Table of Contents



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

FORM 10-Q

ý

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended March 31, 2011ORo

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


Commission file number 1-15081

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

Delaware

94-1234979(State of Incorporation)

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

94104-1302(Address of principal executive offices)

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


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

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

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

Large accelerated filer o

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

Smaller reporting company o


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

Number of shares of Common Stock outstanding at April 30, 2011: 136,330,829

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



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UnionBanCal Corporation and Subsidiaries    Table of Contents



PART I. FINANCIAL INFORMATION

38Item 1. Financial Statements

38UnionBanCal Corporation and Subsidiaries Consolidated Statements
of Income (Unaudited)

38UnionBanCal Corporation and Subsidiaries Consolidated Balance Sheets
(Unaudited)

39UnionBanCal Corporation and Subsidiaries Consolidated Statements of Changes in
Stockholder's Equity (Unaudited)

40UnionBanCal Corporation and Subsidiaries Consolidated Statements of Cash Flows
(Unaudited)

41Note 1Basis of Presentation and Nature of Operations

42Note 2Recently Issued Accounting Pronouncements That Are Not Yet
Effective

42Note 3Business Combinations

43Note 4Securities

43Note 5Loans and Allowance for Loan Losses

49Note 6Variable Interest Entities, Private Capital and Other
Investments

56Note 7Employee Pension and Other Postretirement
Benefits

58Note 8Commercial Paper and Other Short-Term Borrowings

59Note 9Long-Term Debt

59Note 10Fair Value Measurement and Fair Value of Financial
Instruments

60Note 11Derivative Instruments and Other Financial Instruments Used
For Hedging

65Note 12Accumulated Other Comprehensive Loss

70Note 13Commitments, Contingencies and Guarantees

71Note 14Business Segments

73Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

5Consolidated Financial Highlights

5Introduction

7Executive Overview

7Critical Accounting Estimates

8Net Interest Income

10Noninterest Income and Noninterest Expense

11Income Tax Expense

13Securities

13Loans Held for Investment

14Allowance for Credit Losses

16Nonperforming Assets

19Loans 90 Days or More Past Due and Still Accruing

20Deposits

21Quantitative and Qualitative Disclosures About Market Risk

21Liquidity Risk

25Capital

28Business Segments

29Item 3. Quantitative and Qualitative Disclosures About Market Risk

36Item 4. Controls and Procedures

37PART II. OTHER INFORMATION

77Item 1. Legal Proceedings

77Item 1A. Risk Factors

77Item 6. Exhibits

85SIGNATURES

86


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NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report includes forward-looking statements, which include expectations for our operations and business and our assumptions for
those expectations. Do not rely unduly on forward-looking statements. Actual results might differ significantly compared to our expectations. See Part I, Item 1A. "Risk Factors," in our
2010 Annual Report on Form 10-K, Part II, Item 1A. "Risk Factors" in this report, and the other risks described in this report and in our 2010 Annual Report on
Form 10-K for factors to be considered when reading any forward-looking statements in this filing.

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

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



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

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

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

UnionBanCal Corporation and Subsidiaries  Consolidated Financial Highlights

For the
Three Months Ended(Dollars in millions)

March 31,
2011

March 31,
2010

Percent
ChangeResults of operations:Net interest income

$
618

$
574


8
%(Reversal of) provision for loan losses


(102
)

170


nmNoninterest income


240


210


14Noninterest expense


615


525


17Income before income taxes and including noncontrolling interests


345


89


288Income tax expense


114


15


nmNet income including noncontrolling interests


231


74


212Deduct: Net loss from noncontrolling interests


4


3


33Net income attributable to UnionBanCal Corporation (UNBC)

$
235

$
77


205Balance sheet (period average):Total assets

$
80,056

$
84,810


(6
)%Total securities


21,601


23,546


(8
)Total loans held for investment


48,283


46,848


3Earning assets


71,351


77,660


(8
)Total deposits


59,471


67,838


(12
)UNBC Stockholder's equity


10,167


9,532


7Performance Ratios:Return on average assets(1)


1.19
%

0.37
%Return on average UNBC stockholder's equity(1)


9.38


3.29Core efficiency ratio, excluding impact of privatization(2)


67.47


61.51Net interest margin(1)(3)


3.49


2.98Net loans charged off to average total loans held for investment(1)


0.44


1.03Net loans charged off to average total loans held for investment, excluding FDIC covered assets(1)(8)


0.46


1.03




As ofMarch 31, 2011

December 31, 2010Balance sheet (end of period):Total assets

$
80,642

$
79,097


2
%Total securities


21,673


22,114


(2
)Total loans held for investment


48,105


48,094


Nonperforming assets


1,032


1,142


(10
)Total deposits


58,677


59,954


(2
)Long-term debt


6,078


5,598


9UNBC Stockholder's equity


10,355


10,125


2Capital ratios:Tier 1 risk-based capital ratio


12.84
%

12.44
%Total risk-based capital ratio


15.41


15.01Leverage ratio


10.66


10.34Tier 1 common capital ratio(4)


12.84


12.42Tangible common equity ratio(5)


9.80


9.67Credit Ratios:Allowance for loan losses to total loans held for investment(6)


2.15
%

2.48
%Allowance for loan losses to nonaccrual loans(6)


118.50


123.40Allowance for credit losses to total loans held for investment(7)


2.46


2.81Allowance for credit losses to nonaccrual loans(7)


135.61


140.23Nonperforming assets to total loans held for investment and other real estate owned (OREO)


2.14


2.37Nonperforming assets to total assets


1.28


1.44Nonaccrual loans to total loans held for investment


1.81


2.01Excluding FDIC covered assets(8):Allowance for loan losses to total loans held for investment(6)


2.17
%

2.50
%Allowance for loan losses to nonaccrual loans(6)


129.10


137.32Allowance for credit losses to total loans held for investment(7)


2.48


2.85Allowance for credit losses to nonaccrual loans(7)


148.17


156.44Nonperforming assets to total loans held for investment and OREO


1.74


1.91Nonperforming assets to total assets


1.03


1.15Nonaccrual loans to total loans held for investment


1.68


1.82


(1)Annualized.(2)The
core efficiency ratio, excluding impact of privatization, a non-GAAP financial measure, is net noninterest expense
(noninterest expense excluding privatization-related expenses and fair value amortization/accretion, foreclosed asset expense, the (reversal of) provision for losses on off-balance sheet
commitments, low income housing credit investment amortization expense, expenses of the consolidated Variable Interest Entities (VIEs), merger costs related to the acquisitions of


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certain
assets and assumption of certain liabilities of Frontier Bank and Tamalpais Bank) as a percentage of total revenue (net interest income (taxable-equivalent basis) and noninterest income).
Management discloses the core efficiency ratio as a measure of the efficiency of our operations, focusing on those costs most relevant to our core activities. Refer to "Noninterest Expense" in this
Form 10-Q for further information. (3)Amounts
are on a taxable-equivalent basis using the federal statutory tax rate of 35 percent.(4)The
Tier 1 common capital ratio is the ratio of Tier 1 capital, less qualifying trust preferred securities, to
risk-weighted assets. The Tier 1 common capital ratio, a non-GAAP financial measure, has been included to facilitate the understanding of the Company's capital structure
and for use in assessing and comparing the quality and composition of UNBC's capital structure to other financial institutions. Refer to "Capital" in this Form 10-Q for further
information. All of the trust preferred securities were paid off during the quarter ended March 31, 2011.(5)The
tangible common equity ratio, a non-GAAP financial measure, is calculated as tangible common equity divided by tangible
assets. The methodology of determining tangible common equity may differ among companies. The tangible common equity ratio has been included to facilitate the understanding of the Company's capital
structure and for use in assessing and comparing the quality and composition of UNBC's capital structure to other financial institutions. Refer to "Capital" in this Form 10-Q for
further information.(6)The
allowance for loan losses ratios are calculated using the allowance for loan losses against end of period total loans held for investment
or total nonaccrual loans, as appropriate.(7)The
allowance for credit losses ratios are calculated using the sum of the allowances for loan losses and for losses on
off-balance sheet commitments against end of period total loans held for investment or total nonaccrual loans, as appropriate.(8)These
ratios exclude the impact of the acquired loans and OREO, which are covered under loss share agreements between Union Bank, N.A. and
the FDIC. Such agreements are related to the April 2010 acquisitions of certain assets and assumption of certain liabilities of Frontier and Tamalpais. nm = not meaningful


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

Please
refer to our Consolidated Financial Statements and the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended
December 31, 2010 (2010 Form 10-K) along with the following discussion and analysis of our consolidated financial condition and results of operations for the period ended
March 31, 2011 in this Form 10-Q. Averages, as presented in the following tables, are substantially all based upon daily average balances.

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

Introduction

We are a California-based financial holding company and commercial bank holding company whose major subsidiary, Union Bank, N.A. (the
Bank), is a commercial bank. We provide a wide range of financial services to consumers, small businesses, middle-market companies and major corporations, primarily in California, Oregon, Washington
and Texas, as well as nationally and internationally. We had consolidated assets of $80.6 billion at March 31, 2011.

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

Executive Overview

We are providing you with an overview of what we believe are the most significant factors and developments that impacted our first
quarter 2011 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.

Our
sources of revenue are net interest income and noninterest income. Net interest income is generated predominantly from interest received from loans, investment securities and other
interest-earning assets, less interest paid on deposits and borrowings. The primary sources of noninterest income are revenues from service charges on deposit accounts, trust and investment management
fees, and trading account activities. Changes in interest rates, credit quality, economic trends and the capital markets are primary factors that impact our revenue sources. A summary of our key
financial results are presented below:



In the first quarter of 2011, total revenue was comprised of 72 percent net interest income and 28 percent noninterest
income. Our net interest income increased $44 million, or 8 percent, to $618 million in the first quarter of 2011 compared to the first quarter of 2010. Our net interest margin
increased 51 basis points to 3.49 percent compared to the same period last year. The increase in net interest margin was primarily driven by a decrease in lower yielding interest bearing
deposits in banks and by lower rates paid on interest bearing liabilities driven by targeted rate reductions in interest bearing deposits. Reflecting this planned deposit decline, our average interest
bearing deposits decreased by 21 percent to $42.3 billion compared to the first quarter of 2010. Likewise, our average interest bearing deposits in banks decreased by 82 percent
to

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$1.2 billion
compared to the first quarter of 2010. This resulted in a decrease in the annualized average all-in-cost of funds from 0.62 percent in the first
quarter of 2010 to 0.51 percent in the first quarter of 2011.

In
the first quarter of 2011, our noninterest income increased $30 million, or 14 percent, from the first quarter of 2010 to $240 million, primarily due to a gain on
the sale of MasterCard shares and higher trading account revenue, partially offset by reductions in service charges on deposit accounts. Our noninterest expense increased $90 million, or
17 percent, to $615 million compared to the same period last year, primarily due to higher base salaries, largely driven by the growth in the number of employees partially as a result of
our Tamalpais and Frontier acquisitions, benefits and incentive compensation accruals, and certain reserves for contingencies. These increases were partially offset by lower regulatory assessment
expense, higher reversals for provision for losses on off-balance sheet commitments and lower privatization-related intangible asset amortization.

During
the first quarter of 2011, the total reversal of provision for credit losses was $115 million compared to a total provision for credit losses of $165 million in the
first quarter of 2010. The decrease was primarily due to improved credit quality of the loan portfolio, reflecting a reduced level of criticized balances, including lower nonaccrual loans and lower
loss factors during the first quarter of 2011 compared to the first quarter of 2010. See further discussion below under "Allowance for Credit Losses."

Our
nonperforming assets totaled $1.0 billion and $1.1 billion at March 31, 2011 and December 31, 2010, respectively. Our nonperforming assets, excluding FDIC
covered assets, totaled $815 million and $890 million at March 31, 2011 and December 31, 2010, respectively. The decrease in nonperforming assets, excluding FDIC covered
assets, from December 31, 2010 resulted from lower levels of nonaccrual loans primarily in our commercial mortgage portfolio and our construction portfolio as a result of increased sales and
charge-offs of problem loans in the first quarter of 2011. Total net loan charge-offs were $53 million in the first quarter of 2011 and $119 million in the first
quarter of 2010.



Our total assets increased $1.5 billion, or 2 percent, to $80.6 billion at March 31, 2011 from
December 31, 2010. Interest bearing deposits in banks increased $1.7 billion from $0.2 billion at December 31, 2010 to $1.9 billion at March 31, 2011,
partially offset by a $0.5 billion, or 2 percent decrease in securities available for sale from the corresponding balances at December 31, 2010.

Our
total liabilities increased $1.3 billion, or 2 percent, to $70.0 billion at March 31, 2011 from December 31, 2010, primarily due to an increase in
commercial paper and other short-term borrowings, partially offset by a decrease in interest bearing deposits. This planned deposit decline resulted primarily from targeted rate
reductions. Total loans increased $168 million to $47.1 billion at March 31, 2011 from December 31, 2010. Total loans, excluding FDIC covered loans, also remained
relatively flat compared to December 31, 2010.

Our
stockholder's equity of $10.4 billion at March 31, 2011 grew $230 million, or 2 percent, from December 31, 2010. Our Tier 1
risk-based capital ratio increased to 12.84 percent from 12.44 percent, the total risk-based capital ratio increased to 15.41 percent from
15.01 percent and our tangible common equity ratio increased to 9.80 percent from 9.67 percent, at March 31, 2011 from December 31, 2010, respectively. These capital
ratios increased during the period primarily as capital accumulation from earnings retention outpaced capital requirements to support our asset growth.

Critical Accounting Estimates

UnionBanCal Corporation's consolidated financial statements are prepared in accordance with accounting principles generally accepted in
the United States of America (US GAAP) and the general practices of the banking industry, which include management estimates and judgments. The financial information contained within our
statements is, to a significant extent, financial information that is based on approximate

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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. For example, we use discount factors and other assumptions to determine the fair value of certain assets and liabilities. A change in the
discount factor
or another important assumption could significantly increase or decrease the values of those assets and liabilities and result in either a beneficial or an adverse impact to our financial results. We
use historical loss factors, adjusted for current conditions, to estimate the inherent credit loss present in our loan and lease portfolio. Actual losses could differ significantly from the loss
factors that we use. Other significant estimates that we use include the fair values of our acquired loans (see Note 5 in this Form 10-Q), FDIC indemnification asset, and
certain derivatives and securities (see Notes 10 and 11 in this Form 10-Q), assumptions used in measuring our pension obligations, and assumptions regarding our effective
income tax rates.

For
each financial reporting period, our most significant estimates are presented to and discussed with the Audit & Finance Committee of our Board of Directors.

Understanding
our accounting policies is fundamental to understanding our consolidated financial condition and consolidated results of operations. Accordingly, both our Critical
Accounting Estimates and our significant accounting policies are discussed in detail in our 2010 Form 10-K filed with the SEC. There have been no material changes to these critical
accounting estimates during the first quarter of 2011.

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Financial Performance

Net Interest Income

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

For the Three Months Ended

Increase (Decrease) inMarch 31, 2011

March 31, 2010





Interest
Income/
Expense(1)Average BalanceAverage
Balance

Interest
Income/
Expense(1)

Average
Yield/
Rate(1)(2)

Average
Balance

Interest
Income/
Expense(1)

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

Amount

Percent

Amount

PercentAssetsLoans:(3)Commercial, financial and industrial

$
15,325

$
157


4.13
%
$
14,955

$
162


4.39
%
$
370


2
%
$
(5
)

(3
)%Construction


1,341


12


3.48


2,309


17


2.97


(968
)

(42
)

(5
)

(29
)Residential mortgage


17,794


220


4.94


16,785


228


5.42


1,009


6


(8
)

(4
)Commercial mortgage


7,778


85


4.38


8,234


86


4.20


(456
)

(6
)

(1
)

(1
)Consumer


3,823


40


4.29


3,916


43


4.43


(93
)

(2
)

(3
)

(7
)Lease financing


776


8


4.33


649


6


3.81


127


20


2


33Total loans, excluding FDIC covered loans


46,837


522


4.48


46,848


542


4.65


(11
)

(0
)

(20
)

(4
)FDIC covered loans


1,446


39


10.89











1,446


nm


39


nmTotal loans


48,283


561


4.67


46,848


542


4.65


1,435


3


19


4Securities


21,601


143


2.64


23,546


144


2.44


(1,945
)

(8
)

(1
)

(1
)Interest bearing deposits in banks


1,200


1


0.25


6,597


4


0.25


(5,397
)

(82
)

(3
)

(75
)Federal funds sold and securitiespurchased under resale agreements


96





0.18


461





0.10


(365
)

(79
)




Trading account assets


150





1.19


208


1


1.68


(58
)

(28
)

(1
)

(100
)Other earning assets


21





3.49











21


nm





Total earning assets


71,351


705


3.97


77,660


691


3.57


(6,309
)

(8
)

14


2Allowance for loan losses


(1,182
)







(1,407
)







225


16Cash and due from banks


1,246








1,205








41


3Premises and equipment, net


712








674








38


6Other assets


7,929








6,678








1,251


19Total assets

$
80,056







$
84,810







$
(4,754
)

(6
)%LiabilitiesInterest bearing deposits:Transaction and money market accounts

$
25,489

$
15


0.25

$
39,861

$
63


0.64

$
(14,372
)

(36
)
$
(48
)

(76
)Savings and consumer time


7,857


14


0.71


5,972


12


0.81


1,885


32


2


17Large time


8,987


24


1.03


7,621


11


0.56


1,366


18


13


118Total interest bearing deposits


42,333


53


0.50


53,454


86


0.65


(11,121
)

(21
)

(33
)

(38
)Commercial paper and other short-term borrowings(4)


2,435


1


0.27


1,496


1


0.40


939


63





Long-term debt


5,902


31


2.16


4,574


27


2.35


1,328


29


4


15Total borrowed funds


8,337


32


1.61


6,070


28


1.87


2,267


37


4


14Total interest bearing liabilities


50,670


85


0.68


59,524


114


0.77


(8,854
)

(15
)

(29
)

(25
)Noninterest bearing deposits


17,138








14,384








2,754


19Other liabilities


1,815








1,276








539


42Total liabilities


69,623








75,184








(5,561
)

(7
)EquityUNBC Stockholder's equity


10,167








9,532








635


7Noncontrolling interests


266








94








172


183Total equity


10,433








9,626








807


8Total liabilities and equity

$
80,056







$
84,810







$
(4,754
)

(6
)%Net interest income/spread (taxable-equivalent basis)





620


3.29
%




577


2.80
%







43


7
%Impact of noninterest bearing deposits








0.17








0.15Impact of other noninterest bearing sources








0.03








0.03Net interest margin








3.49








2.98Less: taxable-equivalent adjustment





2








3











(1
)

(33
)Net interest income




$
618







$
574










$
44


8
%


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


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Net interest income for the first quarter of 2011, on a taxable-equivalent basis, increased $43 million, or 7 percent, compared to the first quarter
of 2010. Our net interest margin in the first quarter of 2011 increased by 51 basis points to 3.49 percent compared to the first quarter of 2010. These results were primarily due to the
following:



Noninterest Income and Noninterest Expense

The following tables detail our noninterest income and noninterest expense for the first quarters of 2011 and 2010.

