10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2009
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                        to

Commission file number 1-15081

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

Delaware	94-1234979
(State of Incorporation)	(I.R.S. Employer Identification No.)
400 California Street San Francisco, California 94104-1302 (Address and zip code of principal executive offices)
Registrant's telephone number: (415) 765-2969

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

        Indicate by check mark whether the registrant 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 o
Non-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 October 31, 2009: 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.

UnionBanCal Corporation and Subsidiaries

TABLE OF CONTENTS

			Page Number
PART I
Financial Information
	Condensed Consolidated Financial Highlights		6
	ITEM 1. FINANCIAL STATEMENTS:
		Condensed Consolidated Statements of Income	8
		Condensed Consolidated Balance Sheets	9
		Condensed Consolidated Statements of Changes in Stockholder's Equity	10
		Condensed Consolidated Statements of Cash Flows	11
		Notes to Condensed Consolidated Financial Statements:
		Note 1—Basis of Presentation and Nature of Operations	12
		Note 2—Recently Issued Accounting Pronouncements	12
		Note 3—Privatization	16
		Note 4—Securities	18
		Note 5—Loans and Allowance for Loan Losses	23
		Note 6—Goodwill and Intangible Assets	24
		Note 7—Employee Pension and Other Postretirement Benefits	26
		Note 8—Other Noninterest Income and Noninterest Expense	27
		Note 9—Income Taxes	28
		Note 10—Borrowed Funds	29
		Note 11—Medium- and Long-Term Debt	30
		Note 12—Fair Value Measurement and Fair Value of Financial Instruments	31
		Note 13—Derivative Instruments and Other Financial Instruments Used For Hedging	38
		Note 14—Accumulated Other Comprehensive Loss	44
		Note 15—Discontinued Operations	45
		Note 16—Commitments, Contingencies and Guarantees	48
		Note 17—Business Segments	50
		Note 18—Subsequent Events	53
	ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS:
		Introduction	54
		Executive Overview	54
		Critical Accounting Estimates	56
		Financial Performance	58
		Net Interest Income	61
		Noninterest Income and Noninterest Expense	64
		Income Tax Expense	65
		Discontinued Operations	66
		Securities	66
		Loans	68
		Cross-Border Outstandings	70
		Provision for Credit Losses	70
		Allowances for Credit Losses	71
		Nonperforming Assets	74

2

			Page Number
		Loans 90 Days or More Past Due and Still Accruing	76
		Fair Value of Financial Instruments	76
		Quantitative and Qualitative Disclosures About Market Risk	77
		Liquidity Risk	80
		Regulatory Capital	82
		Business Segments	83
	ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		90
	ITEM 4. CONTROLS AND PROCEDURES		91
PART II
Other Information
	ITEM 1. LEGAL PROCEEDINGS		92
	ITEM 1A. RISK FACTORS		92
	ITEM 6. EXHIBITS		99
	SIGNATURES		100

3

NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

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

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

•

Our business objectives, strategies and initiatives, our organizational structure, the growth of our business and our competitive position and prospects

•

Our assessment of significant factors and developments that have affected or may affect our results

•

Pending and recent legal and regulatory actions, and future legislative and regulatory developments, including the effects of The Economic Stimulus Act of 2008, the Financial Stability Plan, the Homeowner Affordability and Stability Plan and the American Recovery and Reinvestment Act of 2009 and other legislation or governmental measures introduced in response to the financial crises affecting the banking system, financial markets and the U.S. economy and changes to the Federal Deposit Insurance Corporation's deposit insurance assessment policies

•

Regulatory controls and processes and their impact on our business

•

The costs and effects of legal actions, investigations, regulatory actions, criminal proceedings or similar matters, or adverse facts and developments related thereto

•

Credit quality and provision for credit losses, including our expectation that elevated levels of quarterly provisions for credit losses will continue in the fourth quarter of 2009 due to a continued weak economic environment and further deterioration in our loan portfolio

•

Our allowances for credit losses, including the conditions we consider in determining the unallocated allowance and our portfolio credit quality, underwriting standards, and risk grade and credit migration trends and our delinquency rates compared to the industry average

•

Our assessment of economic conditions and trends and credit cycles and their impact on our business

•

Net interest income

•

The impact of changes in interest rates and our strategy to manage our interest rate risk profile

•

Loan portfolio composition and risk grade trends, delinquency rates compared to the industry average and our underwriting standards

4

•

Our required performance under guarantee and indemnification commitments

•

Our deposit base

•

The adequacy of our insurance coverage

•

Our relatively high proportion of average noninterest bearing deposits to total deposits compared to most of our peers

•

Our intent to sell, and the likelihood that we would be required to sell, various investment securities

•

Our sensitivity to and management of market risk, including changes in interest rates, and the economic outlook for the U.S. in general and for any particular region of the U.S. including, in particular, California, Oregon, Washington and Texas

•

The composition, estimated loss projections, and market sensitivity of our securities portfolios, our trading and hedging strategies, prepayment projections and our management of the sensitivity of our balance sheet

•

Tax rates and taxes, including the possible effect of changes in Mitsubishi UFJ Financial Group, Inc.'s taxable profits on our California State tax obligations and of expected tax credits or benefits

•

Critical accounting policies and estimates, the impact or anticipated impact of recent accounting pronouncements or change in accounting principle and future recognition of impairments for the fair value of assets, including goodwill and intangible assets

•

Expected rates of return, yields and projected results

•

Decisions to downsize, sell or close units, dissolve subsidiaries, expand our branch network, pursue acquisitions or otherwise restructure, reorganize or change our business mix, their timing and their impact on our business

•

The relationship between our business and that of The Bank of Tokyo-Mitsubishi UFJ, Ltd., and Mitsubishi UFJ Financial Group, Inc., the impact of their credit rating on our credit ratings and actions that may or may not be taken by The Bank of Tokyo-Mitsubishi UFJ, Ltd., and Mitsubishi UFJ Financial Group, Inc.

•

Our strategies and expectations regarding capital levels and liquidity, our funding base and intent to fund our operations on an independent basis

•

The continued weak economic outlook for the U.S. economy

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

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

5

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

				As of and for the Three Months Ended
(Dollars in thousands)				September 30, 2008			September 30, 2009			Percent Change
Results of operations:
	Net interest income(1)			$	522,296		$	564,296			8.04	%
	Provision for loan losses				117,000			314,000			nm
	Noninterest income				198,721			183,929			(7.44	)
	Noninterest expense				443,812			505,815			13.97
	Income (loss) before income taxes(1)				160,205			(71,590	)		nm
	Taxable-equivalent adjustment				2,550			3,260			27.84
	Income tax expense (benefit)				47,549			(57,821	)		nm
	Income (loss) from continuing operations				110,106			(17,029	)		nm
	Loss from discontinued operations, net of taxes				(5,276	)		—			100.00
	Net income (loss)			$	104,830		$	(17,029	)		nm
Balance sheet (end of period):
	Total assets(2)			$	62,599,753		$	78,153,207			24.85	%
	Total loans				48,306,118			48,169,508			(0.28	)
	Nonperforming assets				304,246			1,367,691			nm
	Total deposits				42,355,853			60,691,368			43.29
	Medium- and long-term debt				3,827,164			5,121,553			33.82
	Stockholder's equity				4,692,648			9,475,004			nm
Balance sheet (period average):
	Total assets			$	61,145,251		$	74,352,649			21.60	%
	Total loans				47,196,204			48,764,826			3.32
	Earning assets				56,920,548			68,235,083			19.88
	Total deposits				41,661,224			59,453,936			42.71
	Stockholder's equity				4,588,441			7,358,773			60.38
Financial ratios(4):
	Return on average assets(3):
		From continuing operations			0.72	%		(0.09	)%
		Net income (loss)			0.68			(0.09	)
	Return on average stockholder's equity(3):
		From continuing operations			9.55			(0.92	)
		Net income (loss)			9.09			(0.92	)
	Efficiency ratio(5)				58.76			65.07
	Net interest margin(1)(3)				3.67			3.31
	Tangible equity ratio(6)				6.96			8.94
	Tier 1 common capital ratio(7)				8.00			11.58
	Tier 1 risk-based capital ratio(2)				8.02			11.60
	Total risk-based capital ratio(2)				10.94			14.42
	Leverage ratio(2)				7.97			10.39
	Allowance for loan losses to(8):
			Total loans		1.20			2.62
			Nonaccrual loans		200.94			95.15
	Allowance for credit losses to(9):
			Total loans		1.43			2.97
			Nonaccrual loans		239.50			108.16
	Net loans charged off to average total loans(3)				0.53			1.11
	Nonperforming assets to total loans, foreclosed assets and distressed loans held for sale				0.63			2.84
	Nonperforming assets to total assets(2)				0.49			1.75

(1)

Amounts are on a taxable-equivalent basis using the federal statutory tax rate of 35 percent.

(2)

End of period total assets and assets used to calculate all regulatory capital ratios include those of discontinued operations.

(3)

Annualized.

(4)

Average balances presented and used to calculate our financial ratios are based on continuing operations data only, unless otherwise indicated.

(5)

The efficiency ratio is noninterest expense, excluding foreclosed asset expense (income), the provision for losses on off-balance sheet commitments and low income housing credit (LIHC) investment amortization expense, as a percentage of net interest income (taxable-equivalent basis) and noninterest income, and is calculated for continuing operations only.

(6)

The tangible equity ratio is calculated as tangible equity (stockholder's equity less goodwill and intangible assets net of deferred tax on total intangibles) divided by tangible assets (total assets less goodwill and intangible assets net of deferred tax on total intangibles). The tangible equity ratio, while not required by US GAAP, has been included to facilitate the understanding of UnionBanCal's capital structure and financial condition.

(7)

The Tier 1 common capital ratio is the ratio of Tier 1 common capital to risk weighted assets. The Tier 1 common capital ratio, while not required by US GAAP, has been included to facilitate the understanding of UnionBanCal's capital structure and financial condition.

(8)

The allowance for loan losses ratios are calculated using the allowance for loan losses against end of period total loans or total nonaccrual loans, as appropriate. These ratios relate to continuing operations only.

(9)

The allowance for credit losses ratios are calculated using the sum of the allowances for loan losses and for losses on off-balance sheet commitments against end of period total loans or total nonaccrual loans, as appropriate. These ratios relate to continuing operations only.

nm

= not meaningful

6

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

				As of and for the Nine Months Ended
(Dollars in thousands, except per share data)				September 30, 2008			September 30, 2009			Percent Change
Results of operations:
	Net interest income(1)			$	1,498,287		$	1,680,010			12.13	%
	Provision for loan losses				284,000			923,000			nm
	Noninterest income				593,743			541,858			(8.74	)
	Noninterest expense				1,266,330			1,559,256			23.13
	Income (loss) before income taxes(1)				541,700			(260,388	)		nm
	Taxable-equivalent adjustment				7,405			8,625			16.48
	Income tax expense (benefit)				167,493			(162,169	)		nm
	Income (loss) from continuing operations				366,802			(106,844	)		nm
	Loss from discontinued operations, net of taxes				(12,037	)		—			100.00
	Net income (loss)			$	354,765		$	(106,844	)		nm
Balance sheet (end of period):
	Total assets(2)			$	62,599,753		$	78,153,207			24.85	%
	Total loans				48,306,118			48,169,508			(0.28	)
	Nonperforming assets				304,246			1,367,691			nm
	Total deposits				42,355,853			60,691,368			43.29
	Medium- and long-term debt				3,827,164			5,121,553			33.82
	Stockholder's equity				4,692,648			9,475,004			nm
Balance sheet (period average):
	Total assets			$	59,023,615		$	71,000,250			20.29	%
	Total loans				45,138,144			49,366,280			9.37
	Earning assets				54,689,402			64,593,827			18.11
	Total deposits				42,821,802			53,526,802			25.00
	Stockholder's equity				4,640,908			7,332,747			58.00
Financial ratios(4):
	Return on average assets(3):
		From continuing operations			0.83	%		(0.20	)%
		Net income (loss)			0.80			(0.20	)
	Return on average stockholder's equity(3):
		From continuing operations			10.56			(1.95	)
		Net income (loss)			10.21			(1.95	)
	Efficiency ratio(5)				58.10			66.34
	Net interest margin(1)(3)				3.65			3.47
	Tangible equity ratio(6)				6.96			8.94
	Tier 1 common capital ratio(7)				8.00			11.58
	Tier 1 risk-based capital ratio(2)				8.02			11.60
	Total risk-based capital ratio(2)				10.94			14.42
	Leverage ratio(2)				7.97			10.39
	Allowance for loan losses to(8):
			Total loans		1.20			2.62
			Nonaccrual loans		200.94			95.15
	Allowance for credit losses to(9):
			Total loans		1.43			2.97
			Nonaccrual loans		239.50			108.16
	Net loans charged off to average total loans(3)				0.31			1.10
	Nonperforming assets to total loans, foreclosed assets and distressed loans held for sale				0.63			2.84
	Nonperforming assets to total assets(2)				0.49			1.75

(1)

Amounts are on a taxable-equivalent basis using the federal statutory tax rate of 35 percent.

(2)

End of period total assets and assets used to calculate all regulatory capital ratios include those of discontinued operations.

(3)

Annualized.

(4)

Average balances presented and used to calculate our financial ratios are based on continuing operations data only, unless otherwise indicated.

(5)

The efficiency ratio is noninterest expense, excluding foreclosed asset expense (income), the provision for losses on off-balance sheet commitments and low income housing credit (LIHC) investment amortization expense, as a percentage of net interest income (taxable-equivalent basis) and noninterest income, and is calculated for continuing operations only.

(6)

The tangible equity ratio is calculated as tangible equity (stockholder's equity less goodwill and intangible assets net of deferred tax on total intangibles) divided by tangible assets (total assets less goodwill and intangible assets net of deferred tax on total intangibles). The tangible equity ratio, while not required by US GAAP, has been included to facilitate the understanding of UnionBanCal's capital structure and financial condition.

(7)

The Tier 1 common capital ratio is the ratio of Tier 1 common capital to risk weighted assets. The Tier 1 common capital ratio, while not required by US GAAP, has been included to facilitate the understanding of UnionBanCal's capital structure and financial condition.

(8)

The allowance for loan losses ratios are calculated using the allowance for loan losses against end of period total loans or total nonaccrual loans, as appropriate. These ratios relate to continuing operations only.

(9)

The allowance for credit losses ratios are calculated using the sum of the allowances for loan losses and for losses on off-balance sheet commitments against end of period total loans or total nonaccrual loans, as appropriate. These ratios relate to continuing operations only.

nm

= not meaningful

7

Item 1.   Financial Statements

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

			For the Three Months Ended September 30,						For the Nine Months Ended September 30,
(Amounts in thousands)			2008			2009			2008			2009
Interest Income
	Loans		$	636,870		$	576,166		$	1,884,112		$	1,762,540
	Securities			100,265			109,279			303,843			310,561
	Interest bearing deposits in banks			147			4,956			503			9,406
	Federal funds sold and securities purchased under resale agreements			1,787			110			5,573			348
	Trading account assets			1,200			250			4,701			610
		Total interest income		740,269			690,761			2,198,732			2,083,465
Interest Expense
	Deposits			135,736			101,374			500,905			306,598
	Federal funds purchased and securities sold under repurchase agreements			15,630			41			44,402			113
	Commercial paper			8,056			355			26,127			2,901
	Medium- and long-term debt			25,989			27,112			65,138			84,056
	Trust notes			239			239			715			715
	Other borrowed funds			34,873			604			70,563			17,697
		Total interest expense		220,523			129,725			707,850			412,080
Net Interest Income				519,746			561,036			1,490,882			1,671,385
	Provision for loan losses			117,000			314,000			284,000			923,000
		Net interest income after provision for loan losses		402,746			247,036			1,206,882			748,385
Noninterest Income
	Service charges on deposit accounts			77,079			74,888			229,521			218,053
	Trust and investment management fees			40,638			34,506			127,828			102,543
	Trading account activities			12,397			10,513			40,096			49,456
	Merchant banking fees			12,789			14,601			35,667			48,357
	Brokerage commissions and fees			9,520			8,611			30,014			25,424
	Card processing fees, net			8,129			8,559			24,060			24,219
	Securities gains, net			50			12,694			48			12,522
	Other			38,119			19,557			106,509			61,284
		Total noninterest income		198,721			183,929			593,743			541,858
Noninterest Expense
	Salaries and employee benefits			238,129			233,981			723,098			710,601
	Net occupancy			38,574			43,146			113,008			128,289
	Intangible asset amortization			671			40,641			2,011			121,809
	Regulatory agencies			8,572			30,739			16,078			101,513
	Outside services			20,741			22,219			58,045			64,001
	Professional services			17,236			17,647			47,764			53,074
	Equipment			14,437			17,838			44,925			49,853
	Software			14,812			16,502			44,016			45,745
	Foreclosed asset expense (income)			524			(144	)		696			4,024
	Provision for losses on off-balance sheet commitments			8,000			6,000			21,000			47,000
	Privatization-related expense			6,193			6,649			6,193			40,901
	Other			75,923			70,597			189,496			192,446
		Total noninterest expense		443,812			505,815			1,266,330			1,559,256
	Income (loss) from continuing operations before income taxes			157,655			(74,850	)		534,295			(269,013	)
	Income tax expense (benefit)			47,549			(57,821	)		167,493			(162,169	)
Income (Loss) from Continuing Operations				110,106			(17,029	)		366,802			(106,844	)
	Loss from discontinued operations before income taxes			(8,175	)		—			(22,692	)		—
	Income tax benefit			(2,899	)		—			(10,655	)		—
Loss from Discontinued Operations				(5,276	)		—			(12,037	)		—
Net Income (Loss)			$	104,830		$	(17,029	)	$	354,765		$	(106,844	)

See accompanying notes to condensed consolidated financial statements.

8

UnionBanCal Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)

(Dollars in thousands)			September 30, 2008			December 31, 2008			September 30, 2009
Assets
Cash and due from banks			$	1,959,484		$	1,568,578		$	1,155,497
Interest bearing deposits in banks				16,029			2,872,698			2,659,460
Federal funds sold and securities purchased under resale agreements				488,014			63,069			437,328
		Total cash and cash equivalents		2,463,527			4,504,345			4,252,285
Trading account assets:
	Pledged as collateral			18,124			6,283			60,816
	Held in portfolio			711,293			1,210,496			879,734
Securities available for sale:
	Pledged as collateral			1,404,463			54,525			—
	Held in portfolio			6,890,891			8,140,013			18,210,574
Securities held to maturity (Fair value: September 30, 2009, $1,269,934)				—			—			1,193,337
Loans (net of allowance for loan losses: September 30, 2008, $580,474;
	December 31, 2008, $737,767; September 30, 2009, $1,260,307)			47,725,644			48,847,783			46,909,201
Due from customers on acceptances				21,562			23,131			12,842
Premises and equipment, net				474,519			680,004			667,005
Intangible assets				4,447			713,485			601,140
Goodwill				355,287			2,369,326			2,369,326
Other assets				2,524,839			3,571,995			2,996,947
Assets of discontinued operations to be disposed or sold				5,157			4			—
		Total assets	$	62,599,753		$	70,121,390		$	78,153,207
Liabilities
	Noninterest bearing		$	13,694,272		$	13,566,873		$	14,472,375
	Interest bearing			28,661,581			32,482,896			46,218,993
		Total deposits		42,355,853			46,049,769			60,691,368
Federal funds purchased and securities sold under repurchase agreements				1,760,442			172,758			229,268
Commercial paper				1,659,935			1,164,327			423,499
Other borrowed funds				6,718,935			8,196,597			164,861
Trading account liabilities				506,890			1,034,663			715,075
Acceptances outstanding				21,562			23,131			12,842
Other liabilities				1,020,085			1,685,412			1,306,097
Medium- and long-term debt				3,827,164			4,288,488			5,121,553
Junior subordinated debt payable to subsidiary grantor trust				14,093			13,980			13,640
Liabilities of discontinued operations to be extinguished or assumed				22,146			7,960			—
		Total liabilities		57,907,105			62,637,085			68,678,203
Commitments, contingencies and guarantees—See Note 16
Stockholder's Equity
Preferred stock:
	Authorized 5,000,000 shares; no shares issued or outstanding as of September 30, 2008, December 31, 2007 and September 30, 2009			—			—			—
Common stock, par value $1 per share:
	Authorized 300,000,000 shares; issued 159,834,897 shares as of September 30, 2008, 136,330,829 shares as of December 31, 2008 and September 30, 2009			159,835			136,331			136,331
Additional paid-in capital				1,299,045			3,195,023			5,195,023
Treasury stock—18,748,501 shares as of September 30, 2008, no shares as of December 31, 2008 and September 30, 2009				(1,204,759	)		—			—
Retained earnings				5,050,682			4,964,802			4,857,958
Accumulated other comprehensive loss				(612,155	)		(811,851	)		(714,308	)
		Total stockholder's equity		4,692,648			7,484,305			9,475,004
			$	62,599,753		$	70,121,390		$	78,153,207

See accompanying notes to condensed consolidated financial statements.

9

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

(In thousands, except shares)			Number of shares		Common stock		Additional paid-in capital			Treasury stock			Retained earnings			Accumulated other comprehensive income (loss)			Total stockholder's equity
BALANCE DECEMBER 31, 2007				157,559,521	$	157,559	$	1,153,737		$	(1,202,584	)	$	4,912,392		$	(283,123	)	$	4,737,981
Comprehensive income:
	Net income—For the nine months ended September 30, 2008													354,765						354,765
	Other comprehensive income (loss), net of tax:
		Net change in unrealized gains on cash flow hedges															11,417			11,417
		Net change in unrealized losses on securities available for sale															(346,866	)		(346,866	)
		Foreign currency translation adjustment															(625	)		(625	)
		Net change in pension and other benefits															7,042			7,042
Total comprehensive income, net of tax																				25,733
Split-Dollar Life Insurance adjustment														(236	)					(236	)
Income tax benefit on dividends on share-based payment awards adjustment								162												162
Stock options exercised				2,255,373		2,256		104,941												107,197
Restricted stock granted, net of forfeitures				20,003		20		(20	)											—
Excess tax benefit—stock-based compensation								11,910												11,910
Compensation expense—stock options								9,848												9,848
Compensation expense—restricted stock								12,731												12,731
Compensation expense—restricted stock units, performance share units and other share-based compensation								5,736												5,736
Common stock repurchased(1)											(2,175	)								(2,175	)
Dividends declared on common stock, $1.04 per share(2)														(216,239	)					(216,239	)
Net change						2,276		145,308			(2,175	)		138,290			(329,032	)		(45,333	)
BALANCE SEPTEMBER 30, 2008				159,834,897	$	159,835	$	1,299,045		$	(1,204,759	)	$	5,050,682		$	(612,155	)	$	4,692,648
BALANCE DECEMBER 31, 2008				136,330,829	$	136,331	$	3,195,023		$	—		$	4,964,802		$	(811,851	)	$	7,484,305
Comprehensive loss:
	Net loss—For the nine months ended September 30, 2009													(106,844	)					(106,844	)
	Other comprehensive income (loss), net of tax:
		Net change in unrealized gains on cash flow hedges(3)															(34,492	)		(34,492	)
		Net change in unrealized losses on securities(3)															120,758			120,758
		Foreign currency translation adjustment															1,085			1,085
		Net change in pension and other benefits															10,192			10,192
Total comprehensive loss, net of tax																				(9,301	)
	Capital contribution from Bank of Tokyo-Mitsubishi UFJ, Ltd.							2,000,000												2,000,000
Net change						—		2,000,000			—			(106,844	)		97,543			1,990,699
BALANCE SEPTEMBER 30, 2009				136,330,829	$	136,331	$	5,195,023		$	—		$	4,857,958		$	(714,308	)	$	9,475,004

(1)

Common stock repurchased includes commission costs.

(2)

Dividends are based on UnionBanCal Corporation's shares outstanding as of the declaration date.

(3)

Includes amortization of privatization adjustments. See Note 3 to these condensed consolidated financial statements for additional information on the Company's privatization transaction.

See accompanying notes to condensed consolidated financial statements.

10

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

				For the Nine Months Ended September 30,
(Dollars in thousands)				2008			2009
Cash Flows from Operating Activities:
	Net income (loss)			$	354,765		$	(106,844	)
		Loss from discontinued operations, net of taxes			(12,037	)		—
		Income (loss) from continuing operations, net of taxes			366,802			(106,844	)
	Adjustments to reconcile net income to net cash provided by (used in) operating activities:
		Provision for loan losses			284,000			923,000
		Provision for losses on off-balance sheet commitments			21,000			47,000
		Depreciation, amortization and accretion			85,125			133,428
		Stock-based compensation—stock options and other share-based compensation			28,315			—
		Provision for (reversal of) deferred income taxes			74,771			(123,938	)
		Net gains on sales of securities			(48	)		(12,522	)
		Net decrease in accrued expenses			(427,084	)		(251,218	)
		Net (increase) decrease in trading account assets			(126,084	)		276,229
		Net increase (decrease) in trading account liabilities			155,833			(319,588	)
		Net increase in prepaid expenses			(12,824	)		(27,199	)
		Net increase in fees and other receivables			(63,740	)		(79,607	)
		Net increase (decrease) in other liabilities			461,277			(200,736	)
		Net increase in other assets			(59,916	)		(276,914	)
		Loans originated for resale			(430,650	)		(65,337	)
		Net proceeds from sale of loans originated for resale			392,551			37,915
		Excess tax benefit—stock-based compensation			(11,910	)		—
		Other, net			4,725			28,211
		Discontinued operations, net			80,143			(6,027	)
			Total adjustments		455,484			82,697
	Net cash provided by (used in) operating activities				822,286			(24,147	)
Cash Flows from Investing Activities:
	Proceeds from sales of securities available for sale				11,388			3,164,329
	Proceeds from matured and called securities available for sale				1,185,604			1,738,034
	Purchases of securities available for sale				(1,592,482	)		(15,882,619	)
	Proceeds from matured securities held to maturity				—			3,768
	Purchases of premises and equipment, net				(53,924	)		(83,825	)
	Net (increase) decrease in loans				(7,185,181	)		1,034,102
	Other, net				(5,054	)		(1,576	)
	Discontinued operations, net				3,732			—
	Net cash used in investing activities				(7,635,917	)		(10,027,787	)
Cash Flows from Financing Activities:
	Net increase (decrease) in deposits				(324,338	)		14,641,599
	Net increase in federal funds purchased and securities sold under repurchase agreements				128,840			56,510
	Net increase (decrease) in commercial paper and other borrowed funds				5,236,595			(7,772,564	)
	Capital contribution from the Bank of Tokyo-Mitsubishi UFJ, Ltd. (BTMU)				—			2,000,000
	Proceeds from issuance of medium- and long-term debt				1,901,000			1,625,000
	Repayment of medium-term debt				—			(750,000	)
	Common stock repurchased				(2,175	)		—
	Payments of cash dividends				(215,246	)		—
	Stock options exercised				119,107			—
	Other, net				(625	)		1,085
	Discontinued operations, net				(87,460	)		(1,929	)
	Net cash provided by financing activities				6,755,698			9,799,701
Net decrease in cash and cash equivalents					(57,933	)		(252,233	)
Cash and cash equivalents at beginning of period					2,521,633			4,504,345
Effect of exchange rate changes on cash and cash equivalents					(173	)		173
Cash and cash equivalents at end of period				$	2,463,527		$	4,252,285
Cash Paid During the Period For:
	Interest			$	703,335		$	416,511
	Income taxes, net				235,156			208,972
Supplemental Schedule of Noncash Investing and Financing Activities:
	Securities available for sale transferred to securities held to maturity			$	—		$	1,144,036
	Loans transferred to foreclosed assets (OREO) and/or distressed loans held for sale				17,750			55,367

See accompanying notes to condensed consolidated financial statements.

11

UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 1—Basis of Presentation and Nature of Operations

        The unaudited condensed consolidated financial statements of UnionBanCal Corporation and subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States of America (US GAAP) for interim financial reporting and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X of the Rules and Regulations of the Securities and Exchange Commission (SEC). However, they do not include all of the disclosures necessary for annual financial statements in conformity with US GAAP. In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation have been included. The results of operations for the period ended September 30, 2009 are not necessarily indicative of the operating results anticipated for the full year. Accordingly, these unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in UnionBanCal Corporation's Annual Report on Form 10-K for the year ended December 31, 2008 (2008 Form 10-K). The preparation of financial statements in conformity with US GAAP also requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reporting period. Actual results could differ compared to those estimates.

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

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

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

Note 2—Recently Issued Accounting Pronouncements

FASB Accounting Standards Codification

        In June 2009, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2009-01, "Topic-105-Generally Accepted Accounting Principles amendments based on Statement of Financial Accounting Standards No. 168—The FASB Accounting Standards Codification™ and the Hierarchy of Generally Accepted Accounting Principles." The new guidance establishes the FASB Accounting Standards Codification™ (FASB ASC) as the single source of authoritative US GAAP. The FASB ASC does not significantly change current US GAAP and merely restructures the information in a topical format. The FASB ASC was effective July 1, 2009 and the technical references to US GAAP included in these condensed consolidated financial statements are provided under the new FASB ASC structure with the prior terminology included parenthetically within this note. At adoption, there was no impact from this change on the Company's financial position or results of operations.

12

UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 2—Recently Issued Accounting Pronouncements (Continued)

Business Combinations

        In December 2007, the FASB issued new guidance impacting FASB ASC 805, "Business Combinations" (formerly Statement of Financial Accounting Standards (SFAS) No. 141R, "Business Combinations"). The guidance requires that all business combinations be accounted for under the "acquisition method." The guidance requires that the assets, liabilities and noncontrolling interests of a business combination be measured at fair value at the acquisition date. The acquisition date is defined as the date an acquirer obtains control of the entity, which is typically the closing date. The guidance requires that all acquisition and restructuring related costs be expensed as incurred and that any contingent consideration be measured at fair value and recorded as either equity or a liability with the liability remeasured at fair value in subsequent periods. The guidance was effective January 1, 2009. At adoption, there was no impact on the Company's financial position or results of operations.

