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 September 30, 2008ORo

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 and zip code of principal executive offices)

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 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 þ

Accelerated filer oNon-accelerated filer o(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 October 31, 2008: 140,121,487



---





UnionBanCal Corporation and Subsidiaries        TABLE OF CONTENTS

Page
NumberPART IFinancial InformationCondensed Consolidated Financial Highlights

6ITEM 1. FINANCIAL STATEMENTS:Condensed Consolidated Statements of Income

8Condensed Consolidated Balance Sheets

9Condensed Consolidated Statements of Changes in Stockholders' Equity

10Condensed Consolidated Statements of Cash Flows

11Notes to Condensed Consolidated Financial Statements:Note 1Basis of Presentation and Nature of Operations

12Note 2Recently Issued Accounting Pronouncements

12Note 3Discontinued Operations

15Note 4Loans and Allowance for Loan Losses

19Note 5Goodwill and Intangible Assets

20Note 6Employee Pension and Other Postretirement Benefits

22Note 7Borrowed Funds

23Note 8Medium- and Long-Term Debt

23Note 9Management Stock Plans

24Note 10Fair Value of Financial Instruments

28Note 11Derivative Instruments and Other Financial Instruments Used For Hedging

32Note 12Earnings Per Share (EPS)

35Note 13Accumulated Other Comprehensive Income (Loss)

36Note 14Commitments, Contingencies and Guarantees

37Note 15Business Segments

40Note 16Subsequent Event

43ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS:Introduction

45Executive Overview

45Discontinued Operations

47Critical Accounting Policies

49Financial Performance

51Net Interest Income

54Noninterest Income and Noninterest Expense

57Income Tax Expense

58Loans

59Cross-Border Outstandings

61Provision for Credit Losses

62Allowances for Credit Losses

62Nonperforming Assets

65Loans 90 Days or More Past Due and Still Accruing

67Quantitative and Qualitative Disclosures About Market Risk

67Liquidity Risk

70Regulatory Capital

72Business Segments

73Regulatory Matters

80


2

---



Page
NumberITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

81ITEM 4. CONTROLS AND PROCEDURES

81PART IIOther InformationITEM 1. LEGAL PROCEEDINGS

82ITEM 1A. RISK FACTORS

83ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

89ITEM 6. EXHIBITS

90SIGNATURES

91


3

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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 II, Item 1A. "Risk Factors," and the other risks described in this report for factors to be considered when reading any forward-looking statements in this
filing.

This
document includes forward-looking statements, which are subject to the "safe harbor" created by section 27A of the Securities Act of 1933, as amended, and section 21E
of the Securities Exchange Act of 1934, as amended. We may make forward-looking statements in our Securities and Exchange Commission (SEC) filings, press releases, news articles, conference calls with
analysts and stockholders 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:



4

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There
are numerous risks and uncertainties that could and will cause actual results to differ materially compared to 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 stock price, 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 in this report. 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, except per share data)

September 30,
2007

September 30,
2008

Percent
ChangeResults of operations:Net interest income(1)

$
428,952

$
522,296


21.76
%Provision for loan losses


16,000


117,000


nmNoninterest income


208,187


198,721


(4.55
)Noninterest expense


380,847


443,812


16.53Income before income taxes(1)


240,292


160,205


(33.33
)Taxable-equivalent adjustment


2,389


2,550


6.74Income tax expense


87,664


47,549


(45.76
)Income from continuing operations


150,239


110,106


(26.71
)Loss from discontinued operations, net of taxes


(22,780
)

(5,276
)

76.84Net income

$
127,459

$
104,830


(17.75
)Per common share:Basic earnings:From continuing operations

$
1.09

$
0.80


(26.61
)%Net income


0.93


0.76


(18.28
)Diluted earnings:From continuing operations


1.08


0.79


(26.85
)Net income


0.92


0.75


(18.48
)Dividends(2)


0.52


0.52


Book value (end of period)


33.71


33.50


(0.62
)Common shares outstanding (end of period)(3)(4)


138,523,666


140,069,898


1.12Weighted average common shares outstandingbasic(3)(4)


137,667,976


138,197,446


0.38Weighted average common shares outstandingdiluted(3)(4)


139,067,952


139,969,419


0.65Balance sheet (end of period):Total assets(5)

$
54,343,045

$
62,599,753


15.19
%Total loans


39,745,341


48,306,118


21.54Nonperforming assets


52,562


304,246


nmTotal deposits


42,242,889


42,355,853


0.27Medium- and long-term debt


1,871,726


3,827,164


nmStockholders' equity


4,669,454


4,692,648


0.50Balance sheet (period average):Total assets

$
53,367,191

$
61,145,251


14.57
%Total loans


39,484,785


47,196,204


19.53Earning assets


48,901,494


56,920,548


16.40Total deposits


41,962,726


41,661,224


(0.72
)Stockholders' equity


4,664,229


4,588,441


(1.62
)Financial ratios(6):Return on average assets(7):From continuing operations


1.12
%

0.72
%Net income


0.95


0.68Return on average stockholders' equity(7):From continuing operations


12.78


9.55Net income


10.84


9.09Efficiency ratio(8)


59.14


60.37Net interest margin(1)


3.51


3.67Dividend payout ratio


47.71


65.00Tangible equity ratio


7.79


6.96Tier 1 risk-based capital ratio(5)


8.40


8.02Total risk-based capital ratio(5)


11.28


10.94Leverage ratio(5)


8.39


7.97Allowance for loan losses to:(9)Total loans


0.88


1.20Nonaccrual loans


683.96


200.94Allowance for credit losses to:(10)Total loans


1.10


1.43Nonaccrual loans


852.52


239.50Net loans charged off to average total loans(7)


0.02


0.53Nonperforming assets to total loans and foreclosed assets


0.13


0.63Nonperforming assets to total assets(5)


0.10


0.49


---

nm=
not meaningful

6

---





UnionBanCal Corporation and Subsidiaries
Condensed Consolidated Financial Highlights (Continued)
(Unaudited)

As of and for the
Nine Months Ended(Dollars in thousands, except per share data)

September 30,
2007

September 30,
2008

Percent
ChangeResults of operations:Net interest income(1)

$
1,290,535

$
1,498,287


16.10
%Provision for loan losses


25,000


284,000


nmNoninterest income


600,590


593,743


(1.14
)Noninterest expense


1,156,517


1,266,330


9.50Income before income taxes(1)


709,608


541,700


(23.66
)Taxable-equivalent adjustment


6,755


7,405


9.62Income tax expense


238,727


167,493


(29.84
)Income from continuing operations


464,126


366,802


(20.97
)Loss from discontinued operations, net of taxes


(21,702
)

(12,037
)

44.54Net income

$
442,424

$
354,765


(19.81
)Per common share:Basic earnings:From continuing operations

$
3.37

$
2.67


(20.77
)%Net income


3.21


2.58


(19.63
)Diluted earnings:From continuing operations


3.33


2.65


(20.42
)Net income


3.18


2.56


(19.50
)Dividends(2)


1.51


1.56


3.31Book value (end of period)


33.71


33.50


(0.62
)Common shares outstanding (end of period)(3)(4)


138,523,666


140,069,898


1.12Weighted average common shares outstandingbasic(3)(4)


137,694,682


137,473,242


(0.16
)Weighted average common shares outstandingdiluted(3)(4)


139,291,920


138,584,608


(0.51
)Balance sheet (end of period):Total assets(5)

$
54,343,045

$
62,599,753


15.19
%Total loans


39,745,341


48,306,118


21.54Nonperforming assets


52,562


304,246


nmTotal deposits


42,242,889


42,355,853


0.27Medium- and long-term debt


1,871,726


3,827,164


nmStockholders' equity


4,669,454


4,692,648


0.50Balance sheet (period average):Total assets

$
53,065,919

$
59,023,615


11.23
%Total loans


38,931,283


45,138,144


15.94Earning assets


48,568,556


54,689,402


12.60Total deposits


41,966,403


42,821,802


2.04Stockholders' equity


4,588,063


4,640,908


1.15Financial ratios(6):Return on average assets(7):From continuing operations


1.17
%

0.83
%Net income


1.11


0.80Return on average stockholders' equity(7):From continuing operations


13.52


10.56Net income


12.89


10.21Efficiency ratio(8)


60.89


59.49Net interest margin(1)


3.54


3.65Dividend payout ratio


44.81


58.43Tangible equity ratio


7.79


6.96Tier 1 risk-based capital ratio(5)


8.40


8.02Total risk-based capital ratio(5)


11.28


10.94Leverage ratio(5)


8.39


7.97Allowance for loan losses to:(9)Total loans


0.88


1.20Nonaccrual loans


683.96


200.94Allowance for credit losses to:(10)Total loans


1.10


1.43Nonaccrual loans


852.52


239.50Net loans charged off to average total loans(7)


0.02


0.31Nonperforming assets to total loans and foreclosed assets


0.13


0.63Nonperforming assets to total assets(5)


0.10


0.49


---

nm =
not meaningful

7

---





Item 1.   Financial Statements

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

For the Three Months
Ended September 30,

For the Nine Months
Ended September 30,(Amounts in thousands, except per share data)

2007

2008

2007

2008Interest IncomeLoans

$
638,779

$
636,870

$
1,857,269

$
1,884,112Securities


112,667


100,265


330,074


303,843Interest bearing deposits in banks


709


147


3,113


503Federal funds sold and securities purchased under resale agreements


4,683


1,787


23,644


5,573Trading account assets


1,657


1,200


4,661


4,701Total interest income


758,495


740,269


2,218,761


2,198,732Interest ExpenseDeposits


259,406


135,736


727,632


500,905Federal funds purchased and securities sold under repurchase agreements


14,259


15,630


38,290


44,402Commercial paper


19,753


8,056


59,446


26,127Medium and long-term debt


26,957


25,989


75,625


65,138Trust notes


239


239


715


715Other borrowed funds


11,318


34,873


33,273


70,563Total interest expense


331,932


220,523


934,981


707,850Net Interest Income


426,563


519,746


1,283,780


1,490,882Provision for loan losses


16,000


117,000


25,000


284,000Net interest income after provision for loan losses


410,563


402,746


1,258,780


1,206,882Noninterest IncomeService charges on deposit accounts


76,210


77,079


228,373


229,521Trust and investment management fees


39,546


40,638


116,062


127,828Trading account activities


21,795


12,397


50,473


40,096Merchant banking fees


10,031


12,789


27,917


35,667Brokerage commissions and fees


10,476


9,520


29,669


30,014Card processing fees, net


7,785


8,129


22,736


24,060Securities gains, net


171


50


1,621


48Other


42,173


38,119


123,739


106,509Total noninterest income


208,187


198,721


600,590


593,743Noninterest ExpenseSalaries and employee benefits


216,812


238,129


686,175


723,098Net occupancy


37,534


38,574


104,919


113,008Outside services


19,868


20,777


54,987


58,081Professional services


17,669


21,397


45,163


51,925Equipment


15,426


14,437


47,240


44,925Software


14,278


14,812


41,551


44,016Communications


9,421


9,204


26,834


27,690Foreclosed asset expense


37


524


55


696Provision for losses on off-balance sheet commitments


4,000


8,000


5,000


21,000Other


45,802


77,958


144,593


181,891Total noninterest expense


380,847


443,812


1,156,517


1,266,330Income from continuing operations before income taxes


237,903


157,655


702,853


534,295Income tax expense


87,664


47,549


238,727


167,493Income from Continuing Operations


150,239


110,106


464,126


366,802Loss from discontinued operations before income taxes


(23,443
)

(8,175
)

(21,561
)

(22,692
)Income tax expense (benefit)


(663
)

(2,899
)

141


(10,655
)Loss from Discontinued Operations


(22,780
)

(5,276
)

(21,702
)

(12,037
)Net Income

$
127,459

$
104,830

$
442,424

$
354,765Income from continuing operations per common sharebasic

$
1.09

$
0.80

$
3.37

$
2.67Net Income per common sharebasic

$
0.93

$
0.76

$
3.21

$
2.58Income from continuing operations per common sharediluted

$
1.08

$
0.79

$
3.33

$
2.65Net Income per common sharediluted

$
0.92

$
0.75

$
3.18

$
2.56Weighted average common shares outstandingbasic


137,668


138,197


137,695


137,473Weighted average common shares outstandingdiluted


139,068


139,969


139,292


138,585


See accompanying notes to condensed consolidated financial statements.

8

---





UnionBanCal Corporation and Subsidiaries  Condensed Consolidated Balance Sheet

(Dollars in thousands)

(Unaudited)
September 30,
2007

December 31, 2007

(Unaudited)
September 30,
2008AssetsCash and due from banks

$
1,715,742

$
2,106,927

$
1,959,484Interest bearing deposits in banks


151,000


104,528


16,029Federal funds sold and securities purchased under resale agreements


381,604


310,178


488,014Total cash and cash equivalents


2,248,346


2,521,633


2,463,527Trading account assets:Pledged as collateral








18,124Held in portfolio


507,961


603,333


711,293Securities available for sale:Pledged as collateral


77,732


685,123


1,404,463Held in portfolio


8,427,764


7,770,037


6,890,891Loans (net of allowance for loan losses: September 30, 2007, $350,491; December 31, 2007, $402,726; September 30, 2008, $580,474)


39,394,850


40,801,462


47,725,644Due from customers on acceptances


18,648


16,482


21,562Premises and equipment, net


477,697


486,034


474,519Intangible assets


7,583


6,458


4,447Goodwill


360,058


355,287


355,287Other assets


2,698,377


2,358,915


2,524,839Assets of discontinued operations to be disposed or sold


124,029


122,984


5,157Total assets

$
54,343,045

$
55,727,748

$
62,599,753LiabilitiesNoninterest bearing

$
13,675,884

$
13,802,640

$
13,694,272Interest bearing


28,567,005


28,877,551


28,661,581Total deposits


42,242,889


42,680,191


42,355,853Federal funds purchased and securities sold under repurchase agreements


1,823,872


1,631,602


1,760,442Commercial paper


1,706,135


1,266,656


1,659,935Other borrowed funds


298,548


1,875,619


6,718,935Trading account liabilities


251,051


351,057


506,890Acceptances outstanding


18,648


16,482


21,562Other liabilities


1,322,416


1,108,585


1,020,085Medium- and long-term debt


1,871,726


1,913,622


3,827,164Junior subordinated debt payable to subsidiary grantor trust


14,546


14,432


14,093Liabilities of discontinued operations to be extinguished or assumed


123,760


131,521


22,146Total liabilities


49,673,591


50,989,767


57,907,105Commitments, contingencies and guaranteesSee Note 14Stockholders' EquityPreferred stock:Authorized 5,000,000 shares; no shares issued or outstanding as of September 30, 2007, December 31, 2007 and September 30, 2008








Common stock, par value $1 per share:Authorized 300,000,000 shares; issued 157,272,167 shares as of September 30, 2007, 157,559,521 shares as of December 31, 2007 and 159,834,897
shares as of September 30, 2008


157,272


157,559


159,835Additional paid-in capital


1,144,971


1,153,737


1,299,045Treasury stock18,748,501 shares as of September 30, 2007, 19,723,453 shares as of December 31, 2007 and 19,764,999 shares as of
September 30, 2008


(1,152,157
)

(1,202,584
)

(1,204,759
)Retained earnings


4,818,477


4,912,392


5,050,682Accumulated other comprehensive loss


(299,109
)

(283,123
)

(612,155
)Total stockholders' equity


4,669,454


4,737,981


4,692,648Total liabilities and stockholders' equity

$
54,343,045

$
55,727,748

$
62,599,753


See accompanying notes to condensed consolidated financial statements.

9

---





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

(In thousands, except shares)

Number of
shares

Common
stock

Additional
paid-in
capital

Treasury
stock

Retained
earnings

Accumulated
other
comprehensive
income (loss)

Total stock-
holders'
equityBALANCE DECEMBER 31, 2006


156,460,057

$
156,460

$
1,083,649

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

$
(259,374
)
$
4,571,401Comprehensive incomeNet incomeFor the nine monthsended September 30, 2007














442,424





442,424Other comprehensive income (loss), net of tax:Net change in unrealized gains oncash flow hedges

















24,289


24,289Net change in unrealized losses onsecurities available for sale

















(74,805
)

(74,805
)Foreign currency translation adjustment

















602


602Net change in pension and other benefits

















10,179


10,179Total comprehensive income




















402,689FIN No. 48 adjustment(1)














(49,300
)




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














(20,803
)




(20,803
)Stock options exercised


785,072


785


31,936











32,721Restricted stock granted, net of forfeitures


20,062


20


(20
)










Restricted stock and performance share units vested


6,976


7


(7
)










Excess tax benefitstock-based compensation








4,920











4,920Compensation expensestock options








10,366











10,366Compensation expenserestricted stock








10,671











10,671Compensation expenserestricted stock units, performance share units and other share-based compensation








3,456











3,456Common stock repurchased(3)











(87,551
)







(87,551
)Dividends declared on common stock,$1.51 per share(4)














(209,116
)




(209,116
)Net change





812


61,322


(87,551
)

163,205


(39,735
)

98,053BALANCE SEPTEMBER 30, 2007


157,272,167

$
157,272

$
1,144,971

$
(1,152,157
)
$
4,818,477

$
(299,109
)
$
4,669,454BALANCE DECEMBER 31, 2007


157,559,521

$
157,559

$
1,153,737

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

$
(283,123
)
$
4,737,981Comprehensive incomeNet incomeFor the nine monthsended September 30, 2008














354,765





354,765Other comprehensive income (loss), net of tax:Net change in unrealized gains on cash flow hedges

















11,417


11,417Net change in unrealized losses on securities available for sale

















(346,866
)

(346,866
)Foreign currency translation adjustment

















(625
)

(625
)Net change in pension and other benefits

















7,042


7,042Total comprehensive income




















25,733EITF 06-4 adjustment(5)














(236
)




(236
)EITF 06-11 adjustment(6)








162











162Stock options exercised


2,255,373


2,256


104,941











107,197Restricted stock granted, net of forfeitures


20,003


20


(20
)










Excess tax benefitstock-based compensation








11,910











11,910Compensation expensestock options








9,848











9,848Compensation expenserestricted stock








12,731











12,731Compensation expenserestricted stock units, performance share units and other share-based compensation








5,736











5,736Common stock repurchased(3)











(2,175
)







(2,175
)Dividends declared on common stock, $1.56 per share(4)














(216,239
)




(216,239
)Net change





2,276


145,308


(2,175
)

138,290


(329,032
)

(45,333
)BALANCE SEPTEMBER 30, 2008


159,834,897

$
159,835

$
1,299,045

$
(1,204,759
)
$
5,050,682

$
(612,155
)
$
4,692,648


---

See accompanying notes to condensed consolidated financial statements.

10

---





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

For the Nine Months
Ended September 30,(Dollars in thousands)

2007

2008Cash Flows from Operating Activities:Net income

$
442,424

$
354,765Loss from discontinued operations, net of taxes


(21,702
)

(12,037
)Income from continuing operations, net of taxes


464,126


366,802Adjustments to reconcile net income to net cash provided by (used in) operating activities:Provision for loan losses


25,000


284,000Provision for losses on off-balance sheet commitments


5,000


21,000Depreciation, amortization and accretion


84,514


85,125Stock-based compensationstock options and other share-based compensation


24,493


28,315Provision for deferred income taxes


23,359


74,771Gains on sales of securities available for sale, net


(1,621
)

(48
)Net decrease in accrued expenses


(34,575
)

(427,084
)Net increase in trading account assets


(131,640
)

(126,084
)Net (decrease) increase in trading account liabilities


(7,085
)

155,833Net increase in prepaid expenses


(50,879
)

(12,824
)Net increase in fees and other receivables


(166,843
)

(63,740
)Net increase in other liabilities


184,028


461,277Net increase in other assets


(428,388
)

(59,916
)Loans originated for resale


(615,139
)

(430,650
)Net proceeds from sale of loans originated for resale


383,716


392,551Excess tax benefitstock-based compensation


(4,920
)

(11,910
)Other, net


54,602


4,725Discontinued operations, net


(7,333
)

80,143Total adjustments


(663,711
)

455,484Net cash provided by (used in) operating activities


(199,585
)

822,286Cash Flows from Investing Activities:Proceeds from sales of securities available for sale


332,450


11,388Proceeds from matured and called securities available for sale


1,455,545


1,185,604Purchases of securities available for sale


(1,656,178
)

(1,592,482
)Purchases of premises and equipment, net


(64,749
)

(53,924
)Net increase in loans


(2,927,817
)

(7,185,181
)Other, net





(5,054
)Discontinued operations, net


917


3,732Net cash used in investing activities


(2,859,832
)

(7,635,917
)Cash Flows from Financing Activities:Net increase (decrease) in deposits


392,207


(324,338
)Net increase in federal funds purchased and securities sold under repurchase agreements


739,945


128,840Net (decrease) increase in commercial paper and other borrowed funds


(85,041
)

5,236,595Proceeds from issuance of medium- and long-term debt


749,250


1,901,000Repayment of medium-term debt


(200,000
)

Common stock repurchased


(87,551
)

(2,175
)Payments of cash dividends


(202,962
)

(215,246
)Stock options exercised


37,641


119,107Other, net


1,352


(625
)Discontinued operations, net


(19,143
)

(87,460
)Net cash provided by financing activities


1,325,698


6,755,698Net decrease in cash and cash equivalents


(1,733,719
)

(57,933
)Cash and cash equivalents at beginning of period


3,981,435


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


630


(173
)Cash and cash equivalents at end of period

$
2,248,346

$
2,463,527Cash Paid During the Period For:Interest

$
978,118

$
703,335Income taxes, net


223,798


235,156Supplemental Schedule of Noncash Investing and Financing Activities:Loans transferred to foreclosed assets (OREO)

$
1,571

$
17,750


See
accompanying notes to condensed consolidated financial statements.