Noninterest Income

For the Three Months EndedIncrease
(Decrease)March 31,
2011

March 31,
2010(Dollars in millions)

Amount

PercentService charges on deposit accounts

$
57

$
66

$
(9
)

(14
)%Trust and investment management fees


34


31


3


10Trading account activities


33


21


12


57Securities gains, net


28


34


(6
)

(18
)Merchant banking fees


19


14


5


36Brokerage commissions and fees


13


9


4


44Card processing fees, net


10


9


1


11Other


46


26


20


77Total noninterest income

$
240

$
210

$
30


14
%


11

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Table of Contents

Noninterest Expense

For the Three Months EndedIncrease
(Decrease)March 31,
2011

March 31,
2010(Dollars in millions)

Amount

PercentSalaries and other compensation

$
263

$
225

$
38


17
%Employee benefits


81


55


26


47Salaries and employee benefits


344


280


64


23Net occupancy and equipment


65


59


6


10Professional and outside services


44


39


5


13Intangible asset amortization


25


32


(7
)

(22
)Regulatory assessments


21


30


(9
)

(30
)Software


17


15


2


13Low income housing credit investment amortization


13


14


(1
)

(7
)Advertising and public relations


13


10


3


30Data Processing


10


8


2


25Communications


10


10





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


(13
)

(5
)

(8
)

160Other


66


33


33


100Total noninterest expense

$
615

$
525

$
90


17
%


The primary contributors to the changes in our noninterest income and noninterest expense for the first quarter of 2011 compared to the first quarter of 2010 are
presented below.

The
increase in our noninterest income was the result of several factors:



The
increase in our noninterest expense was the result of several factors:



12

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The
core efficiency ratio, excluding the privatization transaction, is a non-GAAP financial measure that is used by management to measure the efficiency of our operations,
focusing on those costs most relevant to our core activities. The following table shows the calculation of this ratio for the first quarters of 2011 and 2010.

For the
Three Months Ended(Dollars in millions)

March 31,
2011

March 31,
2010Noninterest Expense

$
615

$
525Less: Foreclosed asset expense


3


Less: (Reversal of) provision for losses on off-balance sheet commitments


(13
)

(5
)Less: Low income housing credit investment amortization expense


13


14Less: Expenses of the consolidated variable interest entity (VIE)


6


5Less: Merger costs related to acquisitions


13


Net noninterest expense before privatization adjustments

$
593

$
511Net adjustments related to privatization adjustments


26


39Net noninterest expense, excluding privatization transaction (a)

$
567

$
472Total Revenue

$
858

$
784Add: Net interest income taxable-equivalent adjustment


2


3Total revenue, including taxable-equivalent adjustment


860


787Less: Accretion related to privatization-related fair value adjustments


21


19Total revenue, excluding impact of privatization transaction (b)

$
839

$
768Core efficiency ratio, excluding impact of privatization (a)/(b)


67.47
%

61.51
%


Income Tax Expense

Our effective tax rate in the first quarter of 2011 was 33 percent, compared to 17 percent for the first quarter of 2010.
The change in the effective tax rate was primarily due to higher income before taxes in the first quarter of 2011 as compared to 2010. The amount of income tax credits remained consistent from year to
year, but their impact on our effective tax rate decreased as our income before taxes increased.

For
further information regarding income tax expense, see "Management's Discussion and Analysis of Financial Condition and Results of OperationsIncome Tax Expense" and
"Changes in our tax rates could affect our future results" in "Risk Factors" in Part I, Item 1A and Note 12 to the consolidated
financial statements in our 2010 Form 10-K.

Securities

Management of the securities portfolio involves the maximization of return while maintaining prudent levels of quality, market risk and
liquidity. At March 31, 2011, approximately 95 percent of our securities, based upon amortized cost, were investment grade. The amortized cost, gross unrealized gains, gross unrealized
losses and fair values of securities are detailed in Note 4 to our consolidated financial statements included in this Form 10-Q.

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Table of Contents

Our
securities available for sale are recorded at fair value with the change in fair value recognized in accumulated other comprehensive income. Our Asset and Liability Management (ALM)
Securities portfolio consists of available for sale U.S. Government, state and municipal, mortgage-backed securities, and asset-backed securities held for ALM purposes. Our ALM Securities portfolio
had a fair value of $20.1 billion and an expected weighted average maturity of 3.2 years.

Our
securities held to maturity consist of collateralized loan obligations (CLO) securities, which primarily consist of Cash Flow CLOs. A Cash Flow CLO is a structured finance product
that securitizes a diversified pool of loan assets into multiple classes of notes from the cash flows generated by such loans. Cash Flow CLOs pay the note holders through the receipt of interest and
principal repayments from the underlying loans unlike other types of CLOs that pay note holders through the trading and sale of underlying collateral.

Loans Held for Investment

The following table shows loans held for investment outstanding by loan type and as a percentage of total loans held for investment at
the end of each period presented.

Increase / (Decrease)
March 31, 2011
From
December 31, 2010March 31,
2011

December 31,
2010(Dollars in millions)

Amount

PercentLoans held for investment:Commercial, financial and industrial

$
15,143

$
15,162

$
(19
)


%Construction


1,153


1,460


(307
)

(21
)Residential mortgage


18,110


17,531


579


3Commercial mortgage


7,749


7,816


(67
)

(1
)Consumer:Installment


1,983


2,035


(52
)

(3
)Revolving lines of credit


1,804


1,823


(19
)

(1
)Total consumer


3,787


3,858


(71
)

(2
)Lease financing


773


757


16


2Total loans held for investment, excludingFDIC covered loans


46,715


46,584


131


FDIC covered loans


1,390


1,510


(120
)

(8
)Total loans held for investment

$
48,105

$
48,094

$
11



%




The commercial, financial and industrial loan category is the second largest category in our loan portfolio. These loans are extended
principally to corporations, middle-market businesses and small businesses. Our commercial market lending originates loans 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 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, power and utilities, oil and gas, manufacturing, wholesale trade, communications, entertainment, healthcare, retailing, and financial
services. These industries comprise the majority of our commercial, financial and industrial portfolio. While loans extended within these sectors comprise the majority of our commercial, financial and
industrial portfolio, no individual industry sector exceeded 10 percent of our total loans held for investment at either March 31, 2011 or December 31, 2010.

14

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Table of Contents

The
commercial, financial and industrial portfolio has been essentially flat from December 31, 2010 to March 31, 2011, reflecting uneven growth in new loan opportunities
coupled with continued low utilization rates on our existing revolving facilities. Overall portfolio credit quality continues to improve as borrowers' financial condition improves and as they have
access to more refinancing options.



We engage in real estate lending that includes commercial mortgage loans and construction loans secured by deeds of trust. The
commercial mortgage loan portfolio consists of loans secured by commercial income properties primarily in California. The commercial mortgage portfolio decreased from December 31, 2010 to
March 31, 2011 due primarily to early repayments and normal loan paydowns, partially offset by new originations.

Construction
loans are extended primarily to commercial property developers and to residential builders. As of March 31, 2011, the construction loan portfolio consisted of
approximately 85 percent in the commercial income producing real estate industry and 15 percent with residential homebuilders. The construction loan portfolio decreased 21 percent
from December 31, 2010 to March 31, 2011 due to
declines of $295 million, or 24 percent, in the income property portfolio and $17 million, or 9 percent, in the homebuilder portfolio. The income property portfolio
reductions were concentrated mostly in the office and apartment property types. Geographically, the outstanding construction loan portfolio was concentrated 40 percent in California and
60 percent out-of-state as of March 31, 2011. The largest out-of-state concentration was 22 percent in Washington. The California
outstandings are distributed as follows: 55 percent in the Los Angeles/Orange County region, including the Inland Empire, 14 percent in the San Francisco Bay Area, 11 percent in
Sacramento and the Central Valley, 10 percent in San Diego, and 10 percent in the Central Coast region.



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 telephone centers) throughout California, Oregon and Washington, and we periodically purchase loans in our market
area.

At
March 31, 2011, 73 percent of our residential mortgage loans were interest only, none of which are negative amortizing. At origination, these interest only loans had
strong credit profiles and had weighted average loan-to-value (LTV) ratios of approximately 67 percent. The remainder of the portfolio consists of a small amount of
balloon loans and regularly amortizing loans.

We
do not have a program for originating or purchasing subprime loan products. The Bank's "no doc" and "low doc" loan origination programs were discontinued in 2008 (except for a
streamlined refinance process for existing Bank mortgages, which represent only a small segment of the portfolio). At March 31, 2011, the outstanding balances of the "no doc" and "low doc"
portfolios were approximately 36 percent of our total residential loan portfolio, and the loan delinquency rates with respect to these portfolios remained low compared to the industry average
for California prime loans. At March 31, 2011, the aggregate balance of "no doc" and "low doc" loans past due 30 days or more was $163 million, compared to $175 million at
December 31, 2010.

Total
residential mortgage loans 30 days or more delinquent were $339 million at March 31, 2011, compared to $350 million at December 31, 2010. Our
residential loan delinquency rates have remained low when compared to the industry average for California prime loans. We believe that our underwriting standards remain conservative, and as described
above, programs with higher risk have been discontinued.

We
hold substantially all of the loans we originate; however, we do sell some of our 30-year, fixed rate loans.

15

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Table of Contents



We originate consumer loans, including home equity loans and lines, principally through our branch network and Private Banking Offices.
Our total home equity loans and lines delinquent 30 days or more were $40 million at March 31, 2011, compared to $36 million at December 31, 2010. All equity secured
lines are reviewed annually for creditworthiness, either manually or in an automated fashion, regardless of the line amount or when they were originated. Those equity lines that were originated since
2004 with a commitment amount over $200,000 are manually reviewed, which includes obtaining an updated credit report as well as an updated value on the property to reassess our LTV position. We
typically reduce or freeze limits, as applicable and pursuant to applicable laws and regulations, to minimize additional exposure during periods of declining home prices.



We offer two types of leases to our customers: direct financing leases, where the assets leased are acquired without additional
financing from other sources; and leveraged leases, where a substantial portion of the financing is provided by debt with no recourse to us. At March 31, 2011, we had leveraged leases of
$535 million, which were net of non-recourse debt of approximately $1.1 billion. We utilize a number of special purpose entities for our leveraged leases. These entities do
not function as vehicles to shift liabilities to other parties or to deconsolidate affiliates for financial reporting purposes. As allowed by US GAAP for leveraged leases, 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
in the event of lessee default.



We acquired loans as part of the FDIC-assisted acquisitions of certain assets and assumption of certain liabilities of
Frontier Bank (Frontier) and Tamalpais Bank (Tamalpais) during the second quarter of 2010. All of the acquired loans are covered under loss share
agreements with the FDIC and are referred to as "FDIC covered loans." We will be reimbursed for a substantial portion of any future losses on the FDIC covered loans under the terms of the FDIC loss
share agreements. Total FDIC covered loans outstanding at March 31, 2011 were $1.4 billion, which consisted of $707 million of commercial mortgage loans, $387 million of
commercial, financial and industrial loans, $184 million of construction loans, and $112 million of other loans.



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. Our total cross-border outstandings for Canada, the only country where such outstandings
exceeded one percent of total assets, were $838 million and $804 million, as of March 31, 2011 and December 31, 2010, respectively. The cross-border outstandings are based
on category and domicile of ultimate risk and are comprised of balances with banks, trading account assets, securities available for sale, securities purchased under resale agreements, loans, accrued
interest receivable, acceptances outstanding and investments with foreign entities. For Canada, any significant local currency outstandings are funded by local currency borrowings.

Allowance for Credit Losses



We maintain an allowance 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 allowance for credit
losses is fundamental to understanding our consolidated financial condition and consolidated results of operations.

16

---



Table of Contents

Accordingly,
our significant policies and methodology on the allowance 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 2010 Form 10-K. Unless otherwise noted,
all ratios that follow in this section include FDIC covered loans.



At March 31, 2011 and December 31, 2010, our total allowance for credit losses, excluding FDIC covered loans, was
$1.2 billion, or 2.48 percent of total loans held for investment, and $1.3 billion, or 2.85 percent of total loans held for investment, respectively. At March 31,
2011, total allowance for credit losses, excluding FDIC covered loans, of $1.2 billion consisted of $1 billion for loan losses and $0.2 billion for losses on
off-balance sheet commitments, and was comprised of $0.9 billion of allocated allowance and $0.3 billion of unallocated allowance. At March 31, 2011 and
December 31, 2010, our allowance for loan losses on FDIC covered loans was $23 million and $25 million, respectively.

We
recorded a reversal of the provision for loan losses, excluding FDIC covered loans, of $102 million in the first quarter of 2011, compared to a provision for loan losses of
$170 million during the first quarter of 2010. In the first quarter of 2011, the reversal of the provision, excluding FDIC covered loans, was primarily attributable to the improved credit
quality of the loan portfolio and lower loss factors. The improved credit quality of the loan portfolio was particularly evident in lower levels of criticized credits in the commercial segment, which
declined from $3.4 billion at December 31, 2010 to $2.9 billion at March 31, 2011, continuing the significant downward trend that was observed during the second half of
2010. The ratio of nonaccrual loans to total loans held for investment decreased to 1.81 percent at March 31, 2011 from 2.01 percent at December 31, 2010. In addition,
annualized net loans charged off to average loans outstanding for the first quarter of 2011 decreased to 0.44 percent from 1.03 percent for the first quarter of 2010.

At
March 31, 2011, the allocated portion of the allowance for credit losses included $395 million related to special mention and classified credits (criticized credits),
compared to $468 million at December 31, 2010. Criticized credits are those that are internally risk graded as "special mention," "substandard" or "doubtful." Special mention credits are
potentially weak, as the borrower has begun to exhibit deteriorating trends, which, if not corrected, could jeopardize repayment of the loan and result in further downgrade. Substandard credits have
well-defined weaknesses, which, if not corrected, could jeopardize the full satisfaction of the debt. A credit classified as "doubtful" has critical weaknesses that make full collection
improbable.



The unallocated allowance at March 31, 2011 and December 31, 2010 was $251 million and $298 million,
respectively. The decrease from December 31, 2010 to March 31, 2011 was primarily due to several key factors, including improvement in our commercial mortgage and residential mortgage
loan portfolios. The unallocated allowance balance continues to reflect the negative impact of the persistent high unemployment (in particular in California), the adverse impact on the housing market
from weak home prices, elevated foreclosure levels and extended collection periods for residential real estate loans, the fiscal challenges for the State of California and local governments, the
impact of volatile natural gas prices and crude oil prices on energy companies, and on consumer discretionary spending, and the impact of the recent natural disasters in Japan on our commercial,
financial and industrial loan portfolios.

17

---





Table of Contents



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

March 31,

Increase/(Decrease)
March 31, 2011
From
March 31, 2010(Dollars in millions)

2011

2010

Amount

PercentBalance, beginning of period

$
1,191

$
1,357

$
(166
)

(12
)%(Reversal of) provision for loan losses, excluding FDIC covered loans


(102
)

170


(272
)

nmDecrease in allowance covered by FDIC indemnification


(2
)




(2
)

nmLoans charged off:Commercial, financial and industrial


23


67


(44
)

(66
)Construction


1


16


(15
)

(94
)Residential mortgage


14


10


4


40Commercial mortgage


24


32


(8
)

(25
)Consumer


11


10


1


10Total loans charged off


73


135


(62
)

(46
)Recoveries of loans previously charged off:Commercial, financial and industrial


7


13


(6
)

(46
)Construction


4


2


2


100Commercial mortgage


8





8


nmConsumer


1


1





Total recoveries of loans previously charged off


20


16


4


25Net loans charged off


53


119


(66
)

(55
)Ending balance of allowance for loan losses


1,034


1,408


(374
)

(27
)Allowance for losses on off-balance sheet commitments


150


171


(21
)

(12
)Allowance for credit losses

$
1,184

$
1,579

$
(395
)

(25
)%Components of allowance for loan losses:Allowance for loan losses, excluding allowance on FDIC covered loans

$
1,011

$
1,408

$
(397
)

(28
)%Allowance for loan losses on FDIC covered loans


23





23


nmTotal allowance for loan losses

$
1,034

$
1,408

$
(374
)

(27
)%Allowance for loan losses to total loans held for investment


2.15
%

3.01
%Allowance for credit losses to total loans held for investment


2.46


3.38Net loans charged off to average loans outstanding for the period(2)


0.44


1.03Excluding FDIC covered loans(1):Allowance for loan losses to total loans held for investment


2.17
%

3.01
%Allowance for credit losses to total loans held for investment


2.48


3.38Net loans charged off to average loans outstanding for the period(2)


0.46


1.03


(1)These
ratios exclude the impact of the FDIC covered loans, which are covered under loss share agreements between Union Bank, N.A. and the
FDIC. Such agreements are related to the April 2010 acquisitions of certain assets and the assumption of certain liabilities of Frontier and Tamalpais.(2)Annualized.nm=
not meaningful


18

---



Table of Contents




Nonperforming Assets

Nonperforming assets consist of nonaccrual loans, including restructured loans that are nonperforming and OREO. 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 our consolidated
financial statements included in our 2010 Form 10-K.

OREO
includes property where the Bank acquired title through foreclosure or "deed in lieu" of foreclosure.

The
following table sets forth an analysis of nonperforming assets.

Increase/(Decrease)
March 31, 2011
From
December 31, 2010March 31,
2011

December 31,
2010(Dollars in millions)

Amount

PercentCommercial, financial and industrial

$
113

$
115

$
(2
)

(2
)%Construction


71


140


(69
)

(49
)Residential mortgage


241


243


(2
)

(1
)Commercial mortgage


265


329


(64
)

(19
)Consumer


22


22





Lease financing


71





71


nmTotal nonaccrual loans, excluding FDIC covered loans


783


849


(66
)

(8
)FDIC covered loans


90


116


(26
)

(22
)Total nonaccrual loans


873


965


(92
)

(10
)OREO, excluding FDIC covered OREO


32


41


(9
)

(22
)FDIC covered OREO


127


136


(9
)

(7
)Total nonperforming assets

$
1,032

$
1,142

$
(110
)

(10
)%Total nonperforming assets, excluding FDICcovered assets

$
815

$
890

$
(75
)

(8
)%Restructured loans that continue to accrue interest

$
45

$
22

$
23


105
%Restructured nonaccrual loans (included in total nonaccrual loans above)

$
189

$
198

$
(9
)

(5
)Allowance for loan losses

$
1,034

$
1,191

$
(157
)

(13
)%Allowance for credit losses

$
1,184

$
1,353

$
(169
)

(12
)%Nonaccrual loans to total loans held for investment


1.81
%

2.01
%Allowance for loan losses to nonaccrual loans


118.50


123.40Allowance for credit losses to nonaccrual loans


135.61


140.23Nonperforming assets to total loans held for investment and OREO


2.14


2.37Nonperforming assets to total assets


1.28


1.44Excluding FDIC covered assets:(1)Nonaccrual loans to total loans held for investment


1.68
%

1.82
%Allowance for loan losses to nonaccrual loans


129.10


137.32Allowance for credit losses to nonaccrual loans


148.17


156.44Nonperforming assets to total loans held for investment and OREO


1.74


1.91Nonperforming assets to total assets


1.03


1.15


(1)These
ratios exclude the impact of the FDIC covered loans and FDIC covered OREO, which are covered under loss share agreements between Union
Bank, N.A. and the FDIC. Such agreements are related to the April 2010 acquisitions of certain assets and the assumption of certain liabilities of Frontier and Tamalpais.nm=
not meaningful


19

---



Table of Contents




During the first quarters of 2011 and 2010, we sold nonperforming loans of $59 million and $34 million, respectively. Covered assets
that were nonperforming at March 31, 2011 totaled $217 million, representing 0.27 percent of total assets. All covered assets are subject to loss share agreements with the FDIC.
See Notes 1 and 2 in our consolidated financial statements included in our 2010 Form 10-K for more information on covered assets and FDIC loss share agreements.

Troubled Debt Restructurings

Troubled debt restructurings (TDRs) are those loans for which we have granted a concession to a borrower experiencing financial
difficulty and consequently, we receive less than the current market-based compensation for loans with similar risk characteristics. Such loans are classified as impaired, and are reviewed for
specific reserves either individually or in pools with similar risk characteristics. Our loss mitigation strategies are designed to minimize economic loss and, at times, may result in extensions of
the maturity date, changes to loan-to-value requirements, rate reductions, forbearance or other actions, which may cause the related loan to be classified as a TDR. We evaluate
whether these changes to the terms and conditions of our loans meet the TDR criteria after considering the specific situation of the borrower and all relevant facts and circumstances related to the
modification. A TDR loan being considered for return to accrual status must have reasonable assurance of repayment and performance according to the modified terms and also be supported by a current
well-documented credit evaluation under the revised terms. Generally, a minimum of six consecutive months of sustained performance is required in the evaluation of whether a TDR should be
returned to accrual status.