Noncontrolling Interest in Consolidated Financial Statements

        In December 2007, the FASB issued new guidance impacting FASB ASC 810-10, "Consolidations" (formerly SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements—an amendment to ARB No. 51"). The guidance requires that a noncontrolling interest (formerly minority interest) be measured at fair value at the acquisition date and be presented in the equity section on the balance sheet. The guidance requires that purchases or sales of equity interests that do not result in a change in control be accounted for as equity transactions with no resulting gain or loss. If control is lost, the noncontrolling interest is remeasured to fair value and a gain or loss is recorded. The guidance was effective January 1, 2009. At adoption, there was no impact on the Company's financial position or results of operations.

Disclosures about Derivative Instruments and Hedging Activities

        In March 2008, the FASB issued new guidance impacting FASB ASC 815-10, "Derivatives and Hedging" (formerly SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities—an amendment of FASB Statement No. 133"). The guidance requires expanded qualitative, quantitative and credit-risk disclosures of derivative instruments and hedging activities. These disclosures include more detailed information about gains and losses, location of derivative instruments in financial statements, and credit-risk-related contingent features in derivative instruments. The guidance also requires the disclosure of all significant concentrations of credit risks arising from derivative instruments. The guidance, which applies only to disclosures, was effective January 1, 2009. Disclosures required under this Statement are included in Note 13 to these condensed consolidated financial statements.

Determination of the Useful Life of Intangible Assets

        In April 2008, the FASB issued new guidance impacting FASB ASC 350-30, "Intangibles—Goodwill and Other" (formerly Staff Position (FSP) FAS 142-3, "Determination of the Useful Life of Intangible Assets"). The guidance requires that an entity consider its own assumptions about the renewal or extension period, adjusted for entity-specific factors, when determining the useful life of a recognized intangible asset. In the absence of that experience, an entity should consider market participant assumptions. The guidance was effective January 1, 2009. At adoption there was no impact on the Company's financial position or results of operations.

13

UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 2—Recently Issued Accounting Pronouncements (Continued)

Employers' Disclosures about Postretirement Benefit Plan Assets

        In December 2008, the FASB issued new guidance impacting FASB ASC 715-20-50, "Compensation Retirement Benefits—Defined Benefit Plans—Disclosure" (formerly FSP FAS 132(R)-1, "Employers' Disclosures about Postretirement Benefit Plan Assets"), which expands the disclosure requirements related to an employer's defined benefit pension or other postretirement plan. The guidance requires additional disclosure information, including how a company makes investment allocation decisions, the fair value of each major category of plan assets and the nature and amount of concentration risk within or across those plan asset categories. Additionally, the guidance requires disclosures about the valuation of plan assets, including the level within the fair value hierarchy in which fair value measurements of plan assets fall and information about the inputs and valuation techniques used to measure the fair value of plan assets. The guidance, which applies only to disclosures, is effective December 31, 2009.

Accounting for Contingencies from Business Combinations

        In April 2009, the FASB issued new guidance impacting FASB ASC 805-10, "Business Combinations" (formerly FSP FAS 141(R)-1, "Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies"). The guidance requires that an asset or liability assumed in a business combination that arises from a contingency be recognized at fair value on the acquisition date if fair value can be determined during the measurement period. If fair value cannot be determined during the measurement period, the accounting for the acquired contingency should follow existing accounting guidance. The guidance was effective January 1, 2009. At adoption, there was no impact on the Company's financial position or results of operations.

Interim Disclosures about Fair Value of Financial Instruments

        In April 2009, the FASB issued new guidance impacting FASB ASC 825-10-50, "Financial Instruments—Disclosure" (formerly FSP FAS 107-1 and Accounting Principles Board Opinion (APB) 28-1, "Interim Disclosures about Fair Value of Financial Instruments"). The guidance requires disclosure of the fair value of financial instruments to be reported for interim periods. The guidance, which applies only to disclosures, was effective April 1, 2009. Disclosures required under this guidance are included in Note 12 to these condensed consolidated financial statements.

Fair Value Measurements in Inactive Markets

        In April 2009, the FASB issued new guidance impacting FASB ASC 820-10, "Fair Value Measurements and Disclosures" (formerly FSP FAS 157-4, "Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly"). The guidance provides additional information for estimating fair value when the volume and level of activity for an asset or liability has significantly decreased. The guidance provides factors to consider when determining whether there has been a significant decline in volume or level of activity. The guidance also affirms that the objective of a fair value measurement is the price that would be received to sell an asset in an orderly transaction under current market conditions, even if the market is inactive. The guidance was effective April 1, 2009. At adoption, there was no impact on the Company's financial position or results of operations.

14

UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 2—Recently Issued Accounting Pronouncements (Continued)

Recognition and Presentation of Other-Than-Temporary Impairments

        In April 2009, the FASB issued new guidance impacting FASB ASC 320-10, "Investments-Debt and Equity Securities" (formerly FSP FAS 115-2 and FAS 124-2, "Recognition and Presentation of Other-Than-Temporary Impairments"). The guidance amends the determination and recognition of other-than-temporary impairment criteria related to debt securities. The guidance establishes new criteria for determining whether impairment is other-than-temporary and what portion of any such impairment is recognized in earnings. A company is required to assert whether it intends or it is more likely than not that it will need to sell a security with an unrealized loss before full recovery of the amortized cost basis. If it is likely that a security will be sold prior to full recovery, the security must be written down to its current fair value and the entire loss recognized in earnings immediately. If it is likely that the security will not be sold prior to recovery, but the amortized cost basis will not be collected, the security must be written down to its current fair value. However, in that case, only the credit loss component shall be recognized in earnings immediately with the remaining non-credit related loss portion recorded in other comprehensive income. The guidance was effective April 1, 2009. At adoption, there was no impact on the Company's financial position or results of operations.

Subsequent Events

        In May 2009, the FASB issued FASB ASC 855-10, "Subsequent Events" (formerly SFAS No. 165, "Subsequent Events"), which requires an evaluation of events or transactions that occur after the balance sheet date through the date that the financial statements are issued or available to be issued. The guidance also provides information about when such a subsequent event should be recognized in the financial statements and requires the disclosure of the date through which subsequent events were evaluated and whether that represents the date the financial statements were issued or available to be issued. The guidance was effective June 30, 2009. At adoption, there was no impact on the Company's financial position or results of operations. Disclosures required under this guidance are included in Note 18 to these condensed consolidated financial statements.

Accounting for Transfers of Financial Assets

        In June 2009, the FASB issued new guidance amending SFAS No. 166, "Accounting for Transfers of Financial Assets—an amendment of FASB Statement 140". (This guidance has not yet been integrated into the FASB ASC.) The guidance eliminates the concept of qualifying special purpose entities (QSPEs) and modifies financial asset derecognition criteria. The elimination of the exception for QSPEs will likely result in many sponsors that transferred financial assets to such vehicles to consolidate them. The derecognition modifications require that companies consider all arrangements such that the transferred financial asset is legally isolated from the transferor and any of its consolidated affiliates when determining whether derecognition is appropriate for a transferred financial asset. For a transfer of a portion of a financial asset to be derecognized, it must meet the definition of a participating interest. The guidance also requires that all beneficial interests retained in transferred financial assets be initially measured at fair value. Disclosures are amended to require description of a company's continuing involvement with transferred financial assets and details regarding financial or other support provided. The guidance is effective January 1, 2010. Management is currently evaluating the impact this guidance may have on the Company's financial position and results of operations.

15

UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 2—Recently Issued Accounting Pronouncements (Continued)

Consolidation Criteria for Variable Interest Entities

        In June 2009, the FASB issued new guidance amending SFAS No. 167, "Amendments to FASB Interpretation No. 46(R)". (This guidance has not yet been integrated into the FASB ASC.) The guidance changes the method of analyzing which party shall consolidate a variable interest entity (VIE) by providing revised criteria for determining the primary beneficiary. A company would be required to determine the primary beneficiary of a VIE on a continual basis based on a qualitative assessment of which party, if any, has the power to direct activities and the right to receive benefits or the obligation to absorb losses. The guidance also states that if power is shared by multiple parties such that no one party has the power to direct the activities, then no party shall consolidate the VIE. Disclosures are also amended to require disclosure of continuing involvement with VIEs and judgments used in the consolidation analysis such as the method, significant judgments and assumptions used for determining the primary beneficiary. The guidance is effective January 1, 2010. Management is currently evaluating the impact this guidance may have on the Company's financial position and results of operations.

Measuring Liabilities at Fair Value

        In August 2009, the FASB issued ASU 2009-05, "Measuring Liabilities at Fair Value." This guidance amends FASB ASC 820-10, "Fair Value Measurements and Disclosures" to clarify that, if available, an entity should measure the fair value of a liability using a quoted price in an active market. If such information is not available, an entity should use a valuation technique based on the quoted price when the liability or similar liabilities are traded as assets, if available, which should not be adjusted for any transfer restrictions. The guidance also emphasizes that an entity should maximize the use of relevant observable inputs and minimize the use of unobservable inputs. The guidance is effective October 1, 2009. Management does not believe that this guidance will have a material effect on the Company's financial position or results of operations.

Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)

        In October 2009, the FASB issued ASU 2009-12, "Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)." This guidance amends FASB ASC 820-10, "Fair Value Measurements and Disclosures" to state that if an investment does not have a readily determinable fair value and has all the attributes of an investment company, a reporting entity is permitted, as a practical expedient, to estimate fair value using the investment's net asset per share (NAV). The NAV should be calculated as of the reporting entity's measurement date and, if not, the NAV must be adjusted for significant market events since its calculation. This guidance also precludes a reporting entity from using this practical expedient if it is probable that it will sell the investment at a price other than NAV. The guidance also requires enhanced disclosures about the nature and risk of such investments. The guidance is effective for reporting periods ending after December 15, 2009. Management is currently evaluating the impact this guidance will have on the Company's financial position and results of operations.

Note 3—Privatization

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

16

UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 3—Privatization (Continued)

        After all of the fair value adjustments to the Company's assets and liabilities were assigned, the remainder of the purchase price was recorded as goodwill. The fair value adjustments were subject to revision for up to one year after the close of the privatization transaction in the event that better estimates are developed based on additional information. There were no revisions to the fair value adjustments during the one year period.

        The amortization (accretion) of the fair value adjustments by category for the three and nine months ended September 30, 2009, respectively, were $40 million and $120 million for intangibles, $2 million and $6 million for premises and equipment, ($21) million and ($75) million for loans, $4 million and $11 million for cash flow hedges, ($7) million and ($24) million for securities, and $1 million and $3 million for debt.

        During the three and nine months ended September 30, 2009, the Company recorded expenses for the privatization transaction of $7 million and $41 million, respectively, which primarily consisted of compensation expense for amortization of bridge award compensation.

17

UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 4—Securities

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

Securities Available for Sale

		December 31, 2008								September 30, 2009
(Dollars in thousands)		Amortized Cost(1)		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Amortized Cost(1)		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. Treasury		$	—	$	—	$	—	$	—	$	299,247	$	12	$	—	$	299,259
Other U.S. government			761,000		17,988		—		778,988		6,063,641		18,218		3,883		6,077,976
Residential mortgage-backed securities—agency			5,371,181		87,803		12,038		5,446,946		10,918,439		223,749		3,966		11,138,222
Residential mortgage-backed securities—non-agency			639,679		—		124,592		515,087		492,025		93		60,192		431,926
State and municipal			52,749		2,185		87		54,847		47,640		2,409		9		50,040
Asset-backed and debt securities			1,837,287		48,921		597,310		1,288,898		113,017		1,290		8,117		106,190
Equity securities			109,919		126		355		109,690		106,882		415		336		106,961
Foreign securities			82		—		—		82		—		—		—		—
	Total securities available for sale	$	8,771,897	$	157,023	$	734,382	$	8,194,538	$	18,040,891	$	246,186	$	76,503	$	18,210,574

Securities Held to Maturity

		September 30, 2009
				Recognized in Other Comprehensive Income (OCI)(2)						Not recognized in OCI(2)
(Dollars in thousands)		Amortized Cost(1)		Gross Unrealized Gains		Gross Unrealized Losses		Carrying Value		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Collateralized loan obligations (CLOs)		$	1,741,408	$	—	$	548,166	$	1,193,242	$	101,055	$	24,458	$	1,269,839
Foreign securities			95		—		—		95		—		—		95
	Total securities held to maturity	$	1,741,503	$	—	$	548,166	$	1,193,337	$	101,055	$	24,458	$	1,269,934

(1)

Amortized cost reflects fair value adjustments as a result of the Company's privatization. Refer to Note 3 to these condensed consolidated financial statements.

(2)

The amount recognized in OCI reflects the unrealized loss at date of transfer to the held to maturity classification, net of amortization, while the amount not recognized in OCI reflects the incremental change in value after such transfer.

        For the three and nine months ended September 30, 2009, interest income included $2.1 million and $3.4 million, respectively, from non-taxable securities.

Transfer of Securities from Available for Sale to Held to Maturity

        The Company's collateralized loan obligations (CLOs) consist of Cash Flow CLOs. A Cash Flow CLO is a structured finance product that securitizes a diversified pool of loan assets into multiple classes of notes from

18

UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 4—Securities (Continued)

the cash flows generated by such loans. Cash Flow CLOs pay the note holders through the receipt of interest and principal repayments from the underlying loans unlike other types of CLOs that pay note holders through the trading and sale of underlying collateral. During the first quarter of 2009, management reassessed the classification of its CLOs. On February 28, 2009, the Company reclassified its CLOs, which totaled $1.1 billion at fair value, from available for sale to held to maturity. The related unrealized pre-tax loss of $589 million included in accumulated OCI at the date of reclassification remained in OCI and is being amortized as a yield adjustment through earnings over the remaining terms of the CLOs. However, there is no impact on earnings, as an equal fair value discount on the securities is being accreted through earnings over the remaining terms of the CLOs. No gain or loss was recognized at the time of reclassification. Accordingly, no change was recorded in the amortized cost basis of the securities as a result of the transfer. The Company considers the held to maturity classification to be more appropriate because the Company has the ability and the intent to hold these securities to maturity.

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

Maturity Schedule of Securities

Securities Available for Sale⁽¹⁾

		September 30, 2009
(Dollars in thousands)		Amortized Cost(3)		Fair Value
Due in one year or less		$	3,815,062	$	3,816,293
Due after one year through five years			2,829,981		2,850,132
Due after five years through ten years			1,736,478		1,787,888
Due after ten years			9,552,488		9,649,300
Equity securities(2)			106,882		106,961
	Total securities available for sale	$	18,040,891	$	18,210,574

Securities Held to Maturity

		September 30, 2009
(Dollars in thousands)		Amortized Cost(3)		Fair Value
Due in one year or less		$	95	$	95
Due after one year through five years			12,263		8,849
Due after five years through ten years			1,261,357		948,966
Due after ten years			467,788		312,024
	Total securities held to maturity	$	1,741,503	$	1,269,934

(1)

The remaining contractual maturities of residential mortgage-backed securities are classified without regard to prepayments. The contractual maturity of these securities is not a reliable indicator of their expected life since borrowers have the right to repay their obligations at any time.

(2)

Equity securities do not have a stated maturity.

(3)

Amortized cost reflects fair value adjustments as a result of the Company's privatization. Refer to Note 3 to these condensed consolidated financial statements.

19

UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 4—Securities (Continued)

        For the three months ended September 30, 2008, proceeds from sales of securities available for sale were $1.1 million with both gross realized gains and gross realized losses of less than $0.1 million. For the three months ended September 30, 2009, proceeds from sales of securities available for sale were $3.1 billion with gross realized gains of $12.7 million and no gross realized losses. For the nine months ended September 30, 2008, proceeds from sales of securities available for sale were $11.4 million with both gross realized gains and gross realized losses of less than $0.1 million. For the nine months ended September 30, 2009, proceeds from sales of securities available for sale were $3.2 billion with gross realized gains of $13.3 million and no gross realized losses. The specific identification method is used to calculate realized gains and losses.

Analysis of Unrealized Losses on Securities

        At December 31, 2008 and September 30, 2009, the Company's securities, shown below, were in a continuous unrealized loss position for the periods less than 12 months and 12 months or more.

Securities Available for Sale

		December 31, 2008
		Less than 12 months						12 months or more						Total
(Dollars in thousands)		Fair Value		Unrealized Losses		Count		Fair Value		Unrealized Losses		Count		Fair Value		Unrealized Losses		Count
Residential mortgage-backed securities—agency		$	188,741	$	2,035		25	$	607,171	$	10,004		84	$	795,912	$	12,039		109
Residential mortgage-backed securities—non-agency			331,124		52,532		10		183,964		72,059		9	$	515,088	$	124,591		19
State and municipal			3,242		74		5		1,669		13		7		4,911		87		12
Asset-backed and debt securities			38,221		9,261		3		1,088,480		588,049		218		1,126,701		597,310		221
Equity securities			5,085		355		3		—		—		—		5,085		355		3
	Total securities available for sale	$	566,413	$	64,257		46	$	1,881,284	$	670,125		318	$	2,447,697	$	734,382		364

		September 30, 2009
		Less than 12 months						12 months or more						Total
(Dollars in thousands)		Fair Value		Unrealized Losses		Count		Fair Value		Unrealized Losses		Count		Fair Value		Unrealized Losses		Count
Other U.S. government		$	3,363,942	$	3,883		48	$	—	$	—		—	$	3,363,942	$	3,883		48
Residential mortgage-backed securities—agency			295,365		948		12		297,647		3,018		42		593,012		3,966		54
Residential mortgage-backed securities—non-agency			—		—		—		399,413		60,192		17		399,413		60,192		17
State and municipal			524		—		2		685		9		4		1,209		9		6
Asset-backed and debt securities			2,647		839		1		77,687		7,277		10		80,334		8,117		11
Equity securities			—		—		—		119		336		2		119		336		2
	Total securities available for sale	$	3,662,478	$	5,670		63	$	775,551	$	70,832		75	$	4,438,029	$	76,503		138

Securities Held to Maturity

		September 30, 2009
		Less than 12 months						12 months or more						Total
(Dollars in thousands)		Fair Value		Unrealized Losses		Count		Fair Value		Unrealized Losses		Count		Fair Value		Unrealized Losses		Count
CLOs		$	82,208	$	30,199		20	$	1,187,631	$	542,425		201	$	1,269,839	$	572,624		221
	Total securities held to maturity	$	82,208	$	30,199		20	$	1,187,631	$	542,425		201	$	1,269,839	$	572,624		221

20

UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 4—Securities (Continued)

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

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

        At September 30, 2009, the Company did not have the intent to sell temporarily impaired securities until a recovery of the fair value, which may be maturity, and it is more likely than not that the Company will not have to sell the securities prior to recovery of fair value.

Other U.S. Government Securities

        Other U.S. Government securities are securities issued by one of the several Government-Sponsored Enterprises (GSEs) such as Fannie Mae, Freddie Mac, Federal Home Loan Banks or Federal Farm Credit Banks. They are not backed by the full faith and credit of the United States government. These securities are issued with a stated interest rate and mature in less than five years. The unrealized losses on other U.S. Government securities resulted from higher interest rates subsequent to purchase and not credit quality. As a result, the securities were not other-than-temporarily impaired at September 30, 2009.

Residential Mortgage-Backed Securities—Agency

        Agency residential mortgage-backed securities consist of securities guaranteed by a GSE such as Fannie Mae, Freddie Mac, and Ginnie Mae. These securities are collateralized by residential mortgage loans and may be prepaid at par prior to maturity. The unrealized losses on agency residential mortgage-backed securities resulted from higher interest rates subsequent to purchase and not credit quality. As a result, the securities were not other-than-temporarily impaired at September 30, 2009.

Residential Mortgage-Backed Securities—Non-Agency

        Non-agency residential mortgage backed securities are issued by financial institutions with no guarantee from GSEs. These securities are collateralized by residential mortgage loans and may be prepaid at par prior to maturity. The securities are primarily rated investment grade. The unrealized losses on non-agency residential mortgage-backed securities resulted from higher interest rates subsequent to purchase and additional credit spreads widening since purchase. The Company estimated loss projections for each security by assessing the loans collateralizing each security. The Company estimates the portion of loss attributable to credit based on the expected cash flows of the underlying collateral provided by a third-party vendor using industry consensus

21

UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 4—Securities (Continued)

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, the Company concluded these securities were not other-than-temporarily impaired at September 30, 2009.

State and Municipal Securities

        State and municipal securities are primarily securities issued by state and local governments to finance operating expenses and various projects. These securities are issued at a stated interest rate and have varying expected maturities ranging up to 30 years. The unrealized losses on the state and municipal securities resulted from higher interest rates subsequent to purchase and not from credit quality. As a result, the securities were not other-than-temporarily impaired at September 30, 2009.

Asset-Backed and Debt Securities

        Asset-backed and debt securities in a loss position at September 30, 2009 consist of $74.9 million in privately placed debt securities issued by power and utilities companies and $5.4 million in commercial mortgage-backed securities. Expected cash flows of debt securities to power and utilities companies are assessed to determine if the amortized cost basis of the securities is recoverable. Based on this assessment, the Company concluded that these securities were not other-than-temporarily impaired as of September 30, 2009.

Collateralized Loan Obligations

        CLOs are classified as held to maturity (see discussion above). Certain of these CLOs are highly illiquid securities for which fair values are difficult to obtain. Unrealized losses arise from widening credit spreads, credit quality of the underlying collateral, uncertainty regarding the valuation of such securities and the market's opinion of the performance of the fund managers. Cash flow analysis of the underlying collateral provides an estimate of other-than-temporary impairment, which is performed quarterly when the fair value of a security is lower than its amortized cost. Any security with a change in credit rating is also subject to cash flow analysis to determine whether or not an other-than-temporary impairment exists. The fair value of the CLO portfolio was adversely impacted in 2008 and 2009 by the overall financial market crisis. Although none of the CLOs in the Company's portfolio contain subprime loan assets, widening credit spreads caused their value to decline. An analysis was performed as of September 30, 2009 to determine whether any of the unrealized losses related to CLOs was believed to be other-than-temporary. Based on this analysis, the Company concluded that since no observable credit quality issues were present in the CLO portfolio at September 30, 2009, these securities were not other-than-temporarily impaired.

Securities Pledged as Collateral

        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.

22

UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 4—Securities (Continued)

        The Company reports securities pledged as collateral in secured borrowings and other arrangements when the secured party can sell or repledge the securities. Trading securities pledged as collateral, which totaled $60.8 million at September 30, 2009, have been separately identified in the condensed consolidated balance sheet. If the secured party cannot resell or repledge the securities that have been placed as collateral, those securities are not separately identified. At September 30, 2009, the Company had $3.9 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 ($0.4 billion), to support unrealized losses on derivative transactions reported in trading liabilities ($0.3 billion) and to secure public and trust department deposits ($3.2 billion).

        At September 30, 2008, December 31, 2008, and September 30, 2009, the Company accepted securities as collateral that it is permitted by contract to sell or repledge of $400.0 million ($296.4 million of which has been repledged to secure public agency or bankruptcy deposits), none and $294.9 million (none of which has been repledged), respectively. These securities were received as collateral for secured lending and to obtain qualified securities to meet the Company's collateral needs.

Note 5—Loans and Allowance for Loan Losses

        A summary of loans, net of unearned interest and deferred fees (costs) of $(9) million, $14 million and $46 million, at September 30, 2008, December 31, 2008 and September 30, 2009, respectively, is as follows:

(Dollars in thousands)				September 30, 2008		December 31, 2008		September 30, 2009
Commercial, financial and industrial				$	17,700,604	$	18,469,023	$	15,994,997
Construction					2,653,945		2,744,062		2,691,515
Mortgage:
	Residential				15,691,872		15,880,835		16,576,052
	Commercial				8,032,010		8,186,388		8,320,374
		Total mortgage			23,723,882		24,067,223		24,896,426
Consumer:
	Installment				2,166,912		2,201,602		2,303,897
	Revolving lines of credit				1,361,784		1,435,494		1,599,112
		Total consumer			3,528,696		3,637,096		3,903,009
Lease financing					642,642		645,765		658,708
		Total loans held to maturity			48,249,769		49,563,169		48,144,655
		Total loans held for sale			56,349		22,381		24,853
			Total loans		48,306,118		49,585,550		48,169,508
			Allowance for loan losses		580,474		737,767		1,260,307
			Loans, net	$	47,725,644	$	48,847,783	$	46,909,201

23

UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

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

        Changes in the allowance for loan losses were as follows:

		For the Three Months Ended September 30,					For the Nine Months Ended September 30,
(Dollars in thousands)		2008			2009		2008			2009
Allowance for loan losses, beginning of period		$	526,401		$	1,081,633	$	402,726		$	737,767
Loans charged off			64,548			143,280		111,093			414,330
Recoveries of loans previously charged off			1,993			6,607		5,404			9,700
	Total net loans charged off		62,555			136,673		105,689			404,630
Provision for loan losses			117,000			314,000		284,000			923,000
Adjustments related to privatization			—			—		—			2,062
Foreign translation adjustment			(372	)		1,347		(563	)		2,108
Allowance for loan losses, end of period			580,474			1,260,307		580,474			1,260,307
Allowance for losses on off-balance sheet commitments			111,374			172,374		111,374			172,374
Allowances for credit losses, end of period		$	691,848		$	1,432,681	$	691,848		$	1,432,681

        The provision for loan losses increased by $197 million to $314 million for the third quarter of 2009 from $117 million for the third quarter of 2008, primarily due to higher criticized assets, especially in the commercial real estate portfolio, higher nonaccrual loans and increases in loss factors related to several portfolio sectors, including the consumer and small business portfolios.

        Nonaccrual loans totaled $288.9 million and $1.3 billion at September 30, 2008 and 2009, respectively. There were $1.4 million and $17.8 million (none and $1.9 million of which were on accrual status at September 30, 2008 and 2009, respectively) of troubled debt restructured loans at September 30, 2008 and 2009, respectively. Effective January 1, 2009, consumer home equity loans and one-to-four single family residential loans were placed on nonaccrual status when these loans are delinquent 90 days or more, or in foreclosure. Previously, these loans were not placed on nonaccrual status. However, before and after this nonaccrual accounting policy change, the loss content was charged off on or before the loans were 180 days past due. As a result of this nonaccrual accounting policy change, home equity and one-to-four family residential loans totaling $195.1 million ($9.0 million of which are restructured loans) have been placed on nonaccrual status as of September 30, 2009. Loans 90 days or more past due and still accruing totaled $49.2 million and $5.4 million at September 30, 2008 and 2009, respectively.

Note 6—Goodwill and Intangible Assets

        As part of the Company's privatization transaction, the Company recorded goodwill of $2,014 million and intangible assets of $752 million. See Note 3 to these condensed consolidated financial statements in this Form 10-Q for information on the Company's privatization transaction.

Goodwill

        There were no changes in the carrying amount of goodwill during the nine months ended September 30, 2008 and 2009. The carrying amount of goodwill at September 30, 2008 and 2009 was $355 million and $2.4 billion, respectively.

24

UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 6—Goodwill and Intangible Assets (Continued)

        The Company reviews its goodwill for impairment on an annual basis, and whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The annual goodwill impairment test as of January 1, 2009 was performed during the first quarter of 2009, and no impairment was recognized.

        During the second quarter of 2009, the Company changed the date of its annual goodwill impairment test from January 1st to April 1st. The change was made to more closely align the impairment testing date with the testing date used by BTMU, as the Company became a wholly owned subsidiary of BTMU in the fourth quarter of 2008.

        The change in goodwill impairment testing date was deemed a change in accounting principle. Management believes that the change in accounting principle will not delay, accelerate, or avoid a goodwill impairment charge. Management determined that the change in accounting principle is preferable under the circumstances and does not result in adjustments to the Company's financial statements when applied retrospectively.

        In order to transition to the new annual goodwill impairment test date and to ensure that no more than twelve months elapse before the next annual goodwill impairment test is performed, goodwill impairment testing as of April 1, 2009 was performed during the second quarter of 2009. No impairment was recognized.

Intangible Assets

        The table below reflects the Company's identifiable intangible assets and accumulated amortization at September 30, 2008, December 31, 2008 and September 30, 2009.

	September 30, 2008							December 31, 2008							September 30, 2009
(Dollars in thousands)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Core deposit intangibles	$	43,114	$	(38,667	)	$	4,447	$	619,398	$	(79,585	)	$	539,813	$	619,397	$	(194,677	)	$	424,720
Trade name		—		—			—		108,733		(683	)		108,050		108,733		(2,744	)		105,989
Customer relationships		—		—			—		53,761		(1,323	)		52,438		53,761		(4,479	)		49,282
Other		—		—			—		9,555		—			9,555		9,555		(1,500	)		8,055
Subtotal—intangibles with a definite useful life	$	43,114	$	(38,667	)	$	4,447	$	791,447	$	(81,591	)	$	709,856	$	791,446	$	(203,400	)	$	588,046
Other intangibles with an indefinite useful life		—		—			—		3,629		—			3,629		13,094		—			13,094
Total intangibles	$	43,114	$	(38,667	)	$	4,447	$	795,076	$	(81,591	)	$	713,485	$	804,540	$	(203,400	)	$	601,140

        Total amortization expense for the three months ended September 30, 2008 and 2009 was $0.7 million and $40.6 million, respectively. Total amortization expense for the nine months ended September 30, 2008 and 2009 was $2.0 million and $121.8 million, respectively.

25

UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 6—Goodwill and Intangible Assets (Continued)

        Estimated future amortization expense at September 30, 2009 is as follows.