11

---





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 September 30, 2008 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, 2007 (2007 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 commercial bank holding company whose major subsidiary, Union Bank of California, 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, and Washington,
as well as nationally and internationally.

The
Bank of Tokyo-Mitsubishi UFJ, Ltd. (BTMU), which is a wholly-owned subsidiary of Mitsubishi UFJ Financial Group, Inc., owned approximately 64 percent of the
Company's outstanding common stock at September 30, 2008. For information on BTMU's acquisition of additional shares of the Company's outstanding common stock, see Note 16 to these
condensed consolidated financial statements.

Note 2Recently Issued Accounting Pronouncements



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

12

---



UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 2Recently Issued Accounting Pronouncements (Continued)

Company's
financial position or results of operations. For detailed information on the Company's fair value measurements, see Note 10 to these condensed consolidated financial statements.



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



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



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



In December 2007, the FASB issued SFAS No. 141(R), "Business Combinations," which replaces SFAS No. 141. The Statement
requires that all business combinations be accounted for under the "acquisition method." The Statement requires that the assets, liabilities and noncontrolling interests of a business combination be
measured at fair value at the acquisition date. The acquisition date is defined as the date an acquirer obtains control of the entity, which is typically the closing date. The Statement requires that
all acquisition and restructuring related costs be expensed as incurred and that any contingent consideration be measured at fair value and recorded as either equity or a liability with the liability
remeasured at fair value in subsequent periods. The Statement is effective January 1, 2009. Management is currently evaluating the

13

---



UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 2Recently Issued Accounting Pronouncements (Continued)

impact
this Statement may have on the Company's financial position and results of operations related to future acquisitions.



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



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



In May 2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted Accounting Principles." The Statement identifies
the sources of accounting principles and establishes a hierarchy for selecting those principles to prepare financial statements in accordance with US GAAP. The Statement is effective
60 days following the SEC's approval of the Public Company Accounting Oversight Board (PCAOB) amendments to AU Section 411, "The Meaning of Present Fairly in Conformity with Generally
Accepted Accounting Principles." Management believes that the adoption of this Statement will not have an impact on the Company's financial position or results of operations.



In June 2008, the FASB issued FSP EITF 03-6-1, "Determining Whether Instruments Granted in Share-Based
Payment Transactions are Participating Securities." The FSP requires that unvested share-based payment awards that contain nonforfeitable rights to dividends be treated as participating securities and
included in the computation of earnings per share (EPS). Under the FSP, the Company's unvested restricted stock shares are considered participating securities and will be included in the computation
of EPS upon adoption of the FSP. The FSP is effective January 1, 2009 and retrospective application is required. Management believes that the adoption of this FSP will not have an impact on the
Company's financial position or results of operations.

14

---



UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 2Recently Issued Accounting Pronouncements (Continued)



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



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

Note 3Discontinued Operations

The Company's discontinued operations consist of three separate businesses: international correspondent banking, retirement recordkeeping services and insurance brokerage services. In
2005, the Bank sold its international correspondent banking business (ICBB) to Wachovia Bank, N.A. for $245.0 million, and a subsequent $4.0 million purchase price adjustment in 2006.
This business consisted of international payment and trade processing along with related lending activities. As of March 31, 2007, substantially all of the assets and liabilities related to
this discontinued operation were liquidated.

Although
ICBB's operations had substantially ended in 2006, the Bank was responsible for past violations of the Bank Secrecy Act and other anti-money laundering laws and
regulations (BSA/AML) associated with ICBB. As a result of the past violations, the Bank entered into a Deferred Prosecution Agreement (DPA) with the United States Department of Justice (DOJ) in the
third quarter of 2007. For additional information, refer to Note 14 to these condensed consolidated financial statements.

In
the fourth quarter of 2007, the Company sold its retirement recordkeeping business (RRB) to Prudential Retirement, a subsidiary of Prudential Financial, Inc., for
$103.0 million. The Company recorded a pre-tax gain of $94.7 million, net of $2.1 million in transaction costs and a $6.2 million elimination of intangible
assets, consisting of goodwill of $4.8 million and other intangibles of $1.4 million attributed to this business. The RRB was previously included in the Retail Banking reportable
business segment.

In
June 2008, the Company sold its insurance brokerage business (IBB) subsidiary, UnionBanc Insurance Services, Inc., to a wholly-owned subsidiary of BB&T Corporation. The Company
recorded a pre-tax gain of $9.8 million, net of $1.6 million in transaction costs, and an elimination of intangible assets consisting of

15

---



UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 3Discontinued Operations (Continued)

goodwill
of $74.7 million and other intangibles of $11.0 million. The IBB was previously included in the Wholesale Banking reportable business segment.

These
transactions have been accounted for as discontinued operations. All prior period financial statements have been restated to reflect this accounting treatment. The assets and
liabilities of the discontinued operations have been separately identified on the condensed consolidated balance sheet and the assets are shown as "held for sale" at the lower of cost or fair value
less costs to dispose. The average net assets or liabilities of our discontinued operations are reflected in our analysis of net interest margin. Interest expense (income) was attributed to
discontinued operations based on average net assets (liabilities).



The components of expense from the ICBB discontinued operations for the three and nine months ended September 30, 2007 and 2008
are:

For the Three Months
Ended September 30,

For the Nine Months
Ended September 30,(Dollars in thousands)

2007

2008

2007

2008Noninterest expense

$
23,297

$


$
23,297

$
Loss from discontinued operations before income taxes


(23,297
)




(23,297
)

Income tax benefit


(661
)




(661
)

Loss from discontinued operations

$
(22,636
)
$


$
(22,636
)
$



Noninterest
expense for the three and nine months ended September 30, 2007 included the $21.6 million paid to the DOJ and related legal and other outside services costs of
$1.7 million. The income tax benefit of $0.7 million for the three and nine months ended September 30, 2007 reflects the nondeductibility of the $21.6 million DOJ payment.

16

---



UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 3Discontinued Operations (Continued)



At September 30 and December 31, 2007 and September 30, 2008, the assets and liabilities identified as the RRB
discontinued operations consisted of the following:

(Dollars in thousands)

September 30,
2007

December 31,
2007

September 30,
2008AssetsPremises and equipment

$
1,370

$
1,086

$
Intangible assets


1,731





Other assets


6,008


6,518


5,157Assets of discontinued operations to be disposed or sold

$
9,109

$
7,604

$
5,157LiabilitiesNoninterest bearing deposits

$
3

$


$
Interest bearing deposits


103,199


98,516


11,060Other liabilities


268


9,483


9,269Liabilities of discontinued operations to be extinguished or assumed

$
103,470

$
107,999

$
20,329


The
$9.0 million increase in other liabilities from September 30, 2007 to September 30, 2008 was mainly due to severance accruals recorded in December 2007.

The
components of income from the RRB discontinued operations for the three and nine months ended September 30, 2007 and 2008 are:

For the Three Months
Ended September 30,

For the Nine Months
Ended September 30,(Dollars in thousands)

2007

2008

2007

2008Net interest income

$
1,103

$
226

$
3,700

$
1,540Noninterest income


11,717


891


35,346


18,419Noninterest expense


10,433


9,037


32,654


31,217Income (loss) from discontinued operations before income taxes


2,387


(7,920
)

6,392


(11,258
)Income tax expense (benefit)


970


(2,809
)

2,511


(3,973
)Income (loss) from discontinued operations

$
1,417

$
(5,111
)
$
3,881

$
(7,285
)


The
RRB's net interest income for the three months ended September 30, 2007 and 2008 included the allocation of interest income (based on its average net liabilities) of
$1.2 million and $0.3 million, respectively, and $4.0 million and $1.8 million for the nine months ended September 30, 2007 and 2008, respectively. Noninterest
income for the three months ended September 30, 2007 and 2008 included trust fees of $11.7 million and $0.9 million, respectively, and $35.3 million and $7.3 million
for the nine months ended September 30, 2007 and 2008, respectively. Noninterest income for the nine months ended September 30, 2008 also included $11.8 million in servicing
revenues from Prudential. The majority of these servicing revenues were earned in the first half of 2008, as the migration of customers onto Prudential's accounting

17

---



UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 3Discontinued Operations (Continued)

systems
was completed in June 2008. For the three months ended September 30, 2007 and 2008, noninterest expense included salaries and benefits expense of $6.2 million and
$4.7 million, respectively, and $19.3 million and $16.0 million for the nine months ended September 30, 2007 and 2008, respectively.



At September 30 and December 31, 2007 and September 30, 2008, the assets and liabilities identified as the IBB
discontinued operations consisted of the following:

(Dollars in thousands)

September 30,
2007

December 31,
2007

September 30,
2008AssetsCash and due from banks

$
3

$
3

$
Securities available for sale


13


11Premises and equipment


4,307


4,163


Intangible assets


12,887


12,110


Goodwill


93,431


93,431Other assets


4,279


5,662


Assets of discontinued operations to be disposed or sold

$
114,920

$
115,380

$
LiabilitiesOther borrowed funds

$
181

$
4

$
Other liabilities


20,109


23,518


1,817Liabilities of discontinued operations to be extinguished or assumed

$
20,290

$
23,522

$
1,817


The
components of income from the IBB discontinued operations for the three and nine months ended September 30, 2007 and 2008 are:

For the Three Months
Ended September 30,

For the Nine Months
Ended September 30,(Dollars in thousands)

2007

2008

2007

2008Net interest expense

$
(1,221
)
$


$
(3,650
)
$
(993
)Noninterest income


15,828


249


52,199


35,840Noninterest expense


17,140


504


53,205


46,281Loss from discontinued operations before income taxes


(2,533
)

(255
)

(4,656
)

(11,434
)Income tax benefit


(972
)

(90
)

(1,709
)

(6,682
)Loss from discontinued operations

$
(1,561
)
$
(165
)
$
(2,947
)
$
(4,752
)


The
IBB's net interest expense for the three and nine months ended September 30, 2007 and the nine months ended September 30, 2008 was mainly comprised of the allocation of
interest expense (based on its average net assets). Noninterest income for the three months ended September 30, 2007 included insurance commissions of $15.9 million, and
$52.2 million and $25.7 million for the nine months ended September 30, 2007 and 2008, respectively. Noninterest income for the nine months ended September 30,

18

---



UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 3Discontinued Operations (Continued)

2008
also included a $9.8 million pre-tax gain from the sale of IBB and $0.2 million in subsequent gain adjustments for the three and nine months ended September 30,
2008. Noninterest expense for the three months ended September 30, 2007 and 2008 included salaries and benefits expense of $13.5 million and $0.5 million, respectively, and
$41.0 million and $21.2 million, for the nine months ended September 30, 2007 and 2008, respectively. For the nine months ended September 30, 2008, noninterest expense also
included an $18.7 million goodwill impairment charge. This charge was recorded in the first quarter of 2008, when the Company determined that the value of the net assets was greater than the
fair value of IBB, which was based on indicative prices for insurance agencies.

Note 4Loans and Allowance for Loan Losses

A summary of loans, net of unearned interest and deferred fees (costs) of ($13) million, ($15) million and ($9) million, at September 30, 2007, December 31, 2007 and
September 30, 2008, respectively, is as follows:

(Dollars in thousands)

September 30,
2007

December 31,
2007

September 30,
2008Commercial, financial and industrial

$
13,837,388

$
14,563,477

$
17,700,604Construction


2,411,434


2,406,729


2,653,945Mortgage:Residential


13,451,633


13,827,241


15,691,872Commercial


6,529,125


7,021,299


8,032,010Total mortgage


19,980,758


20,848,540


23,723,882Consumer:Installment


1,258,485


1,327,348


2,166,912Revolving lines of credit


1,328,747


1,334,132


1,361,784Total consumer


2,587,232


2,661,480


3,528,696Lease financing


634,524


654,467


642,642Total loans held to maturity


39,451,336


41,134,693


48,249,769Total loans held for sale


294,005


69,495


56,349Total loans


39,745,341


41,204,188


48,306,118Allowance for loan losses


350,491


402,726


580,474Loans, net

$
39,394,850

$
40,801,462

$
47,725,644


19

---





UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 4Loans and Allowance for Loan Losses (Continued)

Changes
in the allowance for loan losses were as follows:

For the Three Months
Ended September 30,

For the Nine Months
Ended September 30,(Dollars in thousands)

2007

2008

2007

2008Allowance for loan losses, beginning of period

$
335,952

$
526,401

$
331,077

$
402,726Loans charged off


(4,501
)

(64,548
)

(13,066
)

(111,093
)Recoveries of loans previously charged off


2,681


1,993


6,731


5,404Total net loans charged off


(1,820
)

(62,555
)

(6,335
)

(105,689
)Provision for loan losses


16,000


117,000


25,000


284,000Foreign translation adjustment and other net additions


359


(372
)

749


(563
)Allowance for loan losses, end of period

$
350,491

$
580,474

$
350,491

$
580,474Allowance for losses on off-balance sheet commitments


86,374


111,374


86,374


111,374Allowances for credit losses, end of period

$
436,865

$
691,848

$
436,865

$
691,848


Nonaccrual loans totaled $51.2 million and $288.9 million at September 30, 2007 and 2008, respectively. There were no
troubled debt restructured loans at September 30, 2007 and $1.4 million at September 30, 2008. Loans 90 days past due and still accruing totaled $17.9 million and
$49.2 million at September 30, 2007 and 2008, respectively.

Note 5Goodwill and Intangible Assets



The carrying amount of goodwill at September 30, 2007 and 2008 was $360.1 million and $355.3 million,
respectively. There were no changes in the carrying amount of
goodwill, which is reported on a continuing operating basis, during the nine months ended September 30, 2007 and 2008.

As
a result of softening in the insurance market and declining fair value, the Company performed a goodwill impairment test as of March 31, 2008 on its insurance brokerage
business, which was sold in June 2008. As required by SFAS No. 142, "Goodwill and Other Intangible Assets," the Company determined that the value of the net assets was greater than the fair
value of the insurance brokerage business, which was based on indicative prices for insurance agencies. Consequently, the Company recorded an $18.7 million goodwill impairment charge, which is
included in discontinued operations in the first quarter of 2008. As part of the sale of the IBB in June 2008, the Company eliminated its related goodwill balances. For additional information on the
Company's sale of its insurance brokerage business, see Note 3 to these condensed consolidated financial statements.

20

---



UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 5Goodwill and Intangible Assets (Continued)



The table below reflects the Company's identifiable intangible assets, which consist of core deposit intangibles, and accumulated
amortization on a continuing operations basis at September 30, 2007 and 2008. The identifiable intangible assets related to the discontinued operations of the retirement recordkeeping business
and the insurance brokerage business have been excluded from this table.

September 30, 2007

September 30, 2008(Dollars in thousands)

Gross
Carrying
Amount

Accumulated
Amortization

Net
Carrying
Amount

Gross
Carrying
Amount

Accumulated
Amortization

Net
Carrying
AmountCore Deposit Intangibles

$
51,698

$
(44,115
)
$
7,583

$
43,114

$
(38,667
)
$
4,447


Total amortization expense for the three months ended September 30, 2007 and 2008 was $1.1 million and $0.7 million,
respectively. Total amortization expense for the nine months ended September 30, 2007 and 2008 was $3.4 million and $2.0 million, respectively.

The
table below reflects the Company's expected identifiable intangible amortization expense, after September 30, 2008, on a continuing operations basis.

(Dollars in thousands)

Core
Deposit
IntangiblesEstimated amortization expense for the years ending:Remaining 2008

$
6702009


1,5712010


8002011


4432012


3362013


240thereafter


387Total amortization expense after September 30, 2008

$
4,447


21

---



UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 6Employee Pension and Other Postretirement Benefits

The following tables summarize the components of net periodic benefit cost for the three and nine months ended September 30, 2007 and 2008.

Pension Benefits

Other BenefitsFor the Three Months
Ended September 30,

For the Three Months
Ended September 30,(Dollars in thousands)

2007

2008

2007

2008Components of net periodic benefit costService cost

$
12,559

$
12,784

$
1,929

$
2,018Interest cost


17,797


19,411


2,571


2,821Expected return on plan assets


(31,586
)

(33,411
)

(3,478
)

(3,369
)Amortization of prior service cost


64





(24
)

(22
)Amortization of transition amount








508


509Recognized net actuarial loss


4,002


2,483


633


816Total net periodic benefit cost

$
2,836

$
1,267

$
2,139

$
2,773




Pension Benefits

Other BenefitsFor the Nine Months
Ended September 30,

For the Nine Months
Ended September 30,(Dollars in thousands)

2007

2008

2007

2008Components of net periodic benefit costService cost

$
37,676

$
38,351

$
6,095

$
6,055Interest cost


53,393


58,234


8,253


8,463Expected return on plan assets


(94,759
)

(100,232
)

(10,434
)

(10,108
)Amortization of prior service cost


192





(72
)

(70
)Amortization of transition amount








1,526


1,527Recognized net actuarial loss


12,006


7,449


2,831


2,497Total net periodic benefit cost

$
8,508

$
3,802

$
8,199

$
8,364


For further discussion of the Company's employee pension and other postretirement benefits, see Note 9 to the Consolidated Financial
Statements in the Company's 2007 Form 10-K.

22

---



UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 7Borrowed Funds

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

(Dollars in Thousands)

September 30,
2007

December 31,
2007

September 30,
2008Federal funds purchased and securities sold under repurchase agreements, with weighted average interest rates of 4.75%, 4.29% and 1.90% at
September 30, 2007, December 31, 2007 and September 30, 2008, respectively(1)

$
1,823,872

$
1,631,602

$
1,760,442Commercial paper, with weighted average interest rates of 4.97%, 4.25%, and 2.26% at September 30, 2007, December 31, 2007 and September 30,
2008, respectively(1)


1,706,135


1,266,656


1,659,935Other borrowed funds:(2)Federal Home Loan Bank borrowings, with weighted average interest rates of 6.77%, 4.52% and 2.63% at September 30, 2007, December 31, 2007, and
September 30, 2008 respectively(1)


1,000


949,000


2,600,000Term federal funds purchased, with weighted average interest rates of 5.45%, 4.79% and 2.63% at September 30, 2007, December 31, 2007 and
September 30, 2008, respectively(1)


204,420


805,970


807,730Federal Reserve Bank Term Borrowings, with weighted average interest rate of 3.14% at September 30, 2008(1)








3,000,000Borrowings from Bank of Tokyo-Mitsubishi UFJ, Ltd. (BTMU), with weighted average interest rate of 5.59% at September 30, 2008(1)








200,000All other borrowed, with weighted average interest rates of 4.25%, 5.24% and 2.49% at September 30, 2007, December 31, 2007, and
September 30, 2008, respectively(1)


93,128


120,649


111,205Total borrowed funds

$
3,828,555

$
4,773,877

$
10,139,312


---

In September 2008, the Company established a $500 million, three-year unsecured revolving credit facility with BTMU. As of September 30,
2008, the Company had $200 million outstanding under this facility.

Note 8Medium- and Long-Term Debt

In the second quarter of 2008, the Bank began borrowing from the Federal Home Loan Bank (FHLB) on a medium-term basis. The FHLB advances are secured by certain of the Bank's
assets and bear either a fixed or

23

---



UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 8Medium- and Long-Term Debt (Continued)

floating
interest rate. The floating rate advances are tied to the 3-month LIBOR plus a spread, with reset dates every 90 days. At September 30, 2008, the Bank's outstanding
borrowings from the FHLB were $1.9 billion with a weighted average interest rate of 3.13 percent and a weighted average remaining maturity of 17 months.

Note 9Management Stock Plans

The Company has two management stock plans. The Year 2000 UnionBanCal Corporation Management Stock Plan, as amended (the 2000 Stock Plan), and the UnionBanCal Corporation Management
Stock Plan, restated effective June 1, 1997 (the 1997 Stock Plan), have 27.0 million and 6.6 million shares, respectively, of the Company's common stock authorized to be awarded
to key employees, outside directors and consultants of the Company at the discretion of the Executive Compensation and Benefits Committee of the Board of Directors (the Committee). Employees on
rotational assignment from BTMU are not eligible for stock awards. For further discussion of the Company's stock plans, see Note 16 to the Consolidated Financial Statements in the Company's
2007 Form 10-K.

