009 and March 31, 2010.

(Dollars in thousands)

March 31,
2009

December 31,
2009

March 31,
2010

Increase (Decrease)
From December 31,
2009
to March 31,
2010Total gross notional amount of positions held for trading purposes:Interest rate

$
23,304,525

$
25,226,564

$
25,727,337

$
500,773Foreign exchange(1)


3,739,319


2,407,178


2,214,354


(192,824
)Equity


53,910


254,372


433,378


179,006Energy


3,214,646


3,405,389


3,445,900


40,511Total

$
30,312,400

$
31,293,503

$
31,820,969

$
527,466Fair value of positions held for trading purposes:Gross positive fair value

$
1,104,592

$
649,300

$
730,421

$
81,121Gross negative fair value


1,047,509


632,426


721,481


89,055Positive fair value of positions, net

$
57,083

$
16,874

$
8,940

$
(7,934
)


(1)Excludes
spot contracts with notional amounts of $0.4 billion, $0.3 billion and $0.3 billion at March 31, 2009,
December 31, 2009 and March 31, 2010, respectively.


Liquidity Risk

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

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

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

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In
March 2010, the federal bank regulators adopted (effective May 21, 2010) an Interagency Policy Statement of Funding and Liquidity Risk Management which sets forth the
regulators' supervisory expectations for all insured depository institutions for management of funding and liquidity risk. Under the guidance of this policy statement, banks are expected, among other
measures, to adopt and observe sound practices for liquidity risk management, ensure oversight through the board of directors or appropriate committees, conduct regular stress testing, monitor and
effectively manage collateral positions, ensure diversification in funding sources, to develop a formal contingency funding plan that clearly sets out the institution's strategies for addressing
liquidity shortfalls in emergency situations and to
establish a monitoring framework for contingent events by using early-warning indicators and event triggers. The Bank's Board of Directors has approved a number of measures aimed at assuring
compliance with the policy statement, including a formal ALM Policy with specific governance on liquidity risk management.

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

Total
deposits declined $1.9 billion from $68.5 billion at December 31, 2009 to $66.6 billion at March 31, 2010. The decline in deposits was partially
offset by an increase in wholesale funding of $0.8 billion from $8.9 billion at December 31, 2009 to $9.7 billion at March 31, 2010.

Core
deposits, which consist of total deposits excluding brokered deposits and time deposits of $100,000 and over, provide us with a sizable source of relatively stable and
low-cost funds. At March 31, 2010, our core deposits totaled $53.1 billion, and combined with our stockholder's equity, funded 73.5 percent of our $85.5 billion
in total assets. Most of the remaining funding was provided by wholesale borrowings from secured and unsecured sources of varying maturities, as follows:



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

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Table of Contents

Our costs and ability to raise funds in the capital markets are influenced by our credit ratings. Our credit ratings could be impacted by changes in the credit
ratings of BTMU and MUFG. The following table provides our credit ratings as of March 31, 2010.

Union Bank, N.A.

UnionBanCal
CorporationStandard & Poor's

Long-term

A+

AShort-term

A-1

A-1Moody's

Long-term

A2

Short-term

P-1

Fitch

Long-term

A

AShort-term

F1

F1DBRS

Long-term

A (high)

AShort-term

R-1 (middle)

R-1 (low)


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Table of Contents

Regulatory Capital

The following tables summarize our risk-based capital, risk-weighted assets, and risk-based capital
ratios.