(Dollars in thousands)		Core Deposit Intangibles (CDI)		Trade Name		Customer Relationships		Other		Total identifiable intangible assets
Estimated amortization expense for the years ending:
	Remaining 2009	$	38,364	$	686	$	1,052	$	375	$	40,477
	2010		114,029		2,747		4,246		1,497		122,519
	2011		88,016		2,747		3,968		1,490		96,221
	2012		69,259		2,747		3,679		1,490		77,175
	2013		44,743		2,747		3,436		1,490		52,416
	Thereafter		70,309		94,315		32,901		1,713		199,238
	Total estimated amortization expense	$	424,720	$	105,989	$	49,282	$	8,055	$	588,046

        In the second quarter of 2009, the Company acquired an asset management business and recorded $9.1 million of identifiable intangible assets. These identifiable intangible assets have been determined to have indefinite lives and therefore will not be amortized.

Note 7—Employee Pension and Other Postretirement Benefits

        The following tables summarize the components of net periodic benefit cost for the three and nine months ended September 30, 2008 and 2009.

		Pension Benefits						Other Benefits						Superannuation, SERP and ESBP
		For the Three Months Ended September 30,						For the Three Months Ended September 30,						For the Three Months Ended September 30,
(Dollars in thousands)		2008			2009			2008			2009			2008		2009
Components of net periodic benefit cost
Service cost		$	12,784		$	13,094		$	2,018		$	1,614		$	235	$	256
Interest cost			19,411			20,767			2,821			2,353			896		941
Expected return on plan assets			(33,411	)		(35,153	)		(3,369	)		(2,501	)		—		—
Amortization of prior service cost			—			—			(22	)		(16	)		51		—
Amortization of transition amount			—			—			509			328			—		—
Recognized net actuarial loss			2,483			3,045			816			936			424		305
	Total net periodic benefit cost	$	1,267		$	1,753		$	2,773		$	2,714		$	1,606	$	1,502

26

UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 7—Employee Pension and Other Postretirement Benefits (Continued)

		Pension Benefits						Other Benefits						Superannuation, SERP and ESBP
		For the Nine Months Ended September 30,						For the Nine Months Ended September 30,						For the Nine Months Ended September 30,
(Dollars in thousands)		2008			2009			2008			2009			2008		2009
Components of net periodic benefit cost
Service cost		$	38,351		$	39,282		$	6,055		$	6,278		$	705	$	767
Interest cost			58,234			62,300			8,463			8,462			2,757		2,823
Expected return on plan assets			(100,232	)		(105,458	)		(10,108	)		(7,500	)		—		—
Amortization of prior service cost			—			—			(70	)		(47	)		151		—
Amortization of transition amount			—			—			1,527			983			—		—
Recognized net actuarial loss			7,449			9,136			2,497			5,241			1,271		1,476
	Total net periodic benefit cost	$	3,802		$	5,260		$	8,364		$	13,417		$	4,884	$	5,066

Note 8—Other Noninterest Income and Noninterest Expense

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

Other Noninterest Income

		For the Three Months Ended				For the Nine Months Ended
(Dollars in thousands)		September 30, 2008		September 30, 2009		September 30, 2008		September 30, 2009
Standby letters of credit fees		$	6,458	$	7,916	$	17,822	$	22,929
Private capital and other investment income			12,426		2,967		25,192		4,323
Gain on the VISA IPO redemption			—		—		14,211		—
Other			19,235		8,674		49,284		34,032
	Total other noninterest income	$	38,119	$	19,557	$	106,509	$	61,284

Other Noninterest Expense

		For the Three Months Ended				For the Nine Months Ended
(Dollars in thousands)		September 30, 2008		September 30, 2009		September 30, 2008		September 30, 2009
Advertising and public relations		$	12,624	$	14,562	$	33,579	$	36,532
Low income housing credit investment amortization			11,616		13,064		29,248		34,256
Communications			9,204		9,494		27,690		27,404
Data processing			8,945		7,975		23,805		24,592
Printing and office supplies			4,124		7,287		13,557		16,243
Travel			6,014		4,552		17,789		15,453
Other			23,396		13,663		43,828		37,966
	Total other noninterest expense	$	75,923	$	70,597	$	189,496	$	192,446

27

UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 9—Income Taxes

        The following table is an analysis of the effective tax rate on income (loss) from continuing operations:

			For the Three Months Ended September 30,						For the Nine Months Ended September 30,
			2008			2009			2008			2009
Federal income tax rate				35	%		(35	)%		35	%		(35	)%
Net tax effects of:
	State income taxes, net of federal income tax benefit			5			(5	)		3			(1	)
	Tax credits			(9	)		(24	)		(8	)		(19	)
	Tax-exempt interest income			(1	)		(3	)		(1	)		(2	)
	Adjustment to 2008 taxes			—			(7	)		—			(2	)
	Other, net			—			(3	)		2			(1	)
		Effective tax rate		30	%		(77	)%		31	%		(60	)%

        A negative federal income tax rate in the above table indicates an expected income tax benefit on the loss from continuing operations before taxes.

        The change in the effective tax rate from the third quarter of 2008 was primarily due to pre-tax income in the prior year compared to pre-tax loss in the current year, as well as the impact of tax credits and state income taxes. A tax benefit of $4.6 million was recognized in the third quarter of 2009 with respect to certain privatization costs incurred in 2008, after a study was conducted to determine the tax-deductible portion of those costs. The deductions were taken in our 2008 tax return.

        The quarterly effective tax rate for the first and second quarters of 2009 was computed on an individual quarterly basis, while the rate for the third quarter and for the nine months ended September 30, 2009, was based on an estimated average effective tax rate for the year.

        In 2008, California enacted a new statute mandating a 20 percent penalty on corporate tax underpayments outstanding after May 31, 2009. During the second quarter of 2009, the Company filed amended tax returns and made payments of $187.0 million of tax and $43.7 million of interest with respect to tax positions taken in prior year worldwide unitary tax returns, which primarily involved the method of apportionment of worldwide income to California. The payments were made in order to protect the Company from potential penalties that may be asserted by the tax authorities. The Company has filed refund claims and intends to defend its positions. The payments did not affect the recognition or measurement of unrecognized state tax benefits and they had no impact on income tax expense.

28

UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 10—Borrowed Funds

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

(Dollars in thousands)		September 30, 2008		December 31, 2008		September 30, 2009
Federal funds purchased and securities sold under repurchase agreements, with weighted average interest rates of 1.90%, 0.53% and 0.12% at September 30, 2008, December 31, 2008 and September 30, 2009, respectively(1)		$	1,760,442	$	172,758	$	229,268
Commercial paper, with weighted average interest rates of 2.26%, 1.48%, and 0.29% at September 30, 2008, December 31, 2008 and September 30, 2009, respectively			1,659,935		1,164,327		423,499
Other borrowed funds:
Federal Home Loan Bank borrowings, with weighted average interest rates of 2.63% and 2.22% at September 30, 2008 and December 31, 2008, respectively			2,600,000		1,850,000		—
Term federal funds purchased, with weighted average interest rates of 2.63%, 2.60% and 0.19% at September 30, 2008, December 31, 2008 and September 30, 2009, respectively			807,730		1,230,060		50,000
Federal Reserve Bank Term Borrowings, with weighted average interest rate of 3.14% and 0.79% at September 30, 2008 and December 31, 2008, respectively			3,000,000		5,000,000		—
Borrowings from Bank of Tokyo-Mitsubishi UFJ, Ltd. (BTMU), with weighted average interest rate of 5.59% at September 30, 2008			200,000		—		—
All other borrowed, with weighted average interest rates of 2.49%, 5.42% and 1.45% at September 30, 2008, December 31, 2008 and September 30, 2009, respectively			111,205		116,537		114,861
	Total borrowed funds	$	10,139,312	$	9,533,682	$	817,628

(1)

Weighted average interest rates provided relate to external funding and do not reflect expense (earning) allocated on net funding to (from) discontinued operations. For further information, see Note 15 to these condensed consolidated financial statements.

29

UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 11—Medium- and Long-Term Debt

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

(Dollars in thousands)			September 30, 2008		December 31, 2008		September 30, 2009
Medium-Term senior debt:
	Floating rate notes due March 2009. These notes bear interest at 0.02% above 3-month London Interbank Offered Rate (LIBOR)		$	750,000	$	750,000	$	—
	Federal Home Loan Bank Advances: Floating, which is at a spread above 3-month LIBOR, or fixed rate, at a weighted average rate of 3.13% at September 30, 2008, 3.21% at December 31, 2008 and 2.19% at September 30, 2009			1,901,000		2,276,000		2,901,000
	Floating rate notes due March 2011. These notes, which bear interest at 0.08% above 3-month LIBOR, had a rate of 0.38% at September 30, 2009			—		—		500,000
	Floating rate notes due March 2012. These notes, which bear interest at 0.20% above 3-month LIBOR, had a rate of 0.50% at September 30, 2009			—		—		500,000
Long-Term subordinated debt:
	Fixed rate 5.25% notes due December 2013			415,004		451,930		437,859
	Fixed rate 5.95% notes due May 2016			761,160		810,558		782,694
		Total medium- and long-term debt	$	3,827,164	$	4,288,488	$	5,121,553

        In March 2009, the Company's $750 million of floating rate notes matured at par plus accrued interest and were repaid.

        As of September 30, 2008, December 31, 2008 and September 30, 2009, the Company had pledged loans and securities of $37.6 billion, $40.2 billion, and $38.6 billion, respectively, as collateral for short-and medium-term advances from the Federal Reserve Bank and Federal Home Loan Bank.

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

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

30

UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 12—Fair Value Measurement and Fair Value of Financial Instruments

        Effective January 1, 2008, the Company adopted FASB ASC 820-10, "Fair Value Measurements and Disclosures" (formerly SFAS No. 157, "Fair Value Measurements") for most fair value measurements required for financial assets and liabilities. The Company deferred application of this guidance for one year and adopted the guidance effective January 1, 2009 for nonrecurring measurements of fair value for non-financial assets and liabilities, such as goodwill, intangible assets and other real estate owned. At adoption, there was no effect on the Company's financial position or results of operations.

Fair Value Hierarchy

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

Level 1: Valuations are based on quoted prices in active markets for identical assets or liabilities. Since the valuations are based on quoted prices that are readily available in an active market, they do not entail a significant degree of judgment.

Level 2: Valuations are based on quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuations for which all significant assumptions are observable or can be corroborated by observable market data.

Level 3: Valuations are based on at least one significant unobservable input that is supported by little or no market activity and is significant to the fair value measurement. Values are determined using pricing models and discounted cash flow models that include management judgment and estimation which may be significant.

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

Valuation Methodologies

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

31

UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 12—Fair Value Measurement and Fair Value of Financial Instruments (Continued)

Recurring Fair Value Measurements:

Trading Account Assets:    Trading account assets are recorded at fair value and primarily consist of securities and derivatives held for trading purposes. See discussion below on securities available for sale, which utilize the same valuation methodology as trading account securities. See also discussion below on derivatives valuation.

Securities Available for Sale:    Securities available for sale are recorded at fair value based on readily available quoted market prices, if available. If such quoted market prices are not available, management utilizes third-party pricing services, broker quotations from dealers in the specific instruments. If no market prices or broker quotes are available, external pricing models are used. To the extent possible, these pricing model valuations utilize observable market inputs obtained for similar securities. Typical inputs include LIBOR and U.S. Treasury curves, benchmark yields, consensus prepayment estimates and credit spreads. Level 1 measured securities include U.S. government and agency securities. Level 2 measured securities include residential mortgage-backed securities and certain asset-backed securities.

Derivatives:    The Company's derivatives are primarily traded in over-the-counter markets where quoted market prices are not readily available. The Company values its derivatives using pricing models that are widely accepted in the financial services industry with inputs that are observable in the market or can be derived from or corroborated by observable market data. These models reflect the contractual terms of the derivatives including the period to maturity and market observable inputs such as yield curves and option volatility. Valuation adjustments are made to the credit reserve to reflect counterparty credit quality and to consider the creditworthiness of the Company. Derivatives, which are included in trading account assets, trading account liabilities and other assets, are generally measured as Level 2.

Nonrecurring Fair Value Measurements:

Loans Held for Sale:    Residential mortgage and commercial loans held for sale are recorded at the lower of cost or fair value. The fair value of fixed-rate residential loans is based on whole loan forward prices obtained from GSEs. These loans are classified as Level 2. The fair value of commercial loans held for sale may be based on secondary market offerings for loans with similar characteristics or a valuation methodology utilizing the appraised value to outstanding loan balance ratio. These loan values are classified as Level 3.

Individually Impaired Loans:    Individually impaired loans are evaluated and valued at the time the loan is identified as impaired based on the present value of the remaining expected cash flows. Because the discount factor applied is based on the loan's original effective yield rather than a current market rate, that present value does not represent fair value. However, as a practical expedient, an impaired loan may be measured based on a loan's observable market price or the underlying collateral securing the loan (provided that the loan is collateral dependent), which does represent fair value. Collateral may be real estate or business assets including equipment. The value of collateral is determined based on independent appraisals. Appraised values may be adjusted based on management's historical knowledge, changes in market conditions from the time of valuation, and management's knowledge of the client and the client's business. The loan's market price is determined using market pricing for similar assets, adjusted for management judgment. Impaired loans are reviewed and evaluated at least quarterly for additional impairment and adjusted accordingly. Impaired loans that are adjusted to fair value based on underlying collateral or the loan's market price are classified as Level 3.

32

UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 12—Fair Value Measurement and Fair Value of Financial Instruments (Continued)

Private Equity & Community Reinvestment Act (CRA) Investments:    Private equity and CRA investments are recorded either at cost or using the equity method and are evaluated for impairment. The valuation of these investments requires significant management judgment due to the absence of quoted market prices, lack of liquidity and the long-term nature of these assets. The fair value of the investments is estimated quarterly based on the investee's business model, current and projected financial performance, liquidity and overall economic and market conditions. Private equity & CRA investment measurements are classified as Level 3.

Other Real Estate Owned (OREO):    OREO represents collateral acquired through foreclosure and is recorded at the lower of the loan's unpaid principal balance or the collateral's fair value, adjusted for disposition costs. OREO values are reviewed on an ongoing basis and any decline in value is recorded as a fair value adjustment. The value of OREO is determined based on independent appraisals and is generally classified as Level 3.

Fair Value Measurements on a Recurring Basis

        The following tables present financial assets and financial liabilities measured at fair value on a recurring basis as of September 30, 2008, December 31, 2008 and September 30, 2009, by major category and by valuation hierarchy level.

33

UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 12—Fair Value Measurement and Fair Value of Financial Instruments (Continued)

		September 30, 2008
(Dollars in thousands)		Level 1		Level 2		Level 3		Netting Adjustment(1)			Fair Value
Assets
Trading account assets		$	77,751	$	679,181	$	—	$	(27,515	)	$	729,417
Securities available for sale			866,544		6,154,518		1,274,292		—			8,295,354
Other assets(2)			—		128,876		—		(23,360	)		105,516
	Total assets	$	944,295	$	6,962,575	$	1,274,292	$	(50,875	)	$	9,130,287
Liabilities
Trading account liabilities		$	5,343	$	552,422	$	—	$	(50,875	)	$	506,890
	Total liabilities	$	5,343	$	552,422	$	—	$	(50,875	)	$	506,890

		December 31, 2008
(Dollars in thousands)		Level 1		Level 2		Level 3		Netting Adjustment(1)			Fair Value
Assets
Trading account assets		$	72,860	$	1,203,697	$	—	$	(59,778	)	$	1,216,779
Securities available for sale			888,675		6,102,771		1,203,092		—			8,194,538
Other assets(2)			—		317,569		—		(93,599	)		223,970
	Total assets	$	961,535	$	7,624,037	$	1,203,092	$	(153,377	)	$	9,635,287
Liabilities
Trading account liabilities		$	56,470	$	1,131,570	$	—	$	(153,377	)	$	1,034,663
	Total liabilities	$	56,470	$	1,131,570	$	—	$	(153,377	)	$	1,034,663

		September 30, 2009
(Dollars in thousands)		Level 1		Level 2		Level 3		Netting Adjustment(1)			Fair Value
Assets
Trading account assets:
	U.S. Treasury	$	53,592	$	—	$	—	$	—		$	53,592
	Other U.S. government		50,847		—		—		—			50,847
	State and municpal		—		46,617		—		—			46,617
	Commercial paper		—		56,519		—		—			56,519
	Derivatives		471		779,330		—		(46,826	)		732,975
Total trading account assets			104,910		882,466		—		(46,826	)		940,550
Securities available for sale:
	U.S. Treasury		299,259		—		—		—			299,259
	Other U.S. government		6,077,976		—		—		—			6,077,976
	Residential mortgage-backed securities—agency		—		11,138,222		—		—			11,138,222
	Residential mortgage-backed securities—non-agency		—		431,926		—		—			431,926
	State and municpal		—		44,813		5,227		—			50,040
	Asset-backed and debt securities		—		106,190				—			106,190
	Equity securities		105,542		—		1,419		—			106,961
Total securities available for sale			6,482,777		11,721,151		6,646		—			18,210,574
Other assets(2)			—		118,666		—		(55,267	)		63,399
	Total assets	$	6,587,687	$	12,722,283	$	6,646	$	(102,093	)	$	19,214,523
Liabilities
Trading account liabilities:
	Derivatives	$	6,560	$	767,183	$	—	$	(102,093	)	$	671,650
	Securities sold, not yet purchased		43,425		—		—		—			43,425
Total trading account liabilities			49,985		767,183		—		(102,093	)		715,075
	Total liabilities	$	49,985	$	767,183	$	—	$	(102,093	)	$	715,075

(1)

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

(2)

Other assets include nontrading derivative assets.

34

UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 12—Fair Value Measurement and Fair Value of Financial Instruments (Continued)

        The following tables present a reconciliation of the assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three months and nine months ended September 30, 2008 and 2009. Level 3 available for sale securities at September 30, 2009 primarily consist of community redevelopment bonds. These bonds were carried at cost, which approximates fair value.

			For the Three Months Ended
(Dollars in thousands)			September 30, 2008			September 30, 2009
Balance, beginning of period			$	1,514,836		$	6,308
	Total gains/(losses) (realized/unrealized):
		Included in income before taxes		61			44
		Included in other comprehensive income		(241,154	)		(10	)
	Purchases, sales, issuances and settlements			549			304
	Transfers in (out) Level 3			—			—
Balance, end of period			$	1,274,292		$	6,646
Changes in unrealized gains (losses) included in income before taxes for assets and liabilities still held at end of period			$	29		$	—

			For the Nine Months Ended
(Dollars in thousands)			September 30, 2008			September 30, 2009
Balance, beginning of period			$	1,765,497		$	1,203,092
	Total gains/(losses) (realized/unrealized):
		Included in income before taxes		183			64
		Included in other comprehensive income		(492,323	)		(54,721	)
	Purchases, sales, issuances and settlements			935			2,025
	Transfers in (out) Level 3(1)			—			(1,143,814	)
Balance, end of period			$	1,274,292		$	6,646
Changes in unrealized gains (losses) included in income before taxes for assets and liabilities still held at end of period			$	87		$	—

(1)

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

Fair Value Measurement on a Nonrecurring Basis

        Certain financial assets may be measured at fair value on a nonrecurring basis. These assets are subject to fair value adjustments that result from the application of the lower of cost or fair value accounting or write-downs of individual assets. For assets measured at fair value on a nonrecurring basis during the nine months ended September 30, 2008 and 2009 that were still held on the condensed consolidated balance sheet as of

35

UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 12—Fair Value Measurement and Fair Value of Financial Instruments (Continued)

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.

		September 30, 2008
(Dollars in thousands)		Carrying Value		Level 1		Level 2		Level 3		Loss for the Three Months Ended September 30, 2008			Loss for the Nine Months Ended September 30, 2008
Loans		$	41,133	$	—	$	—	$	41,133	$	(3,304	)	$	(9,141	)
Other Assets			1,000				—		1,000		(1,000	)		(1,000	)
	Total	$	42,133	$	—	$	—	$	42,133	$	(4,304	)	$	(10,141	)

			September 30, 2009
(Dollars in thousands)			Carrying Value		Level 1		Level 2		Level 3		Loss for the Three Months Ended September 30, 2009			Loss for the Nine Months Ended September 30, 2009
Securities:
	Held to maturity Investments		$	1,670	$	—	$	—	$	1,670	$	—		$	(767	)
Loans:
	Loans Held for Sale			13,320		—		4,635		8,685		(5,487	)		(5,572	)
	Impaired Loans			590,593		—		—		590,593		(74,009	)		(189,644	)
Other Assets:
	OREO			13,082		—		—		13,082		(1,529	)		(4,413	)
	CRA Investments			7,595		—		—		7,595		(1,879	)		(7,372	)
	Private Equity Investments			26,769		—		—		26,769		(520	)		(5,347	)
		Total	$	653,029	$	—	$	4,635	$	648,394	$	(83,424	)	$	(213,115	)

        Securities held to maturity consists of one investment that was written down to fair value during the period due to other than temporary impairment (OTTI). Fair value was determined using a pricing model and broker quotes. The model uses internally developed assumptions and available market data obtained from market participants and credit rating agencies.

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

        Other assets consist of private equity and CRA related investments that were written down to fair value due to impairment, and OREO that was measured at the lower of cost or fair value. The fair value of private equity and CRA related investments was estimated based on the underlying investee's current and projected financial performance. The fair value of OREO was primarily based on independent appraisals.

36

UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 12—Fair Value Measurement and Fair Value of Financial Instruments (Continued)

Fair Value of Financial Instruments Disclosures

        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.

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

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

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

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

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

37

UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 12—Fair Value Measurement and Fair Value of Financial Instruments (Continued)

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

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

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

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

        The table below presents the carrying value and estimated fair value of certain financial instruments held by the Company as of December 31, 2008 and September 30, 2009.

		December 31, 2008				September 30, 2009
(Dollars in thousands)		Carrying Value		Fair Value		Carrying Value		Fair Value
Assets
	Securities held to maturity	$	—	$	—	$	1,193,337	$	1,269,934
	Loans, net of allowance for loan losses		48,205,818		47,507,685		46,255,093		46,327,744
Liabilities
	Interest bearing deposits		32,482,896		32,528,349		46,218,993		46,247,951
	Other borrowed funds		8,196,597		8,203,032		164,861		164,867
	Medium- and long-term debt		4,288,488		4,067,878		5,121,553		5,048,379
	Junior subordinated debt payable to subsidiary grantor trust		13,980		11,700		13,640		13,045
Off-Balance Sheet Instruments
	Commitments to extend credit		92,644		92,644		123,356		123,356
	Standby and commercial letters of credit		6,465		6,465		5,461		5,461

Note 13—Derivative Instruments and Other Financial Instruments Used For Hedging

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

        Credit and market risks are inherent in derivative instruments. Credit risk is defined as the possibility that a loss may occur from the failure of another party to perform in accordance with the terms of the contract, which exceeds the value of the existing collateral, if any. The Company utilizes master netting agreements in order to reduce its exposure to credit risk. Master netting agreements mitigate credit risk by permitting the

38

UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 13—Derivative Instruments and Other Financial Instruments Used For Hedging (Continued)

offset of amounts due from and to individual counterparties in the event of default. Additionally, the Company establishes a credit reserve for potential losses in the event of counterparty default. This reserve is reflected in the fair value amount of the derivative instrument. Market risk is the possibility that future changes in market conditions may make the financial instrument less valuable.

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

        The table below presents 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 under US GAAP and all other derivative instruments as of September 30, 2009.

		September 30, 2009
				Asset Derivatives(1)			Liability Derivatives(1)
(Dollars in thousands)		Notional Amount		Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Derivatives designated as hedging instruments under US GAAP:
	Interest rate contracts(2)	$	7,050,000	Other assets	$	118,666	Other liabilities	$	—
Total derivatives designated as hedging instruments under US GAAP:		$	7,050,000		$	118,666		$	—
Derivatives not designated as hedging instruments under US GAAP:
	Foreign exchange contracts	$	2,981,215	Trading account assets	$	27,625	Trading account liabilities	$	43,707
	Energy contracts		3,544,518	Trading account assets		193,972	Trading account liabilities		199,677
	Interest rate contracts		24,941,719	Trading account assets		547,988	Trading account liabilities		520,143
	Equity contracts		193,158	Trading account assets		10,216	Trading account liabilities		10,216
	Other contracts		5,636	Other assets		352	Other liabilities		(885	)
Total derivatives not designated as hedging instruments under US GAAP		$	31,666,246		$	780,153		$	772,858

(1)

Asset and liability values are presented gross, excluding the impact of legally enforceable master netting agreements.

(2)

The fair value includes unamortized premium of $4.4 million related to terminated contracts.

        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 September 30, 2009, the aggregate fair value and net interest payable (receivable) of all derivative

39

UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 13—Derivative Instruments and Other Financial Instruments Used For Hedging (Continued)

instruments with credit-risk mitigated contingent features that are in a liability position was $94.4 million. The Company has pledged securities of $52.9 million for collateral in the normal course of business. If all of the credit-risk-related contingent features underlying these agreements had been triggered on September 30, 2009, the Company would have been required to provide additional collateral of $41.5 million to settle these contracts.

Derivatives used in Asset and Liability Management

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

Cash Flow Hedges

Hedging Strategies for Variable Rate Loans, Borrowings and Certificates of Deposit and Other Time Deposits

        The Company engages in several types of cash flow hedging strategies related to forecasted future interest payments, with the hedged risk being the variability in those payments due to changes in the designated benchmark rate (i.e., U.S. dollar LIBOR). In these strategies, the hedging instruments are matched with groups of similar variable rate instruments such that the reset tenor of the variable rate instruments and that of the hedging instrument are identical. Cash flow hedging strategies include the utilization of purchased floor, cap, collars and corridor options and interest rate swaps. At September 30, 2009, the weighted average remaining life of the currently active (excluding any forward positions) cash flow hedges was approximately 2.3 years.

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

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

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

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

40

UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 13—Derivative Instruments and Other Financial Instruments Used For Hedging (Continued)

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

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

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

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

        For cash flow hedges, the effective portion of the gain or loss on the hedging instruments is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged cash flows are recognized in net interest income. Gains and losses representing hedge ineffectiveness or hedge components excluded from the assessment of hedge effectiveness are recognized in noninterest expense in the period in which they arise. Based upon amounts included in accumulated other comprehensive income at September 30, 2009, the Company expects to realize approximately $65.3 million in net interest income during the twelve months ending September 30, 2010. This amount could differ from amounts actually realized due to changes in interest rates and the addition of other hedges subsequent to September 30, 2009.

41

UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 13—Derivative Instruments and Other Financial Instruments Used For Hedging (Continued)

        The following tables present the amount and location of the net gains and losses recorded in the Company's condensed consolidated statements of income and changes in stockholder's equity for derivatives designated as cash flow hedges for the three and nine months ended September 30, 2009.

		For the Three Months Ended September 30, 2009
							Gain or (Loss) Recognized in Income on Derivative Instruments (Ineffective Portion and Amount Excluded from Effectiveness Testing)
				Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)
		Amount of Gain or (Loss) Recognized in OCI on Derivative Instruments (Effective Portion)
(Dollars in thousands)				Location	Amount		Location	Amount
Derivatives in Cash Flow Hedging Relationships
				Interest Income	$	34,110
	Interest rate contracts	$	6,715	Interest Expense		—	Noninterest Expense	$	2
Total		$	6,715		$	34,110		$	2

		For the Nine Months Ended September 30, 2009
							Gain or (Loss) Recognized in Income on Derivative Instruments (Ineffective Portion and Amount Excluded from Effectiveness Testing)
				Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)
		Amount of Gain or (Loss) Recognized in OCI on Derivative Instruments (Effective Portion)
(Dollars in thousands)				Location	Amount		Location	Amount
Derivatives in Cash Flow Hedging Relationships
				Interest Income	$	99,446
	Interest rate contracts	$	42,372	Interest Expense		15	Noninterest Expense	$	77
Total		$	42,372		$	99,461		$	77

Fair Value Hedges

Hedging Strategy for Subordinated Debt

        In the first quarter of 2009, the Company terminated all of its interest rate swaps, which were previously used to hedge subordinated debt. The notional amount of the terminated swaps was $950 million. These swaps were not replaced. As a result of the termination, the Company received $167.7 million in cash, which is treated as a deferred gain and recognized over the remaining contractual life of the subordinated debt.

Trading Derivatives and Economic Hedges

        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. Derivatives used for economic hedges but not designated in a hedging relationship for accounting purposes, are included in derivative assets or derivative liabilities and

42

UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 13—Derivative Instruments and Other Financial Instruments Used For Hedging (Continued)

include CDs tied to the changes in the Standard and Poor's 500 Index (S&P 500) and in the Dow-Jones UBS Commodity Index.

        The Company engages in an economic hedging strategy in which interest bearing CDs issued to customers, which are tied to the changes in the S&P 500, are exchanged for a fixed rate of interest. The Company accounts for the derivative embedded in the CD separately at fair value. A total return swap that encompasses the value of a series of options that had individually hedged each CD is recorded at fair value. The changes in the fair value of the embedded derivative and the hedge instrument are recognized as interest expense. Beginning in late 2008, the Company began offering market-linked certificates of deposit. The terms of the market-linked CD allow the client to earn the higher of either a minimum fixed rate of interest or a return tied to specified market indices. The Company hedges its exposure to the embedded derivative contained in market-linked CDs with a perfectly matched over-the-counter call option. Both the embedded derivative and call option are recorded at fair value with the realized and unrealized changes in fair value recorded in noninterest income within trading account activities.

        The following table presents the amount and location of the net gains and losses reported in the condensed consolidated statement of income for derivative instruments classified as trading and derivatives used as economic hedges for the three and nine months ended September 30, 2009.