Acquired
loans restructured after acquisition are not considered TDRs for purposes of our accounting and disclosure if the loans evidenced credit deterioration as of the acquisition date
and are accounted for in pools.

The
following table provides a summary of total TDRs, including nonaccrual loans and loans that have been returned to accrual status, as of March 31, 2011 and December 31,
2010.

March 31,
2011

December 31,
2010

As a percentage of
ending loan balances(Dollars in millions)

Amount

Number
of loans

Amount

Number
of loans

March 31,
2011

December 31,
2010Commercial, financial and industrial

$
24


8

$
30


9


0.16
%

0.20
%Residential mortgage


101


179


79


138


0.56


0.45Commercial mortgage


107


16


111


15


1.39


1.41Consumer


2


20








0.04


Total restructured loans

$
234


223

$
220


162


0.49
%

0.47
%


Loans 90 Days or More Past Due and Still Accruing

Loans held for investment 90 days or more past due and still accruing totaled $3 million and $2 million at
March 31, 2011 and December 31, 2010, respectively. These amounts exclude $279 million and $312 million at March 31, 2011 and December 31, 2010, respectively,
of FDIC covered loans accounted for in accordance with the accounting standards for purchased credit-impaired loans, that were 90 days or more past due and still accruing.

20

---



Table of Contents

Deposits

The table below presents our deposits as of March 31, 2011 and December 31, 2010.

Increase/(Decrease)
March 31, 2011
From
December 31, 2010March 31, 2011

December 31, 2010(Dollars in millions)

Amount

PercentInterest checking

$
971

$
931

$
40


4
%Money market


22,874


26,159


(3,285
)

(13
)Total interest bearing transaction accounts


23,845


27,090


(3,245
)

(12
)Savings


5,104


4,433


671


15Time


11,666


12,088


(422
)

(3
)Total interest bearing deposits(1)


40,615


43,611


(2,996
)

(7
)Noninterest bearing deposits


18,062


16,343


1,719


11Total deposits

$
58,677

$
59,954

$
(1,277
)

(2
)%(1)Total interest bearing deposits include:Brokered deposits:Interest bearing transaction accounts

$
1,967

$
2,354

$
(387
)

(16
)%Time


1,482


1,217


265


22Total brokered deposits


3,449


3,571


(122
)

(3
)Nonbrokered deposits


37,166


40,040


(2,874
)

(7
)Total interest bearing deposits

$
40,615

$
43,611

$
(2,996
)

(7
)%Core Deposits:Total deposits

$
58,677

$
59,954

$
(1,277
)

(2
)%Less: Total interest bearing brokered deposits


3,449


3,571


(122
)

(3
)Less: Total nonbrokered time deposits of $100,000 and over


7,210


7,716


(506
)

(7
)Total core deposits

$
48,018

$
48,667

$
(649
)

(1
)%


Quantitative and Qualitative Disclosures About Market Risk

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

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

The
Risk & Capital Committee (RCC), comprised of selected senior officers of the Bank, among other things, strives to ensure that the Bank has an effective process to identify,
measure, monitor, and manage market risk as required by the ALM Policy. The RCC provides the broad and strategic guidance of market risk management by defining the risk/return direction for the Bank,
delegating to and reviewing market risk management activities of the Asset Liability Management Committee (ALCO) and by approving the investment, derivatives and trading policies that govern the
Bank's activities. ALCO, as authorized by the RCC, is responsible for the management of market risk and approves specific risk management programs including those related to interest rate hedging,
investment securities, wholesale funding and trading activities.

21

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Table of Contents

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 manager of the Global Capital Markets Group (GCMG) is responsible for managing price risk through the trading
activities conducted in GCMG. The Market Risk Management (MRM) unit is responsible for the monitoring of market risk and functions independently of all operating and management units.

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



ALCO monitors interest rate risk monthly through a variety of modeling techniques that are used to quantify the sensitivity of
Net Interest Income (NII) and of Economic Value of Equity (EVE) to changes in interest rates. In managing interest rate risk, ALCO monitors NII sensitivity over various time horizons and
in response to a variety of interest rate changes.

Our
NII policy measurement involves a simulation of "Earnings-at-Risk" (EaR) in which we estimate the earnings impact of gradual parallel shifts in the yield
curve of up and down 200 basis points over a 12-month horizon, given our projected balance sheet profile. However, during the first quarter of 2010, under RCC delegated authority to
approve temporary changes to risk measurement, the -200 basis point parallel scenario was replaced with a -100 basis point parallel scenario. This change
reflected the low probability associated with rate reductions of 200 basis points in the current extremely low rate environment, and the acceptance of a scenario that better reflects historically low
rate levels achieved in the past. The +200 basis point scenario was not changed. The RCC will monitor the rate environment and will consider restoring the -200 basis point
measure in the future when deemed appropriate. Under the ALM Policy, the EaR in either the up or down scenarios is limited to a negative 4 percent change in NII as compared to a base
case scenario that holds interest rates unchanged.

Our
EaR simulations use a 12-month projected balance sheet in order to model the impact of interest rate changes. Assumptions are made to model the future behavior of deposit
rates and loan spreads based on statistical analysis, management's outlook, and historical experience. The prepayment risks related to residential loans and mortgage-backed securities are
measured using a calibrated 3rd party model that estimates prepayment speeds.

At
March 31, 2011, EaR was asset sensitive to upward parallel rate shifts and liability sensitive to downward parallel rate shifts. We caution that the extremely low current
interest rate environment and ongoing enhancements to our interest rate risk modeling may make prior year comparisons of EaR less meaningful.

Earnings (Accounting NII) at Risk

The table below presents the estimated increase (decrease) in Accounting NII given a gradual parallel shift in the yield curve up 200
basis points and down 100 basis points over a 12-month horizon.

(Dollars in millions)

March 31,
2011

December 31,
2010Effect on Accounting NII:increase 200 basis points

$
144.5

$
108.8as a percentage of base case NII


6.15
%

4.75
%decrease 100 basis points

$
(74.5
)
$
(64.8
)as a percentage of base case NII


(3.18
)%

(2.83
)%


Generally, our short-term assets re-price faster than short-term non-maturity liabilities. As a
result, higher short-term rates would improve Accounting NII. Alternatively, gradually lower short-term rates would contract

22

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Table of Contents

Accounting NII.
With regard to the curve shape, curve steepening would improve Accounting NII while curve flattening would slightly decrease Accounting NII.

In
addition to EaR, we measure the sensitivity of EVE to interest rate shocks. EVE-at-Risk is reviewed and monitored for its compliance with ALCO guidelines. Our
EVE-at-Risk at March 31, 2011 reflected a moderate but similar exposure to rising rates as compared to December 31, 2010. Additionally, our
EVE-at-Risk showed moderate exposure to falling rates, due to the nature of the low rate environment.

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



During the first quarter of 2011, the Bank's asset sensitive EaR profile increased largely due to changes in forecasted activity
related to deposit composition, loan mix and a reduction of low yielding investments pending greater regulatory clarity on Basel III liquidity rules. In managing the interest rate sensitivity of our
balance sheet, we use the ALM investment securities portfolio and derivatives positions as the primary tools to adjust our interest rate risk profile, if necessary.



At March 31, 2011 and December 31, 2010, our available for sale securities portfolio included $20.1 billion and
$20.6 billion, respectively, of securities for ALM purposes. At March 31, 2011, approximately $4.9 billion of the portfolio was pledged to secure trust and public deposits and for
other purposes as required or permitted by law. During the first quarter of 2011, we purchased $2.9 billion and sold $1.9 billion par value of securities, as part of our investment
portfolio strategy, while $1.3 billion par value of ALM securities matured or were called.

Based
on current prepayment projections, the estimated ALM securities portfolio's effective duration was 2.2 at both March 31, 2011 and December 31, 2010. Effective
duration is a measure of price sensitivity
of a bond portfolio to immediate parallel shifts in interest rates. An effective duration of 2.2 suggests an expected price decrease of approximately 2.2 percent for an immediate
1.0 percent parallel increase in interest rates.



During the first quarter of 2011, the ALM derivatives portfolio decreased by $500 million notional amount due to terminations of
$1 billion in pay fixed rate swaps associated with the issuance of fixed rate debt offset by the addition of $500 million of pay fixed rate swaps to hedge variable rate borrowings.

The
fair value of the ALM derivatives portfolio decreased primarily due to the termination of pay fixed rate swaps and the erosion of time value on interest rate cap contracts. The
decrease was partially offset by pay fixed rate interest rate swaps which benefit from the expectation of higher rates. For additional discussion of

23

---



Table of Contents

derivative
instruments and our hedging strategies, see Note 11 to our consolidated financial statements in this Form 10-Q and Note 18 to our consolidated financial
statements included in our 2010 Form 10-K.

(Dollars in millions)

March 31,
2011

December 31,
2010

Increase/(Decrease)
March 31, 2011
From December 31, 2010Total gross notional amount of positions held for purposes other than trading:Pay fixed interest rate swaps

$
1,000

$
1,500

$
(500
)Interest rate caps purchased


4,000


4,000


Total interest rate contracts

$
5,000

$
5,500

$
(500
)Fair value of positions held for purposes other than trading:Gross positive fair value


11


21


(10
)Gross negative fair value








Positive fair value of positions, net

$
11

$
21

$
(10
)


Trading Activities

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

We
believe that the risks associated with these positions are conservatively managed. We utilize a combination of position limits, Value-at-Risk (VaR), and
stop-loss limits, applied at an aggregated level and to various sub-components within those limits. Positions are controlled and reported both in notional and VaR terms. Our
calculation of VaR estimates how high the loss in fair value might be, at a 99 percent confidence level, due to an adverse shift in market prices over a period of ten business days. VaR at the
trading activity level is managed within the maximum limit of $14 million established by Board policy for total trading positions. The VaR model incorporates assumptions on key parameters,
including holding period and historical volatility.

Consistent
with our business strategy of focusing on the sale of capital markets products to customers, we manage our trading risk exposures at relatively low levels. Our foreign
exchange business continues to derive the majority of its revenue from customer-related transactions. We take trading positions with other banks only on a limited basis and we do not take
any large or long-term strategic positions in the market for our own portfolio. Similarly, we continue to generate most of our securities trading income from customer-related
transactions.

As
of March 31, 2011, we had $32.9 billion notional amount of interest rate derivative contracts. We enter into these agreements for customer accommodations and for our own
account, accepting risks up to management approved VaR levels. As of March 31, 2011, we had $2.8 billion notional amount of foreign exchange derivative contracts. We enter into these
agreements for customer accommodations to support their hedging and operating needs and for our own account, accepting risks up to management approved VaR levels. As of March 31, 2011, we had
$5.0 billion notional amount of commodity derivative contracts. We enter into such contracts to satisfy the needs of our customers, and remove our exposure to market risk by entering into
matching contracts with other counterparties.

24

---



Table of Contents

The
following table provides the notional value and the fair value of our trading derivatives portfolio as of March 31, 2011 and December 31, 2010 and the change in fair
value between March 31, 2011 and December 31, 2010.

(Dollars in millions)

March 31,
2011

December 31,
2010

Increase/(Decrease)
March 31, 2011
From December 31, 2010Total gross notional amount of positions held for trading purposes:Interest rate contracts

$
32,896

$
28,820

$
4,076Commodity contracts


5,018


4,679


339Foreign exchange contracts(1)


2,795


2,594


201Equity contracts


1,888


1,313


575Other contracts


60


60


Total

$
42,657

$
37,466

$
5,191Fair value of positions held for trading purposes:Gross positive fair value

$
934

$
922

$
12Gross negative fair value


901


897


4Positive fair value of positions, net

$
33

$
25

$
8


(1)Excludes
spot contracts with notional amounts of $0.3 billion and $0.4 billion at March 31, 2011 and December 31,
2010, respectively.


Liquidity Risk

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

The
management of liquidity risk is governed by the ALM Policy under the oversight of the RCC and the Audit & Finance Committee of the Board. ALCO oversees liquidity risk
management activities. Corporate
Treasury formulates the Bank's liquidity and contingency planning strategies and is responsible for identifying, monitoring and reporting on liquidity risk. Market Risk Management, which is part of
the Enterprise Wide Risk Reporting and Analysis unit, partners with Corporate Treasury to establish sound policy and effective risk controls. RCC and ALCO also maintain a Contingency Funding Plan that
identifies actions to be taken to help ensure adequate liquidity if an event should occur that disrupts or adversely affects the Bank's normal funding activities. In 2010, the federal bank regulators
adopted an Interagency Policy Statement on Funding and Liquidity Risk Management, which sets forth the regulators' supervisory expectations for all insured depository institutions for management of
funding and liquidity risk. The Bank's Board of Directors has approved a number of measures aimed at assuring compliance with the policy statement, including a formal ALM Policy with specific
governance on liquidity risk management.

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

25

---



Table of Contents

optimizing
liability levels through pricing strategies, adding new funding sources, altering dependency on certain funding sources and/or selling assets.

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

To
support asset growth, wholesale funding increased by $2.7 billion from $8.8 billion at December 31, 2010 to $11.5 billion at March 31, 2011, more
than offsetting the decline in deposit balances. Total deposits declined $1.3 billion from $60.0 billion at December 31, 2010 to $58.7 billion at March 31, 2011
largely due to planned interest bearing deposit declines resulting from targeted rate reductions.

Core
deposits, which consist of total deposits excluding brokered deposits and time deposits of $100,000 and over, provide us with a sizable source of relatively stable and
low-cost funds. At
March 31, 2011, our core deposits totaled $48.0 billion and our total loan-to-total deposit ratio was 82 percent.

The
Bank maintains a variety of other funding sources, secured and unsecured, which management believes will be adequate to meet the Bank's liquidity needs, including the
following:



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

Our
costs and ability to raise funds in the capital markets are influenced by our credit ratings. Our credit ratings could be impacted by changes in the credit ratings of BTMU and MUFG.
For further information, see "The Bank of Tokyo Mitsubishi UFJ's and Mitsubishi UFJ Financial Group's credit ratings and financial or

26

---



Table of Contents

regulatory
condition could adversely affect our operations" in Part II, Item 1A. Risk Factors of this Form 10-Q. The following table provides our credit ratings as of
March 31, 2011.

Union Bank, N.A.

UnionBanCal
CorporationStandard & Poor's

Long-term

A+

AShort-term

A-1

A-1Moody's

Long-term

A2

Short-term

P-1

Fitch

Long-term

A

AShort-term

F1

F1DBRS

Long-term

A (high)

AShort-term

R-1 (middle)

R-1 (low)


27

---





Table of Contents

Capital

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

UnionBanCal Corporation

(Dollars in millions)

March 31,
2011



December 31,
2010Capital ComponentsTier 1 capital

$
8,280




$
8,029Tier 2 capital


1,654





1,656Total risk-based capital

$
9,934




$
9,685Risk-weighted assets

$
64,467




$
64,516Quarterly average assets

$
77,676




$
77,659




March 31,
2011

December 31,
2010

March 31, 2011
Minimum
Regulatory
Requirement(Dollars in millions)

Amount

Ratio

Amount

Ratio

Amount

RatioCapital RatiosTotal capital (to risk-weighted assets)

$
9,934


15.41
%
$
9,685


15.01
%
3$
5,157


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


8,280


12.84


8,029


12.44

3
2,579


4.0Leverage(1)


8,280


10.66


8,029


10.34

3
3,107


4.0


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


Union Bank, N.A.

(Dollars in millions)

March 31,
2011



December 31,
2010Capital ComponentsTier 1 capital

$
8,008




$
7,377Tier 2 capital


1,491





1,489Total risk-based capital

$
9,499




$
8,866Risk-weighted assets

$
64,267




$
63,993Quarterly average assets

$
77,643




$
77,229




March 31,
2011

December 31,
2010

March 31, 2011
Minimum
Regulatory
Requirement

March 31, 2011
"Well-Capitalized"
Regulatory
Requirement(Dollars in millions)

Amount

Ratio

Amount

Ratio

Amount

Ratio

Amount

RatioCapital RatiosTotal capital (to risk-weighted assets)

$
9,499


14.78
%
$
8,866


13.85
%
3$
5,141


8.0
%
3$
6,427


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


8,008


12.46


7,377


11.53

3
2,571


4.0

3
3,856


6.0Leverage(1)


8,008


10.31


7,377


9.55

3
3,106


4.0

3
3,882


5.0


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


We and Union Bank are subject to various regulations of the federal banking agencies, including minimum capital requirements. We are both required
to maintain minimum ratios of Total and Tier 1 capital to risk-weighted assets and of Tier 1 capital to quarterly average assets (the Leverage ratio). As of March 31,
2011, management believes the capital ratios of Union Bank met all regulatory requirements of "well-capitalized" institutions.

In
addition to capital ratios determined in accordance with regulatory requirements, we consider various other measures when evaluating capital utilization and adequacy. These
non-regulatory capital ratios are viewed by management, and presented below, to further facilitate the understanding of our capital structure and for use in assessing and comparing the
quality and composition of UNBC's capital structure to other

28

---



Table of Contents

financial
institutions. These ratios are not defined by US GAAP or federal banking regulations. Therefore, these non-regulatory capital ratios disclosed are considered to be
non-GAAP financial measures. Our tangible common equity ratio calculation methods for the Tangible common equity may differ from those used by other financial services companies. Refer to
"Supervision and Regulation-Basel Committee Capital Standards" in Part I, Item 1 of our 2010 Form 10-K for additional information regarding the Basel Committee capital
standards.

The
following table summarizes the calculation of our tangible common equity ratio and Tier 1 common capital ratio as of March 31, 2011 and December 31, 2010.

Increase/(Decrease)
March 31, 2011
From
December 31, 2010March 31,
2011

December 31,
2010(Dollars in millions)

Amount

PercentTotal UNBC stockholder's equity

$
10,355

$
10,125

$
230


2
%Goodwill


(2,447
)

(2,456
)

9


Intangible assets


(432
)

(457
)

25


(5
)Deferred tax liabilities related to goodwill and intangible assets


159


168


(9
)

(5
)Tangible common equity (a)

$
7,635

$
7,380

$
255


3Tier 1 capital, determined in accordance with regulatory requirements

$
8,280

$
8,029

$
251


3Trust preferred securities





(13
)

13


(100
)Tier 1 common equity (b)

$
8,280

$
8,016

$
264


3Total assets

$
80,642

$
79,097

$
1,545


2Goodwill


(2,447
)

(2,456
)

9


Intangible assets


(432
)

(457
)

25


(5
)Deferred tax liabilities related to goodwill and intangible assets


159


168


(9
)

(5
)Tangible assets (c)

$
77,922

$
76,352

$
1,570


2Risk-weighted assets, determined in accordance with regulatory requirements (d)

$
64,467

$
64,516

$
(49
)


%Tangible common equity ratio (a)/(c)


9.80
%

9.67
%Tier 1 common capital ratio (b)/(d)


12.84


12.42


Our
stockholder's equity increased 2 percent to $10.4 billion at March 31, 2011, from $10.1 billion at December 31, 2010. As of March 31, 2011
our tangible common equity ratio had improved to 9.80 percent from 9.67 percent at December 31, 2010. The increase was primarily due to the growth in tangible capital which
outpaced the growth in the related tangible assets. Tier 1 common equity ratio increased to 12.84 percent at March 31, 2011 from 12.42 percent at December 31, 2010,
primarily due to capital accumulation from earnings retention outpacing capital requirements to support our asset growth.

Business Segments

We have three operating segments: Retail Banking Group, Corporate Banking Group and Pacific Rim Corporate Group. The Pacific Rim
Corporate Group is included in "Other." We have two reportable business segments: Retail Banking and Corporate Banking.