UnionBanCal Corporation

(Dollars in thousands)

March 31,
2009

December 31,
2009

March 31,
2010

Minimum
Regulatory
RequirementCapital ComponentsTier 1 capital

$
5,470,880

$
7,484,516

$
7,581,313Tier 2 capital


1,781,977


1,718,807


1,720,441Total risk-based capital

$
7,252,857

$
9,203,323

$
9,301,754Risk-weighted assets

$
62,605,281

$
63,298,173

$
63,293,568Quarterly average assets

$
64,643,660

$
79,226,967

$
82,225,643




Capital Ratios

Amount

Ratio

Amount

Ratio

Amount

Ratio

Amount

RatioTotal capital (to risk-weighted assets)

$
7,252,857


11.59
%
$
9,203,323


14.54
%
$
9,301,754


14.70
%
3$
5,063,485


8.0
%Tier 1 capital (to risk-weighted assets)


5,470,880


8.74


7,484,516


11.82


7,581,313


11.98

3
2,531,743


4.0Leverage(1)


5,470,880


8.46


7,484,516


9.45


7,581,313


9.22

3
3,289,026


4.0


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


Union Bank, N.A.

(Dollars in thousands)

March 31,
2009

December 31,
2009

March 31,
2010

Minimum
Regulatory
Requirement

"Well-Capitalized"
Regulatory
RequirementCapital ComponentsTier 1 capital

$
5,345,825

$
7,207,264

$
6,868,995Tier 2 capital


1,465,276


1,478,697


1,475,627Total risk-based capital

$
6,811,101

$
8,685,961

$
8,344,622Risk-weighted assets

$
62,436,991

$
63,272,931

$
62,896,095Quarterly average assets

$
64,807,704

$
79,609,326

$
82,144,353




Capital Ratios

Amount

Ratio

Amount

Ratio

Amount

Ratio

Amount

Ratio

Amount

RatioTotal capital (to risk-weighted assets)

$
6,811,101


10.91
%
$
8,685,961


13.73
%
$
8,344,622


13.27
%
3$
5,031,688


8.0
%
3$
6,289,610


10.0
%Tier 1 capital (to risk-weighted assets)


5,345,825


8.56


7,207,264


11.39


6,868,995


10.92

3
2,515,844


4.0

3
3,773,766


6.0Leverage(1)


5,345,825


8.25


7,207,264


9.05


6,868,995


8.36

3
3,285,774


4.0

3
4,107,218


5.0


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


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

As
of March 31, 2010, management believes the capital ratios of Union Bank met all regulatory requirements of "well-capitalized" institutions, which are
10 percent for the Total risk-based capital ratio, 6 percent for the Tier 1 risk-based capital ratio and 5 percent for the Leverage ratio.

Business Segments

As a result of a corporate reorganization in the fourth quarter of 2009, we reevaluated our business segments. Under the new
organizational structure, we have three operating segments: Retail Banking Group, Corporate Banking Group and Pacific Rim Corporate Group. The Corporate Banking Group and Pacific Rim

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Table of Contents

Corporate
Group segments have been aggregated together. We have two reportable business segments: Retail Banking and Corporate Banking.

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

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

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

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

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

However,
over an economic cycle, the cumulative provision for credit losses and credit expense for expected losses should be substantially the same. Business unit results are based on an
internal management reporting system used by management to measure the performance of the units and UnionBanCal as a whole. Our management reporting system identifies balance sheet and income
statement items for each business unit based on internal management accounting policies. Net interest income is determined using our internal funds transfer pricing system, which assigns a cost of
funds to assets or a credit for funds to liabilities and capital, based on their type, maturity or repricing characteristics. During the first quarter of 2010, we refined our transfer pricing
methodology with respect to reference rates for deposits and to include additional assumptions about liquidity premiums, benefits granted for eligible loan collateral and charges for collateral
requirements on

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Table of Contents

deposits.
Noninterest income and expense directly or indirectly attributable to a business unit are assigned to that business. The business units are assigned the costs of products and services
directly attributable to their business activity through standard unit cost accounting based on volume of usage. All other corporate expenses (overhead) are allocated to the business units based on a
predetermined percentage of usage.

The
reportable business segment results for the prior periods have been adjusted to reflect changes in the transfer pricing methodology, the organizational changes that have occurred and
the market view contribution.