		Gain or (Loss) Recognized in Income on Derivative Instruments
			For the Three Months Ended September 30, 2009			For the Nine Months Ended September 30, 2009
(Dollars in thousands)		Location	Amount			Amount
Trading Derivatives and Economic Hedges:
	Interest rate contracts	Trading account activities	$	(3,972	)	$	4,561
	Foreign exchange contracts	Trading account activities		9,171			26,618
	Energy contracts	Trading account activities		(824	)		(371	)
	Equity contracts	Trading account activities		659			1,767
	Other contracts	Interest expense		(24	)		(106	)
Total			$	5,010		$	32,469

43

UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 14—Accumulated Other Comprehensive Loss

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

(Dollars in thousands)		Before Tax Amount			Tax Effect			Net of Tax
For the Nine Months Ended September 30, 2008:
Cash flow hedge activities:
	Unrealized net gains on hedges arising during the period	$	80,007		$	(30,603	)	$	49,404
	Less: reclassification adjustment for net gains on hedges included in net income		(61,517	)		23,530			(37,987	)
Net change in unrealized gains on hedges			18,490			(7,073	)		11,417
Securities:
	Unrealized holding losses arising during the period on securities available for sale		(561,678	)		214,842			(346,836	)
	Less: reclassification adjustment for net gains on securities available for sale included in net income		(48	)		18			(30	)
Net change in unrealized losses on securities			(561,726	)		214,860			(346,866	)
Foreign currency translation adjustment			(1,012	)		387			(625	)
Reclassification adjustment for pension and other benefits included in net income:
	Amortization of prior service costs		(70	)		27			(43	)
	Amortization of transition amount		1,527			(584	)		943
	Recognized net actuarial loss		9,946			(3,804	)		6,142
Net change in pension and other benefits			11,403			(4,361	)		7,042
Net change in accumulated other comprehensive loss		$	(532,845	)	$	203,813		$	(329,032	)
For the Nine Months Ended September 30, 2009:
Cash flow hedge activities:
	Unrealized net gains on hedges arising during the period	$	42,372		$	(16,648	)	$	25,724
	Less: accretion of fair value adjustment		10,829			(4,088	)		6,741
	Less: Reclassification adjustment for net gains on hedges included in net income		(110,290	)		43,333			(66,957	)
Net change in unrealized gains on hedges			(57,089	)		22,597			(34,492	)
Securities:
	Unrealized holding gains arising during the period on securities available for sale		182,191			(71,583	)		110,608
	Reclassification adjustment for net gains on securities available for sale included in net income		(13,303	)		5,227			(8,076	)
	Less: accretion of fair value adjustment on securities available for sale		(10,567	)		4,152			(6,415	)
	Less: accretion of fair value adjustment on held-to-maturity securities		(13,021	)		5,116			(7,905	)
	Less: accretion of net unrealized losses on held-to-maturity securities		53,609			(21,063	)		32,546
Net change in unrealized losses on securities			198,909			(78,151	)		120,758
Foreign currency translation adjustment			1,787			(702	)		1,085
Reclassification adjustment for pension and other benefits included in net income:
	Amortization of prior service costs		(47	)		18			(29	)
	Amortization of transition amount		983			(386	)		597
	Recognized net actuarial loss		15,853			(6,229	)		9,624
Net change in pension and other benefits			16,789			(6,597	)		10,192
Net change in accumulated other comprehensive loss		$	160,396		$	(62,853	)	$	97,543

44

UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 14—Accumulated Other Comprehensive Loss (Continued)

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

(Dollars in thousands)	Net Unrealized Gains (Losses) on Cash Flow Hedges			Net Unrealized Gains (Losses) on Securities			Foreign Currency Translation Adjustment			Pension and Other Benefits Adjustment			Accumulated Other Comprehensive Loss
Balance, December 31, 2007	$	23,563		$	(129,163	)	$	740		$	(178,263	)	$	(283,123	)
Change during the period		11,417			(346,866	)		(625	)		7,042			(329,032	)
Balance, September 30, 2008	$	34,980		$	(476,029	)	$	115		$	(171,221	)	$	(612,155	)
Balance, December 31, 2008	$	73,308		$	(352,710	)	$	(1,113	)	$	(531,336	)	$	(811,851	)
Change during the period		(34,492	)		120,758			1,085			10,192			97,543
Balance, September 30, 2009	$	38,816		$	(231,952	)	$	(28	)	$	(521,144	)	$	(714,308	)

Note 15—Discontinued Operations

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

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

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

        Substantially all of the assets and liabilities of the retirement recordkeeping and insurance brokerage businesses were liquidated by the end of the first quarter of 2009.

45

UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 15—Discontinued Operations (Continued)

Retirement Recordkeeping Business Discontinued Operations

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

(Dollars in thousands)	September 30, 2008		December 31, 2008
Assets
Other assets	$	5,157	$	—
Assets of discontinued operations to be disposed or sold	$	5,157	$	—
Liabilities
Interest bearing deposits	$	11,060	$	1,929
Other liabilities		9,269		5,217
Liabilities of discontinued operations to be extinguished or assumed	$	20,329	$	7,146

        The components of income from the RRB discontinued operations for the three and nine months ended September 30, 2008 are presented in the table below. There was no impact in the same periods in 2009.

(Dollars in thousands)	For the Three Months Ended September 30, 2008			For the Nine Months Ended September 30, 2008
Net interest income	$	226		$	1,540
Noninterest income		891			18,419
Noninterest expense		9,037			31,217
Loss from discontinued operations before income taxes		(7,920	)		(11,258	)
Income tax benefit		(2,809	)		(3,973	)
Loss from discontinued operations	$	(5,111	)	$	(7,285	)

        The RRB's net interest income for the three and nine months ended September 30, 2008 included the allocation of interest income (based on its average net liabilities) of $0.3 million and $1.8 million, respectively. Noninterest income for the three and nine months ended September 30, 2008 included trust fees of $0.9 million and $7.3 million, respectively. Noninterest income for the nine months ended September 30, 2008 also included $11.8 million of servicing revenues from Prudential. For the three and nine months ended September 30, 2008, noninterest expense included salaries and benefits expense of $4.7 million and $16.0 million, respectively.

46

UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 15—Discontinued Operations (Continued)

Insurance Brokerage Business Discontinued Operations

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

(Dollars in thousands)	September 30, 2008		December 31, 2008
Assets
Other assets	$	—	$	4
Assets of discontinued operations to be disposed or sold	$	—	$	4
Liabilities
Other liabilities	$	1,817	$	814
Liabilities of discontinued operations to be extinguished or assumed	$	1,817	$	814

        The components of income from the IBB discontinued operations for the three and nine months ended September 30, 2008 are presented in the table below. There was no impact in the same periods in 2009.

(Dollars in thousands)	For the Three Months Ended September 30, 2008			For the Nine Months Ended September 30, 2008
Net interest expense	$	—		$	(993	)
Noninterest income		249			35,840
Noninterest expense		504			46,281
Loss from discontinued operations before income taxes		(255	)		(11,434	)
Income tax benefit		(90	)		(6,682	)
Loss from discontinued operations	$	(165	)	$	(4,752	)

        The IBB's net interest expense for the three and nine months ended September 30, 2008 was mainly comprised of the allocation of interest expense (based on its average net assets). Noninterest income for the nine months ended September 30, 2008 included insurance commissions of $25.7 million. Noninterest income for the nine months ended September 30, 2008 also included a $9.8 million pre-tax gain from the sale of the IBB and $0.2 million in subsequent gain adjustments for the three and nine months ended September 30, 2008. Noninterest expense for the three and nine months ended September 30, 2008 included salaries and benefits expense of $0.5 million and $21.2 million, respectively. For the nine months ended September 30, 2008, noninterest expense also included an $18.7 million goodwill impairment charge. This charge was recorded in the first quarter of 2008, when the Company determined that the value of the net assets was greater than the fair value of the IBB, which was based on indicative prices for insurance agencies.

47

UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 16—Commitments, Contingencies and Guarantees

        The following table summarizes the Company's significant commitments.

(Dollars in thousands)	September 30, 2009
Commitments to extend credit	$	22,139,784
Standby letters of credit		5,034,533
Commercial letters of credit		53,020
Risk participations in bankers' acceptances		68
Commitments to fund principal investments		95,516
Commitments to fund low-income housing credit (LIHC) investments		145,979

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

        Standby and commercial letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. Standby letters of credit generally are contingent upon the failure of the customer to perform according to the terms of the underlying contract with the third party, while commercial letters of credit are issued specifically to facilitate foreign or domestic trade transactions. Additionally, the Company enters into risk participations in bankers' acceptances wherein a fee is received to guarantee a portion of the credit risk on an acceptance of another bank. The majority of these types of commitments have terms of one year or less. At September 30, 2009, the carrying value of the Company's risk participations in bankers' acceptances and standby and commercial letters of credit totaled $5.5 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 condensed consolidated balance sheet.

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

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

        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

48

UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 16—Commitments, Contingencies and Guarantees (Continued)

operating deficit thresholds from the issuer. For these LIHC investments, the Company has committed to provide additional funding as stipulated by its investment participation.

        The Company is a fund manager for LIHC investments. LIHC investments provide tax benefits to investors in the form of tax deductions from operating losses and tax credits. To facilitate the sale of these LIHC investments, the Company guarantees a minimum rate of return throughout the investment term of over 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 September 30, 2009, the Company's maximum exposure to loss under these guarantees is limited to a return of investor capital and minimum investment yield, or $196.1 million. The risk that the Company would be required to pay investors for a yield deficiency is low, based on the continued satisfactory performance of the underlying properties. The Company has a reserve of $7.0 million recorded related to these guarantees, which represents the remaining unamortized fair value of the guarantee fees that were recognized at inception.

        The Company has guarantees that obligate it to perform if its affiliates are unable to discharge their obligations. These obligations include guarantees of commercial paper obligations and leveraged lease transactions. The guarantee issued by the Bank for an affiliate's commercial paper program facilitates the sale of the commercial paper. As of September 30, 2009, the Bank had a maximum exposure to loss under the commercial paper program guarantee of $262.4 million. The Bank's guarantee has an average term of less than nine months and is fully collateralized by a pledged deposit placed with the Bank. The Company guarantees its subsidiaries' leveraged lease transactions with terms ranging from fifteen to thirty years. Following the original funding of these leveraged lease transactions, the Company does not have any material obligation to be satisfied. As of September 30, 2009, the Company did not have any exposure to loss for these agreements.

        The Company conducts securities lending transactions for institutional customers as a fully disclosed agent. At times, securities lending indemnifications are issued to guarantee that a security lending customer will be made whole in the event the borrower does not return the security subject to the lending agreement and collateral held is insufficient to cover the market value of the security. All lending transactions are collateralized, primarily by cash. The amount of securities lent with indemnifications was $2.0 billion at September 30, 2009. The market value of the associated collateral was $2.1 billion at September 30, 2009. As of September 30, 2009, the Company had no exposure that would require it to pay under this securities lending indemnification, since the collateral market value exceeds the securities lent.

        The Company occasionally enters into financial guarantee contracts where a premium is received from another financial institution counterparty to guarantee a portion of the credit risk on interest rate swap contracts entered into between the financial institution and its customer. The Company becomes liable to pay the financial institution only if the financial institution is unable to collect amounts owed to them by their customer. As of September 30, 2009, the maximum exposure to loss under these contracts totaled $57.2 million. The risk that the Company would be required to perform under these guarantees varies based on the creditworthiness of the other financial institution's customer. Credit risk grades are assigned by the Company based on the estimated probability of default. The risk of default is considered low for those with superior to good credit ratings, moderate for those with satisfactory to adequate credit ratings, and high for those considered special mention, substandard, doubtful and loss. Based on these criteria, at September 30, 2009, the Company had a maximum exposure to loss under these contracts with a low, moderate, and high

49

UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 16—Commitments, Contingencies and Guarantees (Continued)

risk of payment exposure of $12.9 million, $34.6 million, and $9.7 million, respectively. At September 30, 2009, the Company maintained a reserve of $1.7 million for losses related to these guarantees.

        The Company is a member of the Visa USA network (Visa). Visa's bylaws obligate its members to indemnify Visa for losses in connection with the settlement of certain antitrust lawsuits. The Company's indemnification obligation is limited to its proportionate share. The Company had a liability of $4.3 million and $3.4 million at December 31, 2008 and September 30, 2009, respectively, representing the estimated fair value of the Company's obligations under the indemnity provisions. The decrease in this liability from December 31, 2008 to September 30, 2009 was primarily due to a $700 million contribution Visa made on behalf of members to the litigation escrow account in the second quarter of 2009, offset by the Company's revised assessment of the likely settlement amount for one of the cases. The $3.4 million liability represents the Company's estimate of the fair value of its proportionate share of the sum of Visa's remaining amount owed to American Express under the previously executed settlement agreement plus the Company's estimate of Visa's future settlements under pending lawsuits, after subtracting the balance in Visa's escrow account. The Company's maximum exposure to loss for the remaining pending Visa antitrust lawsuits is not determinable, as it is dependent on the outcome of the litigation, but any loss will be proportionate to the Company's ownership interest in Visa. At September 30, 2009, the risk that the Company would be required to pay as a result of this guarantee is considered to be low, based on Visa's continued cash funding of the escrow account to pay its antitrust lawsuit settlements.

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

Note 17—Business Segments

        The various operating segments reporting under the Chief Operating Officer and the Group Head of Pacific Rim Corporate Group are aggregated into two reportable business segments entitled "Retail Banking" and "Wholesale Banking."

        As part of the Company's privatization transaction in 2008, goodwill of $980 million and $1,034 million was recorded in the reportable business segments Retail Banking and Wholesale Banking, respectively. See Note 3 to these condensed consolidated financial statements in this Form 10-Q for further detail on the Company's privatization transaction.

•

Retail Banking aggregates those operating segments that offer a range of banking services, primarily to individuals, professional service firms and small businesses, delivered generally through a network of branches, private banking offices and ATMs located in the western United States. These services include mortgages, home equity lines of credit, consumer and commercial loans, deposit services and cash management, as well as trust, private banking, investment and asset management services for individuals and institutions, and risk management for small businesses and individuals. At September 30, 2008 and 2009, Retail Banking had $217.4 million and $1.2 billion, respectively, of goodwill.

•

Wholesale Banking aggregates those operating segments that provide credit, depository and cash management services, investment and risk management products to businesses, individuals and target

50

UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 17—Business Segments (Continued)

specialty niches. Services include commercial and project loans, real estate financing, asset-based financing, trade finance and letters of credit, lease financing, customized cash management services and capital markets products. At September 30, 2008 and 2009, Wholesale Banking had $137.9 million and $1.2 billion, respectively, of goodwill.

        The information, set forth in the tables that follow, reflects selected income statement and balance sheet items by reportable business segment. The information presented does not necessarily represent the business units' financial condition and results of operations were they independent entities. Unlike financial accounting, there is no authoritative body of guidance for management accounting equivalent to US GAAP. Consequently, reported results are not necessarily comparable with those presented by other companies. Included in the tables, within total assets, are the amounts of goodwill for both reportable business segments as of September 30, 2008 and 2009.

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

        "Other" is comprised of certain non-bank subsidiaries of UnionBanCal Corporation, the elimination of the fully taxable-equivalent basis amount, the transfer pricing center, the amount of the provision for credit losses over/(under) the RAROC expected loss for the period, the earnings associated with the allowances for credit losses, and the residual costs of support groups. In addition, "Other" includes Corporate Treasury, which is responsible for Asset-Liability Management (ALM), wholesale funding, and the ALM investment securities and derivatives hedging portfolios, and the results of discontinued operations. The discontinued operations consist of two separate businesses: retirement recordkeeping services and insurance brokerage services. For further detail on discontinued operations, see Note 15 to these condensed consolidated financial statements. Except as discussed above, none of the items in "Other" is significant to the Company's business.

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

51

UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 17—Business Segments (Continued)

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

		Retail Banking				Wholesale Banking
		As of and for the Three Months Ended September 30,				As of and for the Three Months Ended September 30,
		2008		2009		2008		2009
Results of operations—Market View (dollars in thousands):
	Net interest income (expense)	$	214,614	$	280,461	$	243,504	$	379,369
	Noninterest income (expense)		122,546		110,565		92,484		86,224
	Total revenue		337,160		391,026		335,988		465,593
	Noninterest expense (income)		251,519		290,182		158,016		207,842
	Credit expense (income)		7,056		7,361		49,094		92,027
	Income (loss) from continuing operations before income taxes		78,585		93,483		128,878		165,724
	Income tax expense (benefit)		30,059		36,552		30,508		43,314
	Income (loss) from continuing operations		48,526		56,931		98,370		122,410
	Loss from discontinued operations, net of income taxes		—		—		—		—
	Net income (loss)	$	48,526	$	56,931	$	98,370	$	122,410
	Total assets, end of period—Market View (dollars in millions):	$	21,577	$	24,211	$	32,783	$	33,215

		Other						Reconciling Items						UnionBanCal Corporation
		As of and for the Three Months Ended September 30,						As of and for the Three Months Ended September 30,						As of and for the Three Months Ended September 30,
		2008			2009			2008			2009			2008			2009
Results of operations—Market View (dollars in thousands):
	Net interest income (expense)	$	63,388		$	(86,874	)	$	(1,760	)	$	(11,920	)	$	519,746		$	561,036
	Noninterest income (expense)		2,973			9,275			(19,282	)		(22,135	)		198,721			183,929
	Total revenue		66,361			(77,599	)		(21,042	)		(34,055	)		718,467			744,965
	Noninterest expense (income)		45,833			21,647			(11,556	)		(13,856	)		443,812			505,815
	Credit expense (income)		60,870			214,641			(20	)		(29	)		117,000			314,000
	Income (loss) from continuing operations before income taxes		(40,342	)		(313,887	)		(9,466	)		(20,170	)		157,655			(74,850	)
	Income tax expense (benefit)		(9,397	)		(129,800	)		(3,621	)		(7,887	)		47,549			(57,821	)
	Income (loss) from continuing operations		(30,945	)		(184,087	)		(5,845	)		(12,283	)		110,106			(17,029	)
	Loss from discontinued operations, net of income taxes		(5,276	)		—			—			—			(5,276	)		—
	Net income (loss)	$	(36,221	)	$	(184,087	)	$	(5,845	)	$	(12,283	)	$	104,830		$	(17,029	)
	Total assets, end of period—Market View (dollars in millions):	$	8,258		$	20,777		$	(18	)	$	(50	)	$	62,600		$	78,153

52

UnionBanCal Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 17—Business Segments (Continued)

		Retail Banking				Wholesale Banking
		As of and for the Nine Months Ended September 30,				As of and for the Nine Months Ended September 30,
		2008		2009		2008		2009
Results of operations—Market View (dollars in thousands):
	Net interest income (expense)	$	612,996	$	760,379	$	689,330	$	1,014,642
	Noninterest income (expense)		369,293		325,956		258,254		271,435
	Total revenue		982,289		1,086,335		947,584		1,286,077
	Noninterest expense (income)		725,082		828,190		457,275		566,180
	Credit expense (income)		20,337		22,505		135,634		247,057
	Income (loss) from continuing operations before income taxes		236,870		235,640		354,675		472,840
	Income tax expense (benefit)		90,603		92,135		83,850		120,609
	Income (loss) from continuing operations		146,267		143,505		270,825		352,231
	Loss from discontinued operations, net of income taxes		—		—		—		—
	Net income (loss)	$	146,267	$	143,505	$	270,825	$	352,231
	Total assets, end of period—Market View (dollars in millions):	$	21,577	$	24,211	$	32,783	$	33,215

		Other						Reconciling Items						UnionBanCal Corporation
		As of and for the Nine Months Ended September 30,						As of and for the Nine Months Ended September 30,						As of and for the Nine Months Ended September 30,
		2008			2009			2008			2009			2008			2009
Results of operations—Market View (dollars in thousands):
	Net interest income (expense)	$	193,854		$	(82,188	)	$	(5,298	)	$	(21,448	)	$	1,490,882		$	1,671,385
	Noninterest income (expense)		23,516			3,535			(57,320	)		(59,068	)		593,743			541,858
	Total revenue		217,370			(78,653	)		(62,618	)		(80,516	)		2,084,625			2,213,243
	Noninterest expense (income)		118,222			201,972			(34,249	)		(37,086	)		1,266,330			1,559,256
	Credit expense (income)		128,082			653,514			(53	)		(76	)		284,000			923,000
	Income (loss) from continuing operations before income taxes		(28,934	)		(934,139	)		(28,316	)		(43,354	)		534,295			(269,013	)
	Income tax expense (benefit)		3,871			(357,962	)		(10,831	)		(16,951	)		167,493			(162,169	)
	Income (loss) from continuing operations		(32,805	)		(576,177	)		(17,485	)		(26,403	)		366,802			(106,844	)
	Loss from discontinued operations, net of income taxes		(12,037	)		—			—			—			(12,037	)		—
	Net income (loss)	$	(44,842	)	$	(576,177	)	$	(17,485	)	$	(26,403	)	$	354,765		$	(106,844	)
	Total assets, end of period—Market View (dollars in millions):	$	8,258		$	20,777		$	(18	)	$	(50	)	$	62,600		$	78,153

Note 18—Subsequent Events

        The Company has evaluated the potential disclosure of subsequent events through November 12, 2009, the filing date of this Form 10-Q, and has determined that there are no subsequent events required to be disclosed.

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

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

        You should read the following discussion and analysis of our consolidated financial condition and results of operations for the period ended September 30, 2009 in this Form 10-Q together with our Consolidated Financial Statements and the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2008 (2008 Form 10-K). Averages, as presented in the following tables, are substantially all based upon daily average balances.

        In June 2009, the Financial Accounting Standards Board (FASB) issued new guidance establishing the FASB Accounting Standards Codification™ (FASB ASC) as the single source of authoritative US GAAP. The FASB ASC does not significantly change current US GAAP and merely restructures the information in a topical format. The FASB ASC was effective July 1, 2009 and the technical references to US GAAP included in the condensed consolidated financial statements in this Form 10-Q are provided under the new FASB ASC structure with the prior terminology included parenthetically. At adoption, there was no impact on the Company's financial position or results of operations.

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

Introduction

        We are a California-based financial holding company and bank holding company whose major subsidiary, Union Bank, N.A. (the Bank), is a commercial bank. We had consolidated assets of approximately $78.2 billion at September 30, 2009.

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

Executive Overview

        We are providing you with an overview of what we believe are the most significant factors and developments that impacted our third quarter 2009 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.

        Weakness in the U.S. and global economies and deteriorating credit quality continued to challenge the banking industry in the third quarter of 2009. Despite the continued uncertain economic environment, we continued to generate deposit growth, as well as grow net interest income. In the third quarter of 2009, our average total loans grew 3 percent from the third quarter of 2008 to $48.8 billion. This growth was spread across residential real estate, construction, consumer and commercial real estate, due to increased loan demand and reduced competition. However, overall loan levels declined 1.6 percent during the current quarter as compared to the second quarter 2009 due to continued recessionary market conditions, combined with reduced borrower demand.

54

        During the third quarter of 2009, we provided $320 million for our allowances for credit losses compared to $125 million in the third quarter of 2008. The increase was primarily attributable to higher criticized assets, especially in the commercial real estate portfolio, higher nonaccrual loans, and increases in loss factors related to several portfolio sectors, including our consumer and small business portfolios. We anticipate that the economic environment will remain weak and will result in further deterioration in our loan portfolio. See further discussion below in "Allowances for Credit Losses."

        Our nonperforming assets totaled $437 million and $1.4 billion at December 31, 2008 and September 30, 2009, respectively. The increase in nonperforming assets was primarily due to increases in the commercial, financial and industrial portfolio of $120 million, construction portfolio of $289 million, commercial real estate portfolio of $299 million and residential mortgage portfolio of $165 million. (See discussion below in "Nonperforming Assets" regarding our accounting policy change related to nonaccrual status of residential mortgage loans.) Net charge offs were $137 million in the third quarter of 2009, compared to $63 million in the third quarter of 2008.

        At December 31, 2008 and September 30, 2009, our allowances for credit losses as a percent of total loans were 1.74 percent and 2.97 percent, respectively. At December 31, 2008 and September 30, 2009, our allowances for credit losses as a percent of nonaccrual loans were 208 percent and 108 percent, respectively. At December 31, 2008 and September 30, 2009, our allowance for loan losses as a percent of total loans was 1.49 percent and 2.62 percent, respectively. At December 31, 2008 and September 30, 2009, our allowance for loan losses as a percent of nonaccrual loans was 178 percent and 95 percent, respectively.

        In the third quarter of 2009, our average noninterest bearing deposits increased 17 percent compared to the third quarter of 2008 to $14.5 billion. Average interest bearing deposits increased by 54 percent in the third quarter of 2009 compared to the third quarter of 2008 to $45.0 billion. The increase reflects deposit-gathering marketing initiatives in both the retail and commercial lines of business, as well as significant increases in money market account deposits from government agencies and institutional escrow clients. Average noninterest bearing deposits represented 24 percent of average total deposits in the third quarter of 2009, compared to 30 percent in the third quarter of 2008. The annualized average all-in-cost of funds improved to 0.79 percent in the third quarter of 2009, compared to 1.60 percent in the third quarter of 2008.

        In the third quarter of 2009, our net interest income (on a taxable-equivalent basis) increased 8 percent from the third quarter of 2008 to $561 million, primarily due to lower rates paid on interest bearing liabilities, investment securities and loan growth, and purchase price accounting accretions related to our privatization, partially offset by lower yields on earning assets.

        In the third quarter of 2009, our noninterest income declined 7 percent from the third quarter of 2008 to $184 million, primarily due to lower trust and investment management fees, lower gains on private capital investments, a write down of a loan held for sale in the third quarter of 2009, and a gain on the sale of real estate recorded in the third quarter of 2008. These decreases were partially offset by a gain on the sale of U.S. Treasury securities in the third quarter of 2009.

        In the third quarter of 2009, our noninterest expense grew by 14 percent from the third quarter of 2008 to $506 million. The increase was primarily due to privatization-related expenses and related intangible asset amortization, and higher regulatory agencies expenses resulting from an industry-wide FDIC deposit insurance assessment rate increase.

        Our effective tax rate was (77.3) percent in the third quarter of 2009, compared to 30.2 percent in the third quarter of 2008. The change in the effective tax rate was primarily due to pre-tax income in the prior year compared to pre-tax loss in the current year, as well as the impact of tax credits and state income taxes.

        On September 29, 2009, we received a $2.0 billion capital contribution from BTMU. The contribution was made to provide us with sufficient capital to offset potential future credit losses consistent with a highly adverse economic scenario. To the extent actual credit losses are lower than those that would be incurred in the

55

highly adverse scenario, we will have excess capital that could be deployed to support incremental organic growth and acquisitions.

        In the fourth quarter of 2008, we elected to participate in the voluntary Temporary Liquidity Guarantee (TLG) Program established by the FDIC in October 2008. Under the TLG Program, all senior unsecured debt issued by insured depository institutions between October 14, 2008 and October 31, 2009 with a maturity of more than 30 days is guaranteed by the FDIC. In the first quarter of 2009, the Bank issued $1.0 billion principal amount of Senior Floating Rate Notes guaranteed through the TLG Program which remains outstanding as of September 30, 2009.

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

Critical Accounting Estimates

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

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

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

        Understanding our accounting policies is fundamental to understanding our consolidated financial condition and consolidated results of operations. Accordingly, both our Critical Accounting Policies and our significant accounting policies are discussed in detail in our 2008 Form 10-K filed with the Securities and Exchange Commission (the SEC). Other than the changes noted below, there have been no material changes to these critical accounting estimates during the nine months ended September 30, 2009.

Annual Goodwill Impairment Analysis

        We review our goodwill for impairment on an annual basis, and whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

        Significant judgment is applied when goodwill is assessed for impairment. This judgment includes developing cash flow projections, selecting appropriate discount rates, identifying relevant market comparables, incorporating general economic and market conditions and selecting an appropriate control premium. Additionally, significant judgment is involved in determining if an indicator of impairment has

56

occurred. Such indicators may include: a significant decline in expected future cash flows, a significant adverse change in the business climate, unanticipated competition and/or slower than expected growth rates.

        The annual goodwill impairment test as of January 1, 2009 was performed during the first quarter of 2009, and no impairment was recognized.

        During the second quarter of 2009, we changed the date of our annual goodwill impairment test from January 1 to April 1. The change was made to more closely align the impairment testing date with the testing date used by BTMU, as we became a wholly owned subsidiary of BTMU in the fourth quarter of 2008.

        The change in goodwill impairment testing date is deemed a change in accounting principle. Management believes that the change in accounting principle will not delay, accelerate, or avoid a goodwill impairment charge. Management determined that the change in accounting principle is preferable under the circumstances and does not result in adjustments to our financial statements when applied retrospectively.

        In order to transition to the new annual goodwill impairment test date and to ensure that no more than twelve months elapse before the next annual goodwill impairment test is performed, goodwill impairment testing as of April 1, 2009 was performed during the second quarter of 2009. No impairment was recognized.

        Due to the current uncertainties in the recessionary economic environment, there can be no assurance that our recent estimates relating to our recent goodwill impairment testing will prove to be accurate predictions of future circumstances. It is possible that we may be required to record charges relating to goodwill impairment losses in future periods either as a result of our annual impairment testing or upon the occurrence of other triggering events. Any changes relating to any such future impairment losses could be material.

Other-Than-Temporary Impairment

        On April 1, 2009, the Company adopted new accounting guidance related to the determination and recognition of other-than-temporary impairment related to debt securities. (FASB ASC 320-10, "Investments—Debt and Equity Securities"). The new guidance establishes new criteria for determining whether impairment is other-than-temporary and what portion of any such impairment is recognized in earnings. At adoption, there was no impact on our financial position or results of operations.