The
risk-adjusted return on capital (RAROC) methodology used seeks to attribute economic capital to business units consistent with the level of risk they assume. These risks
are primarily credit and operational, given that most of the market risk is not assumed by the business unit. Credit risk is the potential loss in

29

---



Table of Contents

economic
value due to the likelihood that the obligor will not perform as agreed. Operational risk is the potential loss due to all other factors, such as failures in internal control, system failures
or external events. Market risk is the potential loss in fair value due to changes in interest rates, currency rates, commodity prices and equity prices. RAROC may be one of several measures that is
used to measure business unit compensation.

We
reflect a "market view" perspective in measuring our business segments. The market view is a measurement of our customer markets aggregated to show all revenues generated and expenses
incurred from all products and services sold to those customers regardless of where product areas organizationally report. Therefore, revenues and expenses are included in both the business segment
that provides the service and the business segment that manages the customer relationship. The duplicative results from this internal management accounting view are eliminated in "Reconciling Items."
The market view approach fosters cross-selling with a total profitability view of the products and services being managed.

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, and they are not necessarily indicative of the results that would be reported by our business units if they were unique economic entities.

The
table that follows reflects the condensed income statements, selected average balance sheet items, and selected financial ratios, including changes from the prior year, for each of
our reportable business segments. Business unit results are prepared using various management accounting methodologies to measure the performance of the individual units. Our management accounting
methodologies, which are enhanced from time to time, measure segment profitability by assigning balance sheet and income statement items to each operating segment. Methodologies that are applied to
the measurement of segment profitability include:



30

---



Table of Contents

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

Retail Banking





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

Increase/(Decrease)

As of and for the
Three Months Ended March 31,

Increase/(Decrease)2011

2010

Amount

Percent

2011

2010

Amount

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

$
265

$
229

$
36


16
%
$
307

$
295

$
12


4
%Noninterest income (expense)


65


66


(1
)

(2
)

130


115


15


13Total revenue


330


295


35


12


437


410


27


7Noninterest expense (income)


262


215


47


22


230


235


(5
)

(2
)Credit expense (income)


6


7


(1
)

(14
)

52


78


(26
)

(33
)Income (loss) before income taxesand including noncontrolling interests


62


73


(11
)

(15
)

155


97


58


60Income tax expense (benefit)


24


29


(5
)

(17
)

36


16


20


125Net income (loss) including noncontrolling interests


38


44


(6
)

(14
)

119


81


38


47Less: Net loss from noncontrollinginterests(2)























Net income (loss) attributable to UNBC

$
38

$
44

$
(6
)

(14
)%
$
119

$
81

$
38


47
%Average balancesMarket View (dollars in millions):Total loans

$
22,478

$
21,631

$
847


4

$
26,316

$
27,005

$
(689
)

(3
)Total assets


23,481


22,476


1,005


4


30,474


30,567


(93
)

Total deposits


24,394


20,349


4,045


20


30,389


41,158


(10,769
)

(26
)Financial ratiosMarket ViewRisk adjusted return on capital(1)


26
%

32
%







15
%

11
%Return on average assets(1)


0.66


0.79








1.58


1.07Core efficiency ratio, excluding impact of privatization(3)


78.89


72.84








49.60


54.07




Other





Reconciling ItemsAs of and for the
Three Months Ended March 31,

Increase/(Decrease)

As of and for the
Three Months Ended March 31,2011

2010

Amount

Percent

2011

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

$
63

$
68

$
(5
)

(7
)%
$
(18
)
$
(18
)Noninterest income (expense)


61


44


17


39


(16
)

(15
)Total revenue


124


112


12


11


(34
)

(33
)Noninterest expense (income)


135


87


48


55


(13
)

(12
)Credit expense (income)


(160
)

85


(245
)

nm





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


149


(60
)

209


nm


(21
)

(21
)Income tax expense (benefit)


62


(22
)

84


nm


(8
)

(8
)Net income (loss) including noncontrolling interests


87


(38
)

125


nm


(13
)

(13
)Less: Net loss from noncontrolling interests(2)


4


3


1


33





Net income (loss) attributable to UNBC

$
91

$
(35
)
$
126


nm
%
$
(13
)
$
(13
)Average balancesMarket View (dollars in millions):Total loans

$
1,509

$
89

$
1,420


nm

$
(2,021
)
$
(1,877
)Total assets


28,144


33,664


(5,520
)

(16
)

(2,044
)

(1,897
)Total deposits


6,689


7,959


(1,270
)

(16
)

(2,002
)

(1,628
)Financial ratiosMarket ViewRisk adjusted return on capital(1)


na


na








na


naReturn on average assets(1)


na


na








na


naCore efficiency ratio, excluding impact of privatization(3)


na


na








na


na


31

---



Table of Contents



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

Increase/(Decrease)2011

2010

Amount

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

$
617

$
574

$
43


7
%Noninterest income (expense)


240


210


30


14Total revenue


857


784


73


9Noninterest expense (income)


614


525


89


17Credit expense (income)


(102
)

170


(272
)

nmIncome (loss) before income taxes and including noncontrolling interests


345


89


256


288Income tax expense (benefit)


114


15


99


nmNet income (loss) including noncontrolling interests


231


74


157


212Less: Net loss from noncontrolling interests(2)


4


3


1


33Net income (loss) attributable to UNBC

$
235

$
77

$
158


205
%Average balancesMarket View (dollars in millions):Total loans

$
48,282

$
46,848

$
1,434


3Total assets


80,055


84,810


(4,755
)

(6
)Total deposits


59,470


67,838


(8,368
)

(12
)Financial ratiosMarket ViewRisk adjusted return on capital(1)


9
%

3
%Return on average assets(1)


1.19


0.37Core efficiency ratio, excluding impact of privatization(3)


67.47


61.51


(1)Annualized.(2)Reflects
net loss attributed to noncontrolling interest related to our consolidated variable interest entities (VIEs).(3)The
core efficiency ratio, excluding impact of privatization, a non-GAAP financial measure, is net noninterest expense
(noninterest expense excluding privatization-related expenses and fair value amortization/accretion, foreclosed asset expense, the (reversal of) provision for losses on off-balance sheet
commitments, low income housing credit investment amortization expense, expenses of the consolidated Variable Interest Entities (VIEs), merger costs related to the acquisitions of certain assets and
assumption of certain liabilities of Frontier Bank and Tamalpais Bank) as a percentage of total revenue (net interest income (taxable-equivalent basis) and noninterest income). Management discloses
the core efficiency ratio as a measure of the efficiency of our operations, focusing on those costs most relevant to our core activities. na = not applicable nm = not meaningful


32

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Table of Contents



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

Retail Bankingis comprised of the following major divisions: Community Banking and Consumer Lending.



During
the first quarter of 2011, net income of Retail Banking decreased compared to the same period in 2010, resulting from a 22 percent increase in noninterest expense,
partially offset by a 16 percent increase in net interest income. Noninterest expense increased by 22 percent during the first quarter of 2011 compared to the same period in 2010,
primarily due to increased overhead allocation costs, ongoing acquisition-related expenses, and staff costs. The increase in net interest income was primarily due to increased margin combined with the
growth in loans and interest bearing deposits.

Average
asset growth for the first quarter of 2011 compared to the first quarter of 2010 was primarily driven by a 4 percent growth in average loans, mainly in residential
mortgages.

Average
deposits increased 20 percent during the first quarter of 2011 compared to the same period in 2010. The key drivers for this increase include acquisition-related deposits
and Retail Banking's strategy, which continues to focus on marketing activities to attract new consumer and small business deposits, customer cross-sell, and relationship management.

Noninterest
income decreased by 2 percent during the first quarter of 2011 compared to the same period in 2010 primarily due to lower service charges on deposits driven by new
fee-related regulations and changes in consumer behavior.



Corporate Banking offers a range of financial products to both middle market and corporate businesses headquartered throughout the U.S.
Corporate Banking focuses its activities on specific specialized industries, such as power and utilities, petroleum, real estate, healthcare, equipment leasing and commercial finance as well as
general corporate and middle-market lending in regional markets throughout the U.S. Corporate

33

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Table of Contents

Banking
relationship managers provide credit services including commercial loans, accounts receivable and inventory financing, project financing, trade financing and real estate financing. In addition
to credit services, Corporate Banking offers its customers a range of noncredit services, which include global treasury management solutions, foreign exchange and various interest rate risk and
commodity risk management products. These products are delivered through deposit managers and product specialists with significant industry expertise and experience in businesses of all sizes
including numerous vertical industry niches such as U.S. correspondent banks and certain government entities.

One
of the primary strategies of our Corporate Banking business units is to target industries and companies for which we can reasonably expect to be one of a customer's primary banks.
Consistent with this strategy, Corporate Banking business units attempt to serve a large part of the targeted customers' credit and depository needs. The Corporate Banking business units compete with
other banks primarily on the basis of the quality of our relationship managers, the level of industry expertise, the delivery of quality customer service, and our reputation as a "commercial 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.

Corporate
Banking initiatives continue to expand commercial and loan relationship strategies that include originating, underwriting and syndicating loans in core competency markets, such
as in our West Coast commercial lending markets, as well as our national specialty markets including real estate, energy, equipment leasing and commercial finance.

Corporate Bankingis comprised of the following main divisions:



34

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Table of Contents



During
the first quarter of 2011, net income of Corporate Banking increased 47 percent, compared to the same period in 2010, resulting from a 4 percent increase in net
interest income, a 13 percent increase in noninterest income and a 33 percent decrease in credit expense. During the first quarter of 2011, average loans decreased 3 percent
compared to the same period in 2010 primarily due to decreases in our commercial mortgage portfolio and real estate construction portfolio, partially offset by an increase in our commercial and
industrial loan portfolio.

During
the first quarter of 2011, average deposits decreased 26 percent compared to the same period of 2010, primarily due to decreases in interest bearing core deposits and money
market deposits. This planned deposit decline resulted primarily from targeted rate reductions. Noninterest income increased 13 percent during the first quarter of 2011, compared to the same
period in 2010, primarily due to higher trading income, merchant banking fees, trust fees, brokerage commissions and fees and gains on the sale of private capital investments, partially offset by
lower deposit fees. Noninterest expense decreased 2 percent during the first

35

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Table of Contents

quarter
of 2011, compared to the same period of 2010, primarily due to decreased staff costs and regulatory assessments.



"Other" includes the following:



The
increase in net income of $126 million for the first quarter of 2011 compared with the first quarter of 2010 is primarily due to the following
factors:



Item 3.   Quantitative and Qualitative Disclosures About Market Risk

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

36

---



Table of Contents

Item 4.   Controls and Procedures

Disclosure Controls.Our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer)
have
concluded that the design and operation of our disclosure controls and procedures are effective as of March 31, 2011. 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 recorded,
processed, summarized and reported in a timely manner and in accordance with SEC's rules and regulations and to ensure that such information is accumulated and communicated to management, including
our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Internal Controls Over Financial Reporting.During the first quarter of 2011, 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.

37

---





Table of Contents

PART I. FINANCIAL INFORMATION

Item 1.   Financial Statements

UnionBanCal Corporation and Subsidiaries  Consolidated Statements of Income  (Unaudited)

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

2011

2010Interest IncomeLoans

$
559

$
540Securities


143


143Other


1


5Total interest income


703


688Interest ExpenseDeposits


53


86Commercial paper and other short-term borrowings


1


1Long-term debt


31


27Total interest expense


85


114Net Interest Income


618


574(Reversal of) provision for loan losses


(102
)

170Net interest income after (reversal of) provision for loan losses


720


404Noninterest IncomeService charges on deposit accounts


57


66Trust and investment management fees


34


31Trading account activities


33


21Securities gains, net


28


34Merchant banking fees


19


14Brokerage commissions and fees


13


9Card processing fees, net


10


9Other


46


26Total noninterest income


240


210Noninterest ExpenseSalaries and employee benefits


344


280Net occupancy and equipment


65


59Professional and outside services


44


39Intangible asset amortization


25


32Regulatory assessments


21


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


(13
)

(5
)Other


129


90Total noninterest expense


615


525Income before income taxes and including noncontrolling interests


345


89Income tax expense


114


15Net Income including Noncontrolling Interests


231


74Deduct: Net loss from noncontrolling interests


4


3Net Income attributable to UNBC

$
235

$
77


See accompanying notes to consolidated financial statements.

38

---



Table of Contents

UnionBanCal Corporation and Subsidiaries  Consolidated Balance Sheets  (Unaudited)

(Dollars in millions)

March 31,
2011

December 31,
2010AssetsCash and due from banks

$
1,247

$
946Interest bearing deposits in banks (includes $23 at March 31, 2011 and $11 at December 31, 2010 related to consolidated variable interest entities
(VIEs))


1,912


217Federal funds sold and securities purchased under resale agreements


24


11Total cash and cash equivalents


3,183


1,174Trading account assets:Pledged as collateral


6


43Held in portfolio


870


956Securities available for sale:Pledged as collateral


308


10Held in portfolio


20,026


20,781Securities held to maturity (Fair value: March 31, 2011, $1,646; December 31, 2010, $1,560)


1,339


1,323Loans:Loans, excluding Federal Deposit Insurance Corporation (FDIC) covered loans


46,715


46,584FDIC covered loans


1,390


1,510Total loans held for investment


48,105


48,094Allowance for loan losses


(1,034
)

(1,191
)Loans, net


47,071


46,903Premises and equipment, net


694


712Intangible assets


432


457Goodwill


2,447


2,456FDIC indemnification asset


699


783Other assets (includes $277 at March 31, 2011 and $283 at December 31, 2010 related to consolidated VIEs)


3,567


3,499Total assets

$
80,642

$
79,097LiabilitiesDeposits:Noninterest bearing

$
18,062

$
16,343Interest bearing


40,615


43,611Total deposits


58,677


59,954Commercial paper and other short-term borrowings


3,260


1,356Long-term debt (includes $8 at March 31, 2011 and December 31, 2010 related to consolidated VIEs)


6,078


5,598Trading account liabilities


696


774Other liabilities (includes $2 at March 31, 2011 and December 31, 2010 related to consolidated VIEs)


1,303


1,024Total liabilities


70,014


68,706Commitments, contingencies and guaranteesSee Note 13EquityUNBC Stockholder's Equity:Preferred stock:Authorized 5,000,000 shares; no shares issued or outstanding





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


136


136Additional paid-in capital


5,201


5,198Retained earnings


5,703


5,468Accumulated other comprehensive loss


(685
)

(677
)Total UNBC stockholder's equity


10,355


10,125Noncontrolling interests


273


266Total equity


10,628


10,391Total liabilities and equity

$
80,642

$
79,097


See accompanying notes to consolidated financial statements.

39

---



Table of Contents

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

UNBC Stockholder's Equity(Dollars in millions)

Common
stock

Additional
paid-in
capital

Retained
earnings

Accumulated
other
comprehensive
income (loss)

Noncontrolling
interests(1)

Total
stockholder's
equityBALANCE DECEMBER 31, 2009

$
136

$
5,195

$
4,900

$
(651
)
$


$
9,580Cumulative effect from change in accounting for VIEs














272


272Comprehensive income:Net income (loss)For the three months ended March 31, 2010








77





(3
)

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











(13
)




(13
)Net change in unrealized losses on securities











57





57Foreign currency translation adjustment











1





1Net change in pension and other benefits











4





4Total comprehensive income, net of tax

















123Other














13


13Net change








77


49


282


408BALANCE MARCH 31, 2010

$
136

$
5,195

$
4,977

$
(602
)
$
282

$
9,988BALANCE DECEMBER 31, 2010

$
136

$
5,198

$
5,468

$
(677
)
$
266

$
10,391Comprehensive income:Net income (loss)For the three months ended March 31, 2011








235





(4
)

231Other comprehensive income (loss), net of tax:Net change in unrealized gains on cash flow hedges











4





4Net change in unrealized losses on securities











(27
)




(27
)Foreign currency translation adjustment











2





2Net change in pension and other benefits











13





13Total comprehensive income, net of tax

















223Compensation expenserestricted stock units





3











3Other














11


11Net change





3


235


(8
)

7


237BALANCE MARCH 31, 2011

$
136

$
5,201

$
5,703

$
(685
)
$
273

$
10,628


(1)For
additional information on the consolidated VIEs, refer to Note 6 to these consolidated financial statements.


See accompanying notes to consolidated financial statements.

40

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Table of Contents

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

For the three
Months
Ended March 31,(Dollars in millions)

2011

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

$
231

$
74Adjustments to reconcile net income to net cash provided by (used in) operating activities:(Reversal of) provision for loan losses


(102
)

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


(13
)

(5
)Depreciation, amortization and accretion, net


37


63Stock-based compensationrestricted stock units


3


Deferred income taxes


93


(17
)Net gains on sales of securities


(28
)

(34
)Net decrease (increase) in trading account assets


123


(105
)Net decrease (increase) in prepaid expenses


10


(74
)Net increase in fees and other receivable


(115
)

(86
)Net decrease (increase) in other assets


43


(60
)Net decrease in accrued expenses


(45
)

(3
)Net increase (decrease) in trading account liabilities


(78
)

198Net increase in other liabilities


329


108Loans originated for resale


(13
)

Net proceeds from sale of loans originated for resale


8


Other, net


(2
)

(9
)Total adjustments


250


146Net cash provided by operating activities


481


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


1,913


1,047Proceeds from matured and called securities available for sale


1,482


1,100Purchases of securities available for sale


(2,980
)

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


5


2Purchases of premises and equipment, net


(16
)

(15
)Proceeds from sales of loans


81


80Net decrease (increase) in loans


(177
)

305Proceeds from FDIC loss share agreements


96


Other, net


(1
)

(2
)Net cash provided by investing activities


403


849Cash Flows from Financing Activities:Net decrease in deposits


(1,277
)

(1,914
)Net increase in commercial paper and other short-term borrowings


1,904


577Proceeds from issuance of long-term debt


1,000


1,000Repayment of long-term debt


(513
)

(500
)Other, net


1


1Change in noncontrolling interests


10


13Net cash provided by (used in) financing activities


1,125


(823
)Net increase in cash and cash equivalents


2,009


246Cash and cash equivalents at beginning of period


1,174


8,226Effect of exchange rate changes on cash and cash equivalents





1Cash and cash equivalents at end of period

$
3,183

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

$
71

$
102Income taxes, net


6


(2
)Supplemental Schedule of Noncash Investing and Financing Activities:Net transfer of loans held for investment to loans held for sale

$
94

$
86Transfer of loans held for investment to foreclosed assets (OREO)


38


29


See accompanying notes to consolidated financial statements.

41

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Table of Contents

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

Note 1Basis of Presentation and Nature of Operations

The unaudited consolidated financial statements of UnionBanCal Corporation, its subsidiaries, and its consolidated variable interest entities (the Company) 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 first quarter of 2011 are not necessarily indicative of the operating results anticipated for the full year. These unaudited
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, 2010 (2010 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 the 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. Although such
estimates contemplate current conditions and management's expectations of how they may change in the future, it is reasonably possible that actual results could differ significantly from those
estimates. This could materially affect the Company's results of operations and financial condition in the near term. Significant estimates made by management in the preparation of the Company's
financial statements include, but are not limited to, the evaluation of other-than-temporary impairment on investment securities (Note 4), allowance for credit losses
(Note 5), purchased credit-impaired loans (Note 5), annual goodwill impairment analysis, pension accounting (Note 7), valuing financial instruments (Note 10), and income
taxes.

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

Effective
in the first quarter of 2011, payments received of $96 million related to the loss share agreements with the FDIC in conjunction with the Company's FDIC-assisted
acquisitions are disclosed separately as proceeds from FDIC loss share agreements and are classified within cash flows from investing activities. These proceeds were previously classified under cash
flows from operating activities and totaled $95 million and $165 million in the third quarter and full year 2010, respectively.