Retail Banking





Corporate BankingAs of and for the
Three Months Ended
March 31,

Increase/
(decrease)

As of and for the
Three Months Ended
March 31,

Increase/
(decrease)2009

2010

Amount

Percent

2009

2010

Amount

PercentResults of operationsMarket View (dollars in thousands):Net interest income (expense)

$
190,443

$
243,032

$
52,589


28
%
$
292,838

$
384,641

$
91,803


31
%Noninterest income (expense)


67,320


65,952


(1,368
)

(2
)

115,016


117,915


2,899


3Total revenue


257,763


308,984


51,221


20


407,854


502,556


94,702


23Noninterest expense (income)


203,018


214,077


11,059


5


217,855


244,558


26,703


12Credit expense (income)


7,438


6,613


(825
)

(11
)

69,084


79,899


10,815


16Income (loss) before income taxes and including noncontrolling interests


47,307


88,294


40,987


87


120,915


178,099


57,184


47Income tax expense (benefit)


18,497


34,523


16,026


87


25,693


47,116


21,423


83Net income (loss) including noncontrolling interests


28,810


53,771


24,961


87


95,222


130,983


35,761


38Less: Net loss from noncontrolling interests(2)











na











naNet income (loss) attributable to UNBC

$
28,810

$
53,771

$
24,961


87
%
$
95,222

$
130,983

$
35,761


38
%Average balancesMarket View (dollars in millions):Total loans

$
20,732

$
21,610

$
878


4

$
30,760

$
27,223

$
(3,537
)

(11
)Total assets


21,538


22,450


912


4


36,144


32,735


(3,409
)

(9
)Total deposits


18,401


20,236


1,835


10


26,924


45,598


18,674


69Financial ratiosMarket ViewRisk adjusted return on capital(1)


22
%

40
%







12
%

15
%Return on average assets(1)


0.54


0.97








1.07


1.62Efficiency ratio(3)


78.59


69.12








50.92


45.97


80

---



Table of Contents



Other





Reconciling Items

UnionBanCal CorporationAs of and for the
Three Months Ended
March 31,

Increase/
(decrease)

As of and for the
Three Months Ended
March 31,

As of and for the
Three Months Ended
March 31,

Increase/
(decrease)2009

2010

Amount

Percent

2009

2010

2009

2010

Amount

PercentResults of operationsMarket View (dollars in thousands):Net interest income (expense)

$
87,453

$
(35,551
)
$
(123,004
)

(141
)%
$
(10,731
)
$
(17,769
)
$
560,003

$
574,353

$
14,350


3
%Noninterest income (expense)


3,072


38,557


35,485


nm


(10,692
)

(12,519
)

174,716


209,905


35,189


20Total revenue


90,525


3,006


(87,519
)

(97
)

(21,423
)

(30,288
)

734,719


784,258


49,539


7Noninterest expense (income)


109,552


76,510


(33,042
)

(30
)

(9,042
)

(10,573
)

521,383


524,572


3,189


1Credit expense (income)


172,675


83,620


(89,055
)

(52
)

(197
)

(132
)

249,000


170,000


(79,000
)

(32
)Income (loss) before income taxes and including noncontrolling interests


(191,702
)

(157,124
)

34,578


18


(12,184
)

(19,583
)

(35,664
)

89,686


125,350


nmIncome tax expense (benefit)


(65,282
)

(58,581
)

6,701


10


(4,764
)

(7,657
)

(25,856
)

15,401


41,257


nmNet income (loss) including noncontrolling interests


(126,420
)

(98,543
)

27,877


22


(7,420
)

(11,926
)

(9,808
)

74,285


84,093


nmLess: Net loss from noncontrolling interests(2)





(3,059
)

(3,059
)

nm











(3,059
)