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

57

Financial Performance

Summary of Financial Performance

								Increase (Decrease)											Increase (Decrease)
			For the Three Months Ended September 30,											For the Nine Months Ended September 30,
								2009 versus 2008											2009 versus 2008
(Dollars in thousands)			2008		2009			Amount			Percent			2008		2009			Amount			Percent
Results of Operations
Net interest income(1)			$	519,746	$	561,036		$	41,290			7.9	%	$	1,490,882	$	1,671,385		$	180,503			12.1	%
Noninterest income
	Service charges on deposit accounts			77,079		74,888			(2,191	)		(2.8	)		229,521		218,053			(11,468	)		(5.0	)
	Trust and investment management fees			40,638		34,506			(6,132	)		(15.1	)		127,828		102,543			(25,285	)		(19.8	)
	Trading account activities			12,397		10,513			(1,884	)		(15.2	)		40,096		49,456			9,360			23.3
	Merchant banking fees			12,789		14,601			1,812			14.2			35,667		48,357			12,690			35.6
	Securities gains, net			50		12,694			12,644			nm			48		12,522			12,474			nm
	Gains (losses) on private capital investments, net			5,597		(18	)		(5,615	)		nm			7,949		(3,262	)		(11,211	)		nm
	Gain on the VISA IPO redemption			—		—			—			—			14,211		—			(14,211	)		(100.0	)
	Other noninterest income			50,171		36,745			(13,426	)		(26.8	)		138,423		114,189			(24,234	)		(17.5	)
Total noninterest income				198,721		183,929			(14,792	)		(7.4	)		593,743		541,858			(51,885	)		(8.7	)
Total revenue				718,467		744,965			26,498			3.7			2,084,625		2,213,243			128,618			6.2
Provision for loan losses				117,000		314,000			197,000			nm			284,000		923,000			639,000			nm
Noninterest expense
	Salaries and other compensation			204,389		198,768			(5,621	)		(2.8	)		600,477		578,095			(22,382	)		(3.7	)
	Employee benefits			33,740		35,213			1,473			4.4			122,621		132,506			9,885			8.1
		Salaries and employee benefits		238,129		233,981			(4,148	)		(1.7	)		723,098		710,601			(12,497	)		(1.7	)
	Net occupancy			38,574		43,146			4,572			11.9			113,008		128,289			15,281			13.5
	Intangible asset amortization			671		40,641			39,970			nm			2,011		121,809			119,798			nm
	Regulatory agencies			8,572		30,739			22,167			nm			16,078		101,513			85,435			nm
	Equipment			14,437		17,838			3,401			23.6			44,925		49,853			4,928			11.0
	Provision for losses on off-balance sheet commitments			8,000		6,000			(2,000	)		(25.0	)		21,000		47,000			26,000			nm
	Privatization-related expense			6,193		6,649			456			7.4			6,193		40,901			34,708			nm
	Other noninterest expense			129,236		126,821			(2,415	)		(1.9	)		340,017		359,290			19,273			5.7
Total noninterest expense				443,812		505,815			62,003			14.0			1,266,330		1,559,256			292,926			23.1
Income (loss) from continuing operations before income taxes				157,655		(74,850	)		(232,505	)		nm			534,295		(269,013	)		(803,308	)		nm
Income tax expense (benefit)				47,549		(57,821	)		(105,370	)		nm			167,493		(162,169	)		(329,662	)		nm
Income (loss) from continuing operations			$	110,106	$	(17,029	)	$	(127,135	)		nm	%	$	366,802	$	(106,844	)	$	(473,646	)		nm	%

(1)

Net interest income does not include any adjustments for fully taxable equivalence.

nm

= not meaningful

The primary contributors to our financial performance for the third quarter of 2009 compared to the third quarter of 2008 are presented below.

•

We provided a total of $320 million for credit losses ($314 million for loan losses and $6 million for losses on off-balance sheet commitments) in the third quarter of 2009, compared to a total provision of $125 million for credit losses in the third quarter of 2008 ($117 million for loan losses and $8 million for losses on off-balance sheet commitments). The provision increases were primarily due to higher criticized assets, increased uncertainty related to the timing and severity of losses to be realized in the commercial real estate portfolio, and increases in loss factors related to several portfolio sectors, including our consumer and small business loan portfolios.

•

Our net interest income was favorably influenced by higher volumes in our investment securities portfolio, loan growth in residential and commercial real estate, construction and consumer and interest-bearing deposits in banks. Additionally, net interest income increased due to the accretion of fair value adjustments on loans and securities related to our privatization. Partly offsetting these positive

58

influences to our net interest income were lower average yields on our earning assets and higher interest bearing liabilities (see discussion under "Net Interest Income").

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

—

Trust and investment management fees were lower primarily due to a decline in mutual fund assets (on which fees are based), as well as lower asset yields. Managed assets decreased by approximately 7 percent, while non-managed assets increased by approximately 5 percent from September 30, 2008 to September 30, 2009. At September 30, 2009, total assets under administration increased by 4 percent from September 30, 2008 to $240 billion;



—

Securities gains increased primarily due to a $12.7 million gain on the sale of U.S. Treasury securities;



—

Net gains on private capital investments decreased primarily due to prior year gains on sales and capital distributions, as well as private capital investment impairments in the current quarter; and



—

Other noninterest income declined primarily due to a prior year gain on the sale of an asset and a writedown on a loan held for sale in the current quarter.

        The increase in noninterest expense was due to several factors:

—

Expenses related to our privatization transaction included increases in intangible amortization of $40.2 million and other costs of $2.8 million, primarily consisting of amortization of bridge award compensation; and



—

Regulatory agency expenses increased as a result of an industry-wide increase in the FDIC deposit insurance assessment rate and higher deposit balances.

The primary contributors to our financial performance for the nine months ended September 30, 2009 compared to the nine months ended September 30, 2008 are presented below.

•

We provided a total of $970 million for credit losses ($923 million for loan losses and $47 million for losses on off-balance sheet commitments) in the nine months ended September 30, 2009, compared to a total provision of $305 million for credit losses in the nine months ended September 30, 2008 ($284 million for loan losses and $21 million for losses on off-balance sheet commitments). The provision increases were primarily attributable to higher criticized assets, especially in the commercial real estate portfolio, higher nonaccrual loans, and increases in loss factors related to several portfolio sectors, including our consumer and small business loan portfolios.

•

Our net interest income was favorably influenced by higher volumes in most of our major loan categories and interest-bearing deposits in banks, as well as by lower average rates on our interest bearing liabilities. Additionally, net interest income increased due to the accretion of fair value adjustments on loans and securities related to our privatization. Partly offsetting these positive influences to our net interest income were lower average yields on our earning assets and higher interest bearing liabilities (see discussion under "Net Interest Income").

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

—

Trust and investment management fees were lower primarily due to a decline in mutual fund assets (on which fees are based) for the first nine months of 2009 as well as lower asset yields;



—

Service charges on deposit accounts decreased primarily due to lower overdraft fees resulting from changes in customer overdraft behavior;



—

Prior year included gains on the partial redemption of our Visa Inc. common stock;

59

—

Net gains on private capital investments decreased primarily due to prior year gains on sales and capital distributions, as well as private capital investment impairments in the current period; and



—

Other noninterest income declined primarily due to a prior year gain on the sale of an asset, a prior year gain on the redemption of MasterCard stock and a current year writedown on a loan held for sale; partly offset by



—

Securities gains increased primarily due to a $12.7 million gain on the sale of U.S. Treasury securities;



—

Merchant banking fees increased primarily due to higher syndicated loan activity, higher referral fees, and higher risk participation fees; and



—

Trading account income increased primarily due to higher gains on agency securities and prior year losses on the sale of distressed loans.

        The increase in noninterest expense was due to several factors:

—

Expenses related to our privatization transaction included increases in intangible amortization of $120.6 million and other costs of $41.1 million, primarily consisting of amortization of bridge award compensation;



—

Regulatory agency expenses increased as a result of an industry-wide increase in the FDIC deposit insurance assessment rate, a one-time special FDIC assessment of $34 million and higher deposit balances; and



—

Provision for losses on off-balance sheet commitments increased primarily due to higher criticized credits and increases in certain loss factors.

60

Net Interest Income

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

			For the Three Months Ended																	Increase (Decrease) in
			September 30, 2008									September 30, 2009														Interest Income/ Expense(1)
																				Average Balance
			Average Balance			Interest Income/ Expense(1)			Average Yield/ Rate(1)(2)			Average Balance			Interest Income/ Expense(1)		Average Yield/ Rate(1)(2)
(Dollars in thousands)																				Amount			Percent			Amount			Percent
Assets
Loans:(3)
	Commercial, financial and industrial		$	17,262,407		$	229,377			5.29	%	$	16,805,449		$	188,974		4.46	%	$	(456,958	)		(3	)%	$	(40,403	)		(18	)%
	Construction			2,579,582			30,352			4.68			2,772,804			20,828		2.98			193,222			7			(9,524	)		(31	)
	Mortgage—Residential			15,285,171			211,965			5.55			16,380,014			230,210		5.62			1,094,843			7			18,245			9
	Mortgage—Commercial			8,008,618			111,816			5.58			8,261,161			88,998		4.31			252,543			3			(22,818	)		(20	)
	Consumer			3,421,338			49,286			5.73			3,882,929			44,042		4.50			461,591			13			(5,244	)		(11	)
	Lease financing			639,088			6,066			3.80			662,469			5,462		3.30			23,381			4			(604	)		(10	)
	Total Loans			47,196,204			638,862			5.40			48,764,826			578,514		4.73			1,568,622			3			(60,348	)		(9	)
Securities—taxable				8,348,785			99,614			4.77			10,590,200			107,171		4.05			2,241,415			27			7,557			8
Securities—tax-exempt				51,831			1,045			8.06			184,772			2,999		6.49			132,941			nm			1,954			nm
Interest bearing deposits in banks				13,642			147			4.27			7,496,380			4,956		0.26			7,482,738			nm			4,809			nm
Federal funds sold and securities purchased under resale agreements				361,361			1,787			1.97			282,457			110		0.15			(78,904	)		(22	)		(1,677	)		(94	)
Trading account assets				948,725			1,364			0.57			916,448			271		0.12			(32,277	)		(3	)		(1,093	)		(80	)
		Total earning assets		56,920,548			742,819			5.21			68,235,083			694,021		4.06			11,314,535			20			(48,798	)		(7	)
Allowance for loan losses				(506,452	)								(1,044,533	)							(538,081	)		nm
Cash and due from banks				1,606,632									1,135,794								(470,838	)		(29	)
Premises and equipment, net				475,408									668,699								193,291			41
Other assets				2,649,115									5,357,606								2,708,491			nm
		Total assets	$	61,145,251								$	74,352,649							$	13,207,398			22	%
Liabilities
Deposits:
	Transaction accounts		$	15,552,783		$	61,636			1.58		$	33,064,944		$	72,837		0.87		$	17,512,161			nm	%	$	11,201			18
	Savings and consumer time			3,899,687			13,237			1.35			4,486,545			12,572		1.11			586,858			15			(665	)		(5	)
	Large time			9,847,584			60,863			2.46			7,430,960			15,965		0.85			(2,416,624	)		(25	)		(44,898	)		(74	)
		Total interest bearing deposits		29,300,054			135,736			1.84			44,982,449			101,374		0.89			15,682,395			54			(34,362	)		(25	)
Federal funds purchased and securities sold under repurchase agreements				3,496,184			15,365			1.75			169,267			41		0.09			(3,326,917	)		(95	)		(15,324	)		(100	)
Net funding allocated from (to) discontinued operations(4)				55,121			265			1.91			—			—		—			(55,121	)		(100	)		(265	)		(100	)
Commercial paper				1,432,207			8,056			2.24			472,246			355		0.30			(959,961	)		(67	)		(7,701	)		(96	)
Other borrowed funds(5)				4,886,263			34,873			2.84			262,441			604		0.91			(4,623,822	)		(95	)		(34,269	)		(98	)
Medium- and long-term debt				3,300,675			25,989			3.13			5,098,821			27,112		2.11			1,798,146			54			1,123			4
Trust notes				14,148			239			6.73			13,696			239		6.96			(452	)		(3	)		—			—
		Total borrowed funds		13,184,598			84,787			2.56			6,016,471			28,351		1.87			(7,168,127	)		(54	)		(56,436	)		(67	)
		Total interest bearing liabilities		42,484,652			220,523			2.06			50,998,920			129,725		1.01			8,514,268			20			(90,798	)		(41	)
Noninterest bearing deposits				12,361,170									14,471,487								2,110,317			17
Other liabilities				1,710,988									1,523,469								(187,519	)		(11	)
		Total liabilities		56,556,810									66,993,876								10,437,066			18
Stockholder's Equity
Common equity				4,588,441									7,358,773								2,770,332			60
		Total stockholder's equity		4,588,441									7,358,773								2,770,332			60
		Total liabilities and stockholder's equity	$	61,145,251								$	74,352,649							$	13,207,398			22	%
Net Interest Income/Margin
Net interest income/margin (taxable-equivalent basis)							522,296			3.67	%					564,296		3.31	%								42,000			8
Less: taxable-equivalent adjustment							2,550									3,260											710			28
		Net interest income				$	519,746								$	561,036										$	41,290			8	%
Average Assets and Liabilities of Discontinued Operations for the Three Months Ended:			September 30, 2008									September 30, 2009
Assets						$	5,738								$	—
Liabilities						$	60,859								$	—
Net liabilities						$	(55,121	)							$	—

(1)

Yields and interest income are presented on a taxable-equivalent basis using the federal statutory tax rate of 35 percent.

(2)

Annualized.

(3)

Average balances on loans outstanding include all nonperforming loans and loans held for sale. The amortized portion of net loan origination fees (costs) is included in interest income on loans, representing an adjustment to the yield.

(4)

Net funding allocated from (to) discontinued operations represents the shortage (excess) of assets over liabilities of discontinued operations. The expense (earning) on funds allocated from (to) discontinued operations is calculated by taking the net balance and applying an earnings rate or a cost of funds equivalent to the corresponding period's Federal funds purchased rate.

(5)

Includes interest bearing trading liabilities.

nm

= not meaningful

61

			For the Nine Months Ended																	Increase (Decrease) in
			September 30, 2008									September 30, 2009								Average Balance						Interest Income/ Expense(1)
			Average Balance			Interest Income/ Expense(1)			Average Yield/ Rate(1)(2)			Average Balance			Interest Income/ Expense(1)		Average Yield/ Rate(1)(2)
(Dollars in thousands)																				Amount			Percent			Amount			Percent
Assets
Loans:(3)
	Commercial, financial and industrial		$	16,623,490		$	697,292			5.60	%	$	17,737,052		$	577,321		4.35	%	$	1,113,562			7	%	$	(119,971	)		(17	)%
	Construction			2,551,348			97,763			5.12			2,765,178			60,747		2.94			213,830			8			(37,016	)		(38	)
	Residential mortgage			14,593,755			604,506			5.52			16,132,655			694,917		5.74			1,538,900			11			90,411			15
	Commercial mortgage			7,694,956			336,508			5.83			8,256,389			283,076		4.57			561,433			7			(53,432	)		(16	)
	Consumer			3,030,042			140,129			6.18			3,816,050			134,697		4.72			786,008			26			(5,432	)		(4	)
	Lease financing			644,553			13,534			2.80			658,956			18,713		3.79			14,403			2			5,179			38
	Total Loans			45,138,144			1,889,732			5.59			49,366,280			1,769,471		4.78			4,228,136			9			(120,261	)		(6	)
Securities—taxable				8,332,647			301,810			4.83			9,166,395			307,165		4.47			833,748			10			5,355			2
Securities—tax-exempt				52,641			3,232			8.19			94,947			5,040		7.08			42,306			80			1,808			56
Interest bearing deposits in banks				36,936			503			1.82			4,664,896			9,406		0.27			4,627,960			nm			8,903			nm
Federal funds sold and securities
	purchased under resale agreements			301,153			5,573			2.47			227,832			348		0.20			(73,321	)		(24	)		(5,225	)		(94	)
Trading account assets				827,881			5,287			0.85			1,073,477			660		0.08			245,596			30			(4,627	)		(88	)
		Total earning assets		54,689,402			2,206,137			5.38			64,593,827			2,092,090		4.32			9,904,425			18			(114,047	)		(5	)
Allowance for loan losses				(454,191	)								(865,208	)							(411,017	)		(90	)
Cash and due from banks				1,675,293									1,244,981								(430,312	)		(26	)
Premises and equipment, net				480,705									670,884								190,179			40
Other assets				2,632,406									5,355,766								2,723,360			nm
		Total assets	$	59,023,615								$	71,000,250							$	11,976,635			20	%
Liabilities
Deposits:
	Transaction accounts		$	15,323,611		$	204,064			1.78		$	28,397,683		$	200,483		0.94		$	13,074,072			85	%	$	(3,581	)		(2	)
	Savings and consumer time			3,974,976			50,684			1.70			4,394,706			42,057		1.28			419,730			11			(8,627	)		(17	)
	Large time			10,909,525			246,157			3.01			7,090,250			64,058		1.21			(3,819,275	)		(35	)		(182,099	)		(74	)
		Total interest bearing deposits		30,208,112			500,905			2.21			39,882,639			306,598		1.03			9,674,527			32			(194,307	)		(39	)
Federal funds purchased and securities
	sold under repurchase agreements			2,628,257			43,628			2.22			194,562			113		0.08			(2,433,695	)		(93	)		(43,515	)		(100	)
Net funding allocated from (to)
	discontinued operations(4)			45,520			774			2.27			—			—		—			(45,520	)		(100	)		(774	)		(100	)
Commercial paper				1,375,789			26,127			2.54			586,754			2,901		0.66			(789,035	)		(57	)		(23,226	)		(89	)
Other borrowed funds(5)				3,224,146			70,563			2.92			2,472,324			17,697		0.96			(751,822	)		(23	)		(52,866	)		(75	)
Medium- and long-term debt				2,594,875			65,138			3.35			4,994,660			84,056		2.25			2,399,785			92			18,918			29
Trust notes				14,261			715			6.68			13,808			715		6.90			(453	)		(3	)		—			—
		Total borrowed funds		9,882,848			206,945			2.80			8,262,108			105,482		1.71			(1,620,740	)		(16	)		(101,463	)		(49	)
		Total interest bearing liabilities		40,090,960			707,850			2.36			48,144,747			412,080		1.14			8,053,787			20			(295,770	)		(42	)
Noninterest bearing deposits				12,613,690									13,644,163								1,030,473			8
Other liabilities				1,678,057									1,878,593								200,536			12
		Total liabilities		54,382,707									63,667,503								9,284,796			17
Stockholder's Equity
Common equity				4,640,908									7,332,747								2,691,839			58
		Total stockholder's equity		4,640,908									7,332,747								2,691,839			58
		Total liabilities and stockholder's equity	$	59,023,615								$	71,000,250							$	11,976,635			20	%
Net Interest Income/Margin
Net interest income/margin
	(taxable-equivalent basis)						1,498,287			3.65	%					1,680,010		3.47	%								181,723			12
Less: taxable-equivalent adjustment							7,405									8,625											1,220			16
		Net interest income				$	1,490,882								$	1,671,385										$	180,503			12	%
Average Assets and Liabilities of Discontinued Operations for the Nine Months Ended:			September 30, 2008									September 30, 2009
Assets						$	74,723								$	—
Liabilities						$	120,243								$	—
Net liabilities						$	(45,520	)							$	—

(1)

Yields and interest income are presented on a taxable-equivalent basis using the federal statutory tax rate of 35 percent.

(2)

Annualized.

(3)

Average balances on loans outstanding include all nonperforming loans and loans held for sale. The amortized portion of net loan origination fees (costs) is included in interest income on loans, representing an adjustment to the yield.

(4)

Net funding allocated from (to) discontinued operations represents the shortage (excess) of assets over liabilities of discontinued operations. The expense (earning) on funds allocated from (to) discontinued operations is calculated by taking the net balance and applying an earnings rate or a cost of funds equivalent to the corresponding period's Federal funds purchased rate. The year-to-date expense (earnings) amount is the sum of the quarterly amounts.

(5)

Includes interest bearing trading liabilities.

nm

= not meaningful

62

        Net interest income in the third quarter of 2009, on a taxable-equivalent basis, increased $42.0 million, or 8 percent, compared to the third quarter of 2008. Our net interest margin in the third quarter of 2009 decreased by 36 basis points to 3.31 percent compared to the third quarter of 2008. These results were primarily due to the following:

•

Average earning assets increased $11.3 billion, or 20 percent, primarily due to an increase in average interest-bearing deposits in banks, investment securities and loans. The increase in average loans was largely due to a $1.1 billion increase in average residential mortgages and a $0.5 billion increase in average consumer loans. The increase in interest bearing deposits in banks was primarily due to growth in Federal Reserve Bank balances, which as of the second quarter of 2009 are classified as earning assets since the Federal Reserve Bank began paying interest on deposits held;

•

Yields on our earning assets were unfavorably impacted by the decreasing interest rate environment resulting in a lower average yield on average earning assets of 115 basis points, despite being positively impacted by higher hedge income, which increased by $7.2 million;

•

Net interest income increased $23.1 million due to the accretion of fair value adjustments on loans, securities and debt related to our privatization transaction;

•

Average interest bearing deposits increased $15.7 billion, or 54 percent. Average noninterest bearing deposits represented 24 percent of average total deposits in the third quarter of 2009, compared to 30 percent in the third quarter of 2008; and

•

In the third quarter of 2009, the annualized average all-in cost of funds was 0.79 percent, reflecting an average deposit-to-loan ratio of 122 percent and what we believe is a relatively high proportion of average noninterest bearing deposits to total deposits compared to most of our peers. In the third quarter of 2008, the annualized all-in cost of funds was 1.60 percent and our average deposit-to-loan ratio was 88 percent.

        We use derivatives to hedge expected changes in the yields on our variable rate loans and term certificates of deposit and other time deposits (CDs) and LIBOR-indexed borrowings, and to convert certain fixed-rate debt to floating rate. For loans, we had hedge income of $21.4 million and $28.6 million for the third quarters of 2008 and 2009, respectively. For long-term fixed rate debt and LIBOR-indexed CDs and borrowings, we had hedge income of $6.9 million and $10.5 million for the third quarters of 2008 and 2009, respectively. In the first quarter of 2009, we terminated all of our fair value swaps, which were used to hedge our long-term fixed rate debt. These swaps were not replaced.

        Net interest income in the nine months ended September 30, 2009, on a taxable-equivalent basis, increased $181.7 million, or 12 percent, compared to the nine months ended September 30, 2008. Our net interest margin in the nine months ended September 30, 2009 decreased by 18 basis points to 3.47 percent compared to the nine months ended September 30, 2008. These results were primarily due to the following:

•

Average earning assets increased $9.9 billion, or 18 percent, primarily due to an increase in average loans and interest bearing deposits in banks and average investment securities. The increase in average loans was largely due to a $1.1 billion increase in average commercial loans, a $1.5 billion increase in average residential mortgages, a $0.6 billion increase in average commercial mortgages and a $0.8 billion increase in average consumer loans. The increase in interest bearing deposits in banks was primarily due to growth in Federal Reserve Bank balances, which are now classified as earning assets since the Federal Reserve Bank began paying interest on these deposits starting on October 1, 2008;

•

Yields on our earning assets were unfavorably impacted by the decreasing interest rate environment resulting in a lower average yield on average earning assets of 106 basis points, despite being positively impacted by higher hedge income, which increased by $33.8 million;

•

Net interest income increased $85.5 million due to the accretion of fair value adjustments on loans, securities and debt related to our privatization transaction;

63

•

Average interest bearing deposits increased $9.7 billion, or 32 percent. Average noninterest bearing deposits represented 25 percent of average total deposits in the nine months ended September 30, 2009 compared to 29 percent in the nine months ended September 30, 2008; and

•

In the nine months ended September 30, 2009, the annualized average all-in cost of funds was 0.89 percent, reflecting an average deposit-to-loan ratio of 108 percent and what we believe is a relatively high proportion of average noninterest bearing deposits to total deposits compared to most of our peers. In the nine months ended September 30, 2008, the annualized all-in cost of funds was 1.79 percent and our average deposit-to-loan ratio was 95 percent.

        We use derivatives to hedge expected changes in the yields on our variable rate loans and term CDs and LIBOR-indexed borrowings, and to convert certain fixed-rate debt to floating rate, when appropriate. For loans, we had hedge income of $49.5 million and $83.3 million for the nine months ended September 30, 2008 and 2009, respectively. For long-term fixed rate debt and LIBOR-indexed CDs and borrowings, we had hedge income of $19.2 million and $31.5 million for the nine months ended September 30, 2008 and 2009, respectively. In the first quarter of 2009, we terminated all of our fair value swaps, which were used to hedge our long-term fixed rate debt. These swaps were not replaced.

Noninterest Income and Noninterest Expense

        The following tables detail our noninterest income and noninterest expense that exceeded 1 percent of our total revenues for the three and nine months ended September 30, 2008 and 2009.

Noninterest Income

		For the Three Months Ended											For the Nine Months Ended
							Increase (Decrease)											Increase (Decrease)
		September 30, 2008		September 30, 2009									September 30, 2008		September 30, 2009
(Dollars in thousands)							Amount			Percent								Amount			Percent
Service charges on deposit accounts		$	77,079	$	74,888		$	(2,191	)		(2.8	)%	$	229,521	$	218,053		$	(11,468	)		(5.0	)%
Trust and investment management fees			40,638		34,506			(6,132	)		(15.1	)		127,828		102,543			(25,285	)		(19.8	)
Trading account activities			12,397		10,513			(1,884	)		(15.2	)		40,096		49,456			9,360			23.3
Merchant banking fees			12,789		14,601			1,812			14.2			35,667		48,357			12,690			35.6
Brokerage commissions and fees			9,520		8,611			(909	)		(9.5	)		30,014		25,424			(4,590	)		(15.3	)
Card processing fees, net			8,129		8,559			430			5.3			24,060		24,219			159			0.7
Securities gains, net			50		12,694			12,644			nm			48		12,522			12,474			nm
Gains (losses) on private capital investments, net			5,597		(18	)		(5,615	)		nm			7,949		(3,262	)		(11,211	)		nm
Gain on the VISA IPO redemption			—		—			—			—			14,211		—			(14,211	)		(100.0	)
Other			32,522		19,575			(12,947	)		(39.8	)		84,349		64,546			(19,803	)		(23.5	)
	Total noninterest income	$	198,721	$	183,929		$	(14,792	)		(7.4	)%	$	593,743	$	541,858		$	(51,885	)		(8.7	)%

nm = not meaningful

64

Noninterest Expense

		For the Three Months Ended											For the Nine Months Ended
							Increase (Decrease)										Increase (Decrease)
		September 30, 2008		September 30, 2009									September 30, 2008		September 30, 2009
(Dollars in thousands)							Amount			Percent							Amount			Percent
Salaries and other compensation		$	204,389	$	198,768		$	(5,621	)		(2.8	)%	$	600,477	$	578,095	$	(22,382	)		(3.7	)%
Employee benefits			33,740		35,213			1,473			4.4			122,621		132,506		9,885			8.1
	Salaries and employee benefits		238,129		233,981			(4,148	)		(1.7	)		723,098		710,601		(12,497	)		(1.7	)
Net occupancy			38,574		43,146			4,572			11.9			113,008		128,289		15,281			13.5
Intangible asset amortization			671		40,641			39,970			nm			2,011		121,809		119,798			nm
Regulatory agencies			8,572		30,739			22,167			nm			16,078		101,513		85,435			nm
Outside services			20,741		22,219			1,478			7.1			58,045		64,001		5,956			10.3
Professional services			17,236		17,647			411			2.4			47,764		53,074		5,310			11.1
Equipment			14,437		17,838			3,401			23.6			44,925		49,853		4,928			11.0
Software			14,812		16,502			1,690			11.4			44,016		45,745		1,729			3.9
Advertising and public relations			12,624		14,562			1,938			15.4			33,579		36,532		2,953			8.8
Low income housing credit investment amortization			11,616		13,064			1,448			12.5			29,248		34,256		5,008			17.1
Communications			9,204		9,494			290			3.2			27,690		27,404		(286	)		(1.0	)
Data processing			8,945		7,975			(970	)		(10.8	)		23,805		24,592		787			3.3
Foreclosed asset expense (income)			524		(144	)		(668	)		nm			696		4,024		3,328			nm
Provision for losses on off-balance sheet commitments			8,000		6,000			(2,000	)		(25.0	)		21,000		47,000		26,000			nm
Privatization-related expense			6,193		6,649			456			7.4			6,193		40,901		34,708			nm
Other			33,534		25,502			(8,032	)		(24.0	)		75,174		69,662		(5,512	)		(7.3	)
	Total noninterest expense	$	443,812	$	505,815		$	62,003			14.0	%	$	1,266,330	$	1,559,256	$	292,926			23.1	%

nm = not meaningful

Income Tax Expense

        Our effective tax rate in the third quarter of 2009 was (77.3) percent, compared to 30.2 percent for the third quarter of 2008. Our effective tax rate in the nine months ended September 30, 2009 was (60.3) percent, compared to 31.4 percent for the nine months ended September 30, 2008. A negative effective tax rate indicates a net income tax benefit. The change in the effective tax rate was primarily due to pre-tax income in the prior year compared to pre-tax loss in the current year, as well as the impact of tax credits and state income taxes. A tax benefit of $4.6 million was recognized in the third quarter of 2009 with respect to certain privatization costs incurred in 2008, after a study was conducted to determine the tax-deductible portion of those costs. The deductions were taken in our 2008 tax return.

        The quarterly effective tax rate for the first and second quarters of 2009 was computed on an individual quarterly basis, while the rate for the third quarter and for the nine months ended September 30, 2009, was based on an estimated average effective tax rate for the year.

        In 2008, California enacted a new statute mandating a 20 percent penalty on corporate tax underpayments outstanding after May 31, 2009. During the second quarter of 2009, we filed amended tax returns and made payments of $187.0 million of tax and $43.7 million of interest with respect to tax positions taken in prior year worldwide unitary tax returns, which primarily involved the method of apportionment of worldwide income to California. The payments were made in order to protect us from potential penalties that may be asserted by the tax authorities. We filed refund claims and intend to defend our positions. The payments did not affect the recognition or measurement of unrecognized state tax benefits and they had no impact on income tax expense.

        For further information regarding income tax expense, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Income Tax Expense" in our 2008 Form 10-K and Note 9 to the condensed consolidated financial statements in this Form 10-Q.