Note 2Recently Issued Accounting Pronouncements That Are Not Yet Effective



In April 2011, the FASB issued ASU 2011-02,Receivables (Topic 310): A
Creditor's Determination of Whether a Restructuring Is a Troubled Debt Restructuring. The update provides additional guidance to creditors on evaluating whether a modification
or restructuring of a receivable is a troubled debt restructuring (TDR) and clarifies the existing guidance on whether (1) the creditor has granted a concession and (2) whether the
debtor is experiencing financial difficulties, which are the two criteria used to determine whether a modification or restructuring is a TDR. This guidance is effective beginning July 1, 2011.
Management is currently assessing the impact of this guidance on the Company's financial position and results of operations.

42

---



Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

Note 2Recently Issued Accounting Pronouncements That Are Not Yet Effective (Continued)



In April 2011, the FASB issued ASU 2011-03,Transfers and Servicing
(Topic 860): Reconsideration of Effective Control for Repurchase Agreements. The update removes from the assessment of effective control (1) the criterion
requiring the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms, even in the event of default by the transferee, and (2) the
collateral maintenance implementation guidance related to that criterion. This guidance is effective beginning January 1, 2012. Management is currently assessing the impact of this guidance on
the Company's financial position and results of operations.

Note 3Business Combinations

On April 30, 2010, the Bank entered into a purchase and assumption agreement with the FDIC to acquire certain assets and assume certain liabilities of Frontier Bank, a Washington
state-chartered commercial bank headquartered in Everett, Washington (Frontier). Additionally, on April 16, 2010, the Bank entered into a purchase and assumption agreement with the FDIC to
acquire certain assets and assume certain liabilities of Tamalpais Bank of San Rafael, California (Tamalpais). For further information related to the Tamalpais and Frontier acquisitions, see
Note 2 to the consolidated financial statements in the Company's 2010 Form 10-K. In the first quarter of 2011, the Company recorded an adjustment, which reduced goodwill by
$9 million, related to the value of expected interest income on the acquired loans and FDIC indemnification assets. For further information related to goodwill and intangibles, see
Note 5 to the consolidated financial statements in the Company's 2010 Form 10-K.

Note 4Securities

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

Securities Available for Sale

March 31, 2011(Dollars in millions)

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair
ValueU.S. government sponsored agencies

$
5,260

$
43

$
1

$
5,302Residential mortgage-backed securities:U.S. government and government sponsored agencies


13,373


121


137


13,357Privately issued


956


5


30


931State and municipal


65


1





66Asset-backed securities


305








305Other debt securities


307


5


2


310Equity securities


62


1





63Total securities available for sale

$
20,328

$
176

$
170

$
20,334


43

---



Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

Note 4Securities (Continued)



December 31, 2010(Dollars in millions)

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair
ValueU.S. Treasury

$
150

$


$


$
150U.S. government sponsored agencies


6,689


75





6,764Residential mortgage-backed securities:U.S. government and government sponsored agencies


12,743


138


125


12,756Privately issued


710


4


32


682State and municipal


25


1





26Asset-backed securities


240








240Other debt securities


129


5


1


133Equity securities


40


1


1


40Total securities available for sale

$
20,726

$
224

$
159

$
20,791


Securities Held to Maturity

March 31, 2011Recognized in Other
Comprehensive
Income (OCI)



Not Recognized in OCI(Dollars in millions)

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Carrying
Value

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair
ValueCollateralized loan obligations (CLOs)

$
1,779

$


$
440

$
1,339

$
307

$


$
1,646




December 31, 2010Recognized in OCI



Not Recognized in OCI(Dollars in millions)

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Carrying
Value

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair
ValueCLOs

$
1,778

$


$
455

$
1,323

$
238

$
1

$
1,560


For
securities held to maturity, the amount recognized in other comprehensive income (OCI) reflects the unrealized loss at date of transfer to the held to maturity classification, net of
amortization, while the amount not recognized in OCI reflects the incremental change in value after such transfer. Amortized cost is defined as the original purchase cost, plus or minus any accretion
or amortization of a purchase discount or premium, less payments and any impairment previously recognized in earnings.

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

44

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

Note 4Securities (Continued)

Maturity Schedule of Securities

Securities Available for Sale

March 31, 2011(Dollars in millions)

Amortized
Cost

Fair
ValueDue in one year or less

$
1,875

$
1,883Due after one year through five years


3,828


3,871Due after five years through ten years


961


992Due after ten years


13,602


13,525No stated maturityequity securities


62


63Total securities available for sale

$
20,328

$
20,334


Securities Held to Maturity

March 31, 2011(Dollars in millions)

Amortized
Cost

Carrying Value

Fair ValueDue in one year or less

$


$


$
1Due after one year through five years


270


222


267Due after five years through ten years


1,337


1,003


1,230Due after ten years


172


114


148Total securities held to maturity

$
1,779

$
1,339

$
1,646


The proceeds from sales of securities available for sale, gross realized gains and gross realized losses are shown below. The specific
identification method is used to calculate realized gains and losses on sales. The table below excludes losses from other-than-temporary impairment.

Sales of Securities Available for Sale

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

2011

2010Proceeds from sales

$
1,913

$
1,047Gross realized gains


29


35Gross realized losses








Analysis of Unrealized Losses on Securities

At March 31, 2011 and December 31, 2010, the Company's securities with a continuous unrealized loss position are shown
below, separately for periods less than 12 months and 12 months or more.

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

Note 4Securities (Continued)

Securities Available for Sale

March 31, 2011Less than 12 months

12 months or more

Total(Dollars in millions)

Fair
Value

Unrealized
Losses

Count

Fair
Value

Unrealized
Losses

Count

Fair
Value

Unrealized
Losses

CountU.S. government sponsored agencies

$
455

$
1


10

$


$





$
455

$
1


10Residential mortgage-backed securities:U.S. government and government sponsored agencies


6,475


137


242


112





7


6,587


137


249Privately issued


403


4


31


101


26


6


504


30


37State and municipal


1





4








1


1





5Asset-backed securities


105





11











105





11Other debt securities


202


1


17


22


1


4


224


2


21Equity securities


5





2








2


5





4Total securities available for sale

$
7,646

$
143


317

$
235

$
27


20

$
7,881

$
170


337




December 31, 2010Less than 12 months

12 months or more

Total(Dollars in millions)

Fair Value

Unrealized Losses

Count

Fair Value

Unrealized Losses

Count

Fair Value

Unrealized Losses

CountU.S. government sponsored agencies

$
240

$



6

$


$





$
240

$



6Residential mortgage-backed securities:U.S. government and government sponsored agencies


6,320


125


237


35





2


6,355


125


239Privately issued


140


1


16


165


31


11


305


32


27State and municipal


1





4








2


1





6Asset-backed securities


110





11











110





11Other debt securities











22


1


4


22


1


4Equity securities


5


1


2








2


5


1


4Total securities available for sale

$
6,816

$
127


276

$
222

$
32


21

$
7,038

$
159


297


46

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

Note 4Securities (Continued)

Securities Held to Maturity

March 31, 2011Less than 12 months

12 months or more

Total(Dollars in millions)

Fair Value

Unrealized Losses

Count

Fair Value

Unrealized Losses

Count

Fair Value

Unrealized Losses

CountCLOs

$


$





$
1,634

$
440


220

$
1,634

$
440


220




December 31, 2010Less than 12 months

12 months or more

Total(Dollars in millions)

Fair Value

Unrealized Losses

Count

Fair Value

Unrealized Losses

Count

Fair Value

Unrealized Losses

CountCLOs

$


$





$
1,558

$
456


221

$
1,558

$
456


221


At March 31, 2011, the Company did not have the intent to sell temporarily impaired securities until a recovery of the amortized cost,
which may be at maturity, and it is not more likely than not that the Company will have to sell the securities prior to recovery of amortized cost.

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



These residential mortgage-backed securities consist of securities guaranteed by the U.S. government or government sponsored agencies
such as Fannie Mae and Freddie Mac. These securities are collateralized by residential mortgage loans and may be prepaid at par prior to maturity. The unrealized losses on these residential
mortgage-backed securities resulted from changes in interest rates and not credit quality. As a result, the securities were not other-than-temporarily impaired at
March 31, 2011.



These residential mortgage-backed securities are privately issued by financial institutions. These securities are collateralized by
residential mortgage loans and may be prepaid at par prior to maturity. The securities are primarily rated investment grade. The unrealized losses on these privately issued residential mortgage-backed
securities resulted from declining credit quality of underlying collateral and additional credit spread widening since purchase. The Company estimated loss projections for each security by assessing
the loans collateralizing each security. The Company estimates the portion of loss attributable to credit based on the expected cash flows of the underlying collateral using industry consensus
estimates of current key assumptions, such as default rates, loss severity and prepayment rates. Based on this assessment of expected credit losses of each security, impairment recognized during the
first quarter of 2011 was not significant. With respect to the remaining portfolio at March 31, 2011, the Company expects to recover the entire amortized cost basis of these securities.

47

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

Note 4Securities (Continued)



The Company's CLOs primarily consist of Cash Flow CLOs. A Cash Flow CLO is a structured finance product that securitizes a diversified
pool of loan assets into multiple classes of notes. Cash Flow CLOs pay the note holders through the receipt of interest and principal repayments from the underlying loans unlike other types of CLOs
that pay note holders through the trading and sale of underlying collateral. Certain of these CLOs are highly illiquid securities for which fair values are difficult to obtain. Unrealized losses arise
from widening credit spreads, credit quality of the underlying collateral, uncertainty regarding the valuation of such securities and the market's opinion of the performance of the fund managers. Cash
flow analysis of the underlying collateral provides an estimate of other-than-temporary impairment, which is performed quarterly when the fair value of a security is lower than
its amortized cost. Based on the analysis performed as of March 31, 2011 to determine whether any of the unrealized losses related to CLOs were believed to be
other-than-temporary, the Company expects to recover the entire amortized cost basis of these securities.



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

The
Company separately identifies in the consolidated balance sheets, securities pledged as collateral in secured borrowings and other arrangements when the secured party can sell or
repledge the securities. If the secured party cannot resell or repledge the securities that have been placed as collateral, those securities are not separately identified. At March 31, 2011,
the Company had $4.9 billion of securities available for sale pledged as collateral where the secured party cannot resell or repledge such securities. These available for sale securities have
been pledged to secure borrowings ($1.8 billion), to support unrealized losses on derivative transactions reported in trading liabilities ($0.4 billion) and to secure public and trust
department deposits ($2.7 billion).

At
March 31, 2011 and December 31, 2010, the Company accepted securities as collateral that it is permitted by contract to sell or repledge of $25 million
($14 million of which has been repledged to cover short sales) and $12 million ($1 million of which has been repledged to secure public agency or
bankruptcy deposits and to cover short sales), respectively. These securities were received as collateral for secured lending and to obtain qualified securities to meet the Company's collateral needs.

48

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

Note 5Loans and Allowance for Loan Losses

A summary of loans, net of unearned discount and deferred fees (costs) of $56 million and $70 million at March 31, 2011 and December 31, 2010, respectively,
is as follows:

(Dollars in millions)

March 31, 2011

December 31, 2010Loans held for investment, excluding FDIC covered loans:Commercial, financial and industrial

$
15,143

$
15,162Construction


1,153


1,460Residential mortgage


18,110


17,531Commercial mortgage


7,749


7,816Consumer:Installment


1,983


2,035Revolving lines of credit


1,804


1,823Total consumer


3,787


3,858Lease financing


773


757Total loans held for investment, excluding FDIC covered loans


46,715


46,584FDIC covered loans


1,390


1,510Total loans held for investment


48,105


48,094Allowance for loan losses


(1,034
)

(1,191
)Loans held for investment, net

$
47,071

$
46,903




The Company evaluated loans acquired in the Frontier and Tamalpais transactions in accordance with accounting guidance related to loans
acquired with deteriorated credit quality as of the acquisition date. Management elected to account for all acquired loans, except for revolving lines of credit, within the scope of the accounting
guidance using the same methodology. The following table reflects the carrying value of loans, pursuant to accounting standards for purchased credit-impaired loans and other acquired loans, as of
March 31, 2011 and December 31, 2010:

March 31, 2011(Dollars in millions)

Purchased credit-impaired loans

Other acquired loans

TotalCommercial, financial and industrial

$
334

$
53

$
387Construction


182


2


184Residential mortgage


77





77Commercial mortgage


692


15


707Consumer


16


19


35Total FDIC covered loans

$
1,301

$
89

$
1,390




49

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

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

December 31, 2010(Dollars in millions)

Purchased credit-impaired loans

Other acquired loans

TotalCommercial, financial and industrial

$
356

$
77

$
433Construction


220


2


222Residential mortgage


81





81Commercial mortgage


717


16


733Consumer


20


21


41Total FDIC covered loans

$
1,394

$
116

$
1,510


The acquired loans are referred to as "covered loans" as the Bank will be reimbursed for a substantial portion of any future losses on them under
the terms of the FDIC loss share agreements. As of acquisition dates, the estimated fair value of the purchased credit-impaired loan portfolios of Frontier and Tamalpais subject to the loss share
agreements was $1.7 billion, which represents the present value of expected cash flows from the portfolio. The difference between the undiscounted contractual cash flows and the undiscounted
expected cash flows is the nonaccretable difference. The nonaccretable difference represents the estimated credit losses in the acquired loan portfolios at the acquisition date.

The
accretable yield for purchased credit-impaired loans for the first quarter of 2011 was as follows:

(Dollars in millions)

March 31,
2011Accretable yield, beginning of year

$
231Accretion


(37
)Reclassifications from nonaccretable difference during the period


104Accretable yield, end of period

$
298


The
carrying value and outstanding balance for the purchased credit-impaired loans as of March 31, 2011, December 31, 2010 and as of the respective acquisition dates were
as follows:

(Dollars in millions)

March 31,
2011

December 31,
2010

Acquisition
DateTotal outstanding balance

$
2,729

$
2,829

$
3,153Carrying value

$
1,301

$
1,394

$
1,725


Acquired
loans were recorded at fair value at acquisition date, factoring in credit losses expected to be incurred over the life of the loan. Accordingly, an allowance for loan losses
was not carried over or recorded as of the respective acquisition dates. The acquired loans are subject to the Bank's internal credit review. When credit deterioration is noted subsequent to the
respective acquisition dates, a provision for loan losses is charged to earnings, with a partial offset reflecting the increase to the FDIC indemnification asset for FDIC covered loans. At
March 31, 2011, the allowance for loan losses on FDIC covered loans was $23 million, which consisted of an allowance for FDIC covered loan losses not subject to FDIC indemnification of
$7 million, and an allowance covered by FDIC indemnification of $16 million, representing exposure for losses

50

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

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

expected
to be recoverable under loss share agreements with the FDIC. There were no charge-offs or recoveries related to FDIC covered loans during the first quarter of 2011.



The following table shows the allowance for loans losses and related loan balances by portfolio segment as of March 31, 2011 and
December 31, 2010.

March 31, 2011

March 31, 2010(Dollars in millions)

Commercial

Consumer

FDIC
covered
loans

Unallocated

Total

TotalAllowance for loan losses, beginning of period

$
683

$
185

$
25

$
298

$
1,191

$
1,357(Reversal of) provision for loan losses


(68
)

13





(47
)

(102
)

170Decrease in allowance covered by FDIC indemnification








(2
)




(2
)

Loans charged off


48


25








73


135Recoveries of loans previously charged off


19


1








20


16Allowance for loan losses, end of period

$
586

$
174

$
23

$
251

$
1,034

$
1,408Allowance for loan losses:Individually evaluated for impairment

$
106

$
10

$


$


$
116Collectively evaluated for impairment


480


164





251


895Purchased credit-impaired loans








23





23Total allowance for loan losses

$
586

$
174

$
23

$
251

$
1,034Loans held for investment:Individually evaluated for impairment

$
461

$
103

$
21

$


$
585Collectively evaluated for impairment


24,357


21,794


68





46,219Purchased credit-impaired loans








1,301





1,301Total loans held for investment

$
24,818

$
21,897

$
1,390

$


$
48,105


51

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

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



December 31, 2010(Dollars in millions)

Commercial

Consumer

FDIC
covered
loans

Unallocated

TotalAllowance for loan losses:Individually evaluated for impairment

$
112

$
8

$


$


$
120Collectively evaluated for impairment


571


177





298


1,046Purchased credit-impaired loans








25





25Total allowance for loan losses

$
683

$
185

$
25

$
298

$
1,191Loans held for investment:Individually evaluated for impairment

$
572

$
79

$
26

$


$
677Collectively evaluated for impairment


24,623


21,310


90





46,023Purchased credit-impaired loans








1,394





1,394Total loans held for investment

$
25,195

$
21,389

$
1,510

$


$
48,094


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



Nonaccrual loans, excluding FDIC covered loans, totaled $0.8 billion, at each of March 31, 2011 and December 31,
2010. There were $234 million and $220 million of TDR loans at March 31, 2011 and December 31, 2010, respectively. Loans 90 days or more past due and still accruing
totaled $3 million and $2 million at March 31, 2011 and December 31, 2010, respectively.

52

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

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

The
following table presents nonaccrual loans as of March 31, 2011 and December 31, 2010.

(Dollars in millions)

March 31,
2011

December 31,
2010Commercial, financial and industrial

$
113

$
115Construction


71


140Residential mortgage


241


243Commercial mortgage


265


329Consumer:Installment


12


12Revolving lines of credit


10


10Total consumer


22


22Lease financing


71


Total nonaccrual loans, excluding FDIC covered loans


783


849FDIC covered loans


90


116Total nonaccrual loans

$
873

$
965Troubled debt restructured loans that continue to accrue interest

$
45

$
22Troubled debt restructured nonaccrual loans (included in the total nonaccrual loans above)

$
189

$
198


The
following table provides a summary of total TDRs, which include those that are on nonaccrual status and those that continue to accrue interest, as of March 31, 2011 and
December 31, 2010.

(Dollars in millions)

March 31,
2011

December 31,
2010Commercial, financial and industrial

$
24

$
30Residential mortgage


101


79Commercial mortgage


107


111Consumer


2


Total troubled debt restructured loans

$
234

$
220


53

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

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

The following table shows an aging of the balance of loans held for investment by class as of March 31, 2011 and December 31, 2010.

March 31, 2011Aging Analysis of Loans

90 days or
more
past due
and still
accruing(1)(Dollars in millions)

Current

30 to 89
days past
due

90 days or
more past
due

Total past
due

TotalCommercial, financial and industrial

$
15,831

$
71

$
14

$
85

$
15,916

$
3Construction


1,133





20


20


1,153


Commercial mortgage


7,612


105


32


137


7,749


Residential mortgage


17,771


160


179


339


18,110


Consumer installment


1,962


11


10


21


1,983


Consumer revolving lines of credit


1,783


12


9


21


1,804


Total loans held for investment, excluding FDIC covered loans

$
46,092

$
359

$
264

$
623

$
46,715

$
3


(1)Excludes
loans totaling $279 million that were 90 days or more past due and still accruing, which consisted of FDIC covered
loans accounted for in accordance with accounting standards for purchased credit-impaired loans.


December 31, 2010Aging Analysis of Loans

90 days or
more
past due
and still
accruing(1)(Dollars in millions)

Current

30 to 89
days past
due

90 days or
more past
due

Total past
due

TotalCommercial, financial and industrial

$
15,866

$
22

$
31

$
53

$
15,919

$
2Construction


1,378


41


41


82


1,460


Commercial mortgage


7,695


71


50


121


7,816


Residential mortgage


17,181


148


202


350


17,531


Consumer installment


2,033


9


11


20


2,053


Consumer revolving lines of credit


1,786


11


8


19


1,805


Total loans held for investment, excluding FDIC covered loans

$
45,939

$
302

$
343

$
645

$
46,584

$
2


(1)Excludes
loans totaling $312 million that were 90 days or more past due and still accruing, which consisted of FDIC covered
loans accounted for in accordance with accounting standards for purchased credit-impaired loans.




Management analyzes the Company's loan portfolios by applying specific monitoring policies and procedures that vary according to the
relative risk profile and other characteristics within the various loan portfolios. For further information related to the credit quality indicators the Company uses to monitor the portfolio, see
Note 4 to the consolidated financial statements in the Company's 2010 Form 10-K.