See
Note 16 to these condensed consolidated financial statements for information on the privatization of the Company. On November 4, 2008, outstanding awards under the
management stock plans discussed below were canceled in exchange for the right to receive the cash value of those awards. No additional awards are expected to be granted under these plans. The
following discussion within Note 9 is as of September 30, 2008, and does not take into consideration the impact of the Company's privatization.

The
Committee determines the term of each stock option grant, up to a maximum of ten years from the date of grant. The exercise price of the options issued under the stock plans may not
be less than the fair market value on the date the option is granted. The value of options is recognized as compensation expense over the vesting period during which the employees are required to
provide service. The value of the restricted stock at the date of grant is recognized as compensation expense over its vesting period with a corresponding credit adjustment to additional
paid-in capital. All cancelled or forfeited options and restricted stock become available for future grants.

Under
the 2000 Stock Plan, the Company grants stock options and restricted stock. Additionally, under this plan, the Company issues shares of common stock upon the vesting and settlement
of performance shares settled in common stock and restricted stock units, as well as upon the settlement of stock units. Under the 1997 Stock Plan, the Company issues shares of common stock upon
exercise of outstanding stock options. The Company issues new shares of common stock for all awards under the stock plans. A total of 7,141,032 shares were available for future grants under the 2000
Stock Plan at September 30, 2008. These available shares have taken into account the outstanding number of shares of stock options
and restricted stock, as well as the maximum number of shares that may be issued upon the vesting and settlement of outstanding performance shares settled in common stock and restricted stock units,
and upon the settlement of outstanding stock units. The remaining shares under the 1997 Stock Plan are not available for future grants.

24

---





UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 9Management Stock Plans (Continued)



The following table summarizes stock option transactions under the stock plans for the nine months ended September 30, 2008.

For the Nine Months
Ended September 30, 2008Number of
Shares

Weighted-Average
Exercise Price

Weighted-Average
Remaining
Contractual Term
(in years)

Aggregate
Intrinsic Value
(in thousands)Options outstanding, beginning of the period(1)


9,673,146

$
51.14Granted


823,610


51.06Exercised


(2,255,373
)

47.53Forfeited


(101,195
)

58.11Options outstanding, end of the period(1)


8,140,188

$
52.05


4.80

$
172,900Options exercisable, end of the period


5,094,342

$
50.29


4.08

$
117,152


---

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model. The Black-Scholes option
pricing model uses tranches based on expected terms that result in ranges of input assumptions. Expected volatilities are based on historical data and implied volatilities compared to trade options on
the Company's stock, and other factors. The Company uses historical data to estimate option exercise and employee terminations within the valuation model. The expected term of an option granted is
derived from the output of the option valuation model, which is based on historical data and represents the period of time that the option granted is expected to be outstanding. The
risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant based on the expected term.

For the Nine Months
Ended September 30, 2008Weighted-average fair valueper share

$
7.21Risk-free interest rate


2.2 - 3.3
%Expected volatility


22.2 - 27.4
%Weighted-average expected volatility


24.3
%Expected term (in years)


3.9 - 4.4Expected dividend yield


4.4 - 5.2
%Weighted-average expected dividend yield


4.4
%


The total intrinsic value of options exercised during the nine months ended September 30, 2007 and 2008 was $15.7 million and
$43.2 million, respectively, with a corresponding tax benefit of $5.6 million and $15.5 million, respectively. The total fair value of options vested during the nine months ended
September 30, 2007 and 2008 was $20.2 million and $10.3 million, respectively.

25

---



UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 9Management Stock Plans (Continued)

The
Company recognized $10.4 million and $9.8 million of compensation cost for share-based payment arrangements related to stock option awards with a $4.0 million
and $3.8 million corresponding tax benefit during the nine months ended September 30, 2007 and 2008, respectively. As of September 30, 2008, the total unrecognized compensation
cost related to nonvested stock option awards was $13.4 million and the weighted-average period over which the cost is expected to be recognized was 1.1 years.



In general, restricted stock awards are granted under the 2000 Stock Plan to key employees, and in 2005, to non-employee
directors. The awards of restricted stock granted to employees vest pro-rata on each anniversary of the grant date and become fully vested four years from the grant date, provided that the
employee has completed the specified continuous service requirement. Generally, they vest earlier if the employee dies, is permanently and totally disabled, retires under certain grant, age, and
service conditions or terminates employment under certain conditions. Restricted stockholders have the right to vote their restricted shares and receive dividends. The grant date fair value of awards
is equal to the closing price on date of grant.

The
following is a summary of the Company's nonvested restricted stock awards as of September 30, 2008 and changes during the nine months ended September 30, 2008.

For the Nine Months
Ended September 30, 2008Number of Shares

Weighted-Average
Grant Date Fair ValueNonvested restricted awards, beginning of the period


881,117

$
59.00Granted


50,787


46.64Vested


(123,646
)

62.36Forfeited


(31,745
)

58.16Nonvested restricted awards, end of the period


776,513

$
57.71


The
total fair value of the restricted stock awards vested during the nine months ended September 30, 2007 and 2008, was $7.0 million, and $7.7 million,
respectively, with a corresponding tax benefit of $2.4 million and $2.3 million, respectively.

The
Company recognized $10.7 million and $12.7 million of compensation cost for share-based payment arrangements related to restricted stock awards with a
$4.2 million and $4.9 million corresponding tax benefit during the nine months ended September 30, 2007 and 2008, respectively. At September 30, 2008, the total
unrecognized compensation cost related to nonvested restricted stock awards was $28.8 million and the weighted-average period over which it is expected to be recognized was 1.3 years.



Starting in July 2006, the Company granted restricted stock units to non-employee directors. These restricted stock units
consist of an annual grant, and in the case of new non-employee directors, an annual grant and an initial grant. In general, the annual grant vests in full on the first anniversary of the
grant date, and the initial grant vests in three equal installments on each of the first three anniversaries of the grant date. The grant date fair value of awards is equal to the closing price on
date of grant. During the nine months ended

26

---



UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 9Management Stock Plans (Continued)

September 30,
2008, the Company granted 25,410 restricted stock units with a weighted-average grant date fair value of $41.41 per unit. There were no restricted stock units forfeited during the
nine months ended September 30, 2008. The total fair value of the restricted stock units that vested during the nine months ended September 30, 2008 was $0.8 million. The Company
recognized $0.6 million and $1.1 million of compensation cost with a corresponding $0.3 million and $0.4 million tax benefit related to these grants during the nine months
ended September 30, 2007 and 2008, respectively. As of September 30, 2008, the total unrecognized compensation cost related to restricted stock units was $1.1 million and the
weighted-average period over which it is expected to be recognized was 8 months.

The
restricted stock unit participants do not have voting or other stockholder rights. However, the participants' stock unit accounts receive dividend equivalents, reflecting the
aggregate dividends earned based on the total number of restricted stock units outstanding, in the form of additional restricted stock units. Participants may elect to defer the delivery of vested
shares of common stock at predetermined dates as defined in the plan agreements. The Company will issue new shares under the 2000 Stock Plan upon vesting and settlement of these grants, which are
redeemable only in shares.

Non-employee
directors may irrevocably elect to defer all or a portion of the cash retainer and/or fees payable to them for services on the Board of Directors and its
committees in the form of stock units. At the time of deferral, a bookkeeping account is established on behalf of the director and credited with a number of fully vested stock units. The director will
receive a number of stock units equal to the number of shares of common stock when the deferred compensation is payable. Dividend equivalents are credited to the stock unit accounts. Stock units have
no voting rights. The Company will issue new shares under the 2000 Stock Plan upon settlement of the stock units.



Effective January 1, 1997, the Company established a Performance Share Plan. At the discretion of the Committee, eligible
participants may earn performance share awards to be redeemed in cash and/or shares three years after the date of grant. Performance shares are linked to stockholder value in two ways: (1) the
market price of the Company's common stock; and (2) return on equity, a performance measure closely linked to value creation. Eligible participants generally receive grants of performance
shares annually. The plan was amended in 2004 increasing the total number of shares that can be granted under the plan to 2.6 million shares. Beginning in 2006, the Committee determined that
performance share awards granted were to be redeemed in shares. The following is a summary of shares granted and available for future grants under the Performance Share Plan.

For the Nine Months
Ended September 30, 2008Performance shares:Granted


91,750Available for future grant, end of period


1,971,469




All performance shares granted prior to 2006 are redeemable in cash and therefore are accounted for as liabilities. The value of a
performance share under the liability method is equal to the average month-end

27

---



UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 9Management Stock Plans (Continued)

closing
price of the Company's common stock for the final six months of the performance period. All cancelled or forfeited performance shares become available for future grants. The following is a
summary of performance shares that are redeemable in cash under the Performance Share Plan.

For the Nine Months
Ended September 30,(Dollars in millions)

2007

2008Performance shares granted





Performance shares forfeited





Fair value of performance shares that vested

$
7.4

$
Cash payments made for performance shares that vested

$
7.4

$
5.7Fair value of performance shares that vested and deferred

$


$
Performance shares compensation expense

$
0.8

$
Tax benefit related to compensation expense

$
0.3

$
Liability for cash settlement of performance shares, end of the period

$
5.1

$



The compensation cost related to these grants that are redeemable in cash was fully recognized as of September 30, 2008.



The following is a summary of performance shares that are redeemable in shares under the Performance Share Plan.

For the Nine Months
Ended September 30,(Dollars in millions, except per share)

2007

2008Performance shares granted


68,677


91,750Weighted average grant date fair valueper share

$
63.42

$
51.42Performance shares forfeited


1,500


Fair value of performance shares that vested during the period

$
0.3

$
Performance shares compensation expense

$
2.7

$
4.6Tax benefit related to compensation expense

$
1.1

$
1.8


As of September 30, 2008, the total unrecognized compensation cost related to grants that are redeemable in shares was $4.7 million
and the weighted-average period over which it is expected to be recognized was 1 year. The Company issues new shares under the 2000 Stock Plan upon vesting and settlement of these grants that
are redeemable in shares.

Note 10Fair Value of Financial Instruments

Effective January 1, 2008, the Company adopted SFAS No. 157, "Fair Value Measurements" for all financial assets and liabilities measured and reported on a fair value basis.
At adoption, there was no effect on the Company's financial position or results of operations.

28

---



UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 10Fair Value of Financial Instruments (Continued)



As defined in SFAS No.157, fair value is the price that would be received to sell an asset or paid to transfer a liability
(i.e., exit price) in an orderly transaction between market participants at the measurement date. In determining fair value, the Company utilizes valuation techniques that maximize the use of
observable inputs and minimize the use of unobservable inputs. Observable inputs reflect market-derived or market-based information obtained from independent sources, while unobservable inputs reflect
the Company's estimate about market data. Based on the observability of the inputs used in the valuation techniques, the Company classifies its financial assets and liabilities measured and disclosed
at fair value in accordance with the three-level hierarchy established under SFAS No. 157. This hierarchy ranks the quality and reliability of the information used to determine fair values.



In
determining the appropriate levels, the Company performs a detailed analysis of the assets and liabilities that are subject to SFAS No. 157. In certain cases, the inputs used
to measure fair value of an asset or liability may fall into different levels of the fair value hierarchy. The level within which the fair value measurement is categorized is based on the lowest level
input that is significant to the fair value measurement in its entirety. Therefore, an item may be classified in Level 3 even though there may be some significant inputs that are readily
observable.



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



29

---



UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 10Fair Value of Financial Instruments (Continued)



30

---



UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 10Fair Value of Financial Instruments (Continued)



The following table presents financial assets and financial liabilities measured at fair value on a recurring basis as of
September 30, 2008, by caption on the consolidated balance sheet and by SFAS No. 157 valuation hierarchy.

September 30, 2008(Dollars in thousands)

Level 1

Level 2

Level 3

Netting
Adjustment(1)

Fair ValueAssetsTrading account assets

$
77,751

$
679,181




$
(27,515
)
$
729,417Securities available for sale


866,544


6,151,816

$
1,276,994





8,295,354Other assets(2)





128,876





(23,360
)

105,516Total assets

$
944,295

$
6,959,873

$
1,276,994

$
(50,875
)
$
9,130,287LiabilitiesTrading account liabilities

$
5,343

$
552,422

$


$
(50,875
)
$
506,890Total liabilities

$
5,343

$
552,422

$


$
(50,875
)
$
506,890


---

The following table presents a reconciliation of the assets measured at fair value on a recurring basis using significant unobservable inputs
(Level 3) during the three months and nine months ended September 30, 2008. Level 3 available for sale securities include CLOs. The CLOs were valued using broker quotes that are
derived from pricing models whose assumptions are based on observable inputs adjusted for unobservable liquidity spreads.

(Dollars in thousands)

For the Three Months
Ended September 30, 2008

For the Nine Months
Ended September 30, 2008Balance, beginning of period.

$
1,518,339

$
1,769,880Total gains/(losses) (realized/unrealized):Included in income before taxes


61


183Included in other comprehensive income


(241,367
)

(493,030
)Purchases, issuances and settlements


(39
)

(39
)Transfers in/out Level 3





Balance, end of period

$
1,276,994

$
1,276,994Changes in unrealized gains (losses) included in income before taxes for assets and liabilities still held at September 30, 2008

$
29

$
87


31

---



UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 10Fair Value of Financial Instruments (Continued)



Certain financial assets may be measured at fair value on a nonrecurring basis. These assets are subject to fair value adjustments that
result from the application of the lower of cost or fair value accounting or write-downs of individual assets. The following table presents the carrying value of financial instruments by level within
the fair value hierarchy as of September 30, 2008, for which a nonrecurring change in fair value has been recorded during the three-month period ended September 30, 2008.

September 30, 2008(Dollars in thousands)

Carrying Value

Level 1

Level 2

Level 3

Losses for the
Three Months Ended
September 30, 2008

Losses for the
Nine Months Ended
September 30, 2008Loans

$
41,133

$


$


$
41,133

$
(3,304
)
$
(9,141
)Other assets


1,000








1,000


(1,000
)

(1,000
)Total

$
42,133

$


$


$
42,133

$
(4,304
)
$
(10,141
)


Loans
include a loan held for sale and loans impaired under SFAS No. 114 that are valued based on the fair value of the underlying collateral. The fair value of the loan held for
sale was determined using quoted prices for similar assets, adjusted for management's judgment. The fair value of SFAS No. 114 loans was determined based on appraised values of the underlying
collateral adjusted for management's judgment. Other assets include private equity investments that were written down to fair value during the period as a result of an impairment. The fair value of
private equity investments was estimated based on the company's current and projected financial performance.

Note 11Derivative Instruments and Other Financial Instruments Used For Hedging

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



The Company engages in several types of cash flow hedging strategies for which the hedged transactions are forecasted future loan
interest payments, and the hedged risk is the variability in those payments due to changes in the designated benchmark rate, i.e., U.S. dollar LIBOR. In these strategies, the hedging
instruments are matched with groups of variable rate loans such that the tenor of the variable rate loans and that of the hedging instrument are identical. Cash flow hedging strategies include the
utilization of purchased floor, cap, collars and corridor options and interest rate swaps. At September 30, 2008, the weighted average remaining life of the currently active (excluding any
forward positions) cash flow hedges was approximately 1.3 years.

32

---



UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 11Derivative Instruments and Other Financial Instruments Used For Hedging (Continued)

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

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

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

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

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

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

Hedging
transactions are structured at inception so that the notional amounts of the hedge are matched with an equal principal amount of loans or CDs, the index and repricing frequencies
of the hedge match those of the loans or CDs, and the period in which the designated hedged cash flows occurs is equal to the term of the hedge. As such, most of the ineffectiveness in the hedging
relationship results from the mismatch between the timing of reset dates on the hedge versus those of the loans or CDs. In the third quarter of 2008, the Company recognized a net gain of
$292 thousand due to ineffectiveness, which is recognized in other noninterest expense, compared to a net gain of $16 thousand in the third quarter of 2007.

33

---



UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 11Derivative Instruments and Other Financial Instruments Used For Hedging (Continued)



The Company engages in an interest rate hedging strategy in which one or more interest rate swaps are associated with a specified
interest bearing liability, in order to convert the liability from a fixed rate to a floating rate instrument. This strategy mitigates the changes in fair value of the hedged liability caused by
changes in the designated benchmark interest rate, U.S. dollar LIBOR.

The
fair value hedging transactions for the issuances of subordinated debt were structured at inception to mirror all of the provisions of the subordinated debt, which allows the Company
to assume that no ineffectiveness exists.



The Company uses To-Be-Announced (TBA) contracts to fix the price and yield of anticipated purchases or sales
of mortgage-backed securities that will be delivered at an agreed upon date. This strategy hedges the risk of variability in the cash flows to be paid or received upon settlement of the TBA contract.



The Company engages in an economic hedging strategy in which interest bearing CDs issued to customers, which are tied to the changes in
the Standard and Poor's 500 Index, are exchanged for a fixed rate of interest. The Company accounts for the embedded derivative in the CD at fair value. A total return swap that encompasses the value
of a series of options that had individually hedged each CD is valued at fair value. The changes in the fair value of the embedded derivative and the hedge instrument are recognized as interest
expense.

34

---





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

Note 12Earnings Per Share (EPS)

Basic EPS ratio is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted EPS incorporates the dilutive effect of common
stock equivalents outstanding on an average basis during the period. Stock options, nonvested restricted stock, restricted stock units, stock units and performance shares are common stock equivalents.

The
following table presents a reconciliation of basic and diluted EPS for the three and nine months ended September 30, 2007 and 2008.

Three Months Ended September 30,

Nine Months Ended September 30,2007

2008

2007

2008(Amounts in thousands,
except per share data)Basic

Diluted

Basic

Diluted

Basic

Diluted

Basic

DilutedIncome from continuing operations

$
150,239

$
150,239

$
110,106

$
110,106

$
464,126

$
464,126

$
366,802

$
366,802Loss from discontinued operations


(22,780
)

(22,780
)

(5,276
)

(5,276
)

(21,702
)

(21,702
)

(12,037
)

(12,037
)Net income

$
127,459

$
127,459

$
104,830

$
104,830

$
442,424

$
442,424

$
354,765

$
354,765Weighted average common shares outstanding


137,668


137,668


138,197


138,197


137,695


137,695


137,473


137,473Additional shares due to:Assumed conversion of dilutive share-based compensation





1,400





1,772





1,597





1,112Adjusted weighted average common shares outstanding


137,668


139,068


138,197


139,969


137,695


139,292


137,473


138,585Income from continuing operations per share

$
1.09

$
1.08

$
0.80

$
0.79

$
3.37

$
3.33

$
2.67

$
2.65Loss from discontinued operations per share


(0.16
)

(0.16
)

(0.04
)

(0.04
)

(0.16
)

(0.15
)

(0.09
)

(0.09
)Net income per share

$
0.93

$
0.92

$
0.76

$
0.75

$
3.21

$
3.18

$
2.58

$
2.56


The following table provides the number of options and the corresponding exercise prices for those options that were not included in the
computation of diluted earnings per share for the three and nine months ended September 30, 2007 and 2008 because they were antidilutive.

For the Three Months Ended September 30,

For the Nine Months Ended September 30,2007

2008

2007

2008Options outstanding

2,922,892

1,570,251

1,801,862

2,420,564Exercise price of options

$59.74 - $71.23

$61.56 - $71.23

$61.56 - $71.23

$53.43 - $71.23


35

---



UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 13Accumulated Other Comprehensive Income (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 Nine Months Ended September 30, 2007:Cash flow hedge activities:Unrealized net gains on hedges arising during the period

$
13,940

$
(5,332
)
$
8,608Reclassification adjustment for net losses on hedges included in net income


25,395


(9,714
)

15,681Net change in unrealized losses on hedges


39,335


(15,046
)

24,289Securities available for sale:Unrealized holding losses arising during the period on securities available for sale


(119,521
)

45,717


(73,804
)Reclassification adjustment for net gains on securities available for sale included in net income


(1,621
)

620


(1,001
)Net change in unrealized losses on securities available for sale


(121,142
)

46,337


(74,805
)Foreign currency translation adjustment


975


(373
)

602Reclassification adjustment for pension and other benefits included in net income:Amortization of prior service costs


120


(46
)

74Amortization of transition amount


1,526


(583
)

943Recognized net actuarial loss


14,837


(5,675
)

9,162Net change in pension and other benefits


16,483


(6,304
)

10,179Net change in accumulated other comprehensive loss

$
(64,349
)
$
24,614

$
(39,735
)For the Nine Months Ended September 30, 2008:Cash flow hedge activities:Unrealized net gains on hedges arising during the period

$
80,007

$
(30,603
)
$
49,404Reclassification adjustment for net gains on hedges included in net income


(61,517
)

23,530


(37,987
)Net change in unrealized gains on hedges


18,490


(7,073
)

11,417Securities available for sale:Unrealized holding losses arising during the period on securities available for sale


(561,678
)

214,842


(346,836
)Reclassification adjustment for net gains on securities available for sale included in net income


(48
)

18


(30
)Net change in unrealized losses on securities available for sale


(561,726
)

214,860


(346,866
)Foreign currency translation adjustment


(1,012
)

387


(625
)Reclassification adjustment for pension and other benefits included in net income:Amortization of prior service costs


(70
)

27


(43
)Amortization of transition amount


1,527


(584
)

943Recognized net actuarial loss


9,946


(3,804
)

6,142Net change in pension and other benefits


11,403


(4,361
)

7,042Net change in accumulated other comprehensive loss

$
(532,845
)
$
203,813

$
(329,032
)


36

---



UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 13Accumulated Other Comprehensive Income (Loss) (Continued)

The following table presents accumulated other comprehensive loss balances.