65

Discontinued Operations

        Our discontinued operations consist of two separate businesses: retirement recordkeeping business (RRB) and insurance brokerage services (IBB). In the fourth quarter of 2007, we sold our RRB to Prudential Retirement, a subsidiary of Prudential Financial, Inc., for $103.0 million. We recorded a pre-tax gain of $94.7 million, net of $2.1 million in transaction costs and a $6.2 million elimination of intangible assets, which included goodwill of $4.8 million attributed to this business. The RRB was previously included in the Retail Banking reportable business segment.

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

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

        Substantially all of the assets and liabilities of the retirement recordkeeping and insurance brokerage businesses were liquidated by the end of the first quarter of 2009.

Securities

        Management of the securities portfolio involves the maximization of return while maintaining prudent levels of quality, market risk and liquidity. At September 30, 2009, approximately 98 percent of our securities, based upon carrying value, were investment grade. The amortized cost, gross unrealized gains, gross unrealized losses and fair values of securities are detailed in Note 4 to our condensed consolidated financial statements included in this Form 10-Q.

        Our securities available for sale are recorded at fair value with the change in fair value recognized in accumulated other comprehensive income. The largest component of our securities available for sale is $18.0 billion for Asset and Liability Management (ALM) purposes. ALM securities are valued at fair value by a pricing service whose prices can be corroborated by recent security trading activities.

        Our asset-backed securities primarily consist of collateralized loan obligations (CLO) securities, which are known as Cash Flow CLOs. A Cash Flow CLO is a structured finance product that securitizes a diversified pool of loan assets into multiple classes of notes from the cash flows generated by such loans. Cash Flow CLOs pay the note holders through the receipt of interest and principal repayments from the underlying loans unlike other types of CLOs that pay note holders through the trading and sale of underlying collateral. During the first quarter of 2009, we reassessed the classification of our CLOs. On February 28, 2009, we reclassified $1.1 billion at fair value, from available for sale to held to maturity. The related unrealized pre-tax loss of $589 million included in accumulated other comprehensive income (OCI) remained in OCI and is being amortized as a yield adjustment through earnings over the remaining terms of the CLOs. However, there is no impact on earnings, as an equal fair value discount on the securities is being accreted through earnings over the remaining terms of the CLOs. No gain or loss was recognized at the time of reclassification. We consider the held to maturity classification to be more appropriate because we have the ability and the intent to hold these securities to maturity.

        At September 30, 2009, the fair value of our CLO securities had increased by $71.3 million from December 31, 2008, primarily due to an increase in liquidity in the marketplace. We estimate the fair value of our CLOs using an external pricing model, as well as broker quotes. The model is based on internally-developed assumptions, utilizing market data derived from market participants and credit rating agencies. These

66

assumptions include, but are not limited to, estimated default rates, recovery rates, prepayment rates and reinvestment rates. At September 30, 2009, 21 percent of our CLO securities were rated single-A or better by two major rating agencies.

        We conduct a formal review of investment securities on a quarterly basis for the presence of other-than-temporary impairment (OTTI). Since no observable credit quality issues were present in the CLO portfolio at September 30, 2009, the securities were not other-than-temporarily impaired.

Analysis of Securities

        The following tables show the remaining contractual maturities and expected yields of the securities based upon amortized cost at September 30, 2009.

        Included in our securities available for sale portfolio at September 30, 2009 were securities used for ALM purposes of $18.0 billion. These securities had an expected weighted average maturity of 3.0 years.

Securities Available For Sale

		September 30, 2009
		Maturity
		One Year or Less					Over One Year Through Five Years					Over Five Years Through Ten Years					Over Ten Years					Total Amortized Cost
(Dollars in thousands)		Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield
U.S. Treasury		$	299,247		0.32	%	$	—		—	%	$	—		—	%	$	—		—	%	$	299,247		0.32	%
Other U.S. government			3,513,833		0.58			2,549,808		1.91			—		—			—		—			6,063,641		1.14
Residential mortgage-backed securities—agency(1)(2)			1		6.83			247,061		4.07			1,686,130		3.77			8,985,247		4.10			10,918,439		4.05
Residential mortgage-backed securities—non-agency(1)(2)			—		—			—		—			15,469		5.07			476,556		5.38			492,025		5.37
State and municipal			1,981		7.43			9,708		6.94			13,575		3.34			22,376		5.22			47,640		5.13
Asset-backed and debt securities			—		—			23,404		7.25			21,304		3.94			68,309		7.03			113,017		6.49
Equity securities(3)			—		—			—		—			—		—			—		—			106,882		—
	Total securities available for sale	$	3,815,062		0.56	%	$	2,829,981		2.16	%	$	1,736,478		3.78	%	$	9,552,488		4.19	%	$	18,040,891		3.04	%

Securities Held to Maturity

		September 30, 2009
		Maturity
		One Year or Less					Over One Year Through Five Years					Over Five Years Through Ten Years					Over Ten Years					Total Amortized Cost
(Dollars in thousands)		Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield
Collateralized loan obligations		$	—		—	%	$	12,263		4.09	%	$	1,261,357		1.29	%	$	467,788		1.18	%	$	1,741,408		1.28	%
Foreign securities			95		1.58			—		—			—		—			—		—			95		1.58
	Total securities held to maturity	$	95		1.58	%	$	12,263		4.09	%	$	1,261,357		1.29	%	$	467,788		1.18	%	$	1,741,503		1.28	%

(1)

Although the residential mortgage-backed securities have been ascribed to periods based upon their contractual maturities, principal payments are received prior to maturity because borrowers have the right to repay their obligations at any time.

(2)

See discussion of expected duration in "Quantitative and Qualitative Disclosures About Market Risk."

(3)

Equity securities do not have a stated maturity and are included in the total column only.

67

Loans

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

										Increase (Decrease) September 30, 2009 From:
										September 30, 2008						December 31, 2008
				September 30, 2008		December 31, 2008		September 30, 2009
(Dollars in thousands)										Amount			Percent			Amount			Percent
Commercial, financial and industrial				$	17,700,604	$	18,469,023	$	15,994,997	$	(1,705,607	)		(9.6	)%	$	(2,474,026	)		(13.4	)%
Construction					2,653,945		2,744,062		2,691,515		37,570			1.4			(52,547	)		(1.9	)
Mortgage:
	Residential				15,691,872		15,880,835		16,576,052		884,180			5.6			695,217			4.4
	Commercial				8,032,010		8,186,388		8,320,374		288,364			3.6			133,986			1.6
		Total mortgage			23,723,882		24,067,223		24,896,426		1,172,544			4.9			829,203			3.4
Consumer:
	Installment				2,166,912		2,201,602		2,303,897		136,985			6.3			102,295			4.6
	Revolving lines of credit				1,361,784		1,435,494		1,599,112		237,328			17.4			163,618			11.4
		Total consumer			3,528,696		3,637,096		3,903,009		374,313			10.6			265,913			7.3
Lease financing					642,642		645,765		658,708		16,066			2.5			12,943			2.0
		Total loans held to maturity			48,249,769		49,563,169		48,144,655		(105,114	)		(0.2	)		(1,418,514	)		(2.9	)
		Total loans held for sale			56,349		22,381		24,853		(31,496	)		(55.9	)		2,472			11.0
			Total loans	$	48,306,118	$	49,585,550	$	48,169,508	$	(136,610	)		(0.3	)%	$	(1,416,042	)		(2.9	)%

Commercial, Financial and Industrial Loans

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

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

        The commercial, financial and industrial loan portfolio decreased from September 30, 2008 to September 30, 2009 mainly due to a decline in the utilization rate of revolving credit lines by existing customers, our aggressive and proactive portfolio management, and our tighter underwriting standards.

Construction and Commercial Mortgage Loans

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

        Construction loans are extended primarily to commercial property developers and to residential builders. As of September 30, 2009, the construction loan portfolio consisted of approximately 86 percent in the commercial income producing real estate industry and 14 percent with residential homebuilders. The construction loan portfolio increased slightly from September 30, 2008 to September 30, 2009 primarily due to loan advances for income property projects with apartment financing representing the largest component. During the same period, the homebuilder portfolio fell by approximately 42 percent, or $265 million.

68

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

        Geographically, the outstanding construction loan portfolio was concentrated 49 percent in California and 51 percent out of state as of September 30, 2009. The largest out of state concentration was 12 percent in Washington. The California outstandings are distributed as follows: 40 percent in the Los Angeles/Orange County region, including the Inland Empire, 26 percent in the San Francisco Bay Area, 14 percent in Sacramento and the Central Valley, 14 percent in San Diego, and 6 percent in the Central Coast region.

        The commercial mortgage loan portfolio consists of loans secured by commercial income properties primarily in California. The commercial mortgage portfolio increased from September 30, 2008 to September 30, 2009 due to continued moderate originations and a reduced rate of early loan repayments associated with the tightening of the credit markets.

Residential Mortgage Loans

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

        At September 30, 2009, 70 percent of our residential mortgage loans were interest only, none of which are negative amortizing. At origination, these interest only loans had relatively high credit scores and had weighted average loan-to-value (LTV) ratios of approximately 66 percent. The remainder of the portfolio consists of a small amount of balloon loans and regular amortizing loans.

        We do not have a program for originating or purchasing subprime loan products. However, we do have loan products that allow a customer to move more quickly through the loan origination process by reducing the need to verify the income or assets of the customer. We refer to these as portfolio express loans. Portfolio express loans are only available to existing clients for no-cash-out/rate and term refinance of existing residential mortgages with the Bank and eliminate the verification of both income and assets. "Low doc" and "no doc" (discontinued in 2008) loans comprise less than half of our residential loan portfolio, and the delinquency rates relative to the outstanding balances at September 30, 2009 were slightly less than fully documented loans. At September 30, 2009, the total amount of "no doc" and "low doc" loans past due 30 days or more was $153 million, compared to $44.0 million at September 30, 2008. The total amount of residential mortgages delinquent 30 days or more was $311.9 million at September 30, 2009, compared to $114.7 million at September 30, 2008. Although delinquencies have risen since September 30, 2008 as a result of the declining real estate market and downturn in the economy, the delinquency rate remains low compared to the industry average for California prime loans. We believe that our underwriting standards remain conservative and as described above, programs with higher risk have been discontinued.

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

Consumer Loans

        We originate consumer loans, such as auto loans and home equity loans and lines, through our branch network, Private Banking Offices and via the internet. The increase in consumer loans from September 30, 2008 was primarily in our FlexEquity line/loan product. The FlexEquity line/loan allows our customers the flexibility to manage a line of credit with as many as four fixed rate loans under a single product. When customers convert all or a portion of their FlexEquity lines to fixed rate loans, these new loans are classified as installment loans. As a result of the continuing decline in the overall property values in California, we have reduced our maximum loan to value limits on all second trust deed programs we offer. At origination, these loans had relatively high credit scores and had weighted-average loan-to-value (LTV) ratios of approximately 60 percent. Our total home equity loans and lines delinquent 30 days or more were $42 million at

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September 30, 2009, compared to $15.5 million at September 30, 2008. Our annual review program reviews all equity secured lines with a commitment amount of $200,000 or more and an origination date between 2004-2008, and includes obtaining an updated credit report as well as an updated value on the property to reassess our LTV position. Action is taken to reduce or freeze limits, as applicable and pursuant to applicable laws and regulations, to minimize additional exposure in a declining market. In addition, to help mitigate the overall effect of the declining real estate market on new originations, we reduced by 5 percent the maximum LTV allowable for any owner or non owner occupied property valued over $250,000. The change was effective January 1, 2009.

Lease Financing

        We offer two types of leases to our customers: direct financing leases, where the assets leased are acquired without additional financing from other sources; and leveraged leases, where a substantial portion of the financing is provided by debt with no recourse to us. At September 30, 2009, we had leveraged leases of $548.7 million, which were net of non-recourse debt of approximately $1.1 billion. We utilize a number of special purpose entities for our leveraged leases. These entities serve legal and tax purposes and do not function as vehicles to shift liabilities to other parties or to deconsolidate affiliates for financial reporting purposes. As allowed by US GAAP and by law, the gross lease receivable is offset by the qualifying non-recourse debt. In leveraged lease transactions, the third-party lender may only look to the collateral value of the leased assets for repayment.

Cross-Border Outstandings

        Our cross-border outstandings reflect certain additional economic and political risks that are not reflected in domestic outstandings. These risks include those arising from exchange rate fluctuations and restrictions on the transfer of funds. The following table sets forth our cross-border outstandings as of September 30 and December 31, 2008 and September 30, 2009 for Canada, the only country where such outstandings exceeded one percent of total assets. The cross-border outstandings were compiled based upon category and domicile of ultimate risk and are comprised of balances with banks, trading account assets, securities available for sale, securities purchased under resale agreements, loans, accrued interest receivable, acceptances outstanding and investments with foreign entities. For the country shown in the table below, any significant local currency outstandings are funded by local currency borrowings.

(Dollars in millions)	Financial Institutions		Public Sector Entities		Corporations and Other Borrowers		Total Outstandings
September 30, 2008 Canada	$	49	$	—	$	792	$	841
December 31, 2008 Canada	$	111	$	—	$	796	$	907
September 30, 2009 Canada	$	40	$	—	$	891	$	931

Provision for Credit Losses

        We recorded a provision for loan losses of $117 million and $314 million in the third quarters of 2008 and 2009, respectively. We recorded a provision for loan losses of $284 million and $923 million for the nine months ended September 30, 2008 and 2009, respectively. We recorded a provision for losses on off-balance sheet commitments of $8 million and $6 million in the third quarters of 2008 and 2009, respectively. We recorded a provision for losses on off-balance sheet commitments of $21 million and $47 million for the nine months ended September 30, 2008 and 2009, respectively. The provisions for loan losses and for losses on off-balance sheet commitments are charged to income to bring our total allowances for credit losses to a level

70

deemed appropriate by management based on the factors discussed under "Allowances for Credit Losses" below.

Allowances for Credit Losses

Allowance Policy and Methodology

        We maintain allowances for credit losses (defined as both the allowance for loan losses and the allowance for off-balance sheet commitment losses) to absorb losses inherent in the loan portfolio as well as for leases and off-balance sheet commitments. Understanding our policies on the allowances for credit losses is fundamental to understanding our consolidated financial condition and consolidated results of operations. Accordingly, our significant policies and methodology on the allowances for credit losses are discussed in detail in Note 1 to our Consolidated Financial Statements and in the section "Allowances for Credit Losses" included in our "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2008 Form 10-K.

Comparison of the Total Allowances and Related Provision for Credit Losses Compared to December 31, 2008

        At September 30, 2009, our total allowances for credit losses were $1.4 billion, which consisted of $1,260.3 million for loan losses and $172.4 million for losses on off-balance sheet commitments. The allowances for credit losses consisted of $1,264.9 million and $167.8 million of allocated and unallocated allowance, respectively. At September 30, 2009, our allowances for credit loss coverage ratios were 2.97 percent of total loans and 108 percent of total nonaccrual loans. At December 31, 2008, our total allowances for credit losses were $863 million, or 1.74 percent of total loans, and 208 percent of total nonaccrual loans.

        In addition, the allowances incorporate the results of measuring impairment for specifically identified impaired loans utilizing a methodology based on the present value of the remaining expected cash flows or as a practical expedient, the loan's observable market price or the underlying collateral securing the loan (provided that the loan is collateral dependent). At September 30, 2009 and December 31, 2008, total impaired loans were $1.3 billion and $416 million, respectively, and the associated impairment allowances were $199 million and $107 million, respectively.

        At September 30, 2009 and December 31, 2008, the allowance for losses on off-balance sheet commitments included within our total allowances for credit losses was $172 million and $125 million, respectively. In determining the adequacy of our allowances for credit losses, we consider both the allowance for loan losses and for off-balance sheet commitment losses. Net charge offs were $136 million in the third quarter of 2009, compared to $63 million in the third quarter of 2008.

        As a result of management's assessment of the relevant factors, including the credit quality of our loan portfolio, the negative impact from the economic slowdown on our lending portfolios (especially our commercial real estate portfolio) and changes in the composition of the loan portfolio, we recorded a provision for loan losses of $314 million in the third quarter of 2009, compared to a provision for loan losses of $117 million in the third quarter of 2008. Overall, our loan portfolio experienced higher criticized assets, especially in the commercial real estate portfolio, higher nonaccrual loans, and increases in certain loss factors related to our consumer and small business portfolios, reflecting the continued deterioration in the economic environment.

        We expect the elevated levels of quarterly provisions for credit losses, which we experienced in the first three quarters of 2009, to continue in the fourth quarter of 2009. The factors driving the increase in our projected provision during 2009 include management's belief that the economic environment remains weak and will result in further deterioration in our loan portfolio.

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        During the first quarter of 2009, the loss confirmation period (LCP) for residential mortgages and home equity loans and lines of credit products was updated to better reflect the impact of recent economic conditions on losses within these portfolios. As a result of our analyses and peer surveys, the LCP for consumer home equity loans and residential mortgages was changed from between 1.5 years and 2 years, to 1 year, which resulted in a lower provision for credit losses in the first quarter of 2009. In addition, during the second quarter of 2009, we reduced our commercial loan portfolio loss factors based on past charge off experience over a slightly shorter economic time frame, further adjusted for an updated analysis of the severity of the economic cycle.

        Other than the above mentioned LCP change and change in our commercial loan portfolio loss factors, there were no other significant changes in estimation methods or assumptions that affected our methodology for assessing the appropriateness of the formula and specific or unallocated allowances for credit losses, except for the refinement in estimates and assumptions regarding the effects of economic and business conditions on borrowers and other factors, which affected the assessment of the unallocated allowance.

Changes in the Allocated (Formula and Specific) Allowance

        At September 30, 2009, the formula allowance increased to $1,047 million, compared to $682 million at December 31, 2008. The net increase was primarily due to an increase in criticized assets, especially in the commercial real estate portfolio, higher nonaccrual loans, and higher loss factors for most our lending portfolios as a result of the prolonged negative impact of the weak economy. At September 30, 2009, the specific allowance was $218 million, compared to $112 million at December 31, 2008.

Changes in the Unallocated Allowance

        At September 30, 2009, the unallocated allowance increased to $168 million, compared to $69 million at December 31, 2008 primarily due to the increased uncertainty related to the timing and severity of losses to be realized in our commercial real estate portfolio resulting from deteriorating conditions in commercial real estate. Management believes that the current level of unallocated allowance is appropriate based on the weakening credit cycle and the level of uncertainty of the impact of the current economic conditions on our principal portfolio segments. Additionally, the reasons for which we believe an unallocated allowance is warranted are detailed below.

        In our assessment as of September 30, 2009, management focused, in particular, on the factors and conditions set out below. There can be no assurance that the adverse impact of any of these conditions on us will not be in excess of the ranges set forth.

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

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

•

With respect to commercial real estate, we considered the deteriorating trends in income property markets, including rising vacancies, higher capitalization rates, falling rents, declining appraised

72

values, and tighter credit and capital availability, which would be in the range of $90 million to $120 million.

•

With respect to our consumer residential real estate, beginning in the third quarter of 2009 we considered the negative impact of high unemployment and significant property devaluations, which would be in the range of $10 million to $16 million.

•

With respect to building material suppliers, we considered the weakness in the commercial building and homebuilding industries, including lower corporate expenditures and weak home sales, and the effects on suppliers, which would be in the range of $9 million to $12 million.

•

With respect to our petroleum exploration and production customers, we considered the negative impact of lower, more volatile oil and natural gas prices on their businesses, which would be in the range of $4 million to $10 million.

•

With respect to concentrated sales, which include suppliers of "big box" stores and other companies that generate 15 percent or more of their revenues from one customer, we considered the pricing pressure and competition among suppliers to big box retailers, as well as a slow down in consumer spending, which would be in the range of $5 million to $8 million.

•

With respect to our customers whose revenues are dependent on advertising, we considered the pressures on earnings of newspapers and radio and television stations due to decreases in advertising sale revenues, as well as their transition from paper to internet-based content delivery, which would be in the range of $4 million to $7 million.

•

With respect to general government, beginning in the second quarter of 2009 we considered the negative impact of the economic slowdown on California state and local government budgets and lower spending, which would be in the range of $3 million to $7 million.

•

With respect to retailers, we considered the negative impact of the economic slowdown on consumer spending and retail margins, which would be in the range of $3 million to $6 million.

•

With respect to contractors, we considered the impact of the housing slump, tighter credit and the recession have had on contractors as construction and home improvement projects continue their downward trends, which would be in the range of $1 million to $3 million.

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Change in the Total Allowances for Credit Losses

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

				For the Three Months Ended September 30,						Increase (Decrease)						For the Nine Months Ended September 30,						Increase (Decrease)
(Dollars in thousands)				2008			2009			Amount			Percent			2008			2009			Amount			Percent
Balance, beginning of period				$	526,401		$	1,081,633		$	555,232			105.5	%	$	402,726		$	737,767		$	335,041			83.2	%
Loans charged off:
	Commercial, financial and industrial				42,004			77,996			35,992			85.7			70,184			259,634			189,450			269.9
	Construction				15,463			13,892			(1,571	)		(10.2	)		25,013			39,361			14,348			57.4
	Commercial mortgage				689			26,298			25,609			nm			1,186			54,167			52,981			nm
	Residential mortgage				2,129			13,960			11,831			555.7			3,907			28,893			24,986			639.5
	Consumer				4,263			11,134			6,871			161.2			10,803			32,275			21,472			198.8
		Total loans charged off			64,548			143,280			78,732			122.0			111,093			414,330			303,237			273.0
Recoveries of loans previously charged off:
	Commercial, financial and industrial				1,811			6,129			4,318			238.4			4,288			8,405			4,117			96.0
	Construction				—			—			—			nm			—			150			150			nm
	Commercial mortgage				—			30			30			nm			—			255			255			nm
	Residential mortgage				2			2			—			—			2			22			20			nm
	Consumer				175			446			271			154.9			901			868			(33	)		(3.7	)
	Lease financing				5			—			(5	)		(100.0	)		213			—			(213	)		(100.0	)
Total recoveries of loans previously charged off					1,993			6,607			4,614			231.5			5,404			9,700			4,296			79.5
			Net loans charged off		62,555			136,673			74,118			118.5			105,689			404,630			298,941			282.8
Provision for loan losses					117,000			314,000			197,000			168.4			284,000			923,000			639,000			225.0
Adjustments related to privatization					—			—			—			nm			—			2,062			2,062
Foreign translation adjustment and other net additions					(372	)		1,347			1,719			462.1			(563	)		2,108			2,671			474.4
Ending balance of allowance for loan losses				$	580,474		$	1,260,307		$	679,833			117.1	%	$	580,474		$	1,260,307		$	679,833			117.1	%
Allowance for losses on off-balance sheet commitments					111,374			172,374			61,000			54.8			111,374			172,374			61,000			54.8
Allowances for credit losses				$	691,848		$	1,432,681		$	740,833			107.1	%	$	691,848		$	1,432,681		$	740,833			107.1	%
Allowance for loan losses to total loans(1)					1.20	%		2.62	%								1.20	%		2.62	%
Allowances for credit losses to total loans(2)					1.43			2.97									1.43			2.97
Provision for loan losses to net loans charged off					187.04			229.75									268.71			228.11
Net loans charged off to average loans outstanding for the period(3)					0.53			1.11									0.31			1.10

(1)

The allowance for loan losses ratios are calculated using the allowance for loan losses against end of period total loans or total nonperforming loans, as appropriate. These ratios relate to continuing operations only.

(2)

The allowance for credit losses ratios are calculated using the sum of the allowances for loan losses and for losses on off-balance sheet commitments against end of period total loans or total nonperforming loans, as appropriate. These ratios relate to continuing operations only.

(3)

Annualized.

nm = not meaningful

Nonperforming Assets

        Nonperforming assets consist of nonaccrual loans, restructured loans that are nonperforming and foreclosed assets. Nonaccrual loans are those for which management has discontinued accrual of interest because there exists significant uncertainty as to the full and timely collection of either principal or interest or such loans have become contractually past due 90 days with respect to principal or interest. Effective on January 1, 2009, consumer home equity loans and one-to-four single family residential loans were placed on nonaccrual status when these loans are delinquent 90 days or more, or in foreclosure. Previously, these loans were not placed on nonaccrual status. However, before and after this nonaccrual accounting policy change, the loss content was charged off on or before the loans were 180 days past due. As a result of this nonaccrual accounting policy change, home equity and one-to-four family residential loans totaling $195.1 million ($9.0 million of which is restructured) have been placed on nonaccrual status as of September 30, 2009. For a more detailed discussion of the accounting for nonaccrual loans, see Note 1 to the Consolidated Financial Statements included in our 2008 Form 10-K.

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

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

        The following table sets forth an analysis of nonperforming assets.

											Increase (Decrease) September 30, 2009 From:
											September 30, 2008						December 31, 2008
		September 30, 2008			December 31, 2008			September 30, 2009
(Dollars in thousands)											Amount			Percent			Amount			Percent
Commercial, financial and industrial		$	162,294		$	260,272		$	380,117		$	217,823			nm		$	119,845			46.0	%
Construction			93,028			98,934			387,523			294,495			nm			288,589			nm
Commercial mortgage			33,553			55,750			354,815			321,262			nm			299,065			nm
Residential mortgage			—			—			164,683			164,683			nm			164,683			nm
Consumer			—			—			21,385			21,385			nm			21,385			nm
Lease financing			—			—			108			108			nm			108			nm
Restructured—nonaccrual			—			—			15,962			15,962			nm			15,962			nm
	Total nonaccrual loans		288,875			414,956			1,324,593			1,035,718			nm			909,637			nm
Foreclosed assets			13,922			20,214			34,392			20,470			nm			14,178			70.1
Distressed loans held for sale			—			—			8,706			8,706			nm			8,706			nm
Restructured—nonperforming			1,449			1,345			—			(1,449	)		(100.0	)%		(1,345	)		(100.0	)
	Total nonperforming assets	$	304,246		$	436,515		$	1,367,691		$	1,063,445			nm		$	931,176			nm
Restructured loans that continue to accrue interest		$	—		$	—		$	1,867		$	1,867			nm		$	1,867			nm
Allowance for loan losses		$	580,474		$	737,767		$	1,260,307		$	679,833			nm		$	522,540			70.8	%
Allowances for credit losses		$	691,848		$	863,141		$	1,432,681		$	740,833			nm		$	569,540			66.0	%
Nonaccrual loans to total loans			0.60	%		0.84	%		2.75	%
Allowance for loan losses to nonaccrual loans(1)			200.94			177.79			95.15
Allowances for credit losses to nonaccrual loans(2)			239.50			208.01			108.16
Nonperforming assets to total loans, foreclosed assets and distressed loans held for sale			0.63			0.88			2.84
Nonperforming assets to total assets			0.49			0.62			1.75

(1)

The allowance for loan losses ratios are calculated using the allowance for loan losses against end of period total loans or total nonperforming loans, as appropriate. These ratios relate to continuing operations only.

(2)

The allowances for credit losses ratios are calculated using the sum of the allowances for loan losses and for losses on off-balance sheet commitments against end of period total loans or total nonperforming loans, as appropriate. These ratios relate to continuing operations only.

nm = not meaningful

        The increase in nonaccrual loans from September 30, 2008 to September 30, 2009 was primarily due to an increase in commercial, construction and commercial mortgage loans, primarily within the commercial real estate industry sector. Additionally, we had increases in residential and consumer home equity nonaccrual loans due to the change in our nonaccrual accounting policy effective January 1, 2009. During the third quarters of 2008 and 2009, we had $3.6 million and $13.3 million in sales of nonperforming loans, respectively. Losses from these sales were reflected in charge offs.

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Loans 90 Days or More Past Due and Still Accruing

									Increase (Decrease) September 30, 2009 From:
									September 30, 2008						December 31, 2008
			September 30, 2008		December 31, 2008		September 30, 2009
(Dollars in thousands)									Amount			Percent			Amount			Percent
Commercial, financial and industrial			$	1,921	$	2,529	$	3,958	$	2,037			nm		$	1,429			56.5	%
Construction				—		—		659		659			nm			659			—
Mortgage:
	Residential(1)			39,655		59,940		421		(39,234	)		(98.9	)%		(59,519	)		(99.3	)
	Commercial			1,781		181		—		(1,781	)		(100.0	)		(181	)		(100.0	)
		Total mortgage		41,436		60,121		421		(41,015	)		(99.0	)		(59,700	)		(99.3	)
Consumer and other(1)				5,873		8,097		359		(5,514	)		(93.9	)		(7,738	)		(95.6	)
	Total loans 90 days or more past due and still accruing		$	49,230	$	70,747	$	5,397	$	(43,833	)		(89.0	)	$	(65,350	)		(92.4	)

nm = not meaningful

(1)

Effective January 1, 2009, the Company changed its nonaccrual accounting policy to place consumer home equity loans and one-to-four single family residential loans on nonaccrual status when these loans are delinquent 90 days or more, or in foreclosure.

Fair Value of Financial Instruments

        The following table reflects financial instruments measured at fair value on a recurring basis as of September 30, 2008, December 31, 2008 and September 30, 2009. For additional information on the fair value of financial instruments, see Note 12 to the condensed consolidated financial statements in this Form 10-Q.

			September 30, 2008						December 31, 2008						September 30, 2009
(Dollars in thousands)			Fair Value			Percentage of Total			Fair Value			Percentage of Total			Fair Value			Percentage of Total
Financial instruments recorded at fair value on a recurring basis
Assets:
	Level 1		$	944,295			11	%	$	961,535			10	%	$	6,587,687			34	%
	Level 2			6,962,575			76			7,624,037			79			12,722,283			67
	Level 3			1,274,292			14			1,203,092			13			6,646			—
	Netting Adjustment(1)			(50,875	)		(1	)		(153,377	)		(2	)		(102,093	)		(1	)
		Total	$	9,130,287			100	%	$	9,635,287			100	%	$	19,214,523			100	%
	As a percentage of total Company assets						15	%					14	%					25	%
Liabilities:
	Level 1		$	5,343			1	%	$	56,470			6	%	$	49,985			7	%
	Level 2			552,422			109			1,131,570			109			767,183			107
	Level 3			—			—			—			—			—			—
	Netting Adjustment(1)			(50,875	)		(10	)		(153,377	)		(15	)		(102,093	)		(14	)
		Total	$	506,890			100	%	$	1,034,663			100	%	$	715,075			100	%
	As a percentage of total Company liabilities						1	%					2	%					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.