(3,059
)

nmNet income (loss) attributable to UNBC

$
(126,420
)
$
(95,484
)
$
30,936


24
%
$
(7,420
)
$
(11,926
)
$
(9,808
)
$
77,344

$
87,152


nmAverage balancesMarket View (dollars in millions):Total loans

$
(318
)
$
(109
)
$
209


66

$
(1,385
)
$
(1,876
)
$
49,789

$
46,848

$
(2,941
)

(6
)Total assets


10,799


31,519


20,720


nm


(1,409
)

(1,894
)

67,072


84,810


17,738


26Total deposits


2,431


3,539


1,108


46


(1,123
)

(1,535
)

46,633


67,838


21,205


45Financial ratiosMarket ViewRisk adjusted return on capital(1)


na


na








na


na


na


naReturn on average assets(1)


na


na








na


na


(0.06
)%

0.37
%Efficiency ratio(3)


na


na








na


na


65.69


64.98


(1)Annualized.(2)Reflects
net loss attributed to noncontrolling interest related to our consolidated variable interest entities (VIE).(3)The
efficiency ratio is noninterest expense, excluding foreclosed asset expense (income), the provision for losses on off-balance
sheet commitments, low income housing investment credit (LIHC) amortization expense, and expenses of the consolidated VIE's, as a percentage of net interest income and noninterest income. na = not applicable nm = not meaningful




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

During
the first quarter of 2010, net income of Retail Banking increased compared to the same period in 2009, resulting from a 28 percent increase in net interest income,
partially offset by a 2 percent decrease in noninterest income and a 5 percent increase in noninterest expense. The increase in net interest income was primarily due to increased margin
combined with the growth in loans and interest bearing deposits.

Average
asset growth for the three months ended March 31, 2010 compared to the same period in 2009 was primarily driven by a 4 percent growth in average loans, mainly in
residential mortgages.

Average
deposits increased 10 percent during the three months ended March 31, 2010 compared to the same period in 2009. This increase was primarily due to the Retail
Banking's strategy, which continues to focus on attracting consumer and small business deposits through marketing activities, increasing customer cross-sell, relationship management,
increasing and improving sales resources, establishing new locations and products. We expect that a larger branch network, along with this Retail Banking strategy, will improve growth prospects when
combined with more robust efforts in the telephone and internet channels.

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Noninterest
income decreased during the three months ended March 31, 2010 compared to the same period in 2009 by 2 percent mainly as a result of lower service charges on
deposits resulting from changes in customer overdraft behavior. Noninterest expense increased by 5 percent during the three months ended March 31, 2010 compared to the same period in
2009. This increase was primarily due to higher FDIC deposit insurance assessment rates, direct expenses, and increased staff costs.

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



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



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

Our
Retail Banking Branches and Consumer Asset Management Divisions compete with larger banks by attempting to provide service quality superior to that of our major competitors. The
primary means of competing with community banks include our branch network and our technology to deliver banking services. We also offer convenient banking hours to consumers through our drive-through
banking locations and selected branches that are open seven days a week.

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



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

The
main strategy of our Corporate Banking business units is to target industries and companies for which we can reasonably expect to be one of a customer's primary banks. Consistent
with this strategy, Corporate

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Table of Contents

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

During
the first quarter of 2010, net income of Corporate Banking increased 38 percent, compared to the same period of 2009, resulting from a 31 percent increase in net
interest income and 3 percent increase in noninterest income, partially offset by a 12 percent increase in noninterest expense and higher credit expense. The increase in net interest
income was mainly due to higher deposits.

During
the first quarter of 2010, average loans decreased 11 percent compared to the same period of 2009 and includes decreases in our commercial and industrial loan portfolio,
our real estate construction
portfolio, and our commercial real estate portfolio, mainly related to Energy Capital Services and Real Estate Industries groups.