54

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

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

The
following tables summarize the loans in the commercial portfolio segment monitored for credit quality based on internal ratings, excluding $1.3 billion and $1.4 billion
covered by FDIC loss share agreements, at March 31, 2011 and December 31, 2010, respectively. Amounts also exclude $596 million and $635 million at March 31, 2011
and December 31, 2010, respectively, of small business loans, which are monitored by business credit score and delinquency status, unamortized nonrefundable loan fees, and related direct loan
origination costs.

March 31, 2011(Dollars in millions)

Commercial, financial
and industrial

Construction

Commercial mortgage

TotalPass

$
14,084

$
810

$
6,284

$
21,178Criticized


1,103


402


1,386


2,891Total

$
15,187

$
1,212

$
7,670

$
24,069




December 31, 2010(Dollars in millions)

Commercial, financial
and industrial

Construction

Commercial mortgage

TotalPass

$
13,982

$
902

$
6,205

$
21,089Criticized


1,235


623


1,526


3,384Total

$
15,217

$
1,525

$
7,731

$
24,473


The Company monitors the credit quality of its consumer segment based primarily on payment status. The following tables summarize the loans in the
consumer portfolio segment, which excludes $112 million and $122 million of loans, covered by FDIC loss share agreements at March 31, 2011 and December 31, 2010,
respectively.

March 31, 2011(Dollars in millions)

Accrual

Nonaccrual

TotalResidential mortgage

$
17,869

$
241

$
18,110Consumer installment


1,971


12


1,983Consumer revolving lines of credit


1,794


10


1,804Total

$
21,634

$
263

$
21,897




December 31, 2010(Dollars in millions)

Accrual

Nonaccrual

TotalResidential mortgage

$
17,288

$
243

$
17,531Consumer installment


2,023


12


2,035Consumer revolving lines of credit


1,813


10


1,823Total

$
21,124

$
265

$
21,389


55

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

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

Loan Impairment

The Company's impaired loans generally include larger commercial, financial and industrial, construction, commercial mortgage, and TDRs
where it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. When the value of an impaired loan is less than the recorded
investment in the loan, the Company records an impairment allowance.

The
following tables show information about impaired loans by class as of March 31, 2011 and December 31, 2010.

March 31, 2011Recorded Investment





Unpaid principal balance(Dollars in millions)

With an
allowance

Without an
allowance

Total

Allowance
for impaired
loans

Average
balance

With an
allowance

Without an
allowanceCommercial, financial and industrial

$
170

$
10

$
180

$
60

$
147

$
186

$
56Construction


61


8


69


16


104


68


9Residential mortgage


101





101


10


90


100


Commercial mortgage


196


16


212


30


265


252


22Consumer


2





2





1


2


Total, excluding FDIC covered loans


530


34


564


116


607


608


87FDIC covered loans


1


20


21





24


12


41Total

$
531

$
54

$
585

$
116

$
631

$
620

$
128




December 31, 2010Recorded Investment





Unpaid principal balance(Dollars in millions)

With an
allowance

Without an
allowance

Total

Allowance
for impaired
loans

Average
balance

With an
allowance

Without an
allowanceCommercial, financial and industrial

$
110

$
3

$
113

$
31

$
210

$
138

$
10Construction


134


5


139


15


301


162


6Residential mortgage


79





79


8


40


79


Commercial mortgage


308


12


320


66


434


371


18Total, excluding FDIC covered loans


631


20


651


120


985


750


34FDIC covered loans


1


25


26





5


11


45Total

$
632

$
45

$
677

$
120

$
990

$
761

$
79


Interest income recognized for impaired loans during the first quarter of 2011 for the commercial, consumer and FDIC covered loan portfolio
segments were $0.5 million, $1.0 million and $0.2 million, respectively.

The
Company transferred $94 million of loans from held for investment to held for sale and sold $79 million in loans during the first quarter of 2011.

Note 6Variable Interest Entities, Private Capital and Other Investments

The Company is involved in various structures that are considered to be VIEs. Generally, a VIE is a corporation, partnership, trust or any other legal structure that has equity investors
that: 1) do not have sufficient equity at risk for the entity to independently finance its activities; 2) lack the power to direct the

56

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

Note 6Variable Interest Entities, Private Capital and Other Investments (Continued)

activities
that significantly impact the entity's economic success; and/or 3) do not have an obligation to absorb the entity's losses or the right to receive the entity's returns. The Company's
investments in VIEs primarily consist of equity investments in low income housing credit (LIHC) structures and renewable energy projects, which are designed to generate a return primarily through the
realization of federal tax credits, and private capital investments. For further information related to the Company's consolidated VIEs and those that were not consolidated, see Note 7 to the
consolidated financial statements in the Company's 2010 Form 10-K.

Consolidated VIEs

At March 31, 2011, assets of $300 million and liabilities of $10 million were consolidated by the Company on its
consolidated balance sheet related to two LIHC investment fund structures because the Company sponsors, manages and syndicates the funds. The assets are included in other assets as well as interest
bearing deposits in banks, the liabilities are primarily included in long-term debt, and third-party investor interests are included in stockholder's equity as noncontrolling interests.
Neither creditors nor equity investors in the LIHC investments have any recourse to the general credit of the Company, and the Company's creditors do not have any recourse to the assets of the
consolidated LIHC investments.

For
the first quarters of 2011 and 2010, the Company recorded $6 million and $5 million of expenses related to its consolidated VIEs, respectively. These expenses are
included in other noninterest expense on the Company's consolidated statements of income.

Unconsolidated VIEs in which the Company has a Variable Interest

The following table presents the Company's carrying amounts related to the unconsolidated VIEs and location on the consolidated balance
sheet at March 31, 2011. The table also presents the Company's maximum exposure to loss resulting from its involvement with these VIEs. The maximum exposure to loss represents the carrying
value of the Company's involvement plus any legally binding unfunded commitments in the unlikely event that all of the assets in the VIEs become worthless.

March 31, 2011(Dollars in millions)

Total Assets

Total Liabilities

Maximum Exposure
to LossLIHC investments

$
516

$
27

$
705Renewable energy investments


298





298Private capital investments


111





177Total unconsolidated VIEs

$
925

$
27

$
1,180


57

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

Note 6Variable Interest Entities, Private Capital and Other Investments (Continued)



The following table shows the balances of private capital and other investments as of March 31, 2011 and December 31,
2010.

(Dollars in millions)

March 31,
2011

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

$
86

$
85Private capital investmentsequity method


38


40LIHC investmentsguaranteed


183


157LIHC investmentsunguaranteed


336


316Consolidated VIEs


277


283Renewable energy investments


298


300Total private capital and other investments

$
1,218

$
1,181


The Company evaluates these investments periodically for other-than-temporary impairment. During the first quarter of
2011, the Company did not record any impairment related to these investments. For further information on the Company's private capital and other investments, see Note 8 to the consolidated
financial statements in the Company's 2010 Form 10-K.

Note 7Employee Pension and Other Postretirement Benefits

The following table summarizes the components of net periodic benefit cost for the first quarter of 2011 and 2010.

Pension Benefits

Other Benefits

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

For the Three
Months Ended
March 31,

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

2011

2010

2011

2010

2011

2010Components of net periodic benefit cost:Service cost

$
14

$
12

$
3

$
3

$


$
Interest cost


24


22


3


3


1


1Expected return on plan assets


(37
)

(36
)

(3
)

(3
)




Recognized net actuarial loss


10


3


2


1





Total net periodic benefit cost

$
11

$
1

$
5

$
4

$
1

$
1


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


58

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)




Note 8Commercial Paper and Other Short-Term Borrowings

The following is a summary of the Company's commercial paper and other short-term borrowings:

(Dollars in millions)

March 31,
2011

December 31,
2010Federal funds purchased and securities sold under repurchase agreements with weighted average interest rates of 0.17% and 0.15% at March 31, 2011 and
December 31, 2010, respectively

$
426

$
170Commercial paper, with weighted average interest rates of 0.23% and 0.22% at March 31, 2011 and December 31, 2010, respectively


1,265


745Other borrowed funds:Term federal funds purchased, with weighted average interest rates of 0.27% and 0.28% at March 31, 2011 and December 31, 2010,
respectively


689


335Federal Home Loan Bank advances with a weighted average interest rate of 0.24% at March 31, 2011


750


All other borrowed funds, with weighted average interest rates of 0.34% and 1.20% at March 31, 2011 and December 31, 2010,
respectively


130


106Total commercial paper and other short-term borrowings

$
3,260

$
1,356


Note 9Long-Term Debt

The following is a summary of the Company's long-term debt:

(Dollars in millions)

March 31,
2011

December 31,
2010Senior debt:Fixed and floating rate Federal Home Loan Bank advances with maturities ranging from December 2011 to February 2016. These notes bear a combined
weighted-average rate of 1.79% at March 31, 2011 and 1.72% at December 31, 2010

$
4,000

$
3,000Floating rate notes due March 2011. These notes, which bear interest at 0.08% above 3-month LIBOR, had a rate of 0.38% at December 31,
2010





500Floating rate notes due March 2012. These notes, which bear interest at 0.20% above 3-month LIBOR, had a rate of 0.51% at March 31, 2011 and 0.50% at
December 31, 2010


500


500Fixed rate 2.125% notes due December 2013


399


399Note payable:Fixed rate 6.03% notes due July 2014 (related to consolidated VIE)


8


8Subordinated debt:Fixed rate 5.25% notes due December 2013


419


422Fixed rate 5.95% notes due May 2016


752


756Junior subordinated debt payable to subsidiary grantor trust:Fixed rate 10.875% notes due March 2030





10Fixed rate 10.60% notes due March 2030





3Total long-term debt

$
6,078

$
5,598


59

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

Note 10Fair Value Measurement and Fair Value of Financial Instruments



Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., an exit price)
in an orderly transaction between willing market participants at the measurement date. In determining fair value, the Company maximizes the use of observable market inputs and minimizes the use of
unobservable inputs. Observable inputs reflect market-derived or market-based information obtained from independent sources, while unobservable inputs reflect the Company's estimate about market data.
Based on the observability of the significant inputs used, the Company classifies its fair value measurements in accordance with the three-level hierarchy as defined by US GAAP. This hierarchy
is based on the quality and reliability of the information used to determine fair value. For further information related to the fair value hierarchy, see Note 17 to the consolidated financial
statements in the Company's 2010 Form 10-K.



The Company has an established and documented process for determining fair value for financial assets and financial liabilities that
are measured at fair value on either a recurring or nonrecurring basis. When available, quoted market prices are used to determine fair value. If quoted market prices are not available, fair value is
based upon valuation techniques that use, where possible, current market-based or independently sourced parameters, such as interest rates, yield curves, foreign exchange rates, commodity prices,
volatilities and credit curves. Valuation adjustments may be made to ensure the financial instruments are recorded at fair value. These adjustments include amounts that reflect counterparty credit
quality and that consider the Company's creditworthiness in determining the fair value of its trading liabilities. For further information related to the valuation methodologies used for certain
financial assets and financial liabilities measured at fair value, see Note 17 to the consolidated financial statements in the Company's 2010 Form 10-K.

60

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

Note 10Fair Value Measurement and Fair Value of Financial Instruments (Continued)



The following tables present financial assets and financial liabilities measured at fair value on a recurring basis as of
March 31, 2011 and December 31, 2010, by major category and by valuation hierarchy level.

March 31, 2011(Dollars in millions)

Level 1

Level 2

Level 3

Netting Adjustment(1)

Fair ValueAssetsTrading account assets:U.S. Treasury

$
6

$


$


$


$
6U.S. government sponsored agencies


82











82State and municipal





48








48Commercial paper





18








18Foreign exchange derivative contracts





38





(3
)

35Commodity derivative contracts





304





(119
)

185Interest rate derivative contracts


3


513





(90
)

426Equity derivative contracts





76








76Total trading account assets


91


997





(212
)

876Securities available for sale:U.S. government sponsored agencies


5,302











5,302Residential mortgage-backed securities:U.S. government and government sponsored agencies





13,357








13,357Privately issued





931








931State and municipal





18


48





66Asset-backed securities





305








305Other debt securities





310








310Equity securities


62





1





63Total securities available for sale


5,364


14,921


49





20,334Other assets





11





(8
)

3Total assets

$
5,455

$
15,929

$
49

$
(220
)
$
21,213Percentage of Total


26
%

75
%




(1
)%

100
%Percentage of Total Company Assets


6
%

20
%







26
%LiabilitiesTrading account liabilities:Foreign exchange derivative contracts

$


$
47

$


$
(11
)
$
36Commodity derivative contracts





295





(50
)

245Interest rate derivative contracts


2


472





(168
)

306Equity derivative contracts





76








76Other derivative contracts








10





10Securities sold, not yet purchased


23











23Total trading account liabilities


25


890


10


(229
)

696Other liabilities








47





47Total liabilities

$
25

$
890

$
57

$
(229
)
$
743Percentage of Total


3
%

120
%

8
%

(31
)%

100
%Percentage of Total Company Liabilities





1
%







1
%


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


61

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

Note 10Fair Value Measurement and Fair Value of Financial Instruments (Continued)

December 31, 2010(Dollars in millions)

Level 1

Level 2

Level 3

Netting Adjustment(1)

Fair ValueAssetsTrading account assets:U.S. Treasury

$
43

$


$


$


$
43U.S. government sponsored agencies


68











68State and municipal





42








42Commercial paper





34








34Foreign exchange derivative contracts


1


42





(10
)

33Commodity derivative contracts





234





(58
)

176Interest rate derivative contracts


3


593





(42
)

554Equity derivative contracts





50





(1
)

49Total trading account assets


115


995





(111
)

999Securities available for sale:U.S. Treasury


150











150U.S. government sponsored agencies


6,764











6,764Residential mortgage-backed securities:U.S. government and government sponsored agencies





12,756








12,756Privately issued





682








682State and municipal





19


7





26Asset-backed securities





240








240Other debt securities





133








133Equity securities


39





1





40Total securities available for sale


6,953


13,830


8





20,791Other assets:Interest rate hedging contracts





21





(2
)

19Total other assets





21





(2
)

19Total assets

$
7,068

$
14,846

$
8

$
(113
)
$
21,809Percentage of Total


33
%

68
%




(1
)%

100
%Percentage of Total Company Assets


9
%

19
%







28
%LiabilitiesTrading account liabilities:Foreign exchange derivative contracts

$
1

$
48

$


$
(13
)
$
36Commodity derivative contracts





233





(51
)

182Interest rate derivative contracts





551





(60
)

491Equity derivative contracts





50








50Other derivative contracts








14





14Securities sold, not yet purchased


1











1Total trading account liabilities


2


882


14


(124
)

774Other liabilities








36





36Total liabilities

$
2

$
882

$
50

$
(124
)
$
810Percentage of Total





109
%

6
%

(15
)%

100
%Percentage of Total Company Liabilities





1
%







1
%


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


The following tables present a reconciliation of the assets and liabilities measured at fair value on a recurring basis using significant
unobservable inputs (Level 3) for the first quarters of 2011 and 2010. Level 3

62

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

Note 10Fair Value Measurement and Fair Value of Financial Instruments (Continued)

available
for sale securities at March 31, 2011 and 2010 primarily consist of tax exempt community development bonds. There were no transfers in (out) of Level 1, 2, and 3 during the
first quarter of 2011.

For the Quarters EndedMarch 31, 2011

March 31, 2010(Dollars in millions)

Securities Available for Sale

Trading Liabilities

Other Liabilities

Securities Available for SaleBalance, beginning of period

$
8

$
14

$
36

$
7Total (gains) losses (realized/unrealized):Included in income before taxes





(4
)

11


Purchases


42








1Sales


(1
)







Balance, end of period

$
49

$
10

$
47

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

$


$
(4
)
$
11

$





Certain assets may be measured at fair value on a nonrecurring basis. These assets are subject to fair value adjustments that result
from the application of the lower of cost or fair value accounting or write-downs of individual assets. For assets measured at fair value on a nonrecurring basis during the first quarters of 2011 and
2010 that were still held on the consolidated balance sheet as of the respective periods ended, the following tables present the carrying value of such financial instruments by the level of valuation
assumptions used to determine each fair value adjustment.

March 31, 2011Loss for the Quarter Ended March 31, 2011(Dollars in millions)

Carrying Value

Level 1

Level 2

Level 3Loans:Impaired loans

$
297

$


$


$
297

$
(45
)Other assets:OREO


76








76


(9
)Total

$
373

$


$


$
373

$
(54
)


63

---



Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

Note 10Fair Value Measurement and Fair Value of Financial Instruments (Continued)



March 31, 2010Loss for the Quarter Ended March 31, 2010(Dollars in millions)

Carrying Value

Level 1

Level 2

Level 3Loans:Impaired loans

$
615

$


$


$
615

$
(15
)Other assets:OREO


8








8


(1
)Private equity investments


5








5


(2
)Total

$
628

$


$


$
628

$
(18
)


Loans include individually impaired loans that are measured based on the fair value of the underlying collateral or the fair value of the loan.
The fair value of impaired loans was determined based on appraised values of the underlying collateral or market pricing for the loan, adjusted for management judgment.

Other
assets consist of private equity investments, and OREO that was measured at the lower of cost or fair value, net of cost of disposal. The fair value of OREO was primarily based on
independent appraisals. The fair value of private equity investments was estimated using NAV.



In addition to financial instruments recorded at fair value in the Company's financial statements, the disclosure of the estimated fair
value of financial instruments that are not carried at fair value is also required. Excluded from this disclosure requirement are lease financing arrangements, investments accounted for under the
equity method, employee pension and other postretirement obligations and all nonfinancial assets and liabilities, including goodwill and other intangible assets such as long-term customer
relationships. The fair values presented are estimates for certain individual financial instruments and do not represent an estimate of the fair value of the Company as a whole.

Certain
financial instruments that are not recognized at fair value on the consolidated balance sheet are carried at amounts that approximate fair value due to their
short-term nature. These financial instruments include cash and due from banks, interest bearing deposits in banks, federal funds sold and purchased, securities purchased under resale
agreements, securities sold under repurchase agreements and commercial paper. In addition, the fair value of deposits with no stated maturity, such as noninterest bearing demand deposits, interest
bearing checking, and market rate and other savings are deemed to equal their carrying values. For further information on methodologies for approximating fair values, see Note 17 to the
consolidated financial statements in the Company's 2010 Form 10-K.

64

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

Note 10Fair Value Measurement and Fair Value of Financial Instruments (Continued)

The
table below presents the carrying value and estimated fair value of certain financial instruments held by the Company as of March 31, 2011 and December 31, 2010.

March 31, 2011

December 31, 2010(Dollars in millions)

Carrying Value

Fair Value

Carrying Value

Fair ValueAssetsSecurities held to maturity

$
1,339

$
1,646

$
1,323

$
1,560Loans held for investment, net of allowance for loan losses(1)


46,304


46,337


46,164


46,231FDIC indemnification asset


699


612


783


750LiabilitiesInterest bearing deposits


40,615


40,714


43,611


43,610Other borrowed funds


1,569


1,569


441


441Long-term debt


6,078


6,133


5,598


5,669


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


Off-balance sheet commitments, which include commitments to extend credit and standby and commercial letters of credit, are excluded
from the above table. These instruments generate ongoing fees, which are recognized over the term of the commitment period. In situations where the credit quality of the counterparty to a commitment
has declined, the Company records a reserve. A reasonable estimate of the fair value of these instruments is the carrying value of deferred fees plus the related reserve. This estimate totaled
$279 million and $298 million at March 31, 2011 and December 31, 2010, respectively.

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

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

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

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

65

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

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

The tables below present the notional amounts, and the location and fair value amounts of the Company's derivative instruments reported on the consolidated balance sheet, segregated
between derivative instruments designated and qualifying as hedging instruments and all other derivative instruments as of March 31, 2011 and December 31, 2010. Asset and liability
values are presented gross, excluding the impact of legally enforceable master netting and CSA agreements.