(Dollars in thousands)

Net Unrealized
Gains (Losses)
on Cash Flow
Hedges

Net Unrealized
Gains (Losses)
on Securities
Available For
Sale

Foreign
Currency
Translation
Adjustment

Pension and Other Benefits Adjustment

Accumulated
Other
Comprehensive
LossBalance, December 31, 2006

$
(27,405
)
$
(57,878
)
$
223

$
(174,314
)
$
(259,374
)Change during the period


24,289


(74,805
)

602


10,179


(39,735
)Balance, September 30, 2007

$
(3,116
)
$
(132,683
)
$
825

$
(164,135
)
$
(299,109
)Balance, December 31, 2007

$
23,563

$
(129,163
)
$
740

$
(178,263
)
$
(283,123
)Change during the period


11,417


(346,866
)

(625
)

7,042


(329,032
)Balance, September 30, 2008

$
34,980

$
(476,029
)
$
115

$
(171,221
)
$
(612,155
)


Note 14Commitments, Contingencies and Guarantees

The following table summarizes the Company's significant commitments.

(Dollars in thousands)

September 30, 2008Commitments to extend credit

$
22,657,911Standby letters of credit


4,481,382Commercial letters of credit


70,095Risk participations in bankers' acceptances


12,100Commitments to fund principal investments


107,734Commitments to fund low-income housing credit (LIHC) investments


147,189


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 September 30, 2008, the carrying value of the Company's risk participations in bankers'
acceptances, standby and commercial letters of credit totaled $5.7 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 condensed consolidated balance sheet.

37

---



UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 14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 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 an eleven-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 September 30, 2008, the Company's maximum exposure to loss under these guarantees is limited to a return of investor
capital and minimum investment yield, or $172.1 million. The Company maintains a reserve of $6.6 million for these guarantees included in other liabilities.

The
Company has guarantees that obligate it to perform if its affiliates are unable to discharge their obligations. These obligations include guarantees of commercial paper obligations
and leveraged lease transactions. The guarantee issued by the Bank for an affiliate's commercial paper program is done in order to facilitate the sale of the commercial paper. As of
September 30, 2008, the Bank had a maximum exposure to loss under the commercial paper program guarantee of $1.7 billion. The Bank's guarantee has an average term of less than nine
months and is fully collateralized by a pledged deposit placed with the Bank. 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 September 30, 2008, the Company did not have any
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 $2.5 billion at September 30, 2008. The market value
of the associated collateral was $2.6 billion at September 30, 2008.

38

---



UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 14Commitments, Contingencies and Guarantees (Continued)

In
the third quarter of 2008, due to unprecedented market volatility, the Company experienced $9.8 million in losses related to the securities lending program.

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 or option 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 September 30, 2008, the maximum exposure to loss under these contracts totaled $30.6 million. At September 30,
2008, the Company maintained a reserve of $1.3 million for losses related to these guarantees included in trading account liabilities.

The
Company is a member of the Visa USA network (Visa). Visa's bylaws obligate its members to indemnify Visa for losses in connection with the settlement of certain antitrust lawsuits.
The Company's indemnification obligation is limited to its proportionate share. Under FIN No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of OthersAn Interpretation of FASB Statements No. 5, 57, and 107 and Rescission of FASB Interpretation No. 34," the Company had a liability of
$9.5 million and $6.6 million at December 31, 2007 and September 30, 2008, respectively, representing the estimated fair value of the Company's obligations under the
indemnity provisions. The reduction in this liability from December 31, 2007 to September 30, 2008 was primarily due to the establishment of an escrow account by Visa, during its initial
public offering in March 2008, to pay for settlements of its antitrust lawsuits. On October 27, 2008, VISA announced the settlement terms of their antitrust litigation with Discover Financial
Services. The Company has concluded that its $6.6 million liability at September 30, 2008 adequately provides for the settlement. 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.

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

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

39

---



UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 15Business Segments

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



The
information, set forth in the tables that follow, reflects selected income statement and balance sheet items by reportable business segment. The information presented does not
necessarily represent the business units' financial condition and results of operations were they independent entities. Unlike financial accounting, there is no authoritative body of guidance for
management accounting equivalent to US GAAP. Consequently, reported results are not necessarily comparable with those presented by other companies. Included in the tables, within total assets,
are the amounts of goodwill for both reportable business segments as of September 30, 2007 and 2008.

The
information in the tables is derived from the internal management reporting system used by management to measure the performance of the individual segments and the Company overall.
The management reporting system assigns balance sheet and income statement items to each operating segment based on internal management accounting policies. Net interest income is determined by the
Company's internal funds transfer pricing system, which assigns a cost of funds or a credit for funds to assets or liabilities based on their type, maturity or repricing characteristics. Noninterest
income and expense directly attributable to an operating segment are assigned to that operating segment. Certain indirect costs, such as operations and technology expense, are allocated to the
segments based on studies of billable unit costs for product or data processing. Other indirect costs, such as corporate overhead, are allocated to an operating segment based on a predetermined
percentage of usage. Under the Company's risk-adjusted return on capital (RAROC) methodology, credit expense is charged to an operating segment based upon expected losses arising from

40

---



UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 15Business Segments (Continued)

credit
risk. In addition, the attribution of economic capital is related to unexpected losses arising from credit, market and operational risks.

"Other"
is comprised of certain non-bank subsidiaries of UnionBanCal Corporation, the elimination of the fully taxable-equivalent basis amount, the transfer pricing center,
the amount of the provision for credit losses over/(under) the RAROC expected loss for the period, the earnings associated with the unallocated equity capital and allowances for credit losses, and the
residual costs of support groups. In addition, "Other" includes Corporate Treasury, which is responsible for Asset-Liability Management (ALM), wholesale funding, and the ALM investment securities and
derivatives hedging portfolios, and the results of discontinued operations. Discontinued operations consists of three separate businesses: international correspondent banking, retirement recordkeeping
services and insurance brokerage services. For further detail on discontinued operations, see Note 3 to these condensed consolidated financial statements. Except as discussed above, none of the
items in "Other" is significant to the Company's business.

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

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

41

---



UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 15Business Segments (Continued)

Retail Banking

Wholesale BankingAs of and for the
Three Months Ended
September 30,

As of and for the
Three Months Ended
September 30,2007

2008

2007

2008Results of operationsMarket View (dollars in thousands):Net interest income (expense)

$
221,023

$
251,559

$
241,467

$
306,895Noninterest income


123,802


122,546


93,834


92,489Total revenue


344,825


374,105


335,301


399,384Noninterest expense


218,197


251,561


140,144


156,304Credit expense (income)


6,361


7,056


28,231


49,115Income (loss) from continuing operations before income taxes


120,267


115,488


166,926


193,965Income tax expense (benefit)


46,002


44,174


50,834


55,457Income (loss) from continuing operations


74,265


71,314


116,092


138,508Loss from discontinued operations, net of income taxes











Net income (loss)

$
74,265

$
71,314

$
116,092

$
138,508Total assets, end of periodMarket View (dollars in millions):

$
18,508

$
21,577

$
27,188

$
32,807




Other

Reconciling Items

UnionBanCal
CorporationAs of and for the
Three Months Ended
September 30,

As of and for the
Three Months Ended
September 30,

As of and for the
Three Months Ended
September 30,2007

2008

2007

2008

2007

2008Results of operationsMarket View (dollars in thousands):Net interest income (expense)

$
(33,690
)
$
(35,921
)
$
(2,237
)
$
(2,787
)
$
426,563

$
519,746Noninterest income


7,245


2,973


(16,694
)

(19,287
)

208,187


198,721Total revenue


(26,445
)

(32,948
)

(18,931
)

(22,074
)

634,750


718,467Noninterest expense


32,938


47,741


(10,432
)

(11,794
)

380,847


443,812Credit expense (income)


(18,570
)

60,870


(22
)

(41
)

16,000


117,000Income (loss) from continuing operations before income taxes


(40,813
)

(141,559
)

(8,477
)

(10,239
)

237,903


157,655Income tax expense (benefit)


(5,930
)

(48,166
)

(3,242
)

(3,916
)

87,664


47,549Income (loss) from continuing operations


(34,883
)

(93,393
)

(5,235
)

(6,323
)

150,239


110,106Loss from discontinued operations, net of income taxes


(22,780
)

(5,276
)







(22,780
)

(5,276
)Net income (loss)

$
(57,663
)
$
(98,669
)
$
(5,235
)
$
(6,323
)
$
127,459

$
104,830Total assets, end of periodMarket View (dollars in millions):

$
8,667

$
8,274

$
(20
)
$
(58
)
$
54,343

$
62,600


42

---



UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 15Business Segments (Continued)

Retail Banking

Wholesale BankingAs of and for the
Nine Months Ended
September 30,

As of and for the
Nine Months Ended
September 30,2007

2008

2007

2008Results of operationsMarket View (dollars in thousands):Net interest income (expense)

$
672,832

$
718,033

$
725,514

$
873,260Noninterest income


358,122


369,293


275,440


258,266Total revenue


1,030,954


1,087,326


1,000,954


1,131,526Noninterest expense


668,730


725,208


420,690


451,692Credit expense (income)


18,896


20,337


80,156


135,682Income (loss) from continuing operations before income taxes


343,328


341,781


500,108


544,152Income tax expense (benefit)


131,323


130,731


153,630


156,485Income (loss) from continuing operations


212,005


211,050


346,478


387,667Loss from discontinued operations, net of income taxes











Net income (loss)

$
212,005

$
211,050

$
346,478

$
387,667Total assets, end of periodMarket View (dollars in millions):

$
18,508

$
21,577

$
27,188

$
32,807




Other

Reconciling Items

UnionBanCal
CorporationAs of and for the
Nine Months Ended
September 30,

As of and for the
Nine Months Ended
September 30,

As of and for the
Nine Months Ended
September 30,2007

2008

2007

2008

2007

2008Results of operationsMarket View (dollars in thousands):Net interest income (expense)

$
(108,063
)
$
(92,317
)
$
(6,503
)
$
(8,094
)
$
1,283,780

$
1,490,882Noninterest income


15,694


23,517


(48,666
)

(57,333
)

600,590


593,743Total revenue


(92,369
)

(68,800
)

(55,169
)

(65,427
)

1,884,370


2,084,625Noninterest expense


97,214


124,307


(30,117
)

(34,877
)

1,156,517


1,266,330Credit expense (income)


(73,982
)

128,083


(70
)

(102
)

25,000


284,000Income (loss) from continuing operations before income taxes


(115,601
)

(321,190
)

(24,982
)

(30,448
)

702,853


534,295Income tax expense (benefit)


(36,670
)

(108,077
)

(9,556
)

(11,646
)

238,727


167,493Income (loss) from continuing operations


(78,931
)

(213,113
)

(15,426
)

(18,802
)

464,126


366,802Loss from discontinued operations, net of income taxes


(21,702
)

(12,037
)







(21,702
)

(12,037
)Net income (loss)

$
(100,633
)
$
(225,150
)
$
(15,426
)
$
(18,802
)
$
442,424

$
354,765Total assets, end of periodMarket View (dollars in millions):

$
8,667

$
8,274

$
(20
)
$
(58
)
$
54,343

$
62,600


Note 16Subsequent Event

On November 4, 2008, the Company became a privately held company pursuant to the Agreement and Plan of Merger, dated as of August 18, 2008, by and among the Company, The
Bank of Tokyo-Mitsubishi UFJ, Ltd. (BTMU), a joint stock company (kabushiki kaisha) incorporated in Japan under the Commercial

43

---



UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 16Subsequent Event (Continued)

Code
of Japan and a wholly owned subsidiary of Mitsubishi UFJ Financial Group, Inc., a joint stock company (kabushiki kaisha) incorporated in Japan under the Commercial Code of Japan (MUFG),
and Blue Jackets, Inc., a Delaware corporation and a wholly owned subsidiary of BTMU (Merger Sub) (the Merger Agreement). All of the Company's issued and outstanding shares of common stock are
now owned by MUFG and its affiliates.

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

Effective
October 1, 2008, the Company will estimate the fair value of its tangible assets and liabilities and record goodwill and other intangibles relating to the proportionate
incremental shares acquired by BTMU.

44

---





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.

You
should read the following discussion and analysis of our consolidated financial condition and results of operations for the period ended September 30, 2008 in this
Form 10-Q together with 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, 2007 (2007 Form 10-K). 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 of California, N.A., one or more
of their condensed consolidated subsidiaries, or to all of them together.

Introduction

We are a California-based, bank holding company whose major subsidiary, Union Bank of California, N.A. (the Bank), is a commercial
bank. We had consolidated assets of $63 billion at September 30, 2008. At September 30, 2008, The Bank of Tokyo-Mitsubishi UFJ, Ltd., our majority owner, owned
approximately 64 percent of our outstanding common stock.

On
November 4, 2008, we became a privately held company pursuant to the Agreement and Plan of Merger, dated as of August 18, 2008, by and among UnionBanCal, The Bank of
Tokyo-Mitsubishi UFJ, Ltd. (BTMU), a joint stock company (kabushiki kaisha) incorporated in Japan under the Commercial Code of Japan and a wholly owned subsidiary of Mitsubishi UFJ Financial
Group, Inc., a joint stock company (kabushiki kaisha) incorporated in Japan under the Commercial Code of Japan (MUFG), and Blue Jackets, Inc., a Delaware corporation and a wholly owned
subsidiary of BTMU (Merger Sub) (the Merger Agreement). All of our issued and outstanding shares of common stock are now owned by MUFG and its affiliates.

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

Effective
October 1, 2008, we will estimate the fair value of our tangible assets and liabilities and record goodwill and other intangibles relating to the proportionate
incremental shares acquired by BTMU.

Executive Overview

We are providing you with an overview of what we believe are the most significant factors and developments that impacted our third
quarter 2008 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.

45

---



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

In
the third quarter of 2008, our average total loans grew 20 percent from the third quarter of 2007 to $47.2 billion. This strong growth was spread across all major
categories, including commercial, residential and commercial real estate, due to increased loan demand.

During
the third quarter of 2008, we provided $125 million for our allowance for credit losses compared to $20 million in the third quarter of 2007. The increase was
primarily attributable to higher criticized assets, increases in certain loss factors related to our consumer and small business portfolios and strong loan growth. We anticipate a continued
recessionary environment during the remainder of 2008, resulting in deterioration in our loan portfolio. Consequently, we expect a significant increase in our full year provision for credit losses as
compared to 2007. See further discussion below in "Allowances for Credit Losses."

Our
nonperforming assets totaled $57 million and $304 million at December 31, 2007 and September 30, 2008, respectively. The increase in nonperforming assets
was primarily due to increases in the commercial and industrial portfolio of $125 million, construction portfolio of $93 million, and commercial real estate portfolio of
$19 million. Net charge offs were $63 million in the third quarter of 2008, compared to $2 million in the third quarter of 2007.

At
December 31, 2007 and September 30, 2008, our allowances for credit losses as a percent of total loans were 1.20 percent and 1.43 percent, respectively. At
December 31, 2007 and September 30, 2008,
our allowances for credit losses as a percent of nonaccrual loans were 885 percent and 240 percent, respectively. At December 31, 2007 and September 30, 2008, our allowance
for loan losses as a percent of total loans were 0.98 percent and 1.20 percent, respectively. At December 31, 2007 and September 30, 2008, our allowance for loan losses as
a percent of nonaccrual loans were 723 percent and 201 percent, respectively.

In
the third quarter of 2008, our average noninterest bearing deposits declined 10 percent to $12.4 billion compared to the third quarter of 2007. The decline was primarily
due to lower commercial noninterest bearing deposits as a result of a mix shift toward interest bearing deposit accounts, and lower title and escrow deposits resulting from reduced residential real
estate activity. Average noninterest bearing deposits represented 30 percent of average total deposits in the third quarter of 2008, compared to 33 percent in the third quarter of 2007.
In addition, the annualized average all-in-cost of funds improved to 1.60 percent, compared to 2.78 percent in the third quarter of 2007.

In
the third quarter of 2008, our net interest income increased 22 percent from the third quarter of 2007 to $520 million, primarily due to lower rates paid on interest
bearing liabilities, including other borrowings, and strong loan growth, partially offset by lower yields on earning assets.

In
the third quarter of 2008, our noninterest income declined 5 percent from the third quarter of 2007 to $199 million primarily due to lower trading account revenues,
which were negatively impacted by higher provision for credit losses on derivative contracts.

In
the third quarter of 2008, our noninterest expense grew by 17 percent from the third quarter of 2007 to $444 million. The increase was primarily due to higher salaries
and employee benefits resulting from annual merit increases and higher staff levels, as well as higher costs related to the provision for credit losses on off-balance sheet commitments.
The increase was also due to losses related to our securities lending program, higher regulatory agency fees, and higher expenses related to our low income housing investments (LIHC).

Our
effective tax rate was 30.2 percent in the third quarter of 2008, compared to 36.9 percent in the third quarter of 2007. The higher effective tax rate in the third
quarter of 2007 was primarily due to an income tax adjustment of $11.6 million for the difference between the estimate of California state tax expense for 2006 and the taxes reported in our
2006 return.

During
the third quarter of 2008, we declared $72.7 million in dividends, compared to $72.0 million in the third quarter of 2007. There were no significant repurchases of
our common stock in the third quarter of 2008.

46

---



Discontinued Operations

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

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

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

In
June 2008, we sold our IBB subsidiary, UnionBanc Insurance Services, Inc., to a wholly-owned subsidiary of BB&T Corporation. We recorded a pre-tax gain of
$9.8 million, net of $1.6 million in transaction costs, and an elimination of intangible assets, consisting of goodwill of $74.7 million and other intangibles of
$11.0 million. The IBB was previously included in the Wholesale Banking reportable business segment.

All
transactions have been accounted for as discontinued operations and all prior period financial statements have been restated to reflect this accounting treatment. All of the assets
and liabilities of the discontinued operations have been separately identified on our condensed consolidated balance sheet and the assets are shown at the lower of cost or fair value less costs to
dispose. The average net assets or
liabilities of our discontinued operations are reflected in our analysis of net interest margin. For the detailed components of our assets and liabilities of our discontinued operations, see
Note 3 to the condensed consolidated financial statements in this Form 10-Q.



The components of expense from the ICBB discontinued operations for the three and nine months ended September 30, 2007 and 2008
are:

For the Three Months
Ended September 30,

For the Nine Months
Ended September 30,(Dollars in thousands)

2007

2008

2007

2008Noninterest expense

$
23,297

$


$
23,297

$
Loss from discontinued operations before income taxes


(23,297
)




(23,297
)

Income tax benefit


(661
)




(661
)

Loss from discontinued operations

$
(22,636
)
$


$
(22,636
)
$



Noninterest expense for the three and nine months ended September 30, 2007 included the $21.6 million paid to the DOJ and related
legal and other outside services costs of $1.7 million. The income tax benefit of $0.7 million for the three and nine months ended September 30, 2007 reflects the nondeductibility
of the $21.6 million DOJ payment.

47

---





The results of the RRB included in our net income for the three and nine months ended September 30, 2007 and 2008, consisted of
the following:

For the Three Months
Ended September 30,

For the Nine Months
Ended September 30,(Dollars in thousands)

2007

2008

2007

2008Net interest income

$
1,103

$
226

$
3,700

$
1,540Noninterest income


11,717


891


35,346


18,419Noninterest expense


10,433


9,037


32,654


31,217Income (loss) from discontinued operations before income taxes


2,387


(7,920
)

6,392


(11,258
)Income tax expense (benefit)


970


(2,809
)

2,511


(3,973
)Income (loss) from discontinued operations

$
1,417

$
(5,111
)
$
3,881

$
(7,285
)


The RRB's net interest income for the three months ended September 30, 2007 and 2008 included the allocation of interest income (based on
its average net liabilities) of $1.2 million and $0.3 million, respectively, and $4.0 million and $1.8 million for the nine months ended September 30, 2007 and 2008,
respectively. Noninterest income for the three months ended September 30, 2007 and 2008 included trust fees of $11.7 million and $0.9 million, respectively, and
$35.3 million and $7.3 million for the nine months ended September 30, 2007 and 2008, respectively. Noninterest income for the nine months
ended September 30, 2008 also included $11.8 million in servicing revenues from Prudential. The majority of these servicing revenues were earned in the first half of 2008, as the
migration of customers onto Prudential's accounting system was completed in June 2008. For the three months ended September 30, 2007 and 2008, noninterest expense included salaries and benefits
expense of $6.2 million and $4.7million, respectively, and $19.3 million and $16.0 million for the nine months ended September 30, 2007 and 2008, respectively.