During
the first quarter of 2010, average deposits increased 69 percent compared to the same period of 2009. Money market deposits experienced significant growth as a result of
long-term corporate deposit-gathering strategies, a "flight to quality" and entry into new business niches. These new niches provided funding from large institutional accounts, including
brokerage firms. These relationships reflect execution of a business strategy to obtain deposits from brokerage and institutional clients. In addition, state and local government and Corporate Banking
deposits experienced significant growth.

Noninterest
income increased 3 percent during the first quarter of 2010, compared to the same period of 2009, primarily due to higher amortized fees on standby letters of credit,
and gain on sale on leases, partially offset by lower trading income. Noninterest expense increased 12 percent during the first quarter of 2010 compared to the same period of 2009 primarily due
to higher FDIC deposit insurance assessment rates and increased staff costs.

Corporate
Banking initiatives continue to include expanding commercial and loan relationship strategies that include originating, underwriting and syndicating loans in core competency
markets, such as the California middle market, corporate banking, commercial real estate, institutional trusts, energy, equipment leasing and commercial finance. Corporate Deposits and Global Treasury
Management Division provides a full range of depository and treasury management products and solutions.

Corporate Bankingis comprised of the following main divisions:



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Our net loss decreased by $30.9 million in the three months ended March 31, 2010, compared to the same period in 2009,
primarily due to higher noninterest income, lower noninterest expense and loan loss provision; partially offset by lower net interest income.

"Other"
includes the following items:



The
financial results for the three months ended March 31, 2010 were impacted by the following factors:



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The
financial results for the three months ended March 31, 2009 were impacted by the following factors:



Item 3.   Quantitative and Qualitative Disclosures About Market Risk

A discussion of our market risk exposure is incorporated by reference to Part I, Item 2 of this
Form 10-Q under the caption "Quantitative and Qualitative Disclosures About Market Risk" and to Part II, Item 1A of this Form 10-Q under the caption
"Risk Factors."

Item 4.   Controls and Procedures

Our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer)
have concluded that the design and operation of our disclosure controls and procedures are effective as of March 31, 2010. This conclusion is based on an evaluation conducted under the
supervision and with the participation of management. Disclosure controls and procedures are those controls and procedures which ensure that information required to be disclosed in this filing is
accumulated and communicated to management and is recorded, processed, summarized and reported in a timely manner and in accordance with Securities and Exchange Commission rules and regulations.

During
the quarter ended March 31, 2010, there were no changes in our internal controls over financial reporting that materially affected, or are reasonably likely to materially
affect, our internal controls over financial reporting.

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PART II. OTHER INFORMATION

Item 1.   Legal Proceedings

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

Item 1A.   Risk Factors

For a discussion of risk factors relating to our business, please refer to Item 1A of Part I of our 2009
Form 10-K, which is incorporated by reference herein.

Item 6.   Exhibits

No.

Description3.2

Bylaws of the Registrant(1)31.1

Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(2)31.2

Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(2)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(2)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(2)


(1)Incorporated
by reference to the exhibit of the same number to the UnionBanCal Corporation Current Report on Form 8-K
dated January 27, 2010 (SEC File No. 001-15081).(2)Filed
herewith.


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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

UNIONBANCAL CORPORATION (Registrant)Date:    May 13, 2010

By:

/s/ MASAAKI TANAKA Masaaki Tanaka President and Chief Executive Officer
(Principal Executive Officer)Date:    May 13, 2010

By:

/s/ JOHN F. WOODS John F. Woods Vice Chairman and Chief Financial Officer
(Principal Financial Officer)Date:    May 13, 2010

By:

/s/ DAVID A. ANDERSON David A. Anderson Executive Vice President and Controller
(Chief Accounting Officer)


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EXHIBIT INDEX

No.

Description3.2

Bylaws of the Registrant(1)31.1

Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(2)31.2

Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(2)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(2)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(2)


(1)Incorporated
by reference to the exhibit of the same number to the UnionBanCal Corporation Current Report on Form 8-K
dated January 27, 2010 (SEC File No. 001-15081).(2)Filed
herewith.


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