March 31, 2011Asset Derivatives

Liability Derivatives(Dollars in millions)

Notional
Amount

Balance Sheet
Location

Fair
Value

Balance Sheet
Location

Fair
ValueTotal derivatives designated as hedging instruments:Interest rate contracts

$
5,000

Other assets

$
11

Other liabilities

$
Derivatives not designated as hedging instruments:Interest rate contracts

$
32,896

Trading account assets

$
516

Trading account liabilities

$
474Commodity contracts


5,018

Trading account assets


304

Trading account liabilities


295Foreign exchange contracts


3,105

Trading account assets


38

Trading account liabilities


47Equity contracts


1,888

Trading account assets


76

Trading account liabilities


76Other contracts


60






Trading account liabilities


10Total derivatives not designated as hedging instruments

$
42,967



$
934



$
902Total deriviative instruments

$
47,967



$
945



$
902




December 31, 2010Asset Derivatives

Liability Derivatives(Dollars in millions)

Notional
Amount

Balance Sheet
Location

Fair
Value

Balance Sheet
Location

Fair
ValueTotal derivatives designated as hedging instruments:Interest rate contracts

$
5,500

Other assets

$
21

Other liabilities

$
Derivatives not designated as hedging instruments:Interest rate contracts

$
28,820

Trading account assets

$
596

Trading account liabilities

$
551Commodity contracts


4,679

Trading account assets


234

Trading account liabilities


233Foreign exchange contracts


3,011

Trading account assets


43

Trading account liabilities


49Equity contracts


1,313

Trading account assets


50

Trading account liabilities


50Other contracts


60






Trading account liabilities


14Total derivatives not designated as hedging instruments

$
37,883



$
923



$
897Total deriviative instruments

$
43,383



$
944



$
897


Certain of the Company's derivative instruments contain provisions that require the Company to maintain a specified credit rating. If the
Company's credit rating was to fall below the specified rating, the counterparties to these derivative instruments could terminate the contract and demand immediate payment or demand immediate and
ongoing full overnight collateralization for those derivative instruments in net liability positions. At March 31, 2011, the aggregate fair value (including net interest payable/receivable) of
all derivative

66

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

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

instruments
with credit-risk mitigated contingent features that are in a liability position was $6 million. At March 31, 2011, the Company had not pledged any collateral to
secure these obligations. If all of the credit-risk-related contingent features underlying these agreements had been triggered on March 31, 2011, the Company would have
been required to provide collateral of $6 million to settle these contracts.



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



The Company engages in several types of cash flow hedging strategies related to forecasted future interest payments, with the hedged
risk being the changes in cash flows attributable to changes in the designated benchmark rate (i.e., U.S. dollar LIBOR). In these strategies, the hedging instruments are matched with groups of
similar variable rate instruments such that the reset tenor of the variable rate instruments and that of the hedging instrument are identical at inception. Cash flow hedging instruments currently
being utilized include purchased caps and interest rate swaps. At March 31, 2011, the weighted average remaining life of the currently active cash flow hedges was approximately 2 years.

In
the first quarter of 2011, the Company terminated $1.0 billion notional amount of interest rate swaps concurrent with the issuance of $1.0 billion of fixed rate debt.
The swaps were accounted for as a cash flow hedge and were used to mitigate the changes in cash flows on the forecasted fixed rate debt. At termination, the Company had a related unrealized gain of
$14 million, which will be amortized into interest expense over the life of the debt. The Company realized minimal ineffectiveness as result of the termination.

The
Company used purchased interest rate caps with a notional amount of $1.0 billion to hedge the risk of changes in cash flows attributable to changes in the designated benchmark
interest rate on LIBOR indexed borrowings. Payments received under the cap contract offset the increase in borrowing interest expense if the relevant LIBOR index rises above the cap's strike rate. The
Company used interest rate swaps with a notional amount of $1.0 billion to hedge the risk of changes in cash flows attributable to changes in the designated benchmark interest rate on LIBOR
indexed borrowings. Payments received (or paid) under the swap contract offset fluctuations in borrowing interest expense caused by changes in the relevant LIBOR index. The Company used purchased
interest rate caps with a notional amount of $3.0 billion to hedge the risk of changes in cash flows attributable to changes in the designated benchmark interest rate component of forecasted
issuances of short-term, fixed rate CDs. Net payments to be received under the cap contract offset increases in interest expense if the relevant LIBOR index rises above the cap's strike
rate.

Hedging
transactions are structured at inception so that the notional amounts of the hedging instruments are matched to an equal principal amount of loans, CDs, or borrowings, the index
and repricing frequencies of

67

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

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

the
hedging instruments match those of the loans, CDs, or borrowings and the period in which the designated hedged cash flows occur is equal to the term of the hedge instruments. As such, most of the
ineffectiveness in the hedging relationship results from the mismatch between the timing of reset dates on the hedging instruments versus those of the loans, CDs or borrowings.

For
cash flow hedges, the effective portion of the gain or loss on the hedging instruments is reported as a component of other comprehensive income and reclassified into earnings in the
same period or periods during which the hedged cash flows are recognized in net interest income. Gains and losses representing hedge ineffectiveness and any non qualifying hedge components are
recognized in noninterest expense in the period in which they arise. At March 31, 2011, the Company expects to reclassify approximately $12 million of net losses from accumulated other
comprehensive income to net interest income during the twelve months ending March 31, 2012. This amount could differ from amounts actually realized due to changes in interest rates and the
addition of other hedges subsequent to March 31, 2011.

The
following table presents the amount and location of the net gains and losses recorded in the Company's consolidated statements of income and changes in stockholder's equity for
derivatives designated as cash flow hedges for the first quarters of 2011 and 2010.

Amount of Gain or
(Loss) Recognized in
OCI on Derivative
Instruments
(Effective Portion)

Gain or (Loss) Reclassified
from Accumulated OCI into
Income (Effective Portion)

Gain or (Loss) Recognized in
Income on Derivative
Instruments (Ineffective
Portion and Amount Excluded
from Effectiveness Testing)For the Three Months
Ended March 31,



For the Three Months
Ended March 31,



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

2011

2010

Location

2011

2010

Location

2011

2010Derivatives in cash flow hedging relationshipsInterest income

$
(1
)
$
20

NoninterestInterest rate contracts

$
5

$
(2
)
Interest expense


(1
)



expense(1)

$


$
Total

$
5

$
(2
)


$
(2
)
$
20



$


$



(1)Amounts
recognized were less than $1 million.




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

The
Company offers market-linked certificates of deposit, which allow the client to earn the higher of either a minimum fixed rate of interest or a return tied to either equity,
commodity or currency indices. The Company hedges its exposure to the embedded derivative contained in market-linked CDs with a perfectly matched over-the-counter option. Both
the embedded derivative
and options are recorded at fair value with the realized and unrealized changes in fair value recorded in noninterest income within trading account activities.

68

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

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

The
following table presents the amount and location of the net gains and losses reported in the consolidated statement of income for derivative instruments classified as trading for the
first quarters of 2011 and 2010.

Gain or (Loss) Recognized in Income on Derivative Instruments(Dollars in millions)

Location

For the Three Months Ended
March 31, 2011

For the Three Months Ended
March 31, 2010Trading Derivatives:Interest rate contracts

Trading account activities

$
11

$
3Equity contracts

Trading account activities


8


3Foreign exchange contracts

Trading account activities


6


9Commodity contracts

Trading account activities


(1
)

2Other contracts

Trading account activities


4


Total



$
28

$
17


69

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

Note 12Accumulated Other Comprehensive Loss

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

(Dollars in millions)

Before
Tax
Amount

Tax
Effect

Net of
TaxFor the Three Months Ended March 31, 2010:Cash flow hedge activities:Unrealized net losses on hedges arising during the period

$
(2
)
$
1

$
(1
)Less: accretion of fair value adjustment


1





1Less: reclassification adjustment for net gains on hedges included in net income


(21
)

8


(13
)Net change in unrealized gains on hedges


(22
)

9


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


112


(44
)

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


(34
)

13


(21
)Less: accretion of fair value adjustment on held-to-maturity securities


(7
)

3


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


23


(9
)

14Net change in unrealized losses on securities


94


(37
)

57Foreign currency translation adjustment


1





1Reclassification adjustment for pension and other benefits included in net income:Recognized net actuarial loss


5


(1
)

4Net change in pension and other benefits


5


(1
)

4Net change in accumulated other comprehensive loss

$
78

$
(29
)
$
49For the Three Months Ended March 31, 2011:Cash flow hedge activities:Unrealized net gains on hedges arising during the period

$
5

$
(2
)
$
3Less: Reclassification adjustment for net losses on hedges included in net income


2


(1
)

1Net change in unrealized gains on hedges


7


(3
)

4Securities:Unrealized holding losses arising during the period on securities available for sale


(28
)

11


(17
)Reclassification adjustment for net gains on securities available for sale included in net income


(28
)

11


(17
)Less: accretion of fair value adjustment on securities available for sale


(3
)

1


(2
)Less: accretion of fair value adjustment on held to maturity securities


(6
)

2


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


21


(8
)

13Net change in unrealized losses on securities


(44
)

17


(27
)Foreign currency translation adjustment


3


(1
)

2Reclassification adjustment for pension and other benefits included in net income:Recognized net actuarial loss


12


(5
)

7Pension and other benefits


9


(3
)

6Net change in pension and other benefits


21


(8
)

13Net change in accumulated other comprehensive loss

$
(13
)
$
5

$
(8
)


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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

Note 12Accumulated Other Comprehensive Loss (Continued)

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

(Dollars in millions)

Net
Unrealized
Gains (Losses)
on Cash Flow
Hedges

Net
Unrealized
Gains (Losses)
on Securities

Foreign
Currency
Translation
Adjustment

Pension and
Other
Benefits
Adjustment

Accumulated
Other
Comprehensive
LossBalance, December 31, 2009

$
19

$
(296
)
$


$
(374
)
$
(651
)Change during the period


(13
)

57


1


4


49Balance, March 31, 2010

$
6

$
(239
)
$
1

$
(370
)
$
(602
)Balance, December 31, 2010

$
(21
)
$
(238
)
$
1

$
(419
)
$
(677
)Change during the period


4


(27
)

2


13


(8
)Balance, March 31, 2011

$
(17
)
$
(265
)
$
3

$
(406
)
$
(685
)


Note 13Commitments, Contingencies and Guarantees

The following table summarizes the Company's commitments.

(Dollars in millions)

March 31, 2011Commitments to extend credit

$
22,953Standby letters of credit


5,403Commercial letters of credit


57Commitments to fund principal investments


66Commitments to fund LIHC investments


189Commitments to fund CLO securities


14


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

Standby
and commercial letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. Standby letters of credit generally are
contingent upon the failure of the customer to perform according to the terms of the underlying contract with the third party, while commercial letters of credit are issued specifically to facilitate
foreign or domestic trade transactions. Additionally, the Company enters into risk participations in bankers' acceptances wherein a fee is received to guarantee a portion of the credit risk on an
acceptance of another bank. The majority of these types of commitments have terms of one year or less. At March 31, 2011, the carrying value of the Company's risk participations in bankers'
acceptances and standby and commercial letters of credit totaled $5 million. Estimated exposure to loss related to these commitments is covered by the allowance for losses on
off-balance sheet commitments. The carrying value of the standby and commercial letters of credit and the allowance for losses on off-balance sheet commitments are included in
other liabilities on the consolidated balance sheet.

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

71

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

Note 13Commitments, Contingencies and Guarantees (Continued)

amount
of these instruments. Collateral may be obtained based on management's credit assessment of the customer.

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

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

The
Company is a fund manager for limited liability companies issuing LIHC investments. LIHC investments provide tax benefits to investors in the form of tax deductions from operating
losses and tax credits. To facilitate the sale of these LIHC investments, the Company guarantees a minimum rate of return throughout the investment term of over a twelve-year weighted
average period. Additionally, the Company receives guarantees, which include the timely completion of projects, availability of tax credits and operating deficit thresholds, from the limited liability
partnerships/corporations issuing the LIHC investments that reduce the Company's ultimate exposure to loss. As of March 31, 2011, the Company's maximum exposure to loss under these guarantees
was limited to a return of investor capital and minimum investment yield, or $197 million. The risk that the Company would be required to pay investors for a yield deficiency is low, based on
the continued satisfactory performance of the underlying properties. At March 31, 2011, the Company had a reserve of $7 million recorded related to these guarantees, which represents the
remaining unamortized fair value of the guarantee fees that were recognized at inception. For information on the Company's LIHC investments that were consolidated, refer to Note 6 to these
consolidated financial statements.

The
Company guarantees its subsidiaries' leveraged lease transactions with terms ranging from fifteen to thirty years. Following the original funding of these leveraged lease
transactions, the Company does not have any material obligation to be satisfied. As of March 31, 2011, we had no exposure to loss for these agreements.

The
Company conducts securities lending transactions for institutional customers as a fully disclosed agent. At times, securities lending indemnifications are issued to guarantee that a
security lending customer will be made whole in the event the borrower does not return the security subject to the lending agreement and collateral held is insufficient to cover the market value of
the security. All lending transactions are collateralized, primarily by cash. The amount of securities lent with indemnifications was $1.6 billion at March 31, 2011 and the market value
of the associated collateral was $1.7 billion. As of March 31, 2011, the Company had no exposure that would require it to pay under this securities lending indemnification, since the
collateral market value exceeded the securities lent.

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

Note 13Commitments, Contingencies and Guarantees (Continued)

The
Company occasionally enters into financial guarantee contracts where a premium is received from another financial institution counterparty to guarantee a portion of the credit risk
on interest rate swap contracts entered into between the financial institution and its customer. The Company becomes liable to pay the financial institution only if the financial institution is unable
to collect amounts owed to them by their customer. As of March 31, 2011, the current exposure to loss under these contracts totaled $22 million and the maximum potential exposure to loss
in the future was estimated at $32 million.

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

Note 14Business Segments

The Company has three operating segments: Retail Banking Group, Corporate Banking Group and Pacific Rim Corporate Group. The Pacific Rim Corporate Group is included in "Other." The
Company has two reportable business segments: Retail Banking and Corporate Banking.



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

The
information, set forth in the tables that follow, is prepared using various management accounting methodologies to measure the performance of the individual segments. 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, and they are not necessarily indicative of the results that would be reported by our business units if they were unique economic entities. The management reporting
accounting methodologies, which are enhanced from time to time, measure segment

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

Note 14Business Segments (Continued)

profitability
by assigning balance sheet and income statement items to each operating segment. Methodologies that are applied to the measurement of segment profitability
include:



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 eliminated in "Reconciling Items."

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

Note 14Business Segments (Continued)

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

Retail Banking

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

As of and for the
Three Months Ended
March 31,2011

2010

2011

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

$
265

$
229

$
307

$
295Noninterest income (expense)


65


66


130


115Total revenue


330


295


437


410Noninterest expense (income)


262


215


230


235Credit expense (income)


6


7


52


78Income (loss) before income taxes and including noncontrolling interests


62


73


155


97Income tax expense (benefit)


24


29


36


16Net income (loss) including noncontrolling interests


38


44


119


81Less: Net loss from noncontrolling interests











Net income (loss) attributable to UNBC

$
38

$
44

$
119

$
81Total assets, end of periodMarket View (dollars in millions):

$
23,774

$
22,594

$
29,995

$
30,609




Other

Reconciling ItemsAs of and for the
Three Months Ended
March 31,

As of and for the
Three Months Ended
March 31,2011

2010

2011

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

$
63

$
68

$
(18
)
$
(18
)Noninterest income (expense)


61


44


(16
)

(15
)Total revenue


124


112


(34
)

(33
)Noninterest expense (income)


135


87


(13
)

(12
)Credit expense (income)


(160
)

85





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


149


(60
)

(21
)

(21
)Income tax expense (benefit)


62


(22
)

(8
)

(8
)Net income (loss) including noncontrolling interests


87


(38
)

(13
)

(13
)Less: Net loss from noncontrolling interests


4


3





Net income (loss) attributable to UNBC

$
91

$
(35
)
$
(13
)
$
(13
)Total assets, end of periodMarket View (dollars in millions):

$
28,966

$
34,187

$
(2,093
)
$
(1,919
)


75

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Table of Contents

UnionBanCal Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

Note 14Business Segments (Continued)



UnionBanCal
CorporationAs of and for the
Three Months Ended
March 31,2011

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

$
617

$
574Noninterest income (expense)


240


210Total revenue


857


784Noninterest expense (income)


614


525Credit expense (income)


(102
)

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


345


89Income tax expense (benefit)


114


15Net income (loss) including noncontrolling interests


231


74Less: Net loss from noncontrolling interests


4


3Net income (loss) attributable to UNBC

$
235

$
77Total assets, end of periodMarket View (dollars in millions):

$
80,642

$
85,471


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Table of Contents

PART II. OTHER INFORMATION

Item 1.   Legal Proceedings

Cynthia Larsen v. Union Bank, N.A.:This putative class action was filed on July 15, 2009 by Union Bank customer Cynthia Larsen.
In October
2009, the action was transferred from the Northern District of California to the Multidistrict Litigation action (MDL) in the Southern District of Florida. Omnibus motions to dismiss the complaints in
many of the suits included in the MDL, including Larsen, were denied on March 12, 2010. Plaintiffs allege that, by posting charges to their accounts in order from highest to lowest amount, the
Bank charged them more overdraft fees than it would have charged them had the Bank posted items to their accounts in chronological order.

Plaintiffs'
complaint asserts common-law causes of action for breach of contract and breach of duty of an implied duty of good faith, unconscionability, conversion, unjust
enrichment and violation of California Business & Professions Code section 17200 et seq., as well as other statutory violations. Plaintiffs seek unspecified damages, return or refund of
all improper overdraft fees, disgorgement of profits derived from the Bank's alleged conduct, injunctive relief, and attorneys' fees and costs. Plaintiffs seek to represent a putative class of other
Union Bank customers who were charged overdraft charges as a result of "re-sequencing" within the applicable statute of limitations period. Union Bank intends to vigorously defend the
case. Trial is currently scheduled for March 2012.

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 2010
Form 10-K, which is incorporated by reference herein, in addition to the following information.

Industry Factors

U.S. and global economies have experienced a serious recession, unprecedented volatility in the financial
markets, and significant deterioration in sectors of the U.S. consumer and business economy, all of which continue to present challenges for the banking and financial services industry and for
UnionBanCal Corporation; the U.S. Government has responded to
these circumstances with a variety of measures; there can be no assurance that these measures will successfully address these circumstances.

Over the past three years, adverse financial and economic developments have impacted the U.S. and global economies and financial markets and have presented
challenges for the banking and financial services industry and for UnionBanCal Corporation. These developments include a general recession both globally and in the U.S. and have contributed to
substantial volatility in the financial markets.

In
response, various significant economic and monetary stimulus measures have been enacted and considered by the U.S. Congress. Refer to "Supervision and Regulation" in Item 1 of
our 2010 Form 10-K for discussion of certain of these measures.

It
cannot be predicted whether U.S. Governmental actions will result in lasting improvement in financial and economic conditions affecting the U.S. banking industry and the U.S. economy.
It also cannot be predicted whether and to what extent the efforts of the U.S. Government to combat the mixed economic conditions will continue. If, notwithstanding the government's fiscal and
monetary measures, the U.S. economy were to deteriorate, this would continue to present significant challenges for the U.S. banking and financial services industry and for our Company. In addition, as
a wholly-owned subsidiary of a foreign bank, we have not been eligible to participate in some federal programs such as the U.S. Treasury's Capital Purchase Program and may not qualify for
participation in future federal programs.