The components of income from the IBB discontinued operations for the three and nine months ended September 30, 2007 and 2008
are:

For the Three Months
Ended September 30,

For the Nine Months
Ended September 30,(Dollars in thousands)

2007

2008

2007

2008Net interest expense

$
(1,221
)
$


$
(3,650
)
$
(993
)Noninterest income


15,828


249


52,199


35,840Noninterest expense


17,140


504


53,205


46,281Loss from discontinued operations before income taxes


(2,533
)

(255
)

(4,656
)

(11,434
)Income tax benefit


(972
)

(90
)

(1,709
)

(6,682
)Loss from discontinued operations

$
(1,561
)
$
(165
)
$
(2,947
)
$
(4,752
)


The
IBB's net interest expense for the three and nine months ended September 30, 2007 and the nine months ended September 30, 2008 was mainly comprised of the allocation of
interest expense (based on its average net assets). Noninterest income for the three months ended September 30, 2007 included insurance commissions of $15.9 million, and
$52.2 million and $25.7 million for the nine months ended September 30, 2007 and 2008, respectively. Noninterest income for the nine months ended September 30, 2008 also
included a $9.8 million pre-tax gain from the sale of IBB and $0.2 million in subsequent gain adjustments for the three and nine months ended September 30, 2008.
Noninterest expense for the three months ended September 30, 2007 and 2008 included salaries and benefits expense of $13.5 million and $0.5 million, respectively, and
$41.0 million and $21.2 million, for the nine months ended September 30,

48

---



2007
and 2008, respectively. For the nine months ended September 30, 2008, noninterest expense also included an $18.7 million goodwill impairment charge. This charge was recorded in the
first quarter of 2008, when we determined that the value of the net assets was greater than the fair value of IBB, which was based on indicative prices for insurance agencies.

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

Critical Accounting Policies

UnionBanCal Corporation's consolidated financial statements are prepared in accordance with accounting principles generally accepted in
the United States of America (US GAAP) and the general practices of the banking industry. The financial information contained within our statements is, to a significant extent, financial
information that is based on approximate measures of the financial effects of transactions and events that have already occurred. A variety of factors could affect the ultimate value that is obtained
either when earning income, recognizing an expense, recovering an asset or relieving a liability. In many instances, we use a discount factor to determine the present value of assets and liabilities.
A change in the discount factor could increase or decrease the values of those assets and liabilities and such a change would result in either a beneficial or adverse impact to our financial results.
We use historical loss factors, adjusted for current conditions, to determine the inherent loss that may be present in our loan and lease portfolio. Actual losses could differ significantly compared
to the loss factors that we use. Other significant estimates that we use are employee turnover factors for pension purposes, residual values in our leasing portfolio, fair value of our derivatives and
securities, expected useful lives of our depreciable assets and assumptions regarding our effective income tax rates. We enter into derivative contracts to accommodate our customers and for our own
risk management purposes. The derivative contracts are generally swaps and option contracts indexed to energy commodities, interest rates or foreign currencies, although we could enter into other
types of derivative contracts. We value these contracts at fair value, using either readily available, market quoted prices or information that can be extrapolated to approximate a market price. We
are subject to US GAAP that may change from one previously acceptable method to another method. Although the economics of our transactions would be the same, the timing of events that would
impact our transactions could change.

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

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 2007 Form 10-K filed with the Securities and Exchange Commission (the SEC) and as follows.



Effective January 1, 2008, we adopted Statement of Financial Accounting Standards (SFAS) No. 157, "Fair Value
Measurements" for all financial assets and liabilities measured and reported on a fair value basis. At adoption, there was no impact on our financial position or results of operations. For detailed
information on our use of fair valuation of financial instruments and our related valuation methodologies, see Note 10 to the condensed consolidated financial statements in this
Form 10-Q.

As
defined in SFAS No. 157, fair value is the price that would be received to sell an asset or paid to transfer a liability (i.e., exit price) in an orderly transaction
between market participants at the measurement date. In determining fair value, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs.
Observable inputs reflect market-derived or market-based information obtained from independent sources, while unobservable inputs reflect our estimate about market data. Based on the observability of
the inputs used in the valuation techniques, we classify our financial assets

49

---



and
liabilities measured and disclosed at fair value in accordance with the three-level hierarchy (i.e., Level 1, Level 2 and Level 3) established under SFAS
No. 157. This hierarchy ranks the quality and reliability of the information used to determine fair values. The degree of management judgment increases with the higher the level of inputs.

Included
in the Level 3 category are collateralized loan obligations (CLOs), which are highly illiquid with limited market activity. All of our CLO securities are known as "Cash
Flow CLOs." A Cash Flow CLO is a structured finance product that securitizes a diversified pool of loan assets into multiple classes of notes from the cash flows generated by such loans. Cash Flow
CLOs repay the note holders through the receipt of interest and principal repayments from the underlying loans unlike other types of CLOs that repay note
holders through the trading and sale of underlying collateral. In general, our CLOs are valued using an average of two indicative broker quotes that are derived from pricing models whose assumptions
are based upon observable inputs adjusted for unobservable liquidity spreads. There have been no significant changes to the valuation methodology to value CLOs during the third quarter of 2008. The
fair value of our CLOs declined by $251.2 million from December 31, 2007 to $1.3 billion at September 30, 2008. Since no observable credit quality issues were present in
our CLO portfolio at September 30, 2008, and we have the ability and intent to hold the CLO securities until maturity, we consider the unrealized loss to be temporary.

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

The
following table reflects financial instruments measured at fair value on a recurring basis as of September 30, 2008.

(Dollars in thousands)

Fair Value

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

$
944,295


11
%Level 2


6,959,873


76
%Level 3


1,276,994


14
%Netting Adjustment(1)


(50,875
)

(1
)%Total

$
9,130,287


100
%As a percentage of total Company assets





15
%Liabilities:Level 1

$
5,343


1
%Level 2


552,422


109
%Level 3





0
%Netting Adjustment(1)


(50,875
)

(10
)%Total

$
506,890


100
%As a percentage of total Company liabilities





1
%


---

50

---





Financial Performance

Summary of Financial Performance

Increase (Decrease)





Increase (Decrease)For the Three Months
Ended September 30,

For the Nine Months
Ended September 30,2008 versus 2007

2008 versus 2007(Dollars in thousands)

2007

2008

Amount

Percent

2007

2008

Amount

PercentResults of OperationsNet interest income(1)

$
426,563

$
519,746

$
93,183


21.8
%
$
1,283,780

$
1,490,882

$
207,102


16.1
%Noninterest incomeTrust and investment management fees


39,546


40,638


1,092


2.8


116,062


127,828


11,766


10.1Trading account activities


21,795


12,397


(9,398
)

(43.1
)

50,473


40,096


(10,377
)

(20.6
)Merchant banking fees


10,031


12,789


2,758


27.5


27,917


35,667


7,750


27.8Gains on private capital investments, net


12,203


5,597


(6,606
)

(54.1
)

41,469


7,949


(33,520
)

(80.8
)Gain on the VISA IPO redemption

















14,211


14,211


nmOther noninterest income


124,612


127,300


2,688


2.2


364,669


367,992


3,323


0.9Total noninterest income


208,187


198,721


(9,466
)

(4.5
)

600,590


593,743


(6,847
)

(1.1
)Total revenue


634,750


718,467


83,717


13.2


1,884,370


2,084,625


200,255


10.6Provision for loan losses


16,000


117,000


101,000


nm


25,000


284,000


259,000


nmNoninterest expenseSalaries and employee benefits


216,812


238,129


21,317


9.8


686,175


723,098


36,923


5.4Net occupancy


37,534


38,574


1,040


2.8


104,919


113,008


8,089


7.7Professional services


17,669


21,397


3,728


21.1


45,163


51,925


6,762


15.0Provision for losses on off-balance sheet commitments


4,000


8,000


4,000


100.0


5,000


21,000


16,000


nmOther noninterest expense


104,832


137,712


32,880


31.4


315,260


357,299


42,039


13.3Total noninterest expense


380,847


443,812


62,965


16.5


1,156,517


1,266,330


109,813


9.5Income from continuing operations before income taxes


237,903


157,655


(80,248
)

(33.7
)

702,853


534,295


(168,558
)

(24.0
)Income tax expense


87,664


47,549


(40,115
)

(45.8
)

238,727


167,493


(71,234
)

(29.8
)Income from continuing operations

$
150,239

$
110,106

$
(40,133
)

(26.7
)%
$
464,126

$
366,802

$
(97,324
)

(21.0
)%


---

nm =
not meaningful

The primary contributors to our financial performance for the third quarter of 2008 compared to the third quarter of 2007
are presented below.



51

---





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



The
increase in noninterest expense was due to several factors:



The primary contributors to our financial performance for the nine months ended September 30, 2008 compared to the nine months ended September 30,
2007 are presented below.



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



52

---





The
increase in noninterest expense was due to several factors:



53

---





Net Interest Income

The following tables show the major components of net interest income and net interest margin.

For the Three Months Ended

Increase (Decrease) inSeptember 30, 2007

September 30, 2008

Average
Balance

Interest
Income/
Expense(1)Average
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

$
14,342,095

$
246,275


6.81
%
$
17,262,407

$
229,377


5.29
%
$
2,920,312


20
%
$
(16,898
)

(7
)%Construction


2,371,833


46,043


7.70


2,579,582


30,352


4.68


207,749


9


(15,691
)

(34
)Residential mortgage


13,196,677


178,589


5.41


15,285,171


211,965


5.55


2,088,494


16


33,376


19Commercial mortgage


6,386,963


112,743


7.00


8,008,618


111,816


5.58


1,621,655


25


(927
)

(1
)Consumer


2,570,234


50,601


7.81


3,421,338


49,286


5.73


851,104


33


(1,315
)

(3
)Lease financing


616,983


6,260


4.06


639,088


6,066


3.80


22,105


4


(194
)

(3
)Total Loans


39,484,785


640,511


6.45


47,196,204


638,862


5.40


7,711,419


20


(1,649
)

(0
)Securitiestaxable


8,593,945


111,933


5.21


8,348,785


99,614


4.77


(245,160
)

(3
)

(12,319
)

(11
)Securitiestax-exempt


55,236


1,150


8.33


51,831


1,045


8.06


(3,405
)

(6
)

(105
)

(9
)Interest bearing deposits in banks


44,185


709


6.37


13,642


147


4.27


(30,543
)

(69
)

(562
)

(79
)Federal funds sold and securities purchased under resale agreements


355,111


4,683


5.23


361,361


1,787


1.97


6,250


2


(2,896
)

(62
)Trading account assets


368,232


1,898


2.04


948,725


1,364


0.57


580,493


nm


(534
)

(28
)Total earning assets


48,901,494


760,884


6.20


56,920,548


742,819


5.21


8,019,054


16


(18,065
)

(2
)Allowance for loan losses


(335,932
)







(506,452
)







(170,520
)

(51
)Cash and due from banks


1,845,328








1,606,632








(238,696
)

(13
)Premises and equipment, net


480,054








475,408








(4,646
)

(1
)Other assets


2,476,247








2,649,115








172,868


7Total assets

$
53,367,191







$
61,145,251







$
7,778,060


15
%LiabilitiesDeposits:Transaction accounts

$
14,288,967

$
108,653


3.02

$
15,552,783

$
61,636


1.58

$
1,263,816


9
%
$
(47,017
)

(43
)Savings and consumer time


4,371,913


30,362


2.76


3,899,687


13,237


1.35


(472,226
)

(11
)

(17,125
)

(56
)Large time


9,515,315


120,391


5.02


9,847,584


60,863


2.46


332,269


3


(59,528
)

(49
)Total interest bearing deposits


28,176,195


259,406


3.65


29,300,054


135,736


1.84


1,123,859


4


(123,670
)

(48
)Federal funds purchased and securities sold under repurchase agreements


1,130,404


14,284


5.01


3,496,184


15,365


1.75


2,365,780


nm


1,081


8Net funding allocated from (to) discontinued operations(4)


(1,912
)

(25
)

5.19


55,121


265


1.91


57,033


nm


290


nmCommercial paper


1,559,098


19,753


5.03


1,432,207


8,056


2.24


(126,891
)

(8
)

(11,697
)

(59
)Other borrowed funds


828,448


11,318


5.42


4,886,263


34,873


2.84


4,057,815


nm


23,555


nmMedium and long-term debt


1,846,674


26,957


5.79


3,300,675


25,989


3.13


1,454,001


79


(968
)

(4
)Trust notes


14,601


239


6.53


14,148


239


6.73


(453
)

(3
)




Total borrowed funds


5,377,313


72,526


5.35


13,184,598


84,787


2.56


7,807,285


nm


12,261


17Total interest bearing liabilities


33,553,508


331,932


3.92


42,484,652


220,523


2.06


8,931,144


27


(111,409
)

(34
)Noninterest bearing deposits


13,786,531








12,361,170








(1,425,361
)

(10
)Other liabilities


1,362,923








1,710,988








348,065


26Total liabilities


48,702,962








56,556,810








7,853,848


16Stockholders' EquityCommon equity


4,664,229








4,588,441








(75,788
)

(2
)Total stockholders' equity


4,664,229








4,588,441








(75,788
)

(2
)Total liabilities and stockholders' equity

$
53,367,191







$
61,145,251







$
7,778,060


15
%Net Interest Income/MarginNet interest income/margin (taxable-equivalent basis)





428,952


3.51
%




522,296


3.67
%







93,344


22Less: taxable-equivalent adjustment





2,389








2,550











161


7Net interest income




$
426,563







$
519,746










$
93,183


22
%




Average Assets and Liabilities of
Discontinued Operations for the
Three Months Ended:

September 30, 2007

September 30, 2008Assets

$
128,494

$
5,738Liabilities

$
126,582

$
60,859Net assets (liabilities)

$
1,912

$
(55,121
)


---

nm = not meaningful

54

---



For the Nine Months Ended

Increase (Decrease) inSeptember 30, 2007

September 30, 2008

Average
Balance

Interest
Income/
Expense(1)Average
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

$
14,544,388

$
721,728


6.63
%
$
16,623,490

$
697,292


5.60
%
$
2,079,102


14
%
$
(24,436
)

(3
)%Construction


2,300,862


132,865


7.72


2,551,348


97,763


5.12


250,486


11


(35,102
)

(26
)Residential mortgage


12,728,651


509,697


5.34


14,593,755


604,506


5.52


1,865,104


15


94,809


19Commercial mortgage


6,222,590


331,429


7.12


7,694,956


336,508


5.83


1,472,366


24


5,079


2Consumer


2,556,710


149,159


7.80


3,030,042


140,129


6.18


473,332


19


(9,030
)

(6
)Lease financing


578,082


17,339


4.00


644,553


13,534


2.80


66,471


11


(3,805
)

(22
)Total Loans


38,931,283


1,862,217


6.39


45,138,144


1,889,732


5.59


6,206,861


16


27,515


1Securitiestaxable


8,574,149


327,874


5.10


8,332,647


301,810


4.83


(241,502
)

(3
)

(26,064
)

(8
)Securitiestax-exempt


56,316


3,468


8.21


52,641


3,232


8.19


(3,675
)

(7
)

(236
)

(7
)Interest bearing deposits in banks


70,650


3,113


5.89


36,936


503


1.82


(33,714
)

(48
)

(2,610
)

(84
)Federal funds sold and securities purchased under resale agreements


596,492


23,644


5.30


301,153


5,573


2.47


(295,339
)

(50
)

(18,071
)

(76
)Trading account assets


339,666


5,200


2.05


827,881


5,287


0.85


488,215


nm


87


2Total earning assets


48,568,556


2,225,516


6.12


54,689,402


2,206,137


5.38


6,120,846


13


(19,379
)

(1
)Allowance for loan losses


(332,690
)







(454,191
)







(121,501
)

(37
)Cash and due from banks


1,931,368








1,675,293








(256,075
)

(13
)Premises and equipment, net


482,373








480,705








(1,668
)

(0
)Other assets


2,416,312








2,632,406








216,094


9Total assets

$
53,065,919







$
59,023,615







$
5,957,696


11
%LiabilitiesDeposits:Transaction accounts

$
13,969,058

$
302,991


2.90

$
15,323,611

$
204,064


1.78

$
1,354,553


10
%
$
(98,927
)

(33
)Savings and consumer time


4,332,052


86,075


2.66


3,974,976


50,684


1.70


(357,076
)

(8
)

(35,391
)

(41
)Large time


9,045,417


338,566


5.00


10,909,525


246,157


3.01


1,864,108


21


(92,409
)

(27
)Total interest bearing deposits


27,346,527


727,632


3.56


30,208,112


500,905


2.21


2,861,585


10


(226,727
)

(31
)Federal funds purchased and securities sold under repurchase agreements


986,589


37,928


5.14


2,628,257


43,628


2.22


1,641,668


nm


5,700


15Net funding allocated from (to) discontinued operations(4)


9,310


362


5.20


45,520


774


2.27


36,210


nm


412


nmCommercial paper


1,576,745


59,446


5.04


1,375,789


26,127


2.54


(200,956
)

(13
)

(33,319
)

(56
)Other borrowed funds


821,270


33,273


5.42


3,224,146


70,563


2.92


2,402,876


nm


37,290


nmMedium and long-term debt


1,752,240


75,625


5.77


2,594,875


65,138


3.35


842,635


48


(10,487
)

(14
)Trust notes


14,713


715


6.48


14,261


715


6.68


(452
)

(3
)




Total borrowed funds


5,160,867


207,349


5.37


9,882,848


206,945


2.80


4,721,981


91


(404
)

(0
)Total interest bearing liabilities


32,507,394


934,981


3.85


40,090,960


707,850


2.36


7,583,566


23


(227,131
)

(24
)Noninterest bearing deposits


14,619,876








12,613,690








(2,006,186
)

(14
)Other liabilities


1,350,586








1,678,057








327,471


24Total liabilities


48,477,856








54,382,707








5,904,851


12Stockholders' EquityCommon equity


4,588,063








4,640,908








52,845


1Total stockholders' equity


4,588,063








4,640,908








52,845


1Total liabilities and stockholders' equity

$
53,065,919







$
59,023,615







$
5,957,696


11
%Net Interest Income/MarginNet interest income/margin (taxable-equivalent basis)





1,290,535


3.54
%




1,498,287


3.65
%







207,752


16Less: taxable-equivalent adjustment





6,755








7,405











650


10Net interest income




$
1,283,780







$
1,490,882










$
207,102


16
%




Average Assets and Liabilities of
Discontinued Operations for the
Nine Months Ended:

September 30, 2007

September 30, 2008Assets

$
130,672

$
74,723Liabilities

$
139,982

$
120,243Net liabilities

$
(9,310
)
$
(45,520
)


---

nm =
not meaningful

55

---





Net interest income in the third quarter of 2008, on a taxable-equivalent basis, increased 22 percent compared to the third quarter of 2007. Our net interest margin increased by
16 basis points. These results were primarily due to the following:



We
use derivatives to hedge expected changes in the yields on our variable rate loans and term certificates of deposit and other time deposits (CDs), and to convert certain
fixed-rate borrowings to floating rate. For loans, we had hedge income of $21.4 million and hedge expense of $9.0 million for the quarters ended September 30, 2008 and
2007, respectively. For long-term fixed rate borrowings, we had hedge income of $6.9 million and hedge expense of $0.6 million for the quarters ended September 30,
2008 and 2007, respectively.

Net
interest income in the nine months ended September 30, 2008, on a taxable-equivalent basis, increased 16 percent compared to the nine months ended September 30,
2007. Our net interest margin increased by 11 basis points. These results were primarily due to the following:



56

---





We
use derivatives to hedge expected changes in the yields on our variable rate loans and CDs, and to convert certain fixed-rate borrowings to floating rate. For loans, we
had hedge income of $49.5 million and hedge expense of $29.3 million for the nine months ended September 30, 2008 and 2007, respectively. For long-term fixed rate
borrowings, we had hedge income of $19.2 million and hedge expense of $0.5 million for the nine months ended September 30, 2008 and 2007, respectively.

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 and nine months ended September 30, 2007 and 2008.