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Quantitative and Qualitative Disclosures About Market Risk

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

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

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

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

        We have separate and distinct methods for managing the market risk associated with our asset and liability management activities and our trading activities, as described below. For additional information about our market risk management, please see "Quantitative and Qualitative Disclosures about Market Risk" in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2008 Form 10-K.

Interest Rate Risk Management (Other Than Trading)

        During the first nine months of 2009, our interest rate risk profile became more asset sensitive due to continued significant core deposit growth which reduced Treasury funding levels while increasing cash and cash equivalent holdings.

        At September 30, 2009, Economic Net Interest Income (NII) sensitivity was asset sensitive to parallel rate shifts. A +200 basis point parallel shift in rates would increase 12-month Economic NII by 1.69 percent, while a similar downward shift in rates would decrease it by 3.72 percent. At September 30, 2008, a +200 basis point parallel shift in rates would reduce 12-month Economic NII by 0.62 percent, while a similar downward shift in rates would increase it by 0.67 percent. We caution that significant low levels of current interest rates and ongoing enhancements to our interest rate risk modeling may make prior year comparisons of Economic NII less meaningful. Economic NII adjusts our reported NII for the effect of certain noninterest bearing deposit related fee and expense items. Those adjustment items are innately liability sensitive, meaning that reported NII is less liability sensitive than Economic NII.

77

Economic NII

(Dollars in millions)	September 30, 2008			December 31, 2008			September 30, 2009
+200 basis points	$	(14.2	)	$	0.2		$	44.0
as a percentage of base case NII		(0.62	)%		0.01	%		1.69	%
-200 basis points	$	15.3		$	(40.8	)	$	(96.9	)
as a percentage of base case NII		0.67	%		(1.75	)%		(3.72	)%

        The above table is presented on a continuing operations basis, with all assets and liabilities associated with our discontinued operations eliminated. We believe that this approach provides the best representation of our risk profiles.

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

ALM Activities

        During the first nine months of 2009, the Bank moved towards an asset sensitive interest rate risk profile to position the Bank for rising rates in the future. The termination of ALM fair value swaps, the unprecedented low level of interest rates, and strong core deposit growth, partially offset by an increase of ALM securities, continued to shift the interest rate risk profile towards asset sensitive during the period. The remaining ALM derivatives portfolio continues to partially offset the risk of lower interest rates. In managing the interest rate sensitivity of our balance sheet, we use the ALM investment securities portfolio and derivatives positions as the primary tools to adjust our interest rate risk profile, if necessary. During the first nine months of 2009, the Bank purchased interest rate caps to mitigate the risk from rising rates.

ALM Securities

        At September 30, 2008 and 2009, our available for sale securities portfolio included $6.8 billion and $18.0 billion, respectively, of securities for ALM purposes. At September 30, 2009, approximately $3.9 billion of the portfolio was pledged to secure trust and public deposits and for other purposes as required or permitted by law. During the third quarter of 2009, we purchased $14.0 billion and sold $3.0 billion par value of securities, as part of our investment portfolio strategy, while $546 million par value of ALM securities matured or were called.

        The portfolio is expected to remain predominately comprised of agency mortgage-backed securities as our non-agency mortgage-backed securities continue to run-off during the remainder of 2009. Based on current prepayment projections, the estimated ALM portfolio's effective duration was 1.8 at September 30, 2009, compared to 2.3 at September 30, 2008. Effective duration is a measure of price sensitivity of a bond portfolio to immediate parallel shifts in interest rates. An effective duration of 1.8 suggests an expected price decrease of approximately 1.8 percent for an immediate 1.0 percent parallel increase in interest rates.

ALM Derivatives

        During the first nine months of 2009, the ALM derivatives portfolio increased by $1.7 billion notional amount due to purchases of $4.0 billion notional amount of LIBOR cap contracts, offset by maturities of $1.4 billion and terminations of $950 million notional amount of receive fixed interest rate swaps and floors.

        The fair value of the ALM derivatives portfolio decreased primarily due to maturities of interest rate swaps and floor option contracts, terminations of interest rate swaps, and the realization of interest income. The decrease was partially offset by the addition of cap option contracts, which benefit from the expectation of higher future interest rates. For additional discussion of derivative instruments and our hedging strategies, see

78

Note 13 to the condensed consolidated financial statements in this Form 10-Q and Note 19 to our consolidated financial statements included in our 2008 Form 10-K.

        The following table provides the notional value and the fair value of our ALM derivatives portfolio as of September 30, 2008, December 31, 2008, and September 30, 2009 and the change in fair value between December 31, 2008 and September 30, 2009.

(Dollars in thousands)		September 30, 2008		December 31, 2008		September 30, 2009		Increase (Decrease) From December 31, 2008 to September 30, 2009
Total gross notional amount of positions held for purposes other than trading:		$	5,400,000	$	5,400,000	$	7,050,000	$	1,650,000
	of which, interest rate swaps pay fixed rates of interest		—		—		—		—
Fair value of positions held for purposes other than trading:
	Gross positive fair value	$	128,876	$	317,569	$	118,166	$	(199,403	)
	Gross negative fair value		—		—		—		—
	Positive (negative) fair value of positions, net	$	128,876	$	317,569	$	118,166	$	(199,403	)

Trading Activities

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

        As of September 30, 2009, we had $24.9 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 Value-at-Risk levels.

        We market energy derivative contracts to existing energy industry customers, primarily oil and gas producers, in order to meet their hedging needs. All transactions are fully matched to offsetting (mirror) derivative contracts with third parties to remove our exposure to market risk, with income earned on the credit spread. As of September 30, 2009, we had $3.5 billion notional amount of energy derivative contracts with approximately half of these energy derivative contracts entered into as an accommodation for customers and the remaining half entered into as matching contracts to remove our exposure to market risk on our customer accommodation transactions.

79

        The following table provides the notional value and the fair value of our trading derivatives portfolio, net of credit reserve, as of September 30, 2008, December 31, 2008, and September 30, 2009 and the change in fair value between December 31, 2008 and September 30, 2009.

(Dollars in thousands)		September 30, 2008		December 31, 2008		September 30, 2009		Increase (Decrease) From December 31, 2008 to September 30, 2009
Total gross notional amount of positions held for trading purposes:
	Interest rate	$	17,946,872	$	20,398,695	$	24,941,719	$	4,543,024
	Foreign exchange(1)		4,993,475		7,112,873		2,644,418		(4,468,455	)
	Equity		—		10,914		193,158		182,244
	Energy		4,808,754		3,757,674		3,544,518		(213,156	)
	Total	$	27,749,101	$	31,280,156	$	31,323,813	$	43,657
Fair value of positions held for trading purposes:
	Gross positive fair value	$	552,179	$	1,145,208	$	779,376	$	(365,832	)
	Gross negative fair value		534,286		1,137,724		773,471		(364,253	)
	Positive fair value of positions, net	$	17,893	$	7,484	$	5,905	$	(1,579	)

(1)

Excludes spot contracts with notional amounts of $1.0 billion, $1.1 billion and $0.3 billion at September 30, 2008, December 31, 2008 and September 30, 2009, respectively.

Liquidity Risk

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

        Liquidity is managed using a total balance sheet perspective that analyzes both funding capacity available through increased liabilities and liquidation of assets relative to projected demands for liquidity. The primary sources of liquidity are core deposits 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 Federal Home Loan Bank of San Francisco (FHLB). We maintain borrowing capacity in excess of our wholesale funding requirements to meet our contingency funding needs.

        Core deposits provide us with a sizable source of relatively stable and low-cost funds. Our $52.0 billion in average core deposits, which includes demand deposits, money market accounts, savings and consumer time deposits, combined with average stockholder's equity, funded 80 percent of average total assets of $74.4 billion in the third quarter of 2009. Most of the remaining funding was provided by wholesale borrowings from secured and unsecured sources of varying maturities.

        The Bank has pledged collateral under secured borrowing facilities with the FHLB and the Federal Reserve Bank of San Francisco (FRB). Beginning in 2008, the Bank increased its reliance on secured funding due to rate advantages compared to other financing sources. As of September 30, 2009, the Bank had

80

$2.9 billion of borrowings outstanding with the FHLB. During the third quarter of 2009, the Bank did not borrow under the FRB Term Auction Facility program. As of September 30, 2009, the Bank had a remaining combined unused borrowing capacity of $18.8 billion from the FHLB and the FRB.

        Our securities portfolio provides liquidity through either securities sales or repurchase agreements. During the third quarter of 2009, capacity under repurchase agreements increased $10.5 billion from $3.2 billion at June 30, 2009 to $13.7 billion at September 30, 2009.

        The Bank has a $4.0 billion unsecured Bank Note Program. As of September 30, 2009, the remaining available funding under the Bank Note Program was approximately $2.6 billion. We do not have any firm commitments in place to sell securities under the Bank Note Program.

        The Temporary Liquidity Guarantee (TLG) Program was established by the Federal Deposit Insurance Corporation (FDIC) in October 2008. Under the TLG Program, as amended on June 3, 2009, the Bank's senior unsecured debt with a maturity date of more than 30 days and issued between October 14, 2008 and October 31, 2009 is guaranteed and backed by the full faith and credit of the United States. At September 30, 2009, a total of $1.0 billion of TLG Program guaranteed debt was outstanding, which consisted of $1.0 billion in medium-term notes. For debt issued prior to April 1, 2009, the FDIC guarantee expires upon the earlier of either the maturity date of the debt or June 30, 2012. For debt issued on or after April 1, 2009, the FDIC guarantee expires upon the earlier of either the maturity date of the debt or December 31, 2012.

        In addition to the funding provided by the Bank, we raise funds at the holding company level. UnionBanCal Corporation has in place a shelf registration with the SEC permitting ready access to the public debt markets. As of September 30, 2009, $1.5 billion of debt or other securities were available for issuance under this shelf registration. We do not have firm commitments in place to sell securities under this shelf registration.

        We believe that these sources, in addition to our core deposits and equity capital, provide a stable funding base. Management does not rely on any one source of liquidity and manages availability in response to changing balance sheet needs. The costs and ability to raise funds are influenced by our credit ratings. The following table provides our credit ratings as of September 30, 2009.

		Union Bank, N.A.	UnionBanCal Corporation
Standard & Poor's	Long-term Short-term	A+ A-1	A A-1
Moody's	Long-term Short-term	A2 P-1	— —
Fitch	Long-term Short-term	A F1	A F1
DBRS	Long-term Short-term	A (high) R-1 (middle)	A R-1 (low)

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Regulatory Capital

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

UnionBanCal Corporation

(Dollars in thousands)	September 30, 2008		December 31, 2008		September 30, 2009		Minimum Regulatory Requirement
Capital Components
Tier 1 capital	$	4,923,929	$	5,466,713	$	7,416,069
Tier 2 capital		1,788,995		1,773,391		1,804,532
Total risk-based capital	$	6,712,924	$	7,240,104	$	9,220,601
Risk-weighted assets	$	61,365,714	$	62,251,070	$	63,956,189
Quarterly average assets	$	61,771,614	$	64,917,854	$	71,384,950

Capital Ratios	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio
Total capital (to risk-weighted assets)	$	6,712,924		10.94	%	$	7,240,104		11.63	%	$	9,220,601		14.42	%	³$	5,116,495		8.0	%
Tier 1 capital (to risk-weighted assets)		4,923,929		8.02			5,466,713		8.78			7,416,069		11.60		³	2,558,248		4.0
Leverage(1)		4,923,929		7.97			5,466,713		8.42			7,416,069		10.39		³	2,855,398		4.0

(1)

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

Union Bank, N.A.

(Dollars in thousands)	September 30, 2008		December 31, 2008		September 30, 2009		Minimum Regulatory Requirement	"Well-Capitalized" Regulatory Requirement
Capital Components
Tier 1 capital	$	5,012,492	$	5,380,075	$	6,906,944
Tier 2 capital		1,378,628		1,451,024		1,484,451
Total risk-based capital	$	6,391,120	$	6,831,099	$	8,391,395
Risk-weighted assets	$	61,318,242	$	62,025,970	$	63,915,458
Quarterly average assets	$	61,477,326	$	64,737,767	$	71,484,168

Capital Ratios	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio
Total capital (to risk-weighted assets)	$	6,391,120		10.42	%	$	6,831,099		11.01	%	$	8,391,395		13.13	%	³$	5,113,237		8.0	%	³$	6,391,546		10.0	%
Tier 1 capital (to risk-weighted assets)		5,012,492		8.17			5,380,075		8.67			6,906,944		10.81		³	2,556,618		4.0		³	3,834,927		6.0
Leverage(1)		5,012,492		8.15			5,380,075		8.31			6,906,944		9.66		³	2,859,367		4.0		³	3,574,208		5.0

(1)

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

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

        The increase in our and Union Bank's capital ratios primarily resulted from an increase in total capital driven by a $2.0 billion capital contribution from BTMU to UnionBanCal Corporation on September 29, 2009 and a corresponding $1.8 billion capital contribution from UnionBanCal Corporation to Union Bank.

        As of September 30, 2009, management believes the capital ratios of Union Bank met all regulatory requirements of "well-capitalized" institutions, which are 10 percent for the Total risk-based capital ratio, 6 percent for the Tier 1 risk-based capital ratio and 5 percent for the Leverage ratio.

82

Business Segments

        The various operating segments reporting under our Chief Operating Officer and the Group Head of Pacific Rim Corporate Group are aggregated into two reportable business segments entitled "Retail Banking" and "Wholesale Banking."

        As part of our privatization transaction in 2008, goodwill of $980 million and $1,034 million was recorded in the reportable business segments Retail Banking and Wholesale Banking, respectively. See Note 3 to the condensed consolidated financial statements in this Form 10-Q for more detail on our privatization transaction.

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

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

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

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

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

83

        The reportable business segment results for the prior periods have been adjusted to reflect changes in the transfer pricing methodology, the organizational changes that have occurred, our discontinued operations and the market view contribution. Our discontinued operations consist of two separate businesses: retirement recordkeeping services and insurance brokerage business. For further information on discontinued operations, see Note 15 to the condensed consolidated financial statements in this Form 10-Q.

		Retail Banking												Wholesale Banking
		As of and for the Three Months Ended September 30,						Increase/ (decrease)						As of and for the Three Months Ended September 30,						Increase/ (decrease)
		2008			2009			Amount			Percent			2008			2009			Amount			Percent
Results of operations—Market View (dollars in thousands):
	Net interest income (expense)	$	214,614		$	280,461		$	65,847			31	%	$	243,504		$	379,369		$	135,865			56	%
	Noninterest income (expense)		122,546			110,565			(11,981	)		(10	)		92,484			86,224			(6,260	)		(7	)
	Total revenue		337,160			391,026			53,866			16			335,988			465,593			129,605			39
	Noninterest expense (income)		251,519			290,182			38,663			15			158,016			207,842			49,826			32
	Credit expense (income)		7,056			7,361			305			4			49,094			92,027			42,933			87
	Income (loss) from continuing operations before income taxes		78,585			93,483			14,898			19			128,878			165,724			36,846			29
	Income tax expense (benefit)		30,059			36,552			6,493			22			30,508			43,314			12,806			42
	Income (loss) from continuing operations		48,526			56,931			8,405			17			98,370			122,410			24,040			24
	Loss from discontinued operations, net of income taxes		—			—			—			na			—			—			—			na
	Net income (loss)	$	48,526		$	56,931		$	8,405			17		$	98,370		$	122,410		$	24,040			24
Average balances—Market View (dollars in millions):
	Total loans	$	20,089		$	21,696		$	1,607			8		$	27,124		$	27,083		$	(41	)		nm
	Total assets		20,945			23,944			2,999			14			31,934			33,821			1,887			6
	Total deposits		18,842			27,118			8,276			44			17,647			31,316			13,669			77
Financial ratios—Market View
	Risk adjusted return on capital(1)		29	%		31	%								15	%		14	%
	Return on average assets(1)		0.92			0.94									1.23			1.44
	Efficiency ratio(2)		74.44			74.25									43.57			41.83

		Other												Reconciling Items						UnionBanCal Corporation
		As of and for the Three Months Ended September 30,						Increase/ (decrease)						As of and for the Three Months Ended September 30,						As of and for the Three Months Ended September 30,						Increase/ (decrease)
		2008			2009			Amount			Percent			2008			2009			2008			2009			Amount			Percent
Results of operations—Market View (dollars in thousands):
	Net interest income (expense)	$	63,388		$	(86,874	)	$	(150,262	)		nm		$	(1,760	)	$	(11,920	)	$	519,746		$	561,036		$	41,290			8	%
	Noninterest income (expense)		2,973			9,275			6,302			nm			(19,282	)		(22,135	)		198,721			183,929			(14,792	)		(7	)
	Total revenue		66,361			(77,599	)		(143,960	)		nm			(21,042	)		(34,055	)		718,467			744,965			26,498			4
	Noninterest expense (income)		45,833			21,647			(24,186	)		(53	)%		(11,556	)		(13,856	)		443,812			505,815			62,003			14
	Credit expense (income)		60,870			214,641			153,771			nm			(20	)		(29	)		117,000			314,000			197,000			nm
	Income (loss) from continuing operations before income taxes		(40,342	)		(313,887	)		(273,545	)		nm			(9,466	)		(20,170	)		157,655			(74,850	)		(232,505	)		(147	)
	Income tax expense (benefit)		(9,397	)		(129,800	)		(120,403	)		nm			(3,621	)		(7,887	)		47,549			(57,821	)		(105,370	)		nm
	Income (loss) from continuing operations		(30,945	)		(184,087	)		(153,142	)		nm			(5,845	)		(12,283	)		110,106			(17,029	)		(127,135	)		(115	)
	Loss from discontinued operations, net of income taxes		(5,276	)		—			5,276			100			—			—			(5,276	)		—			5,276			100
	Net income (loss)	$	(36,221	)	$	(184,087	)	$	(147,866	)		nm		$	(5,845	)	$	(12,283	)	$	104,830		$	(17,029	)	$	(121,859	)		(116	)
Average balances—Market View (dollars in millions):
	Total loans	$	1		$	7		$	6			nm		$	(18	)	$	(21	)	$	47,196		$	48,765		$	1,569			3
	Total assets		8,284			16,629			8,345			101			(18	)		(41	)		61,145			74,353			13,208			22
	Total deposits		5,704			2,956			(2,748	)		(48	)		(532	)		(1,936	)		41,661			59,454			17,793			43
Financial ratios—Market View
	Risk adjusted return on capital(1)		na			na									na			na			na			na
	Return on average assets(1)		na			na									na			na			0.72	%		(0.09	)%
	Efficiency ratio(2)		na			na									na			na			58.76			65.07

(1)

Annualized.

(2)

The efficiency ratio is noninterest expense, excluding foreclosed asset expense (income), the provision for losses on off-balance sheet commitments, and low income housing investment credit (LIHC) amortization expense, as a percentage of net interest income and noninterest income.

na = not applicable

nm = not meaningful

84

		Retail Banking												Wholesale Banking
		As of and for the Nine Months Ended September 30,						Increase/ (decrease)						As of and for the Nine Months Ended September 30,						Increase/ (decrease)
		2008			2009			Amount			Percent			2008			2009			Amount		Percent
Results of operations—Market View (dollars in thousands):
	Net interest income (expense)	$	612,996		$	760,379		$	147,383			24	%	$	689,330		$	1,014,642		$	325,312		47	%
	Noninterest income (expense)		369,293			325,956			(43,337	)		(12	)		258,254			271,435			13,181		5
	Total revenue		982,289			1,086,335			104,046			11			947,584			1,286,077			338,493		36
	Noninterest expense (income)		725,082			828,190			103,108			14			457,275			566,180			108,905		24
	Credit expense (income)		20,337			22,505			2,168			11			135,634			247,057			111,423		82
	Income (loss) from continuing operations before income taxes		236,870			235,640			(1,230	)		(1	)		354,675			472,840			118,165		33
	Income tax expense (benefit)		90,603			92,135			1,532			2			83,850			120,609			36,759		44
	Income (loss) from continuing operations		146,267			143,505			(2,762	)		(2	)		270,825			352,231			81,406		30
	Loss from discontinued operations, net of income taxes		—			—			—			na			—			—			—		na
	Net income (loss)	$	146,267		$	143,505		$	(2,762	)		(2	)	$	270,825		$	352,231		$	81,406		30
Average balances—Market View (dollars in millions):
	Total loans	$	18,975		$	21,394		$	2,419			13		$	26,171		$	28,039		$	1,868		7
	Total assets		19,806			23,643			3,837			19			30,954			34,970			4,016		13
	Total deposits		18,577			25,376			6,799			37			18,076			27,011			8,935		49
Financial ratios—Market View
	Risk adjusted return on capital(1)		30	%		27	%								14	%		14	%
	Return on average assets(1)		0.99			0.81									1.17			1.35
	Efficiency ratio(2)		73.74			76.17									45.17			41.36

		Other												Reconciling Items						UnionBanCal Corporation
		As of and for the Nine Months Ended September 30,						Increase/ (decrease)						As of and for the Nine Months Ended September 30,						As of and for the Nine Months Ended September 30,						Increase/ (decrease)
		2008			2009			Amount			Percent			2008			2009			2008			2009			Amount			Percent
Results of operations—Market View (dollars in thousands):
	Net interest income (expense)	$	193,854		$	(82,188	)	$	(276,042	)		(142	)%	$	(5,298	)	$	(21,448	)	$	1,490,882		$	1,671,385		$	180,503			12	%
	Noninterest income (expense)		23,516			3,535			(19,981	)		(85	)		(57,320	)		(59,068	)		593,743			541,858			(51,885	)		(9	)
	Total revenue		217,370			(78,653	)		(296,023	)		(136	)		(62,618	)		(80,516	)		2,084,625			2,213,243			128,618			6
	Noninterest expense (income)		118,222			201,972			83,750			71			(34,249	)		(37,086	)		1,266,330			1,559,256			292,926			23
	Credit expense (income)		128,082			653,514			525,432			nm			(53	)		(76	)		284,000			923,000			639,000			nm
	Income (loss) from continuing operations before income taxes		(28,934	)		(934,139	)		(905,205	)		nm			(28,316	)		(43,354	)		534,295			(269,013	)		(803,308	)		nm
	Income tax expense (benefit)		3,871			(357,962	)		(361,833	)		nm			(10,831	)		(16,951	)		167,493			(162,169	)		(329,662	)		nm
	Income (loss) from continuing operations		(32,805	)		(576,177	)		(543,372	)		nm			(17,485	)		(26,403	)		366,802			(106,844	)		(473,646	)		(129	)
	Loss from discontinued operations, net of income taxes		(12,037	)		—			12,037			100			—			—			(12,037	)		—			12,037			100
	Net income (loss)	$	(44,842	)	$	(576,177	)	$	(531,335	)		nm		$	(17,485	)	$	(26,403	)	$	354,765		$	(106,844	)	$	(461,609	)		(130	)
Average balances—Market View (dollars in millions):
	Total loans	$	8		$	(47	)	$	(55	)		nm		$	(16	)	$	(20	)	$	45,138		$	49,366		$	4,228			9
	Total assets		8,280			12,420			4,140			50			(16	)		(33	)		59,024			71,000			11,976			20
	Total deposits		6,689			2,473			(4,216	)		(63	)		(520	)		(1,333	)		42,822			53,527			10,705			25
Financial ratios—Market View
	Risk adjusted return on capital(1)		na			na									na			na			na			na
	Return on average assets(1)		na			na									na			na			0.83	%		(0.20	)%
	Efficiency ratio(2)		na			na									na			na			58.10			66.34

(1)

Annualized.

(2)

The efficiency ratio is noninterest expense, excluding foreclosed asset expense (income), the provision for losses on off-balance sheet commitments, and low income housing investment credit (LIHC) amortization expense, as a percentage of net interest income and noninterest income.

na = not applicable

nm = not meaningful

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Retail Banking

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

        During the nine months ended September 30, 2009, net income of Retail Banking decreased compared to the same period in 2008, resulting from a 14 percent increase in noninterest expense and a 12 percent decrease in noninterest income, partially offset by a 24 percent increase in net interest income. The increase in net interest income was primarily due to the margin contribution relating to the growth in loans and interest bearing deposits.

        Average asset growth for the nine months ended September 30, 2009 compared to the same period in 2008 was primarily driven by a 13 percent growth in average loans. The growth in average loans was largely due to increases of 11 percent in our average residential loan portfolio and 26 percent in our average consumer loan portfolio.

        Average deposits increased 37 percent during the nine months ended September 30, 2009 compared to the same period in 2008. This increase was primarily due to the Retail Banking's strategy which continues to focus on attracting consumer and small business deposits through marketing activities, increasing customer cross-sell, relationship management, increasing and improving sales resources, establishing new locations and new products as well as deposit growth in balances held by our institutional clients. We expect that a larger branch network, along with this Retail Banking strategy, will improve growth prospects when combined with more robust efforts in the telephone and internet channels.

        Noninterest income decreased during the nine months ended September 30, 2009 compared to the same period in 2008 by 12 percent mainly as a result of lower service charges on deposits and lower trust and investment management fees. Noninterest expense increased by 14 percent during the nine months ended September 30, 2009, compared to the same period in 2008. This increase was primarily due to intangible asset amortization related to our privatization, staff costs, FDIC deposit insurance assessment rate increase, and costs associated with an increasing deposit base.

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

•

the Retail Banking Branches Division serves its customers through 332 full-service branches in California, 4 full-service branches in Oregon and Washington, 1 branch in Texas, and 2 international offices. We own property occupied by 117 of the domestic offices and lease the remaining properties for periods of five to twenty years. Customers may also access our services 24 hours-a-day by telephone or through our website at www.unionbank.com. In addition, the branches offer automated teller and point-of-sale merchant services.

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

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through conveniently located banking branches, which serve consumers and businesses with checking and deposit services, as well as various types of consumer financing and investment services;



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through our internet banking services, which augment our physical delivery channels by providing an array of customer transaction, bill payment and loan payment services;

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—

through business banking centers, which serve small businesses; and



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through in-store branches.

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the Consumer Asset Management Division provides the centralized origination, underwriting, processing, servicing, collection and administration for consumer assets including residential mortgages.

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

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

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

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the Wealth Management Division provides comprehensive financial services to our wealthy clientele. The Private Bank focuses primarily on delivering financial services to high net worth individuals with sophisticated financial needs as well as to professional service firms, foundations and endowments. Specific products and services include trust and estate services, financial planning, investment account management services, cash management and deposit and credit products. Key strategies of the Private Bank are to expand the business by leveraging existing Bank client relationships and developing niche expertise in order to acquire new Bank relationships and to open additional Private Banking Offices. Through 15 existing locations, Private Bank relationship managers offer all of our available products and services.

•

the Institutional Services and Asset Management Division provides investment management and administration services for a broad range of individuals and institutions.



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HighMark Capital Management, Inc., a registered investment advisor, provides investment management and advisory services to institutional clients as well as investment advisory, administration and support services to our proprietary mutual funds, the affiliated HighMark Funds. It also provides investment management services to Union Bank with respect to most of its trust and agency clients, including corporations, pension funds and individuals. HighMark Capital Management, Inc.'s strategy is to expand distribution, to broaden its client base and to increase its assets under management.



—

Institutional Services provides custody, corporate trust, and retirement plan services. Custody Services provides both domestic and international safekeeping/settlement services in addition to securities lending. Corporate Trust acts as trustee for corporate and municipal debt issues, and provides escrow services and trustee services for project finance. Institutional Services provides defined benefit services, including trustee services and investment management. The client base of Institutional Services includes financial institutions, corporations, government agencies, unions, insurance companies, mutual funds, investment managers and non-profit organizations. Institutional Services' strategy is to continue to leverage and expand its position in our target markets.

Wholesale Banking

        Wholesale Banking offers financing, depository and cash management services to middle market and large corporate businesses primarily headquartered in the western U.S. Wholesale Banking continues to focus

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

        During the nine months ended September 30, 2009, net income of Wholesale Banking increased 30 percent, compared to the same period in 2008, resulting from a 47 percent increase in net interest income and a 5 percent increase in noninterest income, partially offset by a 24 percent increase in higher noninterest expense and higher credit expense. The increase in net interest income was mainly due to the margin contribution relating to higher loan volume and higher interest bearing deposits.

        For the nine months ended September 30, 2009, average loans increased 7 percent compared to the same period in 2008 primarily in our commercial and industrial loan portfolio. This increase was primarily in the Energy Capital Services and National Banking Divisions.

        Average deposit balances grew by 49 percent in the nine months ended September 30, 2009 compared to the same period in 2008 due to deposit initiatives and higher government agency balances.

        Noninterest income increased 5 percent during the nine months ended September 30, 2009, compared to the same period in 2008, primarily due to higher trading revenues and merchant banking fees. Noninterest expense increased 24 percent in the nine months ended September 30, 2009 compared to the same period in 2008 primarily due to intangible asset amortization related to our privatization and higher FDIC deposit insurance assessments.