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Table of Contents

Recently,
certain sovereign borrowers have encountered difficulties in financing renewals of their indebtedness. If this trend continues or worsens, it could have adverse impacts on
costs in the global debt markets which could increase funding costs for banks generally. Further, European regulators announced in 2010 findings from capital stress tests on many European banks and
recently announced that additional stress tests can be expected during 2011. The confidence in the transparency and robustness in these stress tests remains unclear. In April 2011, Standard &
Poor's, while re-affirming the AAA/A+ sovereign credit ratings of the United States, changed its outlook for the long-term obligations of the U.S to negative from stable in
light of very large budget deficits in recent years and rising government indebtedness and its belief that there is a material risk that U.S. policymakers might not reach an agreement on how to
address medium and long-term budgetary challenges by 2013. These combined factors, if continuing to worsen, could further increase the uncertainty in global markets.

The effects of changes or increases in, or supervisory enforcement of, banking or other laws and regulations or governmental fiscal or monetary policies could
adversely affect us

We
are subject to significant federal and state regulation and supervision, which is primarily for the benefit and protection of our customers and the Federal Deposit Insurance Fund and
not for the benefit of investors in our securities. In the past, our business has been materially affected by these regulations. This will continue and likely intensify 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. Changes
in laws and regulations may also increase our expenses by imposing additional supervision, fees, taxes or restrictions on our operations. Compliance with laws and regulations, especially new laws and
regulations, increases our expenses and diverts management attention from our business operations.

On
July 21, 2010, President Obama signed into law the Dodd-Frank Act. This new legislation has affected U.S. financial institutions, including UnionBanCal Corporation
and Union Bank, in many ways, some of which have increased, or may increase in the future, the cost of doing business and present other challenges to the financial services industry. Due to our size,
we will likely be designated as "systemically significant" to the financial health of the U.S. economy and, as a result, may be subject to additional regulations. Many of the new law's provisions are
in the process of being implemented by rules and regulations of the federal banking agencies, the scope and impact of which cannot yet be fully determined. The new law contains many provisions which
may have particular relevance to the business of UnionBanCal Corporation and Union Bank. While the full effect of these provisions of the Dodd-Frank Act on Union Bank cannot be predicted
at this time, they may result in adjustments to our FDIC deposit insurance premiums, increased capital and liquidity requirements, increased supervision, increased regulatory and compliance risks and
costs and other operational costs and expenses, reduced fee-based revenues and restrictions on some aspects of our operations, and increased interest expense on our demand deposits, some
or all of which may be material.

On
February 11, 2011, the U.S. Treasury released a White Paper addressing possible solutions to the current problems with Government Sponsored Entities Fannie Mae and Freddie Mac
(GSEs). The Treasury White Paper presents three possible long-term options to wind down the GSEs, reform the mortgage market and better target government support of affordable housing.
While the specific nature of the reform and its impact on the financial services industry in general, and on Union Bank in particular, is unclear at this time, such reform, if enacted, is likely to
have a substantial impact on the mortgage market and could potentially reduce our income from mortgage originations by increasing mortgage costs or lowering originations. The GSE reform could also
reduce real estate prices, which could reduce the value of collateral securing outstanding mortgage loans. This reduction of collateral value could negatively impact the value or perceived
collectability of these mortgage loans and may increase our allowance for loan losses. Such reforms may also include changes to the Federal Home Loan Bank System, which could adversely affect a
significant source of term

78

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Table of Contents

funding
for lending activities by the banking industry, including Union Bank. These reforms may also result in higher interest rates on residential mortgage loans, thereby reducing demand which could
have an adverse impact on our business, results of operations or financial condition.

President
Obama's proposed 2012 U.S. budget included a "Financial Crisis Responsibility Fee" that would apply to banks with greater than $50 billion in assets. This fee is
intended to recover taxpayer funds provided to U.S. financial institutions through the U.S. Treasury's Troubled Asset Relief Program ("TARP"). Although we did not receive, and were not eligible to
receive, direct TARP investment from the U.S. Treasury, as we have greater than $50 billion in assets, it appears that we would be subject to this fee. Therefore, our costs will likely increase
if this fee is enacted.

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 our ownership by BTMU, 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. In addition to changes in required capital resulting from the Dodd-Frank Act, the Basel
Committee published in December 2010 guidelines for the Basel III global regulatory framework for capital and liquidity, including calibration for increased capital requirements approved by the G20
leadership in November 2010. Current U.S. regulatory leverage ratio requirements are more stringent than those proposed by Basel III, which will be further assessed prior to finalization. New
liquidity standards are expected to be adopted by U.S. bank regulatory agencies with some modifications. These new liquidity standards could require that we raise and maintain additional liquidity.
While the ultimate implementation of these proposals in the U.S. is subject to the discretion of the U.S. bank regulators, these proposals, if adopted, could restrict our ability to grow during
favorable market conditions or require us to raise additional capital. As a result, our business, results of operations, financial condition or prospects could be adversely affected. Refer to
"Supervision and Regulation-Basel Committee Capital Standards" in Item 1 of our 2010 Form 10-K for additional information regarding the Basel Committee capital standards.

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

Additionally,
our business is affected significantly by the fiscal and monetary policies of the U.S. federal government and its agencies. We are particularly affected by the policies of
the Federal Reserve Board, which regulates the supply of money and credit in the U.S. Under the Dodd-Frank Act and a 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 2010 Form 10-K for discussion of certain existing and proposed laws and regulations that may affect our
business.

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Future legislative or regulatory actions responding to perceived financial and market problems could impair our rights against borrowers and decrease our revenue
from other customers

Under
current bankruptcy laws, courts cannot force a modification of mortgage and home equity loans secured by primary residences. In response to the financial crisis, in 2009,
legislation was proposed to allow mortgage loan "cram-downs," which would empower courts to modify the terms of mortgage and home equity loans including to reduce the principal amounts to
reflect lower underlying property values. Although this legislation has not moved forward at this time, legislation of this type could result in our writing down the value of our residential mortgage
and home equity loans to reflect their lower loan values. There is also risk that home equity loans in a second lien position (i.e., behind a mortgage) could experience significantly higher
losses to the extent they become unsecured as a result of a cram-down. The availability of principal reductions or other mortgage loan modifications could make bankruptcy a more attractive
option for troubled borrowers, leading to increased bankruptcy filings and accelerated defaults.

Recent
changes in federal rules have imposed new restrictions on banks' abilities to charge overdraft services and fees and can be expected to result in decreased revenues and increased
compliance costs for the industry and Union Bank. See "Supervision and RegulationOverdraft and Interchange Fees" in Item 1 of our 2010 Form 10-K for additional
information.

In
April 2011, new federal rules went into effect regulating residential mortgage broker compensation. Generally, such compensation must now be based solely on the loan amount and not on
any loan terms. In addition, mortgage brokers must offer the borrower the lowest possible interest rate and fees for which they qualify and may not collect fees from both the bank and the borrower.
Although these amendments do not apply to banks directly, they regulate the compensation that banks may pay to mortgage brokers and the types of transactions they may refer to banks. In addition, in
April 2011 the Federal Reserve proposed further rules to prohibit banks from making a residential mortgage loan without regard to a borrower's repayment ability. The proposed rule also would limit
prepayment penalties and impose lengthened record retention requirements on banks making residential mortgage loans. If a bank violated the ability-to-pay requirement, a
borrower could pursue broad legal remedies against the bank. We expect these recent and proposed amendments to increase our regulatory compliance and legal burdens and expenses and possibly negatively
impact residential mortgage originations, either or both of which could have an adverse impact on our residential mortgage lending business.

Substantial competition could adversely affect us

Banking
is a highly competitive business. We compete actively for loan, deposit, and other financial services business in California, Oregon, Washington, and Texas as well as nationally
and internationally. Our competitors include a large number of state and national banks, thrift institutions, credit unions, finance companies, mortgage banks and major foreign-affiliated or foreign
banks, as well as many financial and nonfinancial firms that offer services similar to those offered by us, including many large securities firms and financial services subsidiaries of commercial and
manufacturing companies. Some of our competitors are insurance companies or community or regional banks that have strong local market positions. Other competitors include large financial institutions
that have substantial capital, technology and marketing resources, which are well in excess of ours. Competition in our industry may further intensify as a result of the recent and increasing level of
consolidation of financial services companies, particularly in our principal markets resulting from adverse economic and market conditions. Larger financial institutions may have greater access to
capital at a lower cost than us, which may adversely affect our ability to compete effectively. In addition, some of our current commercial banking customers may seek alternative banking sources if
they develop credit needs larger than we may be able to accommodate. Many of our non-bank competitors are not subject to the same extensive regulations that govern our activities and may
have greater flexibility in competing for business. Additionally, technology has lowered barriers to entry and made it possible for non-banks to offer products and services traditionally
provided by banks, such as automatic transfer and payment systems. We also experience competition, especially for deposits, from internet-based banking

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institutions
and other financial companies, which do not always have a physical presence in our market footprint and have grown rapidly in recent years. Competition in our principal markets may
further intensify as a result of the Dodd-Frank Act, which, among other things, permits out of state de novo branching by national banks, state banks and foreign banks from other states.

The continuing war on terrorism, overseas military conflicts and unrest in other countries could adversely affect U.S. and global economic
conditions

Acts
or threats of terrorism and actions taken by the U.S. or other governments as a result of such acts or threats and other international hostilities, as well as political unrest in
various regions, including the Middle East, may result in a disruption of U.S. and global economic and financial conditions and increases in energy costs and could adversely affect business, economic
and financial conditions in the U.S. and globally and in our principal markets.



Adverse economic factors affecting certain industries we serve could adversely affect our
business

We
are subject to certain industry-specific economic factors. For example, a significant portion of our total loan portfolio is related to residential real estate, especially in
California. Increases in residential mortgage loan interest rates could have an adverse effect on our operations by depressing new mortgage loan originations, and could negatively impact our title and
escrow deposit levels. Additionally, a continued or further downturn in the residential real estate and housing industries in California could have an adverse effect on our operations and the quality
of our real estate loan portfolio. These factors could adversely impact the quality of our residential construction and residential mortgage portfolios 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 and are impacting the performance of our
commercial real estate and commercial and industrial portfolios. The commercial real estate industry in the U.S., and in California in particular, has been increasingly adversely impacted by the
recessionary environment and lack of liquidity in the financial markets. The home building and mortgage industry in California has been especially adversely impacted by the deterioration in
residential real estate markets. Poor economic conditions and financial access for commercial real estate developers and homebuilders could continue to adversely affect property values, resulting in
higher nonperforming assets and charge offs in this sector. Our commercial and industrial portfolio, and the communications and media industry, the retail industry, the energy industry and the
technology industry in particular, are also being impacted by recessionary market conditions. Continued volatility in fuel prices and energy costs could adversely affect businesses in several of these
industries. Conditions and credit markets remain uncertain and could produce elevated levels of charge-offs. 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.

Union
Bank provides banking services, including credit facilities, to a number of businesses that are based or conduct business in Japan. The severe earthquake and related events in
Japan earlier in 2011 could have adverse financial consequences for these customers, including on their ability to repay their obligations to Union Bank.

Adverse California economic conditions could adversely affect our business

The
government of 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. Economic conditions in California are subject to various challenges at this time, including significant deterioration in the residential real estate sector and the California state
government's budgetary and fiscal difficulties. California continues to have a high unemployment rate, with reported figures of 12.4 percent in December 2010. Also, California

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markets
have experienced among the worst property value declines in the U.S. Recently, California energy markets have experienced substantial increases in energy prices which, if such increases
continue or intensify, could have negative consequences for the California economy. Additionally, California is a major trading partner with Japan which, earlier in 2011, experienced a severe
earthquake, tsunami, leakage of radioactive materials from a nuclear power facility and electrical shortages in parts of the country. The long-term effect of such developments on
businesses in California cannot be predicted at this time.

For
the past several years, the State government of California has experienced budget shortfalls or deficits which have led to protracted negotiations between the Governor and the State
Legislature over how to address the budget gap. This challenging situation continues at the present time. In addition, municipalities and other governmental units within California have been
experiencing budgetary difficulties. Concerns also have arisen regarding the outlook for the State of California's governmental obligations, as well as those of California municipalities and other
governmental units.

A
substantial majority of our assets, deposits and interest and fee income is 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. If the budgetary and fiscal difficulties of the California State government and California municipalities
and other governmental units continue or economic conditions in California decline further, we expect that our level of problem assets could increase and our prospects for growth could be impaired.

The Bank of Tokyo-Mitsubishi UFJ's and Mitsubishi UFJ Financial Group's credit ratings and financial or regulatory condition could adversely affect our
operations

Adverse
changes to our credit ratings, reputation or creditworthiness could have a negative effect on our operations. We generally fund our operations independently of BTMU and MUFG and
believe our business is not necessarily closely related to the business or outlook of BTMU or MUFG. However, if BTMU and MUFG's credit ratings or financial condition or prospects were to decline, this
could adversely affect our credit rating or harm our reputation or perceived creditworthiness. In February 2011, Moody's Japan K.K. changed the outlook for the Government of Japan's bond ratings to
negative from stable and consequently changed the outlook to negative from stable for the long-term debt credit ratings of Japan's three largest banks, including BTMU, noting that a
downgrade in the government rating would result in a downgrade in the banks' ratings, absent a material improvement in their standalone credit quality. At this time, we cannot predict the actions, if
any, which other rating agencies may take on
this subject, nor the ultimate effect of these developments on our credit rating. On March 11, 2011, a large earthquake and tsunami occurred in Japan causing widespread destruction. Thereafter,
there has been continued leakage of radioactive material from a nuclear power plant in northern Japan which was badly damaged in the earthquake and tsunami as well as electrical shortages in certain
areas of the country. The ultimate impact of this natural disaster on the economy of Japan and its government debt credit ratings and the credit ratings of Japan's three largest banks, including BTMU,
cannot be predicted at this time. On April 26, 2011, Standard and Poor's, while affirming its long-term sovereign credit rating on Japanese government debt, changed its outlook to
negative from stable citing concerns about anticipated increases in Japanese government debt due to reconstruction costs in the aftermath of the natural disaster and lack of plans to deal with such
increases.

BTMU
and MUFG are also subject to regulatory oversight, review and supervisory action (which can include fines or penalties) by Japanese and U.S. regulatory authorities. Our business
operations and expansion plans could be negatively affected by regulatory concerns or supervisory action in the U.S. and in Japan against BTMU or MUFG.

Risks associated with potential acquisitions or divestitures or restructurings may adversely affect us

We
have in the past, and may in the future, seek to expand our business by acquiring other businesses which we believe will enhance our business. We cannot predict the frequency, size or
timing of our acquisitions, as this will depend on the availability of prospective target opportunities at valuation levels we

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find
attractive and the competition for such opportunities from other parties. There can be no assurance that our acquisitions will have the anticipated positive results, including results related to:
the total cost of integration; the retention of key personnel; the time required to complete the integration; the amount of longer-term cost savings; continued growth; or the overall
performance of the acquired company or combined entity. We also may encounter difficulties in obtaining required regulatory approvals and unexpected contingent liabilities can arise from the
businesses we acquire. Acquisitions may also lead us to enter geographic and product markets in which we have limited or no direct prior experience.

Our
purchase and assumption and loss share agreements with the FDIC relating to our Frontier Bank and Tamalpais Bank transactions have specific compliance, servicing, notification and
reporting requirements. Any failure to comply with the requirements of the loss share agreements, or to properly service the loans and other real estate owned (OREO) covered by any loss share
arrangement, may cause individual loans or loan pools to lose their eligibility for loss share payments from the FDIC, potentially resulting in material losses that are currently not anticipated.

Integration
of an acquired business can be complex and costly. If we are not able to integrate successfully past or future acquisitions, there is a risk that results of operations could
be adversely affected.

In
addition, we continue to evaluate the performance of all of our businesses and may sell or restructure a business. Any divestitures or restructurings may result in significant
expenses and write-offs, including those related to goodwill and other intangible assets, which could have a material adverse effect on our business, results of operations and financial
condition and may involve additional risks, including difficulties in obtaining any required regulatory approvals, the diversion of management's attention from other business concerns, the disruption
of our business and the potential loss of key employees.

We
may not be successful in addressing these or any other significant risks encountered in connection with any acquisition, divestiture or restructuring we might make.

We rely on third parties for important products and services

Third-party
vendors provide key components of our business infrastructure such as internet connections, network access and mutual fund distribution and we do not control their actions.
Among other services provided by these vendors, third-party vendors have played and will continued to play a key role in the implementation of our technology enhancement projects. Any problems caused
by these third parties, including those as a result of their not providing us their services for any reason or their performing their services poorly, could adversely affect our ability to deliver
products and services to our customers, implement our technology enhancement projects and otherwise to conduct our business and could result in disputes with such vendors over their performance of
their services to us. Replacing these third-party vendors is not always possible or within our control and could also entail significant delay and expense.

Significant legal or regulatory proceedings could subject us to substantial uninsured liabilities

We
are from time to time subject to claims and proceedings related to our present or previous operations including claims by customers and our employees and our contractual
counterparties. These claims, which could include supervisory or enforcement actions by bank regulatory authorities, or criminal proceedings by prosecutorial authorities, could involve demands for
large monetary amounts, including civil money penalties or fines imposed by government authorities, and significant defense costs. To mitigate the cost of some of these claims, we maintain insurance
coverage in amounts and with deductibles that we believe are appropriate for our operations. However, our insurance coverage does not cover any civil money penalties or fines imposed by government
authorities and may not cover all other claims that have been or might be brought against us or continue to be available to us at a reasonable cost. As a result, we may be exposed to substantial
uninsured liabilities, which could adversely affect our business, prospects, results of operations and financial condition.

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Our credit ratings are important in order to maintain liquidity.

Major
credit rating agencies regularly evaluate the securities of UnionBanCal Corporation and the securities and deposits of Union Bank, and their ratings of our long-term
debt and other securities and also of our short-term obligations are based on a number of factors, including our financial strength, ability to generate earnings, and other factors, some
of which are not entirely within our control, such as conditions affecting the financial services industry and the economy. In light of the difficulties in the financial services industry, the
financial markets and the economy, there can be no assurance that we will maintain our current long-term and short-term ratings. In addition, Moody's Investors Service and
Fitch, Inc. have announced that the ratings of a number of large U.S. banks, not including Union Bank, may be negatively affected because the passage of the Dodd-Frank Act makes it
less likely that the government would step in to rescue a troubled bank. It is unclear whether other rating agencies will respond in a similar way or whether perceived reduction in systemic support
could lead or contribute to negative downward pressure on our credit ratings.

If
our long-term or short-term credit ratings suffer downgrades, such downgrades could adversely affect access to liquidity and could significantly increase our
cost of funds, trigger additional collateral or funding requirements, and decrease the number of commercial depositors, investors and counterparties willing to lend to us, thereby curtailing our
business operations and reducing our ability to generate income.

Certain
of our derivative instruments contain provisions that require us to maintain a specified credit rating. If our credit rating were to fall below the specified rating, the
counterparties to these derivative instruments could terminate the contract and demand immediate payment or demand immediate and ongoing full overnight collateralization for those derivative
instruments in net liability positions.

Adverse
changes in the credit ratings, operations or prospects of our parent companies, BTMU and MUFG, could also adversely impact our credit ratings. For additional information, refer
to the discussion appearing above under the caption "The Bank of Tokyo-Mitsubishi UFJ's and Mitsubishi UFJ Financial Group's credit ratings and financial and regulatory condition could adversely
affect our operations."

We are subject to operational risks

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

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

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

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Item 6.   Exhibits

No.

Description31.1

Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(1)31.2

Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(1)32.1

Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002(1)32.2

Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002(1)


(1)Filed
herewith.


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SIGNATURES

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

UNIONBANCAL CORPORATION (Registrant)Date:    May 13, 2011

By:

/s/ MASASHI OKA Masashi Oka President and Chief Executive Officer
(Principal Executive Officer)Date:    May 13, 2011

By:

/s/ JOHN F. WOODS John F. Woods Vice Chairman and Chief Financial Officer
(Principal Financial Officer)Date:    May 13, 2011

By:

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


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EXHIBIT INDEX

No.

Description31.1

Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(1)31.2

Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(1)32.1

Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002(1)32.2

Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002(1)


(1)Filed
herewith.


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