Noninterest Income

For the Three Months Ended

For the Nine Months EndedIncrease
(Decrease)





Increase
(Decrease)September 30,
2007

September 30,
2008

September 30,
2007

September 30,
2008(Dollars in thousands)

Amount

Percent

Amount

PercentService charges on deposit accounts

$
76,210

$
77,079

$
869


1.1
%
$
228,373

$
229,521

$
1,148


0.5
%Trust and investment management fees


39,546


40,638


1,092


2.8


116,062


127,828


11,766


10.1Trading account activities


21,795


12,397


(9,398
)

(43.1
)

50,473


40,096


(10,377
)

(20.6
)Merchant banking fees


10,031


12,789


2,758


27.5


27,917


35,667


7,750


27.8Brokerage commissions and fees


10,476


9,520


(956
)

(9.1
)

29,669


30,014


345


1.2Card processing fees, net


7,785


8,129


344


4.4


22,736


24,060


1,324


5.8Securities gains, net


171


50


(121
)

(70.8
)

1,621


48


(1,573
)

(97.0
)Gains on private capital investments, net


12,203


5,597


(6,606
)

(54.1
)

41,469


7,949


(33,520
)

(80.8
)Gain on the VISA IPO redemption

















14,211


14,211


nmOther


29,970


32,522


2,552


8.5


82,270


84,349


2,079


2.5Total noninterest income

$
208,187

$
198,721

$
(9,466
)

(4.5
)%
$
600,590

$
593,743

$
(6,847
)

(1.1
)%


---

nm =
not meaningful

57

---



Noninterest Expense

For the Three Months Ended

For the Nine Months EndedIncrease
(Decrease)





Increase
(Decrease)(Dollars in thousands)

September 30,
2007

September 30,
2008

September 30,
2007

September 30,
2008Amount

Percent

Amount

PercentSalaries and other compensation

$
187,359

$
204,389

$
17,030


9.1
%
$
568,245

$
600,477

$
32,232


5.7
%Employee benefits


29,453


33,740


4,287


14.6


117,930


122,621


4,691


4.0Salaries and employee benefits


216,812


238,129


21,317


9.8


686,175


723,098


36,923


5.4Net occupancy


37,534


38,574


1,040


2.8


104,919


113,008


8,089


7.7Outside services


19,868


20,777


909


4.6


54,987


58,081


3,094


5.6Professional services


17,669


21,397


3,728


21.1


45,163


51,925


6,762


15.0Equipment


15,426


14,437


(989
)

(6.4
)

47,240


44,925


(2,315
)

(4.9
)Software


14,278


14,812


534


3.7


41,551


44,016


2,465


5.9Advertising and public relations


10,145


12,624


2,479


24.4


28,536


33,579


5,043


17.7Communications


9,421


9,204


(217
)

(2.3
)

26,834


27,690


856


3.2Data processing


8,086


8,945


859


10.6


24,831


23,805


(1,026
)

(4.1
)Intangible asset amortization


1,126


670


(456
)

(40.5
)

3,377


2,011


(1,366
)

(40.5
)Foreclosed asset expense


37


524


487


nm


55


696


641


nmProvision for losses on off-balance sheet commitments


4,000


8,000


4,000


100.0


5,000


21,000


16,000


nmOther


26,445


55,719


29,274


nm


87,849


122,496


34,647


39.4Total noninterest expense

$
380,847

$
443,812

$
62,965


16.5
%
$
1,156,517

$
1,266,330

$
109,813


9.5
%


---

nm =
not meaningful

Income Tax Expense

Our effective tax rate in the third quarter of 2008 was 30.2 percent, compared to 36.9 percent for the third quarter of
2007. The higher effective tax rate in 2007 was due primarily to an adjustment of $11.6 million to income tax expense to recognize the difference between the estimate of California state tax
expense for 2006 and the taxes reported in our 2006 return.

Our
effective tax rate in the nine months ended September 30, 2008 was 31.4 percent, compared to 34.0 percent for the nine months ended September 30, 2007.

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
2007 Form 10-K.

58

---



Loans

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

Increase (Decrease)
September 30, 2008 From:September 30, 2007

December 31, 2007September 30,
2007

December 31,
2007

September 30,
2008(Dollars in thousands)

Amount

Percent

Amount

PercentCommercial, financial and industrial

$
13,837,388

$
14,563,477

$
17,700,604

$
3,863,216


27.9
%
$
3,137,127


21.5
%Construction


2,411,434


2,406,729


2,653,945


242,511


10.1


247,216


10.3Mortgage:Residential


13,451,633


13,827,241


15,691,872


2,240,239


16.7


1,864,631


13.5Commercial


6,529,125


7,021,299


8,032,010


1,502,885


23.0


1,010,711


14.4Total mortgage


19,980,758


20,848,540


23,723,882


3,743,124


18.7


2,875,342


13.8Consumer:Installment


1,258,485


1,327,348


2,166,912


908,427


72.2


839,564


63.3Revolving lines of credit


1,328,747


1,334,132


1,361,784


33,037


2.5


27,652


2.1Total consumer


2,587,232


2,661,480


3,528,696


941,464


36.4


867,216


32.6Lease financing


634,524


654,467


642,642


8,118


1.3


(11,825
)

(1.8
)Total loans held to maturity


39,451,336


41,134,693


48,249,769


8,798,433


22.3


7,115,076


17.3Total loans held for sale


294,005


69,495


56,349


(237,656
)

(80.8
)

(13,146
)

(18.9
)Total loans

$
39,745,341

$
41,204,188

$
48,306,118

$
8,560,777


21.5
%
$
7,101,930


17.2
%


---

nm =
not meaningful



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

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

The
commercial, financial and industrial loan portfolio increased from September 30, 2007 to September 30, 2008 mainly due to increased loan demand primarily in the power
and utilities, oil and gas and national corporate segments, as well as in the California middle market.



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 September 30, 2008, the construction loan portfolio consisted of
approximately three-quarters in the commercial income producing real estate industry and approximately one-quarter with residential homebuilders. The construction loan portfolio increased
from September 30, 2007 to September 30, 2008 primarily due to loan advances for income property projects with apartment, office and retail financing representing the largest components.
During the same period, the homebuilder portfolio fell by approximately

59

---



30%,
or $280 million. Operating conditions continue to weaken for our commercial property developers and residential builders, and as a result we continue to experience negative risk grade
trends in the overall portfolio.

Geographically,
the outstanding homebuilder loan portfolio is distributed as follows: approximately one-third in the San Francisco bay area, approximately
one-third in the Los Angeles/Orange County region, including the Inland Empire, approximately one-fifth from out-of-state, approximately
one-tenth in San Diego, and the remainder in other parts of California.

The
commercial mortgage loan portfolio consists of loans on commercial income properties primarily in California. The commercial mortgage portfolio increased from September 30,
2007 to September 30, 2008 mainly due to demand in the California middle market sector for real estate related financing.



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
September 30, 2008, 68 percent of our residential mortgage loans were interest only, none of which are negative amortizing. At origination, these interest only loans had
relatively high credit scores and had weighted average loan-to-value (LTV) ratios of approximately 66 percent. The remainder of the portfolio consists of balloon or
regular amortizing loans.

We
do not have a program for originating or purchasing subprime loan products. However, we do have loan products that allow a customer to move more quickly through the loan origination
process by reducing the need to verify the income or assets of the customer. We refer to these loans as "no doc" (which we discontinued offering in August 2008), "low doc" and portfolio express loans.
Portfolio express loans are only available through the Retail Banking channel to existing clients for no-cash-out/rate and term refinance of existing residential mortgages with
the Bank and eliminate the verification of both income and assets. "Low doc" loans are offered through all channels and require the verification of assets. In both cases, these loans require lower LTV
ratios and higher FICO® credit scores than for fully documented residential loans. Although these loans comprise nearly half of our residential loan portfolio, the delinquency rates
relative to the outstanding balances at September 30, 2008 were lower than fully documented loans. At September 30, 2008, the total amount of "no doc" and "low doc" loans past due
30 days or more was $44.0 million, compared to $13.2 million at September 30, 2007. The total amount of residential mortgages delinquent 30 days or more was
$114.7 million at September 30, 2008, compared to $33.5 million at September 30, 2007. Although delinquencies have risen since September 30, 2007, the delinquency
ratio remains low compared to the industry average for California prime loans.

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

On
February 13, 2008, President Bush signed into law the Economic Stimulus Act of 2008, which, among other provisions, authorizes the three federal mortgage loan conduits, the
Federal National Mortgage Association (known as Fannie Mae), the Federal Home Loan Mortgage Corporation (known as Freddie Mac) and the Federal Housing Administration, to purchase new and existing
"jumbo" residential mortgage loans originated after June 30, 2007. The legislation has taken effect and sets higher loan limits for each Standard Metropolitan Statistical Area, based on average
housing prices, and increases the current limit on conforming loans which can be purchased by Fannie Mae and Freddie Mac to up to $729,750 from its prior maximum of $417,000. The purpose of the
increased purchase authority, applies to all loans originated through the end of 2008, although legislation has been proposed to permanently extend this provision. The intent of the higher limits is
to provide increased liquidity to the secondary market for "jumbo" residential loans, particularly on residential properties in a number of counties in the State of California where housing prices
remain relatively high. To date, the impact in the marketplace has been minimal due to pricing and underwriting factors, but that

60

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could
change over time, especially if the provision becomes permanent. Improved pricing and more flexible underwriting could result in an increased rate of loan originations and refinancing of loans
on such properties, including properties secured by loans made by us. The degree to which this will occur and its overall effect on our residential mortgage loan portfolio is still not clear at this
time. On September 7, 2008, Fannie Mae and Freddie Mac were placed into conservatorship by federal regulators. The long-term affect of this development on their role as major
mortgage market conduits cannot be predicted at this time.

On
July 30, 2008, President Bush signed into law a housing bill which grants the Treasury Department broad authority to safeguard Fannie Mae and Freddie Mac and authorizes the
Federal Housing
Administration to insure up to $300 billion in refinanced mortgages. It cannot be predicted whether this recent legislation will result in significant improvement in financial and economic
conditions affecting the banking and mortgage industries.



We originate consumer loans, such as auto loans and home equity loans and lines, through our branch network and Private Banking
Offices. The increase in consumer loans from September 30, 2007 was primarily in our FlexEquity line/loan product. The FlexEquity line/loan allows our customers the flexibility to manage a line
of credit with as many as four fixed rate loans under a single product. When customers convert all or a portion of their FlexEquity lines to fixed rate loans, these new loans are classified as
installment loans. Our total home equity loans and lines delinquent 30 days or more were $15.5 million at September 30, 2008, compared to $5.9 million at
September 30, 2007. Although the percentage increase from September 30, 2007 is high, we believe the dollar amount of the increase is not significant as compared to the industry average
for California.



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 September 30, 2008, we had leveraged leases of
$549.6 million, which were net of non-recourse debt of approximately $1.2 billion. We utilize a number of special purpose entities for our leveraged leases. These entities
serve legal and tax purposes and do not function as vehicles to shift liabilities to other parties or to deconsolidate affiliates for financial reporting purposes. As allowed by US GAAP and by
law, the gross lease receivable is offset by the qualifying non-recourse debt. In leveraged lease transactions, the third-party lender may only look to the collateral value of the leased
assets for repayment.

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 September 30 and
December 31, 2007 and September 30, 2008 for Canada, the only country where such outstandings exceeded 1 percent of total assets. The cross-border outstandings were compiled based
upon category and domicile of ultimate risk and are comprised of balances with banks, trading account assets, securities available for sale, securities purchased under resale agreements, loans,
accrued interest receivable, acceptances

61

---



outstanding
and investments with foreign entities. For the country shown in the table below, any significant local currency outstandings are either hedged or funded by local currency borrowings.

(Dollars in millions)

Financial
Institutions

Public
Sector
Entities

Corporations
and Other
Borrowers

Total
OutstandingsSeptember 30, 2007Canada

$
8

$


$
1,039

$
1,047December 31, 2007Canada

$
6

$


$
817

$
823September 30, 2008Canada

$
49

$


$
792

$
841


Provision for Credit Losses

We recorded a provision for loan losses of $16 million and $117 million in the third quarters of 2007 and 2008,
respectively. We recorded a provision for loan losses of $25 million and $284 million for the nine months ended September 30, 2007 and 2008, respectively. We recorded a
$4 million and $8 million provision for losses on off-balance sheet commitments in the third quarters of 2007 and 2008, respectively. We recorded a $5 million and
$21 million provision for losses on off-balance sheet commitments for the nine months ended September 30, 2007 and 2008, respectively. The provisions for loan losses and for losses on
off-balance sheet commitments are charged to income to bring our total allowances for credit losses to a level deemed appropriate by management based on the factors discussed under "Allowances for
Credit Losses" below.

Allowances for Credit Losses



We maintain allowances for credit losses (defined as both the allowance for loan losses and the allowance for off-balance
sheet commitment losses) to absorb losses inherent in the loan portfolio as well as for leases and off-balance sheet commitments. 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 2007 Form 10-K.



At September 30, 2008, our total allowances for credit losses were $692 million, which consisted of $581 million
for loan losses and $111 million for losses on off-balance sheet commitments. The allowances for credit losses consisted of $623 million and $69 million of allocated
and unallocated allowance, respectively. At September 30, 2008, our allowances for credit loss coverage ratios were 1.43 percent of total loans and 240 percent of total nonaccrual
loans. At December 31, 2007, our total allowances for credit losses were $493 million, or 1.20 percent of the total loan portfolio and 885 percent of total nonaccrual
loans.

In
addition, the allowances incorporate the results of measuring impaired loans as provided in SFAS No. 114, "Accounting by Creditors for Impairment of a Loan" as amended by SFAS
No. 118, "Accounting by Creditors for Impairment of a LoanIncome Recognition and Disclosures." These accounting standards prescribe the measurement methods, income recognition and
disclosures related to impaired loans. At September 30, 2008 and December 31, 2007, total impaired loans were $290 million and $56 million, respectively, and the associated
impairment allowances were $42 million and $11 million, respectively.

62

---





At September 30, 2008 and December 31, 2007, the allowance for losses on off-balance sheet commitments included within our total allowances for credit losses
was $111 million and $90 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 $63 million in the third quarter of 2008, compared to $2 million in the third quarter of 2007.

As
a result of management's assessment of the relevant factors, including the credit quality of our loan portfolio, the impact of continued deterioration of commercial real estate and
the significant growth and changes in the composition of the loan portfolio, we recorded a provision for loan losses of $117 million in the third quarter of 2008, compared to a provision for
loan losses of $16 million in the third quarter of 2007. Overall, our loan portfolio experienced higher criticized assets and increases in certain loss factors related to our consumer and small
business portfolios, reflecting the continued deterioration in the economic environment. In addition, we experienced strong loan growth, which resulted in additional provision during the third quarter
of 2008.

We
expect the elevated levels of quarterly provisions for credit losses, which we experienced in the first three quarters of 2008, to continue in the fourth quarter of 2008. The factors
driving the increase in our projected provision during the remaining quarter of 2008 include management's belief that we are in a continued recessionary economic environment, which we believe will
result in further deterioration in our loan portfolio.

During
the third quarter of 2008, there were no material changes in estimation methods or assumptions that affected our methodology for assessing the appropriateness of the formula and
specific allowances for credit losses.



At September 30, 2008, the formula allowance increased to $577 million, compared to $395 million at
December 31, 2007. The net increase was due primarily to an increase in criticized assets and higher loss factors for our consumer loan and small business portfolios. At September 30,
2008, the specific allowance was $46 million, compared to $12 million at December 31, 2007.



At September 30, 2008, the unallocated allowance decreased to $69 million, compared to $86 million at
December 31, 2007, primarily resulting from management's belief that the impact of high fuel prices has been captured and the impact of continued weakness in the homebuilder market has been
more fully captured in our total allocated allowance. Furthermore, management believes that the current level of unallocated allowance is appropriate based on the weakening credit cycle and the level
of uncertainty of the impact of the current economic conditions on our principal portfolio segments. Additionally, the reasons for which we believe an unallocated allowance is warranted are detailed
below.

In
our assessment as of September 30, 2008, management focused, in particular, on the factors and conditions set out below. There can be no assurance that the adverse impact of
any of these conditions on us will not be in excess of the ranges set forth.

Although
in certain instances the downgrading of a loan resulting from the effects of the conditions described below has been reflected in the formula allowance, management believes that
the impact of these events on the collectability of the applicable loans may not have been fully reflected in the level of nonperforming loans or in the internal risk grading process with respect to
such loans. In addition, our formula allowance does not take into consideration sector-specific changes in the severity of losses that are expected to arise from the current economic conditions
compared with our historical losses. Accordingly, our evaluation of the probable losses related to the impact of these factors was reflected in the unallocated allowance. In certain cases, we believe
that credit migration is likely to be somewhat more severe than the long-run average, but a greater share of the inherent probable loss associated with this credit migration is captured in
the allocated

63

---



allowance.
The evaluations of the inherent losses with respect to these factors are subject to higher degrees of uncertainty because they are not identified with specific problem credits.

The
following describes some of the specific conditions we considered.



64

---





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

For the Three Months
Ended September 30,

Increase (Decrease)

For the Nine Months
Ended September 30,

Increase (Decrease)(Dollars in thousands)

2007

2008

Amount

Percent

2007

2008

Amount

PercentBalance, beginning of period

$
335,952

$
526,401

$
190,449


56.7
%
$
331,077

$
402,726

$
71,649


21.6
%Loans charged off:Commercial, financial and industrial


2,719


42,004


39,285


nm


8,559


70,184


61,625


nmConstruction





15,463


15,463


nm





25,013


25,013


nmMortgage


86


2,818


2,732


nm


91


5,093


5,002


nmConsumer


1,696


4,263


2,567


nm


4,416


10,803


6,387


144.6Total loans charged off


4,501


64,548


60,047


nm


13,066


111,093


98,027


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


2,098


1,811


(287
)

(13.7
)

5,550


4,288


(1,262
)

(22.7
)Mortgage


336


2


(334
)

nm


336


2


(334
)

(99.4
)Consumer


245


175


(70
)

(28.6
)

756


901


145


19.2Lease financing


2


5


3


150.0


89


213


124


139.3Total recoveries of loans previously charged off


2,681


1,993


(688
)

(25.7
)

6,731


5,404


(1,327
)

(19.7
)Net loans charged off


1,820


62,555


60,735


nm


6,335


105,689


99,354


nmProvision for loan losses


16,000


117,000


101,000


nm


25,000


284,000


259,000


nmForeign translation adjustment and other net additions


359


(372
)

(731
)

(203.6
)

749


(563
)

(1,312
)

(175.2
)Ending balance of allowance for loan losses

$
350,491

$
580,474

$
229,983


65.6
%
$
350,491

$
580,474

$
229,983


65.6
%Allowance for losses on off-balance sheet commitments


86,374


111,374


25,000


28.9


86,374


111,374


25,000


28.9Allowances for credit losses

$
436,865

$
691,848

$
254,983


58.4
%
$
436,865

$
691,848

$
254,983


58.4
%Allowance for loan losses to total loans(1)


0.88
%

1.20
%







0.88
%

1.20
%Allowances for credit losses to total loans(2)


1.10
%

1.43
%







1.10
%

1.43
%(Reversal of) provision for loan losses to net loans charged off


879.12
%

187.04
%







394.63
%

268.71
%Net loans charged off to average loans outstanding for the period(3)


0.02
%

0.53
%







0.02
%

0.31
%


---

nm =
not meaningful

Nonperforming Assets

Nonperforming assets consist of nonaccrual loans, restructured loans and foreclosed assets. Nonaccrual loans are those for which
management has discontinued accrual of interest because there exists significant uncertainty as to the full and timely collection of either principal or interest or such loans have become
contractually past due 90 days with respect to principal or interest. For a more detailed discussion of the accounting for nonaccrual loans, see Note 1 to the Consolidated Financial
Statements included in our 2007 Form 10-K. Restructured loans are loans in which the Bank has formally restructured all or a significant portion

65

---



of
the loan and provided a concession in the form of debt forgiveness, a modification of interest rate and/or payment terms. The impairment (the shortfall between the present value of the loan under
modified terms and the carrying value) is normally recorded in noninterest expense at the date of restructuring. Restructured loans are disclosed as nonperforming assets for the calendar year of
restructuring, and, if in current status during this period may be disclosed as performing assets thereafter.
Foreclosed assets include property where we acquired title through foreclosure or "deed in lieu" of foreclosure.

The
following table sets forth an analysis of nonperforming assets.

Increase (Decrease)
September 30, 2008 From:September 30,
2007

December 31,
2007September 30,
2007

December 31,
2007

September 30,
2008(Dollars in thousands)

Amount

Percent

Amount

PercentCommercial, financial and industrial

$
36,979

$
29,293

$
162,294

$
125,315


nm

$
133,001


nmConstruction





13,662


93,028


93,028


nm


79,366


nmCommercial mortgage


14,265


12,775


33,553


19,288


nm


20,778


nmTotal nonaccrual loans


51,244


55,730


288,875


237,631


nm


233,145


nmRestructured LoansMortgageResidential








1,449


1,449


nm


1,449


nmForeclosed assets


1,318


795


13,922


12,604


nm


13,127


nmTotal nonperforming assets

$
52,562

$
56,525

$
304,246

$
251,684


nm

$
247,721


nmAllowance for loan losses

$
350,491

$
402,726

$
580,474

$
229,983


65.6
%
$
177,748


44.1
%Allowances for credit losses

$
436,865

$
493,100

$
691,848

$
254,983


58.4
%
$
198,748


40.3
%Nonaccrual loans to total loans


0.13
%

0.14
%

0.60
%Allowance for loan losses to nonaccrual loans(1)


683.96


722.64


200.94Allowances for credit losses to nonaccrual loans(2)


852.52


884.80


239.50Nonperforming assets to total loans and foreclosed assets


0.13


0.14


0.63Nonperforming assets to total assets


0.10


0.10


0.49


---

nm =
not meaningful

The increase in nonaccrual loans from September 30, 2007 to September 30, 2008 was primarily due to an increase in commercial and
construction loans (primarily related to our homebuilder loan portfolio), partially offset by loan pay downs and charge offs. During the nine months ended September 30, 2008, we had three
restructured residential loans totaling $1.4 million for which we recorded a $0.2 million impairment charge. During the third quarters of 2007 and 2008, we had no sales and
$3.6 million in sales of nonperforming loans, respectively.