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

Wholesale Banking is comprised of the following main divisions:

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the Commercial Banking Division, which serves California, Oregon and Washington middle market and large corporate companies with commercial lending, trade financing and asset-based loans;

•

the Real Estate Industries Division, which provides real estate lending products such as construction loans, commercial mortgages and bridge financing;

•

the Energy Capital Services Division, which provides corporate financing and project financing to oil and gas companies, as well as power and utility companies, nationwide;

•

the Equipment Leasing Division, which provides lease financing services to corporate customers nationwide;

•

the National Banking Division, which provides financing, deposits and traditional banking services to corporate clients in defined industries, nationwide;

•

the Corporate Deposits and Global Treasury Management Division, which provides deposit and treasury management expertise to Middle Market and large corporate clients, government agencies, specialized industries and lending products to correspondent banks, title companies and municipalities. This division also manages Union Bank's web strategies for retail, small business, wealth management and commercial clients, as well as commercial product development;

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•

the Capital Markets Division, which provides financing to Middle Market and large corporate clients in their defined industries and geographic markets, together with limited merchant and investment banking related products and services;

•

the Global Markets Division, which serves our customers with their foreign exchange and interest rate risk management and investment needs. The Global Markets Division offers energy derivative contracts, on a limited basis, to serve our energy sector client base. The division takes market risk when buying and selling securities and foreign exchange contracts for its own account and accepts limited market risk when providing derivative contracts, since a significant portion of the market risk for these products is offset with third parties. The division also includes our registered broker-dealer, UnionBanc Investment Services LLC, which is a subsidiary of Union Bank; and

•

the Pacific Rim Corporate Group, which offers a range of credit, deposit, and investment management products and services to companies in the U.S., which are affiliated with companies headquartered in Japan.

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

Other

        Our net loss increased by $531.3 million in the nine months ended September 30, 2009, compared to the same period in 2008, primarily due to lower net interest income, a higher loan loss provision and higher noninterest expense.

        "Other" includes the following items:

•

the funds transfer pricing results for our entire company, which allocates to the other business segments their cost of funds on all asset categories and credit for funds on all liability categories;

•

Corporate Treasury, which is responsible for our ALM, wholesale funding and the ALM investment and derivatives hedging portfolios. These Treasury management activities are carried out to counter-balance the residual risk positions of our balance sheet and to manage those risks within the guidelines established by ALCO. (For additional discussion regarding these risk management activities, see "Quantitative and Qualitative Disclosures About Market Risk");

•

the adjustment between the credit expense under RAROC and the provision for credit losses under US GAAP;

•

the residual costs of support groups;

•

corporate activities that are not directly attributable to one of the two business segments. Included in this category are certain other items such as the results of operations of certain non-bank subsidiaries of UnionBanCal and the elimination of the fully taxable-equivalent basis amount;

•

the discontinued operations resulting from the sales of our retirement recordkeeping and insurance brokerage businesses; and

•

the adjustment between the tax expense calculated under RAROC using a tax rate of 39.1 percent and our effective tax rates.

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        The financial results for the nine months ended September 30, 2009 were impacted by the following factors:

•

credit expense of $653.5 million was due to the difference between the $923.0 million provision for loan losses calculated under our US GAAP methodology and the $269.5 million in expected losses for the reportable business segments, which utilizes the RAROC methodology;

•

net interest income is the result of differences between the net interest income earned by the consolidated enterprise and transfer pricing results. Net interest income (expense) decreased $276.0 million to ($82.2) million compared to the same period in 2008 primarily due to the changes in transfer pricing rates and market rates;

•

noninterest income (expense) of $3.5 million;

•

noninterest expense (income) of $202.0 million related to residual costs of support groups and corporate activities not directly related to either of the two business segments. The increase in noninterest expense includes a $34.7 million increase in privatization-related expenses and a $26.0 million increase in provision for losses on off-balance sheet commitments; and

•

income tax expense (benefit) of ($358.0) million was due to the difference between the ($162.2) million or a (60.3) percent effective tax rate for our consolidated results and the actual tax expense calculated for reportable segments (including reconciling items) of $195.8 million using the RAROC effective rate.

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

•

net interest income (expense) of $193.9 million;

•

credit expense (income) of $128.1 million was due to the difference between the $284.0 million provision for loan losses calculated under our US GAAP methodology and the $155.9 million in expected losses for the reportable business segments, which utilizes the RAROC methodology;

•

noninterest income of $23.5 million was driven by a $14.2 million gain from the partial redemption of Visa Inc. common stock and a $7.1 million gain from the partial redemption of MasterCard Inc. common stock;

•

noninterest expense of $118.2 million related to residual costs of support groups and corporate activities not directly related to either of the two business segments. Additionally, noninterest expense in the nine months ended September 30, 2008 included a $21.0 million provision for losses on off-balance sheet commitments;

•

income tax expense (benefit) of $3.9 million resulted from the difference between the $167.5 million, or 31.4 percent effective tax rate, for our consolidated results and the actual tax expense calculated for reportable segments of $163.6 million using the RAROC effective rate; and

•

loss from discontinued operations of $12.0 million.

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."

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Item 4.   Controls and Procedures

        Our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer) have concluded that the design and operation of our disclosure controls and procedures are effective as of September 30, 2009. This conclusion is based on an evaluation conducted under the supervision and with the participation of management. Disclosure controls and procedures are those controls and procedures which ensure that information required to be disclosed in this filing is accumulated and communicated to management and is recorded, processed, summarized and reported in a timely manner and in accordance with Securities and Exchange Commission rules and regulations.

        During the quarter ended September 30, 2009, there were no changes in our internal controls over financial reporting that materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

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PART II. OTHER INFORMATION

Item 1.   Legal Proceedings

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

Item 1A.   Risk Factors

        For a discussion of risk factors relating to our business, please refer to Item 1A of Part I of our 2008 Form 10-K, which is incorporated by reference herein, in addition to the following information.

Industry Factors

The U.S. and global economies have experienced a recession, unprecedented volatility in the financial markets, and significant deterioration in sectors of the U.S consumer and business economy, all of which 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 proposed and enacted measures; there can be no assurance that these measures will successfully address these circumstances

        Commencing in 2007 and continuing throughout 2008 and into 2009, certain adverse financial developments have impacted the U.S. and global economies and financial markets and present challenges for the banking and financial services industry and for UnionBanCal Corporation. These developments include a general recession both globally and in the U.S. and have contributed to substantial volatility in the equity securities markets, as well as volatility and a tightening of liquidity in the credit markets. Weakened credit conditions and the contraction of the capital markets have limited access to capital, reduced market liquidity and negatively impacted the value of securities and real property.

        In response, Congress adopted economic stimulus measures that former President Bush and President Obama signed into law at various times in 2008 and 2009, and the Federal Reserve Board was prompted to decrease its discount rate and the federal funds rate numerous times during 2008. To help mitigate these conditions, on July 30, 2008, former President Bush signed into law a housing bill which grants the Treasury Department broad authority to safeguard Fannie Mae and Freddie Mac and authorizes the Federal Housing Administration to insure up to $300 billion in refinanced mortgages. In addition, commencing in 2008 and continuing into 2009, the Federal Reserve Board implemented a variety of measures which seek to enhance market liquidity, including enhanced discount window lending, a term auction facility, term repurchase transactions, a term securities lending facility and a primary dealer credit facility.

        In the third quarter of 2008, the volatility and disruption in the capital and credit markets reached unprecedented levels. On October 3, 2008, former President Bush signed into law the Emergency Economic Stabilization Act of 2008 (the EESA) in response to the financial crises affecting the banking system and financial markets. The EESA was the result of a proposal by former Treasury Secretary Henry Paulson to the U.S. Congress on September 20, 2008, in response to the financial crises affecting the banking system and financial markets and going concern threats to investment banks and other financial institutions. Pursuant to the EESA, the U.S. Treasury has the authority to, among other things, purchase up to $700 billion of mortgages, mortgage-backed securities and certain other financial instruments from financial institutions for the purpose of stabilizing and providing liquidity to the U.S. financial markets. Pursuant to the EESA, the maximum deposit insurance amount was temporarily increased from $100,000 to $250,000 per depositor through December 31, 2013, as recently extended. On October 14, 2008, the FDIC announced the establishment of a Temporary Liquidity Guarantee Program under which the FDIC will fully guarantee until December 31, 2009, all non-interest-bearing transaction accounts of insured depository institutions that did

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not opt out of the program by December 5, 2008. Pursuant to the Temporary Liquidity Guarantee Program, the FDIC will also guarantee newly issued senior unsecured debt of participating financial institutions and their qualifying holding companies. All eligible institutions participated in the program without cost for the first 30 days of the program. After December 5, 2008, institutions are assessed at the rate of ten basis points for transaction account balances in excess of $250,000 and at the rate, on an annualized basis, of 50 to 100 basis points of the amount of debt issued (on a sliding scale, depending on length of maturity of the debt). Union Bank has elected to participate in the Temporary Liquidity Guarantee Program and during the first quarter of 2009, Union Bank issued $1 billion principal amount of FDIC-guaranteed senior notes under this program. Further, pursuant to the EESA, on October 14, 2008, the U.S. Treasury announced a voluntary Capital Purchase Program under its Troubled Asset Relief Program (TARP) pursuant to which the Treasury will purchase up to $250 billion in senior preferred stock of qualifying U.S. financial institutions. Many banks and bank holding companies have participated in this program. UnionBanCal Corporation, as a wholly-owned subsidiary of a foreign bank, is not eligible to participate in the Capital Purchase Program. On August 26, 2009, the FDIC issued its final rule amending the Temporary Liquidity Guarantee Program to extend the Transaction Account Guarantee Program (TAG) for six months through June 2010. As an institution participating in the TAG, Union Bank decided not to continue to participate in the extension of the TAG.

        On February 17, 2009, President Obama signed into law the American Recovery and Reinvestment Act of 2009 (ARRA) in an attempt to reverse the U.S. economic downturn. A large portion of the ARRA is devoted to new federal spending programs designed to increase economic output, decrease unemployment and invest in national infrastructure. Of the $787 billion in federal spending appropriated by the ARRA, $286 billion will be devoted to tax cuts, $120 billion will be used to fund infrastructure projects and $381 billion will be allocated for social programs and other spending. A substantial portion of the appropriation funds will go directly to the states, which was a key element in the budget approved by the California Legislature and signed by Governor Schwarzenegger on February 20, 2009.

        On March 31, 2009, the U.S. Treasury and the FDIC announced the Public-Private Investment Program (PPIP) that seeks to eliminate "toxic" real estate-backed assets from the balance sheets of United States financial institutions through partnerships with private investors in an attempt to restore the normal functioning of secondary markets for securities backed by such assets, encourage the extension of credit and restore investor confidence in financial institutions. The PPIP proposes to create Public-Private Investment Funds that will use private equity investment, equity investment from the U.S. Treasury, U.S. Treasury debt financing, and FDIC-guaranteed debt to purchase "toxic" real estate assets and securities backed by such assets. The U.S. Treasury has committed to furnish up to $100 billion of capital for the PPIP. As a foreign-owned bank holding company, we and Union Bank will not be authorized to participate in the "Legacy Loan" portion of this program but are eligible to participate in the "Legacy Securities" portion of it.

        On June 17, 2009, the Treasury released a white paper entitled "Financial Regulatory Reform—A New Foundation: Rebuilding Financial Supervision and Regulation" (the Proposal) which outlined the Obama Administration's ambitious plan to extensively reform the U.S. financial regulatory system. If adopted in its entirety, the Proposal will result in wide-ranging changes that will affect every aspect of the financial markets and the financial regulatory landscape. For example, the Proposal would alter or eliminate several of the more significant recent legislative initiatives including the "functional regulation" regime of the Gramm-Leach-Bliley Act of 1999 and the interstate branching approval process of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994. The Obama Administration hopes to sign legislation enacting the provisions of the Proposal by the end of 2009. In July the Obama Administration, through the Treasury, released the text of proposed legislation for various elements of its financial regulatory reform programs. The proposed legislation provided significant detail concerning many segments of the Proposal.

        It cannot be predicted whether these recent governmental actions will result in significant improvement in financial and economic conditions affecting the banking industry and the U.S. economy. If, notwithstanding the federal government's recent fiscal and monetary measures, the U.S. economy were to remain in a recessionary condition for an extended period, this would present additional significant challenges for the U.S.

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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 TARP and may not qualify for participation in future federal programs. While it is difficult to predict how long these conditions will exist and which markets and businesses of our company may be affected, we have been experiencing adverse business conditions and these factors could continue to present risks for some time for the industry and our company.

Difficult market conditions have adversely affected our industry

        Dramatic declines in the housing market in the U.S. in general, and in California in particular, during 2008 and continuing in 2009, with falling home prices and increasing foreclosures, unemployment and under-employment, have negatively impacted the credit performance of mortgage loans and resulted in significant write-downs of asset values by financial institutions, including government-sponsored entities as well as major commercial and investment banks. These write-downs, initially of mortgage-backed securities but spreading to credit default swaps and other derivative and cash securities and, more recently, commercial real estate loans, in turn, have caused many financial institutions to seek additional capital, to merge with larger and stronger institutions and, in some cases, to fail. Reflecting concern about the stability of the financial markets generally and the strength of counterparties, many lenders and institutional investors have reduced or ceased providing funding to borrowers, including to other financial institutions. This market turmoil and tightening of credit have led to an increased level of commercial and consumer delinquencies, lack of consumer confidence, increased market volatility and widespread reduction of business activity generally. The resulting economic pressure on consumers and lack of confidence in the financial markets has adversely affected our business, financial condition and results of operations. We cannot predict whether the difficult conditions in the financial markets are likely to improve in the near future. A worsening of these conditions would likely exacerbate the adverse effects of these difficult market conditions on us and others in the financial institutions industry. In particular, we may face the following risks in connection with these events:

•

We expect to face increased regulation of our industry, including as a result of the EESA and other governmental measures. Compliance with such regulation may increase our costs and limit our ability to pursue business opportunities.

•

Our ability to assess the creditworthiness of our customers and counterparties may be impaired if the models and approaches we use to select, manage, and underwrite our customers and counterparties become less predictive of future behaviors.

•

The process we use to estimate losses inherent in our credit exposure requires difficult, subjective, and complex judgments, including forecasts of economic conditions and how these economic predictions might impair the ability of our borrowers to repay their loans, which may no longer be capable of accurate estimation, which may, in turn, impact the reliability of the process.

•

Our ability to borrow from other financial institutions on favorable terms or at all could be adversely affected by further disruptions in the capital markets or other events, including actions by rating agencies and deteriorating investor expectations.

•

Significant fluctuations in the prices of equity and fixed income securities could adversely impact the revenues of our asset management and trust business. Fees charged are based upon asset values, and declines in values proportionately reduce fees charged.

•

Competition in our industry could intensify as a result of the increasing consolidation of financial services companies in connection with current market conditions.

•

We may be required to incur goodwill impairment losses in future periods. See "Critical Accounting Estimates—Annual Goodwill Impairment Analysis."

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•

On December 16, 2008, the FDIC approved a uniform increase in assessment rates of 7 basis points (annual rate) for the first quarter of 2009, resulting in base annual assessment rates for institutions in Risk Category I of 12 to 14 basis points and in Risk Categories II, III and IV of 17, 35 and 50 basis points, respectively. As described further in the next risk factor below, on February 27, 2009, the Board of Directors of the FDIC voted to amend the restoration plan for the Deposit Insurance Fund; adopt an interim rule imposing an emergency special assessment on insured institutions of 20 basis points on June 30, 2009 (to be collected on September 30, 2009), and permitting the FDIC to impose an emergency special assessment after June 30, 2009, of up to 10 basis points if necessary; implement changes to the risk-based assessment system; and set rates beginning the second quarter of 2009. Banks in Risk Category I will pay initial base assessment rates ranging from 12 to 16 basis points on an annual basis, beginning on April 1, 2009, while the base annual assessment rates for institutions in Risk Categories II, III and IV will be adjusted to 22, 32 and 45 basis points, respectively. As a result, we may be required to pay significantly higher FDIC premiums to restore the reserve ratio of the Deposit Insurance Fund of the FDIC to at least 1.15 percent within seven years as required by the Reform Act and the amended restoration plan. (Please see below for further information on an action and a proposed rule issued by the FDIC in May and September 2009 with respect to the special assessment, the restoration period for the Deposit Insurance Fund, an increase in assessment rates and prepayment of risk-based assessments.) In addition, to the extent that assessments of participants in the Temporary Liquidity Guarantee Program (as described above) are insufficient to cover the expenses or losses arising from the Temporary Liquidity Guarantee Program, the FDIC may impose one or more emergency special assessments on all FDIC-insured depository institutions.

Changes in the premiums payable to the Federal Deposit Insurance Corporation will increase our costs and could adversely affect our business

        Deposits of Union Bank are insured up to statutory limits by the FDIC, and, accordingly, are subjected to deposit insurance assessments to maintain the Deposit Insurance Fund. In November 2006, the FDIC issued a final rule, effective January 1, 2007, that created a new assessment system designed to more closely tie what banks pay for deposit insurance to the risks they pose and adopted a new base schedule of rates that the FDIC can adjust up or down, depending on the revenue needs of the insurance fund. This assessment system resulted in annual assessments on deposits of Union Bank of approximately 5 basis points through 2008. Prior to this change, Union Bank was not paying any insurance assessments on deposits under the FDIC's risk-related assessment system. An FDIC credit for prior contributions offset the assessment for 2007 and part of 2008. Since this credit was exceeded in the second quarter of 2008, the deposit insurance assessments Union Bank pays have increased our costs.

        As a result of recent and significant bank failures, the FDIC determined that the reserve ratio for the Deposit Insurance Fund was 0.76 percent as of September 30, 2008 and 0.40 percent as of December 31, 2008, the lowest reserve ratio for the combined bank and thrift insurance fund since 1993. In accordance with the Reform Act, the FDIC must establish and implement a plan within 90 days to restore the reserve ratio to 1.15 percent within five years (subject to extension due to extraordinary circumstances). For the quarter beginning January 1, 2009, the FDIC has raised the base annual assessment rate for institutions in Risk Category I to between 12 to 14 basis points and in Risk Categories II, III and IV to 17, 35 and 50 basis points, respectively. An institution's assessment rate could be lowered by as much as two basis points based on the ratio of its long-term unsecured debt to deposits or, for smaller institutions, by the ratio of its Tier 1 capital in excess of 15 percent to deposits. The assessment rate would be adjusted towards the maximum rate for Risk Category I institutions that have a high level of brokered deposits or have experienced higher levels of asset growth (other than through acquisitions) and could be increased by as much as 10 basis points for institutions in Risk Categories II, III and IV whose ratio of brokered deposits to deposits exceeds 10 percent. An institution's base assessment rate would also be increased if an institution's ratio of secured liabilities (including Federal Home Loan Bank advances) to deposits exceeds 15 percent. The maximum adjustment for secured liabilities for institutions in Risk Categories I, II, III and IV would be 7, 10, 15 and 22.5 basis points, respectively.

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        On February 27, 2009, the Board of Directors of the FDIC voted to amend the restoration plan for the Deposit Insurance Fund, adopt an interim rule (subject to comment) imposing an emergency special assessment on insured institutions of 20 basis points on June 30, 2009 (to be collected on September 30, 2009), implement changes to the risk-based assessment system, and set rates beginning the second quarter of 2009. The FDIC extended the restoration plan period to seven years, concluding that the problems facing the financial services sector and the economy at large constitute extraordinary circumstances permitting such extension. The interim rule would also permit the FDIC to impose an emergency special assessment after June 30, 2009, of up to 10 basis points if necessary to maintain public confidence in federal deposit insurance or if the reserve ratio of the Deposit Insurance Fund falls to a level which shall be zero or close to negative at the end of a calendar quarter. The amended restoration plan was accompanied by a final rule that sets assessment rates and makes adjustments designed to improve how the assessment system differentiates for risk. Under the final rule, banks in Risk Category I will pay initial base assessment rates ranging from 12 to 16 basis points on an annual basis, beginning on April 1, 2009, while the base annual assessment rates for institutions in Risk Categories II, III and IV will be adjusted to 22, 32 and 45 basis points, respectively. The final rule provides incentives in the form of a reduction in assessment rates for institutions that hold long-term unsecured debt and provides for increases in the base assessment rates for institutions that rely significantly on brokered deposits or secured liabilities.

        In addition, to the extent that assessments of participants in the Temporary Liquidity Guarantee Program (as described above) are insufficient to cover the expenses or losses arising from the Temporary Liquidity Guarantee Program, the FDIC may impose one or more emergency special assessments on all FDIC-insured depository institutions. Each such special assessment will be computed with reference to the amount by which an insured depository institution's average total assets exceed the sum of the institution's average total tangible equity and average total subordinated debt.

        On May 22, 2009, the Board of Directors of the FDIC voted to levy a special assessment of 5 cents per $100, or 5 basis points, of each insured institution's total assets less Tier 1 capital. The special assessment—a reduction from the original proposed assessment of 20 basis points on the regular assessment base of domestic deposits—is part of the FDIC's efforts to restore the Deposit Insurance Fund. The special assessment was capped at 10 basis points of an institution's domestic deposits so that no institution paid an amount higher than it would have paid under the original proposal. The special assessment was based on each institution's report of condition of June 30, 2009, collected on September 30, 2009, and booked as a second quarter expense for banks. The special assessment was in addition to the regular quarterly risk-based assessment.

        On September 29, 2009, the FDIC issued a proposed rule that would rescind the special assessment imposed by its May 22, 2009 action referred to above, extend the restoration period for the Deposit Insurance Fund from seven to eight years and impose an increase in assessment rates on depository institutions of three basis points in 2011. The proposed rule would also mandate that insured depository institutions prepay their quarterly risk-based assessments to the FDIC for the fourth quarter of 2009 and for all of 2010, 2011, and 2012, on December 30, 2009, when they pay their risk-based deposit insurance assessment for the third quarter of 2009.

        Any increases in the deposit insurance assessments Union Bank pays would further increase our costs.

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

        We are subject to significant federal and state regulation and supervision, which is primarily for the benefit and protection of our customers and the Deposit Insurance Fund and not for the benefit of investors in our securities. In the past, our business has been materially affected by these regulations. This will likely continue in the future. Laws, regulations or policies, including accounting standards and interpretations, currently affecting us and our subsidiaries may change at any time. Regulatory authorities may also change their

96

interpretation of these statutes and regulations. Therefore, our business may be adversely affected by changes in laws, regulations, policies or interpretations or regulatory approaches to compliance and enforcement, as well as by supervisory action or criminal proceedings taken as a result of noncompliance which could result in the imposition of significant civil money penalties or fines. International laws, regulations and policies affecting us, our subsidiaries and the business we conduct may change at any time and affect our business opportunities and competitiveness in these jurisdictions. Due to 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.

        On June 29, 2009, the U.S. Supreme Court ruled that a state may enforce certain of its laws against national banks through judicial enforcement proceedings. This may increase regulation and enforcement actions by states against national banks, including Union Bank.

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

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

        Refer to "Supervision and Regulation" in Item 1 of our 2008 Form 10-K for discussion of other laws and regulations that may affect our business.

Future legislative or regulatory actions responding to perceived financial and market problems could impair our rights against borrowers

        In particular, there have been proposals made by President Obama, members of Congress and others that could reduce the amount distressed borrowers are otherwise contractually obligated to pay under their mortgage loans and limit an institution's ability to foreclose on mortgage collateral. For example, on February 18, 2009, President Obama announced "The Homeowner Affordability and Stability Plan" as part of a plan designed to help up to 7 to 9 million families restructure or refinance their mortgages to avoid foreclosure. On April 28, 2009, the Obama Administration announced additional details of the "Making Home Affordable Program", a comprehensive three-part plan intended to stabilize the U.S. housing market that includes aggressive measures to support low mortgage rates by strengthening confidence in Fannie Mae and Freddie Mac; a Home Affordable Refinance Program, which will provide new access to refinancing for up to 4 to 5 million homeowners; and a Home Affordable Modification Program, which will reduce monthly payments on existing first lien mortgages for up to 3 to 4 million at-risk homeowners. The Administration has also published detailed guidelines for the Home Affordable Modification Program and authorized servicers to begin modifications under the plan immediately. A Second Lien Program coordinates with the first mortgage

97

modification program to lower payments on second liens. Twelve servicers, including the five largest, have now signed contracts and begun modifications under the program. Between loans covered by these servicers and loans owned or securitized by Fannie Mae or Freddie Mac, more than 75 percent of all loans in the country are now covered by the Making Home Affordable Program. The implementation of these proposals, or other proposals limiting our rights as a creditor, could increase our credit losses or increase our expense in pursuing our remedies as a creditor.

Company Factors

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 and increasing portion of our total loan portfolio is related to residential real estate, especially in California. Increases in residential mortgage loan interest rates could have an adverse effect on our operations by depressing new mortgage loan originations, and could negatively impact our title and escrow deposit levels. Additionally, a continued or further downturn in the residential real estate and housing industries in California could have an adverse effect on our operations and the quality of our real estate loan portfolio. Although we do not engage in subprime or negative amortization lending, effects of recent subprime market challenges, combined with the ongoing deterioration in the U.S. and California real estate markets, could result in further price reductions in single family home prices and a lack of liquidity in refinancing markets. These factors could adversely impact the quality of our residential construction and residential mortgage portfolios in various ways, including by 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, is being increasingly adversely impacted by the recessionary environment and lack of liquidity in the financial markets. The home building 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 commercial property values, resulting in higher nonperforming assets and charge offs in this sector. Our commercial and industrial portfolio, and the communications/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 in the commercial real estate and commercial and industrial markets have lead us to take additional provisions against credit losses in these portfolios, as to which we expect a higher level of charge offs during 2009. 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.

Adverse California economic conditions could adversely affect our business

        The State of California currently faces economic and fiscal challenges, the long-term impact of which on the State's economy cannot be predicted with any certainty. A substantial majority of our assets, deposits and fee income are generated in California. As a result, poor economic conditions in California may cause us to incur losses associated with higher default rates and decreased collateral values in our loan portfolio. Economic conditions in California are subject to various uncertainties at this time, including significant deterioration in the residential real estate sector, especially the subprime housing markets, and the California state government's budgetary and fiscal difficulties. Under the budget plan approved by the California Legislature and signed by Governor Arnold Schwarzenegger on February 20, 2009, the State of California will reduce services, increase sales and income taxes and other fees and take other expense reduction measures. In addition, California will fund a portion of the deficit through additional borrowings, which may include revenue anticipation warrants, a relatively high-cost form of financing. However, California voters did not approve ballot

98

measures required to enact the budget during a special election held on May 19, 2009. The rejection of all of the revenue-related ballot measures resulted in budget deficits which were addressed, at least temporarily, in a California State Budget adopted on July 28, 2009.

        On June 25, 2009, the State Controller's Office announced that it would begin to issue IOUs in the form of registered warrants in July as the budget impasse has left the State with insufficient cash. The registered warrants, with an annual interest rate for the IOUs at 3.75% for banks and other financial institutions willing to accept the warrants, are redeemable on October 2, 2009, subject to the availability of funds. Union Bank announced that it would accept the registered warrants from customers until no later than July 10, 2009. On July 24, 2009, the California legislature passed a new budget that Governor Schwarzenegger signed into law on July 28, 2009. This budget provides for significant spending cuts to services, including education and healthcare. The financial and economic consequences of this situation cannot be predicted with any certainty at this time. On August 21, 2009, Union Bank resumed accepting the registered warrants from customers after the legislature and the Governor reached an agreement on a plan to close the state budget deficit. After the agreement was reached the State Controller's Office requested that the issuance of registered warrants end and that redemption would begin on September 4, 2009, a month earlier than originally planned. If the California state government's budgetary and fiscal difficulties continue or economic conditions in California decline further, we expect that our level of problem assets could increase and our prospects for growth could be impaired.

Item 6.   Exhibits

No.		Description
	31.1	Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(1)
	31.2	Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(1)
	32.1	Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002(1)
	32.2	Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002(1)

(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:    November 12, 2009	By:	/s/ MASAAKI TANAKA Masaaki Tanaka President and Chief Executive Officer (Principal Executive Officer)
Date:    November 12, 2009	By:	/s/ DAVID I. MATSON David I. Matson Vice Chairman and Chief Financial Officer (Principal Financial Officer)
Date:    November 12, 2009	By:	/s/ DAVID A. ANDERSON David A. Anderson Executive Vice President and Controller (Chief Accounting Officer)

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EXHIBIT INDEX

No.		Description
	31.1	Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(1)
	31.2	Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(1)
	32.1	Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002(1)
	32.2	Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002(1)

(1)

Filed herewith.

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EX-31.1

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Exhibit 31.1

CERTIFICATION

I, Masaaki Tanaka, certify that:

1.

I have reviewed this quarterly report on Form 10-Q of UnionBanCal Corporation (the "Registrant");



2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;



3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;



4.

The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and we have:



a)

designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;



b)

designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;



c)

evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and



d)

disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter (the Registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting;



5.

The Registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant's auditors and the audit committee of Registrant's board of directors (or persons performing the equivalent functions):



a)

all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and



b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting.

Date: November 12, 2009

By: /s/ MASAAKI TANAKA
Masaaki Tanaka
President and Chief Executive Officer

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Exhibit 31.1

CERTIFICATION

EX-31.2

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Exhibit 31.2

CERTIFICATION

I, David I. Matson, certify that:

1.

I have reviewed this quarterly report on Form 10-Q of UnionBanCal Corporation (the "Registrant");



2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;



3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;



4.

The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and we have:



a)

designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;



b)

designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;



c)

evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and



d)

disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter (the Registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting;



5.

The Registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant's auditors and the audit committee of Registrant's board of directors (or persons performing the equivalent functions):



a)

all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and



b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting.

Date: November 12, 2009

By: /s/ DAVID I. MATSON
David I. Matson
Vice Chairman and Chief Financial Officer

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Exhibit 31.2

CERTIFICATION

EX-32.1

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Exhibit 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with this Quarterly Report of UnionBanCal Corporation (the "Company") on Form 10-Q for the quarter ending September 30, 2009 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Masaaki Tanaka, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

(1)

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and



(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: November 12, 2009

By: /s/ MASAAKI TANAKA
Masaaki Tanaka
Chief Executive Officer

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Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

EX-32.2

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Exhibit 32.2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with this Quarterly Report of UnionBanCal Corporation (the "Company") on Form 10-Q for the quarter ending September 30, 2009 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, David I. Matson, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

(1)

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and



(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: November 12, 2009

By: /s/ DAVID I. MATSON
David I. Matson
Chief Financial Officer

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Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002