66

---



Loans 90 Days or More Past Due and Still Accruing

Increase (Decrease)
September 30, 2008 From:September 30,
2007

December 31,
2007September 30,
2007

December 31,
2007

September 30,
2008(Dollars in thousands)

Amount

Percent

Amount

PercentCommercial, financial and industrial

$
3,076

$
3,797

$
1,921

$
(1,155
)
(37.5)%

$
(1,876
)
(49.4)%Construction


3,052








(3,052
)
(100.0)




nmMortgage:Residential


10,975


13,359


39,655


28,680

nm


26,296

nmCommercial








1,781


1,781

nm


1,781

Total mortgage


10,975


13,359


41,436


30,461

nm


28,077

nmConsumer and other


819


2,982


5,873


5,054

nm


2,891

96.9Total loans 90 days or more past due and still accruing

$
17,922

$
20,138

$
49,230

$
31,308

nm

$
29,092

nm


---

nm =
not meaningful

Quantitative and Qualitative Disclosures About Market Risk

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

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

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

The
Treasurer is primarily responsible for the implementation of risk management strategies approved by ALCO and for operational management of market risk through the funding, investment
and derivatives hedging activities of Corporate Treasury. The managers of the Global Markets Division and the Capital Markets Division are responsible for operational management of price risk through
the trading activities conducted in their respective divisions. The Market Risk Monitoring (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 2007 Form 10-K.

67

---







During the third quarter of 2008, our interest rate risk profile became less liability sensitive primarily as a result of the
termination of ALM derivative floors and swaps and elevated short LIBOR rates towards the end of the quarter. During the first quarter of 2008, we added $500 million of interest rate floor
hedges to maintain the Bank's liability sensitive interest rate risk profile (see discussion of "ALM Derivatives" below).

At
September 30, 2008, Economic Net Interest Income (NII) sensitivity was liability sensitive to parallel rate shifts. A +200 basis point parallel shift would reduce
12-month Economic NII by 0.62 percent, while a similar downward shift would increase it by 0.67 percent. At September 30, 2007, a +200 basis point parallel shift would
reduce 12-month Economic NII by 0.13 percent, while a similar downward shift would increase it by 0.74 percent. We caution that 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)

September 30,
2007

December 31,
2007

September 30,
2008+200 basis points

$
(2.6
)
$
(17.4
)
$
(14.2
)as a percentage of base case NII


(0.13
)%

(0.93
)%

(0.62
)%-200 basis points

$
14.7

$
35.2

$
15.3as a percentage of base case NII


0.74
%

1.87
%

0.67
%


The above table is presented on a continuing operations basis, with all assets and liabilities associated with the insurance brokerage business
eliminated for September 30, 2008 and all assets and liabilities of the retirement recordkeeping business eliminated for December 31, 2007 and September 30, 2008. We believe that
this approach provides the best representation of our risk profiles.

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



During the first nine months of 2008, the Bank has maintained a liability sensitive interest rate risk profile to stay protected from
falling rates. The significant growth in loans during the period was supported largely by shorter term funding coupled with lower rates on our interest bearing short-term liabilities,
among other dynamics, has enabled us to position the Bank favorably for lower rates. The elevated short rates towards the end of the third quarter reduced the liability sensitivity position of the
Bank at September 30, 2008. In addition, $2.6 billion in floors and swaps were terminated in the third quarter of 2008 to reduce the overall liability sensitivity to a more moderate risk
profile. The remaining ALM derivatives portfolio continues to protect the bank from falling rates. In managing the interest rate sensitivity of our balance sheet, we use the ALM investment securities
portfolio and derivatives positions as the primary tools to adjust our interest rate risk profile, if necessary. During the third quarter of 2008, we reinvested proceeds from maturing ALM securities
into securities with like terms and asset allocation. New derivative hedges were also added during the year as described below.



At September 30, 2007 and 2008, our available for sale securities portfolio included $6.6 billion and
$6.8 billion, respectively, of securities respectively for ALM purposes. At September 30, 2008, $6.6 billion of the portfolio was pledged to secure trust and public deposits and
for other purposes as required or permitted by

68

---



law.
During the third quarter of 2008, we purchased $462 million par value of securities, while $380 million par value of ALM securities matured or were called.

The
composition of the portfolio is expected to remain relatively stable in 2008. Based on current prepayment projections, the estimated ALM portfolio's effective duration was 2.3 at
September 30, 2008, compared to 2.2 at September 30, 2007. Effective duration is a measure of price sensitivity of a bond portfolio to immediate parallel shifts in interest rates. An
effective duration of 2.3 suggests an expected price decrease of approximately 2.3 percent for an immediate 1.0 percent parallel increase in interest rates.



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

The
fair value of the ALM derivative contracts decreased primarily due to maturities and terminations despite the increase in fair value of remaining interest rate swaps and floor option
contracts from the Federal Reserve Board's interest rate reductions, the expectation of lower future interest rates and higher volatility in interest rates. For additional discussion of derivative
instruments and our hedging strategies, see Note 11 to the condensed consolidated financial statements in this Form 10-Q and Note 19 to our consolidated financial
statements included in our 2007 Form 10-K.

The
following table provides the notional value and the fair value of our ALM derivatives portfolio as of September 30, 2007, December 31, 2007, and September 30,
2008 and the change in fair value between December 31, 2007 and September 30, 2008.

(Dollars in thousands)

September 30,
2007

December 31,
2007

September 30,
2008

Decrease
From December 31, 2007
to September 30, 2008Total gross notional amount of positions held for purposes other than trading:

$
7,750,000

$
9,250,000

$
5,400,000

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











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

$
55,189

$
148,036

$
128,876

$
(19,160
)Gross negative fair value


8,643


2,015





(2,015
)Positive (Negative) fair value of positions, net

$
46,546

$
146,021

$
128,876

$
(17,145
)




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 September 30, 2008, we had $17.9 billion notional amount of interest rate derivative contracts. We enter into these agreements for customer accommodations, and use a
combination of offsetting derivatives,

69

---



futures
and securities positions to neutralize to the extent possible the market risk associated with customer transactions. Additionally, we enter into contracts for our own trading purposes.

We
market energy derivative contracts to existing energy industry customers, primarily oil and gas producers, in order to meet their hedging needs. All transactions are fully matched to
remove our exposure to market risk, with income earned on the credit spread. As of September 30, 2008, we had $4.8 billion notional amount of energy derivative contracts with
approximately half of these energy derivative contracts entered into as an accommodation for customers and the remaining half entered into as matching contracts to remove our exposure to market risk
on our customer accommodation transactions.

The
following table provides the notional value and the fair value of our trading derivatives portfolio as of September 30, 2007, December 31, 2007, and
September 30, 2008 and the change in fair value between December 31, 2007 and September 30, 2008.

(Dollars in thousands)

September 30,
2007

December 31,
2007

September 30,
2008

Increase / (Decrease)
From December 31, 2007
to September 30, 2008Total gross notional amount of positions held for trading purposes:Interest rate

$
11,295,073

$
12,585,978

$
17,946,872

$
5,360,894Foreign exchange


5,914,225


4,665,760


4,993,475


327,715Energy


3,017,533


2,900,690


4,808,754


1,908,064Total

$
20,226,831

$
20,152,428

$
27,749,101

$
7,596,673Fair value of positions held for trading purposes:Gross positive fair value

$
279,494

$
405,709

$
552,179

$
146,470Gross negative fair value


259,914


380,313


534,286


153,973Positive fair value of positions, net

$
19,580

$
25,396

$
17,893

$
(7,503
)


Liquidity Risk

Liquidity risk is the undue risk to the Bank's earnings and capital, which would result from the Bank's inability to meet its
obligations as they come due without incurring unacceptable costs. The management of liquidity risk is governed by the ALM Policy under the oversight of ALCO. Liquidity is managed using a total
balance sheet perspective that analyzes both funding capacity available through increased liabilities and liquidation of assets relative to projected demands for liquidity. The primary sources of
liquidity are core deposits, asset liquidation, including securities sold under repurchase agreements, and wholesale funding, which includes funds raised from interbank and other sources, both
domestic and offshore. The Treasurer is responsible for operational management of liquidity through the funding and investment functions of Corporate Treasury. ALCO also maintains a Liquidity
Contingency Plan that identifies actions to be taken to ensure adequate liquidity if an event should occur that disrupts or adversely affects the Bank's normal funding activities.

Core
deposits provide us with a sizable source of relatively stable and low-cost funds. Our $31.8 billion in average core deposits, which includes demand deposits,
money market demand accounts, savings and consumer time deposits, combined with average common stockholders' equity, funded 59.5 percent of average total assets of $61.1 billion in the
third quarter of 2008. Most of the remaining funding was provided by variable rate wholesale borrowings from secured and unsecured sources.

70

---



Our
securities portfolio provides additional enhancement to our liquidity position, which may be created through either securities sales or repurchase agreements. At September 30,
2008, we could have sold or transferred under repurchase agreements approximately $0.5 billion of our available for sale securities. Liquidity may also be provided by the sale or maturity of
other assets such as interest-bearing deposits in banks, federal funds sold and trading account assets. The aggregate balance of these assets averaged $1.3 billion in the third quarter of 2008.
Additional liquidity may be provided through loan maturities and sales.

The
Bank has a $4 billion unsecured Bank Note Program. As of September 30, 2008, the remaining available funding under the Bank Note Program is $2.6 billion. We do
not have firm commitments in place to sell securities under the Bank Note Program. The Bank has pledged collateral under secured borrowing facilities with the Federal Home Loan Bank of San Francisco
(FHLB) and the Federal Reserve Bank (FRB). The Bank increased its reliance on secured funding during the third quarter of 2008 due to rate advantages and reduced term lending activity in the market.
As of September 30, 2008, the Bank had $4.5 billion of borrowing outstanding with the FHLB, of which $2.6 billion is short-term and included in Other Borrowed Funds.
As of September 30, 2008, the Bank had $3.0 billion in short-term borrowing outstanding with the FRB under the Term Auction
Facility program, which provides access to short-term funds at generally favorable rates. As of September 30, 2008, the Bank had remaining unused borrowing capacity totaling a
combined $16.9 billion from the FHLB and the FRB. The Bank has the capability to pledge additional portions of its unencumbered loan and securities portfolios to the FHLB and the FRB, which
would increase the Bank's borrowing capacity.

We
believe that these sources, in addition to our core deposit and equity capital, provide a stable funding base. Management does not rely on any one source of liquidity and manages
availability in response to changing balance sheet needs. The costs and ability to raise funds are influenced by our credit ratings. The following table provides our credit ratings as of
September 30, 2008.

Union Bank of
California, N.A.

UnionBanCal
CorporationStandard & Poor's

Long-term

A+

AShort-term

A-1

A-1Moody's

Long-term

Aa3

Short-term

P-1

Fitch

Long-term

A+

A+Short-term

F1

F1DBRS

Long-term

A (high)

AShort-term

R-1 (middle)

R-1 (low)


71

---



Regulatory Capital

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

UnionBanCal Corporation

(Dollars in thousands)

September 30,
2007

December 31,
2007

September 30,
2008

Minimum
Regulatory
RequirementCapital ComponentsTier 1 capital

$
4,476,759

$
4,533,763

$
4,923,929Tier 2 capital


1,533,891


1,590,160


1,788,995Total risk-based capital

$
6,010,650

$
6,123,923

$
6,712,924Risk-weighted assets

$
53,287,524

$
54,606,527

$
61,365,714Quarterly average assets

$
53,368,377

$
54,843,792

$
61,771,614




Amount

Ratio

Amount

Ratio

Amount

Ratio

Amount

RatioCapital RatiosTotal capital (to risk-weighted assets)

$
6,010,650


11.28
%
$
6,123,923


11.21
%
$
6,712,924


10.94
%
>
$4,909,257


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


4,476,759


8.40


4,533,763


8.30


4,923,929


8.02

>
2,454,629


4.0Leverage(1)


4,476,759


8.39


4,533,763


8.27


4,923,929


7.97

3
2,470,865


4.0


---

Union Bank of California, N.A.

(Dollars in thousands)

September 30,
2007

December 31,
2007

September 30,
2008

Minimum
Regulatory
Requirement

"Well-Capitalized"
Regulatory
RequirementCapital ComponentsTier 1 capital

$
4,351,532

$
4,449,368

$
5,012,492Tier 2 capital


1,125,260


1,181,796


1,378,628Total risk-based capital

$
5,476,792

$
5,631,164

$
6,391,120Risk-weighted assets

$
52,802,713

$
54,234,495

$
61,318,242Quarterly average assets

$
52,775,720

$
54,277,811

$
61,477,326




Amount

Ratio

Amount

Ratio

Amount

Ratio

Amount

Ratio

Amount

RatioCapital RatiosTotal capital (to risk-weighted assets)

$
5,476,792


10.37
%
$
5,631,164


10.38
%
$
6,391,120


10.42
%
3
$4,905,459


8.0
%
3
$6,131,824


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


4,351,532


8.24


4,449,368


8.20


5,012,492


8.17

3
2,452,730


4.0

3
3,679,095


6.0Leverage(1)


4,351,532


8.25


4,449,368


8.20


5,012,492


8.15

3
2,459,093


4.0

3
3,073,866


5.0


---

We and Union Bank of California 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).

The
decrease in the UnionBanCal Corporation Tier 1 and Total capital ratios from December 31, 2007 was primarily due to an increase in risk-weighted assets
stemming from growth in our loan portfolio. The decrease in the UnionBanCal Corporation and Union Bank of California leverage ratios from December 31, 2007 was primarily due to the increase in
our quarterly average assets, which was due to growth in our loan portfolio.

As
of September 30, 2008 management believes the capital ratios of Union Bank of California 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.

72

---



Business Segments

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

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

The
tables that follow reflect the condensed income statements, selected average balance sheet items, and selected financial ratios, including changes compared to the prior year, for
both 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 operating 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 operating segment that
provides the service and the operating segment that manages the customer relationship. The duplicative results from this internal management accounting view are reflected in "Reconciling Items." The
market view approach fosters cross-selling with a total profitability view of the products and services being managed. For example, the Securities Trading and Sales unit within the Global Markets
Division is a business unit that manages the fixed income securities activities for all retail and corporate customers throughout the Bank. This unit retains and also allocates revenues and expenses
to divisions responsible for such retail and commercial customer relationships.

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

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

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

73

---



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
our discontinued operations. For further information on discontinued operations, see Note 3 to the condensed consolidated financial statements in this Form 10-Q.

Retail Banking





Wholesale BankingAs of and for the
Three Months Ended
September 30,

Increase/
(decrease)

As of and for the
Three Months Ended
September 30,

Increase/
(decrease)2007

2008

Amount

Percent

2007

2008

Amount

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

$
221,023

$
251,559

$
30,536


14
%
$
241,467

$
306,895

$
65,428


27
%Noninterest income


123,802


122,546


(1,256
)

(1
)

93,834


92,489


(1,345
)

(1
)Total revenue


344,825


374,105


29,280


8


335,301


399,384


64,083


19Noninterest expense


218,197


251,561


33,364


15


140,144


156,304


16,160


12Credit expense (income)


6,361


7,056


695


11


28,231


49,115


20,884


74Income (loss) from continuing operations before income taxes


120,267


115,488


(4,779
)

(4
)

166,926


193,965


27,039


16Income tax expense (benefit)


46,002


44,174


(1,828
)

(4
)

50,834


55,457


4,623


9Income (loss) from continuing operations


74,265


71,314


(2,951
)

(4
)

116,092


138,508


22,416


19Loss from discontinued operations, net of income taxes











na











naNet income (loss)

$
74,265

$
71,314

$
(2,951
)

(4
)
$
116,092

$
138,508

$
22,416


19Average balancesMarket View (dollars in millions):Total loans

$
17,050

$
20,089

$
3,039


18

$
22,450

$
27,163

$
4,713


21Total assets


17,858


20,945


3,087


17


27,043


31,973


4,930


18Total deposits


18,954


18,842


(112
)

(1
)

18,374


17,727


(647
)

(4
)Financial ratiosMarket ViewRisk adjusted return on capital(1)


49
%

43
%







21
%

21
%Return on average assets(1)


1.65


1.35








1.70


1.72Efficiency ratio(2)


63.27


67.10








41.80


39.14




Other





Reconciling Items

UnionBanCal
CorporationAs of and for the
Three Months Ended
September 30,

Increase/
(decrease)

As of and for the
Three Months Ended
September 30,

As of and for the
Three Months Ended
September 30,

Increase/
(decrease)2007

2008

Amount

Percent

2007

2008

2007

2008

Amount

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

$
(33,690
)
$
(35,921
)
$
(2,231
)

(7
)%
$
(2,237
)
$
(2,787
)
$
426,563

$
519,746

$
93,183


22
%Noninterest income


7,245


2,973


(4,272
)

(59
)

(16,694
)

(19,287
)

208,187


198,721


(9,466
)

(5
)Total revenue


(26,445
)

(32,948
)

(6,503
)

(25
)

(18,931
)

(22,074
)

634,750


718,467


83,717


13Noninterest expense


32,938


47,741


14,803


45


(10,432
)

(11,794
)

380,847


443,812


62,965


17Credit expense (income)


(18,570
)

60,870


79,440


nm


(22
)

(41
)

16,000


117,000


101,000


nmIncome (loss) from continuing operations before income taxes


(40,813
)

(141,559
)

(100,746
)

nm


(8,477
)

(10,239
)

237,903


157,655


(80,248
)

(34
)Income tax expense (benefit)


(5,930
)

(48,166
)

(42,236
)

nm


(3,242
)

(3,916
)

87,664


47,549


(40,115
)

(46
)Income (loss) from continuing operations


(34,883
)

(93,393
)

(58,510
)

nm


(5,235
)

(6,323
)

150,239


110,106


(40,133
)

(27
)Loss from discontinued operations, net of income taxes


(22,780
)

(5,276
)

17,504


77








(22,780
)

(5,276
)

17,504


77Net income (loss)

$
(57,663
)
$
(98,669
)
$
(41,006
)

(71
)
$
(5,235
)
$
(6,323
)
$
127,459

$
104,830

$
(22,629
)

(18
)Average balancesMarket View (dollars in millions):Total loans

$
5

$
1

$
(4
)

(80
)
$
(20
)
$
(57
)
$
39,485

$
47,196

$
7,711


20Total assets


8,488


8,286


(202
)

(2
)

(22
)

(59
)

53,367


61,145


7,778


15Total deposits


5,254


5,704


450


9


(619
)

(612
)

41,963


41,661


(302
)

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


na


na








na


na


na


naReturn on average assets(1)


na


na








na


na


1.12
%

0.72
%Efficiency ratio(2)


na


na








na


na


59.14


60.37


---

na =
not applicable

nm =
not meaningful

74

---



Retail Banking





Wholesale BankingAs of and for the
Nine Months Ended
September 30,

Increase/
(decrease)

As of and for the
Nine Months Ended
September 30,

Increase/
(decrease)2007

2008

Amount

Percent

2007

2008

Amount

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

$
672,832

$
718,033

$
45,201


7
%
$
725,514

$
873,260

$
147,746


20
%Noninterest income


358,122


369,293


11,171


3


275,440


258,266


(17,174
)

(6
)Total revenue


1,030,954


1,087,326


56,372


5


1,000,954


1,131,526


130,572


13Noninterest expense


668,730


725,208


56,478


8


420,690


451,692


31,002


7Credit expense (income)


18,896


20,337


1,441


8


80,156


135,682


55,526


69Income (loss) from continuing operations before income taxes


343,328


341,781


(1,547
)

0


500,108


544,152


44,044


9Income tax expense (benefit)


131,323


130,731


(592
)

0


153,630


156,485


2,855


2Income (loss) from continuing operations


212,005


211,050


(955
)

0


346,478


387,667


41,189


12Loss from discontinued operations, net of income taxes











na











naNet income (loss)

$
212,005

$
211,050

$
(955
)

0

$
346,478

$
387,667

$
41,189


12Average balancesMarket View (dollars in millions):Total loans

$
16,590

$
18,975

$
2,385


14

$
22,342

$
26,203

$
3,861


17Total assets


17,405


19,806


2,401


14


27,053


30,986


3,933


15Total deposits


18,790


18,577


(213
)

(1
)

18,481


18,160


(321
)

(2
)Financial ratiosMarket ViewRisk adjusted return on capital(1)


46
%

44
%







22
%

20
%Return on average assets(1)


1.63


1.42








1.71


1.67Efficiency ratio(2)


64.86


66.63








42.03


39.92




Other





Reconciling Items

UnionBanCal
CorporationAs of and for the
Nine Months Ended
September 30,

Increase/
(decrease)

As of and for the
Nine Months Ended
September 30,

As of and for the
Nine Months Ended
September 30,

Increase/
(decrease)2007

2008

Amount

Percent

2007

2008

2007

2008

Amount

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

$
(108,063
)
$
(92,317
)
$
15,746


15
%
$
(6,503
)
$
(8,094
)
$
1,283,780

$
1,490,882

$
207,102


16
%Noninterest income


15,694


23,517


7,823


50


(48,666
)

(57,333
)

600,590


593,743


(6,847
)

(1
)Total revenue


(92,369
)

(68,800
)

23,569


26


(55,169
)

(65,427
)

1,884,370


2,084,625


200,255


11Noninterest expense


97,214


124,307


27,093


28


(30,117
)

(34,877
)

1,156,517


1,266,330


109,813


9Credit expense (income)


(73,982
)

128,083


202,065


nm


(70
)

(102
)

25,000


284,000


259,000


nmIncome (loss) from continuing operations before income taxes


(115,601
)

(321,190
)

(205,589
)

nm


(24,982
)

(30,448
)

702,853


534,295


(168,558
)

(24
)Income tax expense (benefit)


(36,670
)

(108,077
)

(71,407
)

nm


(9,556
)

(11,646
)

238,727


167,493


(71,234
)

(30
)Income (loss) from continuing operations


(78,931
)

(213,113
)

(134,182
)

nm


(15,426
)

(18,802
)

464,126


366,802


(97,324
)

(21
)Loss from discontinued operations, net of income taxes


(21,702
)

(12,037
)

9,665


45








(21,702
)

(12,037
)

9,665


45Net income (loss)

$
(100,633
)
$
(225,150
)
$
(124,517
)

(124
)
$
(15,426
)
$
(18,802
)
$
442,424

$
354,765

$
(87,659
)

(20
)Average balancesMarket View (dollars in millions):Total loans

$
20

$
8

$
(12
)

(60
)
$
(21
)
$
(48
)
$
38,931

$
45,138

$
6,207


16Total assets


8,631


8,282


(349
)

(4
)

(23
)

(50
)

53,066


59,024


5,958


11Total deposits


5,364


6,687


1,323


25


(669
)

(603
)

41,966


42,821


855


2Financial ratiosMarket ViewRisk adjusted return on capital(1)


na


na








na


na


na


naReturn on average assets(1)


na


na








na


na


1.17
%

0.83
%Efficiency ratio(2)


na


na








na


na


60.89


59.49


---

na =
not applicable

nm =
not meaningful

75

---







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

During
the nine months ended September 30, 2008, Retail Banking's net income was flat compared to the same period in 2007. The flat net income reflects higher net interest income
and higher noninterest income, partially offset by higher noninterest expense. The increase in net interest income in 2008 is primarily due to strong loan growth and lower rates paid on interest
bearing liabilities, partially offset by lower yields on earning assets and a deposit mix shift from noninterest bearing and low-cost deposits into higher-cost deposits.

Average
assets grew by 14 percent during the nine months ended September 30, 2008, compared to the same period in 2007. This increase was primarily driven by a
15 percent growth in average residential
mortgage loans. Additionally, the focus on home equity loans and more effective cross-selling efforts resulted in a 19 percent growth in consumer loans during the nine months ended
September 30, 2008.

Average
deposits decreased 1 percent during the nine months ended September 30, 2008, compared to the same period in 2007. Retail Banking's strategy continues to focus on
attracting consumer and small business deposits through marketing activities, increasing customer cross-sell, relationship management, increasing and improving sales resources,
establishing new locations and new products. We expect that a larger branch network, along with this Retail Banking strategy, will improve growth prospects when combined with more robust efforts in
the telephone and internet channels.

Noninterest
income increased 3 percent during the nine months ended September 30, 2008, compared to the same period in 2007. This increase was primarily due to growth in
trust fees, partially offset by a decrease in deposit fees. Noninterest expense increased 8 percent during the nine months ended September 30, 2008, compared to the same period in 2007,
primarily due to higher salaries and employee benefits and occupancy expenses. Noninterest expense was also negatively impacted by higher operating losses and regulatory expenses.

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



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



76

---





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

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.





Wholesale Banking offers financing, depository and cash management services to middle market and large corporate businesses primarily
headquartered in the western U.S. Wholesale Banking continues to focus on specific geographic markets and industry segments such as energy, entertainment and real estate. Relationship managers provide
credit services, including commercial loans, accounts receivable and inventory

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financing,
project financing, lease financing, trade financing and real estate financing. In addition to credit services, Wholesale Banking offers cash management services delivered through deposit
managers with significant industry expertise and experience in cash management solutions for businesses, U.S. correspondent banks and government entities, as well as investment and risk management
products.

During
the nine months ended September 30, 2008, Wholesale Banking's net income increased by 12 percent, compared to the same period in 2007, due to higher net interest
income, partially offset by higher credit expense and higher noninterest expense.

For
the nine months ended September 30, 2008, net interest income increased 20 percent, compared to the same period in 2007. The increase in net interest income was
primarily due to a 17 percent increase in average loan balances, mainly in the Energy Capital Services and National Banking divisions, as well as the California middle market. Net interest
income was negatively impacted by a decrease in noninterest bearing deposits and an increase in interest bearing deposits, as well as lower yields on earning assets.

Noninterest
income decreased by 6 percent during the nine months ended September 30, 2008, compared to the same period in 2007, primarily due to lower gains on private
capital investments, partially offset by higher merchant banking, and deposit fees. Noninterest expense increased by 7 percent during the nine months ended September 30, 2008, compared
to the same period in 2007, mainly due to higher salaries and employee benefits.

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

Wholesale Bankingis comprised of the following main divisions:



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



Net loss increased by $124.5 million in the nine months ended September 30, 2008, compared to the same period in 2007,
primarily due to higher credit expenses related to the significant increase in our loan loss provision and higher noninterest expense, partially offset by lower net interest expense and higher
noninterest income.

"Other"
includes the following items:



The
financial results for the nine months ended September 30, 2008 were impacted by the following factors:



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The
financial results for the nine months ended September 30, 2007 were impacted by the following factors:



Regulatory Matters

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

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Pursuant
to the DPA, Union Bank of California also paid $21.6 million in the third quarter of 2007 to the DOJ. The OCC terminated the order on September 28, 2008. On October 1,
2008, the DPA was also terminated and the criminal case to which it related was dismissed.

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

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

The
SEC is conducting an inquiry regarding certain practices related to our mutual fund activities. The inquiry concerns the use of a portion of the fees received under an agreement from
the HighMark Funds by an unaffiliated administrator to pay expenses related to the marketing and distribution of fund shares. The HighMark Funds is a family of mutual funds managed by HighMark Capital
Management, Inc., the investment management subsidiary of Union Bank of California. We are cooperating with this inquiry.

On
October 6, 2008, both UnionBanCal Corporation and Mitsubishi UFJ Financial Group obtained approval from the Board of Governors of the Federal Reserve to become financial
holding companies under the Bank Holding Company Act of 1956, as amended (the BHC Act). We sought this new status from the Federal Reserve Bank (FRB) to provide us maximum flexibility and stability to
pursue new business opportunities as the financial marketplace undergoes rapid and profound changes. UnionBanCal remains subject to the consolidated supervision and regulation of the FRB and the Bank
remains subject to the supervision and regulation of the OCC. The FDIC will continue to insure deposits at the Bank. We do not expect significant adverse tax or accounting effects from this new
status.

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 September 30, 2008. This conclusion is based on an evaluation conducted under the
supervision and with the participation of management. Disclosure controls and procedures are those controls and procedures which ensure that information required to be disclosed in this filing is
accumulated and communicated to management and is recorded, processed, summarized and reported in a timely manner and in accordance with Securities and Exchange Commission rules and regulations.

During
the quarter ended September 30, 2008, 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

For a discussion of the action filed by Data Treasury Corporation, please refer to Item 3 of Part I of
our 2007 Form 10-K.

For
information relating to the Bank Secrecy Act and other anti-money laundering laws and regulations (BSA/AML) matters, please refer to "Management's Discussion and Analysis
of Financial Condition and Results of OperationsRegulatory Matters," in Item 2 of Part I of this Form 10-Q.

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

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

On
August 15, 2008, another alleged stockholder filed a purported class and derivative action captionedVirgin Islands Government Employees' Retirement
System v. Alvarez, et al.(VIGERS) in the Court of Chancery of the State of Delaware. The VIGERS complaint was amended on August 27, 2008 and again on
September 5, 2008. The second amended VIGERS complaint asserted class action claims for breach of fiduciary duty against our current directors, MUFG and BTMU, and claims for
self-dealing against MUFG and BTMU, in connection with the Offer. The complaint also asserted derivative claims for breach of fiduciary duty against our current directors, except for
Nicholas Binkley, and some of our former directors arising out of alleged non-compliance by specified subsidiaries with the Bank Secrecy Act and other anti-money laundering
laws and regulations. The amended complaint also asserted claims alleging that our disclosures regarding the Offer were materially false and misleading in several respects. The second amended VIGERS
complaint sought declaratory and injunctive relief and damages.

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

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

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awarded
their attorneys' fees and costs. We agreed not to oppose such a request, provided that the attorneys' fees and costs requested do not exceed $1.25 million, and to pay such attorneys'
fees and costs as are awarded by the Delaware Chancery Court, again provided that those fees and costs do not exceed $1.25 million.

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

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

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

Item 1A.   Risk Factors

For a discussion of risk factors relating to our business, please refer to Item 1A of Part I of our 2007
Form 10-K, which is incorporated by reference herein, in addition to the following information.



Commencing in 2007 and continuing throughout 2008, certain adverse financial developments have impacted the U.S. and global economies
and financial markets and present challenges for the banking and financial services industry and for UnionBanCal Corporation. These developments include a general slowing of economic growth both
globally and in the U.S. which prompted the Congress to adopt an economic stimulus bill which President Bush signed into law on February 13, 2008, and which prompted the Federal Reserve Board
to decrease its discount rate and the federal funds rate numerous times during 2008. These developments have contributed to substantial volatility in the equity securities markets, as well as
volatility and a tightening of liquidity in the credit markets. In addition, financial and credit conditions in the domestic residential real estate markets have deteriorated significantly,
particularly in the subprime sector. These conditions in turn have led to significant deterioration in certain financial markets, particularly the markets for subprime residential mortgage-backed
securities and for collateralized debt obligations backed by residential mortgage-backed securities. In addition, these conditions have rendered it more difficult for financial institutions and others
to obtain transparent valuations for various portfolio debt securities, especially in the case of collateralized debt obligations backed by residential mortgage-backed securities or other collateral,
including corporate obligations, as well as contributing to a widening of credit spreads and a general lack of liquidity in the marketplace, all of which can result in decreases in fair value of
portfolio securities of these types. On July 30, 2008, President Bush signed into law a housing bill which grants the Treasury Department broad authority to safeguard Fannie Mae and Freddie Mac
and authorizes the Federal Housing Administration to insure up to $300 billion in refinanced mortgages.

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In
the third quarter of 2008, the volatility and disruption in the capital and credit markets reached unprecedented levels. On October 3, 2008, President Bush signed into law the
Emergency Economic Stabilization Act of 2008 (the EESA) in response to the recent financial crises affecting the banking system and financial markets. The EESA was the result of a proposal by Treasury
Secretary Henry Paulson to the U.S. Congress on September 20, 2008, in response to the financial crises affecting the banking system and financial markets and going concern threats to
investment banks and other financial institutions. Pursuant to the EESA, the U.S. Treasury will have the authority to, among other things, purchase up to $700 billion of mortgages,
mortgage-backed securities and certain other financial instruments from financial institutions for the purpose of stabilizing and providing liquidity to the U.S. financial markets. Further, pursuant
to the EESA, on October 14, 2008, the U.S. Treasury announced a voluntary Capital Purchase Program pursuant to which the Treasury will purchase up to $250 billion in senior preferred
stock of qualifying U.S. financial institutions. On October 13, 2008, the U.S. Treasury announced that it had agreed, under the authority of the new law, with the nine largest banks in the U.S.
to purchase an aggregate of $125 billion in senior preferred stock in such banks and that it would allocate an additional $125 billion to the purchase of senior preferred stock in other
banking institutions. The purpose of the program is to provide substantial new capital to the U.S. banking industry. It is expected that many banks and bank holding companies will participate in such
program. UnionBanCal Corporation, as a wholly-owned subsidiary of a foreign bank, will not be eligible to participate in such program.

It
cannot be predicted whether this recent governmental action will result in significant improvement in financial and economic conditions affecting the banking industry. If,
notwithstanding the federal government's recent fiscal and monetary measures, the U.S. economy were to remain in a recessionary condition for an extended period, this would present additional
significant challenges for the U.S. banking and financial services industry and for our company. While it is difficult to predict how long these conditions will exist and which markets and businesses
of our company may be affected, these factors could continue to present risks for some time for the industry and our company.



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



There can be no assurance as to the actual impact that the EESA and the Treasury's Capital Purchase Program will have on the financial
markets, including the extreme levels of volatility and limited credit availability currently being experienced. The failure of the EESA and the Treasury's Capital Purchase Program to help stabilize
the financial markets and a continuation or worsening of current financial market conditions could materially and adversely affect our business, financial condition, results of operations or access to
credit.

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





Deposits of Union Bank of California are insured up to statutory limits by the FDIC, and, accordingly, are subjected to deposit
insurance assessments to maintain the Deposit Insurance Fund. In November 2006, the FDIC issued a final rule, effective January 1, 2007, that created a new assessment system designed to more
closely tie what banks pay for deposit insurance to the risks they pose and adopted a new base schedule of rates that the FDIC can adjust up or down, depending on the revenue needs of the insurance
fund. This new assessment system has resulted in annual assessments on deposits of Union Bank of California of approximately 5 basis points. Prior to this change, Union Bank of California was not
paying any insurance assessments on deposits under the FDIC's risk-related assessment system. An FDIC credit for prior

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contributions
offset the assessment for 2007. Since this credit was exceeded in the second quarter of 2008, the deposit insurance assessments Union Bank of California pays have increased our costs. In
addition, an increase in the deposit insurance assessments that Union Bank of California pays could result from the recent increases in bank closures by the federal banking agencies, as well as FDIC
action that may be taken in connection with other troubled financial institutions. Currently, the Deposit Insurance Fund's ratio of reserves to insured deposits is below the statutory minimum. On
October 7, 2008, the FDIC announced an increase in the deposit insurance premiums payable by banks beginning in 2009, pending final approval of the plan after a comment period. For the first
quarter of 2009, the average premium under the proposal would increase to 13.5 cents on every $100 in deposits, from 6.3 cents currently, and the assessment rate schedule would be raised uniformly by
seven basis points (annualized) beginning on January 1, 2009. Any increases in the deposit insurance assessments Union Bank of California pays would further increase our costs.



Our ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of other
financial institutions. Financial services institutions are interrelated as a result of trading, clearing, counterparty or other relationships. We have exposure to many different industries and
counterparties, and we routinely execute transactions with counterparties in the financial industry, including brokers and dealers, commercial banks, investment banks, mutual and hedge funds, and
other institutional clients. As a result, defaults by, or even rumors or questions about, one or more financial services institutions, or the financial services industry generally, have led to
market-wide liquidity problems and could lead to losses or defaults by us or by other institutions. Many of these transactions expose us to credit risk in the event of default of our
counterparty or client. In addition, our credit risk may be exacerbated when the collateral held by us cannot be realized upon or is liquidated at prices not sufficient to recover the full amount of
the loan or
derivative exposure due us. There is no assurance that any such losses would not materially and adversely affect our results of operations.



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

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

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

Refer
to "Supervision and Regulation" in Item 1 of our 2007 Form 10-K and "Management's Discussion and Analysis of Financial Condition and Results of
OperationsRegulatory Matters" in Item 2 of Part I of this Form 10-Q for discussion of other laws and regulations that may affect our business.



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

We
provide financing to businesses in a number of other industries that may be particularly vulnerable to industry-specific economic factors, including the home building industry, the
commercial real estate industry, the communications/media industry, the retail industry, the energy industry and the technology industry. The home building industry in California has been especially
adversely impacted by the deterioration in residential real estate markets, particularly in the subprime housing sectors, which has lead us to take additional provisions against credit losses in this
portfolio as to which we expect an acceleration of charge offs during the rest of 2008. Continued volatility in fuel prices and energy costs
could adversely affect businesses in several of these industries. Industry-specific risks are beyond our control and could adversely affect our portfolio of loans, potentially resulting in an increase
in nonperforming loans or charge offs and a slowing of growth or reduction in our loan portfolio.



The State of California currently faces economic and fiscal challenges, the long-term impact of which on the State's
economy cannot be predicted with any certainty. A substantial majority of our assets, deposits and fee income are generated in California. As a result, poor economic conditions in California may cause
us to incur losses associated with higher default rates and decreased collateral values in our loan portfolio. Economic conditions in California are subject to various uncertainties at this time,
including significant

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deterioration
in the residential real estate sector, especially the subprime housing markets, and the California state government's budgetary and fiscal difficulties. The California state government
is currently experiencing budget shortfalls which in January 2008 prompted Governor Schwarzenegger to declare a fiscal emergency. The California state budget enacted in September 2008 projects a
deficit of $1.0 billion in 2009-2010 and includes expenditure reductions. It is possible that the legislature response to the state's fiscal difficulties could lead to increased
state taxes in California. The financial and economic consequences of this situation cannot be predicted with any certainty at this time. If economic conditions in California decline further, we
expect that our level of problem assets could increase and our prospects for growth could be impaired.



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

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



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

A
majority of our directors are independent of The Bank of Tokyo-Mitsubishi UFJ and are not officers or employees of UnionBanCal Corporation or any of our affiliates, including The Bank
of Tokyo-Mitsubishi UFJ. However, because of The Bank of Tokyo-Mitsubishi UFJ's control over the election of our directors, we could designate ourselves as a "controlled company" under the New York
Stock Exchange rules and could change the composition of our Board of Directors so that the Board would not have a majority of independent directors. We have not done so.



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

We
may not be successful in completing any acquisition or investment as this will depend on the availability of prospective target opportunities at valuation levels we find attractive
and the competition for such opportunities from other parties. In addition, we continue to evaluate the performance of all of our

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businesses
and business lines and may sell or restructure a business or business line. Any acquisitions or restructurings may result in the issuance of potentially dilutive equity securities,
significant write-offs, including those related to goodwill and other intangible assets, and/or the incurrence of debt, any of which could have a material adverse effect on our business,
results of operations and financial condition. Any divestures may also result in significant write-offs, including those related to goodwill and other intangible assets.

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

Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds



The following table presents repurchases by us of our equity securities during the third quarter of 2008.

Period

Total Number
of Shares
Purchased(1)

Average Price
Paid per Share

Total Number of
Shares Purchased as
Part of Publicly
Announced
Programs

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


642

$
44.01




$
509,722,565August 2008


1,620

$
64.91




$
509,617,403September 2008


2,140

$
73.42




$
509,460,291
(2)Total


4,402

$
66.00





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Item 6.   Exhibits

No.

Description3.1

Certificate of Incorporation of the Company(1)3.2

Bylaws of the Company(2)10.1

Executive Agreement between Union Bank of California N.A. and Timothy H. Wennes, dated as of July 28, 2008(3)10.2

UnionBanCal Corporation Bridge Plan dated September 18, 2008(4)10.3

Form of UnionBanCal Corporation Bridge Plan Award Agreement(5)10.4

Form of UnionBanCal Corporation Bridge Plan Award Agreement with David I. Matson(6)10.5

UnionBank of California, N.A. Supplemental Executive Retirement Plan as amended and restated effective September 18, 2008(7)10.6

UnionBank of California, N.A. Supplemental Executive Retirement Plan for Policy Making Officers as amended and restated effective September 18, 2008(8)31.1

Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(9)31.2

Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(9)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(9)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(9)


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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:    November 6, 2008

By:

/s/ MASAAKI TANAKA Masaaki Tanaka President and Chief Executive Officer
(Principal Executive Officer)Date:    November 6, 2008

By:

/s/ DAVID I. MATSON David I. Matson Vice Chairman and Chief Financial Officer
(Principal Financial Officer)Date:    November 6, 2008

By:

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


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EXHIBIT INDEX

| |      |  |                                                                                                                                                         
| | ---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 3.1  |  | Certificate of Incorporation of the Company(1)                                                                                                          
| | 3.2  |  | Bylaws of the Company(2)                                                                                                                                
| | 10.1 |  | Executive Agreement between Union Bank of California N.A. and Timothy H. Wennes, dated as of July 28, 2008(3)                                           
| | 10.2 |  | UnionBanCal Corporation Bridge Plan dated September 18, 2008(4)                                                                                         
| | 10.3 |  | Form of UnionBanCal Corporation Bridge Plan Award Agreement(5)                                                                                          
| | 10.4 |  | Form of UnionBanCal Corporation Bridge Plan Award Agreement with David I. Matson(6)                                                                     
| | 10.5 |  | UnionBank of California, N.A. Supplemental Executive Retirement Plan as amended and restated effective September 18, 2008(7)                            
| | 10.6 |  | UnionBank of California, N.A. Supplemental Executive Retirement Plan for Policy Making Officers as amended and restated effective September 18, 2008(8) 
| | 31.1 |  | Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(9)                                               
| | 31.2 |  | Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(9)                                               
| | 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(9)
| | 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(9)

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